North Carolina COA Refuses To Award Attorneys' Fees Based On "New York Rates"

There's enough of interest in the North Carolina Court of Appeals' decision this week in GE Betz, Inc. v. Conrad for five posts. It's got a couple of good rulings on covenants not to compete, a few points about trade secrets issues, and an interesting matter of a violation of a protective order.  The opinion, a unanimous sixty-four pager written by Judge Robert C. Hunter, is worth reading.

The attorneys' fee aspect of the case was the most interesting part of the opinion to me.  The trial court awarded $5.77 million in fees to GE Betz, a General Electric subsidiary.  GE Betz had been successful, after trial, on its claims that the Defendants violated G.S. §75-1.1 and misappropriated trade secrets.

Over $3 million of the fees were billed by GE Betz's prestigious New York-based law firm -- Paul Hastings.  The hourly rate of Paul Hasting's lead counsel ranged from $633.25 to $675.75 during the course of the litigation.  The North Carolina firm that tried the case -- Ward & Smith -- charged significantly less, at rates between $270 and $390 an hour.  The trial court said that Ward & Smith was "a highly capable and qualified law firm."  Op. 51.

A trial court must make findings regarding the reasonableness of the fees in making an award.  A key factor to be considered is the "customary fees for like work."

The COA recognized that the question whether local rates should be a benchmark for reasonableness was one of first impression.  Judge Hunter said:

our appellate courts have not had occasion to decide whether fees must be awarded in light of the rates typically charged in the geographic region where the litigation takes place.

Op. 48.  He looked to a Fourth Circuit decision which "held that the community where the court sits is “the appropriate starting point for selecting the proper rate.” Nat'l Wildlife Fed'n v. Hanson, 859 F.2d 313, 317 (4th Cir.1988).

Judge Hunter refused to weigh in on whether it was reasonable for GE to hire its out-of-state counsel.  He held:

we decline to adopt a test that forces courts to assess the reasonableness of a litigant’s decision to hire counsel generally.  Parties, including GE, are free to hire as counsel whomever they wish at whatever rates they are willing to pay. The issue is whether the fees awarded against an adverse party are reasonable, not whether it was reasonable for those fees to be incurred by the prevailing party.

Op. 50.

On the issue of the reasonableness of the fees, Judge Hunter observed that "[i]t appears that much of the work performed by Paul Hastings' attorneys could have just as effectively been performed by local counsel at local rates.  The trial court did not attempt to make this distinction."  Op. 52.  He gave this example:

in April 2007, associate attorneys at Paul Hastings charged $500.00 per hour – double the $250.00 fee charged by attorneys at Ward and Smith – for “factual investigation and development; obtaining and analyzing [c]lient documents; [and] interview[ing] witnesses”. These duties clearly did not require a prior relationship or intimate knowledge of GE’s employment contracts [which was part of GE's argument as to the reasonableness of the fees], because GE paid the attorneys at Ward and Smith to perform almost identical work during the same time period.

Op. 52-53.

In the end, the COA ruled that it was unreasonable to force the unsuccessful Defendants to pay a fee "that includes rates double those billed in the community where the litigation took place for work that seemingly did not require such a premium."  Op. 53. 

It gently chided GE for its excess, saying that " [u]ltimately, GE’s willingness to pay significantly higher rates for work that they could have procured for much less does not necessitate a finding that those fees are reasonable when awarded against" the Defendants.  Id. 

The case was remanded to the trial court for further findings.

 

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