On March 25, 2020 the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

Read an analysis of the argument here.

On September 10, 2019, the Supreme Court of Ohio will hear oral argument in Phoenix Lighting Group LLC v. Genlyte Thomas Group LLC, 2018-1076. At issue in this case is whether the Supreme Court of Ohio should update and clarify its attorney fee jurisprudence by adopting the United States Supreme Court’s guidance in  Perdue v. Kenny A., ex rel. Winn, 559 U.S. 542 (2010).

Case Background

Phoenix Lighting Group, L.L.C. (“Phoenix”) is a lighting manufacturer sales agency which sold Acuity Brands Lighting, Inc. (“Acuity”) products. Jack Duffy & Associates, Inc. (“JDA”) is another lighting sales agency that also sold Acuity products.  Although both were owned by Jack Duffy, Phoenix and JDA operated separately. The two businesses had separate tax identification numbers, filed taxes separately, kept separate financial records, employed different employees, and, with a few exceptions, operated in different geographical markets. Also, Phoenix was an L.L.C. while JDA was an S corporation.

In early 2008, two at-will Phoenix employees became interested in purchasing Phoenix. After beginning negotiations, the two employees and Phoenix entered into a mutual confidentiality agreement because Phoenix had to disclose its confidential financial information during the negotiations.

Meanwhile, the two employees also considered opening their own lighting sales agency, representing products manufactured by Genlyte Thomas Group, LLC dba Daybrite, Capri, Omega (“DCO”), a competitor of Acuity. After informing the regional sales manager at DCO of their interest in starting a DCO agency, the two at-will employees created a draft business plan for DCO.  The new business plan included information that the two employees had gained while working for Phoenix and from their negotiations with Phoenix. The business plan identified several Phoenix employees as the future employees of the new agency. Furthermore, the business plan included confidential information about Phoenix’s sales, workforce implementation, and marketing strategies.

Jack Duffy eventually found out about these plans and asked the two employees to sign a non-compete agreement. They refused, resigned from Phoenix, and formed their own lighting sales agency, which represented DCO in an agency capacity. The new sales agency borrowed $600,000 from DCO and hired several former Phoenix employees.

After these actions, Phoenix’s business was essentially destroyed. Duffy consolidated Phoenix with JDA. Phoenix then sued the two ex-employees and DCO, alleging various business-related torts. A first lawsuit was voluntarily dismissed without prejudice by Phoenix on the eve of trial, and refiled two months later. During the second trial, a settlement was reached with the two employees, who were dismissed from the case.

After the dismissal of the first lawsuit, Phoenix and its counsel switched from an hourly rate fee agreement to a hybrid fee arrangement where Phoenix paid its attorney $120/hour, plus a contingency fee if the case succeeded.

At the conclusion of the second trial, the jury returned a verdict against DCO, finding that DCO had tortiously interfered with Phoenix’s business relationships and had misappropriated Phoenix’s trade secrets. Further, the jury found that DCO had participated in a civil conspiracy to tortiously interfere with Phoenix’s business relationships, to breach a duty of loyalty owed to Phoenix, and to misappropriate Phoenix’s trade secrets.

The jury awarded compensatory damages of $1,680,970 and an additional $7,000,000 in punitive damages upon a finding of malicious conduct by DCO. Summit County Court of Common Pleas Judge Alison McCarty reduced the punitive damages to $2,761,940 pursuant to the Ohio statute capping the amount of punitive damages.

The jury also determined that Phoenix could recover attorney fees. Judge McCarty awarded Phoenix $3,983,014 for attorney fees, plus litigation expenses, costs, and prejudgment interest. In all, Judge McCarty awarded Phoenix $9,511,435 plus court costs.

DCO’s post-trial motions for judgment notwithstanding the verdict, or in the alternative,  for a new trial or for remitter were denied.

The Appeal

In a split decision, the Ninth District held that the trial court did not err by denying DCO’s motion for directed verdict or its motion for judgment notwithstanding the verdict on Phoenix’s claims of tortious interference with business relationships, misappropriation of trade secrets, and civil conspiracy.

On the issue pertinent to this appeal, the majority found no abuse of discretion by the trial court in awarding a multiplier of two times the lodestar amount for the attorney fees because of the factual and legal complexity of the case, the favorable outcome, the financial risk involved and the necessity of plaintiffs’ counsel having to turn away other cases.

Votes to Accept the Case

Yes:  Justices DeWine, Kennedy,* Fischer* and former Justice O’Donnell*

*Would accept the appeal on all propositions of law.

No: Chief Justice O’Connor, Justice French and former Justice DeGenaro

Key Statutes and Precedent

Bittner v. Tri-County Toyota, Inc., 58 Ohio St.3d 143 (1991) (The lodestar amount is calculated by multiplying the number of hours reasonably spent on the case by a reasonable hourly fee. The trial court should decide whether to adjust the amount based on factors such as the time and labor involved in the litigation; the novelty and difficulty of the questions involved; the professional skill required to perform the necessary legal services; the attorney’s inability to accept other cases; the fee customarily charged; the amount involved and the results obtained; any necessary time limitations; the nature and length of the attorney/client relationship; the experience, reputation, and ability of the attorney; and whether the fee is fixed or contingent.)

Landis v. Grange Mutual Ins. Co, 83 Ohio St. 3d 339 (1998) (just because a contingency fee agreement was normal and customary to the parties who entered into it does not mean it can be enforced against a party that did not agree to it.)

 Perdue v. Kenny A., ex rel. Winn, 559 U.S. 542 (2010) (presumption that lodestar yields a sufficient fee; enhancements are for rare and exceptional cases and must be supported by specific evidence.)

DCO’s Argument

When determining the amount of reasonable attorney fees, courts routinely apply the lodestar method, which calculates attorney fees by multiplying reasonable hours by a reasonable hourly rate. This calculation can be adjusted based on certain factors, such as the time and labor involved in the suit, the novelty and difficulty of the legal question, and the result obtained.

The Supreme Court of Ohio should adopt and apply Perdue, a U.S. Supreme Court decision where the Court updated its analysis for calculating attorney fees. Specifically, Perdue held that enhancements to the lodestar sum should be permitted only when necessary to compensate for a factor not already subsumed in the lodestar calculation. The fee enhancement approved by the courts below conflicts with Perdue and should be vacated.

Before Perdue, courts routinely enhanced the lodestar amount based on certain factors, such as novelty, complexity, and quality. However, Perdue held that such factors are already reflected in the lodestar calculation and therefore should not be a basis for enhancement.

For example, the novelty and complexity of an issue should be reflected in the number of billable hours recorded by the attorney. The quality of the attorney and exceptional results obtained should be reflected in the reasonable hourly rate. Unexpected favorable rulings, unexpectedly sympathetic juries, or pure luck should not be accounted for in the calculation of attorney fees.

Here, the trial court increased the lodestar amount because the case was factually and legally complex. But the case’s complexity was already included in the lodestar amount by the number of hours that were recorded. Phoenix’s attorneys billed over nine thousand hours, resulting in a $1,991,507 lodestar calculation. The trial court enhanced this figure, which was double counting because the complexity of the suit was already reflected in the sheer number of recorded hours.

Even though the trial court acknowledged that the lodestar reflected an accurate amount of attorney fees, the trial court doubled the award, which resulted in an unwarranted windfall for Phoenix’s counsel.

Under Perdue, enhancements are appropriate only if (1) the hourly rate does not measure market value; (2) the attorney fronted many expenses in a protracted case; or (3) there was an exceptional delay in the payment of fees.  Enhancements for contingent risk, complexity, and a favorable outcome are improper.  Here, the trial court improperly enhanced the lodestar amount.

Phoenix submitted no evidence of any extraordinary outlay of expenses. Also, Plaintiff’s counsel received over $1 million during the litigation. Lastly, the lodestar amount would have been calculated using a standard hourly rate. Because the situation does not meet any of the numbered instances where enhancement may be proper, enhancement was unwarranted.

Even if enhancement was warranted under Perdue, such enhancement must be based on specific evidence, and an objective rationale must be used. The trial court’s doubling of the lodestar method was not based on specific evidence and did not use an objective rationale. There was no evidence presented at trial discussing any enhancement of the lodestar method, much less a multiplier of two. Therefore, this Court should vacate the enhancement and remand for entry of a final judgment in the amount of the lodestar sum.

Phoenix argues that the attorney fees should be enhanced to hold DCO responsible for an aggressive mindset. This argument contradicts the purpose of  attorney fees, which is to compensate, not to punish.

Phoenix’s Argument

At trial, DCO did not argue that Perdue should apply, only raising this issue for the first time on appeal. Nor can DCO show plain error on this point. Therefore, the issue is waived.

Bittner is the precedential law in Ohio to determine an award of reasonable attorney fees in a fee-shifting situation and should remain so. It appropriately gives trial courts the necessary discretion and flexibility to evaluate the unique facts and circumstances of a particular case.

Even if this Court were to hold that Perdue is the law in Ohio, it should not apply retroactively to this case. Perdue also would not apply here because cases with contingency fee arrangements were explicitly excluded from Perdue’s analysis.  Perdue was limited to an attorney in a 42 U.S.C. § 1988 case, consistent with the legislative intent to encourage lawyers to take civil rights cases.

Even if this Court holds that Perdue does apply here, the trial court did not err by enhancing Phoenix’s counsel’s award. Perdue allows fee enhancements where specific evidence supporting the enhancement is not already sufficiently reflected in the lodestar. For example, enhancement is appropriate when the hourly rate does not accurately reflect the attorney’s true market value. Here, Phoenix’s counsel’s rate was below market value, and forcibly so because of DCO’s threats and tactics. Because that below-market-rate was used to calculate the lodestar, Perdue would permit enhancement of Phoenix’s counsel’s fee.

Enhancement may also be appropriate when payment is delayed, litigation is exceptionally protracted, attorneys achieve exceptional success, and multiple expenses are advanced. Phoenix has endured ten years of litigation, Phoenix’s small law firm has advanced significant expenses, and Phoenix and Phoenix’s counsel have not collected any part of their successful judgment.

The strong presumption that the lodestar amount is reasonable can be overcome by exceptional circumstances. Perdue permits the enhancement of the lodestar amount with extraordinary evidence not already included in the lodestar. Here, extraordinary circumstances existed by DCO’s use of the legal system as a tool for coercion and intimidation. For example, DCO promised to use “substantial resources” to make the litigation as costly as possible and to force Phoenix down a “long, dark, and very expensive path.” Another exceptional circumstance was the hybrid fee arrangement, which forced Phoenix’s counsel to accept great financial risk.

If this Court adopts Perdue, it should not be retroactively applied. Phoenix and its counsel relied on existing law when they entered into their hybrid fee arrangement. Therefore, they had contract rights that had vested under well-established Ohio law.

Twenty-one state courts have analyzed Perdue. Most state appellate and supreme courts have rejected Perdue when applying state fee-shifting law. Therefore, Ohio should not adopt Perdue.

 DCO’s  Proposed Proposition of Law Accepted for Review

Number Three

Because there is a strong presumption that the lodestar method yields a sufficient attorney fee, enhancements should be granted rarely and only where the applicant seeking the enhancement can produce objective and specific evidence that an enhancement is necessary to compensate for a factor not already subsumed within the Court’s lodestar calculation. (Perdue v. Kenny A., ex rel. Winn, 559 U.S. 542 (2010), followed.)

DCO’s  Proposed Propositions of Law Not Accepted for Review

Number One

Where a business alleges that tortious conduct destroyed its value, evidence of a change in business conditions, including evidence of the effects of a consolidation of that business into another company under common ownership, is relevant to the cause and amount of its claimed loss of value.

Number Two

A plaintiff that receives a damages award against a defendant for a tort or a breach of statutory duty may not receive a second damages award against the same defendant for a civil conspiracy to commit that same tort or breach.

Amicus in Support of Phoenix 

Ohio Employment Lawyers Association

The Ohio Employment Lawyers Association (“OELA”) filed an amicus brief in support of Phoenix. OELA attorneys represent employees in labor, employment, and civil-rights disputes. OELA is concerned that workers’ rights will not be adequately protected if competent counsel has no incentive to accept the low-damage cases that often arise in the employment-law context.

Workers who are discriminated against in the workplace experience little or no economic loss. This consequence results in low contingency fees for attorneys who represent such workers.

Perdue should not be adopted in Ohio because it is inconsistent with Ohio’s well-established fee-award jurisprudence. Further, Ohio is under no obligation to adopt Perdue because federal law does control in matters of state law.

Even if Perdue were adopted, it would not apply here because Perdue excepted contingency fee arrangements from its application.

Student Contributor: Maria Ruwe