Case text
Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., etc.
No. 99 C 4040
United States District Court, Northern District of Illinois, Eastern Division
12 February 2002
MEMORANDUM OPINION AND ORDER
In connection with the continued motion by Zapata Hermanos Sucesores, S.A. ("Zapata") to recover certain attorneys' fees and expenses that it has paid and incurred in connection with the completed litigation between the parties, the evidentiary hearing to resolve matters that remain at issue (based on the parties' most recent submissions) has been set for its expected completion on February 14, 2002. In the meantime Hearthside Baking Co., Inc. d/b/a Maurice Lenell Cooky Co. ("Lenell") has filed its Memorandum of Law (cited "Lenell Mem.--" ) in response to Zapata's motion and supporting brief (cited "Zapata Mem.-") seeking to bar testimony of Lenell's purported expert witness, Michael J. O'Rourke ("O'Rourke"). This memorandum opinion and order resolves that motion in part.
To begin with, this Court (like counsel for both sides) has reviewed transcripts of the various status hearings - November 7 and 19 and December 6, 20 and 28, 2001 - during which arrangements and procedures for the then-anticipated evidentiary hearing were discussed. This Court agrees that Lenell had contemplated that O'Rourke would testify briefly in accordance with his two affidavits (which would appear to serve as his Fed. R. Civ. P. ("Rule") 26(a)(2)(B) written report,[1] required in light of O'Rourke's purported expert witness status), as well as his then being available for cross examination by Zapata's counsel. This Court has therefore predicated this Memorandum Opinion and Order in terms of the matters covered (as well as the matters not addressed) in O'Rourke's October 11 and December 3, 2001 affidavits and in the "Disclosure of Witnesses" document referred to in n.1.
O'Rourke's October 11 affidavit says that he is "familiar with the usual and customary market rates
charged by attorneys with varying degrees of experience in cases similar to the case entitled
Zapata v. Hearthside," and it then goes on to state his views as to such "usual and customary
market rates." But that approach, like Lenell's responsive Memorandum, has demonstrated O'Rourke's
total failure to conform to the demands of Fed. R. Evid. ("Evid. Rule")702 - and most particularly to the teaching of Kumho Tire Co.
v. Carmichael, 526 U.S. 137 (1999) , which the Committee Note to Evid. Rule 702
confirms as having established the definitive standard for testimony that is
potentially admissible under Evid. Rule 702 but that does not fit under the
"scientific knowledge" rubric. Both O'Rourke (in describing his approach to the
issue) and Lenell's Memorandum (in discussing the applicable law) have totally
misstated the principles that control a case such as this one.[2]
What Lenell Mem. 2-3 [3] seeks to do is to rely on five opinions from our Court
of Appeals: McNabola v. CTA, 10 F.3d 501, 519 (7th Cir. 1993); Cooper v. Casey,
97 F.3d 914, 920 (7th Cir. 1996); Gusman v. Unisys Co., 986 F.2d 1146, 1150 (7th
Cir. 1993); Connolly v. Nat'l Sch. Bus. Serv. Inc., 177 F.3d 593, 596 (7th Cir.
1998); and People Who Care v. Rockford Bd. Of Educ., 90 F.3d 1307, 1310 (7th Cir.
1996). But all five of those cases share a common factor that makes them truly irrelevant to the case at hand. In
every instance the fee award at issue in those cases was dependent on a fee-shifting statute (three cases seeking an award under 42 U.S.C. § 1983; one case
asking for fees under ADEA and one case involving Title VII). Not one of them
involved, as this case does, the sought indemnification of fees that were
incurred by a party pursuant to an agreement that had been reached between that
party and its lawyers entirely without reference to the prospect of a later
potential recovery from the client's adversary. It is in the totally different
unbilled-fee-shifting context that the cases cited by Lenell speak variously of
"prevailing" market rates charged by lawyers of similar ability and experience
in the community, or of "presumptive" market rates, or of using such figures as
a "starting point."
By sharp contrast, this case poses the classic situation of a true market rate
in the sense of the price paid by a willing buyer to a willing seller - in this
instance, of legal services. Zapata hired the Mayer Brown & Platt firm; the work
was within the regular range of practice of the Mayer Brown litigation team;
Zapata's house counsel has reviewed and approved all of the Mayer Brown billings
at issue; and all of Mayer Brown's billed fees have either been paid or
acknowledged by Zapata as its unconditional obligation. Under those
circumstances, what our Court of Appeals has said in Balcor Real Estate Holdings,
Inc. v. Walenta-Phoenix Corp., 73 F.3d 150, 153 (7th Cir. 1996) (emphasis in original)
might well have been written for this case:
"Courts award fees at the market rate, and the best evidence of the
market value of legal services is what people pay for it. Indeed, this
is not 'evidence' about market value; it is market value. Although
courts interpolate the word 'reasonable' into clauses of this kind, the
best guarantee of reasonableness is willingness to pay. Balcor asked
Walentas to make good its actual outlays. Although Walentas denies that
Balcor got its money's worth, it does not deny that these were real
bills that Balcor paid and it does not argue that Balcor's lawyers ran
the meter because they thought that Walentas would have to cover the
tab. Corporate inside counsel monitor bills submitted by outside
counsel; nothing in this record suggests that these bills received less
than the usual review. They were deemed commercially reasonable and
paid. Having defaulted on its obligations and forced Balcor to incur
these costs, Walentas is in no position to complain that it induced
Balcor to incur large legal costs - especially not when the lengthy
discovery into the negotiating history was at Walentas' insistence."[4]
Indeed, this case poses an even more unequivocal predicate for the proposition
that the actual billing as rendered by the Mayer Brown firm and approved by
Zapata "is not 'evidence' about market value; it is market value." Balcor, after
all, involved the enforcement of a contract for indemnification by which the
litigants there had substituted an indemnification agreement as to bearing the
winning party's legal expenses in place of the so-called American Rule, under
which each side must bear its own legal expenses. Such a contract might of course create the possibility that a
party, believing itself to have a dead-bang winner, could run up the legal tab
inordinately in an effort to punish its opponent (a possibility that is glanced
at in the quotation from Balcor). Here Zapata had no such indemnification
undertaking from Lenell, so that nothing whatever casts a cloud on the
conclusiveness of the Mayer Brown rates as establishing market value - not
presumptively, but actually.
Nor is Balcor alone in establishing that proposition as Seventh Circuit law. More
recently Medcom Holding Co. v. Baxter Travenol Labs., Inc., 200 F.3d 518, 520-21
(7th Cir. 1999) has applied the identical analysis, again in the context of an
indemnification agreement. In fact, the Medcom discussion has made some
additional points as to the different nature of billing practices and procedures
where a fee-shifting statute is not involved, points that bear obvious relevance
on other aspects of the current proceeding and that this Court will take into
account at the appropriate time.
Because O'Rourke's report (even in its presently-assumed expanded form) did not fully disclose the claimed "basis and reasons" for his wrongheaded approach to the controlling market rate (as Rule 26(a)(2)(B) obligated him to do), this Court has no way of knowing whether his adoption of a principle so directly at odds with controlling Seventh Circuit precedents was the product of a deliberate decision to do so or rather of ignorance of those precedents. It is scarcely necessary to comment on the significance of the former alternative if it were indeed the case (as this Court trusts it was not). And if the latter alternative applies instead, there is really no excuse for a lawyer who holds himself out as an expert on a legal matter to be unaware of what even brief research would have disclosed.[5]
As for Lenell's counsel and his Memorandum, unawareness of the law is an
unavailable excuse: Zapata's Memorandum expressly cited to and quoted from both
Balcor and Medcom. Indeed, Lenell Mem. 5 (emphasis in original) essays this
feeble attempt to distinguish those cases:
"The case at bar is different for two reasons. First, there is
countervailing evidence of the prevailing market rate, and second, the
plaintiff has not paid its lawyers. Even if the plaintiff's argument
that a paid fee establishes the market rate is true the plaintiff
cannot take comfort from it here."
As to the first purported reason, it is demolished by the Balcor-emphasized
holding that what was billed to Zapata is the market rate, and not merely
evidence. And as for the second purported reason, it is so ethically (and
morally) bankrupt as to invite sanctionability.[6]
In sum, O'Rourke's proposed excursion into the hourly rates that may be charged by some other
lawyers in the legal community - even apart from the considerations that demonstrate the plain
unacceptability of that proposed excursion under the standards established by Kumho Tire, Evid.
Rule 702 and its accompanying Committee Note - is rejected as a matter of law. At the continued
evidentiary hearing on Zapata's motion, it will be permissible to establish a record as to
O'Rourke's attempted methodology (something that seems particularly appropriate in light of the
uncertainty as to whether Ex. C to Zapata's motion to bar is to be viewed as part of O'Rourke's report under Rule 26(a)(2)(B) and hence as a permissible component of his opinion testimony, if it were to be allowed at all).
There is another component to Zapata's motion: It also seeks to bar O'Rourke's opinions as to the
reasonableness of the hours billed by the Mayer Brown lawyers. For the nonce this Court will defer
ruling on that facet of Zapata's motion in order that it may better address the question whether
O'Rourke has passed or flunked the Kumho-Evid. Rule 702 standards on that score as well, a ruling
that may be facilitated by a consideration of O'Rourke's actual testimony in that respect.
/s/
Pace Law School
Institute of International Commercial Law - Last updated December 15, 2003