Team Express Distributing LLC v. Junction Solutions, Inc., et al

Filing 397

REPORT AND RECOMMENDATIONS re 380 Bill of Costs be GRANTED and that Microsoft be awarded $63,333.96 in costs; 387 Motion for Attorney Fees, filed by Microsoft Corp. be GRANTED IN PART and that Microsoft be awarded $1,544,812.09 in attorney's fees. Signed by Judge Richard B. Farrer. (rg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
TEAM EXPRESS DISTRIBUTING LLC,
Plaintiff,
vs.
JUNCTION SOLUTIONS, INC.,
MICROSOFT CORP., and RSM US LLP,
Defendants.

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5:15-CV-00994-DAE

REPORT AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
To the Honorable United States District Judge David A. Ezra:
This Report and Recommendation concerns Microsoft Corp.’s Bill of Costs, Dkt. No.
380, and Motion for Attorneys’ Fees, Dkt. No. 387. Plaintiff Team Express Distributing LLC
filed objections to the bill of costs, Dkt. No. 381, and an opposition to the attorneys’ fees motion,
Dkt. No. 390. Microsoft filed a reply in support of its request for attorneys’ fees. Dkt. No. 391.
The District Court referred these matters for disposition by report and recommendation. See Dkt.
No. 386; Text Order dated Aug. 21, 2019. The parties also submitted two joint advisories on
these topics, after conferring to seek a resolution on some or all of the issues presented. See Dkt.
Nos. 395 & 396. Authority for this recommendation stems from 28 U.S.C. § 636(b)(1)(B).
For the reasons that follow, I recommend that Defendant Microsoft’s Bill of Costs, Dkt.
No. 380, as amended, be GRANTED and that Microsoft be awarded $63,333.96 in costs. I
further recommend that Microsoft’s Motion for Attorneys’ Fees, Dkt. No. 387, be GRANTED
IN PART and that Microsoft be awarded $1,544,812.09 in attorney’s fees.

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Background. Team Express originally filed this case in state court in the fall of 2015
against Junction Solutions, Inc. and Microsoft. Defendants soon removed the case. After
removal, Team Express amended its complaint several times, ultimately seeking over $50
million in lost-profit damages. Team Express asserted various tort claims against Microsoft,
including for fraud and fraudulent inducement, fraudulent misrepresentation and concealment,
negligent misrepresentation, negligence, civil conspiracy, and joint enterprise. Team Express
also sued Microsoft for breach of contract and warranty based on the terms of a licensing
agreement. Also asserted by Team Express against Microsoft were claims for aiding and
abetting, and various theories of Microsoft liability premised on agency principles.
Discovery and pretrial practice ensued. The parties took over 30 depositions of fact
witnesses. Microsoft responded to over 180 written discovery requests. See Dkt. No. 387-1. But
the case narrowed considerably at the summary judgment stage when the Court granted
Microsoft’s motion for summary judgment on Team Express’s tort-related claims. Dkt. No. 299.
The Court also enforced the aforementioned licensing agreement and limited Microsoft’s
potential liability to the $400,000 price paid for the software product underlying the dispute.
A week-long jury trial on the remaining contract claims ensued. The jury ultimately
returned a verdict in favor of Microsoft. The final judgment reflects that Team Express “shall
take nothing on its breach of contract claim against [Microsoft],” and that Microsoft “is awarded
costs of court and shall file a Bill of Costs in accordance with the local rules.” Dkt. No. 379.
Microsoft later filed a motion for attorney’s fees, which utilizes a lodestar method for calculating
the recoverable fees. Dkt. No. 387.
Bill of Costs. Consistent with the Final Judgment, taxable costs are recoverable by
Microsoft pursuant to 28 U.S.C. § 1920, Federal Rule of Civil Procedure 54(d)(1), and Local
Rule CV-54. Section 1920 provides:
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A judge or clerk of any court of the United States may tax as costs the following:
(1) Fees of the clerk and marshal;
(2) Fees for printed or electronically recorded transcripts
necessarily obtained for use in the case;
(3) Fees and disbursements for printing and witnesses;
(4) Fees for exemplification and the costs of making copies of any
materials where the copies are necessarily obtained for use in
the case;
(5) Docket fees under section 1923 of this title;
(6) Compensation of court appointed experts, compensation of
interpreters, and salaries, fees, expenses, and costs of special
interpretation services under section 1828 of this title.
A bill of costs shall be filed in the case and, upon allowance, included in the
judgment or decree.
28 U.S.C. § 1920. There is no dispute that Microsoft is entitled to recover costs; only the
amounts and types of items requested as costs are disputed.
In total, Microsoft requests an amended amount of $63,333.96 in costs. See Dkt. No. 3961 at 15 & n.11. This is a reduction of $6,112.60 from the original request. Id. The currently
requested costs relate to video depositions and transcripts for individuals presented via video at
trial as well as for individuals that Team Express presented live at trial (and some others), and,
finally, for various printing costs. See id. These costs are recoverable.
“Costs related to the taking of depositions and the copying of documents are allowed if
the materials were necessarily obtained for use in the case.” Stearns Airport Equip. Co., Inc. v.
FMC Corp., 170 F.3d 518, 536 (5th Cir. 1999)). “[A] deposition need not be introduced into
evidence at trial in order to be ‘necessarily obtained for use in the case.’” Fogleman v.
ARAMCO, 920 F.2d 278, 285 (5th Cir. 1991). A deposition is necessarily obtained for use in a
case “[i]f, at the time the deposition was taken, a deposition could reasonably be expected to be
used for trial preparation, rather than merely discovery.’” Fogleman, 920 F.2d at 285. Microsoft
explains in its most recent filing that for witnesses presented by video at trial, significant video
footage was used and that print transcripts were required as part of its customary preparations for
use of these materials at trial. See Dkt. No. 396-1. For those witnesses presented by Team
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Express at trial, Microsoft is also entitled to recover costs related to their depositions. In a case
like this, which began as a complex multimillion-dollar dispute and was in that posture when the
video depositions were taken, obtaining video depositions of witnesses who ultimately appeared
live at trial is understandable and reasonable. Even though the videos weren’t used at trial, they
were still used in counsel’s trial preparation, and these costs are reasonable and should be
awarded to Microsoft.
Microsoft’s requested printing costs are also recoverable. Microsoft asserts that the
amount requested is less than one-third of its overall costs of this type. And Microsoft further
explains that these printing costs were necessary to produce materials for use at trial because
Microsoft required copies of exhibits and pleadings to prepare itself and its witnesses for trial,
and was required to provide copies of its exhibits to the Court and trial witnesses. These
requested charges are reasonable considering the complexity of the case and the materials’ use at
trial by counsel, witnesses, and the Court, which made them necessary for the litigation.
Attorney’s Fees. Microsoft requests $1,716,457.88 in attorney’s fees. See Dkt. No. 387 at
Ex. B. There’s no real dispute that Microsoft’s lodestar attorney’s fees associated with defending
against the contract claims are recoverable. At issue is the amount of those fees and what’s
properly included in them, as well as whether fees associated with defending against tort claims
can and should be segregated from fees association with the contract claims. The requested fees
are not reasonably amenable to segregation, if they need to be segregated at all, and the hours
billed sufficiently pass muster, after a small adjustment, as explained next.
The relevant licensing agreement provides, in pertinent part, that the “‘prevailing party
[in litigation] will be entitled to recover its reasonable attorneys’ fees, costs, and other expenses
(including any appeal). ’” Dkt. No. 387 (quoting the licensing agreement). The law of the State
of Washington governs the agreement and the fees issue here. See id. at 4 (discussing this
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undisputed choice-of-law issue). Section 4.84.330 of the Revised Code of Washington provides
that in any action on a contract, where such contract provides for attorneys’ fees and costs, the
prevailing party shall be entitled to reasonable attorneys’ fees. RCW 4.84.330. There’s no
dispute that Microsft is the prevailing party, and (as mentioned) no meaningful dispute that it is
entitled to recover at least some attorney’s fees. The heart of the present dispute involves only
the amount to be recovered. Team Express also raises some procedural objections to Microsoft’s
attorney’s fees request. But these objections don’t in my view warrant disallowing an award of
fees or costs. To the extent Team Express is aggieved by how Microsoft submitted its most
recent briefing on fees and costs, Team Express can address those concerns via objections to this
report and recommendation. As mentioned, I don’t find any procedural irregularities here that
warrant denying fees or costs.
Attorney’s Fees – Segregation. The first substantive issue to address is whether
Microsoft ought to seek recovery of only those fees attributable to defending against Team
Express’s contract claims. Building from the assumption that the fee-shifting provision in the
licensing agreement authorizes recovery of attorney’s fees by the prevailing party in a dispute
about the contract, the parties take issue with whether or not the fees here are capable of being
reasonably segrated between fees incurred for work on contract claims and fees for work on
other claims. Under Washington law, an award of fees “must properly reflect a segregation of the
time spent on issues for which attorney fees are authorized from time spent on other issues.’”
King Cnty. v. Vinci Constr. Grands Projets/Parsons RCI/Frontier-Kemper, 398 P.3d 1093, 1100
(Wash. 2017) (quoting Hume v. Am. Disposal Co., 880 P.2d 988, 997 (Wash. 1994)). But
“[s]egregation of fees is not necessary where ‘the trial court finds the claims to be so related that
no reasonable segregation . . . can be made.’” King Cnty., 398 P.3d at 1100.

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After the Court granted Microsoft’s motion for summary judgment, the fees incurred by
Microsoft going forward related only to its defense against claims sounding in contract. There is
little room for debate that all fees incurred after the summary judgment ruling are therefore
recoverable. This leaves at issue only the amount of such post summary judgment fees, as well as
the issue of segregation as it applies to fees incurred before the summary judgment ruling when
tort claims were still at issue. I take up the second issue, segreagtion, next.
For the attorney’s fees incurred by Microsoft prior to the summary judgment ruling,
Microsoft urges that it has already segregated and excised from its fees request “those fees
related to the small percentage of tasks completed by counsel for Microsoft . . . [that] were
clearly attributable only to Team Express’s tort claims.” Dkt. No. 387 at 6. The remainder of its
requested fees, says Microsft, cannot reasonably be segregated between work on contract claims
and work on tort claims. I agree.
The best places to see the merit of Microsoft’s argument are the Court’s order on
summary judgment and the live complaint. In both places, it is evident that Team Express
brought claims in tort that were inextricably intertwined with the contract. Indeed, tort claims are
hard pressed to proceed in lockstep with contract claims; recoverable tort claims typically should
be premised on duties and obligations outside the contract and seek to recover for injuries apart
from those resulting from an alleged contractual breach. See Dkt. No.299. Here, however, a key
basis for the award of summary judgment in favor of Microsoft on a majority of tort claims
lodged against it was that the claims should have been limited to those sounding in contract. See
id. When Team Express lost that fight on summary judgment, its argument that the tort claims
are severable from the contract claims suffered considerably. See Dkt. No. 299 at 42. The live
complaint bolsters this conclusion. It reflects tort and contract claims that all involve the same
underlying facts and witnesses, whether those claims relate to events before or after the software
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at issue was implimented. Indeed, all of Team Express’s variations of claims for fraud,
negligence, and those involving contractual obligations apparently resulted in the exact same
damage. Team Express chose to plead and litigate its case as a massive complex, intertwined tort
and contract case, and it does not now convincingly argue that the work to defend against the
contract and tort claims is realistically or reasonably separable.
Although the parties don’t argue the point, the dispute about fee segregation may be
beside the point. The licensing agreement’s fee-shifting provision appears to authorize recovery
of attorney’s fees by a prevailing party with respect to any claim “in connection with or arising
out of this agreement or the software.” Dkt. 226-5 at 4 (in ¶ 14(c)). There is case law in
Washington reflecting that “[i]f an action in tort is based on a contract containing an attorney fee
provision, the prevailing party is entitled to attorney fees.” Brown v. Johnson, 34 P.3d 1233,
1234 (Wash. App. 2001) (attorney’s fees recoverable on a claim of misrepresentation that arose
out of a contract entitling the prevailing party to fees). A tort action is based on a contract if it
arose out of the contract and the contract is at the center of the dispute. Id. As discussed above,
Team Express’s tort claims cannot be reasonably segregated from its contract claims, and those
tort claims are arguably based on the licensing agreement which provides for the prevailing party
to recover attorney’s fees. Further, the tort claims here assuredly were “in connection with
. . . the software,” which also would support enforcing the parties’ contract to provide recovery
of attorney’s fees incurred to defend against those torts claims. Accordingly, attorney’s fees are
likely recoverable on all of Team Express’s claims and segregation perhaps was not required at
all. Of course, the parties don’t raise this issue, so I decline to pursue it further. But it warrants
this brief mention because it could provide a second, independent basis to award Microsoft all its
reasonable attorney’s fees.

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Attorney’s Fees – Unreasonable and Unrecoverable Hours. Next, Team Express
complains of “unreasonable and unrecoverable hours.” In making this objection, Team Express
doesn’t take issue with the hourly rates used, just certain categories of work it claims are
unreasonable or unrecoverable. In support of its position, Team Express provides a detailed,
color-coded rendering of the underlying invoices. See Dkt. No. 390. This document provides the
following categories of, in Team Express’s view, non-recoverable fees: (1) certain travel time,
agency work, budget and status report work, etc., which entries are highlighted in gray on the
schedule; (2) deposition-related issues mostly arising from multiple attorneys appearing at
depositions, which are highlighted in green; (3) time spent on unsuccessful issues that are
highlighted in orange; and (4) unrecoverable paralegal time highlighted in blue.
In calculating a lodestar amount under Washington law, a court multiplies the hours
reasonably expended by the reasonable hourly rate, but “should discount hours spent on
unsuccessful claims, duplicated or wasted effort, or otherwise unproductive time.” Chuong Van
Pham v. City of Seattle, Seattle City Light, 151 P.3d 976, 981 (Wash. 2007) (citing Bowers v.
Transamerica Title Ins. Co., 675 P.2d 193, 203 (Wash. 1983)). If the attorneys seeking fees have
demonstrated a lack of billing judgment by “spending undue amounts of time and unnecessary
effort to present the case,” a downward adjustment is necessary. Berryman v. Metcalf, 312 P.3d
745, 755 (Wash. App. 2013) (quoting Nordstrom, Inc. v. Tampourlos, 733 P.2d 208, 212 (Wash.
1987)). In making any such necessary adjustments, Washington courts have “recognized the
utility of applying percentage reductions to fee requests.” Cedar Grove Composting, Inc. v. City
of Marysville, 354 P.3d 249, 265 (Wash. App. 2015); See Clausen v. Icicle Seafoods, Inc., 272
P.3d 827, 834 (Wash. 2012).
After a review of the various invoices and objections to same, I don’t find Team
Express’s color-coded objections particularly forceful, although there is some merit to a few of
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them. In support of this conclusion resulting from a “hands on” review of the invoices is the
declaration of Microsoft’s lead counsel Ms. Lovett, who explains that she reviewed all of her
firm’s prebills for Microsoft and “ensured that the submitted invoices did not contain any work
that was duplicative, unnecessary, or otherwise not properly chargeable.” Dkt. No. 387-1 at Ex.
A. Ms. Lovett’s blanket assurances are not necessarily sufficient on their own to demonstrate that
her firm exercised the appropriate billing judgment with regard to the challenged fees, but in
connection with my own review of the invoices, I’m satisfied that a significant reduction isn’t
warranted. It will suffice instead to reduce the attorney’s fees requested by 10 percent, to account
for duplication, insufficiently explained entries, or those few items that appear to be unsupported
by adequate billing judgment.
Conclusion
In conclusion, I recommend that Defendant Microsoft’s Bill of Costs, Dkt. No. 380, as
amended, be GRANTED and that Microsoft be awarded $63,333.96 in costs.

I further

recommend that Microsoft’s Motion for Attorneys’ Fees, Dkt. No. 387, be GRANTED IN
PART and that Microsoft be awarded $1,544,812.09 in attorney’s fees.
Instructions for Service and Notice of Right to Object/Appeal.
The United States District Clerk shall serve a copy of this report and recommendation on
all parties by either (1) electronic transmittal to all parties represented by attorneys registered as
a “filing user” with the clerk of court, or (2) by mailing a copy to those not registered by certified
mail, return receipt requested. Written objections to this report and recommendation must be
filed within fourteen (14) days after being served with a copy of same, unless this time period is
modified by the district court. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b). The party shall file
the objections with the clerk of the court, and serve the objections on all other parties. A party
filing objections must specifically identify those findings, conclusions or recommendations to
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which objections are being made and the basis for such objections; the district court need not
consider frivolous, conclusive or general objections. A party’s failure to file written objections
to the proposed findings, conclusions and recommendations contained in this report shall bar the
party from a de novo determination by the district court. Thomas v. Arn, 474 U.S. 140, 149–52
(1985); Acuña v. Brown & Root, Inc., 200 F.3d 335, 340 (5th Cir. 2000). Additionally, failure to
file timely written objections to the proposed findings, conclusions and recommendations
contained in this report and recommendation shall bar the aggrieved party, except upon grounds
of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal
conclusions accepted by the district court. Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415,
1428–29 (5th Cir. 1996) (en banc).
IT IS SO ORDERED.
SIGNED this 6th day of February, 2020.

RICHARD B. FARRER
UNITED STATES MAGISTRATE JUDGE

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