BMC Software, Inc. v. Int'l Bus. Machs. Corp.
| Decision Date | 08 August 2022 |
| Docket Number | Civil Action H-17-2254 |
| Parties | BMC SOFTWARE, INC., Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Pending before the court is BMC's motion for recovery of its attorneys' fees and costs. Dkt. 760. After reviewing IBM's response (Dkt. 773), BMC's reply (Dkt. 774) and the applicable law, the court is of the opinion that the motion should be GRANTED IN PART and DENIED IN PART.
The court assumes familiarity with the underlying facts of the case, and recounts only facts necessary to give a general overview for purposes of the instant motion. See generally Dkt. 756 at 1-66.
In 2008, the parties entered into a Master License Agreement (the “MLA”), which provides that “[t]he prevailing party in any litigation is entitled to recover reasonable and customary attorney's fees and costs from the other party.” PX1. BMC initiated suit against IBM and raised eleven causes of action in its Second Amended Complaint (the “SAC”), including breach of sections 1.1, 5.1, and 5.4 of a 2015 Outsourcing Attachment (the “2015 OA”) governing the parties' business relationship; anticipatory breach of contract; breach of section 8 of the MLA for misuse of confidential information; fraudulent inducement; breach of the duty of good faith and fair dealing; tortious interference; common law misappropriation of trade secrets and unfair competition; and misappropriation of trade secrets under both the Texas Uniform Trade Secrets Act (“TUTSA”) and the Defend Trade Secrets Act (“DTSA”).[1] Dkt. 295 ¶¶ 71-180.
BMC's three breach of contract claims related to the 2015 OA all involved the same universe of facts wherein IBM--after agreeing not to displace BMC's products with its own pursuant to section 5.4--breached its agreement with BMC when it did just that. See Dkt. 295 at ¶¶ 71-79. BMC's breach of section 1.1 claim rested on the theory that IBM, which elected the contractual option to use BMC's products for free subject to a non-displacement restriction, was legally obligated to elect the contractual option that would have allowed it to the displace BMC's products for a fee. Id. at ¶ 34, 90-97. BMC also claimed that IBM breached section 5.1 of the 2015 OA by virtue of using BMC's own products to effectuate the displacement. See id. ¶¶ 8489.
Dkt. 295 ¶ 84. This conduct put IBM, BMC averred, in breach of both section 5.1 of the 2015 OA and section 8 of the MLA and helped form the basis of BMC's trade secrets claims. See id. ¶ 109 (“IBM is breaching Section 8 of the Master License Agreement by disclosing BMC's Confidential Information, as defined in the Master License Agreement, to third parties without BMC's consent.”); ¶ 150 (); ¶ 160 (); ¶ 170-80 (detailing the overlapping relationship between BMC's DTSA claim and breach of contract claims).
When BMC initiated suit in 2017, it entered into an agreement with Bracewell LLP (“Bracewell”) to fix attorneys' fees at their 2017 rates throughout the entirety of the matter. Dkts. 760 at 14, 760-1 at 10. Generally, law firms increase their rates incrementally on an annual basis. Dkt. 760-1 at 9-10. But, pursuant to BMC and Bracewell's fixed-rate agreement, new attorneys added to this case worked under the 2017-rate structure. Id. at 10. Because Bracewell increased its standard rates annually, the 2017 agreement resulted in an increasing discount-valued at approximately $6,011,560.70--to BMC over time. Id. In addition, Bracewell reduced its fee rate by 30% while pursuing a preliminary injunction for BMC, resulting in a $724,148.41 discount.
In the lead-up to trial, the parties extensively litigated multiple discovery issues and collectively took fifty-two depositions, issued seventeen expert reports, admitted over one thousand exhibits into evidence, and authored voluminous objections to Judge Bryan's Memorandum & Recommendation. See Dkts. 760-8, 760-9, 760-10. Together, the parties filed six motions for summary judgment as well as responses and replies for each; the summary judgment record alone totaled 790 pages of briefing and over 18,000 pages of exhibits. See Dkts. 517, 760-9. All told, the parties collectively filed 126 pleadings and motions in this matter and produced 401,813 pages of documents. Dkts. 760-8 at 2, 760-9 at 2.
Following a two-week bench trial, the court entered its Findings of Fact and Conclusions of Law, determining that BMC proved only its breach of section 5.4 claim and fraudulent inducement claim. Id. at ¶¶ 164-76, 181-206. The court's final judgment awarded BMC $717,739,615.00 in direct damages on its breach of contract claim and $717,739,615.00 in punitive damages on its fraudulent inducement claim. Dkt. 757.
Pursuant to Federal Rule of Civil Procedure 54, BMC filed its motion for attorneys' fees on June 13, 2022. Dkt. 760. BMC seeks attorneys' fees and costs in the amount of $30,220,319.13, including $18,129,053.89 in total fees billed; $6,011,560.70 in recovery for the discounted rates pursuant to the 2017 fixed-rate agreement; $724,148.41 in discounted rates for the unsuccessful preliminary injunction; $4,122,998.13 in total costs; and $1,232,558.00 in conditional postjudgment and appellate representation costs. Id. at 26. IBM responded on July 1, 2022, and BMC replied on July 6, 2022. Dkts. 773, 774.
“Under the bedrock principle known as the American Rule, each litigant pays his own attorneys' fees, win or lose, unless a statute or contract provides otherwise.” Marx v. Gen. Revenue Corp., 568 U.S. 371, 382, 133 S.Ct. 1166 (2013) (cleaned up). The court must “not deviate from the American Rule ‘absent explicit statutory authority.'” Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. 121, 126, 135 S.Ct. 2158 (2015) (quoting Buckhannon Bd. & Care Home, Inc. v. W.Va. Dep't of Health and Hum. Res., 532 U.S. 598, 602, 121 S.Ct. 1835 (2001)).
New York law recognizes that parties “may contract for the indemnification of attorneys' fees and expenses.” Blue Citi, LLC v. 5Barz Int'l Inc., 338 F.Supp.3d 326, 341 (S.D.N.Y. 2018), aff'd, 802 Fed.Appx. 28 (2d Cir. 2020) (citation omitted). Should parties contract for indemnification of attorneys' fees and expenses, determining the reasonableness of those fees is committed to the discretion of the district court. Id.
The court previously found that the MLA is governed by New York law and that section 18 is “clear and enforceable.” Dkt. 756 at 104. When a New York contract “provides for shifting of the actual attorneys' fees expended by a prevailing party, ‘the court will order the losing party to pay whatever amounts have been expended . . . so long as those amounts are not unreasonable.'” Wells Fargo Bank N.W., N.A. v. Taca Int'l Airlines, S.A., 315 F.Supp.2d 347, 353 (S.D.N.Y. 2003) (quoting F.H. Krear & Co. v. Nineteen Named Trs., 810 F.2d 1250, 1263 (2d Cir. 1987)). Thus, the MLA contractually requires the losing party in this litigation to pay reasonable attorneys' fees and costs to the prevailing party, a proposition that IBM does not contest.
IBM also declines to contest that BMC is the prevailing party in this litigation. See generally Dkt. 773. A party can be said to have prevailed if it succeeded “with respect to the central relief sought.” Blinds to Go (U.S.), Inc. v. Times Plaza Dev., L.P., 143 N.Y.S.3d 91, 93 (N.Y.App.Div. 2021). “Such a determination requires an initial consideration of the true scope of the dispute litigated, followed by a comparison of what was achieved within that scope.” Id. (internal quotations omitted). Put differently, a party must receive “substantial relief” relating to the central claims advanced. Grand v. Schwarz, No. 15-CV-8779(KMW), 2019 WL 624603, at *3 (S.D.N.Y. Feb. 14, 2019) (citing Sykes v. RFD Third Ave. I Assocs., LLC, 833 N.Y.S.2d 76, 77-78 (N.Y.App.Div. 2007)). And, because New York law looks principally to a party's “central” claims, see Blinds to Go, 143 N.Y.S.3d at 93, “it is of no moment that [the] plaintiff did not prevail on its [alternative] claims.” See Okoye v. deVere Grp., Ltd., 92 N.Y.S.3d 625, 626 (N.Y.App.Div. 2019).
BMC is the prevailing party. The crux of BMC's case turned upon the allegation that IBM fraudulently induced BMC to sign the 2015 OA, which IBM allegedly then breached when it displaced BMC's products with its own. See Dkt. 295. By clear and convincing evidence, the court found that IBM fraudulently induced BMC to enter into a contract by agreeing, in section 5.4, not to poach an important BMC account, when IBM did not intend to uphold that agreement. Dkt. 756. Relatedly, the court found for BMC because it showed by the preponderance that...
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