Pragmatus Telecom LLC v. Seagate Technology (US) Holdings Inc.

Filing 110

MEMORANDUM OPINION re 95 MOTION for Prevailing Party Fees and Costs and Claim for Damages. Signed by Judge Richard G. Andrews on 9/30/2016. (ksr, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

SEAGATE TECHNOLOGY (US)
HOLDINGS, INC.,
Plaintiff;
v.
SYNTELLECT, INC., F/K/A/ APROPOS
TECHNOLOGY, INC and ENGHOUSE
INTERACTIVE INC.,

Civil Action No. 12-1686-RGA

Defendants.

MEMORANDUM OPINION
Karen Jacobs, Esq., Michael J. Flynn, Esq., Morris, Nichols, Arsht & Tunnell LLP,
Wilmington, DE; Vera M. Elson, Esq. (argued), Anthony J Weibell, Esq. (argued),
Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, CA; Kate P. Mahaffy, Esq.,
Wilson Sonsini Goodrich & Rosati, P.C., Washington, D.C., attorneys for Plaintiff
Seagate Technology (US) Holdings, Inc.

Lauren E. Maguire, Esq., Ashby & Geddes, Wilmington, DE; Douglas C. Northup,
Esq. (argued), Courtney R. Beller, Esq., Fennemore Craig, P.C., Phoenix, AZ;
attorneys for Defendant Enghouse Interactive Inc.

September}, 2016

Presently before the Court is Plaintiff Seagate Technology (US) Holdings,
Inc.'s Claim for Damages and Motion for Prevailing Party Fees and Costs. (D.I. 95).
The motion has been fully briefed. (D.I. 96, 102, 107). The Court heard oral
argument on March 14, 2016. (D.I. 109). For the reasons stated herein, Seagate's
motion is granted.

I.

BACKGROUND
The facts of this case were set forth in the Court's opinion on the parties'

cross motions for summary judgment and are therefore recounted only briefly
below. (D.I. 85); Seagate Tech. Holdings, Inc. v. Syntellect, Inc., 2015 WL 5568619
(D. Del. Sept. 22, 2015).
In 2004 and 2009, Seagate and Enghouse 1 entered into license agreements
that gave Seagate the right to use Enghouse software that was designed to facilitate
live chat services. (D.I. 63-1; D.I. 63-2). The license agreements also contained an
indemnification provision pursuant to which Enghouse agreed to indemnify Seagate
for "any loss, damage, expense, cost (including, but not limited to, any attorney fees
incurred in the enforcement of this indemnity) or liability arising out of, relating to,
or resulting from a claim alleging that the Software or the related services infringe
the intellectual property of a third party." (D.I. 63-1 at 15).

Defendant Enghouse Interactive Inc., formerly known as Syntellect, Inc., acquired Apropos
Technology Inc. in 2005. For the sake of clarity, I refer to Enghouse, Syntellect, and Apropos as
"Enghouse."
1

2

On December 11, 2012, Seagate was sued by Pragmatus Telecom, LLC for
patent infringement (the "Pragmatus Litigation"). (D.I. 1). Pragmatus alleged that
Seagate infringed by providing a live chat service over the internet. (Id. at 2-3). In
February and March of 2013, Seagate requested that Enghouse defend and
indemnify Seagate pursuant to their indemnification agreement. (D.I. 63-7 at 9, 11).
Enghouse refused. (Id. at 13-14). On August 6, 2013, Seagate filed the instant
breach of contract action against Enghouse (the "Enforcement Litigation"). (D.I. 23).
Seagate continued to request that Enghouse defend and indemnify Seagate in the
Pragmatus Litigation, to no avail. (D.I. 63-8 at 2, 4-5). In August 2014, Seagate and
Pragmatus settled the Pragmatus Litigation. (D.I. 43; D.I. 63-8 at 7-20).
I granted Seagate summary judgment against Enghouse on liability on
September 22, 2015. (D.I. 85). Seagate now seeks to recover: (1) contract damages
flowing from Enghouse's breach of its duty to defend and indemnify Seagate in the
Pragmatus Litigation; (2) prevailing party fees and costs from the Enghouse
Litigation under Rule 54(d); and (3) pre- and post-judgment interest on recoverable
damages, fees, and costs. (D.I. 96 at 5, 19; D.I. 107 at 28-33).

II.

ANALYSIS
A.

Pragmatus Litigation Settlement

California law leaves no room for dispute that Enghouse is liable for the
$25,000 settlement Seagate paid to settle the Pragmatus Litigation. The California
Civil Code creates a conclusive presumption that the settlement is recoverable.
Subdivision 5 of§ 2778 reads, "If, after request, the person indemnifying neglects to

3

defend the person indemnified, a recovery against the latter suffered by him in good
faith, is conclusive in his favor against the former."
In both February and March of 2013, Seagate asked Enghouse to defend it
against Pragmatus. Enghouse declined. Enghouse does not dispute Seagate's good
faith in entering into the Pragmatus settlement. Accordingly, Enghouse is liable to
Seagate for the $25,000 paid to settle the Pragmatus litigation.

B.

Pragmatus Litigation Attorney's Fees and Costs

Enghouse is also required to reimburse Seagate for all expenses, including
attorney's fees and costs, incurred litigating against Pragmatus. This obligation is
engendered by both§ 2778(4) and the license agreement.
Section 2778 includes two potentially relevant provisions: subdivisions 3 and
4. Subdivision 3 provides that an indemnity agreement "embraces the costs of
defense" when "incurred in good faith, and in the exercise of a reasonable
discretion." Cal. Civ. Code§ 2778(3). Subdivision 4, however, provides a more
straightforward path to recovery for Seagate.
Subdivision 4 requires an indemnitor "to defend actions or proceedings
brought against the [indemnitee] in respect to the matters embraced by the
indemnity [agreement] .... "§ 2778(4). This duty to defend is triggered when the
indemnitee tenders its request of defense to the indemnitor. Id.
In Crawford v. Weather Shield Manufacturing Inc., the California Supreme
Court made clear that subdivisions 3 and 4 impose distinct obligations on an
indemnitor. 187 P.3d 424, 439 (Cal. 2008). Specifically, the court held that

4

subdivision 4 creates an independent duty to defend stemming from an indemnity
agreement that is "distinct from, and broader than, the duty expressed in
subdivision 3 of the statute to reimburse an indemnitee's defense costs as part of
any indemnity otherwise owed." Id.
Crawford involved an indemnity agreement between J.M. Peters Co., a

general contractor and the indemnitee, and Weather Shield Manufacturing Co., a
subcontractor and the indemnitor. The agreement between the two parties obligated
Weather Shield to indemnify J.M. Peters for liability based on Weather Shield's
negligence. Id. at 428. A jury found that Weather Shield was not negligent and so
had no duty to indemnify J.M. Peters. Id. at 431.
The inquiry, however, did not end there. The contract also included a
provision that obligated Weather Shield to defend J.M. Peters against claims based
on Weather Shield's work. Id. at 427. The court held that this provision, along with
subdivision 4 of§ 2778, imposed on Weather Shield a duty to defend J.M. Peters. Id.
at 442. That duty was breached when Weather Shield refused to take up J.M.
Peters' defense after being requested to do so. Id. at 428 nt. 2, 442. Accordingly, the
court upheld a lower court order requiring Weather Shield to reimburse J.M. Peters
for the expenses it incurred defending itself. Id. at 429, 442.
The indemnitor in Crawford had to reimburse the indemnitee because it
failed to take up the indemnitee's defense after being requested to do so. So too
here.
In Crawford, the duty to defend stemmed not only from an indemnity

5

agreement but also a separate agreement that the indemnitor would defend the
indemnitee. Likewise, the contract between Enghouse and Seagate included both an
indemnity agreement and a distinct agreement that Enghouse would defend
Seagate against claims alleging infringement. (See D.I. 63-1 at 15) ("Supplier will
defend and indemnify and hold harmless the Indemnified Parties .... ").
In Crawford, the indemnitor breached the duty to defend when it refused to
take up the indemnitee's defense. Enghouse too breached its contractual duty.
Seagate tendered its request to Enghouse in both February and March of 2013.
Enghouse declined the request.
In Crawford, the indemnitor was required to reimburse the indemnitee for
expenses incurred defending itself. Enghouse must reimburse Seagate $532,322.17,
the actual attorney's fees and costs Seagate incurred defending itself against
Pragmatus.2

C.

Enforcement Litigation Attorney's Fees and Costs

Seagate requests $1, 719,261.00 in attorney's fees and $49,628.83 in costs
from the Enforcement Litigation. (D.I. 96 at 19). The attorney's fees are based on a

2 Enghouse challenges the amount as being unreasonable. (D.I. 102 at 14-18). This challenge
fails. First, neither the statute nor the contract limits Enghouse's liability to "reasonable" expenses
for its failure to defend after request that it do so. Second, while Seagate's attorney's fees were
substantial, they were not unreasonable.
Seagate was first faced with a settlement demand of $400,000. (D.I. 102-4 at 2). Seagate
spent a relatively equivalent amount getting the settlement down to $25,000. Seagate's purported
interest in settling patent litigation cheaply makes sense. Thus, while the $500,000 in attorney's fees
would likely have been unreasonable had the initial demand been for $25,000, it was reasonable
given the course of the litigation.
Enghouse had not only the opportunity, but the duty, to defend Seagate. Enghouse did not.
Having abandoned Seagate, it is too late to complain about how Seagate handled its own defense.

6

total of 2,423.6 hours. (D.I. 98-1 at 71). Seagate is seeking these damages under the
license agreement and California Civil Code § 1717.
The license agreement between Seagate and Enghouse explicitly provides for
attorney's fees. (See D.I. 63-1 at 15). In fact, the contract's language appears to
contemplate Enghouse's liability for any and all costs incurred in enforcing the
indemnity agreement.
The licensing agreement includes two indemnity provisions. (Id.). The first,
8.1, is a broad indemnity provision that covers personal injury, property damage,
and the like. (Id.). The second, 8.2, is the provision at issue in this suit, addressed
specifically to infringement claims. (Id.). Comparing the two provisions shows the
infringement indemnity's broad scope.
The general indemnity promises to "defend and indemnify," whereas the
infringement indemnity promises to "defend and indemnify and hold harmless."
(Id.). The general indemnity covers "any claims, demands, lawsuits, damages,

liability, judgments and settlements," whereas the infringement indemnity covers
broader categories of costs-"any loss, damage, expense, cost ... or liability .... " (Id.).
Most significantly the general indemnity covers "reasonable attorney's fees,"
whereas the infringement indemnity covers "any attorney's fees incurred in the
enforcement of this indemnity .... " (Id.). In sum, the infringement indemnity at issue
here has broad language supporting a recovery of all fees and costs incurred by
Seagate in enforcing the indemnity.
Section 1717, however, superimposes its own requirements over the

7

particulars of specific contract provisions. See PLCM Grp. v. Drexler, 997 P.2d 511,
515 (Cal. 2000) ("Under its provisions, equitable considerations must prevail over
both the bargaining power of the parties and the technical rules of contractual
construction." (internal quotation marks omitted)); see also Baldwin Builders v.

Coast Plastering Corp., 24 Cal. Rptr. 3d 9, 10-11 (Cal. Ct. App. 2005) (granting
attorney's fees under§ 1717 to a party not the beneficiary of a unilateral attorney's
fees contract provision). One such superimposition is§ 1717's requirement that
courts determine the reasonableness of attorney's fees.3 See PLCM, 997 P.2d at 515
("The history of the statute consistently adheres to the theme of equity in the award
of fees and demonstrates legislative intent to expand the original ambit of the
statute by the addition of provisions allowing the court to determine ... the
reasonableness of the fees to be awarded." (internal quotation marks omitted)); cf.

id. (explaining that§ 1717 was passed to "establish uniform treatment of fee
recoveries").
Under§ 1717(a), the prevailing party is entitled to reasonable attorney's fees.
The statute defines the prevailing party as "the party who recovered a greater relief
in that action on the contract."§ 1717(b)(l). Because I granted summary judgment
for Seagate, Seagate is the prevailing party and is entitled to attorney's fees.
The question then is what reasonable fees are in this case. California law
employs the lodestar method. See Ketchum v. Moses, 17 P.3d 735, 743 (Cal. 2001)

3

The text of§ 171 7 addresses itself to attorney's fees only and so an analysis of the
reasonableness of the costs is unnecessary. Pursuant to my analysis of the contract language, I am
awarding full costs to Seagate. In any event, I find the costs reasonable.

8

(explaining that the lodestar is the default analysis in California for prevailing
party fees); PLCM, 997 P.2d at 518. The goal of the lodestar analysis is to "fix the
fee at the fair market value for the legal services provided" and "anchorO the trial
court's analysis to an objective determination of the value of the attorney's services,
ensuring that the amount awarded is not arbitrary." Ketchum, 17 P.3d at 743.
Creating the lodestar starts with "the time spent and [the] reasonable hourly
compensation." E.g., Serrano v. Priest, 569 P.2d 1303, 1316 n. 23, 1316 (Cal. 1977);

PLCM, 997 P.2d at 518 ("[A] computation of time spent on a case and the
reasonable value of that time is fundamental to a determination of an appropriate
attorneys' fee award."
I will start first with the rate component of calculating the lodestar. "The
reasonable hourly rate is that prevailing in the community for similar work."

PLCM, 997 P.2d at 518. But the question is which community. Seagate argues that
the relevant community is the community where counsel is located. Enghouse
argues that the relevant community is here, where the case was litigated.
"The lodestar figure is calculated using the reasonable rate for comparable
legal services in the local community ...." Nichols v. City of Taft, 66 Cal. Rptr. 3d
680, 687 (Cal. Ct. App. 2007). The locality rule is applicable unless the prevailing
party can show a reason why using local counsel was impracticable, for example, by
showing that local counsel was unavailable or unable to undertake the
representation. Id. at 687-88; Rey v. Madera Unified School Dist., 138 Cal. Rptr. 3d
192, 207 (Cal. Ct. App. 2012). For example, in Rey, litigants in the Central Valley of

9

California hired attorneys from out-of-town. 138 Cal. Rptr. at 207. But the court
insisted that Central Valley rates were the appropriate measure of reasonable fees
because the party had failed to make the threshold showing that hiring local
counsel was impracticable. Id.
Seagate's impracticability argument essentially is that the contract is
governed by complicated California law and could have been litigated in California.
(See D.I. 96 at 16; D.I. 109 at 24, 68-69).

The contract was not, however, litigated in California. It was litigated in
Wilmington, Delaware. I also cannot say that the California legal issues were
particularly complex as they centered primarily on statutory interpretation, a
classic task for attorneys. Seagate has not shown that Wilmington attorneys would
be unable or unwilling to handle the case. Therefore the reasonable hourly rate is
the prevailing rate for a commercial litigator in the Wilmington, Delaware area.
While the occurrence of California law does not necessitate California legal
rates, it does inform the reasonableness of the hours spent. As California lawyers
arguing California law, the hours spent preparing for summary judgment far exceed
reasonable hours. A reasonable Delaware commercial litigator, however, would
have had to spend extra time preparing for a case governed wholly by California
law. Thus the application of Delaware rates will account for much of the excessive
hours spent on the litigation.
Even considering the case through the lens of a Delaware litigator the hours

10

Seagate's attorneys spent on the litigation were excessive in two ways. 4 First, the
hours billed by Seagate's attorneys were top-heavy, involving a disproportionate
amount of partner hours. See Ursic v. Bethlehem Mines, 719 F.2d 670, 677 (3d Cir.
1983) (cited by Britto v. Zep Inc., 2015 WL 5657147, at *12 (Cal. Ct. App. 2015)). In
the Enforcement Litigation, Seagate's attorneys billed 1,820.6 partner hours
compared to only 402.8 associate hours. (D.I. 98-1 at 73). Accordingly, I am reducing
the number of partner hours by 10%.
Second, Seagate's attorneys billed an excessive amount of time on deposition
preparation and summary judgment. During the enforcement litigation, four
depositions of three witnesses were conducted. (D.I. 109 at 52). Yet Seagate seeks
reimbursement for 481. 7 hours to prepare for and conduct those depositions. (D.I.
98-1 at 71). That is an average of about 120 hours per deposition. In my judgment,
those hours are excessive. See PLCM, 997 P.2d at 518 ("The experienced trial judge
is the best judge of the value of professional services rendered in his court .... ")
Similarly, the amount of time spent preparing for summary judgment exceeds
reasonableness. Seagate's attorneys spent over 600 hours drafting two briefs and
preparing for a single argument. (D.I. 98-1 at 71). Consequently, I am reducing the
number of hours awarded on the summary judgment and deposition portions of the
litigation by 10%.5

4

On the one hand, the trial court should not "become enmeshed in a meticulous analysis of
every detailed facet of the professional representation." PLCM, 997 P.2d at 520. On the other, setting
the lodestar requires determining the "hours reasonably expended." E.g., id. at 518.
5

Enghouse presents its own hours billed as proof positive that Seagate's attorneys' hours are
unreasonable. (D.I. 109 at 53). I find this unpersuasive. Litigation budgets are client driven and can
vary based on the client's priorities. Further, Enghouse has experience litigating its liability under

11

"The lodestar figure may be adjusted, based on consideration of factors
specific to the case .... " PLCM, 997 P.2d at 518; Ketchum, 17 P.3d at 745. The figure
may be adjusted up or down. PLCM, 997 P.2d at 518-19. The goal of this
adjustment is to "fix the fee at the fair market value for the legal services provided."

Id at 518. Factors include "the nature of the litigation, the skill required in its
handling, the skill employed, the attention given, the success or failure, and other
circumstances in the case." Id. at 518-19 (quotation omitted).
Significant attention was given, and skill applied, by Seagate's attorneys,
achieving a favorable outcome for Seagate. The litigation, however, related to
statutory interpretation and enforcement of contractual provisions, relatively
ordinary tasks for attorneys not requiring highly-specialized skills. I believe these
factors balance each other out and will not apply a multiplier to the loadstar. Thus I
am awarding Seagate6 the following attorney's fees and costs:
'lllescril>tion ·
Summary Judgment and
Deposition Partner Hours
Summary Judgment and
Deposition Associate Hours
Other Enforcement Litigation
Partner Hours
Other Enforcement Litigation
Associate Hours
Costs

D.

,Rate

:Hnurs

•:,;'

',',

.',

80% of Actual Billed
Prevailing Rate for a
Commercial Litigator
of Comparable
Seniority in Delaware

90% of Actual Billed
90% of Actual Billed
Actual Billed

Actual Billed

Actual Billed

Pre- and Post- Judgment Interest

Seagate requested pre- and post- judgment interest. (D.I. 96 at 15). California

similar indemnity agreements. See So. Cal. Gas Co. v. Syntellect, Inc., 534 F. App'x 637 (9th Cir.
2013).
6 Seagate has diligently documented its hours and its reasons for accruing those hours. (See
D.I. 96 at 14-16; D.I. 98; D.I. 98-1; D.I. 98-2; D.I. 98-3).

12

Civil Code § 3287 applies to this request. California courts favor the issuance of
prejudgment interest. See Gourley v. State Farm Mut. Auto. Ins. Co., 822 P.2d 374,
381 (Cal. 1991) ("It has long been settled that section 3287 should be broadly
interpreted .... "). The goal of§ 3287 is "to provide just compensation to the injured
party for loss of use of money during the prejudgment period." Id. Here, where the
contract breached related particularly to continuing outlays of significant resources,
the purposes of§ 3287 are implicated.
There are two potentially relevant provisions of§ 3287, subdivisions (a) and
(b):
(a) A person who is entitled to recover damages certain, or capable of being
made certain by calculation, and the right to recover which is vested in the
person upon a particular day, is entitled also to recover interest thereon from
that day ....
(b) Every person who is entitled under any judgment to receive damages
based upon a cause of action in contract where the claim was unliquidated,
may also recover interest thereon from a date prior to entry of judgment as
the court may, in its discretion, fix, but in no event earlier than the date the
action was filed.
As I explain, I find that the damages were ascertainable and therefore award
prejudgment interest under§ 3287(a). Alternatively, I would exercise my discretion

under§ 3287(b) to award the same prejudgment interest because the interests of
the statute are served by an award here.
Pragmatus sued Seagate on December 11, 2012. (D.I. 1). On February 27,
2013, Seagate tendered a request to Enghouse for its defense in the Pragmatus
litigation. (D.I. 63-7 at 9). On August 6, 2013, Seagate impleaded Enghouse to
enforce the indemnity agreement. (D.I. 23).

13

Section 3287(a) entitles a party to prejudgment interest on "damages certain,
or capable of being made certain" from the date the entitlement vested. There are
three categories of damages to set prejudgment interest on: (1) the settlement, (2)
any attorney's fees or costs accrued before Seagate tendered its request for defense
to Enghouse, and (3) any attorney's fees and costs accrued after.
Damages are ascertainable when the obligated party has "proximate
knowledge of the amount due." Gourley, 822 P.2d at 381 (quotation omitted). Put
otherwise, damages are ascertainable if "the defendant knows the amount of
damages or could calculate that amount from information reasonably available.

Collins v. City of Los Angeles, 139 Cal. Rptr. 3d 880, 888-89 (Cal. Ct. App. 2012).
For the settlement, the amount of damages were not only ascertainable but
certain on the date it was reached: September 11, 2014. (See D.I. 43). Because
Seagate had already tendered its request for defense to Enghouse, the right to
recover had also vested at that point. Prejudgment interest for the settlement
amount, therefore, vested on the day of settlement.
As of February 27, 2013, Enghouse was on notice of the litigation between
Seagate and Pragmatus. Enghouse has not shown that Seagate was unwilling to
provide cost information and, in fact, Seagate has shown the opposite. (D.I. 98-1 at
39; D.I. 109 at 40). It is not enough that Enghouse contested its liability. Gourley,
822 P.2d at 381. From that date forward, the amount of liability was "reasonably
available" to Enghouse.
Seagate's right to recover from Enghouse vested once Seagate became liable

14

on the attorney's fees and costs. See Cal. Civ. Code § 2778 ("[T]he person
indemnified is entitled to recover upon becoming liable"); cf Trope v. Katz, 902 P.2d
259, 263 (Cal. 1995) (explaining that becoming liable is becoming liable to pay).
Under the indemnity agreement and California law Seagate had a complete right to
recover those costs and fees after tendering a request for defense to Enghouse.
Accordingly, prejudgment interest attaches to any attorney's fees and costs
incurred before February 27, 2013 on that date. Prejudgment interest on attorney's
fees and costs incurred after February 27, 2013 runs from the date that Seagate
was required to pay the fees and costs. Post-judgment interest on the settlement,
fees, and costs is also granted. With this award of pre- and post- judgment interest,
Seagate will be made whole, as if Enghouse had fulfilled its obligations in the first
place. Interest will run at the statutorily prescribed rate of 10% per annum. Cal.
Civ. Code§ 3289(b).
In sum, I am awarding Seagate:
··•..

Pragmatus
Litigation

Enforcement
Litigation

!Bescription

Rate

Hours

;Preiud

Settlement
($25,000)
Fees & Costs
($532,322.17)
Summary Judgment
and Deposition
Partner Hours
Summary Judgment
and Deposition
Associate Hours
Other Enforcement
Litigation
Partner Hours
Other Enforcement
Litigation
Associate Hours
Costs
($49,628.83)

Actual

NIA

10% from settlement date

Actual

Actual

10% from latter of 12/27/13
or invoice due date
10% on converted fees from
invoice due date

1

Prevailing
Rate for a
Commercial
Litigator of
Comparable
Seniority in
Delaware

Actual

15

80%of
Actual
Billed
90% of
Actual
Billed
90% of
Actual
Billed
Actual
Billed
Actual
Billed

·Interest

10% on converted fees from
invoice due date
10% on converted fees from
invoice due date
10% on converted fees from
invoice due date
10% from invoice due date

'

'

Each invoice should be converted to the appropriate rate, reduced by the relevant
multiplier, and then the interest applied.

III.

CONCLUSION
For the reasons stated herein, Seagate's motion is granted. The parties are

directed to submit a joint form of judgment consistent with this opinion no later
than October 14, 2016. A separate order consistent with this Memorandum Opinion
will follow.

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