Massachusetts Court Awards Attorneys' Fees for In-House Counsel's Work: The State Is the Latest To Recognize Shifting of In-House Counsel Fees

by Holland & Knight LLP
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HIGHLIGHTS:

  • In a question of first impression, the Massachusetts Court of Appeals held that trial court judges have discretion to award attorneys' fees for work performed by in-house counsel for claims brought under the state's unfair trade practices law.
  • The court's decision in Massachusetts results in the state joining a growing number of jurisdictions that recognize fee recoveries can be appropriate for work completed by in-house counsel.
  • Forward-thinking lawyers would be wise to identify potential fee-shifting cases early and to request that in-house counsel keep contemporaneous and detailed time sheets.

In a question of first impression, the Massachusetts Court of Appeals recently held that trial court judges have discretion to award attorneys' fees for work performed by in-house counsel for claims brought under the state's unfair trade practices law. The case, Holland, et al. v. Jachmann, 85 Mass.App.Ct. 292, 2014 WL 1887534 (2014), decided on May 14, 2014, arose out of a dispute between two entities that had formed following a corporate split by Omniglow Corporation, a manufacturer of light sticks and other luminescent products.

Following the split, the relationship between the two resultant companies, Cyalume and Omniglow (which had retained the original Omniglow name), quickly began to collapse. Shortly thereafter, Omniglow sued Cyalume for unfair business practices under Massachusetts state law. The trial court found in Omniglow's favor and awarded Omniglow legal fees that included an award for work performed by Omniglow's in-house counsel pursuant to Massachusetts' unfair business practices statute.

On appeal, Cyalume argued that Omniglow's in-house counsel was a salaried employee, who did not bill Omniglow for his services and, therefore, Omniglow did not "incur" those fees. In addition, Cyalume argued that the in-house counsel's failure to keep daily time records made the value of his work speculative. The Massachusetts Court of Appeals disagreed and affirmed the trial court ruling, explaining that as a practical matter, every hour that in-house counsel spent on the Cyalume litigation was an hour that he could not spend on other legal matters and as a result, that had a concrete and financial impact on Omniglow. Further, the appellate court reasoned, denying the attorneys' fees to Omniglow based on its decision to use in-house counsel instead of outside counsel would undermine the deterrent purposes of the applicable law and would in essence reward the defendants. The appellate court also noted that the award of attorneys' fees would further the broad remedial purpose of the statute.

The Lack of Daily Detailed Timesheets Did Not Rule Out the Attorney Fee Claim

The appellate court also rejected the argument that the lack of daily and detailed timesheets was fatal to the attorney fee claim. The court noted that in-house counsel was able to produce a month-by-month list of the time he spent on the case, with brief – albeit non-specific – descriptions of the work that he had completed. In deciding on the amount of the award, the trial court considered:

  • the in-house counsel's competence and experience
  • the length of the trial
  • the difficulty of the legal and factual issues
  • the enormous amount of time spent in pre-trial preparation
  • the plaintiffs' degree of success

The appellate court noted that while contemporaneous time records would have been preferred, the documents provided, coupled with the trial judge's first-hand knowledge of the litigation, provided a sufficiently non-speculative basis for the appellate court to find that the trial court judge had not abused his discretion.

The court's decision in Massachusetts results in the state joining a growing number of jurisdictions that recognize that fee recoveries can be appropriate for work completed by in-house counsel. However, the immediate implications of this opinion may be limited since it applies only to cases under the Massachusetts unfair business practices statute. Moreover, this particular case boasted what the appellate court viewed to be excessively egregious conduct by the defendants, which arguably called out for punitive measures. Finally, at least some courts may require more detailed time records before imposing such substantial attorney fee awards. And more generally, different jurisdictions have taken different positions on whether or when attorney fees can be awarded for work by in-house counsel. See, e.g., Bd. of Managers of Foundry at Washing Park Condominium v. Foundry Dev. Co., Inc., 988 N.Y.S.2d 442, 448 (N.Y.Sup. 2014) (finding that an award of fees for the work of in-house counsel was appropriate; Soni v. Wellmike Ent. Co. Ltd., 224 Cal.App.4th 1477, 1483-84 (Cal. App. 2 Dist. 2014); but see, State ex. Rel Hous. Advocates, Inc. v. Cleveland, 2012 WL 985841, *2 (Ohio App. 8 Dist. 2012) (relators in public records cases can recover fees only where the relator actually paid an attorney); In re Cummins Utility, L.P., 279 B.R. 195 (N.D.Tex. 2002); Burger King Corp. v. Mason, 710 F.2d 1480, 1499 (11th Cir. 1983) (upholding denial of fee recovery for in-house counsel where in-house counsel acted as a "liaison" rather than an active participant in the litigation).

Identifying Potential Fee-Shifting Cases Early Is Imperative

Forward-thinking lawyers would be wise to identify potential fee-shifting cases early and to request that in-house counsel keep contemporaneous and detailed time sheets. While many states have precedent for awarding fees for in-house counsel, fee petitions are best supported by timely and accurate records.  

To ensure compliance with Treasury Regulations (31 CFR Part 10, §10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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