Summary
upholding arbitrator's decision to permit reimbursement for certain expenses under a fee agreement, including expenses "for photocopies, telephone calls, and computer research" and noting that "[c]ommon sense suggests that when a client hires a lawyer, the client implicitly agrees that the lawyer will have certain resources to accomplish the task at hand. The client cannot require the lawyer to give diligent representation and at the same time handcuff the lawyer from having access to the customary tools of the profession (e.g. photocopies, telephone calls and legal research) and techniques (e.g. summarizing the relevant portions of lengthy depositions)"
Summary of this case from Elting v. Shawe (In re Transperfect Glob., Inc.)Opinion
C.A. No. 19355
Date Submitted: July 30, 2002
Date Decided: August 5, 2003
Richard K. Herrmann and Mary Matterer, Esquires of BLANK ROME LLP, Wilmington, Delaware; Attorneys for Plaintiffs-Counterclaim Defendants.
David J. Margules and Karen L. Pascale, Esquires of BOUCHARD MARGULES FRIEDLANDER; Attorneys for Defendants-Counterclaim Plaintiffs.
MEMORANDUM OPINION
Pending are cross motions for summary judgment in this action brought by a law firm against a former client to recover legal fees. The plaintiff, Blank Rome, LLP, and the defendants, who are former clients of that flim, participated in an arbitration to determine what legal fees the defendants owed to Blank Rome. After the arbitrator made several rulings but before he issued his final award, the defendants attempted to withdraw from the arbitration. In this action, Blank Rome seeks judicial confirmation of the final arbitration award, post-award interest, and the legal fees and expenses it incurred to enforce that award. The defendants seek dismissal of the complaint, rescission of the arbitration agreement or, in the alternative, vacation of the arbitration award. This is the Opinion of the Court on the parties' cross motions for summary judgment. For the reasons discussed herein, Blank Rome's motion will be granted and the defendants' motion will be denied.
At the time that the underlying action and fee action were filed, the firm was known as Blank, Rome, Comisky McCauley LLP. The firm officially changed its name to Blank Rome, LLP on January 2, 2003.
I. FACTS
Blank Rome, together with another firm, represented the defendants, Mikios Vendel, Technicorp International II, Inc., and Statek Corporation, in certain litigations in Delaware. Although they prevailed in the underlying litigation(s), the defendants refused to pay all of Blank Rome's billed fees, claiming that they were false, incorrect, and otherwise improper. Blank Rome then sued the defendants in the Superior Court to recover its unpaid fees. During the Superior Court litigation, the parties tried, albeit unsuccessfully, to settle the case through mediation. Eventually, the Superior Court action was dismissed by agreement of all parties in favor of binding arbitration. Superior Court Judge Richard R. Cooch entered the parties' Agreement on Binding Arbitration (the "Arbitration Agreement") as an Order on November 8, 2OOO.
Skadden, Arps, Slate, Meagher Flom, LLP ("Skadden Arps") represented the defendants in most of the underlying litigations — Technicorp Int'l II, Inc. v. Johnston, 2000 Del. Ch. LEXIS 81 (Del.Ch. May 31, 2000) (Jacobs, V.C.); Arbitrium (Cayman Islands) Handels AG v. Johnston, C.A. No. 13506. During the litigation, one of the defendants' attorneys, Cathy Reese, Esquire ("Reese"), left Skadden Arps and joined Blank Rome. In March 1998, the defendants retained Blank Rome, which prosecuted Technicorp mt "iii v. Johnson on their behalf. Blank Rome also worked on other discrete tasks in related matters. Blank Rome claims that it represented the defendants in all of the cases listed above as well as in two actions in Connecticut.
Blank Rome Comisky McCauley, LLP v. Vendel, C.A. 99C-05-012 RRC, Cooch, J. (Del.Super. Nov. 8, 2000) (ORDER) [PX 1]. In this Opinion, the references to "PX" refer to the exhibits attached to the "Appendix to Plaintiffs Brief in Support of Summary Judgment Confirming Arbitration Award."
The Arbitration Agreement provided that retired Superior Court Judge Vincent A. Bifferato (the "Arbitrator") would arbitrate the dispute under the Delaware Uniform Arbitration Act. The Arbitrator conducted hearings between March 5 and March 16, 2001, and the parties submitted their closing statements to the Arbitrator on March 27, 200l.
PX 1 at §§ 1, 2. The Delaware Uniform Arbitration Act is found at 10 Del. C. § 5701, et seq.
PX 2.
On April 24, 2001, the Arbitrator issued the first of five letter opinions to counsel for the parties by fax and regular mail. In that first letter opinion, the Arbitrator determined that many of Blank Rome's charges were reasonable, but that some were not. The Arbitrator acknowledged that he had not scrutinized every penny of the thousands of disputed charges, but rather, had analyzed the disputed fee charges in terms of certain broad categories. In his opinion, the Arbitrator did not compute the exact amount the defendants owed, but instead he instructed the parties to calculate the math for themselves. Moreover, the Arbitrator offered to explain his delay in issuing the award, but neither party requested any explanation or expressed any concern over that short delay.
PX 4 at 2-4. In Opinion, the references numbers refer the of substantive text within the respective exhibits, not counting the cover pages that accompanied faxed awards.
Id. In his initial award, the Arbitrator focused on the following categories: (i) charges for Reese's legal services, (ii) the cost of Blank Rome's attorneys traveling from other offices to Wilmington, (iii) the "markup" on computerized research, (iv) the use of summaries and digests for depositions, (v) the costs of copies of exhibits and other papers, (v) the long hours required to deal with complicated issues and expedited deadlines, and (vi) the delivery costs for food. In later decisions the Arbitrator used a similar approach to analyze the defendants' objections and requests for clarification.
Id. at 4.
Affidavit of Margaritha E. Werren at Exhibit 9 (cover page to the April 24, 2001 opinion).
On April 26, 2001, the defendants asked the Arbitrator to clarify certain of his rulings made in his April 24 letter opinion. On May 1, 2001, the Arbitrator responded by sending a second letter to the parties by regular mail. Thereafter, on May 7, 2001, Blank Rome sent to defendants' counsel a proposed form of award in the principal amount of $792,134.94. In response, on May 10, 2001, the defendants delivered to Blank Rome a $200,000 check in partial satisfaction of their disputed debt, but the parties remained unable to agree on a final amount that the defendants owed. On May 18, 2001, Blank Rome submitted to the Arbitrator a second proposed form of award, totaling $796,523.32.
PX 7.
PX 9.
To that proposed award, the defendants responded, on May 24, 2001, by complaining to the Arbitrator that Blank Rome was seeking fees to which it was not entitled, and that it was also charging an unreasonable interest rate. The defendants requested the Arbitrator to reconsider his assessment of the overall reasonableness of Blank Rome's charges, because (defendants claimed) the Arbitrator had improperly shifted the burden of proof to the defendants and had also based his holdings on clearly erroneous findings of fact.
On June 19, 2001, the Arbitrator issued, by regular mail, a third letter decision that treated the defendants' May 24 letter as a request for clarification, instead of as a motion for reargument. In that letter opinion, the Arbitrator stated that he had not improperly shifted the burden of proof to the defendants. The Arbitrator defended his findings concerning the reasonableness of various fee charges. He also clarified his ruling as to certain expenses, and explained more specifically the amount of interest that was owed.
PX 12.
Id.
Despite the Arbitrator's efforts, as late as July 5, 2001, the parties were still unable to agree on the amount that was owed. Accordingly, the Arbitrator held another hearing. On December 14, 2001, the Arbitrator issued a fourth letter opinion (by regular mail) affirming most of his earlier rulings and providing a further explanation of their basis. As with his three earlier letter opinions, the Arbitrator requested the parties to compute the exact amount the defendants owed.
PX 14. In his fourth letter opinion, the Arbitrator adjusted his ruling with respect to the mark-up on computerized legal research costs.
On December 18, 2001, Blank Rome sent the defendants' counsel a third proposed form of award. In response, on December 21, 2001, the defendants informed Blank Rome that they would not have sufficient time to confirm the accuracy of Blank Rome's proposed award calculation until after the Christmas holidays. The defendants also took the position that the Arbitrator had never issued a valid award, because he did not fix a specific amount of money damages and because he did not properly explain the bases for his decisions.
PX 16.
Then in an about-face, on January 3, 2002 the defendants notified Blank Rome and the Arbitrator that the Arbitration Agreement had terminated and that they were withdrawing from the arbitration. The defendants claimed the Arbitrator had not discharged his duties under Paragraph 15 of the Arbitration Agreement, which provided that:
Within 10 business days after the close of the hearing, the Arbitrator will render his award. Although formal findings of fact and conclusions of law are not required, the Arbitrator will set forth in a separate opinion the reasons for the award in brief and concise form, sufficient to apprize [sicj the parties of the bases for his decision.
PX 1 at § 15.
The defendants' formal position was that Paragraph 15 was breached, because almost nine months after the arbitration hearings, no final award had been rendered and because they never received a separate opinion apprising them of the bases for the Arbitrator's decision(s).
PX 17.
Four days later, on January 7, 2002, the Arbitrator signed a Final Arbitration Award (the "Final Award") on the form that Blank Rome had forwarded to him on December 18, 2001. The Final Award granted Blank Rome fees and expenses of $620,514.02. In a cover letter, the Arbitrator advised the parties that (i) the defendants were not entitled to withdraw from the arbitration without leave, which had not been granted; (ii) the award was issued more than ten days after the close of the hearing, in part because the defendants' repeated objections and requests for clarification required the Arbitrator to review thousands of pages of exhibits; and (iii) the defendants waited nearly eight months before asserting the position that the Arbitrator had missed the ten day deadline for entering the award.
PX 18.
On January 17, 2002, the Blank Rome filed this Court of Chancery action seeking confirmation of the arbitration award. The defendants filed an answer and counterclaim, and thereafter they filed in the Superior Court a motion to vacate Judge Cooch's Order dismissing their lawsuit in favor of arbitration. On April 12, 2002, Judge Cooch denied the defendants' motion to vacate on the ground that the Superior Court lacked subject matter jurisdiction under the Uniform Arbitration Act. As a consequence, this Court of Chancery action is the only proceeding in which the parties' feerelated claims and counterclaims are sub judice.
Blank Rome Comisky McCauley LLP v. Vendel, 2002 Del. Super. LEXIS 477 (Del.Super. Apr. 12, 2002). Paragraph 19 of the Arbitration Agreement also provides that "[t]he Delaware Court of Chancery shall have jurisdiction over the parties for purposes of entry, appeal and enforcement of the Arbitrator's award and provisions of this Agreement." PX 1 at § 19.
II. THE GOVERNING LAW AND THE PARTIES' CONTENTIONS
Summary judgment is an appropriate vehicle to review an arbitration award, because the complete arbitration record is before the Court and a de novo hearing is not available to determine whether any statutory exception authorizing vacating the award is applicable. Under Court of Chancery Rule 56, the Court may award summary judgment if, based upon the undisputed material facts, the moving party is entitled to judgment as a matter of law.
E.I. duPont de Nemours and Co. v. Custom Blending Int'l, Inc., 1998 Del. Ch. LEXIS 215 (Del.Ch. Nov. 24, 1998).
The Delaware statutory scheme for confirming an arbitration award is straightforward. Section 5713 of the Delaware Uniform Arbitration Act requires this Court to confirm an award unless one or more narrowly circumscribed grounds for vacating the award are established. The defendants contend that the award should be vacated on two statutory grounds, namely 10 Del. C. § 5714(a)(3) and (a)(5), which provide, in pertinent part, that an arbitration award may be vacated where:
10 Del. C. § 5713" 10 Del. C. § 5713.
Id. at § 5714.
(3) The arbitrators exceeded their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made; [or]
(5) [T]he agreement to arbitrate had not been complied with. . . .
The defendants contend that the Final Award must be vacated because the Arbitrator: (i) lacked the power to issue his Final Award, since by that point the arbitration had already terminated; (ii) improperly served the award upon the defendants; (iii) misapplied the law; and (iv) did not properly apprise the parties of the bases for his rulings. The defendants further argue that Blank Rome is not entitled to the fees and costs it incurred to defend the arbitration proceedings and the Superior Court and Chancery proceedings. Blank Rome vigorously resists those contentions.
These conflicting positions generate five issues. The first is whether the defendants validly terminated the arbitration before the Final Award was rendered. The second is whether the Award was validly served. The third is whether the Arbitrator manifestly disregarded the law. The fourth is whether the Arbitrator properly apprised the parties of the bases for his rulings. The fifth issue is whether Blank Rome is entitled to its fees and costs associated with defending the arbitration and the arbitration award.
These issues are addressed in that sequence.
III. ANALYSIS
A. Whether The Arbitration Was Validly Terminated Before The Arbitrator Issued His Award
The first issue presented is whether the defendants validly terminated the arbitration, thereby divesting the Arbitrator of any power to enter a Final Award. The Arbitration Agreement provides that any arbitration conducted thereunder will be binding and that the Arbitrator is fully empowered to adjudicate the dispute. Although the Agreement provides that the award will be rendered "[w]ithin 10 business days after the close of the hearing, " it does not create any procedure for terminating the arbitration. The defendants claim that because the Arbitrator failed to issue his Final Award until almost nine months after the close of the hearing, their obligation under the Arbitration Agreement had terminated, thereby entitling them to withdraw from the arbitration.
PX l at §§ 1, 3.
Id. at § 15.
Any analysis of this claim must begin with the chronological sequence of relevant events. The parties submitted their closing briefs to the arbitrators on March 27, 2001. The Arbitrator issued his first letter decision on April 24, 2001 — twenty-one business days after the close of the hearings, and eleven business days after the ten-day contractual deadline. Neither at that time nor in the course of the Arbitrator's next three decisions did the defendants ever complain of any delay or assert that that delay or any other delays had legal significance.
The argument that the Final Award came too late is meritless. As a purely factual matter, the initial award was issued on April 24, 2001, not January 7, 2002 as the defendants argue. Thus, the award was late by only eleven business days, not by nine months. Moreover, as a legal matter, the defendants waived their right to object as to the lateness of that and the later awards. My reasons follow.
1. When Was The First Award Issued?
The factual premise of the defendants' position is that the Arbitrator did not issue an "award" for almost nine months after the close of the hearing. To determine the length of the Arbitrator's delay in issuing his award, it is necessary to determine which "award" the Arbitration Agreement is referring to, and when that award was issued. The defendants insist that the Arbitrator's letter opinions of (i) April 24, 2001; (ii) May 1, 2001; (iii) June 19, 2001; and (iv) December 14, 2001 were not "awards." Rather, they urge that the only legally significant "award" was the letter issued on January 7, 2002, which (defendants say) was legally void, because the Arbitrator had been divested of authority on January 3, 2002.
Under Delaware law, an "award" is a decision or determination that an arbitrator intends to be a final adjudication of a controversy submitted to arbitration. Here, each of the Arbitrator's five signed letter opinions (i) decided matters that had been submitted to arbitration, (ii) explained why certain expenses were (or were not) reasonable, and (iii) provided information that enabled the parties themselves to quantify the Final Award. The Arbitrator intended that each letter opinion be sufficient to enable the parties to agree upon a final form of award. The letters addressed the merits of the dispute, not interlocutory procedural issues. The Court therefore concludes that each of the Arbitrator's five decisions constituted an "award, " the first of which was issued on April 24, 2001.
Fid. Deposit Co. of Maryland v. Delaware Dep "t of Admin. Serv., 2003 Del. Ch. LEXIS 51, at *14.*15 (Del.Ch. May 7, 2003, revised May 15, 2003) (holding that a ruling on an arbitrator's interlocutory decision on a narrow procedural question did not constitute an "award"); see also Berryman v. John F. Casey Co., 251 A.2d 565, 567 (Del.Super. 1969); see also Jay E. Grenig, Alternative Dispute Resolution, at § 6.1, at 100 (2d ed. 1997) (providing that under the Uniform Arbitration Act, the award must be signed and written).
Although Paragraph 15 of the Arbitration Agreement states that the "award" must be rendered within ten days of the close of the hearings, that provision does not mandate the entry of the final form of the award within that ten day period. In this case, the entry of the final awarded amount was essentially a ministerial act. Moreover, and importantly, the defendants' construction of the Arbitration Agreement, if accepted, would lend itself to mischief, because it would give either party the unilateral ability to delay the issuance of an award by more than ten days, by simply refusing to agree upon a form of award. If the defendants' construction were accepted, any party could opportunistically render the entire arbitration a nullity by this tactic. For these reasons, the Court determines that in these circumstances, for purposes of the Arbitration Agreement, the Arbitrator's initial April 24, 2001 opinion was the "award" that was subject to the ten-day deadline.
Accordingly, the issue becomes whether the eleven-day delay is fatal to the enforceability of the arbitration award. I conclude that it was not.
2. Did The Arbitrator's Delay In Issuing The Initial or Final Award Invalidate Either?
The defendants advance contradictory arguments to support their claim that the Arbitrator violated the Arbitration Agreement deadline. On the one hand, they seek to invalidate the arbitration on the basis that the ten day deadline in the Arbitration Agreement is jurisdictional, so that any delay in issuing the award, no matter how slight, revokes the Arbitrator's powers. On the other hand, the defendants also take the position that although they did not object to a reasonable delay, they never intended or agreed to extend indefinitely the Arbitrators time to issue a final award, and that a nine-month delay in issuing the award was too long, thereby entitling them to terminate the arbitration.
Parties to an arbitration agreement may fix by contract the time within which an arbitration award must be rendered. The defendants contend that under Fagnani v. Integrity Finance Corporation, contractual deadlines of that kind are jurisdictional and, if violated, defease the Arbitrator of all power to decide the case. But, nothing in the Arbitration Agreement provides, either explicitly or by inference, for such a drastic consequence (or for that matter any consequence). Moreover, Fagnani itself undercuts the argument that delay beyond the ten-day deadline is jurisdictional because it holds that a party to an arbitration agreement may waive its objection to the lateness of the award. Indeed, courts are reluctant to invalidate untimely awards in cases where the delay is short, no party was prejudiced, and conduct amounting to a waiver has occurred.
Grenig, supra note 25, at § 6.3, at 101.
1960 Del. Super. LEXIS 82 (Del.Super. 1960).
Id. at 75. A waiver occurs when a party knows that he has a right, intends to relinquish it, and acts inconsistently with that right. Russykevicz v. State Farm Mut. Auto Ins. Co., 1994 Del. Ch. LEXIS 103, at *14 (Del.Ch. June 29, 1994). Before Delaware adopted the Uniform Arbitration Act, arbitration agreements were governed by common law, and arbitration cases could be heard in Delaware's Superior Court. At the time that the Superior Court decided Fagnani in 1960, only one state (Minnesota) had adopted the Uniform Arbitration Act. Since then, thirty-four states (including Delaware) and the District of Columbia have adopted that statute. Fourteen other states have adopted other modern arbitration statutes. Grenig, supr a note 25, at § 3.16, at 45-46. The Uniform Arbitration Act vests in the Court of Chancery the jurisdiction to hear arbitration cases and denies that right to Delaware's other courts.
Tomczak v. Erie, 268 F. Supp. 185 (W.D. Pa. 1967) (holding that the court was not bound by old precedents on common law arbitration that declared untimely awards to be invalid and that a two-week delay was not fatal to the award); Allan B. Korpela, Construction And Effect of Contractual or Statutory Provisions Fixing Time Within Which Arbitration Award Must Be Made, 56 A.L.R.3d 815; Grenig, supra note 25, at § 6.3, at 101-02.
Although the Arbitration Agreement here contemplated that the Arbitrator would render an award within ten business days of the close of the hearing, the defendants never objected to, nor expressed any concern, over the brief eleven-day delay in rendering the first award. Despite the Arbitrator's stated offer to explain the reasons for that delay, the defendants waited almost nine months, until January 3, 2002, to advance — for the first time — their timeliness objection. That conduct constitutes a waiver of the defendants' right to object to the tardiness of the initial award.
The Court also concludes that that same conduct also stops the defendants from claiming that the Arbitrator unduly delayed in issuing his Final Award. The defendants themselves created the need for delay by asking the Arbitrator, on several occasions, to clarify his previous rulings and to revisit certain of their arguments that had been rejected. The Arbitrator patiently addressed each of the defendants' extensive questions and each time after doing that, he waited for the parties to reach agreement on the amount of the Final Award. In these circumstances, it is the defendants who must shoulder much of the blame for the Arbitrator's delay, because of their persistent refusal to accept his adverse rulings. The defendants now seek to take advantage of the delay they created, to the considerable detriment of Blank Rome, which expended significant time and resources arbitrating the fee dispute. Given their inequitable conduct, the defendants cannot now be heard, i.e., are estopped, to object on the ground of delay.
Although the Arbitrator took until December 2001 to respond to the defendants' questions at July hearing, the defendants waited until January 3, 2002 to object to the delay. I regard their objection to that delay as also waived.
For these reasons, the defendants' time-based objections to the initial and the Final Award are rejected.
B. Whether The Award Was Validly Served
The defendants next claim that they were not validly served with the awards. Section 5709(a) of the Delaware Uniform Arbitration Act directs the arbitrator to "deliver a copy of the award to each party personally or by registered or certified mail, return receipt requested, " unless the arbitration agreement specifies otherwise. The defendants contend that the awards (i) should have been delivered to them personally, rather than to their counsel, and (ii) should have been served by registered or certified mail, rather than by fax and regular mail. That argument founders for two reasons.
First, the defendants' position runs afoul of 10 Del. Co. § 5707, which provides that "[i]f a party is represented by an attorney, papers to be served on the party shall be served on the parties' attorney." Arbitration awards are included among the "papers" served upon the parties during the course of an arbitration. On that basis alone, the Arbitrator's delivery of the awards to the parties' attorneys was proper. Second, although the Arbitrator delivered all the awards to the parties' counsel by fax and regular mail, at no time did the defendants object to that procedure. Nor did they ever complain about the manner of effecting service until June 22, 2002, when they raised the issue for the first time in a footnote of their Answering Brief. Thus, the service objection, besides being meritless, was waived as well.
Id. at § 5707 (emphasis added).
In the Matter of Moritz Kozlowski v. Seville Syndicate, Inc., 314 N.Y.S.2d 439, 449, (N.Y.Sup.Ct. 1970) (holding that the arbitration award should not be vacated simply because it was made by regular mail even though N.Y. C.P.L.R. 7507 — like Delaware's Uniform Arbitration Act — provided that delivery must be made "personally or by registered or certified mail, return receipt requested").
Having disposed of the defendants' procedural objections, the Court turns to the defendants' substantive objections to the Arbitrator's rulings.
C. Whether the Arbitrator Manifestly Disregarded the Applicable Law
The defendants' third claim is that the Arbitration manifestly disregarded the law. Parties who agree to submit their dispute to arbitration, are free to designate in their contract what legal rule of decision shall be applied to the issues being decided. Here, the Arbitration Agreement provided that the parties' disputes, as framed in the complaint and the counterclaim, would be submitted to arbitration, but that Agreement did not articulate a legal review standard.
Grenig, supra, note 25, at § 4.2, at 63-65.
PX 1 at §§ 1, 6. The Superior Court dismissed some issues within the case before the arbitration began, and they were not raised again.
The defendants contend that the Arbitrator was required to but did not — treat the arbitration as a claim for breach of contract. Reasoning from that premise, the defendants urge that Blank Rome was required to satisfy a dual burden. First, under the defendants' so-called "contract" standard, Blank Rome had to establish that each specific disputed fee charge was authorized under the fee agreement, and also was appropriate and accurate. Second, defendants argue separately that under the Rules of Professional Responsibility, Blank Rome had to establish independently that the aggregate fee charge was reasonable. In this case, defendants assert, the Arbitrator failed to apply the "contract" standard, because he did not consider the propriety of each individual disputed fee charge. Instead, (defendants argue) the Arbitrator focused on the reasonableness of the overall billings, and thereby incorrectly treated the claim as one for "quasi contract." Because a contract — and not a quasi contract — claim was submitted for arbitration (the argument goes), the Arbitrator manifestly disregarded the law in violation of the Uniform Arbitration Act. As a result, the Arbitrator improperly credited Blank Rome with performing work that another law firm had completed before Blank Rome had ever been retained.
The defendants argue that the Arbitrator made certain factual errors. This argument falls into that category. The Court, however, is not to engage in a de novo review of the facts found by the Arbitrator. Meades v. Wilmington Hous. Auth., 2003 Del. Ch. LEXIS 20, at *21 (Del. Ch. Mar. 6, 2003).
Arbitrators who act in "manifest disregard of the law" are deemed to have exceeded their authority under Section 5714(a)(3). Where an arbitrator acts in "manifest disregard of the law" by ignoring the controlling law altogether, the Court may vacate the arbitration award. But a court can do that only where there is clear and convincing evidence that the arbitrator clearly exceeded his authority. If any basis to support the award can be inferred from the facts of record, the Court must conclude that the arbitrator acted within his authority and must uphold the award. Factual or legal errors, without more, are not sufficient bases to vacate an arbitration award.
Wier v. Manerchia, 1997 Del. Ch. LEXIS 17 (Del.Ch. Jan. 28, 1997).
Id. at *5 — *6
Id. at *5
On this record, the Court is unable to conclude that the Arbitrator acted in "manifest disregard of the law." Despite the defendants' vigorous advocacy of their "contract" review standard, they cite no case precedent, nor any provision of the Arbitration Agreement, that would require this Court to evaluate legal fee disputes in the manner that they advocate. The defendants' "contract" standard is ipse dixit, apparently crafted solely for purposes of this litigation, and moreover, is out of step with the legal authorities that bear relevantly upon this subject.
The defendants cite authorities that are factually and legally inapposite to the case at bar. See Int'l Bhd of Elec. Workers, Local 1400 v. Citizens Gas Coke Util., 428 N.E.2d 1320 (md. App. 1981) (vacating an arbitration award because the arbitrator was asked to determine whether a job applicant met the qualifications that the employer established for a particular job but instead evaluated the fairness of the standards); Aamot v. Eneboe, 352 N.W.2d 647 (S.D. 1984) (vacating an arbitration award because the arbitrator was asked to determine whether a contract for the sale of property was binding but instead decided to split the property between the parties); Roadway Package Sys., Inc. v. Scott Kayser, 257 F.3d 287 (3d Cir. 2001) (vacating an arbitration award where the agreement expressly authorized the arbitrator to determine whether an employee's termination was within the terms of his employment agreement, but where the arbitrator ruled on the fairness of the termination procedures).
In State of Wisconsin Investment Board v. Bartlett, this Court, applying a standard prescribed by both the Supreme Court and this Court in earlier cases, employed a multi-factor test to evaluate a fee application. Those factors (which are sometimes referred to as the "Sugarland factors") include:
2002 Del. Ch. LEXIS 42 (Del.Ch. Apr. 9, 2002).
See, e.g., Sugarlandlndus. Inc. v. Thomas, 420 A.2d 142 (Del. 1980); Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039 (Del. 1996); In re Prodigy Communs. Corp. S'holders Litig., 2002 Del. Ch. LEXIS 95, at *17 (Del.Ch. July 26, 2002).
(1) the time and effort expended by counsel;
(2) the difficulty and complexity of the litigation;
(3) the standing and ability of the attorneys;
(4) the contingent nature of the fee;
(5) the stage at which the litigation ended;
(6) the amount of the benefit that can fairly be attributed to the efforts of the requester of the fees; and
(7) the size of the benefit conferred. In Bartlett, the Chancellor also held that, where applicable:
the terms of a fee agreement between a law firm and its client are appropriate for the Court to consider. Fee agreements cannot absolve the Court of its duty to determine a reasonable fee; on the other hand, an arm's-length agreement, particularly with a sophisticated client, as in this instance, can provide an initial "rough cut" of a commercially reasonable fee.
Bartlett, 2002 Del. Ch. LEXIS 42, at *18.
Id. at *20.
Thus, Bartlett and earlier Delaware case law make it plain that there is no exclusive "contract" standard that an arbitrator must apply when evaluating the reasonableness of disputed legal fees.
The defendants also point to Delaware's Professional Conduct Rule 1.5(a) as a source for determining the reasonableness of a fee. That Rule mandates that lawyers shall not charge unreasonable fees or unreasonable amounts for expenses. But that alternative argument does little to advance the analysis, because the factors prescribed by Rule 1.5(a) are virtually identical to those prescribed by the Delaware cases.
Rule 1.5(a) provides that a determination of reasonableness must take into account the (1) time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) fee customarily charged in the locality for similar legal services; (4) amount involved and the results obtained; (5) time limitations imposed by the client or by the circumstances; (6) nature and length of the professional relationship with the client; (7) experience, reputation, and ability of the lawyer; and (8) fixed or contingent nature of the fee. Del. Prof 1 Conduct R. 1.5(a) (Del. R. Ann. 2003).
The arbitration record reveals that the Arbitrator applied the requisite multi-factor legal standard, and that his conclusions, based on that standard, are supported by evidence. The Arbitrator acknowledged that his duty was to determine the reasonableness of the disputed fees, a determination that must be made on a case-by-case basis. The issue is what review process the Arbitrator was permitted to employ in making that determination.
PX 4 at l.
In the arbitration proceedings, the defendants sought to nit-pick literally thousands of disputed individual charges, ranging from forty-three cent telephone calls to several hundred dollars. The defendants insist that the Arbitrator was obligated to review each of those disputed charges, item by-item. The Arbitrator disagreed. He declined to scrutinize multitudinous disputed individual charges because that would be too time consuming and would serve little purpose. Instead, the Arbitrator focused on specific categories of expense and determined the reasonableness of the total charges in each category. Given the thousands of disputed individual charges, and the Arbitration Agreement's requirement of a "brief and concise" explanation of the Arbitrator's findings, the defendants have not persuaded the Court that the Arbitrator's methodology was inappropriate.
Id. at 2.
PX 20, 21.
PX 1 at § 15.
The record discloses that the Arbitrator scrutinized categories that correspond to the factors enumerated in Rule 1.5(a), specifically: (i) the time and effort expended by counsel, (ii) the difficulty of the questions involved, (iii) the fees customarily charged for similar services, (iv) the amount of money involved and the results obtained, (v) the timelines imposed by the circumstances of the case, (vi) the nature and length of the professional relationship with the clients, and (viii) the experience and abilities of the lawyers.
PX 4 at 1, 3.
Id. at 4.
PX l4 at l.
PX 4 at 4.
Id. at 3.
Id. at 4.
Id.
As for the disputed expenses, the parties' fee agreement contemplated that Blank Rome would charge the clients for photocopies, telephone calls, and computer research, among other things, and it did not limit what amounts could be charged for these categories of expense. Although the defendants objected to the billed cost of those items (including depositions) that were incurred during the underlying litigation(s), the Arbitrator concluded that given the nature and the magnitude of the underlying lawsuits, those costs were justifiably incurred. In short, there has been no showing that the Arbitrator "manifestly disregard[ed] the law" within the meaning of to Del. C. § 5714 (a)(3), in determining the reasonableness of the disputed fees.
The Arbitrator found that most of the costs were reasonable, and that many of them were expressly authorized by the fee agreement. Common sense suggests that when a client hires a lawyer, the client implicitly agrees that the lawyer will have certain resources to accomplish the task at hand. The client cannot require the lawyer to give diligent representation and at the same time handcuff the lawyer from having access to the customary tools of the profession (e.g. photocopies, telephone calls and legal research) and techniques (e.g. summarizing the relevant portions of lengthy depositions).
D. Whether The Arbitrator Properly Apprised The Defendants of The Bases For His Rulings
The defendants next claim that the Arbitrator violated Paragraph 15 of the Arbitration Agreement, which directs that the Arbitrator "set forth in a separate opinion the reasons for the award in [a] brief and concise form, sufficient to apprize [sic] the parties of the basis for his decision, That Agreement, it should be noted, does not require the Arbitrator to make formal factual findings or legal conclusions.
PX l at § 15.
The defendants argue that because the Arbitrator failed to comply with Paragraph 15, the Final Award must be vacated under 10 Del. C. § 5714 (a)(5). They insist that the Arbitrator was required to issue an opinion, separate and apart from the Award itself, and that here, the Arbitrator's letter decisions failed to: (i) address most of their specific objections, (ii) inform the defendants of the bases for his decision, or (iii) describe how Blank Rome satisfied its burden of proof. The Court disagrees.
This Section permits the Court to vacate an arbitration award if the Arbitrator did not comply with the Arbitration Agreement.
Where grounds that support an arbitration award are inferable from the facts of record, the Court must conclude that the Arbitrator acted within his authority. Here, the Arbitrator's awards and his conclusions are grounded in the record and satisfy the requirements of the Arbitration Agreement. The Arbitrator's awards briefly, although adequately, explained his reasons for concluding that it was proper for Blank Rome to: (i) charge for Cathy Reese's time while she was in hiding; (ii) create summaries or digests for depositions; (iii) make copies of papers and exhibits; (iv) charge for the time required to prepare for certain exhibits to be introduced into evidence at trial, and (v) charge for certain "marked-up" costs. The Arbitrator also explained why he would not allow Blank Rome's charges for certain travel costs and for the high delivery cost of food for the attorneys. Lastly, the Arbitrator fixed an interest rate to be applied to the principal amount of the award, and provided a formula to determine the date from which interest would begin to accrue.
Malekzadeh v. Wyshock, 611 A.2d 18, 21 (Del.Ch. 1992).
In the underlying action, this Court awarded Miklos Vendel (the plaintiff in that case, but a defendant here) attorneys' fees of approximately $ 1.8 million, payable by the defendants in that action. One of the defendants in the underlying action was later arrested by London (Scotland Yard) police, and was later tried and convicted for conspiracy to murder Vendel, his Delaware counsel (Reese) and other persons. Technicorp Int'II, 2000 Del. Ch. LEXIS 81, at *49 n. 36. As a result, Reese went into hiding. The Arbitrator was persuaded that Reese was told to charge for the time that she was in hiding. He found that it was reasonable for her to bill for that time, because her need to hide was occasioned by her representation of these defendants, and during that time she lost the opportunity to work on other matters. Because of the danger being threatened to herself and her family, Reese and her family were forced to leave their home. Special security measures were also taken at her home and law firm to protect them. PX 4 at 2-3; PX 7 at l.
The Arbitrator held that based on his thirty-two years of experience on the bench in civil litigation, the use of digests and summaries is a usual practice, and that summaries and digests are useful to assist the attorneys where the depositions and other documents are lengthy. PX 4 at 3.
The Arbitrator found that the copy costs were justified based on the volume of papers needed by the attorneys and the Arbitrator. Id. Based on the evidence and the authorities submitted, the Arbitrator found that a charge of twenty-two cents a page was reasonable. PX 14.
The Arbitrator found that because of the defendants' desire to speed up the underlying litigation, numerous documents had to be introduced on an expedited basis. He also found that Reese had a substantial and challenging task in satisfying herself that the documents were admissible, given the unique issues posed. Accordingly, the Arbitrator found that the research costs and time involved were justified. PX 4 at 3-4.
The Arbitrator initially ruled that although the costs of computerized research are passed on to the clients, "mark-ups" of such research were not permissible. Id.; PX 7 at 1. Later, however, during the July 5, 2001 hearing, that issue was revisited in greater detail. Blank Rome explained that it multiplied the Lexis, Westlaw, and telephone costs by 1.5 as a means to recoup the support costs, which included overhead costs for hardware, software, and personnel. Blank Rome explained that it was not using those expense categories as a means of earning profit. The defendants objected to the costs, but the Arbitrator saw fit to grant them. PX 13 at 53-71. Although the defendants complain of having lost on an issue that they had initially won, that is an inherent risk of reargument and was a result that they brought upon themselves.
The Arbitrator found that because Blank Rome's representation letter did not mention that attorneys (and personnel) from offices other than their Wilmington, Delaware might become involved in the case, those travel costs could not be billed to the defendants because to do so would be unreasonable. PX 4 at 3; PX 7 at 1. On July 5, 2001, the defendants argued that Blank Rome's out-of-town attorneys may have billed their travel time by adding several minutes to their time billed for substantive work. The Arbitrator examined the billings, but could not ascertain whether that was the case. The Arbitrator affirmed his earlier ruling upholding the time charged. PX 14 at 1.
PX 4 at 4.
PX 12 at 2; PX 14 at 2.
The Arbitrator's various awards more than adequately satisfy the requirement of a "brief and concise statement" of the bases of his decisions. Although the defendants may not agree with the Arbitrator's findings, the Arbitrator did his best to satisfy the defendants' seemingly insatiable and relentless demands for clarification.
When reviewing an arbitration award, the Court is prohibited from considering the merits of the dispute submitted to the Arbitrator. Custom Decorative Moldings, Inc. v. Innovative Plastics Tech., Inc., 2000 Del. Ch. LEXIS 131 (Del.Ch. Aug. 30, 2000); 10 Del. C. § 5701. Here, the defendants bicker over numerous factual findings and assumptions and whether there was evidentiary basis in the record for those findings. Specifically, the defendants argue that Blank Rome improperly charged the defendants for (i) nonbillable time to review various issues, (ii) work for other clients, (iii) personal expenses, (iv) work done after Blank Rome was removed from given projects, (v) secretarial services, and (vi) $7,289.51 for work performed before Blank Rome was retained. They also argue that Blank Rome improperly altered charges. Blank Rome responded to all these arguments and the defendants replied in turn. In reality, the defendants seek a de novo review of a multitude of facts decided in the Arbitration. These detailed factual arguments are beyond the scope of this Court's review. It is not apparent that the Arbitrator disregarded the law or exceeded his authority and the Court will not disturb his findings.
The defendants' insistence that they are entitled to a more detailed analysis in response to each of their objections to the thousands of individual charges, has no support in arbitration law, equity, or the record. There is no way the Arbitrator could accomplish what the defendants demanded in a brief and concise manner, as the Arbitration Agreement required, and, in many cases the defendants sought clarification of rulings where the Arbitrator's reasoning was — or to a reasonable person should have been — obvious.
PX 7, 12, 14. The defendants argue that the Arbitrator allowed certain expenses without supporting documentation. The Arbitrator explained that although there were some evidentiary gaps, he made certain assumptions and connected the work performed with what was needed to get the case ready for trial. PX 7 at 1. The Arbitrator explained that Blank Rome had the burden of justifying its expenses and that he (the Arbitrator) did not improperly shift the burden of proof to the defendants. PX 12 at 1. Although Blank Rome may not have provided specific documentary evidence for every penny charged and every second worked, such microscopic precision is not required. Blank Rome must prove its case by a preponderance of the evidence, not beyond a reasonable doubt. The Arbitrator was entitled to base his decision on the entire record of the case and his common sense.
"The defendants also argue that the Agreement required that the Arbitrator to issue an award and a separate opinion. Where the parties agree to arbitrate a disputed value, the award does not simply settle the value or price. Grenig, supra note 25, at § 6.1, at 100. The Court perceives no logical reason why the award and the explanation cannot be in the same document. Courts frequently make awards at the end of their opinions simply by writing "It Is So Ordered." Because the Arbitrator explained his reasoning in his letter decisions, they are properly regarded as both "opinions" and "awards."
The Arbitrator conducted a hearing that took two weeks. He considered the testimony of many witnesses, reviewed thousands of pages of exhibits, and had numerous opportunities to exchange views with the parties about the case through correspondence. The Arbitrator, who had served as a Superior Court judge for over thirty years, was fully capable of making judgments about the parties' credibility in those proceedings. His judgments are supported by evidence of record and will not be overturned.
E. Blank Rome's Entitlement To Its Fees And Costs
On May 24, 2001, the defendants were disputing $84,412.88 in legal fees. By July 5, 2001, they told the Arbitrator that they were closer together with respect to some issues. In the underlying litigation, the defendants won at least $30.3 million dollars (the defendants claim that the verdict was worth $40 million). By the time that the Final Award was computed, the legal charges were worth slightly more than $820,000 — a figure that does not include the cost of the arbitration and the litigation that followed. Thus, whatever the value of the original verdict, the disputed amount (which was less than $84,412.88) represented a fraction of one percent of the final judgment or less than ten percent of the total legal charges by the end of this case. Given the distinct possibility that the defendants would be ordered to pay Blank Rome's costs of defending the award, the case offered a prime opportunity for settlement at that time.
The final issue concerns Blank Rome's entitlement to the fees and costs it incurred in establishing its entitlement to its fees on the underlying litigation. The parties' Agreement provides that if the arbitration award is not satisfied within ten business days of its issuance, the party who is owed payment may enter the award as a judgment of this Court, and shall be entitled to all of its fees and costs incurred in collecting the award. The Agreement further provides that the award shall be nonappealable except as provided by 10 Del. C. § 5714, and that the prevailing party in an appeal or collateral attack shall be entitled to its costs and reasonable attorneys' fees.
PX 1 at §§ 16, 17.
Id. at § 18.
In this case, the Final Award was not satisfied within ten days, and the defendants' challenges under Section 5714 have been rejected. Accordingly, Blank Rome is entitled to have the Final Award entered as a final judgment. It is also entitled to recover its costs and reasonable attorneys fees expended in defending the Final Award and Arbitration Agreement in the Superior Court and in this Court.
The defendants argue (in one sentence in a footnote) that they are entitled to recover their own fees and expenses "[f]or the [same] reasons articulated by Blank Rome." The defendants fail to explain what fees they seek to recover and the legal basis for this claim. The defendants were not found entitled to recover any money under the Final Award. Accordingly, they cannot recover fees under the Arbitration Agreement. Likewise, because they did not prevail in their appeal of, and collateral attack upon, the arbitration award, they are not entitled to recover under Section 5714.
Defendants' Brief in Support of the Clients' Summary Judgment Motion and in Opposition to Blank Rome's Summary Judgment Motion at 15 n. 8.
PX 1 at §§ 16, 17.
IV. CONCLUSION
For the above reasons, the Court grants Blank Rome's motion for summary judgment and denies the defendants' cross motion for summary judgment. The parties shall confer and submit an agreed-upon form of order and final judgment implementing the rulings in this Opinion.