When requesting attorney fees in federal court pursuant to a contractual fee-shifting provision, rather than a statute, the attorney can submit redacted bills that omit descriptions of the work performed.
In an Aug. 30 opinion from the Seventh Circuit, Judge Kenneth F. Ripple explained for the court, “Given the fact that the fees were paid by a party who had no reassurance of indemnity, we believe that market considerations normally would render unnecessary resort to the time-consuming examination of individual expenses.”
The case involved a contract under which Metavante Corporation agreed to provide electronic banking services and products to a financial institution, Emigrant Savings Bank. The products were intended to enable Emigrant to launch an on-line bank, to be known as EmigrantDirect.
The contract took several months to negotiate, and contained a fee-shifting clause in the event of litigation.
Although the product and services enabled EmigrantDirect to acquire more than 250,000 new accounts and more than $6 billion in deposits, Emigrant was unsatisfied, and Metavante sued in state court for nonpayment of fees.
Emigrant removed the case to federal court, and counterclaimed for breach of contract, intentional misrepresentation, and fraudulent inducement.
After a bench trial, U.S. District Court Judge J.P. Stadtmueller ruled in favor of Metavante, and awarded more than $10 million in attorney fees.
Emigrant appealed, but the Seventh Circuit affirmed.
The court first held that the district court did not err in permitting Metavante’s expert witness to testify. The expert testified that, in his experience, in the financial sector, technological innovation is satisfactory if it enables the buyer to meet its business objectives. The expert testified that, because Emigrant was able to do that, Metavante performed its duties under the contract, despite various problems along the way.
The court held this evidence was reliable and properly admitted by the district court.
Relying on that same testimony, the court also affirmed the district court’s findings that Metavante’s performance was reasonable, and thus, Emigrant breached the contract, rather than Metavante.
The court also held that the district court did not need unredacted bills to award attorney fees to Metavante.
The legal bills showed the amounts of time, rates, and money spent, but descriptions of work performed were redacted. Emigrant argued that the redacted bills made it impossible to review them for reasonableness, but the court disagreed.
The court cited heavily to Medcom Holding Co. v. Baxter Travenol Laboraties, Inc., 200 F.3d 518 (7th Cir. 1999), in which it held that, when attorney fees are actually paid in the ordinary course of business, they are implicitly reasonable.
Rather than engaging in line-by-line review of bills, the court held that district courts should consider the fees in the aggregate to ensure they are reasonable in relation to the stakes of the case and the litigation strategy.
The court noted that a corporation’s general counsel has a duty to its client to ensure that the fees it pays outside counsel is reasonable, warranting an implicit finding of reasonableness.
The court acknowledged that, in some cases, special circumstances may arise, giving doubt to whether the fees are reasonable. But the court found that no such circumstances were present here, noting that Emigrant declined to reveal its own fees as a measure of reasonableness.
Although the opinion is not binding precedent in Wisconsin state courts, it is particularly valuable as persuasive authority, because there is such a dearth of opinions from state courts addressing what constitutes reasonable performance in the context of computer services and products.
Recently, in Racine County v. Oracular Milwaukee, Inc., 2010 WI 25, the Wisconsin Supreme Court held that an expert witness is not required to prove a breach of contract claim, when the parties contracted for computer consulting services.
However, the court did not address what a party needs to show to prove either a breach, or reasonable performance.
The Metavante case is also instructive in that the court’s analysis of the merits relied almost entirely on the expert’s testimony.
The Wisconsin Supreme Court may have held in Oracular Milwaukee that expert testimony is not required to prove breach of a contract for computer services. But the Metavante case suggests that, as a practical matter, it would be difficult to prove the case without it.
As a caveat, attorneys litigating similar cases should be wary of the court’s discussion of Emigrant’s counterclaim for fraud in the inducement. The law that the court cites is the law that governs contracts for services.
Here, however, the contract was for goods and services. When a contract is primarily for goods rather than services, the economic loss doctrine bars most claims in tort.
There is an exception for fraud in the inducement claims, but only if the fraud was extraneous to the contract. If the fraud was interwoven with the contract, the economic loss doctrine bars even tort claims for fraud in the inducement. Kaloti Enters., Inc., v. Kellogg Sales Co., 283 Wis.2d 555, 585 (2005).
But it does not appear that Metavante raised that issue in this case, or preserved it for appeal, if it did. In similar cases involving contracts for electronic goods and services, the economic loss doctrine may be an important consideration. If it is, the court’s analysis of the fraud issue in this case would be of limited relevance.
What the court held
Issues: Where a contract provides attorney fees for the prevailing party in litigation, can the prevailing party submit redacted bills to prove the reasonableness of its fees?
Holdings: Yes. Where the fees were actually paid in the ordinary course of business, they are implicitly reasonable.