Transverse, L.L.C. v. Iowa Wireless Servs., L.L.C.

• Decision Date: 23 March 2021
• Docket Number: No. 20-50271,20-50271
• Citation: 992 F.3d 336
• Parties: TRANSVERSE, L.L.C., Plaintiff—Appellee Cross-Appellant, v. IOWA WIRELESS SERVICES, L.L.C., doing business as I Wireless, Defendant—Appellant Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

992 F.3d 336

TRANSVERSE, L.L.C., Plaintiff—Appellee Cross-Appellant,

v.IOWA WIRELESS SERVICES, L.L.C., doing business as I Wireless, Defendant—Appellant Cross-Appellee.

No. 20-50271

United States Court of Appeals, Fifth Circuit.

Filed March 23, 2021

Eric Alexander Johnston, Esq., McGinnis Lochridge, L.L.P., Austin, TX, for Plaintiff—Appellee Cross-Appellant.

Susan Allison Kidwell, Locke Lord, L.L.P., Austin, TX, Thomas F. Loose, Esq., Locke Lord, L.L.P., Dallas, TX, Torrence Evans Lewis, Esq., Sidney Powell, P.C., Pittsburgh, PA, Sidney Katherine Powell, Dallas, TX, for Defendant—Appellant Cross-Appellee.

Before Higginbotham, Smith, and Dennis, Circuit Judges.

Patrick E. Higginbotham, Circuit Judge:

In these cross appeals we address whether either party to this long-running contract dispute is entitled to attorneys’ fees. Iowa Wireless Services, LLC (IWS) contends that it is entitled to a fee award under the Texas Theft and Liability Act and that the district court ignored our prior decision when it concluded otherwise. IWS also contends that the district court erred by awarding fees to Transverse, LLC on its claim for breach of the parties’ Supply Contract. Transverse disagrees on both issues and contends that it is entitled to an additional fee award for prevailing on its claim for breach of the parties’ Non-Disclosure Agreement. We reverse in part and remand.

I.

This case has come before us on two previous occasions. In Transverse I , we heard cross appeals from jury and bench trials that resulted in an $11.7 million award to Transverse on its breach-of-contract claim against IWS.¹ IWS, a wireless telephone service provider, had hired Transverse to develop custom billing software called "blee(p)." The parties’ relationship was formalized in a Supply Contract and a Mutual Non-Disclosure Agreement (NDA). When IWS realized that Transverse could not deliver the custom billing software on schedule, it sought the services of a competitor and terminated the Supply Contract.² Transverse then sued IWS under the Supply Contract, the NDA, the Texas Theft Liability Act (TTLA), and tort theories of conversion and misappropriation.³ IWS counterclaimed for breach of the Supply Contract. The parties tried the Supply-Contract claims to a jury and submitted the remainder to a bench trial based on a jury-waiver provision in the NDA.⁴ After these proceedings, the district court rendered judgment for Transverse on its claim that IWS's termination had breached the Supply Contract. But the district court held that IWS had not breached the NDA and was not liable to Transverse in tort. Both parties appealed.

We affirmed that IWS's termination breached the Supply Contract but reversed the district court on the NDA claim, holding that IWS had breached that agreement by sharing meeting notes containing Transverse's confidential information with a competitor.⁵ We remanded for consideration of "the proper amount and type of damages that Transverse may collect on its breach-by-termination claim; the amount of damages, if any, that Transverse may collect for IWS's breach of the NDA; and whether IWS is liable under any of the tort theories pressed by Transverse."⁶ On remand, the district court awarded Transverse $1,700,000 in reliance damages on its Supply-Contract claim. But the district court ordered Transverse to "take nothing" on its claims for breach of the NDA, violation of the TTLA, conversion, and misappropriation of trade secrets. Both parties again cross-appealed.

In Transverse II , we affirmed the district court's award of reliance damages to Transverse on the Supply-Contract claim and the take-nothing judgment on the NDA claim.⁷ We also affirmed that Transverse had failed to establish its tort claims against IWS.⁸ But we determined that IWS was, in fact, the prevailing party on the TTLA claim.⁹ Thus, we vacated Transverse's take-nothing judgment on the TTLA claim and remanded the case for further consideration because "IWS is entitled to a mandatory award of costs and attorney's fees on this claim."¹⁰

After the second remand, the district court referred the parties’ motions for attorneys’ fees to the magistrate judge. Based on the operative pleading, the only viable basis Transverse asserted for recovering fees was Texas Civil Practice & Remedies Code § 38.001. Fearing that the operative pleading would be inadequate if Iowa law applied, Transverse requested leave to amend its complaint "to make clear that its attorneys’ fee claim includes a claim for attorney's fees under" the NDA and Supply Contract as well. The magistrate judge recommended denying leave to amend, noting that an amendment "would delay the Court's consideration of the [fee] issue now before it, and unduly prejudice IWS." The magistrate judge elaborated that, "while perhaps not ‘futile,’ the amendment is not necessary, as Texas, and not Iowa law is applicable."

The magistrate judge then addressed whether Transverse was entitled to fees on the NDA and Supply-Contract claims. He rejected Transverse's contention that it had prevailed on the NDA claim because "Transverse was not awarded damages on its breach, and damages are an essential element of a contract claim under Texas law." Thus, he recommended denying Transverse fees on the NDA claim. On the Supply-Contract claim, the magistrate judge first determined that Texas law was controlling under the law of the case, citing a previous statement to that effect by the district court. In so holding, he rejected IWS's argument that Iowa law controlled based on the Supply Contract's Iowa choice of law provision. Because Transverse had prevailed on its Supply Contract claim, the magistrate judge recommended an award of $2,001,442 in attorney's fees.

Next, the magistrate addressed IWS's motion for fees on the TTLA claim. IWS sought fees totaling $2,563,009, which was "approximately 50% of all fees it incurred in this case." IWS represented that it had removed (1) "any fees relating to Transverse's claim for breach of contract based on early termination," (2) "fees related solely to discrete elements of Transverse's ‘disclosure’ claims," and (3) "fees that would not have been incurred on the TTLA claim alone." But IWS contended that "all other claims in the case are ‘inextricably intertwined’ with the TTLA claim," and thus it could not further segregate the remaining fees. The magistrate judge observed that the Transverse II mandate limited IWS to an "award [of] attorneys’ fees only for the TTLA claim." He found that IWS failed to show that the fees attributable to the TTLA claim could not be segregated from the non-recoverable claims and, consequently, IWS was requesting fees for claims on which it was not entitled to recover. The magistrate judge recommended denying IWS's motion for fees without prejudice and directing IWS "to submit documentation to the Court supporting its claim for attorneys’ fees for the TTLA claim only." The district court adopted the magistrate's report and recommendations.

IWS filed an amended fee application with an affidavit and a series of supporting exhibits, requesting the same $2,563,009 in fees. IWS contended that the magistrate had applied an overly stringent segregation standard at odds with Texas law, by requiring IWS to isolate work performed solely on the TTLA claims. Counsel for IWS explained that to calculate recoverable fees, she had:

reviewed each of the invoices that IWS paid for legal services and determined which services would have been necessary to defend the TTLA claim only, i.e., "even if" Transverse had not brought the related "disclosure" claims that arise from the same set of underlying facts .... excluded all time and entries for work related solely to Transverse's claim for breach of contract based on early termination .... excluded all time and entries for work related solely to other, non-TTLA disclosure claims .... [but] did not exclude services provided to defend the TTLA claim that also furthered IWS's defense of related claims based on the same underlying facts[.]

Transverse opposed the amended application, and the district court again referred IWS's motion.

The magistrate judge characterized IWS's amended application as "defiant," because it sought the exact same fee award as the original. Citing Transverse's opposition, the magistrate gave several examples of IWS's allegedly improper fees, including:

(1) over $360,000 in fees that were incurred before IWS admitted the disclosure that led to Transverse's claim; (2) $60,000 in fees for the deposition of Kleavin Howatt, who offered no testimony about any disclosure claims; (3) fees relating to the analysis of Transverse's entire document production, when the disclosure claim production totaled about 240 pages, while the (unrecoverable) contract claim production totaled approximately 3,000,000 million pages; (4) fees for an Iowa suit filed in federal court by IWS that was purely a breach of contract case; (5) 22 of IWS's 628 exhibits relate to the disclosure claims, yet IWS seeks 50% of its total fees for just the disclosure claims; and (6) ... fees for review of Transverse's damage expert reports that had placeholders for later discussion of the disclosure claims.

The magistrate judge rejected IWS's renewed argument for a less stringent fee-segregation standard, explaining that "intertwined facts do not make fees recoverable. Instead, the focus is whether the legal work performed pertains solely to claims for which attorney's fees are unrecoverable."¹¹ Holding that the district court has discretion to deny fees where the applicant fails to adequately segregate, he recommended denial here because IWS "affirmatively refused to try to carry" its burden to segregate. After de novo review, the district court adopted the recommendations and rejected IWS's fee application in part, awarding only costs in the amount of $32,903.58 for the TTLA claim. For a third time, both parties cross-appealed.

II.

"An award of attorney's fees is...