Attorneys' Fees Awards: No License to Pickpocket

It is generally thought that a contract provision awarding attorneys' fees to a prevailing party will be enforced. The most recent saga in the Domino's system's equipment dispute confirms this principle, but, at the same time, suggests that courts will, when appropriate, restrict the amount of the award. (Background: In Bores v. Domino's Pizza LLC, 489 F. Supp. 2d 940 (D. Minn. 2007), the trial court ruled in favor of the franchisee-plaintiffs in a dispute about whether the franchisor could impose certain purchasing restrictions on its franchisees. The decision was reversed by the Eight Circuit, which remanded with direction for the trial court to enter judgment in favor of franchisor Domino's. Bores v. Domino's Pizza LLC, 530 F.3d 671 (8th Cir. 2008).) From a counseling standpoint, there are several lessons to be learned from the trial court's ruling, the main lesson being: Don't spend an attorneys' award until the money is in the bank.

If the true objective for awarding attorneys' fees is to reduce the cost of litigation if successful, the first issue for consideration is whether the other party will be able to pay. Usually, this is a problem for the franchisor, and not for the franchisee that prevails, although recent economic downturns might alter the presumption here. In a large percentage of the cases, the franchisee is gasping for air when proceedings have been commenced. Too many franchisees fail or have issues because they are undercapitalized. Where this is the case, the franchisor, if it prevails, may have problems collecting any judgment granted in its favor. Collecting attorneys' fees will only compound a collectability problem that may already exist.

In analyzing the impact of the Domino's case, one needs to step back in the process to the point where the franchisor has won the decision, and then must argue that the attorneys' fees award is appropriate, and as such, what the appropriate amount of the award should be. The court in Domino's had little difficulty deciding that, in light of the contractual obligations agreed to by the parties, an award of attorneys' fees would be made in this case. The contract clearly called for an award, and the court found no reasons not to honor the parties' intentions, notwithstanding some creative lawyering by the plaintiff's attorneys. The plaintiffs argued, among other things, the Noerr-Pennington doctrine, as well as that Domino's should prevail if the plaintiffs had acted unreasonably in bringing and prosecuting the litigation.

As for the amount of the award, the court was troubled for various reasons by the franchisor's request for $1.2 million.

The first concern of the Domino's court was that of hourly rates. In this case, the franchisor had retained as primary counsel a law firm, based in Minneapolis, whose rates were considerably lower than the prevailing rates in larger cities such as Washington, DC, New York, and Los Angeles, and the Minneapolis-based court had no trouble with the rates of Minneapolis firms. However, Domino's had called for assistance from attorneys from cities where the hourly rates of legal counsel were considerably higher. The court did not conclude that it was inappropriate to hire attorneys from other cities, but it questioned whether it was necessary to hire legal counsel from higher-rate jurisdictions when attorneys with appropriate experience might have been available in the local market.

Second, the court considered the staffing issue, noting that there appeared to be too many cooks in the kitchen.

Third, the court looked at the number of hours spent on the case: around 2200. The court examined whether it was necessary for the franchisor to have its attorneys spend this amount of time on a case that the court considered essentially to be nothing more than a contract interpretation dispute. The court was particularly upset by the amount of time spent on discovery issues, most of which, the court concluded, were sideshows to the main issues.

The court also found that some of the items included in the request for attorneys' fees, such as responding to an auditor's response request, were simply inapplicable.

And finally, the court criticized the documentation provided to the court in support of Domino's motion for its attorneys' fee award, as well as the descriptions recorded in counsels' time records. The court found general task descriptions such as “review memos” and “gather information and respond to client's request” to be too vague, and, therefore, not eligible for inclusion in a fee award.

In the end, the court reduced the requested amount of $1.2 million (of which more than $200,000 was costs), to $450,000, which included costs. Interestingly, while the court noted that it had carefully reviewed the time sheets submitted by Domino's counsel, the court did not specifically indicate how it determined how much the award should be.

The lessons to be learned if your client is hoping for a grand slam on an attorneys' fees motion are:

If the proceeding is brought in a low-rate jurisdiction, hire local talent or talent from other low-cost jurisdictions.

Instruct counsel to keep detailed and specific time entries.

Unless there are very persuasive strategic reasons to the contrary, avoid a scorched earth policy in pursuing or attending the litigation. This makes sense even in the absence of an expectation of an attorneys' fees recovery.

Focus your litigation strategy: As for what is necessary or important, concentrate (as time pressures and workload permit) the work within as few attorneys as makes sense, and don't try to bring irrelevant items into the motion to recover attorneys' fees.

In reading the court's decision, one senses a particular irritation about Domino's request, but keep in mind that the trial court's earlier decision in favor of the franchisees had been reversed by the Eighth Circuit. Thus, the reduction in the attorneys' fees should not have come as a surprise to Domino's.

For Domino's, this case was a major challenge to its rights as a franchisor. Thus, one might conclude that the number of dollars spent on attorneys was clearly secondary to a perceived need by Domino's for a strong precedent establishing its ability to control the point-of-sale systems used in its units. Nevertheless, one must question the efficacy of our judicial system, as well as how decisions regarding litigation strategies are formulated. In the Gilbert and Sullivan operetta Mikado, one song works from a base line, “Let the punishment fit the crime.” Perhaps, this was the message that the Domino's judge was trying to impart upon the parties to this and other litigation. Attorneys' fees award provisions will not serve as a license to pick other people's pockets.

Rupert M. Barkoff is a partner in Kilpatrick Stockton's Atlanta office, where he is head of the firm's franchise practice. He is a former chair of the American Bar Association's Forum on Franchising and co-editor-in-chief of Fundamentals of Franchising. He can be reached at [email protected].

It is generally thought that a contract provision awarding attorneys' fees to a prevailing party will be enforced. The most recent saga in the Domino's system's equipment dispute confirms this principle, but, at the same time, suggests that courts will, when appropriate, restrict the amount of the award. (Background: In Bores v. Domino's Pizza LLC , 489 F. Supp. 2d 940 (D. Minn. 2007), the trial court ruled in favor of the franchisee-plaintiffs in a dispute about whether the franchisor could impose certain purchasing restrictions on its franchisees. The decision was reversed by the Eight Circuit, which remanded with direction for the trial court to enter judgment in favor of franchisor Domino's. Bores v. Domino's Pizza LLC , 530 F.3d 671 (8th Cir. 2008).) From a counseling standpoint, there are several lessons to be learned from the trial court's ruling, the main lesson being: Don't spend an attorneys' award until the money is in the bank.

If the true objective for awarding attorneys' fees is to reduce the cost of litigation if successful, the first issue for consideration is whether the other party will be able to pay. Usually, this is a problem for the franchisor, and not for the franchisee that prevails, although recent economic downturns might alter the presumption here. In a large percentage of the cases, the franchisee is gasping for air when proceedings have been commenced. Too many franchisees fail or have issues because they are undercapitalized. Where this is the case, the franchisor, if it prevails, may have problems collecting any judgment granted in its favor. Collecting attorneys' fees will only compound a collectability problem that may already exist.

In analyzing the impact of the Domino's case, one needs to step back in the process to the point where the franchisor has won the decision, and then must argue that the attorneys' fees award is appropriate, and as such, what the appropriate amount of the award should be. The court in Domino's had little difficulty deciding that, in light of the contractual obligations agreed to by the parties, an award of attorneys' fees would be made in this case. The contract clearly called for an award, and the court found no reasons not to honor the parties' intentions, notwithstanding some creative lawyering by the plaintiff's attorneys. The plaintiffs argued, among other things, the Noerr-Pennington doctrine, as well as that Domino's should prevail if the plaintiffs had acted unreasonably in bringing and prosecuting the litigation.

As for the amount of the award, the court was troubled for various reasons by the franchisor's request for $1.2 million.

The first concern of the Domino's court was that of hourly rates. In this case, the franchisor had retained as primary counsel a law firm, based in Minneapolis, whose rates were considerably lower than the prevailing rates in larger cities such as Washington, DC, New York, and Los Angeles, and the Minneapolis-based court had no trouble with the rates of Minneapolis firms. However, Domino's had called for assistance from attorneys from cities where the hourly rates of legal counsel were considerably higher. The court did not conclude that it was inappropriate to hire attorneys from other cities, but it questioned whether it was necessary to hire legal counsel from higher-rate jurisdictions when attorneys with appropriate experience might have been available in the local market.

Second, the court considered the staffing issue, noting that there appeared to be too many cooks in the kitchen.

Third, the court looked at the number of hours spent on the case: around 2200. The court examined whether it was necessary for the franchisor to have its attorneys spend this amount of time on a case that the court considered essentially to be nothing more than a contract interpretation dispute. The court was particularly upset by the amount of time spent on discovery issues, most of which, the court concluded, were sideshows to the main issues.

The court also found that some of the items included in the request for attorneys' fees, such as responding to an auditor's response request, were simply inapplicable.

And finally, the court criticized the documentation provided to the court in support of Domino's motion for its attorneys' fee award, as well as the descriptions recorded in counsels' time records. The court found general task descriptions such as “review memos” and “gather information and respond to client's request” to be too vague, and, therefore, not eligible for inclusion in a fee award.

In the end, the court reduced the requested amount of $1.2 million (of which more than $200,000 was costs), to $450,000, which included costs. Interestingly, while the court noted that it had carefully reviewed the time sheets submitted by Domino's counsel, the court did not specifically indicate how it determined how much the award should be.

The lessons to be learned if your client is hoping for a grand slam on an attorneys' fees motion are:

If the proceeding is brought in a low-rate jurisdiction, hire local talent or talent from other low-cost jurisdictions.

Instruct counsel to keep detailed and specific time entries.

Unless there are very persuasive strategic reasons to the contrary, avoid a scorched earth policy in pursuing or attending the litigation. This makes sense even in the absence of an expectation of an attorneys' fees recovery.

Focus your litigation strategy: As for what is necessary or important, concentrate (as time pressures and workload permit) the work within as few attorneys as makes sense, and don't try to bring irrelevant items into the motion to recover attorneys' fees.

In reading the court's decision, one senses a particular irritation about Domino's request, but keep in mind that the trial court's earlier decision in favor of the franchisees had been reversed by the Eighth Circuit. Thus, the reduction in the attorneys' fees should not have come as a surprise to Domino's.

For Domino's, this case was a major challenge to its rights as a franchisor. Thus, one might conclude that the number of dollars spent on attorneys was clearly secondary to a perceived need by Domino's for a strong precedent establishing its ability to control the point-of-sale systems used in its units. Nevertheless, one must question the efficacy of our judicial system, as well as how decisions regarding litigation strategies are formulated. In the Gilbert and Sullivan operetta Mikado, one song works from a base line, “Let the punishment fit the crime.” Perhaps, this was the message that the Domino's judge was trying to impart upon the parties to this and other litigation. Attorneys' fees award provisions will not serve as a license to pick other people's pockets.

Rupert M. Barkoff is a partner in Kilpatrick Stockton's Atlanta office, where he is head of the firm's franchise practice. He is a former chair of the American Bar Association's Forum on Franchising and co-editor-in-chief of Fundamentals of Franchising. He can be reached at [email protected].