Rates Technology Inc. v. Broadvox Holding Company, LLC, et al.
October 7, 2014
Case Number: 1:13-cv-00152-SAS
In June 2014, Judge Scheindlin dismissed Rates’s patent infringement against Broadvox, as Rates’s counsel, Springut, had withdrawn from the case and Rates had not obtained new counsel. (“[C]orporations may not appear pro se in the Southern District of New York.”) Broadvox then moved for attorney’s fees from both Rates and from Springut under § 285. Rates did not respond, but Springut filed for fees under 28 USC § 1927 (“Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct”) and under the court’s inherent authority. Broadvox, apparently appreciating that § 285 may not be employed to recover fees from counsel, dropped its claim against Springut.
Judge Scheindlin denied Springut’s motion for fees. She stated that, in order to award fees under section 1927 or the court’s inherent authority, bad faith must be shown. Here, she found no evidence of bad faith, citing several factors. First, she said that one plausible explanation –other than bad faith—for Broadvox’s reliance on an inapposite statute was “poor lawyering.” She also said that by Broadvox dropping the claim against Springut, it counteracted the implication of bad faith. Finally, she criticized Springut for, not contacting Broadvox and informing it that its legal theory does not apply to counsel, instead of litigating the issue. By making such a communication, either informally or under Rule 11, the court said that Springut could have avoided the cost of filing a motion.
Scheindlin also denied Broadvox’s motion for fees. She stated that § 285 “is intended ‘not to control the local bar’s litigation practices[,]’ but to ‘compensat[e] the prevailing party for the costs it incurred . . . where it would be grossly unjust, based on the baselessness of the suit . . . to bear its own costs.’” Broadvox’s motion rested on four points. First, it argued that Rate’s pre-suit conduct involved “misrepresentations” and “threats.” But the court had previously concluded that Rates had carried out a reasonable pre-suit investigation, so it concluded that “Broadvox cannot claim any unnecessary financial injury based on [Rates’s president and shareholder]’s ‘misrepresentations’ and ‘threats.’” Second, “Broadvox contends that [Rate’s] suit was frivolous and that [Rate’s] claim construction positions were baseless.” The court said that without a merits determination, the allegation of a frivolous suit was unproven. With respect to Rate’s claim construction positions, because Rates “supported its positions with relevant case law,” the court refused to find the positions baseless.
Third, “Broadvox argues that [Rates] is a non-practicing entity and hyper-litigious.” Broadvox buttressed this argument by arguing that Rates “has a history of bringing suit, draining its opponent’s financial resources, and then defaulting on its own legal fees, as has happened in this case.” The court said that even if Rates were “hyper-litigious,” that status should not prevent it from bringing meritorious claims. With respect to Rates allegedly defaulting on its fees, the court said that Broadvox was only able to point to one over-ten-years-old complaint of that behavior. Finally, Broadvox complained of Rates adjourning a 30(b)(6) deposition, but the court concluded that Rates had a good reason for adjourning the deposition.
