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Recor Medical, Inc. v. Warnking

Court of Chancery of Delaware

October 15, 2014

ReCor Medical, Inc.

Date Submitted: May 14, 2014

Daniel B. Rath, Esquire K. Tyler O’Connell, Esquire Landis Rath & Cobb LLP

Thomas M. Horan, Esquire Womble Carlyle Sandridge & Rice, LLP

Dear Counsel:

Plaintiff ReCor Medical, Inc. ("ReCor") prevailed in this Court on its claim that it owns certain Transferred Intellectual Property.[1] The Court also concluded that ReCor was entitled to recover its attorneys' fees and expenses by virtue of an Employee Non-Disclosure, Non-Competition, and Invention Assignment Agreement (the "IAA"), which provided: "The prevailing party in any litigation arising under [the IAA] shall be entitled to recover his or its attorneys' fees and expenses in addition to all other remedies."[2]

Defendants Reinhard Warnking ("Warnking") and Sound Interventions, Inc. ("SII") (collectively, the "Defendants") appealed the final judgment entered under Court of Chancery Rule 54(b). The Supreme Court affirmed and identified the two issues remaining for this Court's resolution: "first, the parties' dispute over the amount of attorneys' fees and expenses to be awarded to ReCor; and, second, the question of whether the Defendants should be credited with their attorneys' fees and costs incurred in the filings and prosecution of the Transferred Intellectual Property."[3] ReCor's fee applications include fees[4] incurred before bringing the litigation in this Court, its fees incurred during the litigation in this Court, and its fees incurred during the appellate proceedings.[5] It seeks a total of $1, 130, 993.35.[6]

As a general matter, the fees sought by ReCor fall within a range of reasonableness.[7] Defendants do, however, offer several grounds for either reducing or offsetting those fees. Although the Court is addressing ReCor's fee applications, it will be more orderly to deal with the Defendants' contentions.

A. Pre-Chancery

ReCor acquired the Transferred Intellectual Property and related assets and rights in a bankruptcy proceeding.[8] Before commencing litigation, it attempted to resolve its disputes with Defendants through negotiation. That effort, which resulted in fees of approximately $64, 000, was unsuccessful, but it developed and framed the issues which were eventually litigated in this Court. ReCor's entitlement to recover its fees is a matter of contract. The contract does not limit recovery to fees incurred during litigation, although it does require prevailing in litigation, as ReCor did. It is appropriate, and arguably required, to attempt to resolve disputes before bringing litigation. That is what ReCor did. If those efforts had been successful, without resort to litigation, there would be no right to recover fees. The fees, however, were incurred reasonably, and the amount of the fees, in light of the effort reasonably necessary, is reasonable.

ReCor commenced litigation against the Defendants in Bankruptcy Court. Eventually it was determined that the Bankruptcy Court did not have jurisdiction. The Defendants argue that filing in the wrong court generated unnecessary and, hence, unreasonable fees. The question of whether the Bankruptcy Court had jurisdiction was subject to debate, [9] and ReCor did not act unreasonably in bringing its claims to the court which authorized the transaction by which it acquired the Transferred Intellectual Property. Moreover, to a limited extent, discovery from the bankruptcy proceeding was used in this Court, and that avoided some expenses that would otherwise have been incurred here. The fees incurred in the bankruptcy litigation were reasonable and were part of a proper effort to bring this matter to conclusion, ultimately in the courts of this State.

B. Court of Chancery Proceedings

Defendants complain about duplication and excessive conferencing among ReCor's attorneys.[10] Multiple lawyers worked on similar tasks and attended the same hearing.[11] It is reasonable to conclude that the efforts of ReCor's attorneys, when measured through hindsight, could have been more efficient. That may well be an almost universal truism about legal services. In this instance, there is no objective basis for concluding that the efforts of counsel were anything other than reasonable and consistent with their professional judgment.

ReCor filed its complaint in this Court with seven counts. By the time trial arrived, ReCor had two counts remaining, and after trial, it had prevailed on one count. The Defendants argue that the number of counts for which ReCor did not achieve success renders its fees unreasonable because of unnecessary or unjustified claims. It is not uncommon for several theories of recovery to be asserted and for the pretrial process to narrow the scope of the proceeding. That is what has happened here. The two counts that went to trial overlapped and the Court did not address ReCor's fiduciary duty claim because it had no need to do so.[12]

However, five counts were abandoned in the Pretrial Order and Stipulation and dismissed "with prejudice, with each party to bear its own fees and costs."[13]Thus, the parties agreed before trial that ReCor could not collect its attorneys' fees incurred with respect to the five dismissed claims, even if it did prevail on one of the two remaining claims. Although ReCor relinquished any right to fees incurred in having pursued the five abandoned claims, no methodology for separating out those efforts has been suggested. The claims all involved essentially the same facts, and it is unlikely that any material effort was dedicated specifically to any of the abandoned claims. No doubt there was some minimal work performed ...

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