Michael Wilson & Partners, Ltd. v. Sokol Holdings, Inc.

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT April 9, 2013
Elisabeth A. Shumaker
Clerk of Court
In re APPLICATION OF MICHAEL
WILSON & PARTNERS, LIMITED,
FOR JUDICIAL ASSISTANCE
PURSUANT TO 28 U.S.C. 1782,
No. 12-1238
Applicant. (D.C. No. 1:06-CV-02575-MSK-KMT)
(D. Colo.)
-----------------------------------------------
MICHAEL WILSON & PARTNERS,
LIMITED,
Applicant-Appellee,
v.
SOKOL HOLDINGS, INC.; FRONTIER
MINING, LTD.; BRIAN C. SAVAGE;
THOMAS SINCLAIR,
Respondents-Appellants.
ORDER AND JUDGMENT*
Before HARTZ, EBEL, and GORSUCH, Circuit Judges.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
This appeal concerns reimbursement for costs and attorney’s fees incurred in
responding to subpoenas seeking evidence for use in foreign proceedings. The
district court awarded appellants only part of the costs they requested and no
attorney’s fees. We have jurisdiction under 28 U.S.C. § 1291 and affirm.
I. BACKGROUND
Michael Wilson and Partners, Limited (MWP), appellee here, is an
international law firm based in Kazakhstan. Appellants are two Colorado-based
entities, Sokol Holdings, Inc. and Frontier Mining, Ltd., and their principal officers,
Brian Savage and Tom Sinclair. Sokol and Frontier were MWP clients and worked
together with MWP in developing mineral and oil projects. According to MWP,
Sokol and Frontier were to compensate the firm for its services with interests in the
underlying ventures, but three MWP attorneys left the firm, began providing services
to Sokol and Frontier, and received compensation, including venture interests, that
was due or promised to MWP.
MWP then initiated legal proceedings in England and Australia against the
three former attorneys.1 To aid its prosecution of those foreign proceedings, MWP
filed, in the United States District Court for the District of Colorado, an application
1
In addition to the English and Australian proceedings, MWP was engaged in
an arbitration in England with one of the former attorneys. Further, Mr. Sinclair
commenced an action in the Bahamas seeking a declaration that he, not MWP, is the
owner of 14.75 million shares in a project involving Max Petroleum Plc. MWP also
initiated related proceedings regarding ownership of Max Petroleum shares in the
British Virgin Islands and in Jersey (Channel Islands).
-2-
for judicial assistance in obtaining evidence from appellants pursuant to 28 U.S.C.
§ 1782. In relevant part, § 1782 authorizes a district court, “upon the application of
any interested person,” to order a person residing or found in the district to give
“testimony or statement or to produce a document or other thing for use in a
proceeding in a foreign or international tribunal.” The district court granted MWP’s
application, and MWP served subpoenas on appellants. When appellants resisted
responding, MWP filed a motion to compel compliance with the subpoenas.
The matter was referred to Magistrate Judge Michael E. Hegarty, who in 2007
quashed the subpoenas as to Mr. Savage and Mr. Sinclair but ordered Sokol and
Frontier to provide depositions and certain documents. Magistrate Judge Hegarty
also considered the parties’ arguments about potential costs and attorney’s fees,
which appellants suggested could be as much as $300,000. Although he declined to
“set forth parameters” at the time, he warned MWP to “be prepared to share equally
the cost of imaging, preserving, searching, and producing the requested documents.”
Aplt. App. at A25. He further stated that he did “not believe that an award of
attorney’s fees for document review is appropriate in this case, particularly given
[appellants’] position that they are already participating parties in some of the foreign
proceedings, as well as their obvious interest in the outcome of th[e] foreign
proceedings.” Id. Appellants objected to the order, but the district court affirmed it
and also denied appellants’ motion to reconsider its affirmance.
-3-
Appellants engaged the law firm Dorsey & Whitney to handle their responses
to the subpoenas. Dorsey retained a litigation consulting firm, KPMG, which created
a searchable database to identify potentially responsive documents, a large quantity
of which were stored electronically. When difficulties arose with the KPMG
database, Dorsey manually reviewed appellants’ documents instead. Approximately
325,000 documents were reviewed and 15,000 produced. Appellants also provided
one witness for a Rule 30(b) deposition.
After Dorsey billed appellants some $2.8 million for its services, appellants
hired another law firm, Marcus & Auerbach (M&A). As part of its services, M&A
was able to negotiate a substantial reduction in the KPMG bill. Appellants also filed
a declaratory judgment action against Dorsey in Delaware state court, seeking a
declaration that the amount charged was unreasonable and a determination of the
proper amount owed. That case went to trial in 2010, and appellants state that the
trial judge has reserved decision.
In the § 1782 action, appellants moved the district court for an award of
$558,177 in attorney’s fees and $1,592,876 in costs, broken down as follows:
Attorney’s fees:
 $20,078 M&A time in the § 1782 action;
 $20,861 Dorsey time retaining, briefing, and instructing KPMG;
 $25,579 Dorsey time devising and negotiating search terms;
 $182,024 Dorsey time dealing with KPMG anomalies;
 $86,786 Dorsey time on anti-suit injunctions and quashing personal
depositions in the § 1782 action;
 $25,684 Dorsey time on initial review and advice on subpoena;
-4-
 $27,623 Dorsey time preparing for subpoena response in § 1782 action;
and
 $169,542 Dorsey time spent for set up, data capture, and to inform and
instruct the review team.
Costs:
 $506,307 in KPMG costs, comprised of $425,323 in costs and $80,984
in M&A attorney fees to negotiate a reduction in the KPMG bill from
$734,687;
 $1,214 for unspecified M&A costs;
 $96,224 for Dorsey costs; and
 $989,131 for contract reviewers and paralegals to do the Dorsey manual
review.
The basis for the request was Rule 45(c)(2)(B)(ii) of the Federal Rules of Civil
Procedure, which in relevant part directs that a court order commanding a person to
produce documents “must protect a person who is neither a party nor a party’s officer
from significant expense resulting from compliance.” Appellants claimed that the
requested amounts related only to work directly related to imaging, preserving,
searching, and producing documents.
Appellants’ motion was referred to Magistrate Judge Kathleen M. Tafoya, who
recommended denying attorney’s fees but allowing $425,323 in KPMG costs and
$1,849.96 in miscellaneous costs (a total of $427,172.96), to be shared equally
between MWP and appellants. Appellants filed objections, claiming they were
entitled to (1) some, if not all, of the attorney’s fees; (2) $989,131 in Dorsey costs for
the manual review; (3) all of the allowed costs, not merely half; (4) $80,984 in M&A
fees for negotiating the reduction in the KPMG bill; and (5) an additional $1,214 in
M&A costs. The district court overruled the objections, adopted the
-5-
recommendation, and ordered MWP to pay appellants $213,586.48 (half of the
allowed total of $427,172.96). This appeal followed.
II. DISCUSSION
We review a district court’s decision regarding costs and attorney’s fees for an
abuse of discretion, but we review de novo any legal conclusions underlying that
decision. Pound v. Airosol Co., 498 F.3d 1089, 1100-01 (10th Cir. 2007); Case v.
Unified Sch. Dist. No. 233, Johnson Cnty., Kan., 157 F.3d 1243, 1249 (10th Cir.
1998). Although Rule 45(c)(2)(B)(ii) protects a nonparty subpoena respondent from
“significant expense,” expenses, including attorney’s fees, must be reasonable. See
United States v. Columbia Broadcasting Sys., Inc., 666 F.2d 364, 371 n.9 (9th Cir.
1982) (listing “reasonableness of the costs of production” among the factors a court
can consider when deciding whether to award a nonparty its costs in responding to
subpoena); Georgia-Pacific LLC v. Am. Int’l Specialty Lines Ins. Co., 278 F.R.D.
187, 190 (S.D. Ohio 2010) (explaining that nonparty’s legal fees are considered a
reimbursable expense under Rule 45(c)(2)(B)).
Appellants first argue that the district court erred in treating, as law of the
case, Magistrate Judge Hegarty’s pronouncement that an award of attorney’s fees for
document review was not appropriate. We need not decide this issue. To be sure, the
district court stated that Magistrate Judge Hegarty’s ruling was the law of the case
and that the court would give that ruling significant weight in its decision whether to
award attorney’s fees. But the court also provided an independent reason for
-6-
declining to award fees, including the $989,131 that appellants categorized as costs
for the manual review but which included fees for contract attorneys and paralegals—
that appellants failed to show which of the attorney’s fees (or manual review “costs”)
were reasonable. We agree. As the district court said, appellants “provide[d] no
specific argument or evidence” that any of the fees were reasonable. Aplt. App.
at A563. Instead, they “provided broad categories of fees incurred and asserted that
they [were] reasonable and necessarily incurred in responding to the subpoenas” and
“rel[ied] solely on evidence showing that such amounts were billed and paid.” Aplt.
App. at A563-64. As to the costs of the manual review, the court added that “[t]here
is no basis, other than sheer speculation, to separate the wheat from the chaff with
respect to this item.” Id. at A566. Thus, the court clearly moved beyond Magistrate
Judge Tafoya’s recommendation that nothing required reconsideration of Magistrate
Judge Hegarty’s ruling denying attorney’s fees, which the district court had in effect
twice affirmed, and the court provided an adequate, independent basis for denying all
attorney’s fees and denying any costs or fees associated with the manual review.
Appellants contend that they were wholly unable to inform the court what
attorney’s fees were reasonable because they only had Dorsey’s unreasonable bills.
They further claim the district court should have awaited the outcome of the
Delaware litigation and used that court’s determination of what fees were reasonable,
not as a binding judgment as to MWP (a non-party to the Delaware case), but as a
starting point for analyzing reasonableness and necessity. We disagree. Appellants
-7-
did not provide, nor do we see, any reason they could not give the district court a
detailed explanation as to what fees they thought were reasonable, even absent a
decision from the Delaware court. In fact, the district court noted appellants’
assertion in their pretrial memorandum in the Delaware case that “the total cost of
[Dorsey’s] § 1782 representation and production” should have been “approximately
$571,187.” Id. at A288.
In that memorandum, which was filed more than a year before appellants’
motion for fees and costs in the § 1782 action, appellants comprehensively explained
why Dorsey’s fees were unreasonable, going so far as to provide concrete numbers
for what they felt were unreasonable fees, including the costs or fees involved in the
manual review. See Aplt. App. at A285-88. Appellants further promised the
Delaware court that they would “proffer to the Court an analysis that reflects what a
reasonable fee would have been if the work had been done competently.” Id.
at 286 n.2. Thus, despite appearing capable of producing their own detailed view of
which Dorsey fees were reasonable, appellants did not provide any such analysis to
the Colorado district court.
Notably, it was MWP, not appellants, who submitted the Delaware pretrial
memorandum to the district court. And appellants have not argued that the district
court should have considered that memorandum when analyzing whether their
requested fees and costs were reasonable. The few invoices for attorney’s fees that
appellants did submit in support of their motion were summary in nature, stating
-8-
lump sums for periodic legal services without any itemization. That was insufficient.
See Case, 157 F.3d at 1250 (stating general rule that one who seeks attorney’s fees
must submit “meticulous, contemporaneous time records that reveal, for each lawyer
for whom fees are sought, all hours for which compensation is requested and how
those hours were allotted to specific tasks”).
Appellants also argue that the district court erred in its analysis of two factors
bearing on the attorney’s fee issue—that they had the ability to control the cost of the
document review and that they had an interest in the foreign litigations for which the
subpoenas were issued. The court determined that these weighed against an award of
attorney’s fees. We need not consider these arguments because, as stated, the district
court moved beyond the threshold question whether to award attorney’s fees and
determined that appellants failed to show which of their claimed fees (and “costs” of
the manual review) were reasonable.
Appellants further contend that the district court erred in awarding them only
half of the allowed costs. Their argument rests on the proposition that awarding only
half of the allowed costs means they will not receive reimbursement for more than
90% of their costs and attorney’s fees, which is the sort of “significant expense”
Rule 45(c)(2)(B)(ii) guards against. But this percentage analysis assumes, rather than
demonstrates, that all of their requested costs and attorney’s fees are reasonable. It
also overlooks the district court’s rationale for ordering the parties to share in the
allowed costs, the lion’s share of which were costs for the KPMG system. The court
-9-
reasoned that, even though appellants would have had no need for the KPMG system
but for MWP’s subpoenas, the system benefitted both parties by potentially reducing
document production costs, which Magistrate Judge Hegarty had warned the parties
they should be prepared to share In addition, as MWP pointed out below, the
payment to KPMG to create a database ultimately did not benefit MWP because the
database was not used to review documents; in that circumstance, splitting the
database cost between the parties on the ground that the database was intended to
benefit everyone seems eminently fair to Appellants. We see no abuse of discretion
in this determination or in the court’s ultimate decision to split the allowed costs.
Finally, appellants claim that the district court gave no valid reason why MWP
should not reimburse them for the $80,984 in M&A attorney’s fees for negotiating a
reduction in the KPMG bill from $715,629 to $425,323. We disagree. Magistrate
Judge Tafoya recommended denying these fees because appellants had entered into
an unreasonable compensation agreement with KPMG, and MWP should not have to
pay for fees incurred in reducing the bill to a more reasonable amount. The district
court found no reason to deviate from that recommendation. Appellants have not
explained why this reason was not valid.
- 10 -
III. CONCLUSION
The judgment of the district court is affirmed.
Entered for the Court
David M. Ebel
Circuit Judge
- 11 -