Free Motion for Attorney Fees - District Court of Arizona - Arizona

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Sid Leach (#019519) Monica A. Limón-Wynn (#019174) Snell & Wilmer L.L.P. One Arizona Center 400 E. Van Buren Phoenix, Arizona 85004 Attorneys for Defendants MasterCard International, Inc. and MasterCard International, L.L.C. Internet: [email protected] [email protected]

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Lexcel Solutions, Inc., Plaintiff, vs. MasterCard International, Inc. and MasterCard International, L.L.C., both Delaware corporations, Defendants. Case No. CV-03-1454-PHX-JAT MASTERCARD'S MOTION FOR AN AWARD OF REASONABLE ATTORNEYS' FEES

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Pursuant to Rule 54(d)(2) of the Federal Rules of Civil Procedure and Local Rule LRCiv 54.2 of the Rules of Practice of the United States District Court for the District of Arizona, Defendants MasterCard International, Inc. and MasterCard International, L.L.C. (collectively "MasterCard") hereby move the court for an award of the reasonable attorneys' fees incurred in this action. The Court's final judgment, entered on September 9, 2005, did not determine the propriety or amount of attorneys' fees in this case. MasterCard moves for an award of attorneys' fees authorized by contract and by statute. The contract between the parties in this case included a provision entitling the prevailing party to an award

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of reasonable attorneys' fees. In addition, because this case included a claim of copyright infringement, attorneys' fees are authorized by 17 U.S.C. § 505. This motion seeks an order concerning MasterCard's entitlement to an award of attorneys' fees. MasterCard intends to submit a memorandum and supporting documentation within the timeframe contemplated under LRCiv 54.2(b)(2). I. SUMMARY A. The Parties' Contract Included A Provision For Attorneys' Fees

This case arose out of a contractual relationship between plaintiff Lexcel Solutions, Inc. ("Lexcel") and MasterCard. The relevant facts are recited in this 10 Court's Order, dated September 9, 2005, granting MasterCard's motion for summary 11 judgment (hereinafter cited as "Order"). Specifically, it was undisputed that on
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12 December 12, 1995, MasterCard and Lexcel executed a Nonexclusive Software 13 License Agreement (the "Agreement"), and contemporaneously executed Amendment 14 15 Amendment 1 incorporated into the Agreement a previously executed 16 Confidentiality Agreement, dated September 28, 1995. The Confidentiality 17 Agreement was made a part of the Agreement. Specifically, Amendment 1 provided 18 that the Agreement was amended "to read as follows:" 19 20 21 22 23 24 25 26 27 28 Copies of these documents were previously filed with the Court, in connection with the motions for summary judgment, and as exhibits to Plaintiff's Second Amended Complaint filed on June 1, 2004.
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1 to the Agreement.1 (Order, at 2.)

Licensee and Licensor agree to be bound by the provisions of the Confidentiality Agreement dated September 28, 1995, attached hereto and made a part of this Agreement. . . .

(Amendment 1, at 1 (Exhibit 1 to Doc. #122 "Plaintiff's Statement of Facts").)

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A copy of the Confidentiality Agreement is attached hereto as Exhibit "A."2 The Confidentiality Agreement, which was "made a part of [the] Agreement," included a provision for attorneys' fees: 10. ATTORNEYS' FEES. In the event any suit or other action is commenced to construe or enforce any provision of this Agreement, the prevailing party, in addition to all other amounts such party shall be entitled to receive from the other party, shall be paid by said party [sic] reasonable attorney's fees and court costs. (Confidentiality Agreement, Exhibit A, at 2.) Under the provisions of Amendment 1, the term "Agreement" was defined to include all of the attachments to the Agreement, and the Confidentiality Agreement was included as an attachment in addition to being incorporated into and made part of the Agreement. The Agreement is unambiguous on its face, and thus, the parties' contractual rights should be determined solely by the terms expressed in the instrument itself. (Order, at 17-18.) It is clear from the four corners of the Agreement that the parties intended to provide for a mandatory award of attorneys' fees to the prevailing party in any suit or other action commenced to construe or enforce any provision of the Agreement. MasterCard is the prevailing party in this case, and judgment has been entered in favor of MasterCard on all claims asserted by Lexcel. B. Lexcel's Claims Required The Court To Construe Or Enforce The Agreement

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Lexcel's Second Amended Complaint asserted eight counts against MasterCard. (Order, at 4-5.) At least six of the causes of action asserted by Lexcel 24 sought to construe or enforce provisions of the Agreement. 25 26 27 28 A declaration from Philip Tollison is attached hereto as Exhibit "B" attesting that the Confidentiality Agreement that is Exhibit "A" is a true and correct copy.
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Lexcel's declaratory relief claim (Count 1) was based on allegations that MasterCard's "threatened access" to the Lexcel software violated certain provisions of the Agreement. (Second Amended Complaint, at ¶¶ 21-26.) Lexcel asked the Court to construe the Agreement, and to declare, among other things, that Lexcel had the right to terminate the Agreement. Lexcel's misappropriation of trade secrets claim (Count 2) required the Court to construe the Agreement. Lexcel relied upon contractual language in ¶7.8 in Addendums 5 and 8 to the Agreement in support of Count 2. (Order, at 11-12.) MasterCard's asserted duty to keep the alleged trade secrets confidential arose from the Agreement. Count 2 was based upon MasterCard's alleged threats to access Lexcel's software in accordance with the Source Code license that MasterCard purchased as part of the Agreement, as amended by Addendum 5. (Order, at 3.) In addition, Count 2 alleged that MasterCard's use of Lexcel's alleged trade secrets was "without express or implied consent," (Second Amended Complaint, at ¶ 32), an allegation that would require the Court to construe the Agreement and its provisions granting certain licenses to MasterCard. The contractual provision for an award of attorneys' fees was not limited to contract claims, but included attorneys fees' incurred in any suit commenced to construe any provision of the Agreement. MasterCard respectfully submits that the contractual provision relating to attorneys' fees should be construed to encompass Count 2 as well. For its breach of fiduciary duty claim in Count 3, Lexcel alleged that the "duty to protect" Lexcel's confidential and proprietary information arose out of the Agreement, specifically referencing the contractual provisions of "Article 7.4 of Addendum 5 and 8." (Second Amended Complaint, at ¶ 34.) Lexcel alleged breach of contract as one basis for this claim. (Order, at 26.) Thus, Count 3 sought to construe or enforce provisions of the Agreement. Count 5 was a claim of unfair competition, based in part upon MasterCard's alleged breach of contract. (Second Amended Complaint, at ¶ 44.) The only basis
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argued by Lexcel for this claim, other than misappropriation of trade secrets, was breach of contract. (Order, at 26.) In order to determine whether MasterCard committed acts of unfair competition based upon alleged acts in breach of contract, this claim would require the Court to construe or enforce provisions of the Agreement. Lexcel's breach of contract claims alleged in Counts 6, 7 and 8 concerning the issues of reverse engineering, modification, and sublicensing, all asserted that MasterCard engaged in conduct that constituted a breach of certain provisions of the Agreement. (Second Amended Complaint, at ¶¶ 45-53.) Counts 6, 7 and 8 clearly were claims in which Lexcel sought to construe or enforce provisions of the Agreement. Even Lexcel's copyright infringement claim (Count 4) relied upon allegations concerning provisions of the Agreement, and would require the Court to construe the Agreement. For example, Lexcel alleged that MasterCard acted with the knowledge that Lexcel's licensing software "was subject to copyright protection as evidenced by Article 7.4 of Addendum 5." (Second Amended Complaint, at ¶ 40.) Thus, Lexcel pled Count 4 in a way that called for the Court to construe the Agreement. Under the terms of the Agreement, MasterCard is entitled to an award of reasonable attorneys' fees in "any suit or other action . . . commenced to construe or enforce any provision of [the] Agreement." The present suit was an action that was commenced to construe or enforce the Agreement. MasterCard respectfully submits that the contractual provision relating to attorneys' fees should be construed to encompass all reasonable attorneys' fees incurred in this suit, because this was a "suit or other action . . . commenced to construe or enforce any provision of [the] Agreement." The contractual provision at issue did not limit the recovery of attorneys' fees to only those incurred in defense of a breach of contract claim, although the parties could have done so if such a limitation was intended. Instead, the attorneys' fee provision was drafted to provide for the recovery of attorneys' fees in
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any suit or action between the parties, subject only to the requirement that the suit was commenced to construe or enforce any provision of the Agreement. This makes sense, because a claim arising from the Agreement could be pled in various forms (as Lexcel demonstrated in this case) even though the basis of the controversy was essentially a dispute over the contractual relationship between the parties. In this case, the declaratory relief and breach of fiduciary duty claims relied upon contractual provisions in the Agreement or asserted a violation of it. Counts 6-8 were plainly styled as breach of contract claims. Even Lexcel's unfair competition claim was based in part on the alleged breach of the Agreement. Thus, this suit comes within the scope of the contractual provision providing for an award of attorneys' fees to MasterCard as the prevailing party. C. Lexcel's Copyright Claims

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Pursuant to 17 U.S.C. § 505 of the Copyright Act of 1976, this Court has discretion to "award a reasonable attorney's fee to the prevailing party." The prevailing view is that `"although attorneys' fees are awarded in the trial court's discretion, they are the rule rather than the exception and should be awarded routinely.'" The Kroll-O'Gara Co. v. First Defense Int'l., Inc., No. 99 Civ. 4899 (SAS), 2000 U.S. Dist. LEXIS 4549, * 3 (S.D.N.Y. 2000) quoting Micromanipulator Co., Inc. v. Bough, 779 F.2d 255, 259 (5th Cir. 1985). Moreover, "[c]ontrolling precedent establishes" that the prevailing party is entitled to recover attorneys' fees incurred not only in defending against a copyright claim, but on any related claims as well. Traditional Cat Assoc. v. Gilbreath, 340 F.3d 829, 833 (9th Cir. 2003) (remanding to the Southern District of California to determine whether the copyright and non-copyright claims are related before deciding the amount of fees to be awarded to the prevailing party). The statute authorizes an award of attorneys' fees in connection with Count 4. In addition, attorneys' fees should be awarded on related claims as well. Traditional Cat, 340 F.3d at 833. Here, the trade secret misappropriation claims are properly considered to be "related" to the copyright claims. The same acts by MasterCard were alleged to give
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rise to both claims. Both claims, if they had not failed for lack of evidence on other essential elements of the claim, would have required the Court to construe the licenses granted to MasterCard in the Agreement. Both claims required MasterCard to prepare evidence to show that MasterCard did not have access to Lexcel's alleged trade secrets or copyrighted subject matter. Both claims were related in that they were based upon MasterCard's acts in obtaining an alternate source for simulation software to replace Lexcel's software. D. Estimate of Amount of Attorneys' Fees

A fair estimate of the amount of attorneys' fees requested is between $475,000 and $500,000. II. CONCLUSION For the foregoing reasons, MasterCard respectfully requests that the Court enter an order awarding reasonable attorneys' fees to MasterCard, in an amount to be determined upon consideration of the supporting documentation to be submitted with MasterCard's Memorandum in Support of this Motion for Fees in accordance with LRCiv 54.2(b)(2). RESPECTFULLY SUBMITTED this 22nd day of September, 2005. SNELL & WILMER, LLP By s/ Monica A. Limón-Wynn Sid Leach Monica A. Limón-Wynn One Arizona Center 400 E. Van Buren Phoenix, Arizona 85004 Attorneys for Defendants MasterCard International, Inc. and MasterCard International, L.L.C.

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ORIGINAL filed and COPY of the foregoing hand-delivered this 22nd day of September, 2005, to: The Honorable James A. Teilborg United States District Court 401 West Washington Street Phoenix, AZ 85003 COPY of the foregoing mailed this 22nd day of September, 2005, to: Michael O. Sutton, Esq. Steven S. Boyd, Esq. Locke Liddell & Sapp LLP 600 Travis Street, Suite 3400 Houston, TX 77002 Attorneys for Plaintiff Donald J. Lenkszus, Esq. Donald J. Lenkszus, P.C. P.O. Box 3064 7301 E. Sundance Trail, C203 Carefree, AZ 85377-3064

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s/ Christine M. Hackett

1729969.1

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