Free Objections - District Court of Colorado - Colorado

Case 1:02-cv-02232-PSF-PAC

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Filed 11/08/2005

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 02-cv-02232-PSF-PAC ROBERT STUDER, et al., Plaintiffs, v. HENG FUNG HOLDINGS LIMITED, a public company in Hong Kong, et al., Defendants, and eVISION INTERNATIONAL, INC., a Colorado corporation, Nominal Defendant.

EVISION INTERNATIONAL INC.'S OBJECTIONS TO PLAINTIFFS' APPLICATION FOR COSTS

Nominal Defendant eVision International, Inc. ("eVision"), through its counsel, Hale Friesen, LLP, hereby objects to Plaintiffs' application for an award of costs in this matter because Plaintiffs' counsel has failed, despite eVision's request, to adequately itemize, document, and justify the costs for which they seek reimbursement. While eVision does not now request that the Court deny Plaintiffs' counsels' petition outright, eVision does respectfully suggest that the Court refer the cost portion of the application to the Magistrate Judge so that the Court can more fully review the propriety of the claimed expenses.1

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eVision does not object to the attorney's fee award requested by Plaintiffs' counsel.

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I.

FACTUAL BACKGROUND 1. Presently pending before the Court for approval are two settlement agreements

which fully resolve all claims asserted in this litigation. The first settlement agreement resolves claims asserted by derivative plaintiffs Studer and Imperato ("Derivative Plaintiffs") against Dorsey & Whitney LLP and Ehrhardt Keefe Steiner & Hottman P.C. (the "Professional Parties' Settlement"). The second settlement agreement resolves claims asserted by Derivative Plaintiffs and class action plaintiffs Paul Kinney, Samy Samy, and Phillip Calderone against eVision and certain of its past and present officers and directors (the "eVision Settlement"). 2. Pursuant to Paragraph 25 of the eVision Settlement, Plaintiffs' counsel is entitled

to apply to the Court for reimbursement of "verifiable and legally permitted" costs incurred in connection with the claims asserted in the case, provided such costs do not exceed $150,000 in aggregate. 3. Pursuant to Paragraph 26 of the eVision Settlement, eVision expressly reserved the

right to object to an application for the reimbursement of any cost that is not verifiable or otherwise legally permitted. 4. On October 28, 2005, Plaintiffs' counsel filed their Motion to Award Plaintiffs'

Counsel Attorney's Fees and Reimbursement of Expenses (the "Fee Application") in which they seek, in addition to an agreed fee award of $450,000, reimbursement of $141,299.74 of costs. Attached in support of the Fee Application are the affidavits of Charles W. Lilley and Jacob A. Goldberg, which affidavits set forth, among other things, broad categories of expenses for which

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reimbursement is sought by Plaintiffs' counsel. provided for these expenses. 5.

No itemization or documentary support is

On November 2, 2005, eVision notified Plaintiffs' counsel that their application

for the reimbursement of costs was deficient because it failed to provide the Court and other interested parties with sufficient information to determine that the expenses were reasonable, necessary to the prosecution of the litigation, and adequately documented. Accordingly, eVision requested that Plaintiffs' counsel itemize and provide back-up for each individual expense together with a brief explanation justifying why each expense was necessary. 6. On November 3, 2005, Mr. Lilley responded to eVision's request by providing an

individual itemization of many of the subject expenses and copies of invoices provided by Plaintiffs experts.2 However, Plaintiffs' counsel declined to provide any further back-up for these expenses stating that: We shall not, however, provide you with receipts. In our declarations, we have represented to the court that these are accurate, and we trust that you have no reason to doubt our honesty. 3 Nor did Plaintiffs' counsel provide any explanation as to why the itemized expenses were, in fact, necessary to the prosecution of the litigation. 7. A fairness hearing in this matter is set for November 9, 2005, at which time the

Court is scheduled to take up the Fee Application.

2

This information has not been provided to the Court.

eVision does not dispute the integrity of Plaintiffs' counsel. However, this does not excuse them from their obligation under the eVision Settlement and applicable law to properly justify and document expenses for which they seek reimbursement. 3

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II.

ARGUMENT eVision does not contest that Plaintiffs' counsel are entitled to recover verifiable and

legally permitted out-of-pocket expenses from the common settlement fund. eVision Settlement, ¶ 25; see also, Gottlieb v. Wiles, 150 F.R.D. 174, 185 (D. Colo. 1993). However this right does not equate to a blank check. Plaintiffs' counsel bear the burden of proving their entitlement to the expenses. Bratcher v. Bray-Doyle Independent School Dist. No. 42 of Stephans County, Oklahoma, 8 F.3d 722, 726 (10th Cir. 1993); In re Fleet/Norstar Sec. Litig., 974 F.Supp. 155, 157 (D. R.I. 1997). When meeting their burden to properly support an application for cost reimbursement, "counsel should expect the Court will examine each item in the same way as would a careful client on being asked to reimburse counsel for an expense counsel incurred without having had an opportunity to obtain prior approval from that client." Steiner v. Hercules, Inc. 835 F.Supp. 771, 792 (D. Del. 1993). Accordingly, the Court should review each expense to determine whether the expense was: (i) reasonable; (ii) necessary to the prosecution of the litigation; and (iii) adequately documented. Id. See also, Fleet/Norstar, 974 F.Supp. at 157 (attorneys are not entitled to reimbursement where the request is for an amount which is excessive or otherwise noncompensable). Courts faced with reviewing cost applications in similar cases have determined that certain expenses are simply inappropriate to be reimbursed from a common settlement fund. First and foremost, expenses are noncompensable when they are not adequately supported by detailed records showing the amount of each expense, the reason for the expenditure, and the

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relationship between the expense and some reasonable benefit to the plaintiffs. See e.g., Fleet/Norstar, 974 F.Supp. at 158 (discounting a fee application for, among other things, expert expenses for investigation of a "blind alley" which provided no benefit to the settling class); Steiner, 835 F.Supp. at 793 (denying reimbursement of postage, photocopying, telephone and related charges where counsel provided no documentation of the underlying expense nor identified the billing rate for each item charged). Courts have also discounted fee applications to deduct overhead type expenses that were necessary for the attorney to generate his legal fee. See, e.g., Gottlieb, 150 F.R.D. at 186 (upholding a special master's deduction of staff overtime and office supplies); In re United Telecommunications Sec. Litig., 1994 WL 326007, *4 (D. Kan. 1992)(unpublished opinion)(reducing cost application by $294,000 to account for costs incurred to enable attorney's to generate awarded fee).4 Further, while expert witness fees may be recouped, the amount of the expense must be reasonable and it must be demonstrated that such expert testimony would have been "indispensable to the plaintiff's case." In re Smithkline Beckman Corp. Sec. Litig., 721 F. Supp. 525, 534 (E. D. Pa. 1990). See also, United Telecommunications , 1994 WL 326007 at *4. Finally, court's have denied reimbursement for travel related expenses when they deemed the expense excessive. See, e.g., Steiner, 835 F.Supp. at 794 (disallowing meal and lodging expenses that court deemed excessive). Here, the Court has not been provided any detail by which it can properly analyze the expenses for which Plaintiffs' counsel seek reimbursement. However, a review of the limited

A copy of this case was previously provided to the Court by Plaintiffs' counsel in support of the Fee Application. See, Notice of Appendix of Unpublished Case Orders to Motion to Approve Award of Plaintiffs' Counsel Attorney's Fee and Reimbursement of Expenses, Docket No. 438. 5

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documentation provided to eVision indicates that a detailed review of these expenses is warranted. For instance, Plaintiffs' counsel seek to be reimbursed $53,087.63 for fees incurred by their valuation expert. That fee is approximately 170% of the cost billed to the eVision Management Defendants for preparation of a comparable report. Counsel also seek to be reimbursed $9,000 for fees incurred by their corporate governance expert. Not only was this fee more than double what the eVision Management Defendants paid for a comparable report, but, as noted in the eVision Defendants' Motion to Strike Expert Designation of Professor Mark Loewenstein and the Litigation Report of Professor Mark Loewenstein Pursuant to Federal Rule of Civil Procedure 26(A)(2)(b), filed on June 7, 2005, the opinions expressed by Plaintiffs' corporate governance expert were entirely inadmissable because they were nothing more than legal conclusions.5 Finally, Plaintiffs' counsel seek reimbursement of $3,654 for legal fees

incurred in conferring with ethics counsel. Given the limited information available to it, eVision questions why the opinion of ethics counsel was indispensable to Plaintiffs' case or otherwise not a cost that Plaintiffs' counsel were required to incur in order to generate their fee.6

After eVision initially objected to Prof. Loewenstein's report, Plaintiffs voluntarily withdrew one of his four opinions. Accordingly, Professor Loewenstein's fee should be reduced by at least 25%. Fleet/Norstar, 974 F.Supp. at 158. In addition, Plaintiffs' counsel seek reimbursement for a number of other expenses that raise a concern. These include, but are not limited to: (i) $2,159.80 for "client meetings"; (ii) $485.32 in unidentified miscellaneous expenses; (iii) $366.40 for what appears to be an unused plane ticket; (iv) a $650 flat charge of $50 per month for long distance phone calls; (v) numerous trips by Mr. Goldberg to Denver to attend court appearances and depositions, which include 12 nights of hotel charges at an average rate of $206.00 per night; and, (vi) $89 for Mr. Goldberg to attend a baseball game with Prof. Loewenstein. 6
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In filing this objection, eVision does not intend to suggest that the majority of the expenses claimed by counsel may not appropriate for reimbursement from the common settlement fund. They may, in fact, be justifiable. However, at this point in the proceeding, the Court has been provided with an insufficient record to make that determination. Therefore, eVision requests that, rather than simply giving blanket approval to the Plaintiffs' counsels' request, the Court refer the cost portion of the Fee Application to the Magistrate Judge so that the Court can make a proper evaluation of the claimed expenses. As the ultimate beneficiary of the settlement proceeds, eVision and its shareholders are entitled to nothing less. Finally, it should be noted that even if the Court refers the issue of the cost application to the Magistrate Judge, it would still be appropriate for the Court to give final approval of the eVision Settlement, the Professional Parties' Settlement and the attorney fee portion of the Fee Application. Both settlement agreements specifically provide that no objection or order related to the Court's award of costs (other than an award in excess of agreed maximum award) shall operate to terminate or cancel the settlements. See, eVision Settlement, ¶ 27 and Professional Parties' Settlement, ¶ 27.

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Dated: November 9, 2005. Respectfully submitted, Scott A. Hyman s/ Scott A. Hyman Hale Friesen, LLP 1430 Wynkoop Street, Suite 300 Denver, Colorado 80202 (720) 904-6000 (720) 904-6006 [email protected]

Attorneys for Defendants Fai Chan, Tong Wan Chan, Robert Trapp, Kwok Jen Fong, Gary Cook, Jeffrey Busch, and Robert Jeffers, Jr., and Nominal Defendant eVision International, Inc.

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CERTIFICATE OF SERVICE I hereby certify that on November 8, 2005, I electronically filed the foregoing EVISION INTERNATIONAL INC.'S OBJECTIONS TO PLAINTIFFS' APPLICATION FOR COSTS with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following email addresses: [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Kat McNellis s/__________________________________

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