• October 30, 2012

Update (October 30, 2012):The Minnesota Supreme Court seems quite preoccupied with the issue of the costs of our legal system vs. its benefits (that is, the size of recovery).  In Karl et al. v. Uptown Drink et al., a group of approximately 750 bartenders, servers, and security guards, brought a class action against their employers alleging minimum wage violations, overtime violations, failure to maintain records, and unlawful deductions.  This went to trial.  A jury found $15,668.50 in total damages.

The trial court awarded liquidated damages, civil penalties, attorneys’ fees of $559,367, and awarded plaintiffs additional costs of $125,330.09.  The Minnesota Court of Appeals held that the trial court did not abuse its discretion in awarding these fees and the Minnesota Supreme Court granted the petition for further review last week.

It remains to be seen how the Minnesota Supreme Court will address this case, of course, and it is not even clear what aspect of the case drew the Court’s attention.  On the other hand, recent cases have highlighted that some on the Court are troubled at how big fees are being sought for little wins.

Still, one has to wonder why it is the plaintiffs’ lawyers who are often implicitly or even explicitly criticized for the high fees while the roles and responsibility of defendants and their counsel (who, after all, are found to have violated the law and who are found liable) for the high fees (let alone the courts’ own positions on civil litigation, which sometimes raise litigation costs significantly) seem to pass without notice, scrutiny, or criticism.

Update (October 8, 2012):  Following up on the post, below, U.S. District Court Judge Ann D. Montgomery has affirmed U.S. Bankruptcy Judge Robert J. Kressel.  A court found $41,000+ in compensatory damages (plus $40,000 in punitive damages) due to misappropriation of trade secrets, but the legal fees for the finding were $1.122 million.  Bankruptcy won’t spare the wrong-doer; his debts are found non-dischargeable.

Original Post (July 9, 2012):   (U.S. Supreme Court Chief Justice William H. Rehnquist in a dissent in 1986: “[I]t would be difficult to find a better example of legal nonsense than the fixing of attorney’s fees by a judge at $245,456.25 for the recovery of $33,350 damages…” (a ratio of 7.4:1).

We have to assume that Justice Rehnquist would find $1.3 million in fees for a recovery of $81,068 (a ratio of 16:1) to be intolerable.  What if those fees were incurred to stop an employee who misappropriated thousands of electronic files to compete directly with his employer?  Does that make a difference?  And what if the employee files for bankruptcy?  Is the mammoth fee award a debt for a “willful and malicious injury” that is “non-dischargeable” in bankruptcy?

It is not just consumer’s rights advocates or “lawyers for the little guy” who face the problem of litigation costs grossly exceeding recoverable damages.

SKF USA, Inc. went after former employee Kevin B. Koch and others who, SKF alleged, made off with SKF assets to compete against SKF.  SKF’s efforts to stop Koch and others were quite successful but expensive.  However, SKF succeeded in convincing a U.S. District Court Judge in Illinois that its fees were, by and large, proper.  And SKF wishes to collect them from Koch even if Koch has filed for bankruptcy.

It gets a little tricky, though, because it seems that SKF won their award on a theory of “unjust enrichment,” which is not clearly a “willful and malicious” act warranting a finding of non-dischargeability.

Close enough, concluded U.S. Bankruptcy Judge Robert J. Kressel (D. Minn.), ruling in SKF’s favor.  We’ll see about that, countered Koch’s lawyers who have appealed Judge Kressel’s decision to U.S. District Court Judge Ann D. Montgomery (D. Minn.).

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