Free Reply to Response to Motion - District Court of Arizona - Arizona

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Stephen D. Hoffman, #13875 LEWIS BRISBOIS BISGAARD & SMITH LLP Phoenix Plaza Tower II 2929 North Central Avenue, Suite 1700 Phoenix, Arizona 85012-2761 Telephone: (602) 385-1040 Facsimile: (602) 385-1051 Attorneys for Wong and World Nutrition

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

MARLYN NUTRACEUTICALS, INC., an Arizona corporation, Plaintiff,

No. CIV 02-1876 PHX-HRH THIRD-PARY PLAINTIFF WORLD NUTRITION'S REPLY TO RESPONSE TO MOTION FOR ATTORNEYS' FEES (Assigned to The Honorable H. Russell Holland)

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vs.
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WILLIAM WONG and JANE DOE WONG, husband and wife; PATRICK BUEHL and JANE DOE BUEHL, husband and wife; WORLD NUTRITION, INC., an Arizona corporation; ABC Corporations I-X; XYZ PARTNERSHIPS I-X; and JOHN DOES I-X and JANE DOES I-X, husbands and wives, respectively, Defendants,

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WORLD NUTRITION, INC., an Arizona corporation, Third Party Plaintiff/Counterclaimant/ Defendant, vs.

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MARLYN NUTRACEUTICALS, INC., an Arizona Corporation; and CRAIG KNOBLOCH, Counterdefendant/Plaintiff/Third Party Defendant.

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Third-Party Plaintiff, World Nutrition, Inc. ("World Nutrition") hereby submits its reply to Third-Party Defendant Craig Knobloch's Response to Motion for an award of attorneys' fees. I. The Cases Cited by Mr. Knobloch Support World Nutrition's Position

Mr. Knobloch cites several cases in response to World Nutrition's motion for attorneys' fees, all of which support an award of fees. In Nataros v. Fine Arts Gallery of Scottsdale, Inc., 126 Ariz. 44, 612 P.2d 500 (App. 1980), the Arizona appellate court upheld the trial court's award of attorneys' fees, finding that the trial court did not abuse its discretion in determining a party to be a successful party. The court declined to address whether or not taxable costs might require apportioning based upon the respective successful positions of the parties. In Nataros, neither party was successful on its claims. In the instant case, there is no dispute that World Nutrition was the successful party as between World Nutrition and Mr. Knobloch. In Schweiger v. China Doll Restaurant, Inc. 138 Ariz. 183, 673 P.2d 927, 933 (App. 1983), the court found that when a party achieved only partial or limited success, it would be unreasonable to award compensation for all hours expended, including time spent on the unsuccessful issues or claims. This supports World Nutrition's position, as World Nutrition is only seeking attorneys' fees that solely relate to its claims against Mr. Knobloch. World's Nutrition's fee application did not include attorneys' fees which

pertained to World Nutrition's other claims, such as its counter-claims against Marlyn Nutraceuticals. In fact, great care was taken to only include those fees which directly pertain to the third-party claim against Mr. Knobloch. Similarly, in Schwartz v. Farmers Ins. Co. of Arizona, 166 Ariz. 33, 800 P.2d 20 (App. 1990), the Court of Appeals held that the trial court has discretion to determine who is the successful party under the circumstances. However, Mr. Knobloch's claim that a "percentage of success factor" or a "totality of the litigation" test weighs in his favor is inconsistent with Schwartz. The key distinguishing factor between Schwartz and the instant case is that in Schwartz, plaintiff and defendant were each successful on a claim
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which entitled it to make a claim for attorneys' fees. The trial court weighed the two claims and the respective outcomes and determined that Farmers Insurance was the successful party. In the instant case, World Nutrition prevailed on its breach of contract claim against Mr. Knobloch and is therefore entitled to its fees, both pursuant to statute (A.R.S. §12-341.01) and pursuant to the terms of the contract itself. II. World Nutrition was a Successful Party

There is no dispute that the jury found in favor of World Nutrition on its breach of contract claim against Mr. Knobloch. (See, Verdict, Clerk's Docket No. 221.) Although World Nutrition believes the evidence supported a higher amount of damages, the jury found in World Nutrition's favor, but only found nominal damages. The argument that the $1.00 nominal damages award proves a failure of proof in damages and equates to an inability to be entitled to attorneys' fees is interesting, albeit non-dispositive especially in light of Marlyn's stated intent to seek attorneys' fees against William Wong, who was also assessed a nominal damages award of $1.00, rather than a finding of actual compensatory damages. III. Local Rule 54.2

Initially, Third-Party Plaintiff would note that the memorandum in support of the motion for attorneys' fees is not required to be filed at the same time as the motion for fees. Local Rule 54.2 generally allows the motion to be filed within 14 days after entry of judgment and the memorandum in support to be filed within 60 days after entry of judgment. Undersigned counsel would also note that the traditional deadlines for certain posttrial submissions have understandably been altered in this case from time to time. As the Court is aware, the judgment against Mr. Knobloch was entered on December 3, 2007 (See, Clerk's Docket No. 331.) Thereafter, on January 7, 2008, the parties attended a settlement conference, discussing global settlement issues. The parties stipulated to extend the time for World Nutrition to file its motion for attorneys' fees until January 14, 2008, and the Court granted that stipulation. (See, Clerk's Docket Nos. 332 & 333.) Thereafter,
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because the parties were still involved in global settlement negotiations, the parties against stipulated to extend the deadline to file the motion for attorneys' fees as to Mr. Knobloch until February 18, 2008, and the Court granted that stipulation. (See, Clerk's Docket Nos. 334 & 336.) As a result of these various extensions, the deadline to file the memorandum in support of the motion for fees would have expired prior to the deadline to file the actual motion for attorneys' fees. In short, due to the fact that the memorandum in support of a motion for attorneys' fees is docketed separately, and because of the various extensions of the deadline to file the motion for attorneys' fees, the memorandum in support was not filed at the same time as the motion for attorneys' fees. The memorandum in support is submitted herewith. Thirdparty Plaintiff has no objection to Mr. Knobloch's submitting a response to the memorandum in support, either by way of a response to the memorandum, or a sur-reply to this Reply. Third Party Plaintiff is concurrently filing herewith its Rule 6 motion for relief regarding the memorandum in support and Mr. Knobloch's ability to respond/reply. As a result, there is no prejudice and no impact to Mr. Knobloch's substantive rights. Memorandum In Support of Motion for Attorneys' Fees 1. Eligibility

Third-Party Plaintiff brought claims against Mr. Knobloch for breach of contract (employment agreement), violation of the Uniform Trade Secrets Act, conversion and unjust enrichment, as a result of Mr. Knobloch misappropriating portions of World Nutrition's confidential customer lists by sending those lists to Mr. Knobloch personal email accounts while Mr. Knobloch was employed at World Nutrition. The jury found in favor of World Nutrition on its breach of contract claim only, and awarded nominal damages of $1.00. (See, Verdicts, Clerk's Docket No. 221.) World Nutrition moved for its attorneys' fees pursuant to A.R.S. §12-341.01 and pursuant to Paragraph 4(b) of the contract.

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A.R.S. §12-341.01 provides, in pertinent part, "[i]n any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees." Paragraph 4(b) of the contract provides as follows: Nothing herein shall be construed as prohibiting the Company from pursuing any other remedy available to it for a breach or threatened breach of this Agreement and Employee agrees to pay the Company for any losses or damages and its expenses, including reasonable attorneys' fees, incurred in protecting its rights hereunder. 2. Entitlement

World Nutrition asserts that it is entitled to attorneys' fees as the successful party on its claims against Mr. Knobloch. Considering the jury's obvious vehemently strong

feelings against World Nutrition, as evidenced by the excessive awards the jury entered against World Nutrition on Marlyn's claims, even an award of nominal damages makes World Nutrition the successful party on its claims against Mr. Knobloch, supporting an award of attorneys' fees under A.R.S. §12-341.01. While the award of money is an important item to consider when deciding who is the prevailing party, the fact that a party does not recover the full measure of relief it requests does not mean that it is not the successful party. In Arizona, a party is successful if it obtains judgment for an amount in excess of the setoff or counterclaim allowed. Sanborn v. Brooker & Wake Property Management, 178 Ariz. 425 (Ariz. Ct. App. 1994). Additionally, Mr. Knobloch voluntarily entered into the written agreement with World Nutrition whereby he agreed to be responsible for any such attorneys' fees in the event he breached that agreement. 3. Reasonableness of Requested Award

World Nutrition believes that its requested award of fees is extremely reasonable. World Nutrition only included those fees pertaining to its claims against Mr. Knobloch, and did not include those fees pertaining to its counterclaim against Marlyn, upon which it

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was unsuccessful. Those fees totaled $8,218.00. Factors bearing upon the reasonableness of the award: A. Time and labor required of counsel In prosecuting the third-party complaint, counsel for World Nutrition reviewed and analyzed the pleadings, propounded, responded to and analyzed various discovery responses, conducted depositions and drafted appropriate pretrial motions, which included the pressing of discovery motions. In light of the scope of these tasks, the amount of fees incurred by World Nutrition is more than reasonable. B. The novelty and difficulty of the questions presented While the claims themselves were not overly novel, there were numerous claims in this litigation with difficult issues of proof with respect to liability and particularly damages. C. The skill required to perform the legal services This case involves significant litigation with experienced counsel and numerous legal issues. D. The preclusion of other employment by counsel because of this action N/A E. The customary fees charged to matters of the type involved As set forth in the affidavit of Stephen D. Hoffman, the hourly rates in this case are reasonable and customary for this type of litigation. F. Whether the fee contracted between the attorneys and client is fixed or contingent The fee in this case is based upon an hourly rate. G. Any time limitations imposed by the client or the circumstances N/A H. The amount of money involved and the results obtained Although World Nutrition maintains the evidence justified a higher award, the jury awarded World Nutrition nominal damages of $1.00. I. The experience, reputation and ability of counsel

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The affidavit of Stephen D. Hoffman sets forth the background and experience of the attorneys involved in this case. J. Whether the case is undesirable N/A K. The nature and length of the professional relationship between the attorneys and the client This is the first time that undersigned counsel has represented World Nutrition. It is also the first time that undersigned counsel has been retained by Atlantic Mutual Ins. Co. L. Awards in similar actions Other litigated matters involving breach of employment agreement claims have resulted in fee awards much greater than that amount sought here. M. N/A. 4. Supporting Documentation Any Other Matters Deemed Appropriate

Attached hereto are the following: Exhibit 1 ­ Statement of Consultation Exhibit 2 ­ Itemization of Legal Services Provided Exhibit 3 ­ Affidavit of Stephen D. Hoffman Exhibit 4 ­ Statement of Counsel regarding fee agreement
DATED this 27th day of March, 2008. LEWIS BRISBOIS BISGAARD & SMITH, LLP

By:________s/ Stephen Hoffman_________________ Stephen D. Hoffman Attorneys for Wong and World Nutrition

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CERTIFICATE OF SERVICE
I hereby certify that on the 27th day of March, 2008, a copy of the foregoing THIRDPARTY PLAINTIFF WORLD NUTRITION'S REPLY TO RESPONSE TO MOTION FOR ATTORNEYS' FEES was filed electronically. A Notice of Electronic Filing (NEF) will be sent by operation of the Court's Electronic Case Filing (ECF) system to the filing party, the assigned Judge and any registered user in the case as indicated on the NEF. All other parties will be served by regular U.S. mail. Parties may access this filing through the Court's system.

____S/Stephen D. Hoffman________________ Stephen D. Hoffman LEWIS BRISBOIS BISGAARD & SMITH LLP Phoenix Plaza Tower II 2929 North Central Avenue, Suite 1700 Phoenix, Arizona 85012-2761 Telephone: (602) 385-1040 Facsimile: (602) 385-1051

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