AMBAC Assurance Corporation v. Adelanto Public Utility Authority
MEMORANDUM OPINION & ORDER: For the reasons stated above, the requested reimbursement for attorneys fees is reduced by $51,276.28. This means that the $1,500,628.80 in fees and expenses that were billed by Patterson Belknap is now $1,4 49,352.52. The Authority also owes $193,186.39 in expenses that were billed by the firm Driven. The Authority owes interest on the Termination Payment in the amount of $1,097,227.08 plus $785.42 per day from March 31, 2013. The Author ity also owes interest on the Driven expenses in the amount of $8,237.61 through March 31, 2013 and $33.54 per day thereafter. Finally, the Authority owes interest on the attorneys' fees in the amount of $119,105.67 through March 31, 2013 and at a rate of $251.62 each day after March 31, 2013. The Clerk of Court is directed to close the case. (Signed by Judge John F. Keenan on 8/29/2013) (rsh)
Case 1:09-md-02013-PAC Document 57
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES DISTRICT COURT
AMBAC ASSURANCE CORPORATION,
SOUTHERN DISTRICT OF NEW YORK
In re FANNIE MAE 2008 SECURITIES
ADELANTO PUBLIC UTILITY AUTHORITY, :
Filed 09/30/10 Page 1 of 45
DOC #: _________________
DATE FILED: Aug. 29, 2013
08 Civ. 7831 (PAC)
09 Civ. 5087
09 MD 2013 (PAC) (JFK)
OPINION & ORDER
OPINION & ORDER
JOHN F. KEENAN, United States District Judge:
HONORABLE PAUL A. CROTTY, United States District Judge:
Before the Court is Plaintiff Ambac Assurance Corporation’s
(“Ambac” or “Plaintiff”) request for reimbursement of attorneys’
The early years of this decade saw a boom in home financing which was fueled, among
fees and expenses. In an Opinion and Order dated January 11,
other things, by low interest rates and lax credit conditions. New lending instruments, such as
2013, the Court granted Plaintiff’s motion for summary judgment
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
as to liability and damages on its claim for reimbursement, and
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
as to liability on its claims for specific performance and
assumption that the market would continue to rise and that refinancing options would always be
reimbursement of expenses. The Court further held that “Ambac
available in the future. Lending discipline was lacking in the system. Mortgage originators did
is thus entitled to summary judgment as to liability, with the
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
amount to be determined in later proceedings.” Id. Unable to
originators sold their loans into the secondary mortgage market, often as securitized packages
reach a resolution on damages, Defendant, Adelanto Public
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
Utility Authority (“Defendant” or “Authority”), and Ambac
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
briefed the issue of attorneys’ fees and the Court held a
and home prices began to fall. In light of the changing housing market, banks modified their
hearing on August 23, 2013.
lending practices and became unwilling to refinance home mortgages without refinancing.
The Court presumes familiarity with the facts, as set forth
Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
in the summary purposes of this opinion. SeeinAmbac Assurance Corp. true.
dated June 22, 2009. For judgment Motion, all allegations the Amended Complaint are taken as v.
Adelanto Pub. Util. Auth., No. 09 Civ. 5087, 2013 WL 139557
(S.D.N.Y. Jan. 11, 2013).
In granting summary judgment for
Ambac, the Court found the agreement at issue was enforceable,
including the following obligation assumed by the Authority:
To reimburse [Ambac] immediately and unconditionally upon
demand for all reasonable expenses incurred by [Ambac] in
connection with the enforcement by [Ambac] of the
[Authority’s] obligations under this Agreement, including,
but not limited to, fees (including professional fees),
costs and expenses incurred by [Ambac] which are related
to, or resulting from any breach by the [Authority] of its
Id. at *7.
Ambac seeks an award of $1,693,815.19 for attorneys’ fees
and expenses it paid to Patterson Belknap Webb & Tyler
(“Patterson Belknap”) between February 27, 2009 and December 31,
This sum includes: (1) $1,500,628.80 in fees and expenses
billed by Patterson Belknap, and (2) $193,186.39 in expenses
billed by an outside vendor, Driven, which maintained an ediscovery database.
The Authority does not question the reasonableness of
Patterson Belknap’s hourly rates, but rather objects to the
“generally excessive hours on matters throughout the case.”
Authority hired an expert on New York attorney’s fees, Judith
Bronsther (“Bronsther”), to evaluate Ambac’s invoices.
declaration to the Court, Bronsther recommends “a reduction of
at least $520,175 in legal fees and $26,705.44 in
The Court will analyze each of Bronsther’s
objections that form the basis for her recommendation.
A. Applicable Law
Because the Court has already determined that Ambac is due
reimbursement and interest from the Authority, the only
remaining inquiry is whether the requested fees are reasonable.
The operative agreement is governed by New York law, so the
Court will apply New York law to the reimbursement request.
In New York, it is well established that “any
attorney . . . who applies for court-ordered compensation . . .
must document the application with contemporaneous time records
. . . specify[ing], for each attorney, the date, the hours
expended, and the nature of the work done.” New York State Ass’n
for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1148 (2d
The Court’s task is to make “a conscientious and
detailed inquiry into the validity of the representations that a
certain number of hours were usefully and reasonably expended.”
Lunday v. City of Albany, 42 F.3d 131, 134 (2d Cir. 1994).
critical inquiry is “whether, at the time the work was
performed, a reasonable attorney would have engaged in similar
time expenditures.” Grant v. Martinez, 973 F.2d 96, 99 (2d Cir.
1992) (citation omitted), cert. denied, 506 U.S. 1053 (1993).
Additionally, if a court finds that claimed hours are
“excessive, redundant, or otherwise unnecessary,” it should
exclude those hours from its calculation. Hensley v. Eckerhart,
461 U.S. at 434.
However, the Supreme Court noted in Hensley
that “[t]here is no precise rule or formula for making these
determinations.” 461 U.S. at 436.
Finally, the party seeking
fees bears the burden of establishing that the number of hours
for which compensation is sought is reasonable. Cruz v. Local
Union No. 3 of Int’l Bhd. of Elec. Workers, 34 F.3d 1148, 1160
(2d Cir. 1994).
Patterson Belknap has submitted a plethora of records
detailing its work over this four-year litigation.
inception in 2009, the filings made by Patterson Belknap have
included an answer to the amended complaint, two motions to
dismiss, and cross motions for summary judgment.
discovery lasted for months and involved a series of motions for
protective orders, which were also briefed.
i. “High Minimum Increments”
The Authority first objects to Patterson Belknap’s bill on
the grounds that some of the attorneys billed in increments of
thirty minutes, rather than the generally accepted quarter-hour
For this, the Authority argues, the Court should
cut the fee across the board by twenty percent.
This objection is without merit, as the Authority has
misinterpreted the billing increments.
At some points in the
invoices, a biller’s time entry may be in a half-hour block, but
at other times, it is in fifteen or twenty minute increments.
This supports the conclusion that the timekeeping was accurate,
but that some billers happened to do work primarily or
exclusively in thirty minute increments.
ii. “Block Billing”, Duplicative Work
The Authority next suggests that the time entries reflect
“block billing,” which “commingle activities and improperly
group together several activities and improperly group together
The Authority says this practice impedes
its ability to evaluate the fee request.
This Court has held that “itemization of billing entries is
not required, so long as the different tasks which have been
lumped together are compensable at the same rate.” Hutchinson v.
McCabee, 95 Civ. 5449, 2001 U.S. Dist. LEXIS 11927 (S.D.N.Y.
Aug. 15, 2001) (“Although defendants are correct to some degree
that block billing makes it more difficult for the Court to
determine with precision exactly how much time was spent on each
task, the practice of block billing is not prohibited in this
Since Defendants have not identified any so-called
“lumped” entries in Plaintiff’s application which impermissibly
combine items requiring different rates of payment, the entries
will not be reduced.
iii. “Lack of Detail”
The Authority also objects to reimbursing plaintiff for
certain hours billed by plaintiff’s attorneys because the
descriptions provided for the work performed are “vague.”
Bronsther states that the fee request “suffers from multiple
instances of incomplete, vague, or inconsistent work
descriptions that call into question the number of hours
For this deficiency, Bronsther suggests an across-the-
board reduction of twenty percent.
Next, she concludes that
3,179 hours billed by thirteen attorneys and various other
“timekeepers” (such as paralegals and administrative assistants)
Finally, she asserts that the employees conducted
duplicative work, which should be discounted.
A party seeking attorney’s fees bears the burden of
properly documenting the hours worked, and this obligation is
not satisfied by a vague entry such as “conference with” or
“call to” a particular person.
New York State Ass'n for
Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1148 (2d Cir.
“[A]ny attorney . . . who applies for court-ordered
compensation in this Circuit . . . must document the application
with contemporaneous time records.
These records should
specify, for each attorney, the date, the hours expended, and
the nature of the work done.”
Where time records are submitted
but the information provided is deficient, Courts have reduced
the ultimate award by a percentage. See, e.g., United States
Football League v. National Football League, 887 F.2d 408, 415
(2d Cir. 1989).
The Supreme Court has added that attorneys are “not
required to record in detail how each minute of [their] time was
expended[, but only to] identify the general subject matter of
[their] time expenditures.” Hensley v. Eckerhart, 461 U.S. at
Moreover, “the specificity required for a particular
entry is directly proportional to the amount of time billed in
that entry.” Pascutti v. N.Y. Yankees, 108 F. Supp. 2d 258, 270
Plaintiff’s counsel’s application consists of an
affirmation for attorneys’ fees by David W. Dykhouse, Esq.,
including an itemized list of billable hours expended. The
itemized list indicates, in three columns, the date of the
billable activity, a brief description of the activity and the
hours expended on that activity.
Almost all the entries “state the general subject matter”
of the time spent, which satisfies the standard under Henley.
Two individuals who apparently helped with discovery, however,
have not entered sufficient detail to meet the standard.
Entries by Jill-Ann Medlow and Juan Alvarez, listed on pages 2728 of the Bronsther Declaration, include vague descriptions such
as “prepare document collection for attorney review,” and
“continue review of documents for production.”
does not convey any information about their work, much less
describe the subject matter.
Thus, the Court will reduce the
fee attributed to the above statements by twenty percent.
Juan Alvarez’s rate is $146 per hour, and the entries that
are being reduced constitute 60.6 hours.
Therefore, the initial
bill of $8,847.60 is reduced by $1,769.52 to $7,078.08.
Ann Medlow’s rate is $228 per hour, and 43.6 of her hours are
being reduced, bringing the initial fee of $9,940.80 down
$1,988.16 to $7,952.64.
Similarly, entries by David Dykhouse labeled “misc email”
do not convey the general subject matter of the work completed.
The Court does not quarrel with Mr. Dykhouse’s representation at
oral argument that he conducted a great deal of correspondence
over email and that including additional details would have been
a “recordkeeping burden.”
However, to meet the standard in New
York for reimbursement, the entry must convey the subject
matter, which “misc emails” does not.
reduce this fee by twenty percent.
Therefore, the Court will
According to the Bronsther
Declaration, Mr. Dykhouse billed $55,802.62 to “misc email.”
twenty percent discount reduces this figure by $11,160.52, to
The Court rejects the Authority’s contention that the work
is duplicative and excessive.
Although courts have reduced fees
in circumstances “where the attorneys essentially duplicated
each other’s efforts,” see
Kapoor v. Rosenthal, 269 F. Supp. 2d
408, 414-15 (S.D.N.Y. 2003) (disallowing attorney’s fees for
work that was “duplicative and/or excessive”), most of the
disputed work here does not appear to be duplicative or
In fact, it is commonplace for a junior lawyer to
draft a document that is then reviewed and edited by a senior
This practice is cost-efficient since it limits the
amount of time expended by more senior attorneys with higher
It is also customary for routine tasks to be
completed by lower-level (and therefore cheaper) personnel.
iv. “Inconsistent Internal Meetings”
Next, Defendant takes issue with the fact that, in some
instances, one timekeeper reported an internal conference with
another lawyer in the firm, yet the other lawyer does not have
an entry for the meeting.
Ambac proffers that this shows merely
“superficial” differences in timekeeping practices.
lawyers and paralegals specifically describe a “meeting,” while
others choose to describe only the work done at that meeting.
This explanation is more than satisfactory, and the Court notes
that if only one attendee of a meeting made a time entry for it,
then Adelanto may actually have saved money.
v. “Preemptive” Discovery Work
Defendant also takes issue with entries for discovery work
that was billed prior to the Authority’s serving of its first
Ambac responds that since the Magistrate
only permitted three months for discovery, Patterson Belknap
immediately “set about identifying the Ambac custodians likely
to have documents relating to the Authority’s affirmative
defenses and then collecting those documents.
Authority served its document requests, Ambac was able to
promptly review the documents it had been collecting.”
a cost-efficient practice and the Court sees no reason to
discount the fee simply because Patterson Belknap did some
vi. Online Research
The Authority avers that it should not be forced to pay the
$34,077.08 that was billed for computer research on Lexis and
According to Bronsther, “most law firms absorb such
costs into their overhead and pay a flat rate for such services,
but Ambac [has sought] recovery for an hourly retail rate.”
Patterson Belknap responds that the firm “does not profit from
charges for Lexis and Westlaw” and the fees represent “an
allocated pass-through of the charges Patterson Belknap” paid.
Consistent with authority in this Circuit, the Court finds
that Ambac is entitled to reimbursement for the electronic legal
research costs, since Patterson Belknap represented at oral
argument that it regularly charges its clients for this cost.
See Arbor Hill Concerned Citizens Neighborhood Ass’n v. County
of Albany, 369 F.3d 91, 98 (2d Cir. 2004), superseded and
amended on other grounds by 522 F.3d 182 (2d. Cir.2008)). (“We
agree that the use of online research services likely reduces
the number of hours required for an attorney’s manual search,
thereby lowering the lodestar, and that in the context of a feeshifting provision, the charges for such online research may
properly be included in a fee award. If [Defendant] normally
bills its paying clients for the cost of online research
services, that expense should be included in the fee award.”)
vii. Summer Associate’s Work
The Authority contends that it is inappropriate to bill
$5,346.25 ($228/hour for 23.50 hours, with some discounts) for
the work done by a summer associate.
The Court finds that $228
per hour is far too high for a summer associate and will reduce
it to $70 per hour.
See Pannonia Farms, Inc. v. USA Cable, 2006
WL 2872566 at *2 (S.D.N.Y. Oct. 5, 2006), Weil v. Island Savings
Bank, FSB, 188 F. Supp. 2d 265, 268–69 (E.D.N.Y. 2002); see also
Larsen v. JBC Legal Group, P.C., 588 F. Supp. 2d 360 (E.D.N.Y.
Donald Goodson’s fee is reduced to $1,645.00, a discount
The Authority requests a reduction for the 289 hours
($157,546.00) Patterson Belknap billed in defending two 30(b)(6)
depositions and taking one 30(b)(6) deposition, which the
Authority points out totals less than 13 hours of testimony.
Patterson Belknap reminds the Court that the work billed in
connection with the depositions also included Ambac’s motion for
a protective order, which required a significant amount of
Patterson Belknap also notes that having more than
one attorney present at depositions made them more efficient,
because one attorney is able to find documents and exhibits
while the other posits questions.
The Court does not quarrel with the fact that more than one
attorney attended the depositions, but finds that billing 22
hours per hour of deposition testimony is exorbitant and should
The Court will reduce the deposition fee by twenty
percent, or $31,509.20.
The total fee for deposition work is
ix. Motion to Dismiss Counterclaims
The Authority also objects to Ambac’s demand for fees
incurred for opposing the Authority’s counterclaim.
to the Authority, “the premise of Adelanto’s Counter Claim was
that Adelanto should not be forced to pay for Ambac’s alleged
misconduct . . . . This is separate and apart from Ambac’s
request for attorney’s fees based on its role as the surety.”
Under New York law, “where a fee applicant recovers on a
claim subject to a contractual attorney’s fee provision and in
the process litigates a counterclaim on which he must prevail in
order to recover on his claim, then the fee applicant is
entitled to his attorney’s fees for both the claim and the
counterclaim.” Singer v. Shannon & Luchs Co., 670 F. Supp. 1024,
1028 (D. D.C. 1987); see also Towers Charter & Marine Corp. v.
Cadillac Ins. Co., 894 F.2d 516, 525 (2d Cir. 1990) (affirming
contractual award of attorney’s fees to party “required to
defend each action in order to establish its right to recover”);
cf. Burger King, 710 F.2d at 1496-97 (affirming award of fees
incurred developing overlapping issues relevant to both
compensable and non-compensable matters).
In Diamond D Enterprises USA, Inc. v. Steinsvaag, 979 F.2d
14, 18 (2d Cir. 1992), the Second Circuit explained that “the
nature-not the nomenclature-of a claim is controlling.” Id.
Diamond D court noted that the substance of the defendants’
first four counterclaims “was also interposed as affirmative
defenses,” which indicated that the four affirmative defenses
“arose out of the contract and threatened its effective
Where “the substance of [the counterclaims
are] also interposed as affirmative defenses,” that further
indicates the relatedness of the claims and counterclaims. Id.
Such is the case here.
The Authority’s counterclaim
alleged breach of contract, breach of the covenant of good faith
and fair dealing, fraud, unjust enrichment, promissory estoppel,
negligence, and negligent misrepresentation, all premised on
Ambac’s alleged misconduct in losing its “AAA” credit rating.
These counterclaims overlap with some of the thirty affirmative
defenses that were interposed by the Authority (unclean hands,
failure to mitigate, failure to act equitably, and breach of the
covenant of good faith and fair dealing, e.g.).
Work done to
defend against the counterclaim was the same work done to
respond to the affirmative defenses.
Therefore, Ambac should be
reimbursed for the attorney’s fees incurred in defending against
the Authority’s counterclaim.
x. Outside Vendor: Transperfect
Patterson Belknap billed $1,147.63 for “Transperfect
Document Management” but provided no invoice for this service.
Since Plaintiff has not provided an invoice for this service, it
will not be reimbursed. See U.S. Football League, 887 F.2d at
Therefore, the amount of reimbursement of expenses will be
reduced by $1,147.63.
The parties do not contest that Ambac is entitled to
interest on the Termination Payment as well as attorneys’ fees
The Swap Agreement set forth the following
formula for calculating interest:
For purposes of the foregoing, “Insurer Payment Rate” shall
mean . . . the per annum rate of interest, publicly
announced from time to time by JPMorgan Chase Bank, N.A.
(“Chase”) at its principal office in the City of New York,
as its prime base lending rate (“Prime Rate”) (any change
in such Prime Rate to be effective on the date such change
is announced by Chase) plus 3 percent . . . . The Insurer
Payment Rate hall be computed on the basis of the actual
number of days elapsed over a year of 360 days.
Swap Agreement Schedule Part 5.
First, the Court will calculate the interest on the
Termination Payment, which totals $4,524,000 and was paid by
Ambac on June 3, 2009 (Zhang Decl. ¶ 2).
Chase’s Prime Rate has
been 3.25% from December 16, 2008 to present.
insurer payment rate, which is prime plus three percent, is
Applying this rate to the Termination Payment beginning
June 4, 2009 yields interest in the amount of $1,097,227.08
through March 31, 2013, plus $785.42 per day after March 31,
This figure was submitted by Ambac, and the Authority has
not objected to it.
Next, the Court will consider the interest due on fees and
expenses, which is calculated using the same rate as above
For the outside vendor, Driven, Ambac paid a total of
Ambac has calculated that the interest owed
through March 31, 2013 is $8,237.61, plus $33.54 per day after
March 31, 2013.
The Authority does not object to this
calculation and the Court agrees with it.
For the legal fees Ambac paid to Patterson Belknap, the
Court has referred to Exhibit B of the Zhang Declaration.
the various reductions the Court has detailed above require
reducing individual invoices, this will yield reduced interest
calculations for each of those invoices.
The table below
details the invoices affected by the Court’s reductions, the
amount of the reduction, and the new interest calculation:
Adjusted Total interest through 3/31/2013:
From March 31, 2013, the daily interest rate for the adjusted
total fee reimbursement of $1,449,352.52 is $251.62.
For the reasons stated above, the requested reimbursement
for attorneys’ fees is reduced by $51,276.28.
This means that
the $1,500,628.80 in fees and expenses that were billed by
Patterson Belknap is now $1,449,352.52.
The Authority also owes
$193,186.39 in expenses that were billed by the firm Driven.
The Authority owes interest on the Termination Payment in
the amount of $1,097,227.08 plus $785.42 per day from March 31,
The Authority also owes interest on the Driven expenses
The Court deducted the deposition costs from the invoice dated
8/7/2012, which was issued immediately after the three depositions.
in the amount of $8,237.61 through March 31, 2013 and $33.54 per
Finally, the Authority owes interest on the
attorneys' fees in the amount of $119,105.67 through March 31,
2013 and at a rate of $251.62 each day after March 31, 2013.
The Clerk of Court is directed to close the case.
New York, New York
August 29, 2013
States District Judge
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