360Heros, Inc. v. Mainstreet America Assurance Company

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF NEW YORK

____________________________________________

360HEROS, INC., a Delaware Corporation,

Plaintiff,

vs.

5:17-CV-549

(MAD/ML)

MAINSTREET AMERICA ASSURANCE

COMPANY, a Florida Corporation,

Defendant.

____________________________________________

APPEARANCES: OF COUNSEL:

GAUNTLETT & ASSOCIATES DAVID A. GAUNTLETT, ESQ.

18400 Von Karman Avenue, Suite 300 JAMES A. LOWE, ESQ.

Irvine, California 92612

Attorneys for Plaintiff

KENNEY SHELTON LIPTAK NOWAK LLP MELISSA A. FOTI, ESQ.

233 Franklin Street MATTHEW C. RONAN, ESQ.

Buffalo, New York 14202

Attorneys for Defendant

DELAHUNT LAW PLLC TIMOTHY E. DELAHUNT, ESQ.

295 Main Street, Suite 836

Buffalo, New York 14203

Attorneys for Defendant

Mae A. D'Agostino, U.S. District Judge:

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

This declaratory judgment action arises out of an underlying action in which Defendant

Main Street America Assurance Company's ("MSA") insured, Plaintiff 360Heros, Inc.

("360Heros") was sued by GoPro, Inc. ("GoPro") for patent and trademark infringement

(hereinafter the "GoPro action"). Defendant agreed to defend Plaintiff in the underlying GoPro

action and continued to do so after this action was commenced. On May 17, 2018, the underlying

GoPro action was settled.

In the present matter, the only remaining dispute concerns the reasonableness of attorneys'

fees and expenses billed to Defendant by Plaintiff's defense counsel, Gauntlett & Associates

("Gauntlett"), in the GoPro action. Currently before the Court are the parties' cross motions for

summary judgment. See Dkt. Nos. 94 & 96. As set forth below, Plaintiff's motion for summary

judgment is denied and Defendant's motion for summary judgment is granted.

II. BACKGROUND

The Court assumes the parties' familiarity with the background of this case, as detailed in

the August 7, 2019 Memorandum-Decision and Order. See Dkt. No. 77.

III. DISCUSSION

A. Plaintiff's Motion to Strike

While Plaintiff has not formally made a motion to strike, Plaintiff objects to Defendant's

use of the declarations of Kenneth Keller, Matthew Ronan, and Brian Brennan to support its

claims that the hours and expenses billed by Plaintiff's Counsel, Gauntlett & Associates,

(hereinafter "Gauntlett") were unreasonable. Dkt. No. 98 at 10-11 (citing Dkt. Nos. 96-1; 96-12;

96-16). Plaintiff asserts that none of these individuals have been qualified as an expert in the field

of accounting and their declarations are inappropriate lay testimony. Id. Plaintiff raised these

issues in its reply to Defendant's opposition to Plaintiff's motion for summary judgment. Id.

Therefore, the Court is without a response from Defendant on this issue.

"Because 'a decision on the motion to strike may affect [the movant's] ability to prevail on

summary judgment,' it is appropriate to consider a motion to strike prior to a motion for summary

judgment." Pugliese v. Verizon New York, Inc., No. 05-CV-4005, 2008 WL 2882092, *5

(S.D.N.Y. July 9, 2008) (quoting Gucci Am., Inc. v. Ashley Reed Trading, Inc., No. 00-CV-6041,

2003 WL 22327162, *2 (S.D.N.Y. Oct. 10, 2003)).

"Documents permitted for consideration by the Court on a motion for summary judgment

'must be authenticated by and attached to an [affidavit] that meets the requirements of [Rule]

56(e) and the [affiant] must be a person through whom the exhibits could be admitted into

evidence.'" Silman v. Utica Coll., No. 6:14-cv-432, 2016 WL 4275721, *5 (N.D.N.Y. Aug. 12,

2016) (quoting Blain's Helicopter, Inc., 831 F.2d at 925). However, "[a]s a rule, courts do not

strike portions of summary judgment exhibits." Garcia v. Law Offices of Howard Lee Schiff,

P.C., No. 3:16-cv-791, 2018 WL 6590356, *3 (D. Conn. Dec. 14, 2018) (citing Martin v. Town of

Westport, 558 F. Supp. 2d 228, 231 (D. Conn. 2008) ("In the context of summary judgment,

motions to strike are unnecessary and produce only redundant statements by the court that it has

not relied on such inadmissible evidence in deciding the summary judgment motion")). "Motions

to strike at the summary judgment stage can underscore that 'a party may not create an issue of

fact by submitting an affidavit in opposition to a summary judgment motion that . . . contradicts

the affiant's previous deposition testimony.'" Id. (quoting Bickerstaff v. Vassar Coll., 196 F.3d

435, 455 (2d Cir. 1999), as amended on denial of reh'g (Dec. 22, 1999)).

Motions to strike "are generally considered redundant and inappropriate by this Circuit's

courts." Id. (citing Wanamaker v. Town of Westport Bd. of Educ., No. 3:11CV1791, 2013 WL

3816592, *2 (D. Conn. July 22, 2013) (collecting cases on the inappropriateness of motions to

strike summary judgment exhibits)). "Rather, '[t]he parties to an action should have faith . . . that

the court knows the difference between admissible and non-admissible evidence, and would not

base a summary judgment decision simply upon the self-serving ipse dixit of a particular party.'"

Id. (quoting Carone v. Mascolo, 573 F. Supp. 2d 575, 580 (D. Conn. 2008)).

Summary judgment is appropriate only "if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R.

Civ. P. 56(a). "Before summary judgment may be entered, the district court must ensure that each

statement of material fact is supported by record evidence sufficient to satisfy the movant's

burden of production even if the statement is unopposed." Jackson v. Fed. Express, 766 F.3d 189,

194 (2d Cir. 2014) (citing Vermont Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244

(2d Cir. 2004)).

Rule 56(e) provides three specific options if a party fails to properly support an assertion

of fact or fails to properly address another party's assertion of fact: "(1) give an opportunity to

properly support or address the fact; (2) consider the fact undisputed for purposes of the motion;

[or] (3) grant summary judgment if the motion and supporting materials — including the facts

considered undisputed — show that the movant is entitled to it." Fed. R. Civ. P. 56(e). However,

Rule 56(e) also gives the court discretion to "issue any other appropriate order." Fed. R. Civ. P.

56(e)(4).

Finally, Federal Rule of Civil Procedure 56(c)(4) requires that an affidavit or declaration

submitted in connection with a summary judgment motion "be made on personal knowledge, set

out facts that would be admissible in evidence, and show that the affiant or declarant is competent

to testify on the matters stated." Fed. R. Civ. P. 56(c)(4). "[U]ltimate or conclusory facts and

conclusions of law . . . cannot be utilized on a summary judgment motion." BellSouth

TelecomChitrah, Inc. v. W.R. Grace & Co.—Conn., 77 F.3d 603, 615 (2d Cir. 1996) (alterations

in original); see also 10B Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal

Practice & Procedure § 2738, at 346-56 (1998). "When an affidavit does not comply with these

basic requirements, the offending portions should be disregarded by the court." Wahad v. F.B.I.,

179 F.R.D. 429, 435 (S.D.N.Y. 1998) (citing United States v. Alessi, 599 F.2d 513, 514-15 (2d

Cir. 1979)).

1. Kenneth Keller

Plaintiff objects to Defendant's use of Mr. Keller's declaration because Plaintiff claims he

has not properly supported his intellectual property experience and is not an accountant. Id.

(citing Dkt. No. 96-16). Following Plaintiff's bald, three sentence assertion that Mr. Keller's

report is inadmissible, Plaintiff directs the Court to the Daubert standard with no analysis. Id.

However, Plaintiff's reliance on Daubert is misplaced.

Foremost, it does not appear that Mr. Keller's affidavit has been offered as an expert

opinion. See Dkt. No. 96-16. Rather, the affidavit was submitted to support facts related to his

auditing of Gauntlett's invoices on behalf of Defendant. See id. Further, Mr. Keller's affidavit

appears to have been submitted to authenticate the letters he drafted to Gauntlett indicating what

fees and expenses he found unreasonable based on his experience and therefore advised

Defendant not to pay. The affidavit demonstrates that the letters were "made on personal

knowledge, set out facts that would be admissible in evidence, and show that the [Mr. Keller] is

competent to testify on the matters stated." Fed. R. Civ. P. 56(c)(4).

There does not appear to be any expert opinion from Mr. Keller before the Court. Rather,

Mr. Keller's affidavit simply lays foundation for his work as an auditor. Dkt. No. 96-16 at ¶¶4-6.

While Mr. Keller would inevitably have to discuss the reasonableness of the fees and expenses if

he were to testify at trial, "[t]he fact that the lay opinion testimony bears on the ultimate issue in

the case does not render it inadmissible." Helena Assocs., LLC v. EFCO Corp., No. 06 CIV.

0861, 2008 WL 2117621, *5 (S.D.N.Y. May 14, 2008) (quoting B & G Plastics, Inc. v. E.

Creative Indus., Inc., No. 98CIV.0884, 2004 WL 307276, *8 (S.D.N.Y. Feb. 18, 2004)).

Regardless, for purposes of summary judgment, there is no expert opinion before the

Court. Plaintiff does not assert that the letters attached to his affidavit are inadmissible, only that

Mr. Keller has failed to support his assertion that he has experience participating in intellectual

property cases and therefore cannot testify as an expert.1 See Dkt. No. 98 at 10-11.

1 The Court directs Plaintiff to Defendant's very next submission, which is Mr. Keller's

curriculum vitae (hereinafter "CV"). Dkt. No. 96-17. Mr. Keller's CV explains that he obtained

his juris doctorate from University of California, Berkley in 1976 after first obtaining a Bachelor's

of Science Degree in Zoology. Id. at 5. Since graduating, Mr. Keller has tried more than 80 cases

to verdict in federal and state courts throughout the United States. Id. at 2. For over 40 years, Mr.

Keller has represented clients in intellectual property cases and has served as an expert witness in

fee disputes arising out of intellectual property litigation. Id. Mr. Keller's CV goes on to list

multiple cases that he represented clients in and the various courts he is admitted to practice in.

Based on the submissions currently before the Court, Mr. Keller's affidavit is admissible

for the proffered purpose.2 Plaintiff's motion to strike Mr. Keller's affidavit is therefore denied.

2. Matthew Ronan

Matthew Ronan is an associate at Kenney Shelton Liptak Nowak and represents

Defendant. Dkt. No. 96-16 at ¶ 1. Mr. Ronan submitted an affidavit in support of Defendant's

motion for summary judgment. Id. Plaintiff asserts that Mr. Ronan's affidavit is inadmissible

because he is not qualified as an expert. Dkt. No. 98 at 11.

Foremost, Plaintiff's repeated arguments that all of Defendant's affidavits must have been

submitted by qualified experts demonstrates a profound misunderstanding of federal court motion

practice.3 All motions for summary judgment must be accompanied by a statement of material

facts and an affidavit providing foundation for those facts. See Fed. R. Civ. P. 56(c). The

affidavit need only be made based on "personal knowledge, set out facts that would be admissible

Id. at 3-4. Finally, Mr. Keller's CV lists the various awards and professional highlights he has

received, including being elected to the American Board of Trial Advocates and being names as a

Super Lawyer in Intellectual Property Litigation since the inception of California Super Lawyers.

Id. at 4.

2 The irony of Plaintiff's argument regarding the admissibility of these affidavits is not missed by

the Court. Specifically, Plaintiff contends that Defendant "has submitted testimony from only

three declarants, none of whom are qualified to opine on the reasonableness of defense charges in

the GoPro suit." Dkt. No. 98 at 10. However, in support of its motion for summary judgment,

Plaintiff specifically relies on the declarations from the attorneys involved in this matter in

support of its position that the hours spent on the GoPro action by Gauntlett attorneys were

reasonable. For example, in the declaration of James A. Lowe, a partner at Gauntlett, Mr. Lowe

repeatedly offers his opinion as to the reasonableness of the hours expended. See Dkt. No. 94-2.

It is entirely unclear why Plaintiff believes that it is appropriate for it to submit attorney

affidavits/declarations offering opinions in support of its motion, while at the same time insisting

that it was improper for Defendant to do so.

3 The Court notes that Plaintiff is not pro se and is represented by counsel with significant

litigation experience. See Dkt. No. 94-1 at 7.

in evidence, and show that the affiant or declarant is competent to testify on the matters stated."

Id. at 56(c)(4). Further, "lay witnesses [are permitted] to testify under Rule 701 [as] to their

opinions when those opinions are based on a combination of their personal observations of the

incident in question and background information they acquired through earlier personal

observations." B & G Plastics, Inc., 2004 WL 307276, at *8 (quoting Securitron Magnalock

Corp. v. Schnabolk, 65 F.3d 256, 265 (2d Cir. 1995)). Thus, all facts do not need to be attested to

by an expert.

"Additionally, it is 'well established that an attorney's affidavit can be used, in connection

with a summary judgment motion, to place documents produced in discovery before the Court.'"

Pace v. Air & Liquid Sys. Corp., 171 F. Supp. 3d 254, 272 (S.D.N.Y. 2016) (quoting Harrison-

Hoge Indus., Inc. v. Panther Martin S.R.L., No. 05-CV-2851, 2008 WL 905892, *27 (E.D.N.Y.

Mar. 31, 2008)). A Court will not strike an attorney affidavit where, "the Court is capable of

discerning from that affirmation what statements were made on the basis of [counsel's] firsthand

knowledge; what statements are summaries of evidence in the record; and what documents the

Court should review in determining the accuracy of those summaries." Id.

A Court may strike portions of an attorney affidavit where those portions go "beyond the

introduction of documents and veers into legal argument and factual allegations for which counsel

has no personal knowledge." Fed. Trade Comm'n v. Vantage Point Servs., LLC, 266 F. Supp. 3d

648, 654 (W.D.N.Y. 2017). "However, although such improper portions of the document should

not be considered, striking a declaration from the record is at the court's discretion." Id. (citing

Hollander v. American Cyanamid Co., 172 F.3d 192, 198 (2d Cir. 1999)).

Plaintiff does not assert that Mr. Ronan lacks personal knowledge or that the statements

veer into legal argument. Rather, Plaintiff asserts that Mr. Ronan's affidavit incudes

inflammatory opinions. Dkt. No. 98 at 11. Plaintiff, however, fails to cite to any particular

passage in Mr. Ronan's declaration, and instead cites to the entire document. Having reviewed

the affidavit, the Court finds that there is nothing "inflammatory" about the statements made by

Mr. Ronan. Rather, Mr. Ronan simply makes arguments based on the facts in this case regarding

charges that he believes are unreasonable (and, many of them were unreasonable).

3. Brian Brennan

Plaintiff objects to the use of Brian Brennan's affidavit because it "only authenticates

documents but does not offer opinions about defense charges." Dkt. No. 98 at 11 (citing Dkt. No.

92-12). As the Court has already explained, this is the purpose of an accompanying affidavit.

Thus, Plaintiff's motion to strike Mr. Brennan's affidavit is denied.4

B. Motion for Summary Judgment

1. Standard of Review

A court may grant a motion for summary judgment only if it determines that there are no

genuine issues of material fact to be tried and that the movant is entitled to judgment as a matter

of law. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 36 (2d Cir. 1994) (citations

omitted). When analyzing a summary judgment motion, the court "'cannot try issues of fact; it

can only determine whether there are issues to be tried.'" Id. at 36-37 (quotation and other

4 To the extent Plaintiff takes issue with the Court's use of the term affidavit rather than

declaration, the Court highlights to Plaintiff that Rule 56 of the Federal Rules of Civil Procedure

uses both terms and, for the present issues, there are no factors distinguishing the two terms.

citation omitted). In assessing the record to determine whether any such issues of material fact

exist, the court is required to resolve all ambiguities and draw all reasonable inferences in favor of

the nonmoving party. Id. at 36 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986))

(other citations omitted).

2. Defendant's Entitlement to Assert Recoupment as a Defense

Plaintiff asserts that Defendant's unilateral application of a balance to its account amounts

to an improper recoupment of expenses paid. Dkt. No. 98 at 21-23. Defendant asserts that

because it never agreed that the fees were reasonable, the application of the credit was appropriate

and not recoupment. Dkt. No. 96-40 at 10.

a. Recoupment as a Defense

The current dispute concerns thirty-seven invoices billed to Defendant by Gauntlett in the

GoPro action.5 See Dkt. Nos. 95-5–95-31. Defendant initially paid Invoices 1-11 in full. Dkt.

No. 96-39 at 2; Dkt. No. 96-15. However, in November 2017, Defendant retained Attorney

Kenneth Keller to audit invoices Defendant received from Gauntlett. Dkt. No. 96-40 at 17. Mr.

Keller retroactively reviewed Invoices 12-17 and contemporaneously reviewed Invoices 18-37.

Id. at 9. Feeling that it had overpaid on invoices 12-17, Defendant stopped paying invoices it

received after May 2018. Id. at 9-10. In total Defendant has paid $2,265,170.32 and Plaintiff

seeks an additional $256,228.37. Dkt. No. 94-1 at 25; Dkt. No. 95-31 at 1.

Plaintiff asserts that Defendant's failure to continue paying Gauntlett's invoices and its

unilateral application of a credit amounts to recoupment and therefore violates the terms of

5 Plaintiff also seeks fees for bringing this action. See Dkt. No. 98 at 24-25.

Plaintiff's insurance policy. Dkt. No. 98 at 21-23. Neither party has presented the Court with a

recoupment clause in the policy or evidence that one was ever discussed during the bargaining

process. However, this is immaterial as Defendant is not asserting recoupment as a counterclaim.

Foremost, under New York law, there appears to be two types of recoupment, recoupment

as counterclaims and as a defense. In a counterclaim for recoupment, there is a cross demand by

the defendant for affirmative relief. See In re McMahon, 129 F.3d 93, 96 (2d Cir. 1997) (quoting

National Cash Register Co. v. Joseph, 299 N.Y. 200, 203 (1949)). As defined by New York state

law, "[r]ecoupment means a deduction from a money claim through a process whereby cross

demands arising out of the same transaction are allowed to compensate one another and the

balance only to be recovered." Id. (quoting National Cash Register, 299 N.Y. at 203). "Of

course, such a process does not allow one transaction to be offset against another, but only

permits a transaction which is made the subject of suit by a plaintiff to be examined in all its

aspects, and judgment to be rendered that does justice in view of the one transaction as a whole."

Id. (quoting National Cash Register, 299 N.Y. at 203).

However, where a defendant denies the validity of a plaintiff's claim in the amount

claimed, that is recoupment asserted as a defense. Enrico & Sons Contracting, Inc. v.

Bridgemarket Assocs., 252 A.D.2d 429, 430 (1st Dep't 1998) (citing Rothschild v. Industrial Test

Equipment Co., 203 A.D.2d 271 (2d Dep't 1994)). "'Recoupment is an equitable doctrine similar

to the older 'failure of consideration' doctrine, which looks to the whole contract, and the things to

be done and/or stipulated to be done on both sides." Id. (quoting Peuser v. Marsh, 167 A.D. 604,

608 (3d Dep't 1915)). "It is really a defense, as it denies the validity of plaintiff's claim in the

amount claimed, and does not entitle defendants to any affirmative relief or any amounts in

excess of the amount demanded by plaintiff." Id. at 430 (citing Rothschild, 203 A.D.2d at 271).

Plaintiff asserts that Defendant is claiming a setoff when in actuality, Defendant seeks a

recoupment. Dkt. No. 98 at 23. In form and substance Defendant is seeking a recoupment as it is

asking the Court to deny the validity of Plaintiff's claim, in the amount claimed, due to a debt

arising out of the same transaction. See In re McMahon, 129 F.3d at 96 (explaining that a

recoupment arises out of a dispute for the same transaction whereas a setoff concerns separate

transactions). However, Defendant is not pursuing affirmative relief6 and is instead only seeking

to "offset any award of legal fees to the plaintiff." Balanoff v. Doscher, 140 A.D.3d 995, 996 (2d

Dep't 2016). Therefore, Defendant properly only seeks recoupment as a defense.

b. Recoupment is Not Barred

Relying on Gen. Star Indem., Plaintiff asserts that recoupment claims by an insurer against

the insured are barred. Dkt. No. 98 at 23. Recoupment asserted as an affirmative claim for the

6 It is evident that Defendant does not seek affirmative relief because, foremost, it has not filed a

counterclaim for recoupment. Second, Defendant has not requested any damages. Finally, upon

the issuance of this opinion, Plaintiff's obligations to Gauntlett dissolve with Defendant's and

therefore Plaintiff will not be inadvertently paying for the recoupment. That is because, here,

Plaintiff has established standing based on the principle that it could enforce its contractual rights

to have Defendant pay Gauntlett all reasonable fees and expenses from the GoPro action as

Defendant is required to do. Dkt. No. 81 at 9. The damages Plaintiff seeks is the money it claims

it will be liable to Gauntlett should Defendant fail to pay on the theory that Plaintiff will become

responsible for those fees. However, following a determination as to the reasonableness of the

fees, Defendant will be adjudged as having been paid all reasonable fees and expenses leaving

only unreasonable fees and expenses unpaid. Gauntlett is precluded from seeking payment for all

unreasonable fees. See Citicorp Tr. Bank, FSB v. Vidaurre, 155 A.D.3d 934, 935 (2d Dep't 2017)

("An award of an attorney's fee pursuant to a contractual provision may only be enforced to the

extent that the amount is reasonable and warranted for the services actually rendered").

Therefore, Gauntlett will have been paid the full amount it is entitled to upon conclusion of this

action and there will be nothing left for Plaintiff to pay.

costs paid while representing an insured in an underlying litigation is typically awarded in only a

few instances. Gen. Star Indem. Co. v. Driven Sports, Inc., 80 F. Supp. 3d 442, 459 (E.D.N.Y.

2015). Where courts have awarded recoupment, the right was reserved by the insurer or that right

was unopposed by the insured. Id. (citations omitted). Recoupment is not appropriate where the

insured "effectively resisted the idea of recoupment from the very beginning by rejecting [the

insurer's] offer of a separate recoupment agreement." Id. Under such circumstances, the court

would be effectively adding a recoupment clause to the contract despite the fact that the parties

already elected to proceed without one. Id. at 462.

However, recoupment need not be pled as a counterclaim. See In re McMahon, 129 F.3d

at 96 (citing Constantino v. State, 99 Misc. 2d 362, 365 (N.Y. Ct. Cl. 1979)). Recoupment as a

defense is appropriate where the party only seeks to introduce the claim to "offset any award of

legal fees to the plaintiff and not to . . . seek[] affirmative relief." Balanoff, 140 A.D.3d at 996. In

essence, "recoupment claim goes to the heart of the parties' bargain." Enrico & Sons Contracting,

252 A.D.2d at 430 (citing Peuser, 167 App. Div. at 608).

Plaintiff does not raise any arguments as to whether Defendant's claim for recoupment is

procedurally improper, only that it is not permissible under the insurance policy language. See

Dkt. No. 98 at 21-23. However, Defendant only seeks to introduce the claim to "offset any award

of legal fees to the plaintiff and not to . . . seek[] affirmative relief." Balanoff, 140 A.D.3d at 996.

As such, Plaintiff's reliance on Gen. Star Indem. is misplaced as that case delt with a counterclaim

by the insurer against the insured. Gen. Star Indem., 80 F. Supp. 3d at 459. 7

Therefore, Defendant's attempt to recoup its amounts paid on Invoices 1-17 is not

improper as it does not attempt to seek any payment from Plaintiff and by also paying Gauntlett

all reasonable fees and expenses incurred, it does not breach its agreement with Plaintiff.

3. Plaintiff is Only Entitled to Payment of Reasonable Attorneys' Fees

Despite Plaintiff's significant briefing in its motion for summary judgment and its reply to

Defendant's opposition, the parties do not dispute that Plaintiff was entitled to coverage for its

defense in the GoPro action as well as bringing its compulsory counterclaim. Dkt. No. 94 at 10-

13, 19-21; Dkt. No. 96-39 at 3. Contrary to Plaintiff's assertions, Gauntlett may only charge a

reasonable fee and, as Plaintiff is seeking to recover the amount Gauntlett is entitled to, Plaintiff's

damages are capped at those reasonable fees and expenses billed by Gauntlett.

Although the duty to defend is broad, it is well settled that the duty only extends to

payment of reasonable fees and costs. See, e.g., Pub. Serv. Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d

392, 401 (1981) (holding that "[the defendant] is entitled to defense by an attorney of his own

choosing, whose reasonable fee is to be paid by the insurer"). As this Court stated in its February

21, 2018 Memorandum-Decision and Order, "courts are generally reluctant to permit recovery of

more than reasonable costs, with good reason: lawyers are ethically bound to charge only

reasonable fees to their clients." See Dkt. No. 43 at 15 (citing American Bar Association Model

7 Additionally, the Court notes the amount of unpaid fees Plaintiff seeks is lower than the amount

of fees the Court determined to be unreasonable. Therefore, even if the Court did not allow

Defendant to plead recoupment as a defense, Plaintiff would not be entitled to any damages.

Rule of Professional Conduct 1.5(a)). Thus, even when an insurance policy does not expressly

limit an insured's recovery to "reasonable" defense costs, some courts have found that such a

limitation is implied because "[w]ithout such an understood qualification of reasonableness,

insurers would be at the mercy of their insured's attorneys." Macmillan, Inc. v. Fed. Ins. Co., 141

F.R.D. 241, 243-44 (S.D.N.Y. 1992); see also Liberty Mut. Ins. Co. v. Cont'l Cas. Co., 771 F.2d

579, 582 (1st Cir. 1985) (noting that eliminating the reasonableness requirement "would be to

invite excessive, duplicative, or outrageous charges").

Further, the policy is limited to damages that Plaintiff would "become[] legally obligated

to pay." Dkt. No. 1-1 at 53. Gauntlett is barred from charging unreasonable fees and as such,

Plaintiff is not liable for any amount of unreasonable fees which the Court determines Defendant

rightfully refused to pay. See Citicorp Tr. Bank, 155 A.D.3d at 935 ("An award of an attorney's

fee pursuant to a contractual provision may only be enforced to the extent that the amount is

reasonable and warranted for the services actually rendered"). Thus, as Defendant is only

obligated to pay damages that Plaintiff would "become[] legally obligated to pay," Defendant was

not required to pay any unreasonable fees charged by Gauntlett.

4. Unreasonable Attorneys' Fees and Expenses

The only issue before the Court regarding the reasonableness of the fees and expenses is

what, if any, portion of those billed were excessive or unreasonable. See Dkt. No. 96-39 at 3.

Defendant asserts that based on Gauntlett's repeated examples of unreasonable and excessive

billing, the Court should reduce Gauntlett's attorneys' fees and expenses by twenty to thirty

percent across the board. Dkt. No. 96-39 at 11. The Court agrees that an across the board

reduction is appropriate, but only at fifteen percent.

"Where . . . an insured is forced to defend an action because the insurer wrongfully refused

to provide a defense, the insured is entitled to recover its reasonable defense costs, including

attorneys' fees." Danaher Corp. v. Travelers Indem. Co., No. 10cv0121, 2015 WL 409525, *2

(S.D.N.Y. Jan. 16, 2015) (quoting U.S. Underwriters Insurance Co. v. Weatherization, Inc., 21 F.

Supp. 2d 318, 326 (S.D.N.Y. 1998)). "The fee applicant must 'adequately document [ ] the

request' so that the court can fulfill its 'duty to determine the reasonableness of the amount.'" Id.

(quoting U.S. Underwriters Insurance, 21 F. Supp. 2d at 326). "The award should be based on

the court's determination of a 'presumptively reasonable fee.'" Id. (quoting Sandoval v. Materia

Bros. Inc., No. 11 Civ. 4250, 2013 WL 1767748, *3 (S.D.N.Y. Mar. 5, 2013)).

Although the duty to defend is broad, it is well settled that the duty only extends to

payment of reasonable fees and costs. See, e.g., Pub. Serv. Mut. Ins., 53 N.Y.2d at 401. Thus, the

district court "should exclude . . . hours that were not 'reasonably expended,'" including "hours

that are excessive, redundant, or otherwise unnecessary." Hensley v. Eckerhart, 461 U.S. 424,

434 (1983) (citation omitted). "In excluding hours that were not reasonably expended, 'the court

has discretion simply to deduct a reasonable percentage of the number of hours claimed as a

practical means of trimming fat from a fee application.'" Osterweil v. Bartlett, 92 F. Supp. 3d 14,

28 (N.D.N.Y. 2015) (quoting Kirsch v. Fleet St., Ltd., 148 F.3d 149, 173 (2d Cir. 1998)); Rubar,

306 F. Supp. 3d at 489 (quoting McDonald ex rel. Prendergast v. Pension Plan of the NYSA–ILA

Pension Tr. Fund, 450 F.3d 91, 96 (2d Cir. 2006)); see also Danaher, 2015 WL 409525, at *2

(stating that where the insurer wrongfully refused to provide a defense, the court must exclude

excessive, redundant or otherwise unnecessary hours and may do so by "making specific

deductions or 'by making an across-the-board reduction in the amount of hours'") (citation

omitted).

The Court notes, foremost, that the parties dispute the unpaid amount of fees and

expenses. Plaintiff asserts that there remains $256,228.37 in unpaid attorneys' fees and expenses

with prejudgment interest and a per diem amount of prejudgment interest of $63.18. Dkt. No. 94-

4 at ¶ 47.8 Defendant asserts that the unpaid balance is determined by examining the total

amounts billed to Defendant and subtracting the total payment, resulting in an actual unpaid

balance of $180,923.21. Dkt. No. 96-40 at 15. The totals asserted are both incorrect. As of July

1, 2019, Defendant had paid Plaintiff $2,265,170. Dkt. No. 95-31 at 1. Similarly, as of July 1,

8 Plaintiff came to its calculation by excluding payments on Invoices 1-11 and including finance

charges Gauntlett billed to Defendant. See Dkt. No. 95-73. Plaintiff's calculation also fails to

include payments that were recorded on Invoices 12 and 13. Dkt. No. 95-73. It is unclear how

Gauntlett apportioned payments which further supports viewing the contract as a whole rather

than as individual invoices. Additionally, on July 1, 2019, Gauntlett reported that it had billed

$40,369.52 in total finance charges. Dkt. No. 95-31 at 1. However, the Court is only able to

calculate $40,277.58 in finance charges. The differences between the two calculations is $91.94.

The Court also notes that on September 20, 2017, Gauntlett recorded the total finance charges as

$7,788.80 on Invoice No. 14. Dkt. No. 95-8 at 64. However, on October 16, 2017, Gauntlett

recorded the total finance charges as $7,880.74 on Invoice No. 15 despite not billing any

additional finance charges. Dkt. No. 95-9 at 39. The difference between the two is $91.94. At no

point else in the billing records does the finance charge increase without an additional bill for the

amount. Plaintiff does not explain how or why the additional $91.94 was added to the account. It

appears that Defendant's calculations include finance charges. Both parties agree that Plaintiff

would be entitled to a nine percent interest rate if it were entitled to damages. See Dkt. No. 96-39

at 3. However, as explained below, Plaintiff is not entitled to any damages and therefore this

issue is moot.

2019, Gauntlett had billed Defendant $2,437,971.00 not including finance charges.9 Id. Thus, the

total of unpaid attorneys' fees and expenses is $172,800.68.

Regardless, the Court finds that the amount of unpaid fees is significantly less than the

amount that the Court finds were reasonably expended. Gauntlett's invoices are replete with

excessive and inappropriate billing warranting a fifteen percent reduction, or $365,695.65.

Gauntlett's first eleven invoices were billed without any tasks designated to a paralegal.

See Dkt. No. 95-5. Plaintiff claims that this was because Gauntlett had work performed by

individuals not qualified as paralegals and therefore they did not bill Defendant for their time.10

Dkt. No. 98 at 16. Therefore, Gauntlett felt the use of law clerks for more administrative tasks

was more appropriate, which they bill at $150 per hour. Dkt. No. 98 at 16. Despite Plaintiff's

assertions, many invoices did not even include work billed by law clerks and only billed at

associate and partner rates. See Dkt. No. 95-5 at 7, 12, 70, 124, 274.

Further, Gauntlett repeatedly billed for administrative work at partner rates. For example,

Mr. Lowe routinely billed at a partner rate for arranging meetings, drafting correspondences to the

9 A full calculation of fees and costs was calculated by adding the total of "Current Work" on

Invoices 1-37. See Dkt. No. 95-5 at 7, 13, 27, 47, 71, 100, 124, 198, 249, 274, 301; Dkt. No. 95-6

at 26; Dkt. No. 95-7 at 37-38; Dkt. No. 95-8 at 63-64; Dkt. No. 95-9 at 39; Dkt. No. 95-10 at 50;

Dkt. No. 95-11 at 44-45; Dkt. No. 95-12 at 29-30; Dkt. No. 95-13 at 46; Dkt. No. 95-14 at 46-47;

95-15 at 54; Dkt. No. 95-16 at 80; Dkt. No. 95-17 at 42; Dkt. No. 95-18 at 17; Dkt. No. 95-19 at

5; Dkt. No. 95-20 at 4; Dkt. No. 95-21 at 2; Dkt. No. 95-22 at 2; Dkt. No. 95-23 at 1; Dkt. No. 95-

24 at 2; Dkt. No. 95-25 at 1-2; Dkt. No. 95-26 at 1; Dkt. No. 95-27 at 1-2; Dkt. No. 95-28 at 1-2;

95-29 at 1-2; Dkt. No. 95-30 at 1; Dkt. No. 95-31 at 1. It is also equal to the total fees, hours,

expenses, and advances in the billing history listed at the bottom of Invoice 37. Dkt. No. 95-31 at

1. A total of Defendant's payments was similarly confirmed by calculating the sum total of all

payments in Invoices 1-37.

10 Plaintiff has not provided any evidence that these non-qualified paralegals actually did any

work on its case and that those hours were comped by Gauntlett.

clients, and other communications. Dkt. No. 95-5 at 3, 5, 10, 11, 12, 14, 15. Mr. Lowe spent 1.1

hours—billing $385—calling an expert for their tax ID number. Dkt. No. 95-14 at 5. Ms.

Tomassian, an associate, routinely billed for organizing and compiling documents. Dkt. No. 95-5

at 10. These are but a couple of examples in the almost one thousand pages of invoices.

Gauntlett also billed at full rates for travel, which should have been billed at half of their

hourly rates. See Etna Prod. Co. v. Q Mktg. Grp., Ltd., No. 03 CIV. 3805, 2005 WL 2254465, *6

(S.D.N.Y. June 6, 2005). For example, Gauntlett billed over $22,000 on Invoices 16 and 17 alone

for travel. Dkt. No. 95-10 at 22, 49-50; Dkt. No. 95-12 at 8, 24, 28-29. For travel to a one day

out-of-town settlement conference, Mr. Lowe billed for $418.48 in meals. Dkt. No. 95-13 at 45.

Mr. Lowe also billed $28 for "other" with no description. Id.

Gauntlett repeatedly billed for time spent disputing the reasonableness of its fees. For

example, on Invoice 19, Gauntlett billed over $3,000 for over ten hours spent addressing its fee

disputes with Defendant. Dkt. No. 95-13 at 4-5, 20, 41-42. On Invoice 20, Gauntlett billed two

hours and charged $770 for addressing its fee disputes with Defendant. Dkt. No. 95-14 at 21, 25,

43. Such charges are inappropriate. In re St. Rita's Assocs. Priv. Placement, L.P., 260 B.R. 650,

652 (Bankr. W.D.N.Y. 2001) ("[W]hen clients refuse to pay a disputed bill, attorneys must choose

either to 'write-off' the liability or to commence litigation for collection"); see also PaySys Int'l,

Inc. v. Atos Se, No. 14CV10105, 2019 WL 2051812, *6 (S.D.N.Y. May 9, 2019).

Gauntlett also repeatedly billed for copying charges without any explanation. Dkt. No.

95-13 at 45; Dkt. No. 95-14 at 46; Dkt. No. 95-15 at 53; Dkt. No. 95-18 at 16. Such practices are

also inappropriate. See Mendez v. Radec Corp., 907 F. Supp. 2d 353, 360 (W.D.N.Y. 2012)

(reducing the plaintiff's copying costs by sixty percent where "Plaintiffs' submissions [did] not

indicate what each instance of copying relates to, or why it was necessary for the prosecution of

this case"); see also U.S. for Use & Benefit of Evergreen Pipeline Const. Co. v. Merritt Meridian

Const. Corp., 95 F.3d 153, 173 (2d Cir. 1996).

Finally, Gauntlett attorneys repeatedly billed an excessive number of hours. For example,

Mr. Lowe twice billed 1.3 hours for reviewing the court's minute entries to determine issues that

would be discussed. Dkt. No. 95-14 at 4, 11-12. Mr. Schewe spent over thirty hours planning

and preparing for a deposition of Ingrid Cotoros, over twenty-five hours of which were for

drafting questions for the four-and-a-half-hour deposition. Dkt. No. 95-12 at 15, 21-23, 25-26,

39-30, 32, 34, 35, 36, 37, 38. Ms. Jin similarly billed over thirty-four hours for preparing for the

deposition of Justin Wilkenfeld, including over twenty hours spent on document review and over

nine hours drafting a memo regarding the deposition. Dkt. No. 95-12 at 9, 23, 27, 31, 34, 37.

Perhaps one of the most egregious examples of excessive billing was for the deposition of

Alex Jenny, which almost the entire thirty-eight-page invoice, Invoice 13, concerns. See Dkt. No.

95-7. A modest calculation of only the records in the first twenty-one pages shows over fifty

hours billed for preparing for this deposition by Gauntlett. Id. at 4-21. Courts have held that

spending even twenty hours preparing for a half-day deposition is excessive. Shannon v.

Fireman's Fund Ins. Co., 156 F. Supp. 2d 279, 301 (S.D.N.Y. 2001). Gauntlett has clearly

surpassed what has already been considered unreasonable.

In Shannon, the court held that a thirty-five percent reduction of counsel's hours was

warranted based on the inefficiencies, duplication or excessive submissions. Shannon, 156 F.

Supp. 2d at 301-02. However, in Shannon, counsel's conduct was far less egregious than that

displayed here. There, counsel spent twenty hours preparing for a deposition, had multiple entries

in which a partner was billing for administrative tasks, and included vague entries. Here,

Gauntlett spent significantly more time preparing for depositions, had no paralegals working on

the case, and made it a practice of billing at partner rates for administrative tasks.

Similarly, in Levy, the court reduced the attorneys' fee award by twenty-five percent to

account for numerous claims that were ultimately withdrawn and for claims that were

unsuccessful at trial. Levy v. Powell, No. CV-00-4499, 2005 WL 1719972, *12 (E.D.N.Y. July

22, 2005). Here, Plaintiff's counsel repeatedly billed for motions that were not even submitted.

In Invoices 17 and 18 alone, Gauntlett billed over thirteen hours and almost $4,000 for a motion

to amend it apparently drafted but never filed. Dkt. No. 95-11 at 42-43; Dkt. No. 95-12 at 1-3.

Finally, in Luciano, the Second Circuit affirmed the district courts reduction of counsel's

fees by fifteen percent for the "excessive time wasted in [the] litigation by uncooperative and

contentious behavior." Luciano v. Olsten Corp., 109 F.3d 111, 116-17 (2d Cir. 1997). Gauntlett

billed for time related to mitigating damages associated with Gauntlett producing falsified

evidence in discovery, for which they were sanctioned, and then for what the court determined

was unnecessary motion practice caused by Gauntlett's failure to produce documents in discovery.

Dkt. No. 96-7 at 2-3 (Judge Illston of the Northern District of California describing Gauntlett's

conduct as "smacks of gamesmanship"); Dkt. No. 96-9 ("The Court is not persuaded by

defendant's explanation of the suspect document, and concludes on the present record that

defendant deliberately altered it in an effort to strengthen its legal position with respect the

ABYSS mark. . . . Accordingly, the Court finds that sanctions are warranted"). For example, on

Invoice 21 alone, Gauntlett billed over thirty hours—over $8,000—regarding the sanction motion

for the falsified emails. Dkt. No. 95-15 at 21, 27, 30, 32, 37-38, 40-42, 44-47, 49-50.

Based on Gauntlett's repeated practice of billing excessive, redundant or otherwise

unnecessary hours the Court finds that a fifteen percent reduction in Gauntlett's fees is warranted.

A fifteen percent reduction amounts to $365,695.65, leaving $2,072,275.35 in reasonable fees and

costs.11 Defendant has already paid $2,265,170.32 and has therefore satisfied its obligation to

defend Plaintiff and its obligation to pay Gauntlett's reasonable attorneys' fees and costs.

Plaintiff's motion for summary judgment is therefore denied and Defendant's motion for summary

judgment is granted. Similarly, Plaintiff's bad faith claim against Defendant for failing to defend

is also denied as Defendant paid all reasonable costs. Fulton Boiler Works, Inc. v. Am. Motorists

Ins. Co., No. 06-CV-1117, 2010 WL 1257943, *8 n.8 (N.D.N.Y. Mar. 25, 2010) (finding that the

plaintiff failed to allege a bad faith claim where the defendant reduced attorneys' fees by fifteen

percent for unreasonableness but otherwise paid the plaintiff's costs).

4. Plaintiff's Bad Faith Claim

Plaintiff asserts that Defendant's previous motion for summary judgment was made in bad

faith as the Second Circuit reversed the Court's decision granting Defendant's motion for

summary judgment. Dkt. No. 94-1 at 4-5. As support, Plaintiff cites a deposition of Mr. Kitner

that was taken after the Court's decision. Id. (citing Dkt. No. 94-4 at ¶ 42).

11 The Court notes that given that the vast majority of the inappropriate billing occurred on

Invoices 12-37, the Court would still find a fifteen percent reduction appropriate even if only

Invoices 12-37 were under review. Such a decrease would result in a fee cut of $260,857.19,

which is still more than Plaintiff claims it is entitled to in damages. See Dkt. No. 95-73.

Not only was Defendant's motion successful at the district court level, the fact that the

Second Circuit disagreed with Defendant's position does not demonstrate the argument was made

in bad faith. See Mahan v. Roc Nation, LLC, No. 14 CIV. 5075, 2016 WL 4718018, *5 (S.D.N.Y.

Sept. 9, 2016) ("Although Mahan and Freeman were ultimately unable to convince the Second

Circuit to render the relief requested in the cross-motion, nothing indicates that this filing was

made in bad faith"). Plaintiff's claim that Defendant's previous motion for summary judgment

was made in bad faith is therefore meritless and denied.

IV. CONCLUSION

After carefully reviewing the entire record in this matter, the parties' submissions and the

applicable law, and for the above-stated reasons, the Court hereby

ORDERS that Plaintiff's Motion for Summary Judgment (Dkt. No. 94) is DENIED; and

the Court further

ORDERS that Defendant's Motion for Summary Judgment (Dkt. No. 96) is GRANTED;

and the Court further

ORDERS that the Clerk of the Court shall enter judgment in Defendant's favor and close

this case; and the Court further

ORDERS that the Clerk of the Court shall serve a copy of this Memorandum-Decision

and Order on the parties in accordance with the Local Rules.

IT IS SO ORDERED.

Dated: August 25, 2021 ~

Albany, New York J), ie LD? = 58

_ (oe ae C7 lps La

Mae A. D'Agostino”

U.S. District Judge

23