Exact Software North America, Inc. v. Infocon, Inc.

Filing 397

Corrected Order: Judgment be entered in the amount of $1,200,000, plus accrued interest, in favor of J. Fox DeMoisey, Esq., and against Infocon, Inc. J. Fox DeMoisey shall comply with Local Rule 67.2 (LR Appendix E) to have the funds released from the Clerk of Court. (Order corrected on page 29, paragraph 2, to reflect the correct amount of $1,400,000.). Judge James G. Carr on 4/5/2012. (S,AL)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
Exact Software N.A., Inc.,

Case No. 3:03CV7183

Plaintiff
CORRECTED ORDER

v.
Infocon, Inc.,
Defendant

This is a diversity case which began when plaintiff Exact Software (Exact) sued one of its
“resellers” (i.e., distributors), the defendant Infocon, in Marion County, Ohio, Court of Com
the
mon
Pleas. Asserting an action on a ccount, Exact claimed that Infocon owed it about $147,000 in
unremitted payments from sales of Exact’s software to Infcon’s customers.
Infocon removed the case to this court. It al so counter-claimed for breach of contract and
asserted several affirm ative defenses. Infocon later filed an am ended counter-claim asserting, in
addition to breach of contract, fraud and intentional interference with contract. (Doc. 37).
As discussed below, Exac t and Infocon settled their dispute on March 12, 2007. W

hat

remains, and has lasted the intervening five years, has been proceedings relating to a fee di spute
between Infocon and its original attorney, J. F DeMoisey. Following an evidentiary hearing and
ox
post-hearing briefing, the issues involved in the fee dispute are decisional.
For the reasons that follow, I conclude that DeMoisey is entitled, on the basis of quantum
meruit, to a fee of $1.4 million..
Background
A. Exact/Infocon Litigation

About a year after this case arrived in this courI denied Exact’s m
t,
otion to dismiss Infocon’s
counter-claims. (Doc. 59). For nearly three years thereafter, discovery disputes consumed most of
the time of counsel and this court. See Docs. 73 (10/20/05); 96 (12/23/05); 104 (3/10/06).
Exact’s persistent noncompliance with my ever more stringent orders directing it to provide
discovery had prompted Infocon to file a motion for sanctions. (Doc. 100). This, in turn, led to an
order on June 26, 2006, which stated:
[P]laintiff Exact Software North Am erica shall: By July 31, 2006, compl etely
produce, as requested by Infocon, and do so in verified form as required herein. By
July 14, show cause why it should not be required t o pay the costs and expenses:
a)incurred by Infocon in bringing and brie fing its motion to compel; and b) to be
incurred by both parties in accom plishing the discovery being or dered herein.
Infocon's response shall be filed July 25, 2006, and Exact's reply shall be filed July
31, 2006.
(Doc. 119).
This was followed by an order on August 2, 2006, stating, inter alia:
The June 26th order, followed, as noted therein, a prolonged and protracted period
of discovery disputes, conferences, orders and other di rectives. Throughout that
period, Exact has frequently and repeatedly c ontended that som e or m uch of the
information and m
aterial sought by Infocon doe not exist. Exact has, how
s
ever, never
supported those contentions in a prope r for m a nd m anner; all that Exact has
presented has been the conclusory representations of counsel. In any event, Exact has
persistently and consistently ignored this court’s directives regarding discovery.
*****
If Exact failed to comply with that order, leave shall be granted to Infocon to seek
entry of judgm ent by default as to a ll ma tters in dispute between the parties.
Following further briefing, such request shall be taken under advisement and ruled
on accordingly.
(Doc. 131, at 1-2).
I concluded the August 2d order with a directive:
On subm ission of statem ent of costs, expenses, and a ttorneys' fees incurred by
Infocon in preparing, presenting, and litigating its m
otion to compel, Exact shall pay
such costs, expenses, and fees within twoweeks of the receipt of such statement. In
2

the event Infocon incurs further costs, expeses, and fees relating to discovery in this
n
case, such costs, expenses, and fees sh all be paid by Exact within two weeks of
submission to it of statements of same by Infocon.
(Doc. 131).
Not having complied with prior discovery orders, much less filed anything in compliance
therewith by the July 31st deadline set in the June order, on August 2d (the sam day as the order
2d
e
supra, whi ch wa s docketed first), Exact filed

a pleading entitled “Opposition to Motion for

Inspection Order for Electronic Data and e-Synergy AND REQUEST FOR AN EVIDENTIARY
HEARING.” (Doc. 133). That m otion raised a vari ety of objections to Infocon’s requests for
discovery of electronically stored data and financial and related data. Exact did not explain why it
had not raised some or all those issues earlier.
The following day, after a previously scheduledtelephonic discovery conference, I entered
an order granting leave to Infocon “to file m
otion for entry of default in its favor as to all claim and
s
counter-claims between parties on or before 8/31/06; plaintiff's opposition on or before 9/22/06;
reply on or before 10/2/06.” (Doc. 135).
On Novem ber 17, 2006, bef ore I had adjudicat ed the pending m otion f or def ault, new
counsel filed his appearance for Exact. (Doc. 161). He thereby displaced Ms. Ellen Grasso, Esq.,
who had represented Exact throughout t he pe riod of Exact’s noncom pliance with its discovery
obligations and my orders to it.
Within a week thereafter, Exact’s new counselfiled a motion asking that I stay ruling on the
pending motion for default and set a status confer
ence. (Doc. 163). I held that hearing. Am other
ong
contentions during that session, Exact’s new counsel
asserted that Grasso had not relayed Infocon’s

3

discovery requests to it; moreover, new counsel stated that Grasso had not inform ed Exact of the
pendency of Infocon’s motion for default judgment. In light of these representations, I ordered:
A hearing, at which ESNA [i.e., Exact] shall show cause why its complaint should
not be stricken and dism issed, with pr ejudice, and default entered against it as to
Infocon's counterclaims, is set for Februa 27, 2007, at 8:30 a.m Discovery relating
ry
.
to said hearing to be completed by February 15, 2007. Leave granted to the parties,
if t hey desire, to subm it brief preheari ng statem ents of issues, witnesses, a nd
evidence, and applicable law on or be fore February 23, 2007. ESNA t o reimburse
Infocon for all attorneys' fees, costs, and expenses reasonably incurred by Infocon
in preparing for and participating in theshow cause hearing and related proceedings,
including post-hearing briefing, if any. Pe nding further order, ESNA to r eimburse
Infocon for all attorneys's fees, costs, and expenses relating to further discovery in
this case; leave granted to Infocon to bill ESNA monthly for said reimbursement.
(Doc. 169).
At the request of Exact’s new counsel in a February 6, 2007, Status Report (Doc. 195), I
vacated the February 27, 2007, hearing and reset it for May 1, 2007. (Doc. 197).
In the meantime, at a date not specified inthe record, Exact brought suit against Grasso and
her firm. I understand that Grasso disputed Exact’sclaims of not having kept it inform Sometime
ed.
before f inalization of the Inf ocon/Exact settlem ent, Exact and Grasso (and/or her f ormer f irm)
settled their litigation.1
On February 28, 2007, Infocon and Exact participated in a mediation of their lawsuit. Mr.
Patel, head of Exact’s Dutch operations, and Mr.
Kent, head of Exact’s North Am
erican operations,

There never was a determination of the merits of the Exact-Grasso dispute as to who was
at fault for the failure to com ply with m y orders. Had Exact exonerated i tself by showing its
ignorance and innocence and Grasso’s malfeasance and sole responsibility, it might have avoided
a default. See Pearce v. Apfel, 2000 WL 191841, *3 (6th Cir.) (unpublished disposition) (“dism
issal
is usually inappropriate where the neglect is
solely the fault of the attorney.” (quotingCarter v. City
of Memphis, 636 F.2d 159, 161 (6th Cir. 1980)). In Pearce the court held that the district court’s
dismissal, even in light of counsel’s “dilatory,unprofessional, and inadequate representation,” was
an abuse of discretion vis-a-vis the blameless client. Id.
1

4

attended, along with their attorney, as did D
eMoisey and Inf
ocon’s principals, Deepak Nijhawan and
Robert Hughes. Patel and Kent had to leave fairly shortly after the mediation started. Just before
they did so, Kent and Hughes went to the re

stroom together. W hen they cam e out, Hughes

announced that the case had been settled for $4 m
illion. Patel stated that Nijhawan and Kent would
have to go to Dallas to finalize the settlement.2
On March 2, 2007, DeMoisey met with Nijhawan and Hughes to discuss the approach they
should take while there. They told him they wanted to get $1 million each. Hughes confirmed that
they wanted DeMoisey to get the same amount as and for his fee.
DeMoisey told them that they and he wold have different tax consequences, so that reaching
u
that net amount would mean a different gross amount. That was so, he told Nijhawan and Hughes,
because the funds they receive d would be viewed as the proceeds of an asset sale and taxed at a
capital gains rate. DeMoisey, who would be paying ordinary incomrates on his fee, explained that,
e
for him to r each the denominated $1 million, his share of the gross settlem ent would have to be
higher. DeMoisey also recommended that the settlement include bonuses for Jonathan Breitenstein
(DeMoisey’s associate) and Toledo attorney John Carey, who had also worked on the case.
During the March 2, 2007, m
eeting, DeMoisey wrote out an explanation of the consequences
of the tax implications of the anticipated settlement. (Exh. 72). To accomplish a net of $1 million
to each of the three of them and give something to Breitenstein and Carey as bonuses, DeMoisey
recommended settling for $5.3 or $5.4 million. (Exh .72).

Infocon claims that DeMoisey was unprepared, and had not prepped Nijhawan and Hughes
for the mediation. Assuming that that was so, and if so, that it constituted a lapse in DeMoisey’s
responsibility to his client, the ultimate effect on the current dispute is fairly insubstantial. This is
so, because first Hughes on February 28th and th Nijhawan and Hughes on March 12th decided,
en
contrary to DeMoisey’s advice, to accept $4 million.
2

5

Nijhawan and Hughes were not happy with this proposal. They viewed it as a change in
DeMoisey’s position from expecting one-third of the settlem to receiving som
ent
ething higher. They
were also unhappy with the prospect of paying Breitenstein and Carey more money.
As Paul Newman so famously said in Cool Hand Luke, “What we have here is a failure to
communicate.” This misunderstanding, for which all concerned bear some blame – DeMoisey for
not prom ptly and rectifying the situation, and

Nijhawan and Hughes for not listening to what

DeMoisey was trying to explain, and jum
ping to the conclusion he was acting in bad faith – was the
source of the ensuing fee dispute.3
On March 12, 2007, Nijhawan and Hughes traveled to Dallas, Texas to m eet with Kent.
During that meeting, Nijhawan , Hughes, and Kentagreed to settle their dispute by a paym from
ent
Exact to Infocon of $4 million.4

Infocon claims that DeMoisey made a demand during this meeting for a fee of upwards of
fifty percent of the settlem I disagree, and accep DeMoisey’s explanation for his com
ent.
t
putations.
Given the statement by Hughes that DeMoisey, too, was to get $1 million, those computations are
in accord with that statement.
3

Although there was, as discussed infra, no fee agreement, Hughes admitted that he understood all
along that DeMoisey would receive one-third of settlement. Whether binding on Inofcon or not,
any
Nijhawan, Hughes and DeMoisey understood t hat was what would happen. Indeed, during the
December 13, 2011, hearing, Hughes stated he had alwa been willing to have DeMoisey receive
ys
one-third of any settlement.
Despite the subsequent disclaim ers by Nijhaw an and Hughes, I find tha t they, in fact,
settled the case with Kent on March 12, 2007. W the parties appear to have understood that there
hile
would be some delay in finalizing the tim of the $4 million payment, Nijhawan and Hughes never
ing
expressed any doubt, either at the evidentiary hearing or otherwise that they knew payment in full
would be forthcoming. As of March 12, 2007, this la
wsuit, so far as it involved Infocon and Exact,
was over. Later testimony by Nijhawan and Hughes to the contrary was not truthful.
4

As I noted at the conclusion of the hearing, I f ound Nijhawan, on the whol e, not to be a truthful
witness.
6

In the meantime, Nijhawan and Hughes had, without telling DeMoisey, retained additional
counsel, Peter L. Ostermiller.5 Nijhawan called Ostermiller from the Dallas airport to tell him they
had settled for $4 million.
Two days later, on March 14, 2007, Nijhawan toldDeMoisey that they had settled the case.
He also told him that the settlement, at Exact’s request, would not be effectuated until July.
Four weeks after the March 12th m
eeting in Dallas, Mr. DeMoisey and Exact’s counsel filed
a joint motion to stay proceedings in anticipation reaching a settlem within four m
of
ent
onths. (Doc.
204). I granted that request, and on July 31, 2007, I en
tered an order, which stated: “Parties having
indicated that they have reach ed a settlem ent of all m atters in dispute, it is O RDERED THAT
dismissal entry is due August 31, 2007; and any dispute re. terms of settlement to be submitted to
the Court for final adjudication.” (Doc. 207).6
B. The Fee Dispute
Hughes notified DeMoisey in early August,

2007, wi thout explanation that he was

terminated. DeMoisey promptly and properly filed a notice of charging lien to secure payment of
his attorney’s fee and costs. (Doc. 209). On August 27, 2007, following a pretrial conferenc e on
August 21st, I granted leave to DeMoisey and Carey, who had been active for most of the case, to
withdraw.(Doc. 214).

Neither Nijhawan, Hughes nor Ostermiller told DeMoisey of Ostermiller’s retention. Nor
did Ostermiller appear (or disclose to DeMoiseyhis involvement) in this case until August 21, 2007.
5

I include the phrase, “any dispute re. terms of settlement to be submitted to the Court for
final adjudication” in all orders m emorializing settlem ents where the parties, having reached
agreement on the material terms (here, the amount of payment), state they need additional time to
finalize the terms and conditions oftheir final settlement agreement, mutual releases, etc. Had I been
notified shortly after the March 12th agreement between Hughes, Nijhawan, and Kent, I have no
doubt that the parties would have then agreed to that provision.
6

7

I concluded that I would retain ju risdiction of the fee dispute. (Id.). In addition, I ordered
payment of the settlement proceeds into this cour ’s escrow account. (Doc. 220). Shortly thereafter,
t
I ordered the Clerk to release $2.5 m illion to Infocon, $200,000 to DeMoisey, and $38,408.86 to
Carey (thereby providing full payment to him of his billings to Infocon). (Doc. 232). I later granted
Infocon’s motion to release further funds, therey leaving $1.2 m
b
illion, which was expected to cover
any fee award to DeMoisey. (Doc. 336).
Matters pertaining to the fee dispute proceeded relatively briskly. By March 17, 2008, the
parties conducted discovery and I denied DeMoisey’s motion for summary judgment. (Doc. 268).
Trial was set to occur on January 19, 2009.
In the meantime, on May 28, 2008, Infocon had sued DeMoisey and Carey in the Jefferson
County, Kentucky, Circuit Court. In that suit, Inf ocon sought $5.4 m illion in dam ages from the
attorneys. Believing he had to do so to protect hiinterests, DeMoisey counter-claim for payment
s
ed
of his charging lien. Thus, the issues before m as to the charging lien overlapped with a portion of
e
the issues in the Kentucky malpractice/charging lien case between Infocon and DeMoisey.
This led DeMoisey to file on January 9, 2009,a “Motion to Remand” the fee dispute before
me to the Kentucky court. (Doc. 311). Following a telephone conference, I entered an order on
January 15, 2008, vacating the January 19th trial, c ontinuing the case without further date, and
ordering a later report about the status of the st court malpractice/charging lien case. (Doc. 332).
ate
Thereafter, I ordered the parties to file a status report about that case within two weeks of entry of
final judgment. (Doc. 339).
The judge presiding ove the malpractice/charging lien case dismissed Infocon’s malpractice
r
claim on statute of lim itations grounds. At issue rem ained DeMoisey’s contention that he had a

8

contingency fee agreement with Infocon, and was entitled to one-third of the settlement proceeds.
On August 4, 2010, the state court ruled that thre had been no valid fee agreem between
e
ent
DeMoisey and Infocon. This leftquantum meruit as the measure of the fee to which DeMoisey was
entitled.7 Whereon, DeMoisey desired that this rem aining issue be returned to m e for trial. The
Circuit Judge in Jefferson County agreed, and the case came back on my docket. Thereafter, I set
December 13, 2011, as the date to begin a non-jury hearing.
Witnesses at t he hearing whom DeMoisey called included Hughes, DeMoisey, Carey,
Nijhawan, and two expert witnesses, William Dowling, Esq. and John Fleischaker, Esq.
Infocon called Nijhawan, Hughes, and an expert witness, Geoffrey Stern, Esq.
In general sum, DeMoisey testified about the course of the case from its inception until his
termination and the work he and Breitenstein did on the case. Because he believed the case was on
contingency,8 he did not keep contemporaneous time records. Instead, according to his testimony,

Infocon argues, and I agree, that the finding of no valid fee agreem ent is binding on this
court. I also agree, as do the parties that, as now pr
esently postured, quantum meruit is the
appropriate standard.
7

As noted, there never was a contingency agreem To some extent this resulted from the
ent.
joint expectation early on of Nijhawan, Hughes, and DeMoisey tha t his com pensation for his
services would take the form of a one-third interest in a business (Alocam) which they envisioned
forming after Exact had taken steps which led not onl y to this lawsuit, but also to the need for
Infocon to conduct business differently, if not in an entirely new realm . I also credit DeMoisey’s
testimony that he had prepared a contingent fee
agreement, discussed it w Nijhawan and Hughes,
ith
and believed they had signed the agreement. But all that he could find once the fee dispute erupted
was an unsigned copy of the proposed agreement.
8

Infocon and its expert, Stern, state that this initial business agreem to form and share ownership
ent
of Alocam – which, in the end, produced nothingfor anyone, as Alocam never got beyond its initial
formation – constituted a violation of Kentucky’s professional responsibility code. I r
each no
decision as to whether that is so or not – indeed, I assum e that it is for purpose of this decision.
Nonetheless, such lapse is not material to determ ining the quantum meruit value of DeMoisey’s
services.
9

he and Breitenstein reviewed their records for the period of their representation to try to determ
ine
the approximate number of hours they spent on the case.
According to DeMoisey, that ef fort resulte d in an estim ate – which, he assert ed, wa s
conservative, of 1975.25 hours jointly. DeMoisey said his norm

al billing r ate is $250/hour;

Breitenstein’s, $200/hour.
DeMoisey acknowledged that Hughes had done ex
tensive work preparing discovery requests
and the papers relating to m
otions to compel. While there is no dispute that Hughes did a great deal
of work on discovery-related matters, and that the extent of his work was far more than is typical
for a client to perform, I find that what he did and its extent – as clearly substantial as they were –
were appropriate under the circumstances of this case.9

The record indicates that m of the work Hughes did relative to discovery resulted from
uch
his expertise with com
puters. Familiarity with software and operating system was, given the nature
s
of Infocon’s software reselling and servicing business, Hughes’s bread and butter. It ade sense for
m
him to do the work he did – the results were more apt and thorough.
9

Infocon contends that Hughes did this work because this was an intellectual property, rather than
a contract-related case. I disagree. Infocon pointsto a draft complaint tendered to it by Exact’s new
counsel af ter Novem ber, 2006. That com plaint, according to Inf ocon, would have alleged that
Infocon used Exact’s intellectual property without a uthorization; it also would have sought
substantial damages.
Exact never sought leave to file an amended complaint. Whether I would have allowed it to do so,
given the posture of the litigation at that point – Exact was standing with a noose around its neck
on the trap door of (or, alternatively, riding in a barrel down a cataract toward ) possible default –
is an open question. Thus, this case never was and never becam e anything more than a contractrelated set of claims and counter-claims.
It appears, moreover, that Hughes’s work was directed to obtaining Exact’s elec tronically stored
information, rather than having any relationship to a non-existent intellectual property dispute.
Infocon’s focus on t he so-called intellectual property dispute and/or issues, as they relate to the
extensive work Hughes did or otherwise, is a red herring.
10

DeMoisey also testified about his purpose in preparing the March 2, 2007, summary of his
recommendation about a settlement figure of $5.3 or 5.4 million. (Exh. 72).
Nijhawan and Hughes had earlier bec ome upset when DeMoisey, after receiving $45,000
from Grasso in payment of a sanction which I had ordered, resisted their demand that he split that
award three ways. I find that he was justified in refusing to do so. That amount was as and for the
fees to which DeMoisey was entitled by virtue of the sanctions order. It was his money, which he
earned, and for which Exact compensated him pursuant to my order. It is also money which is not
included in the fee calculation at the conclusion ofthis opinion. It is money for which Infocon, but
for the im position of sanctions, would have been obligated. It never becam e so, and thus is not
entitled to a credit now against the fee it owes DeMoisey.
Nonetheless, DeMoisey’s handling of their dem had created a degree of distrust on their
and
part. This was so, even though he provided $5,000 to them. Infocon characterizes this payment as
an unethical loan from counsel to client. Even if this is an accurate description – something which
I do not decide – it is not a material matter vis-a-vis my quantum meruit analysis.
Following the March 2d m eeting and tax-is sue m emo, a series of em ails disparaging
DeMoisey flowed between Nijhawan and Hughes.

During that period they had also retained

Ostermiller. Though DeMoisey did not learn of th eir intent to term inate him until early August,
2007, I find that they form ed that intent shor tly after the March 2d session. I also find that
concurrently, or shortly thereafter, they also ecided – probably, as I discuss below – on consultation
d
with Ostermiller – to do what they could to challenge DeMoisey’s claimfor a fee. By the time they
traveled to Dallas, they anticipated and were preparing for a fee dispute.

11

Another indication of the intent of Nijhawan and Hughes to challenge, and, if they could,
defeat any claim by DeMoisey for compensation, was their creation of an “escrow” account into
which they would direct Exact to deposit the settle
ment proceeds. Perhaps they believed possession
would be nine-tenths of the law, or that othe
rwise having and using such account would give them
an advantage in any forthcoming disagreement with DeMoisey. In any event, their creation of this
account further shows their desire to keep as m of the settlement proceeds as possible. This was
uch
so, notwithstanding their understanding and prior willingness that DeMoisey would receive onethird of those proceeds.
During the period which began shortly before the trip to Dallas and continuing thereafter,
Ostermiller was the solede facto source of legal counsel for Nijhaw and Hughes. Given the events
an
that unfolded after they retained him, it is quite likely that Osterm iller provided them with legal
advice on how to proceed. Moreover, in view ofthe arguments which Ostermiller’s 148-page posthearing brief m akes against DeMoisey’s March 2d “dem and” for m ore compensation, I fi nd it
probable that he was m
aking many of the same points to Nijhawan and H
ughes between March and
August of 2007 – when his involvement became known to DeMoisey.10
In the m eantime, Nijhawan and Hughes were taking inconsistent positions on how they
purportedly viewed the nature of the settlem ent funds. Because it was most advantageous for tax
purposes, they treated the proceeds as com from a sale of Infocon’s assets i.e., a transfer to Exact
ing
(
of Infocon’s customer base).

I note that Osterm
iller acknowledges having received $213,588.51 in compensation from
Nijhawan and Hughes. (Doc. 392, at 136). He m that disclosure in support of his contention that
ade
his clients are entitled to be reimbursed for the expenses incurred in fighting DeMoisey’s claim of
additional compensation. (Id.).
10

12

During a deposition in the Exact-Grasso litiga
tion, Hughes, however, swore under oath that
the settlement did not involve a sale of assets.11
Dowling’s expert report expressed the view that a valid contingent fee agreement existed.
This, of course has not and cannot besustained. Dowling also provided aquantum meruit analysis.
(Doc. 385-1, at 8-10). It is his opinion that the value of DeMoisey’s services on a quantum meruit
basis is $1.6 million.
The other expert for DeMoisey, Fleischaker, like Dowling an experienced attorney, reached
the same conclusion. (Doc. 185-2). Like Dowling, Fleischaker was a clear, cogent and persuasive
witness.
Infocon’s expert, Stern, though well-known and highly regarded in matters of professional
responsibility, provided less persuasive testim

ony. He was not aware of certain aspects of

DeMoisey’s representation and performance. His emphasis was primarily on what he perceived to
be ethical lapses on DeMoisey’s part.
Of those many listed by Stern, there are two that deserve comment. The first is the lack of
a fee agreement; the second, the initial agreement that DeMoisey’s compensation for his services
in this case would be in the form of a one-third interest in Alocam.
Before turning to those criticisms, I want to mention other concerns: namely, DeMoisey’s
noncompliance with instructions, which became crucial as the relationship was breaking asunder,
to provide: 1) Hughes with copies of correspondence before sending it out, and 2) for Nijhawan’s
and Hughes’s attendance at all conferences with m e. DeMoisey’s lapses as to these instructions

Like the judge in Je fferson County, I find this to be an inconsistency that bears on the
credibility of both Nijhawan and Hughes.
11

13

contributed to a lack of confidence, which, in add
ition to its own injurious effects, helped engender
the distrust which resulted from the March 2d “demand” discussion. Together, these circumstance
helped bring about the ultimate breakdown in the attorney-client relationship.
DeMoisey also could have done a better job of keeping Nijhawan and Hughes up-to-date as
the c ase wa s headed to the anticipated defau lt hearing. They had concerns about why Exact
continued to fail to produce the oft -ordered discovery. The reason for that was sim ple, though
perhaps not immediately apparent to Nijhawan and Hughes – namely, my focus, and thus that of
counsel, was on who was at fault – Exact or Grasso.
During that phase of this case, discovery, which
appears to have been extensive, related exclusi vely to preparation for the February, 2007, show
cause hearing.
That hearing could, moreover, have mooted the need for some, and perhaps most, if not all
the discovery that Exact had not produced (or Grasso had failed to tell Exact it had to produce). If
I entered the extrem and drastic rem of default on Infocon’s counterclaim the only issue would
e
edy
s,
have been Infocon’s damages.
In any event, DeMoisey should and could have done a better job of explaining that to his
clients.12
Now to turn to Stern’s criticism s. It is indisputable that DeMoisey did not have a signed,
valid fee agreement. I find, however, that DeMois y, as time passed, truly believed he had a binding
e
fee agreement. That he did not was his fault, as was the fact that he did not realize that he did not
have a signed engagement agreement.

I note, however, that after the March 12th settlement, Nijhawan and Hughes ignored
DeMoisey’s repeated attempts to communicate with them.
12

14

This grew, I find, out of the circum
stance to which Stern and Infocon point as his other m
ajor
ethical lapse: the understanding early on that, in lieu of other com pensation, he, Nijhawan and
Hughes would become one-third proprietors in Alocam.
Along the way, this venture was abandoned. But it firmly set in the m
had
inds of Hughes and
DeMoisey, at least, an understanding that DeMoisey would receive one-third of the results of the
litigation. As noted, Nijhawan and Hughes thought that DeMoisey’s March 2d se

ttlement

recommendation, based on tax considerations (and atheir commitment the he, like them would net
,
$1 million) was a demand for more than his fair share.
Rather than seeking clarification – or getting one sponte from DeMoisey – Nijhawan and
sua
Hughes retained O
stermiller, got whatever advice hegave (despite his inability, given the tim and
ing
circumstances, to be in a position fully to understand all the pertinent circumstances) and acted on
that advice.13

I find it probable that Nijhawan and Hughes reta Ostermiller, at the latest, shortly after
ined
the March 2d session with DeMoisey and closer to th date than March 12th, the date ofthe trip to
at
Dallas, which included a call from Nijhawan to Ostermiller from Dallas airport.
13

Moreover, whatever advice Osterm
iller gave his newclient was, in all likeihood, without the benefit
l
of a thorough review and understanding of all the pertinent facts. It was taking months for a cadre
of attorneys in a large, highly regarded C leveland law f irm to plum b the depths. (Doc. 196).
Whatever sounding pole O stermiller may have used in the short tim e before his clients lef t for
Dallas, it hardly could have given accurate readings or charted the best course to take.
Regardless of when Nijhawan and Hughes retain ed Ostermiller, Ostermiller’s failure to contact
DeMoisey shortly thereaft er wa s not only unprofessi onal, but also directly contributed to the
hardening, prolongation and expense of the nascent fee dispute between DeMoisey and Infocon. I
have little doubt that, had Osterm iller done the right thing, both to his clie nts and a prof essional
colleague, and called DeMoisey, things would have worked out much better for all concerned. At
worst, he would have alerted DeMoisey to their
clients’ distrust and concerns, and given DeMoisey
a chance to re-establish the attorney-client relationship and go forward from
there. At best, he could,
once DeMoisey explained his actions and advice, have sought to mediate the situation. Instead, he
caused a smoldering, but probably extinguishable problem to blaze up and burn for the ne xt five
15

As a result, they agreed, without the benefit of counsel’s involvem ent and assistance, to a
settlement which short-changed them. In other words, I f it more likely than not that they would
ind
have obtained a settlem ent of at least $5.3 m illion had they fol lowed DeMoi sey’s advice and
negotiated toward that figure.
I make this finding in light of the circum
stances as Exact would, or should have seen them
.
Facing Exact was a judge clearly troubled by its utter failure to have responded to a series of evermore strident and stringent orders. I had set in

m otion a process l eading to a possible default

judgment which would have exposed Exact to poten
tially major damages. Had that process ripened,
the only question would have been how much – the why and who would have been irrelevant.
The testimony at the December, 2011, hearing indicated that Exact was using the proceeds
of its settlement with Grasso and her form firm to fund the settlem with Nijhawan and Hughes.
er
ent
If so, then the actual price to Exact of paying $5.3 million would have been less than it otherwise
appeared. I have little doubt that, had Exact been pushed, it would have been willing to get to that
figure to get itself safely out of the noose and off the trap door (or safely out of the barrel and to
shore).
For that reason, I find that Nijhawan and Hughes – for whatever reasons, and ignoring
DeMoisey’s advice – short-changed them selves by going to Dallas – eve

n wi th DeMoisey’s

concurrence. Like Ostermiller, perhaps he, too shoul have seen the dangers in letting his clients do
d
so. But he did not know of the presence of a sec nd attorney, or the possibility that his clients were
o
getting another opinion and other advice.

years. The losses to all but Ostermiller himself – who has thus far received more from Nijhawan
and Hughes in fees than he claim s DeMoisey should receive – are apparent in the sc orched earth
visible in the record before me.
16

Having short-changed them selves, wittingly or not, Nijhawan and Hughes, now be

ing

counseled by Ostermiller, decided to try to shor t-change DeMoisey. This opinion and order deal
with the consequences of that effort.
Finally, I find that, contrary to Infocon’s contentions, DeMoisey did not abandon Infocon
and Nijhawan and Hughes. By hindsight, his repres ntation can be somewhat faulted. But those, in
e
this case, are unprofessional failings, not incompetence. They may justify diminishing his fee. But
they do not call for the forfeiture which Infocon seeks.
Perhaps most troubling among these few lapses isthe lack of a fee agreem But I find, for
ent.
the reasons stated above, that all concerned had a common understanding which grew out of the
initial agreement to create and join own Alocam. A one-third split wa the shared lodestar, at least
tly
s
until Nijhawan and Hughes ret ained Ostermiller. Only thereafter did the lack of a fee agreem ent
become an issue. In m y view, the absence of

a fee agreem ent is a pretext for challenging

DeMoisey’s charging lien.
That being so, the lack of a fee a greement plays only a m inor role in my quantum meruit
computations.
The same is true with regard to the initial anticipation that DeMoisey’s com
pensation for his
services in this suit would be his one-third interet in Alocam. Whether ethically proper or not, that
s
circumstance adversely a ffected neither Infoc on, Nijhawan nor Hughes. Things could well have
been different had Alocam thrived, and DeMoisey was demanding his one-third interest. But that
did not happen, and Alocam died aborning. As a result, whatever ethic al improprieties may have
accompanied its conception are not relevant to my quantum meruit analysis.
2. Discussion

17

A. Quantum Meruit Elements and Factors
and Their Application
Under Kentucky law, on which the parties bastheir arguments, “when an attorney em
e
ployed
under a contingency fee contract is discharged w
ithout cause before completion of the contract, he
or she is entitled to f ee recove ry on a quantum meruit basis only, and not on the terms of the
contract.” Baker v. Shapero, 203 S.W.3d 697, 699 (Ky. 2006). A lawyer can recover on a
quantum
meruit basis where, as here, he does not have an enforceable contract with his client. Id.14
The predicate elements of any quantum meruit claim in Kentucky are:
1. Valuable services were rendered, or materials furnished;
2. To the person from whom recovery is sought;
3. Which services were accepted by that person, or a t least were received by that
person, or were rendered with the knowledge and consent of that person; and
4. Under such circum stances as reasonabl y notif ied the person that the plaintif f
expected to be paid by that person.
Quadrille Bus. Sys. v. Kentucky Cattlemen's Ass’n, 242 S.W.3d 359, 366 (Ky. App. 2007) (quoting
66 Am.Jur.2d Restitution and Implied Contracts § 38 (2001)).
I conclude that DeMoisey has established each of these elem
ents. His services were valuable:
he beat back a c laim for $147,000 dam ages by a m ajor international corporation, and laid the
groundwork for his clients to receive $4 m illion from that corporation. Infocon accepted those
services and consented to them– until it discharg DeMoisey. Finally, Inf con was aware f om the
ed
o
r
outset that it would be paying for DeMoisey’s services.

Where the client discharges an attorneyfor cause, the lawyer is entitled to no ee. Cooper,
f
surpa, 2007 WL 1201651 at *2. There appears to be no dispute that DeMoisey is entitled to some
fee. Thus, Infocon does not appear to contend that it discharged DeMoisey for cause. Even if it is
claiming good cause for discharging DeMoisey, I find that no such cause existed, and it fired him
without cause.
14

18

This leaves the central – indeed only real – question in this case: what is the reasonable
amount DeMoisey should receive?
To determine a reasonable fee on aquantum meruit basis, Kentucky law instructs a court to
consider:
(1) The time and labor required, the novelty and difficulty of the questions involved
and the skill requisite to perform the legal service properly;
(2) The likelihood that the acceptance of the par ticular employment will preclude
other employment by the lawyer;
(3) The fee customarily charged in the locality for similar legal services;
(4) The amount involved and the results obtained;
(5) The time limitations imposed by the client or by the circumstances;
(6) The nature and length of the professional relationship with the client;
(7) The experience, reputation, and ability of the lawyer or lawyers performing the
services; and
(8) Whether the fee is fixed or contingent.
Ky S. Ct. R. 3:130-1, 1.5(a).
1. Time and Labor; Novelty and Difficulty;
Skill Required.
A. Time
As noted, I credit DeMoisey’s testimony, based on his “reconstructed” time sheets, that he
and his associated performed at least 1947.25 hours of service during the four years they were on
the case. 15 I also credi t Fleischaker’s expert opinion that the incom plete time sheets which the

I also credit his testim that his estim was conservative. Under all the circum
ony
ate
stances,
it was crucial for DeMoisey that I find his entire
testimony credible. The consequences to himof my
not doing so were potentially very drastic. He was, m oreover, a compellingly persuasive witness
15

19

lawyers actually compiled as they were doing their work (DeMoisey/383 and Breitenstein/1022.4
hours) was “a gross understatement of actual hours worked, which in fact amount to thousands of
hours.” (Doc. 385-2). At trial, Fleischaker testified
that he would not be su
rprised if the hours “were
understated by half.”
I am convinced that DeMoisey and Breitenstein have substantially understated the tim that
e
they actually spent on this case. I find that, at a minimum, the lawyers worked 3,500 - 4,000 hours
during the four years of their involvement.
Infocon focuses a good bit of attention on thedisparity in hours reported for DeMoisey and
Breitenstein. That focus is not as sharp as it may seem. The extent to which DeMoisey’s hours are
under-reported is probably far greater than Breitenstein. DeMoisey be lieved he was working a
contingency, and that understanding led himto be haphazard in keeping track of his tim While not
e.
doing a better job of recording hours is far from
commendable, it is understandable that an attorney
working on such basis would not be as meticulous as an attorney working for an hourly rate.
Breitenstein, on the other hand, was an associate. It is far m ore likely that he would keep
records of his tim e than DeMoisey would. If for no other reason, he would have to account to
DeMoisey for how he was spending his time, including time devoted to this litigation.
In light of the foregoing consideration, which is simply an inference from all the evidence,
I conclude that a fair estimate of DeMoisey’s time would be upwards of forty percent of the total,
and Breitenstein’s around sixty percent. There is no way to be more finite than that.
B. Novelty and Difficulty

throughout both direct and cross-examination.
20

There was nothing particularly novel about thebasic legal issues: com
plaint for accounting,
counter-claim for breach of contract, fraud and intentional interference with contractual relations.
These are all pretty standard stuff for an experienced general practitioner.
As, however, things developed – or, more accurately, did not develop – the case presented
increasing and enduring difficulties. These were

almost, if not exclusively the resul

t of the

Exact/Grasso failure to comply with multiple discovery orders. During my time on the bench since
1979 I have handled innum erable discovery disput es. Without question none ever presented the
problems that this case presented.
Though the legal issues relating to fraud are not
particularly difficult to grasp, proof of fraud
allegations is usually difficult. Indeed, proving fr aud is one of the m ost difficult of any t rial
attorney’s chores. I agree completely with Dowling that no lawyer, or certainly no sensible lawyer
would take on a fraud case on any other basis than a contingency.
Moreover, whi le never easy, efforts to prove fraud becom e substantially m ore difficult
without access to the opponent’s files. W hich means, in this era, em ails and other electronically
stored information. Given the elements of Infocon’s counter-claim – among them Exact’s intent –
Exact/Grasso, by so thoroughly stymieing discovery, greatly enhanced the difficulties in the case.
I eschew motions to compel, unless, after efforts at informal judicial resolution have failed,
I grant leave to a party to file such m
otion. In this case the frequency and redundancy of unresolved
discovery issues and ignored orders no doubt were as disruptive and frustrating for DeMoisey as
they were, in time, baffling to Nijhawan and Hughes.
On the other hand, once the c ase moved into th e realm of possible default, its degree of
difficulty lessened – at least for the tim

e being – significa ntly. That also opened the way to

21

settlement, as whatever Exact m have believedbeforehand, the direction changed drastically once
ay
the risk of across-the-board default becam e manifest. At the end, DeMoisey did not have to put
Infocon’s fraud claim to its proof.
This case also had a certain elem of David and Goliath. Exact appeared willing to pay ar
ent
f
more for defense to its lawyers (and to switch them at will) than in tri bute to Infocon. While no
litigant has inexhaustible resources, in this case the imbalance of resources, and thus stamina for a
long haul, greatly favored Exact. It had, moreover, taken steps to enhance its own business at the
expense of Infocon’s, whose existence was threatened. These circum
stances added to the dificulties
f
confronting DeMoisey and Infocon.
I disagree, as m entioned above, with Infocon’s contention that this was an intellectual
property case. It was not. DeMoisey was not out of hi depth in this m
s
atter, even if he was swamped
with discovery-related problems.
But, for much of DeMoisey’s time on this case, something that looked routine at the outset
became complicated.16 The issue of difficulty supports fee enhancement.
2. Preclusion of Other Employment
DeMoisey testified that he was substantially precluded from taking on other clients and
work. I find this plausible in view of the demands this case made on his time and attention. This is
so, even though Breitenstein m ay have worked m ore hours. Amortizing their joint tim e over the

But for the substantial contribution which Hughes gave to the formulation of discovery
motions and even pleadings, the degree of difficulty for DeMoisey would have been higher, as it
often is for lawyers with little or only m
odest experience with computers and how they create, store,
and retrieve data. If Hughes had not been so e ngaged, it would seem likely that DeMoisey, as he
tried to penetrate the obstacles Exa ct/Grasso were placing in his way, would have had to hire
someone to provide a map through the digital labyrinth to discoverable information.
16

22

four-year span of their work on this case, Breitenste would have spent about half a lawyer’s typical
in
2000 hours/year and DeMoisey around a third or more of his tim e on this litigation. This is a far
from insubstantial commitment of what one has available for others day in and day out.
This case becam e, moreover, a personal crusade, and DeMoisey, regardless of what his
clients cam e to believe, was vigorous i n hi s quest on their behalf. Particularly in light of the
obduracy on the part of Exact/Grasso and unending di
fficulties in procuring essential discovery, the
case had a disruptive im
pact on his schedule. Thisno doubt added to the overall im
pact on his work
for others.
Given my finding that, between the two of themDeMoisey and Breitenstein worked at least
,
3,500 -4,000 hours, they still had a fair, but hardly
unfettered amount time available for other work.
My finding in this regard could have been
more precise and less approxim had DeMoisey
ate
offered evidence as to his other clients, billings, income during this period. Nonetheless, I credit
and
his testimony, and that of Fleischaker, and conclude that the demands of this case had a substantial
effect on the firm’s ability to service other clients.
In any event, this factor favors an enhanced fee.
3. Customary Fee for Similar Services
The record shows that during the period of their representation of Infocon, DeMoisey was
billing $250/hour and Breitenstein $200/hour. It is approprate to apply that rate to the com
i
putation
of the reasonable fee in this case. I will apply “blended rate” of $220/hour in m final calculation.
a
y
4. Amount Involved and Results Obtained

23

What started out as a relatively m odest collection action grew to a m ulti-million dollar
lawsuit, and resulted in a $4 m illion settlement. So it is hard plausibly to f ault the outcome. But
Infocon did, bringing a $54 million malpractice action against DeMoisey.
However, as discussed above, I am persuaded that, if Nijhawan and Hughes had followed
DeMoisey’s advice, and aim ed for a higher settlem ent, there is a substantial likelihood t hat they
would have obtained a settlement in the $5.3 million range. That they got less was not DeMoisey’s
fault.
The result DeMoisey achieved was exemplary.
5. Time Limitations
This was a neutral consideration.
6. Nature and Length of Professional Relationship
DeMoisey had represented Infocon in various m atters before he took on its de fense of
Exact’s collection action. There had been until then, and f or a f air while af terwards a good
relationship between him and Infocon and Nijhawan and Hughes.
As problems developed, neither DeMoisey nor Nijhawan or Hughes handled them as well
as well as each of them should. Had Nijhawan and Hughes been more forthright and forthcoming
about their concerns, DeMoisey would have had a better chance to address and resolve them.
On the other hand, the lawyer has the prim duty to see to it that the client is inform and,
ary
ed
to an extent reasonable under the circumstances, satisfied that the lawyer is doing the best he can
to accomplish the client’s objectives. Thus, m ore fault lies with DeMoisey than Infocon for the
deterioration, distrust, and breakdown in the professional relationship.

24

This is particularly true in light of DeM oisey’s unresponsiveness to direct instructions to
have correspondence reviewed and ensure, or at leas try to ensure the attendance of Nijhawan and
t
Hughes at all conferences with me.
It is also true with regard to DeMoisey’s failure to conf irm the existence of a signed f ee
agreement and request that Breitenstein and Care be awarded a bonus in the event Infocon attained
y
his recommended $5.4 million settlement. He should also have been more attentive to Nijhawan’s
and Hughes’s reaction to his decision (albeit appr
opriate) to keep the $45,000 received from
Grasso.
A more responsive lawyer might well have suggested that they talk with other attorneys about the
propriety of what he was doing. DeMoisey should, in any event, have handled that situation more
effectively than the placebo-like payment of a portion of those monies to Nijhawan and Hughes.
Aside from these aspects – which reduce somewhat, but not substantially the overall value
of the services which DeMoisey rendered – I f ind that, on the whole, he acted with diligence and
fidelity to his client’s best interests. But that diligence was not complete, as those lapses indicate.
Balanced against these various circums tances is the devious way in which Nijhawan,
Hughes, and Osterm
iller conducted them
selves. Had Ostermiller, in particular, responded differently
and more professionally, the outcome might well have been different.
I will reduce the ee to which DeMoisey m otherwise be entitled in light ofthe foregoing.
f
ight
7. Experience, Reputation, and Ability
DeMoisey is expe rienced, and the record suggests that he enjoys a good reputation. He
appears, overall, to be an attorney of well above
-average ability. This factor favors fee enhancem
ent.
8. Fixed or Contingent Fee

25

Neither. That’s the origin of what brings ushere. On the other hand, on balance that is m
ore
a pretext for challenging the charging lien than matter of true significance. Until the March 2, 2007
a
meeting to plan f r the trip to Dallas, all concer anticipated that DeMoisey had earned and would
o
ned
receive one-third of the outcome. It was his effort to accomplish what he believed (and I find that
belief to have been in good faith) hi s client wanted – that he and they each net $1 m illion that
created the ever-expanding rift.
B. Fee Earned in Light of Factors in This Case
Were this a fixed fee case, I would, given th hours and customary rates, assess a reasonable
e
fee to be about $750,000.
Infocon’s brief focuses alm ost entirely on m aking DeMoisey’s ove rall com pensation
dependent on computation of hours. I find no support for this cribbed approach under Kentucky law
or general principles of equity in general or quantum meruit in particular.
Declining t o do s o is especially appropriate in this case. Even though there was no fee
agreement, everyone concerned acted as though there was such an agreement. This was so despite
the initial squabble over the $45,000 from Exact/Grasso. It remained so, as Hughes’s testimony at
the hearing makes clear, on into sometime in March, 2007.
Reducing the factors simply to hours expended and rate applied would, moreover, result in
a substantial windfall to Nijhawan and Hughes. As matter of fundamental fairness and equity, that
a
should not occur.
I must, accordingly take the other factors intoaccount in trying to figure out what, under all
the circumstances of this case, is a reasonable fee.

26

The difficulty of the case – especially with regard to how Exact/Grasso com pounded the
problems normally encountered in proving fraud – favors enhancement of the fee. DeMoisey met
those difficulties with tenacity, skill, and effectiveness.
The results were substantial, though less than they might have been. The actual result was
due exclusively to DeMoisey’s dedication and work. That the results were not better is nothing for
which he should be held accountable. For that, Nijhawan and Hughes have to look elsewhere –
beginning in the mi rror. And, perhaps, to Osterm iller. He acted with a considerable lack of
professionalism. I also believe that fair questions can be raised about the competence of his advice
to Nijhawan and Hughes. It seem likely to me that he steered themin one direction when he should
s
have led them in another.
In any event, the results DeMoisey indis

putably m ade possible favor a substantial

enhancement in the fee.
DeMoisey was not precluded entirely from
working on other clients. Hard proof on this issue
was l acking, and consisted m ostly of his subjective assessm ent. On the other hand, where an
attorney commits a third or so of his time over a four-year span to one case and client, his ability to
serve existing and garner new clients will necessarily and unavoidably be restricted. On balance, this
factor justifies an enhancement in his fee, but t o a somewhat lesser extent than some of the other
factors.
His experience, reputation, and ability also favor enhancement.
There are som e aspects of this case which justify m oderating any overall enhancem ent.
Principal among these is the failure to have a conti
ngent fee agreement, or otherwise to confirm the

27

fee arrangement. This led to many problems, including the instant proceedings and Infocon’s suit
in Kentucky.
There was a certain lapse in com munication and failure to realize and respond to the
concerns that this lapse created. DeMoisey ex
acerbated the resultant problems – doubts about what
he was doing and, ultimately distrust – by failing to com with directives to pass correspondence
ply
though Hughes and have him and Nijhawan attend all conferences.
How DeMoisey handled his explanation of his recom mendation for a $5.3 - 5.4 m illion
settlement led alm directly to the final (albeitpostponed) rupture. His suggestion that Breitenstein
ost
and Carey share in the proceeds with bonuses was particularly unwise. It also created thepression
im
that he was displaying an untoward greed as the possibility of settlement became more real.
These considerations, which relate to the ove professionalism of the relationship, justify
rall
a lesser enhancement of the fee than otherwise might be appropriate.17
C. Computation
Taking all the foregoing into account, my computation of a reasonable fee in this case is:
Hours/rate

$750,000

Difficulty, etc.

150,000

Preclusion of Work

300,000

Results obtained

300,000

Professional Relationship

(100,000)

Total:

$1,400,000

This is as far as I can a nd should go with regard to Infocon’s dem ands for a variety of
“offsets.” I otherwise reject entirely those dem
ands as being unwarranted, unrealistic, unsupported
by any foundation in law or equity, and unfair.
17

28

Less prior payment
Amount due:

200,000
$1,200,000

(plus interest that has accrued on the funds on
deposit in the Court’s escrow account)

Conclusion
Assessment of attorneys’ fees, whether in a f
ee-shifting situation, such as with a prevailing
party in a civil rights or other fee-shifting case, is
never easy. There is only so m that a court can
uch
learn – and understand – about the dynam ics. Lists of factors help, but they do l ittle more than
roughly lay out the territory; they do not create a clear roadmap.
Acknowledging these difficulties, thinking about applying the f ctors, and adm
and
a
itting that
the final assessm ent invol ves a t best a m easure of discretion, if not a degree of speculation, I
conclude for the f oregoing reasons that a tota l fee of $1,400,000 is reasonable, less the original
payment of $200,000 to DeMoisey.
It is, accordingly,
ORDERED THAT:
1.

Judgment be entered in the amount of $1,200,000, plus accrued interest, in favor of
J. Fox DeMoisey, Esq., and against Infocon, Inc.; and

2.

J. Fox DeMoisey shall comply with Local Rule 67.2 (LR Appendix E) to have the
funds released from the Clerk of Court.

So ordered.
/s/ James G. Carr
Sr. United States District Judge

29