Holland v. Jachmann

Citation: 85 Mass. App. Ct. 292Docket: No. 1; No. 13-P-280

Court: Massachusetts Appeals Court; May 14, 2014; Massachusetts; State Appellate Court

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Attorney’s fees for legal work by in-house counsel may be awarded under G. L. c. 93A at the discretion of the trial judge. The plaintiffs, collectively referred to as Omniglow, sued Cyalume Technologies, Inc. and its CEO, Emil Jachmann, for actions that undermined their business. After a seventeen-day jury-waived trial, the judge found the defendants liable for multiple breaches of contract, conversion, and violations of G. L. c. 93A, leading to a final judgment in favor of the plaintiffs on August 1, 2011, which was amended on July 12, 2012. The defendants raised various issues on appeal, which were deemed routine and addressed in an unpublished memorandum. 

The case originated from a complex transaction where Omniglow Corporation was split, with Cyalume purchasing its profitable segments in late 2005, while Omniglow acquired the unprofitable 'rest of glow' (ROG) segments and the rights to the Omniglow name on January 23, 2006. Contracts established mutual obligations, including a noncompetition agreement preventing Cyalume from competing with Omniglow in the ROG business. However, tensions arose when Cyalume failed to provide an audited income statement necessary for fund distribution, withheld essential equipment required by Omniglow, and obstructed the resolution of title disputes. This pattern of behavior hindered Omniglow’s operations, compelling it to purchase products from Cyalume at a higher cost rather than manufacturing them.

Cyalume's ownership claims to Omniglow's equipment were deemed not made in good faith by the judge, who found that Cyalume converted assets belonging to Omniglow, including 1.63 million adhesive strips essential for manufacturing Omniglow's Speculite product. Cyalume denied Watson Pharmaceuticals' request for replacement of defective strips and required an excessive purchase. Omniglow was forced to buy back adhesive strips at inflated prices. The judge also identified breaches by Cyalume's executives, who obstructed Omniglow's access to critical documents and delayed the resolution of IT issues, significantly disrupting Omniglow's business. Cyalume unlawfully intercepted a purchase order meant for Omniglow and sold novelty light sticks in violation of a noncompetition agreement. The judge characterized the sales to one customer as willful violations of Massachusetts General Laws Chapter 93A. Additionally, Cyalume wrongfully evicted Omniglow and withheld valuable telephone numbers necessary for customer orders, advertising under Omniglow’s name in violation of agreements. A threat was issued against a supplier to coerce them into unfavorable sales terms for Omniglow. The judge concluded that Cyalume's actions constituted a pattern of egregious conduct aimed at undermining Omniglow, affirming liability under c. 93A. Defendants appealed, contesting this liability, but the judge found the evidence presented indicated serious misconduct beyond mere contract breaches.

Unfair conduct was identified, including significant contractual breaches and bad faith actions by Cyalume designed to gain advantages. The judge determined that eight specific acts constituted violations of G. L. c. 93A, supported by substantial evidence. The defendants contested the awarding of attorney’s fees to George Stanbury, in-house counsel for Omniglow, arguing that his fees were not 'incurred' under G. L. c. 93A since he did not bill for his services and his work was speculative. The plaintiffs countered that the purpose of attorney’s fees in this context is punitive, and thus, the defendants should not evade consequences due to Stanbury's salaried status. The judge upheld the award of fees, citing fairness, public policy, and precedents that support fee awards even without billing. It was emphasized that Stanbury's involvement in the litigation had a real financial impact on Omniglow. The ruling underscored that denying fees would undermine the deterrent intent of c. 93A and inadvertently reward the defendants for their misconduct. Ultimately, the court affirmed that awarding attorney's fees for in-house counsel under c. 93A is permissible at the trial judge's discretion.

The interpretation of the statute furthers the broad remedial objectives of c. 93A, as established in Kraft Power Corp. v. Merrill. The court found no abuse of discretion regarding the award of Stanbury’s fees, despite concerns over the documentation supporting the request. Trial judges are deemed best positioned to assess the reasonableness of time spent and the fair value of attorney services, as noted in Fontaine v. Ebtec Corp. The judge's fee award was based on various factors, including Stanbury’s competence, trial duration, complexity of issues, and the plaintiffs’ success in securing substantial damages under c. 93A.

The judge properly considered relevant factors like case nature, time involved, results obtained, and attorney reputation, referencing Linthicum. Although Stanbury did not keep contemporaneous time records, he provided a month-by-month summary of his work, which the judge found sufficient for a reasonable fee assessment. The documentation, though not ideal, combined with the judge's familiarity with the case, supported the fee award. The amended final judgment was affirmed.

Further, the judge noted the complexity in separating equipment between the ROG and GMS segments, requiring the parties to negotiate any corrections to the ROG equipment schedules. If negotiations failed, disputes had to be submitted to John Friedson, who initially agreed to arbitrate until threatened by legal action from Cyalume’s attorney. Omniglow reimbursed Watson for charges incurred by Cyalume, though it was unable to quantify customer losses attributed to Cyalume's actions. The judge did not rule against the defendants on every issue, including a lease breach and a related c. 93A claim. Additionally, fees were awarded for services provided by Robert Aronson, who assisted Stanbury.

The defendants did not contest the award of $71,596.84 for Aronson’s fees. Stanbury was engaged by Omniglow in October 2006 while in private practice in Santa Monica, California, and became the company’s general counsel in July 2007, earning an annual salary of $200,000. In determining appropriate in-house counsel fees, jurisdictions utilize either the market rate approach or cost-plus analysis. A judge may choose either method at their discretion. Stanbury previously charged $350 per hour in private practice, a rate deemed reasonable for experienced attorneys in similar complex cases in Springfield. The defendants' challenge to Stanbury’s rate was dismissed as the judge found no abuse of discretion, considering Stanbury's role as lead counsel and the case’s complexity, which involved numerous contracts, technology, international production, extensive business records, and a 17-day trial with 72 exhibits. Stanbury conducted or defended eighteen depositions without charging for travel time. Ultimately, the judge awarded $152,906.25 for Stanbury's legal services, justified by the over $2 million in damages awarded in the case. The judge reduced Stanbury's fees by 25% to account for time spent on non-c. 93A segments and defending the c. 93A counterclaim, despite crediting his documentation.