Document Sec. Sys. v. Ronaldi

• Decision Date: 21 June 2022
• Docket Number: 20-CV-6265-EAW-MJP
• Parties: DOCUMENT SECURITY SYSTEMS, INC. et al., Plaintiffs, v. JEFFREY RONALDI, Defendant.
• Court: U.S. District Court — Western District of New York

DOCUMENT SECURITY SYSTEMS, INC. et al., Plaintiffs, v. JEFFREY RONALDI, Defendant.

No. 20-CV-6265-EAW-MJP

United States District Court, W.D. New York

June 21, 2022

DECISION AND ORDER

MARK W. PEDERSEN UNITED STATES MAGISTRATE JUDGE

Before the Court are defendant Jeffrey Ronaldi's (“Defendant”) applications for fees and costs. (“Applications I & II,” ECF Nos. 23 &amp 43.) In sum, there are two issues before the Court that fall under determining “reasonable” fees under New York Business Corporation Law (“BCL”) § 724(c): first, the Court must determine the appropriate calculation of fees for Applications I & II. (ECF Nos. 23 & 43); and second, the Court must determine whether Plaintiffs forfeited any objection to Applications I and II based on Baker v. Health Mgmt. Sys., Inc., 98 N.Y.2d 80 (2002). For the reasons discussed below, the Court will award a portion of Defendant's requested fees and expenses.

PROCEDURAL HISTORY

The Court's Prior D. & O. and The First Advancement Application

The Court will assume the parties' familiarity with its prior decisions and the procedural history. (D. & O. at 1-3 Mar. 16, 2021, ECF No. 22.) The Court ordered Plaintiffs to “pay all reasonable fees and expenses incurred by Ronaldi in defending this action within thirty days of receipt of a request from Ronaldi.” (Id. at 1 11-12.) The Court also directed that within ten days of its D. & O. that Defendant's

[C]ounsel shall provide an affidavit . . . describing all fees and expenses incurred as of the date of such affidavit along with corresponding invoices, such that the Court may enter an Order directing the amount of advancement that Plaintiffs shall pay.

(Id. at 11.) Defendant's counsel did so. (Application I,^[1] ECF No. 23.)

Defendant requested $160,896.25. (Id. ¶ 10.) Application I covers March through June of 2020. (Id. ¶¶ 11-16.) On April 2, 2021, Plaintiffs filed an objection to Application I. (Objection I, ECF No. 25.) Plaintiffs asserted that the Court should apply the Second Circuit's forum rule to prevent Defendant's counsel from charging excessive rates for the Western District. (Id. at 1-5.) Plaintiffs also asserted that Defendant's counsel was performing unnecessary work. (Id. at 5-6.)

Defendant responded on the same date in a letter. (ECF No. 26.) Defendant noted that, without advancement of the full amount of attorney's fees, Defendant will be personally saddled “with the bulk of his reasonable expenses, in contravention of the BCL, which is intended to protect corporate officers from strike suits of this nature.” (Id. at 2.) Defendant also argued that the forum rule is inapplicable. (Id. at 1.) Plaintiffs filed a letter surreply on April 5, 2021, citing the language of the Court's prior D. & O. concerning “reasonable” attorney's fees incurred in defending this action. (“Surreply,” ECF No. 27.) Plaintiffs also pointed out that even if the Second Circuit's forum rule were not applicable, the Court should consider New York Rule of Professional Conduct 1.5(a)^[2] (id. at 2), which details factors for determining payment of reasonable fees, including “the fee customarily charged in the locality for similar legal services.” N.Y. R. of Pro. Conduct r. 1.5(a)(3).

Defendant's Second Advancement Application

On November 12, 2021, Defendant's counsel filed a second advancement application. (Application II,^[3] ECF No. 43.) Defendant requested “an additional $121,672.51.” (Id. ¶ 9.) Application II covers April through August 2021. (Id. ¶¶ 10-14.)

Plaintiffs again objected. (Objection II, ECF No. 47.) Plaintiff noted Defendant's use of local counsel in the parallel state court matter. (Id. at 1, 4.) Otherwise, Plaintiffs repeated essentially the same arguments about Defendant's counsel's hourly rates, hours billed, and applicability of the Second Circuit's forum rule. (See generally id.)

Defendant replied, providing additional argument about the inapplicability of the forum rule. (Reply II at 3-6, ECF No. 48.) Defendant also asserted his right to choose counsel, noting that his “retention of the qualified lawyers of which choosing to defend these serious reputational allegations clearly is justified.” (Id. at 6.) Defendant also requested entry of an order to facilitate future advancements. (Id. at 9-10.) On the same day, Defendant's counsel filed a supplemental declaration providing discussion of fees and sample orders for future advancement of fees from the Delaware Court of Chancery. (See generally “Def.'s Suppl. Decl.,” Dec. 20, 2021, ECF No. 49.)

The Current Pending Motions

Defendant made Applications I & II based on the Court's decision and order (“D. & O.”) granting Defendant advancement of reasonable costs and fees pursuant to New York Business Corporation Law section 724(c).^[4] (ECF No. 22.) Defendants objected to both Applications I & II. (“Objections I & II,” ECF Nos. 25 & 47.) Plaintiff filed responses^[5] to Defendants' objections. (“Replies I & II,” ECF Nos. 26 & 48.) After oral argument on February 9, 2022, Plaintiffs and then Defendant provided letter briefing respectively dated February 10, 2022, and February 15, 2022^[6] (on file with the Court).

Based on those letters, the Court requested additional briefing, according to the briefing schedule set forth in Loc. R. Civ. P. 7. (Text Order, Mar. 24, 2022, ECF No. 55.) Defendant and then Plaintiffs submitted memoranda of law on issues presented by Baker v. Health Mgmt. Sys., Inc., 98 N.Y.2d 80 (2002) (Baker II), on April 4 and April 18, 2022, respectively. (ECF Nos. 56 & 57.) Pursuant to Loc. R. Civ. P. 7, as the party requesting attorney's fees, the Court permitted Defendant to file a reply. (Apr. 25, 2022, ECF No. 62.)

The Court also requested briefing on whether Plaintiffs forfeited^[7] any fees-on-fees objection to Defendant's advancement application stemming from the Baker II case. (Text Order, Apr. 18, 2022, ECF No. 58.) Defendant referred to forfeiture in passing in the informal letter briefing following the above-referenced oral argument. (Feb. 15, 2022, on file with the Court.) Defendant submitted his initial memorandum of law on April 25, 2022. (ECF No. 61.) Plaintiffs filed opposition on May 2, 2022. (ECF No. 63.) Defendant filed a reply on May 6, 2022. (ECF No. 65.)

The Parties' Oral Argument and Supplemental Briefing

On February 9, 2022, the Court held oral argument. (Minute Entry, ECF No. 53.) Counsel for both parties appeared and argued concerning applicability of the Second Circuit's forum rule. (Id.) One day after oral argument, Plaintiffs submitted a letter to the Court ostensibly to draw attention to applicable case law.^[8] (Pls.' Letter, on file with the Court.) Plaintiffs attached the New York Court of Appeals' decision in Baker II. Plaintiffs framed Baker II as controlling precedent. (Letter at 2, on file with the Court (“The Court of Appeals ... determine[ed] that a corporate officer, or former officer, such as Mr. Ronaldi, is not entitled to recover attorneys' fees in connection with an application for advancement or indemnification”) (alteration added).)

Defendant responded in a letter dated February 15, 2022, arguing that Baker II is inapplicable. (Def.'s Letter at 2-3, on file with the Court.) Defendant stated in the letter that “DSS's letter, filed without leave of Court, cites two additional cases that were not cited in its multiple prior submissions.” (Id. at 1.) Concerning Baker, Defendant stated, “DSS also points to Baker [II] ... to argue for the first time that the Court should not award ‘fees incurred by a corporate officer in making an application for fees before a court.'” (Id. at 2 (quoting Pls.' Letter, Feb. 9, 2022, on file with the Court) (alterations added) (emphasis in original).) Defendant added, “[p]utting aside that DSS never raised this argument in prior briefing,” before proceeding to make a substantive argument about Baker II. (Id. (alteration added).)

Based on Defendant's February 15, 2022, letter and a footnote Defendant included in his initial memorandum of law on Baker II, the Court requested further briefing from the parties concerning whether Plaintiffs forfeited their arguments based upon Baker II (Text Order, Apr. 18, 2022, ECF No. 58). (Def.'s Mem. of Law on Baker II at 12 n.2, ECF No. 56.) Defendant filed his initial memorandum of law on forfeiture on April 25, 2022. (Def.'s Mem. of Law on Forfeiture, ECF No. 61.) Plaintiffs filed opposition on May 2, 2022. (Pls.' Mem. of Law on Forfeiture, ECF No. 63.) Defendant filed a reply on May 6, 2022. (ECF No. 65.)

DISCUSSION OF CALCULATING ATTORNEYS' FEES

Applicable Law

As a threshold matter, the Court must determine whether New York or federal law governs. The parties' briefings focus almost exclusively on federal law and the applicability of the Second Circuit's forum rule. However, questions of whether to award attorney's fees in diversity actions such as this one, fall soundly within state law. Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 177 (2d Cir. 2005); see also Allstate Ins. Co. v. Serio, 261 F.3d 143, 150 (2d Cir. 2001) (“Where a decision is to be made on the basis of state law ... the Supreme Court has long shown a strong preference that the controlling interpretation of the relevant statute be given by state, rather than federal courts.”). Having decided whether to advance fees under state law (see generally D. & O., ECF No. 22) it follows that the Court would also calculate fees under state law. Moore's Federal Practice § 124.07[3][b] (“When state law controls, state law governs not only the right to fees but also the method of calculating the fees.”); see also Crout v. Haverfield Int'l, Inc., 348 F.Supp.3d 219, 227-28, 233 (W.D.N.Y. 2018) (applying New York law in a diversity action...