Ocean Tomo, LLC v. Jonathan Barney
Filing
458
MEMORANDUM Opinion and Order: Barney may seek attorney's fees pursuant to section 13.18 of the operating agreement. Any bill of costs and/or motion for attorney's fees should be filed in accordance with Federal Rule of Civil Procedure 54. Any bill of costs should include argument as to why the party should be considered a prevailing party. The Court clarifies its findings of fact and conclusions of law 440 to the extent set forth in this opinion and order. Civil case terminated. Signed by the Honorable Thomas M. Durkin on 10/11/2019:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
OCEAN TOMO, LLC,
Plaintiff,
No. 12 C 8450
v.
Judge Thomas M. Durkin
PATENTRATINGS, LLC; and
JONATHAN BARNEY,
Defendants.
MEMORANDUM OPINION AND ORDER
The Court heard testimony in a bench trial held on various days in June and
July 2017, and April 2018. In Defendants’ proposed findings of fact and conclusions
of law, defendant Barney sought indemnification for attorney’s fees under the
operating agreement he was party to with Ocean Tomo. On April 12, 2019, the Court
entered findings of fact and conclusions of law in the case, including in Barney’s favor
on a number of claims Ocean Tomo brought against him. See R. 440 (Ocean Tomo,
LLC v. PatentRatings, LLC, 375 F. Supp. 3d 915 (N.D. Ill. 2019)). The Court withheld
entry of final judgment because the Court required further briefing on the attorney’s
fees issue. In setting a briefing schedule, the Court also granted the parties
permission to use part of their briefing to seek clarification of certain of the Court’s
findings.
After the briefing was submitted, the parties asked the Court to forbear on
deciding the fees and clarification issues while they participated in mediation before
an exceptionally experienced and able mediator. The parties were unable to resolve
the case. This is surprising considering the case’s age and procedural posture, and
the Court’s observation that the parties are intelligent and rational business-people.
The Court can only wonder what continues to motivate the parties to pursue litigation
that appears to have out-lived its business purpose. The Court now addresses the
remaining issues in the case, and will separately enter final judgment.
I.
Fees Under the Operating Agreement
A.
Terms of the Agreement
Barney, a member of Ocean Tomo, seeks attorney’s fees under operating
agreement § 13.18, which is titled “Indemnification.” R. 398-5 at 54 (p. 48). Relevant
to the Court’s analysis of Barney’s claim for fees are the first three subsections (a),
(b), and (c) of § 13.18 (attached as an appendix to this opinion and order). These
subsections address the circumstances under which “any Manager or Member” or
“officer, employee, or agent of the Company” is eligible for indemnification of
attorney’s fees incurred because they were “a party” to any “action or suit . . . by
reason of [their relationship to the Company].”
Subsection (a) provides the terms for indemnification in any action, “other than
an action by or in the right of the Company.” Indemnification under subsection (a) is
available if the person to be indemnified “acted in good faith and in a manner the
[person] reasonably believed to be in, or not opposed to, the best interests of the
Company.” Additionally, the “termination of any action, suit or proceedings by
judgment, order, settlement, conviction or upon plea of nolo contendere or its
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equivalent shall not, of itself create a presumption” against a finding that the person
acted in good faith and the Company’s best interests.
Subsection (b) provides the terms for indemnification in “actions by or in the
right of the company.” Like subsection (a), indemnification is available under
subsection (b) if the person acted in good faith and in the best interests of the
Company. Subsection (b) does not include subsection (a)’s provision against creation
of a presumption. Instead, subsection (b) provides:
that no indemnification shall be made in respect of any
claim, issue or matter as to which the Indemnified Person
shall have been adjudged to be liable for gross negligence
or willful misconduct in the performance of the
Indemnified Person’s duty to the Company, unless, and
only to the extent that, the court in which the action or suit
was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the
circumstances of the case, the Indemnified Person is fairly
and reasonably entitled to indemnity for those expenses as
the court shall deem proper.
Both subsections (a) and (b) provide that the Board must indemnify “Managers
and Members” who satisfy the terms for indemnification, whereas the Board has
discretion to indemnify an “officer, employee, or agent of the Company.” That is,
unless the “officer, employee, or agent of the Company” was successful in defending
the action, in which case indemnification is mandatory under subsection (c).
Subsection (c) does not reference “good faith,” the “best interests of the
Company,” or the other terms for indemnification provided in subsections (a) and (b).
Rather, it simply provides:
To the extent that an Indemnified Person has been
successful, on the merits or otherwise, in the defense of any
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action, suit or proceeding referred to in paragraph (a) or (b)
above, or in defense of any claim, issue or matter therein,
the Indemnified Person shall be indemnified against
expenses (including attorney's fees and costs) actually and
reasonably incurred by the Indemnified Person in
connection therewith.
Barney, of course, was successful on some of the claims Ocean Tomo brought
against him. Ocean Tomo contends, however, that he did not act in good faith. Ocean
Tomo argues further that this makes Barney ineligible for attorney’s fees because
subsection (c)’s reference to the “suits or proceedings referred to” in subsections (a)
and (b) means that even a person who successfully defends an action, and thus is
eligible for indemnification under subsection (c), must also have acted in good faith
and the best interests of the Company to be eligible for indemnification.
The Court finds Ocean Tomo’s argument to be contrary to the plain language
of the contract. Subsection (c) only references subsections (a) and (b) in order to
identify “the suits or proceedings” for which indemnification is available. The good
faith and best interests requirements in subsections (a) and (b) do not describe the
“suits or proceedings” referred to in those subsections. Rather, each subsection
describes a type of suit or proceeding, i.e.: (a) any lawsuit but those brought by the
company; and (b) lawsuits brought by the company. And each subsection then
proceeds to explain the eligibility requirements for indemnification for each type of
lawsuit. For Ocean Tomo’s argument to be correct, subsection (c) would need to have
provided that the person to be indemnified was successful in the lawsuit, in
accordance with the terms provided in subsections (a) and (b)—i.e., good faith, best
interests of the company, etc. But subsection (c) imposes no such requirement.
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Rather, it simply mandates indemnification of attorney’s fees for any person
successful in any lawsuit, whether the broad range of actions described in subsection
(a), or more specifically the actions brought by or in the right of the company
addressed in subsection (b).
Ocean Tomo argues that subsection (c) was not intended to eliminate the good
faith and best interests requirements imposed by subsection (a) and (b). Rather,
Ocean Tomo argues, it is intended “merely [1] to provide the ‘extent’ to which
expenses will be indemnified and [2] [to] remove[] [the] optionality of 13.18(b) with
respect to non-Managers or non-Members who are successful on a claim.” R. 444 at 3.
The Court finds both arguments unavailing.
First, Ocean Tomo mischaracterizes the use of the word “extent” in subsection
(c). Contrary to Ocean Tomo’s argument, the word “extent” does not serve to
distinguish between “expenses” that “will be indemnified” and those that will not.
This is a facially implausible interpretation because subsection (c) does not provide
the means for making such a distinction. Moreover, the purpose of the word “extent”
is clear on its face. It serves to distinguish subsections (a) and (b), which concern
instances when a person to be indemnified loses a lawsuit, from subsection (c) which
operates “to the extent” the person to be indemnified wins a lawsuit. True,
subsections (a) and (b) do not expressly apply to lawsuit-losers. But that is precisely
why the word “extent” is useful in subsection (c). It serves to alert the reader that,
unlike subsection (a) and (b) which concerned lawsuit-losers, subsection (c) concerns
lawsuit-winners.
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Second, subsection (c) does not expressly mention “non-Managers and nonMembers” as Ocean Tomo’s argument implies. If subsection (c) were intended to
simply “remove optionality” with respect to indemnification of “non-Managers and
non-Members,” the Court would expect those categories of persons to be mentioned
in the subsection. Instead, subsection (c) is written to apply universally to all persons
to be indemnified. The subsection must be read to have some meaning for Managers
and Members who already must be indemnified under subsections (a) and (b). As
discussed, the subsection’s meaning for Managers and Members is that they are not
subject to the good faith and best interests requirements in order to receive
indemnification when they win a lawsuit. Therefore, the express terms of § 13.18
provide that Barney is entitled to receive attorney’s fees in this case.
B.
Waiver
Federal Rule of Civil Procedure 54(d)(2) provides that “[a] claim for attorney’s
fees and related nontaxable expenses must be made by motion unless the substantive
law requires those fees to be proved at trial as an element of damages.” Ocean Tomo
argues that fees “sought under a contract,” like the fees Barney seeks here, is “a claim
that must be pled and subject to discovery and trial as to its underlying substantive
elements.” R. 444 at 9 (quoting the Advisory Committee Notes to Rule 54(d)(2)). And
since Barney did not plead a claim for attorney’s fees under § 13.18, Ocean Tomo
argues he has waived that claim.
“What Rule 54(d)(2)(A) requires is that a party seeking legal fees among the
items of damages—for example, fees that were incurred by the plaintiff before the
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litigation begins, as often happens in insurance, defamation, and malicious
prosecution cases—must raise its claim in time for submission to the trier of fact,
which means before the trial rather than after.” Rissman v. Rissman, 229 F.3d 586,
588 (7th Cir. 2000). By contrast, “[f]ees for work done during the case should be sought
after decision, when the prevailing party has been identified and it is possible to
quantify the award.” Id. (emphasis added).
In Rissman, the Seventh Circuit reversed a district court’s denial of attorney’s
fees pursuant to a contractual provision because the defendant failed to seek fees in
a counterclaim. Ocean Tomo argues that this Court should adopt the district court’s
reasoning in Rissman. But as in Rissman, Barney doesn’t seek fees he incurred as
damages prior to litigation. Rather, Barney seeks the fees he incurred defending
against Ocean Tomo’s claims. As in Rissman, Barney did not need to file a
counterclaim to be entitled to seek those fees under Rule 54.
Ocean Tomo argues that Rissman is inapposite because at issue in that case
was “a contractual fee-shifting provision analogous to a statutory provision
traditionally permitted to be raised by motion under the rule.” R. 444 at 10. But the
provision at issue here expressly provides for indemnification of fees to a party that
is “successful, on the merits or otherwise, in the defense of any action.” The Court
does not perceive any material difference between this provision and a traditional
fee-shifting provision. Both concern the shifting of responsibility for fees after a
judgment is entered based on success on the merits.
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Therefore, Barney did not waive his right to seek attorney’s fees under § 13.18
by not pleading a claim for them.
C.
Discovery
Lastly, “Ocean Tomo requests substantial discovery on issues of parol evidence
and good faith,” regarding attorney’s fees “actually and reasonably incurred.” R. 444
at 12. The Court denies this request, because discovery is not necessary or
appropriate. In cases with multiple claims, courts routinely determine what
attorney’s fees are related to particular claims. See Awalt v. Marketti, 2018 WL
2332072, at *4-5 (N.D. Ill. May 23, 2018). Any motion for fees from Barney should
exclude fees not attributable to work for which fees are available under § 13.18, and
should support that analysis with sufficient billing records and other relevant
evidence. Ocean Tomo will have the opportunity in its brief to challenge Barney’s
analysis of indemnifiable fees.
II.
Clarification
Ocean Tomo withheld partnership allocations and distributions from Barney
for violation of the operating agreement because it believed he: (1) competed with
Ocean Tomo for Boeing’s business; (2) interfered with the NTT deal negotiations; and
(3) mishandled his Ocean Tomo-issued laptop. Ocean Tomo brought claims against
Barney in this case based on his alleged interference in NTT deal and mishandling of
his laptop, but did not bring a claim based on the Boeing business. Barney brought a
claim alleging that Ocean Tomo acted in bad faith by withholding Barney’s
partnership allocations and distributions on these bases.
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In the April 12 decision, the Court found against Ocean Tomo on its claims that
Barney improperly interfered in the NTT deal and that he mishandled his laptop.
But the Court also found against Barney on his claim of bad faith, because the Court
found that Ocean Tomo’s claims against Barney were not frivolous.
Other than the bad faith claim, Barney did not make a claim in this case for
return of the withheld dividend allocations and distributions. Notably, he does not
now argue on this request for clarification that he made such a claim in this case.
Rather, Barney asks the Court to enter judgment on his claims for breach of
the operating agreement “without prejudice” so that he can ensure that Ocean Tomo
will “restor[e] to Barney the previously withheld dividend allocations, distributions,
and information inspection rights.” R. 443 at 9. Barney argues further that the
Court’s judgment should be without prejudice because “Barney should not be
precluded from seeking relief, if necessary, through a separate litigation action.” Id.
As stated in the April 12 decision, the Court “expects” that its decisions are a
sufficient basis for Barney to “receive the benefit of his ownership interest in Ocean
Tomo going forward.” R. 440 at 79. But the details of that continuing relationship are
no longer before the Court because the Court has addressed all of the parties’ claims.
The Court will enter judgment with prejudice on the claims before it. Despite
Barney’s request, the preclusive effect of that judgment is not an issue currently
before the Court because there are no undecided claims outstanding before the Court.
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Conclusion
Therefore, Barney may seek attorney’s fees pursuant to § 13.18 of the
operating agreement. Any bill of costs and/or motion for attorney’s fees should be filed
in accordance with Federal Rule of Civil Procedure 54. Any bill of costs should include
argument as to why the party should be considered a prevailing party. In addressing
costs and fees, the parties should work cooperatively and efficiently, as the Court will
not award unreasonable fees and costs related to seeking fees and costs.
The Court amends its findings of fact and conclusions of law relevant to the
issue of prevailing parties as follows. The Court notes that in its April 12 decision it
stated that “the only claims on which the Court found for the complaining party are
Defendants’ related claims for a declaratory judgment that the license agreement and
the supplemental license agreement are terminated.” R. 440 at 81. In reviewing the
pleadings, the Court notes that Count I of Ocean Tomo’s complaint was for a
declaratory judgment that Ocean Tomo did not breach the license agreement by
failing to pay royalties. See R. 176. The Court found that Ocean Tomo did not breach
the license agreement by failing to pay royalties, and so found in Ocean Tomo’s favor
on that claim.
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge
Dated: October 11, 2019
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APPENDIX
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Case: 1:12-cv-08450 Document #: 398-5 Filed: 06/22/18 Page 54 of 63 PageID #:15449
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