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PHI, Inc. v. Apical Industries, Inc.

United States District Court, W.D. Louisiana, Lafayette Division

April 25, 2018

PHI, INC.
v.
APICAL INDUSTRIES, INC., ET AL.

          FINDINGS OF FACT AND CONCLUSIONS OF LAW

          PATRICK J. HANNA, UNITED STATES MAGISTRATE JUDGE.

         By consent of the parties pursuant to 28 U.S.C. § 636(c), this matter came before the Court for trial by jury starting on November 13, 2017 and concluding on November 15, 2017. The case involved a helicopter owned by PHI, Inc. that ditched in the Gulf of Mexico following engine failure. The pilot successfully landed in the water with the floats fully deployed. After a period of time, one of the floats deflated and the helicopter capsized. PHI sued the engine manufacturer, Rolls-Royce Corporation; the float manufacturer, Apical Industries, Inc.; and a company that performed maintenance and repair on the float system, Offshore Helicopter Support Services, Inc. (“OHS”). The claim against Rolls-Royce was severed and transferred to the Southern District of Indiana by virtue of a forum selection clause. That claim settled before trial, and this Court ruled that evidence regarding the cause of the engine failure was not admissible. The remainder of the case was tried in this venue.

         The jury found that the helicopter was a total loss and awarded damages against Apical for the total market value of the helicopter. OHS was exonerated. That verdict has not yet been reduced to judgment because, by agreement of the parties, this Court was called upon to determine (1) the amount of offset to the jury's verdict for the value of the engine and/or the cost to repair the engine prior to the helicopter capsizing assuming it could have been successfully recovered, and (2) the amount of attorneys' fees PHI is entitled to recover due to its successful prosecution of its redhibition claim against Apical. A separate set of findings of fact and conclusions of law will address and resolve the issue related to the value of the engine. This set of findings of fact and conclusions of law will address and resolve the issue related to PHI's claim for the recovery of attorneys' fees.

         The parties extensively briefed this issue (Rec. Docs. 289, 292, 293), and a hearing was held on April 19, 2018 at which PHI introduced evidence concerning the attorneys' fees it incurred in this lawsuit and at which Apical challenged PHI's contentions. The parties then supplemented the record. (Rec. Docs. 298, 299).

         This Court, having carefully considered the testimony of all of the witnesses, the exhibits entered into evidence, the record, the memoranda submitted by the parties, and the applicable law, now makes the following findings of fact and conclusions of law as required by Rule 52 of the Federal Rules of Civil Procedure. To the extent any conclusion of law is deemed to be a finding of fact, it is adopted as such. Likewise, to the extent any finding of fact is deemed to be a conclusion of law, it is adopted as such.

         FINDINGS OF FACT

         On December 1, 2011, the engine in one of PHI's Bell 407 helicopter failed, causing the pilot to make an emergency landing in the Gulf of Mexico. The pilot successfully engaged the float system and landed in the water. The pilot and passenger safely exited the helicopter in life rafts and were recovered without injury. Some period of time passed with the helicopter afloat and secured to an offshore supply vessel by a line. At some point, one of the float bags deflated and the helicopter capsized, resulting in its engine and various electronic components being completely immersed in salt water. Notwithstanding anything else to the contrary, the lengthy immersion in salt water would have rendered the helicopter a total loss.

         PHI filed suit against Apical, OHS, and Rolls-Royce in the 15th Judicial District Court, Lafayette Parish, Louisiana, on December 3, 2012, seeking to recover for the loss of the helicopter. (Rec. Doc. 1-1 at 10). The suit was removed to this court on January 4, 2013. (Rec. Doc. 1). On May 27, 2015, PHI's claims against Rolls-Royce were severed and transferred to the United States District Court for the Southern District of Indiana, Indianapolis Division. (Rec. Doc. 158). PHI's claim against Rolls-Royce was settled before trial. PHI's claims against Apical and OHS were tried to a jury on November 13-15, 2017. (Rec. Docs. 265, 269, 271). The jury found that the right-hand rear float manufactured and sold by Apical contained a redhibitory defect that caused the damage to the helicopter. (Rec. Doc. 277). The jury did not find that OHS was liable for the damage to the helicopter. (Rec. Doc. 277). The jury awarded $2, 180, 000 in damages. (Rec. Doc. 277).

         Oral argument was held on April 19, 2018. Before the hearing, PHI submitted a motion for attorneys' fees (Rec. Doc. 289), supported by the affidavit of its counsel, Ross Cunningham (Rec. Doc. 289-1). Attached to Mr. Cunningham's affidavit were the invoices for legal services directed to PHI by its counsel over the course of this litigation. Apical submitted a response to PHI's fee petition (Rec. Doc. 292), challenging PHI's entitlement to certain fees claimed and suggesting an alternative attorneys' fee award.

         In its submissions, PHI presented the testimony of its counsel, Ross Cunningham. Mr. Cunningham testified that he was lead counsel for PHI over the entire five-year course of the litigation. When the lawsuit was initiated, he was a partner at Rose Walker LLP but in January 2015 he moved to Cunningham Swaim LLP. He testified that the total amount of attorneys' fees billed to PHI with regard to this matter by Rose Walker LLP was $447, 414.00 and the total amount of attorneys' fees billed to PHI with regard to this matter by Cunningham Swaim was $224, 281.37, for a grand total of $654, 004.50 in attorneys' fees.[1] PHI proposed that, from that total, certain amounts should be deducted. First, PHI argued that $19, 522.50 should be deducted for work performed by PHI's counsel with regard to the venue issue regarding its claim against Rolls-Royce before the United States Supreme Court. PHI argued that its practice before the Supreme Court related solely to its claim against Rolls-Royce and, for that reason, was unrelated to its successful redhibition claim against Apical. Second, PHI argued that the fees attributable to the litigation against Rolls-Royce after that claim was severed and transferred to Indiana, should be deducted as unrelated to the successful redhibition claim against Apical. Third, PHI argued that ten percent of the remaining fees should be deducted to reflect the litigation against OHS on a contract-based claim that was different from the successful redhibition claim against Apical. PHI argued that, after taking these deductions, it should be awarded $478, 321.65. PHI also argued that it should be awarded an additional $100, 000 to $150, 000 in attorneys' fees in the event of appeal.

         Apical challenged PHI's contentions, arguing that additional deductions should be made, resulting in a total recovery of attorneys' fees in the amount of $155, 262.50. More particularly, Apical argued (1) that the attorneys' fees related to the litigation of the severance and transfer disputes in this court and in the Fifth Circuit Court of Appeals should be deducted, (2) that additional amounts supported by time entries pertaining exclusively to the claim against Rolls-Royce following the transfer to Indiana should be deducted, (3) that attorneys' fees supported by duplicative and vaguely worded time entries should be deducted, (4) that PHI's ten percent deduction to account for the litigation against OHS should be increased to fifty percent, (5) that PHI's counsel's billing rates are excessive, (6) that Apical should not have to pay fees supported by time entries with unexplained redactions, and (7) that PHI is not entitled to recover prospective fees that might be incurred on appeal. Having considered the evidence presented and the arguments of counsel, this Court finds that PHI should be awarded the sum of $301, 963.50 in attorneys' fees incurred with regard to its successful redhibition claim against Apical. The reasons for this conclusion are explained in detail, below.

         CONCLUSIONS OF LAW

         The defendants removed this action to federal court on the basis of diversity jurisdiction. A federal court sitting in diversity must apply state substantive law and federal procedural law.[2] Therefore, Louisiana's substantive law must be applied.[3]Under Louisiana law, attorneys' fees are only recoverable when authorized by statute or contract.[4] In Louisiana, attorneys' fees are recoverable by a plaintiff who succeeds on a redhibition claim against a party that was not only the seller but also the manufacturer of a product.[5] In this case, it is undisputed that Apical was both the manufacturer and the seller of the subject float system, which the jury found to contain a redhibitory defect. Therefore, PHI is entitled to recover from Apical “reasonable attorney fees”[6] with regard to its successful redhibition claim.

         The purpose of awarding attorneys' fees and expenses in redhibition cases is to restore the purchaser, as much as possible, to the condition he enjoyed prior to the sale.[7] Under Louisiana law, a trial court has great discretion in awarding attorneys' fees in a redhibition case.[8] “Generally, each case is considered in light of its own facts and circumstances; however, the amount awarded must be reasonable.”[9]

         An award of attorneys' fees in a redhibition case under Louisiana law must be reasonable in light of the degree of skill and work involved in the case, the number of court appearances, the number of depositions, and the office work involved.[10]Similarly, the Louisiana Supreme Court has found the following factors to be relevant in determining the reasonableness of an award for attorneys' fees: (1) the responsibility incurred; (2) the extent and nature of the work performed; and (3) the counsel's legal know-how and skill.[11] The Louisiana Supreme Court has also instructed that the following factors, which were derived from Rule 1.5(a) of the Rules of Professional Conduct, should be considered by a court in reviewing the reasonableness of an award of attorneys' fees: (1) the ultimate result obtained; (2) the responsibility incurred; (3) the importance of the litigation; (4) the amount of money involved; (5) the extent and character of the work performed; (6) the legal knowledge, attainment, and skill of the attorneys; (7) the number of appearances made; (8) the intricacies of the facts involved; (9) the diligence and skill of counsel; and (10) the court's own knowledge.[12] These factors, which have been applied in redhibition cases, [13] are similar to those used by federal courts in other contexts when the lodestar is first calculated by multiplying the number of hours reasonably expended by an appropriate hourly rate in the community for such work, and other factors are then taken into account after the lodestar amount has been determined.[14]

         After reviewing the relevant factors, this Court finds that PHI's counsel was experienced and highly skilled, ultimately achieved a favorable jury verdict, and was responsible for litigating three claims in two very separate venues on a matter of great importance to their client that involved a large sum of money. The litigation spanned several years, involved extensive motion practice, and required numerous court appearances. Eighteen depositions were taken. Although the matter culminated in a jury trial, two additional critical matters were resolved after trial on the basis of adversarial evidentiary proceedings. While the facts of the case were not complicated, the legal arguments were intricate, requiring that the counsel involved be experienced, diligent, and skillful. Thus, the applicable statute and the relevant factors weigh in favor of an award of attorneys' fees to PHI's counsel. Moreover, Louisiana Civil Code Article 2545 mandates an award of “reasonable attorney fees” when a redhibition claim is successful.

         This Court must therefore determine the amount of attorneys' fees that should be awarded to PHI, guided by the principle that the award must be reasonable. The party seeking attorneys' fees bears the burden of establishing the reasonableness of the attorneys' fees requested by submitting documentation and time records of the hours reasonably expended and proving the exercise of “billing judgment.”[15] “Billing judgment requires documentation of the hours charged and of the hours written off as unproductive, excessive, or redundant.”[16] “The proper remedy when there is no evidence of billing judgment is to reduce the hours awarded by a percentage intended to substitute for the exercise of billing judgment.”[17] Alternatively, the Court may conduct a line-by-line review of the billing statement to determine reasonableness.[18]

         PHI presented evidence in support of its claim for an award of $478, 321.65 in attorneys' fees, and Apical challenged PHI's calculation of the appropriate fee award in several ways, suggesting that PHI be permitted to recover $155, 262.50 in attorneys' fees. Each of Apical's argument will be considered in turn. At the outset, however, this Court makes certain observations. First, Mr. Cunningham's affidavit states that the total amount of attorneys' fees billed to PHI through January 31, 2008 was $654, 004.50. (Rec. Doc. 289-1 at 2). But that is inconsistent with Exhibit 3 to Mr. Cunningham's affidavit, which totaled the amount billed in each invoice and stated that $654, 004.50 was billed through February 28, 2018. (Rec. Doc. 289-1 at 153). But no invoice dated February 28, 2018 was included in the materials originally submitted by PHI in support of Mr. Cunningham's affidavit. After the hearing on April 19, 2018, PHI submitted its attorneys' February 2018 invoice into evidence. (Rec. Doc. 299-1). The time entries set forth on the invoice all post-date the trial and have to do with PHI's efforts to recover attorneys' fees.

         It is customary for an attorney to be reimbursed for the time he expends preparing a motion to recover attorneys' fees as a sanction, [19] and some statutes expressly authorize reimbursement of the attorneys' fees incurred in filing a particular type of motion.[20] PHI has the burden of proving the amount of attorneys' fees to which it is entitled. But PHI did not direct this Court to any statutory or jurisprudential authority permitting a successful redhibition plaintiff to recover from its adverse party the attorneys' fees incurred in preparing a motion for attorneys' fees, and the Louisiana statute authorizing the recovery of fees in a redhibition does not expressly address this issue. Accordingly, this Court finds that it would not be appropriate to permit PHI to recover the attorneys' fees it incurred in attempting to recover attorneys' fees from Apical. Therefore, the February 2018 invoice will not be considered. The starting number is $649, 804.00 rather than $654, 004.50.

         Second, several time entries on the invoices submitted by PHI in support of Mr. Cunningham's affidavit are highlighted - some in yellow and some in red. Neither Mr. Cunningham's affidavit nor PHI's briefing explained the significance of the highlighting, and PHI did not submit a summary exhibit showing how much was deducted from each individual invoice for the sums PHI suggested should be deducted from the attorneys' fee award. On the other hand, however, Apical submitted an exhibit correlating PHI's proposed deductions from the total amount of attorneys' fees it was charged to the individual invoices. Apical noted that the items highlighted in yellow on the invoices submitted by PHI were the time entries that PHI suggested should be subtracted for the severance and transfer issue, while the time entries highlighted in red on the invoices submitted by PHI were the time entries that PHI suggested should be subtracted for litigation in the Southern District of Indiana. The problem with Apical's analysis of the invoices is that PHI highlighted in red (indicating that they pertained solely to the Indiana litigation) numerous time entries post-dating the settlement of the Indiana lawsuit.[21] Therefore, PHI submitted invoices from its attorneys but did not clearly delineate the time entries that allegedly correlate to its conclusory contentions (set forth in its briefing and in Mr. Cunningham's affidavit) that $19, 522.50 in fees pertained solely to PHI's appeal of the severance and transfer issue to the United States Supreme Court and $102, 983.50 in fees pertained solely to PHI's litigation of its claim against Rolls-Royce in Indiana. Since PHI has the burden of proof on this issue, to the extent the Court cannot discern the proper allocation of the incurred fees, any doubts must be construed against PHI.

         Apical challenged PHI's attorneys' fee claim in several respects. First, Apical argued that PHI erred in failing to deduct from the amount sought to be recovered any amounts relating to the severance and transfer dispute in the district court and in the Fifth Circuit, deducting only the amount of attorneys' fees it incurred in taking its fight about that issue to the United States Supreme Court. In this lawsuit, PHI asserted claims against Rolls-Royce, Apical, and OHS. Rolls-Royce successfully sought to have PHI's claim against it severed from the other claims and transferred to the United States District Court for the Southern District of Indiana, on the basis of a choice-of-law provision in a warranty document issued by Rolls-Royce. PHI opposed Rolls-Royce's attempts to change the lawsuit's venue but ultimately did not prevail. This Court finds that the amount of attorneys' fees charged to PHI in connection with its attempt to avoid the change of venue - in the district court, in the appellate court, and in the Supreme Court - totaled $105, 924.50.[22] PHI argued that Apical should be required to pay all of that amount except for $19, 522.50 that PHI incurred at the Supreme Court level. PHI's strongest argument is that Apical contended up until trial - when this Court ruled the testimony was inadmissible - that the accident was caused by a defect in Rolls-Royce's engine rather than by a defect in its float system. In other words, Apical attempted to deflect liability from itself onto Rolls-Royce even after PHI's claim against Rolls-Royce had been severed from the other claims, moved to Indiana, and settled. Regardless of Apical's insistence that Rolls-Royce caused the loss of the helicopter, however, PHI can recoup from Apical only those attorneys' fees attributable to PHI's successful redhibition claim against Apical since the existence of PHI's redhibition claim against Apical is the only statutory basis on which PHI is entitled to recover attorneys' fees for the legal work done in connection with this lawsuit. The work performed by PHI's attorneys in attempting to thwart Rolls-Royce's successful attempt to sever and transfer PHI's claim against Rolls-Royce is not related to PHI's redhibition claim against Apical; it relates solely to PHI's claim against Rolls-Royce. Had Apical been successful in arguing that the problem with Rolls-Royce's engine should have been presented to the jury trying PHI's claims against Apical and OHS, the result might have been a reduction in the amount of PHI's damages to be borne by Apical. But it would not have changed the fact that PHI can recover from Apical only those attorneys' fees attributable to the successful redhibition claim. Therefore, the entirety of the attorneys' fees incurred by PHI with regard to the severance and transfer issues must be deducted from the attorneys' fees claimed by PHI. This Court accordingly finds that the sum of $105, 924.50 should be deducted from the total amount of attorneys' fees charged to PHI by its counsel.

         Second, Apical argued that PHI's deductions for the time it devoted to its claims against Rolls-Royce after those claims were transferred to the Southern District of Indiana overlooked numerous entries on PHI's fee bills that should also have been deducted. After carefully reviewing the invoices submitted by PHI in support of its motion, this Court concurs with Apical's analysis. PHI presented evidence that it incurred $102, 985.50 in attorneys' fees for work performed with regard to its claim against Rolls-Royce after that claim was severed and transferred to Indiana. However, the derivation of that number cannot be ascertained from the copies of the invoices for legal services that PHI submitted to the court.

         PHI highlighted in red (to indicate that they were attributable to the litigation of the action in Indiana) various time entries post-dating its settlement with Rolls-Royce and including preparation for and trial of the Louisiana litigation. Further, this Court's review of the invoices submitted by PHI revealed that PHI did not accurately identify the charges attributable solely to PHI's claim against Rolls-Royce after the suit was transferred to Indiana. For example, in the invoice dated October 13, 2015, [23]PHI did not identify the following time entries as pertaining to the Indiana litigation:

• “Correspondence with local counsel regarding upcoming telephonic conference with court in ...

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