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State ex. rel. French v. Overstock.Com, Inc.

Superior Court of Delaware

October 23, 2019

THE STATE OF DELAWARE, Plaintiff,
v.
OVERSTOCK.COM, INC., Defendant. ex. rel. WILLIAM SEAN FRENCH, Plaintiff-Relator,

          Submitted: October 4, 2019

          ORDER OF FINAL JUDGMENT INCLUDING DAMAGES, PENALTIES AND ATTORNEYS' FEES

          Paul R. Wallace, Judge.

         Upon further consideration of the Motion for Statutory Attorneys' Fees and Expenses (D.I. 1036) filed by the State of Delaware and Plaintiff-Relator William Sean French ("Plaintiffs"); the Memorandum in Response thereto filed by Overstock.Com, Inc. (D.I. 1041); Plaintiffs' Reply Brief (D.I. 1046); the oral arguments presented by the parties on September 30, 2019; the parties' supplemental and related submissions (D.I. 1050-51; D.I. 991); the Court's interim Order for Entry of Final Judgment on Damages and Penalties (D.I. 1028); and the complete record of this proceeding, it appears to the Court that:

         (1) After a six-day trial, a jury found Overstock to have knowingly violated the Delaware False Claims and Reporting Act ("DFCRA") by failing to report and remit dormant gift card balances to the State of Delaware. Based on the jury's verdict and post-trial motions, the Court on June 28, 2019, entered final judgment on penalties and damages in the amount of $7, 288, 412.94, while retaining jurisdiction to determine attorneys' fees and costs using the lodestar approach.[1]

         (2) The lodestar method begins with the product of attorney-hours reasonably worked and their reasonable hourly fee[2] to obtain a lodestar[3] which is strongly presumed to be the correct sum.[4]

         Only a Portion of Expenses are Attributable to Overstock and Recoverable

         (3) This suit was originally lodged against 91 named defendant entities including dozens of retailers and scores of gift card servicing entities.[5] The case unveiled a scheme by which retailers like Overstock contracted with non-Delaware shell entities to pay the shells a small fee to pretend to "hold" the value of unused store gift cards or their residua through an ostensible assignment of the debt.[6] The scheme's purpose was the intentional and fraudulent evasion of Delaware's abandoned property laws, so the retailers could retain, as profit, funds they were obligated to report and transfer to the Delaware State Escheator.[7]

         (4) Because Plaintiffs alleged the same scheme involving all retail defendants, much of the pre-trial work investigating each aspect of the scheme was useful against every defendant. Had the other defendants been removed from the case without recovery to Plaintiffs, [8] such multi-use work might then be recoverable entirely against Overstock as though the other defendants had never been involved.[9]

         (5) But since most of the dismissed co-defendants were removed via settlement through which Plaintiffs recovered some attorneys' fees, [10] the Court may--in determining the reasonableness of such-adjust an otherwise allowable fee award to prevent double-recovery.[11] The Court in its instructions to the parties specifically sought out distinction between work against Overstock and against other defendants in order to permit a just apportionment.[12]

         (6) Plaintiffs submitted with their fees motion an affidavit from counsel breaking down the attorneys' fees and expenses incurred at each step in the case, and what proportion of the overall case Overstock as a defendant represented.[13] This breakdown attributes a share rising from 3.2% to 8.3% of fees and expenses to Overstock through July 3, 2018, but 100% of fees and expenses thereafter.[14] That date is when all other defendants ceased to oppose the case and entered into settlement negotiations.[15]

         (7) Overstock suggests replacing Plaintiffs' enumeration with a simple pro rata attribution of fees at every step of the case.[16] All of the original defendants were entities.[17] Dozens of these entities were shells, dozens of separate corporate forms with the same address, "the same operation in all but name," and names that were endless repetitions with a mere succession of roman numerals.[18] Overstock's own enumeration here adds in more than a dozen of these numbered (but truly empty) corporate shells with the goal of seeking dilution of Overstock's attribution. Such dilution would perversely reward the fraud for its overall complexity and misuse of the corporate form as an instrument of that fraud.

         (8) In light of the record, the Court finds Plaintiffs' single-digit percentage allocation of fees a reasonable reckoning of Overstock's responsibility in the case over time. Plaintiffs' own reckoning of Overstock's importance and its similarity to other defendants in this enormous case is persuasive precisely because Plaintiffs' structure of understanding and developing the case corresponds to the work actually performed.

         (9) Overstock additionally argues that, irrespective of the other defendants' agreement to settle as of July 4, 2018, the agreement to dismiss the other defendants was not docketed until August 13, 2018.[19] As Overstock describes it, until that time "thirty defendants remained in the case."[20] Because of this, Overstock suggests that the single-digit percentage attribution date be extended beyond July 3, 2018.

         (10) Though those entities remained on the case, trial preparation could have been suspended and costs consequently avoided but for Overstock's insistent refusal to settle. Until August 13, 2018, the possibility of negotiations breaking down and other retailers resuming hostile litigation did exist; the consequent need to reapportion responsibility for fees between them then might also exist. But that remote potentiality never materialized, so no such reapportionment is necessary. The "costs of a civil action" that Plaintiffs incurred in trial preparation from July 4, 2018, to August 13, 2018, therefore, reasonably fall on Overstock alone.

         (11) Lastly, Overstock urges the Court to consider Overstock just one of several defendants until at least October 3, 2018, because Plaintiffs continued to spend time negotiating, reviewing, or discussing those other settlements.[21] Overstock points to several line items in Plaintiffs' submissions where counsel invoiced for matters that included settlement issues.[22] These include, for example, an attorney on August 20, 2018, billing for 7.3 hours for:

Correspondence with Mr. Black, Brown, and Ms. Thomas re: [redacted]; correspondence with [other defendants'] counsel re: settlement agreements; correspondence with Mr. French re: [redacted]; revise [other defendants] settlement agreements to incorporate additional language; meet and confer with Overstock, Ms. Thomas, Messrs. Brown and Black, review and revise Juror Questionnaire, add objections to exhibit list, review and revise jury questionnaire; correspondence with Overstock's counsel re: Juror Questionnaire and Jury Instructions; correspondence with Mr. French re: [redacted]; continue drafting [redacted].[23]

         (12) Occasional review of settlements with other defendants can be construed as relevant to Overstock, since the terms to which one defendant agrees may involve their cooperation in pursuing a plaintiffs claims against the remaining ones. Even if such a term of cooperation is not finally adopted, some transient time seeking to obtain cooperation from one defendant against another is not unreasonable.

         (13) The invoice list nevertheless does reflect more time periods spent at least in part on the settlements than such reasonable transient involvement. The Court accordingly finds that the appropriate percentage of fees reasonably attributable to Overstock after July 3, 2018 is 95%. Because "trial" expenses like expert witness preparation are rarely ever related in any way to concurrent settlement negotiations with other co-defendants, the Court still finds Overstock responsible for 100% of those attorney fees in that pre-trial period.

         The Timekeeping is Reasonable

         (14) Overstock argues that the total time spent by Plaintiffs' attorneys is necessarily unreasonable because it totals more than 13, 000 lawyer and paralegal hours.[24] Overstock alleges that, since Plaintiffs' case-in-chief was presented in twelve hours, it cannot be the case that the total time spent by timekeepers is that high.[25]

         (15) Far from raising a presumption of unreasonableness, the hours that Plaintiffs' timekeepers reflect is entirely consistent with the complexity, duration, number of parties, extended motion practice, and sums involved in this case. More than eighty-five percent of those hours were incurred when Overstock was only one of dozens of defendants involved in this complex scheme to systematically defraud the public out of millions of dollars in the accumulated abandoned gift card remnants, and Plaintiffs only ask for Overstock to pay a small and commensurate fraction of those fees.

         (16) The long timekeeping does not surprise the Court in light of the intense litigation in which all parties, including Overstock, engaged. The volume of motion practice in this case can be seen by even a cursory look at the docket-that contains more than a thousand entries. And that enumeration doesn't even capture the federal district court proceedings that occurred between removal by the defendants[26] and remand for lack of subject matter jurisdiction.[27]

         (17) Overstock submits little of substance to dispute the accuracy of Plaintiffs' invoices, nor does it cite persuasive precedential authority at this stage. At its core, instead, Overstock's fee challenge relies on simple incredulity.[28]

         The Plaintiffs' Counsels' Hourly Rates Should Be Adjusted

         (18) The lodestar calculation looks to the prevailing market rates in the relevant legal community.[29]

         (19) Plaintiffs propose billing rates ranging between $200 and $260 per hour for paralegals, $395 to $660 per hour for attorneys, and $800-$ 1, 100 per hour for partners and of-counsel attorneys.[30] In support of these proposed rates, Plaintiffs submitted for comparison peer Delaware firms' fee petitions filed in other like Delaware litigation.[31]

         (20) Plaintiffs' exhibits demonstrate that their proposed billing rates can and should be adjusted to prevailing market rates in the relevant legal community. For example, Plaintiffs submitted an affidavit of fees from a comparable Delaware firm well- and similarly equipped to conduct sophisticated and complex litigation such as this. In that comparable litigation, the firm's director cited his own rate as $750-$775 per hour, and billed associates at $260-$510 per hour.[32] ...


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