Bettendorf v. Microsoft Corp.

• Decision Date: 22 December 2009
• Docket Number: No. 2008AP3215.,2008AP3215.
• Citation: 2010 WI App 13,779 N.W.2d 34
• Parties: Candace BETTENDORF, Bettendorf Transfer Inc., Dunn County, Jackson County, School District Of Hudson and Wisconsin Counties Association, Plaintiffs-Respondents-Cross-Appellants, v. MICROSOFT CORPORATION, Defendant-Appellant-Cross-Respondent.
• Court: Wisconsin Court of Appeals

779 N.W.2d 34

2010 WI App 13

Candace BETTENDORF, Bettendorf Transfer Inc., Dunn County, Jackson County, School District Of Hudson and Wisconsin Counties Association, Plaintiffs-Respondents-Cross-Appellants, v. MICROSOFT CORPORATION, Defendant-Appellant-Cross-Respondent.

No. 2008AP3215.

Court of Appeals of Wisconsin.

Submitted on Briefs November 3, 2009.

Opinion Filed December 22, 2009.

On behalf of the defendant-appellant-cross-respondent, the cause was submitted on the briefs of Jeffrey Morris and Kelly H. Twigger of Quarles & Brady LLP, of Milwaukee, and David B. Tulchin and Sharon L. Nelles of Sullivan & Cromwell LLP, of New York, New York.

On behalf of the plaintiffs-respondents-cross-appellants, the cause was submitted on the briefs of Kelly L. Centofanti and Andrew T. Phillips of Centofanti Phillips, S.C., of Mequon, and Richard M. Hagstrom, James S. Reece, and Michael E. Jacobs, pro hac vice, of Zelle Hofmann Voelbel & Mason LLP, of Minneapolis, Minnesota.

Before CURLEY, P.J., KESSLER and BRUNNER, JJ.

¶ 1 CURLEY, P.J

Both the appeal and cross-appeal in this matter center primarily on the issue of attorney fees awarded pursuant to a judgment against Microsoft Corporation (Microsoft). Microsoft argues that the Bettendorf attorneys' attempted deception and lack of candor in their fee petition required the imposition of a significant sanction—namely, the denial of all attorney fees—and that the trial court erred in awarding the Bettendorf attorneys $1.25 million in fees for time spent litigating their fee petition. In contrast, Candace Bettendorf, Bettendorf Transfer, Inc., Dunn County, Jackson County, School District of Hudson, and Wisconsin Counties Association (collectively referred to as Bettendorf using the singular pronoun "she") cross-appeal, arguing that the awards of $4 million in fees in the underlying litigation and $1.25 million in fees and $190,000 in expenses related to the subsequent fee dispute are inadequate.¹

¶ 2 We conclude that the trial court did not err when it determined that sanctions were not warranted against the Bettendorf attorneys. In addition, we conclude that the trial court acted properly when it reduced both the amount of attorney fees sought by Bettendorf in the underlying litigation and the fees and expenses she sought in the subsequent fee dispute. Finally, with respect to Bettendorf's request for her reasonable attorney fees and costs incurred in successfully opposing Microsoft's appeal, we remand for a hearing before the trial court to determine what, if any, attorney fees should be awarded. Accordingly, we affirm the judgment and remand the cause for further proceedings consistent with this opinion.

I. BACKGROUND.

¶ 3 The appeal and cross-appeal in this matter arise out of antitrust litigation originally filed in St. Croix County Circuit Court in 2003 on behalf of putative classes of indirect purchasers of Microsoft software in the State of Wisconsin. Bettendorf asserted claims under the Wisconsin Antitrust Act based on allegations virtually identical to those asserted in two antitrust class actions that were pending against Microsoft in Wisconsin at the time she filed her lawsuit: Capp v. Microsoft Corp. and Olstad v. Microsoft Corp. (the Olstad case was later recaptioned Spence v. Microsoft Corp.), both of which were filed in early 2000.² The three actions were subsequently transferred to Milwaukee County.³

¶ 4 In March 2006, Microsoft and the Spence/Capp plaintiffs reached a proposed settlement that would have resolved all pending litigation in Wisconsin. The proposed settlement would have provided class members with vouchers worth between $10 and $21 for the purchase of specific hardware and software during the class period. Bettendorf and the Wisconsin Attorney General opposed the proposed settlement. The trial court denied the motion for preliminary approval based on its conclusion that the proposed settlement was inadequate.

¶ 5 Six months later, in September 2006, Microsoft and counsel for the plaintiffs in the three Wisconsin actions agreed to the terms of a proposed settlement pursuant to which Microsoft would provide class members with vouchers in amounts between $10 and $23 and further provided for an additional cy pres distribution of vouchers to certain Wisconsin public schools. As a result of the cy pres provision, 50% of the difference between claims made and the settlement "face value" was to be distributed to Wisconsin public schools, along with 100% of the value of any claimed, but not redeemed, vouchers. In April 2007, the trial court granted final approval of the settlement.

¶ 6 As part of the settlement, Microsoft agreed to pay the "reasonable attorneys' fees, costs and expenses" of class counsel. Microsoft agreed to pay Spence/Capp counsel a combined fee award of $10.367 million, which reflected a combined lodestar of approximately $3.6 million for work by all timekeepers in both cases (7690 total hours).

¶ 7 In February 2007, the Bettendorf attorneys filed a fee petition seeking an award of attorney fees totaling $22.633 million for 6820 hours of work. In addition, the Bettendorf attorneys sought approximately $1.5 million in costs. Attorney Richard Hagstrom of Zelle, Hofmann, Voelbel & Mason LLP (Zelle Hofmann), lead counsel for the Bettendorf plaintiffs, submitted an affidavit documenting a lodestar sum, which exceeded the combined lodestar claimed by counsel for the Spence/Capp plaintiffs. Hagstrom averred that he personally reviewed all of the time reflected and that all of the time for which fees were sought "was actually performed on behalf of the putative Wisconsin class and was necessary for the proper representation of such putative class."

¶ 8 Microsoft, believing the Bettendorf lodestar to be too high, propounded discovery requests. In response, the Bettendorf attorneys moved for a protective order. In opposing that motion, Microsoft identified five Zelle Hofmann time entries it had found where the narrative descriptions of work purportedly performed on particular dates did not seem to correspond to activity taking place in any of the three Wisconsin actions. Microsoft alleged that those entries appeared to correspond to events taking place in a different antitrust class action against Microsoft brought by the Zelle Hofmann firm and other attorneys in Iowa on behalf of different plaintiffs asserting claims under Iowa law, Comes v. Microsoft Corp., Polk County District Court Case No. CL-82311. The trial court denied the Bettendorf attorneys' motion, finding that "discovery [wa]s in order to lay bare the facts I need to know to decide what amounts to award in this case."

¶ 9 In April 2007, Bettendorf counsel provided Microsoft with a detailed chart showing how the common benefit time was divided between the Wisconsin and Iowa actions. Microsoft, however, demanded additional materials, including Zelle Hofmann's detailed time records from the entire Iowa case. The Bettendorf attorneys sought a protective order and expressed concern about producing time records that detailed its strategy before and during the approximately three months of trial against Microsoft in Iowa, particularly due to its involvement in ongoing consumer class actions against Microsoft in Canada.

¶ 10 When questioned during Bettendorf's motion for a protective order, Hagstrom acknowledged that the claimed lodestar included "common time" that had been split between the Wisconsin litigation and the Iowa action. Consequently, the trial court denied the Bettendorf attorneys' motion for a protective order, concluding that discovery was necessary and ordering that the Iowa time entries be produced without any redactions unless a particular time entry mentioned strategy related to future litigation. Rather than disclose their Iowa time records, the court allowed the Bettendorf attorneys to later withdraw the Iowa time from their claimed lodestar.

¶ 11 The Bettendorf attorneys' revised lodestar reflected a reduction of more than 1100 hours from the number initially reported to the trial court in February. The Bettendorf attorneys also reduced their request for expenses from $1.5 million to $221,191.87. Despite these reductions, the Bettendorf attorneys continued to request $22.633 million in fees, which reflected an increase in the lodestar multiplier from 6.27 to 7.88.

¶ 12 Microsoft opposed the Bettendorf attorneys' revised fee petition, arguing that the attorneys should not receive an award for their work on the Wisconsin litigation as a sanction for their deception and lack of candor in the February 2007 fee petition. In a memorandum order, the trial court characterized the Bettendorf attorneys' conduct as reflecting a "lack of candor with the court," but excused such behavior as "at worst venial, but definitely not mortal, and does not justify denying their fees altogether." The court went on to determine that the requested $22.633 million award "cannot be justified in a case like this." Consequently, the court awarded the Bettendorf attorneys fees totaling $4 million plus their uncontested expenses of $221,191.87. In its order, the court permitted the Bettendorf attorneys to brief their request for additional fees for representing themselves in the fee litigation.

¶ 13 In December 2007, the Bettendorf attorneys submitted a new petition seeking an award for the fee litigation of approximately $2.3 million in fees plus $282,518.02 in claimed expenses. The Bettendorf attorneys argued that the fees were justified because of Microsoft's "aggressive litigation tactics," which forced them to spend a substantial amount of time litigating the fee dispute. Microsoft asserted that these tactics were necessary to uncover the Bettendorf attorneys' deception. Moreover, Microsoft opposed the fees-on-fees petition arguing, inter alia, that the amount sought was unreasonably excessive.

¶ 14 The trial court subsequently issued a sixty-six page decision and...