Quantlab Techs. Ltd. v. Godlevsky

Citation: 317 F. Supp. 3d 943Docket: CIVIL ACTION NO. 4:09–CV–4039

Court: District Court, S.D. Texas; June 12, 2018; Federal District Court

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Plaintiffs Quantlab Technologies Ltd. and Quantlab Financial, LLC filed motions for attorneys' fees and costs in 2015 against defendants Andriy Kuharsky and Emmanuel Mamalakis. The court deferred these motions pending the defendants' appeal, which was ultimately affirmed by the Fifth Circuit in June 2017. Following this affirmation, Quantlab requested the court to address its pre-appeal motions and submitted an Amended Bill of Costs. The court granted Quantlab's motions after thorough consideration of the documentation and relevant law.

The case revolves around the misappropriation of trade secrets by Quantlab, a high-frequency trading technology firm. Initially, there were six defendants, but only Kuharsky and Mamalakis remained after others reached settlements. The court previously granted summary judgment in favor of Quantlab for copyright infringement and imposed sanctions on Kuharsky for spoliation of evidence. A jury subsequently found Kuharsky liable for conspiracy and trade secret misappropriation, awarding significant damages against both Kuharsky and Mamalakis. The Fifth Circuit upheld these findings.

The court criticized the defendants' litigation behavior as acrimonious and vexatious, noting that their actions displayed a level of bad faith unprecedented in the judge's experience. Specific instances of deceitful conduct, such as Kuharsky's false claims about document possession and Mamalakis's baseless sanctions motion, highlighted the defendants' uncooperative and obstructive litigation tactics, which extended throughout the discovery process.

Kuharsky and Mamalakis engaged in irresponsible and abusive litigation tactics, attempting to conceal crucial evidence from Quantlab. The Court imposed sanctions on them twice, first in February 2014, after determining that significant evidence had been lost, primarily due to Mamalakis erasing or giving away data from multiple computers that likely contained evidence of misappropriation of Quantlab's technology. Mamalakis also orchestrated SXP Analytics' bankruptcy in 2012 to evade the Court's orders. Kuharsky was found to have spoliated substantial electronic storage that he was required to preserve, leading the Court to express that their conduct was "deeply troubling."

In April 2015, the Court further sanctioned Kuharsky for destroying incriminating evidence on a laptop he was supposed to produce. This action violated both his duty to preserve evidence and a specific court order, resulting in the Court declaring him liable for one of the claims against him. Throughout the case, the Court urged the defendants to act in good faith, but these requests were ignored. Notably, Kuharsky sought to disqualify Quantlab's counsel just days before trial, demonstrating a continued pattern of irresponsible behavior.

The Court referenced its inherent authority to manage cases and impose sanctions for misconduct, including the ability to order reimbursement of legal fees incurred by the opposing party due to bad faith actions. Such sanctions aim to uphold judicial authority and compensate the aggrieved party. While typically compensatory, in exceptional cases, the Court may shift all legal fees if a party's entire conduct is deemed part of a scheme to undermine a claim.

District courts are instructed not to focus on precise calculations when awarding fees; rather, they should aim for rough justice and may use estimates and their overall impression of a case. A court can allocate costs based on a litigant's bad faith conduct. Quantlab seeks a full or partial fee award against Kuharsky and Mamalakis, and the court finds their conduct throughout the litigation to be in bad faith, justifying a complete award under Chambers v. NASCO, Inc. The Chambers case involved a seller who attempted to evade a contract by engaging in delaying tactics and filing meritless motions, ultimately leading to sanctions. Similarly, Kuharsky and Mamalakis employed frivolous motions and delaying strategies, demonstrating a lack of merit in their defenses and persistent non-compliance with litigation norms. Their actions included spoliation of evidence and attempts to undermine the litigation process. The Supreme Court's Goodyear decision emphasizes the need for a but-for causal relationship between bad faith actions and incurred litigation costs; however, in this case, such distinctions are impossible to make due to the overwhelming impact of the defendants' conduct on the litigation. The case has a substantial docket with numerous unnecessary entries, underscoring the pervasiveness of the defendants' bad faith, which characterizes this litigation as exceptional and justifies a full award of costs.

The Supreme Court indicated that a district court could conclude that all legal expenses incurred were solely due to the defendant's fraudulent actions. Quantlab seeks a total of $9,999,527.03 in legal expenses from 2007 to 2017, which includes $8,334,620.81 for attorney fees from multiple law firms and $1,385,571.79 for forensic analysts, AON Consulting and Pathway Forensics. The attorney fees comprise $8,047,876.14 through trial and $268,744.67 through appeal, corroborated by detailed monthly invoices. Quantlab also submitted an Amended Bill of Costs totaling $279,334.43, with the majority attributed to copy and printing fees, supported by detailed spreadsheets and invoices.

In assessing sanctions against Kuharsky and Mamalakis, the Court must evaluate the reasonableness of Quantlab's attorney fees using the "lodestar" method, which calculates fees based on the number of hours worked multiplied by a reasonable hourly rate. This method is presumed reasonable but can be adjusted based on twelve factors from the Johnson case. Quantlab bears the burden of proving the reasonableness of its billed hours, which is supported by extensive documentation. Kuharsky did not contest the billing, while Mamalakis attempted to shift blame for the litigation's vexatiousness onto Quantlab. The Court, after reviewing the case record and documentation, determined that Quantlab's legal team exhibited adequate billing judgment, deeming their hours reasonable.

When an attorney's customary billing rate aligns with prevailing market rates and is not contested, it is considered prima facie reasonable for determining the lodestar. In this case, the hourly rates and biographies of Quantlab's outside counsel, provided by McInturf, were unchallenged by Kuharsky and Mamalakis, thus deemed reasonable by the Court. The Court affirmed the reasonableness of requested fees after considering the Johnson factors, noting the outside counsel's diligence in a complex, lengthy case that successfully resolved trade secret misappropriation.

Quantlab also seeks reimbursement for fees paid to forensic experts AON and Pathway, whose analysis was crucial due to significant evidence spoliation. The Court deemed the recovery of these expert fees appropriate, as no specific challenge was posed by Kuharsky and Mamalakis. However, the Court limited the total fees and costs awarded to Quantlab, recognizing that other defendants were involved. It assessed that Kuharsky, Mamalakis, and Godlevsky were major contributors to the litigation expenses, each responsible for 30% of costs prior to May 2015, while other defendants accounted for 10%. Following a stipulated judgment in May 2015, only Kuharsky and Mamalakis shared the remaining expenses equally. The final calculations resulted in a total liability of $3,220,205 for each Kuharsky and Mamalakis, based on attorney fees of $931,834.27, expert fees of $118,104.65, and additional costs of $51,795.64 incurred from that point onward.

The Fifth Circuit has clarified that the inherent power to sanction litigants is limited, not broad, and should be exercised with restraint. In this case, the court denied several of Quantlab's sanctions requests initially, only imposing sanctions after the defendants repeatedly defied court orders. The court acknowledges the necessity of judicial restraint but ultimately finds that sanctions are warranted due to the defendants’ inability to act honestly and responsibly, leading to the failure of the case to meet the legal system's aims for a just and efficient resolution.

Consequently, the court grants Quantlab's motions for consideration, attorneys' fees, and costs, ordering defendants Andriy Kuharsky and Emmanuel Mamalakis to each pay $3,220,205. The court lists numerous motions filed by both sides throughout the litigation, emphasizing the defendants' non-compliance and the challenges faced by their attorneys, who are noted for their professionalism in other cases. The court had earlier appointed a special master to address evidentiary issues stemming from an FBI raid, indicating complexities in the case that compounded the difficulties faced by the legal representatives. The court also considers various factors in determining the appropriateness of attorneys' fees, referencing established criteria for such assessments.