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Nutramax Laboratories, Inc. v. Manna Pro Products, LLC

United States District Court, D. South Carolina, Rock Hill Division

August 14, 2017

Nutramax Laboratories, Inc., and Nutramax Laboratories Veterinary Services, Inc., Plaintiffs,
v.
Manna Pro Products, LLC; Nutri-Vet, Wellness, LLC; and 21st Century Animal HealthCare, LLC, Defendants.

          ORDER AND OPINION

         This matter is before the court on the renewed motion for attorneys' fees and disgorgement of profits filed by Plaintiffs Nutramax Laboratories, Inc., and Nutramax Laboratories Veterinary Services, Inc., (together, “Nutramax”). (ECF No. 60.) For the reasons set forth below, the court DENIES Nutramax's renewed motion.

         I. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

         Nutramax filed this trademark infringement action against Defendants Manna Pro Products, LLC, Nutri-Vet Wellness, LLC, and 21st Century Animal HealthCare, LLC (“21st Century”) (collectively “Defendants”) “alleging that Defendants' ‘Petnology Essentials' product line of health supplements for pets infringed on Nutramax's trademark by employing copycat packaging and using improper comparisons to Nutramax's Cosequin product line and that these actions violated South Carolina law on unfair competition.” (ECF No. 44 (citing ECF No. 8).) On July 8, 2016, the parties submitted a Joint Stipulation of Settlement and Order (“settlement order”), along with a consent order, dismissing the case under the terms of the settlement order, both of which the court endorsed and entered the same day. (ECF Nos. 31, 32.) In the settlement order, Defendants, including 21st Century, agreed to, among other things, cease the marketing, distribution, and sale of certain offending products described within the settlement order in exchange for Nutramax's agreement to release Defendants from liability for certain conduct specified in the settlement order. (See ECF No. 32.) The parties expressly agreed that the court retained jurisdiction to enforce the terms of the settlement order and that, “in any motion practice or other proceeding initiated to enforce the terms of [the settlement order, ] the prevailing party shall be entitled to its reasonable attorneys' fees.” (Id. ¶¶ 6, 11, 12.)

         On August 30, 2016, Nutramax filed a motion asking the court to find 21st Century in contempt, asserting that 21st Century had failed to comply with the settlement order by “continuing to advertise and sell its ‘21st century Essential Pet Joint Health' (“Essential Pet”) product line of health supplements pets, which includes on its packaging the phrase ‘compare to the active ingredients in Cosequin® [products].'” (ECF No. 44 at 3 (citing ECF Nos. 34-1 at 3-5; ECF No. 34-3).) After holding a motion hearing on November 29, 2016 (ECF No. 43), to allow the parties to clarify their arguments, the court entered an order (the “contempt order”) on December 1, 2016, granting in part Nutramax's motion to the extent it sought “a finding of contempt, an award of attorneys' fees, and an order of disgorgement.” (ECF No. 44 at 20.) Accordingly, the court ordered 21st Century to (1) “disgorge to Nutramax its net profits from all sales, on or after July 8, 2016, of products within its Essential Pet line that employ or employed packaging with comparative advertising containing the word Cosequin or that are sold or were sold through a website that employed comparative advertising containing the word Cosequin at the time of the sale” and (2) “pay to Nutramax reasonable attorneys' fees associated with the prosecution of the [contempt] motion.” (Id. at 21.) Anticipating a dispute on the issue, the court also ordered 21st Century to “file with the court and serve on Nutramax a statement disclosing all of its sales and net profits . . . that are subject to th[e] disgorgement order and explaining how such net profits were calculated” before attempting to disgorge the profits. (Id.)

         In compliance with the contempt order, 21st Century, on January 6, 2017, filed a reply to the order setting forth its calculation of the net profits from the sale of the offending products during the relevant period that were subject to disgorgement. (See ECF No. 46.) 21st Century asserted that the net profits to be disgorged amounted to $10, 912.00. (See Id. at 3.) Thereafter, Nutramax filed an objection to 21st Century's reply to the contempt order and asserted that, based on the documentation provided by 21st Century, the net profits subject to disgorgement amounted to $94, 452.08. (See ECF No. 49.) By an August 2, 2017 order, the court found that the amount of net profits subject to disgorgement under its previous contempt order amounted to $11, 130.14 and ordered 21st Century to disgorge that amount to Nutramax. (See ECF No. 64.)

         While the parties' dispute over the amount of net profits to be disgorged remained pending, Nutramax filed its first motion for attorneys' fees and for disgorgement of profits (ECF No. 50), seeking $55, 506.00 “to compensate it for its actual, out-of-pocket attorneys' fees incurred in connection with the Contempt Proceeding” (id. at 7). In support of its motion, Nutramax attached the affidavit of one of the attorneys representing it in this matter, Morgan T. Nickerson, a partner with K&L Gates LLP in Boston, Massachusetts. (See ECF No. 50-1.) In the affidavit, Nickerson, relying on a number of invoices, set forth the rates and hours of the attorneys who worked on the contempt proceeding and declared that, “[b]ased on [his] experience, [his] interaction with other firms and attorneys around South Carolina and the country, and [his] familiarity with rates charged for this type of motion practice, [he] believe[d] that K&L Gates' billing rates [were] reasonable and in keeping with the rates charged by other attorneys and law firms of comparable experience, reputations and skill in similar cases for similar clients” and that “the time expended by . . . K&L Gates personnel on the Contempt Proceeding . . . [was] reasonable.” (Id. at 2-5.) In response to the motion, 21st Century argued, among other things, that, under Fourth Circuit precedent, an affidavit from the fee applicant's attorney, without more, is insufficient for assessing whether the fees sought are reasonable. (See ECF No. 53 at 6.)

         The court agreed with 21st Century that Nickerson's affidavit was insufficient. (See ECF No. 59.) The court explained that, in assessing the reasonableness of attorneys' fees, courts in the Fourth Circuit begin by determining the lodestar figure, which is calculated by multiplying the number of reasonable hours by a reasonable rate. (Id. at 6-7 (citing Robinson v. Equifax Info. Servs., LLC, 560 F.3d 235, 243 (4th Cir. 2009); Grissom v. The Mills Corp., 549 F.3d 313, 310 (4th Cir. 2008)).) The court further explained that, in order to determine the reasonable rate, the fee applicant bears the burden of producing specific evidence of the prevailing rate in the relevant community for the type of work for which it seeks an award. (Id. at 7 (citing Plyler v. Evatt, 902 F.2d 273, 277 (4th Cir. 1990)).) Reviewing Nutramax's motion, the court first determined that Nutramax had not shown that the “relevant community” was Boston rather than South Carolina. (See Id. at 7-8 (citing Rum Creek Coal Sales, Inc. v. Caperton, 31 F.3d 169, 175 (4th Cir. 1994); Nat'l Wildlife Fed'n v. Hanson, 859 F.2d 313, 317 (4th Cir. 1988)).) The court next determined that an affidavit from Nickerson-a Boston attorney representing Nutramax in the contempt proceedings-was not satisfactory specific evidence of the prevailing rate in the relevant community for the type of work involved. (See Id. at 8 (citing Robinson, 560 F.3d at 245).) Noting Nutramax's assertion that it would provide satisfactory evidence, the court denied the motion without prejudice in order to “allow Nutramax the opportunity to demonstrate that the requested hourly rates are reasonable” in a renewed motion. (Id. at 8.)

         On May 2, 2017, while the court's decision as to the amount of net profits to be disgorged yet remained pending, Nutramax filed the instant renewed motion for attorneys' fees and disgorgement of profits. (See ECF No. 60.) In addition to another affidavit by Nickerson (ECF No. 60-1), Nutramax submits two other evidentiary items in support of its renewed motion. First, Nutramax submits an affidavit from John C. McElwaine, the managing partner of Nelson Mullins Riley & Scarborough LLP's Charleston, South Carolina office. (ECF No. 60-2.) McElwaine's affidavit states that he has practiced law in South Carolina for 22 years, focusing mainly on intellectual property and technology litigation. (See Id. at 2.) Much of the affidavit well attests to McElwaine's considerable experience as an intellectual property attorney, including his work in other matters with the attorneys representing Nutramax here. (See Id. at 2-3.) In the affidavit's penultimate paragraph, McElwaine opines that “[b]ased on [his] more than 20 years of experience practicing as an intellectual property attorney specializing in trademark law in South Carolina, . . . [K&L Gates'] hourly rates are in line with the prevailing rates in Columbia, South Carolina for similar services by lawyers of reasonably comparable skill, experience, and national reputation.” (Id. at 5.)

         Second, Nutramax submits a report issued in 2015 by the American Intellectual Property Law Association (“AIPLA”). (ECF No. 60-3.) The AIPLA report details the results of a survey of intellectual property lawyers across the United States. (Id.) Nutramax points to several aspects of the AIPLA report. It first points out that, in 2014, partners practicing intellectual property law in private firms in the “Other Southeast, ” region, which includes all of Florida, Georgia, North Carolina, and South Carolina, except for major metropolitan areas (Miami, Fort Lauderdale, and West Palm Beach, Florida; Raleigh, Durham, Greensboro, Wintson-Salem, and Charlotte, North Carolina; and Atlanta, Georgia), billed at an average rate of $379.00 per hour, with the lowest tenth percentile billing at $306.00 per hour and the highest tenth percentile billing at $600.00 per hour. (Id. at 9-10.) It next points out that, in 2014, associates practicing intellectual property law in law firms in the “Other Southeast” region billed at an average rate of $236.00 per hour. (Id. at 11.) The AIPLA report lacked sufficient data to calculate a rate for the bottom or top percentiles for such associates, but the rates for the bottom and top quartiles were $178.00 per hour and $288.00 per hour, respectively. (Id.) Lastly, Nutramax pointed out that the national average in 2014 for associates with four years of experience practicing intellectual property law (like the K&L Gates associates who worked on the contempt proceeding), billed at an average rate of $308.00 per hour, with the lowest tenth percentile billing at $172.00 per hour and the highest tenth percentile billing at $543.00 per hour. (Id. at 12.)

         The parties have fully briefed Nutramax's renewed motion, and it is now ripe for disposition. Although the parties' briefing raises a number of issues, the court addresses only a few of them in its analysis below before determining that the motion should be denied.

         II. APPLICABLE LAW

         “The proper calculation of an attorney's fee award involves a three-step process.” McAfee v. Boczar, 738 F.3d 81, 88 (4th Cir. 2013). First, the court must “determine the lodestar figure by multiplying the number of reasonable hours expended times a reasonable rate.” Id. at 89 (quoting Robinson, 560 F.3d at 243). In order to “ascertain what is reasonable in terms of hours expended and the rate charged, the court is bound to apply the factors set forth in Johnson v. Georgia Highway Express Inc., 488 F.2d 714, 717-19 (5th Cir. 1974)[, abrogated on other grounds by Blanchard v. Bergeron, 489 U.S. 87 (1989)].” Boczar, 738 F.3d at 89 (citing Robinson, 560 F.3d at 243-44).[1] Second, “the court must ‘subtract fees for hours spent on unsuccessful claims unrelated to successful ones.'” Id. (quoting Robinson, 560 F.3d at 244). Third, “the court should award “some percentage of the remaining amount, depending on the degree of success enjoyed by the [fee applicant].'” Id. (quoting Robinson, 560 F.3d at 244).

         As to the first step, “‘the burden rests with the fee applicant to establish the reasonableness of a requested rate.'” Robinson, 560 F.3d at 244 (quoting Plyler v. Evatt, 902 F.2d 273, 277 (4th Cir. 1990)). Although an affidavit by the attorney representing the fee applicant may be useful in determining a reasonable rate, such an “affidavit, standing alone, is not sufficient evidence.” Id. at 246 (citing Plyler, 902 F.2d at 277). “‘In addition to the attorney's own affidavits, the fee applicant must produce satisfactory specific evidence of the prevailing market rates in the relevant community for the type of work for which he seeks an award, ” including, for example, “affidavits of . . . local lawyers who are familiar both with the skills of the fee applicants and more generally with the type of work in the relevant community.” Id. at 244, 245 (emphasis added in Robinson) (quoting Plyler, 902 F.2d at 277) (citing Plyler, 902 F.2d at 278). A district court “abuse[s] its discretion by awarding the hourly rates requested by [the fee applicant] in the absence of ‘satisfactory specific evidence of the prevailing market rates.'” Id. at 245 (ellipsis omitted) (quoting Plyler, 902 F.2d at 277); see also Westmoreland Coal Co. v. Cox, 602 F.3d 276, 290 (4th Cir. 2010).

         III. ANALYSIS

         A. The Fourth Circuit's three-step analysis applies.

         Before turning to assess the instant motion under the three-step analysis outlined in the preceding paragraphs, the court must first address a preliminary argument Nutramax seems to raise. Nutramax asserts that, under South Carolina law, the court should award Nutramax the full amount of attorneys' fees it incurred during the contempt proceedings on the ground that, where a party must alert the court to its opponent's contumacious behavior that violates a previous court order, the court should make the party whole by compensating it for its actual, out-of-pocket attorneys' fees incurred in such a proceeding. (See ECF No. 54 at 2-4, 6; ECF No. 60 at 2, 4-5, 10.) Throughout its briefing, Nutramax cites to South Carolina authorities regarding the calculation of attorneys' fees to be awarded in contempt proceedings and argues that these authorities require the court to restore Nutramax to a position it would have occupied had 21st Century not engaged in contumacious behavior. (See ECF No. 60 at 2, 4-5, 10.) By advancing this argument, the court understands Nutramax to suggest that South Carolina law, not Fourth Circuit law as outlined above, controls the calculation of the attorneys' fees award; that, at a minimum, the reasonableness of the rates at which Nutramax's attorneys billed should be assessed under the six-part test articulated in Taylor v. Medenica, 503 S.E.2d 458, 461 (S.C. 1998); and that, perhaps, the reasonableness of the rates need not be assessed at all because, under South Carolina law, the court should seek to reimburse Nutramax the full extent of its legal expenses in litigating the contempt proceeding in order to restore it to its ex ante position.

         To the extent Nutramax advances this argument or makes these suggestions, the court rejects them. The court notes at the outset the Nutramax points to no authority for the proposition that South Carolina law, rather than federal law, governs the court's consideration of a motion like the one presented here. The omission of any supporting authority for such a proposition is glaring because the court has already applied federal law to the same matter raised in the instant motion when, in its previous order, the court denied Nutramax's first motion for attorneys' fees on the ground that the motion failed to meet the Fourth Circuit's requirements as set forth above. (See ECF No. 59.) In any event, there appears no basis for applying South Carolina law here. It is true that state law controls a federal court's decision whether or not to award attorneys' fees when the case is before it under diversity jurisdiction, see Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 259 n.31 (1975), and that, once a federal court exercising its diversity jurisdiction determines that it should award attorneys' fees, the amount of the award should be determined by state law as well, see Lamb Eng'g & Constr. Co. v. Neb. Pub. Power Dist., 103 F.3d 1422, 1434 (8th Cir. 1997) (collecting courts of appeals cases). However, the present case is before the court under federal question jurisdiction. (See ECF No. 59 at 4.) Moreover, some courts of appeals have held that the rule requiring conformity to state law does not apply where, as here, the federal court exercises its inherent powers to award attorneys' fees to a party for its opponent's contumacious behavior. See Goya Foods, Inc. v. Wallack Mgmt. Co., 290 F.3d 63, 80 (1st Cir. 2002) (“[W]hen a federal district court sits in diversity jurisdiction, its inherent power to impose monetary sanctions for contumacious conduct during the course of litigation is not circumscribed by the forum state's law regarding the imposition of sanctions.”); accord People ex rel. Abrams v. Terry, 45 F.3d 17, 23-24 (2d Cir. 1995).

         Moreover, the court concludes that the Fourth Circuit's three-step analysis is appropriate when a court awards a fee applicant attorneys' fees as a result of finding that the applicant's opponent is in civil contempt. Although the Fourth Circuit does not appear to have expressly addressed the issue, in Colonial Williamsburg Foundation v. Kittinger Co., 38 F.3d 133 (4th Cir. 1994), it confronted a district court's award of attorneys' fees under circumstances not materially different than those presented here. In the case below, the fee applicant had initiated a trademark infringement action against the alleged infringer; the parties had filed (and the district court had endorsed) a consent judgment preventing the infringer from manufacturing and selling certain products and providing for an award of reasonable attorneys' fees to a party successfully seeking enforcement of the consent judgment; the court had found the infringer in contempt for violating the terms of the consent judgment; and, after reviewing the parties' dispute on the issue, the court had determined the amount of attorneys' fees to be awarded. See Id. at 134-35; see also Colonial Williamsburg Found. v. Kittinger Co., 792 F.Supp. 1397 (E.D. Va. 1992). Citing to federal law governing awards of attorneys' fees, the Fourth Circuit stated that, when faced with such circumstances, a district court should employ the three-step analysis outlined above. Colonial Williamsburg, 38 F.3d at 138. Other district courts within the Fourth Circuit have also applied the three-step analysis to determine the amount of attorneys' fees to be awarded in the civil contempt context. See Columbia Gas Transmission Corp. v. Mangione Enters. of Turf Valley, L.P., 964 F.Supp. 199, 204-05 (D. Md. 1996).

         Because Nutramax points to no authority for applying South Carolina law to the instant motion and because the authorities the court has discovered appear in agreement on the matter, the court applies the Fourth Circuit's three-step analysis as described above. In the court's view, application of Fourth Circuit law precludes agreement with Nutramax's suggestions that only the six factors in Taylor need be assessed or that the court need not assess the reasonableness of the rates Nutramax charged at all. See Rum Creek, 31 F.3d at 175 (“The hourly rate included in an attorney's fee must . . . be reasonable.” (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983))); Barber, 577 F.2d at 226 & n.28 (adopting Johnson's 12-factor test); cf. Beard v. Teska, 31 F.3d 942, 956 (10th Cir. 1994) (“[T]he Supreme Court has taught in Blum v. Stenson[, 465 U.S. 886 (1984), ] that the prevailing market rate and not the cost of providing ...


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