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UNITED STATES FIDELITY & GUARANTY COMPANY v. BRASPETRO OIL

September 20, 2002

UNITED STATES FIDELITY & GUARANTY COMPANY AND AMERICAN HOME ASSURANCE, PLAINTIFFS,
V.
BRASPETRO OIL, ET AL., DEFENDANTS. UNITED STATES FIDELITY & GUARANTY COMPANY AND AMERICAN HOME ASSURANCE, PLAINTIFFS, V. PETROLEO BRASILEIRO S.A. — PETROBRAS, ET AL., DEFENDANTS.



The opinion of the court was delivered by: John G. Koeltl, United States District Judge.

  OPINION AND ORDER

The Court is entering a Judgment in accordance with the Findings of Fact and Conclusions of Law dated July 25, 2002. In connection with the entry of that Judgment, the Court received proposed Judgments from the parties together with supporting submissions with respect to the applications for attorneys' fees and expenses including a detailed affirmation concerning the requests by Braspetro Oil Services Company ("Brasoil") and the Bank of Tokyo-Mitsubishi, Ltd. (sued herein as The Bank of Tokyo Ltd.-Japan) and Shinsei Bank Limited (successor in interest to the Long Term Credit Bank of Japan, Ltd.) (collectively the "Japanese Banks"). The Court held a hearing on August 26, 2002, and thereafter received additional submissions including detailed billing records and affirmations by all the law firms that sought attorneys' fees and costs in this case. The purpose of this Opinion and Order is to set out findings of fact and conclusions of law in connection with the issues disputed by the parties in connection with the entry of judgment, particularly the amount of the reasonable attorneys' fees and costs to be included in the Judgment and the amount of pre-judgment interest.

Attorneys' Fees and Costs

1. The plaintiffs United States Fidelity and Guaranty Company and American Home Assurance Company (collectively the "Sureties") initially objected to any award of attorneys' fees and costs because Brasoil and the Japanese Banks had not put in any evidence at trial of the amount of the attorneys' fees and costs that had been incurred. However, the P-19 and P-31 Bonds (the "Bonds") at issue in this case provided for the recovery of "[a]dditional legal . . . costs resulting from the Contractor's Default, and resulting from the actions or failure to act of the Surety . . ." (S-72A; S-123.) The Court concluded in its original Conclusions of Law, familiarity with which is assumed, that "The Sureties are liable for the legal fees of this action, as provided for in the Bonds." (Conclusions of Law ("COL") ¶ 48.) It is well established that the exact amount of attorneys' fees and costs is to be decided by the Court after a finding of liability. See McGuire v. Russell Miller, Inc., 1 F.3d 1306, 1313 (2d Cir. 1993); see also F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1261-69 (2d Cir. 1987); Phlo Corp. v. Stevens, No. 00 Civ. 3619, 2001 WL 1313387, at *3 (S.D.N.Y. Oct. 25, 2001). This is also routinely done through the submission of detailed affidavits providing the details of billing practices, including rates and hours charged on a particular cases. See McGuire, 1 F.3d at 1316; F.H. Krear & Co., 810 F.2d at 1261.

As the Court explained at the August 26 hearing, even if Brasoil and the Japanese Banks were required to submit evidence of the amount of fees at trial, which they were not, the Court would exercise its discretion to reopen the record of this non-jury trial because, as the Court of Appeals explained, "it would be unfair to deny that award merely because defendants had decided, based on a common practice and with no reason to do otherwise, to wait until after a verdict to submit proof of the amounts of attorneys' fees." McGuire, 1 F.3d at 1315-16.

2. The amount of "legal costs" recoverable under the P-19 and P-31 Bonds is to be decided in accordance with New York law. (See COL ¶ 8.) The Court of Appeals has explained the New York law with respect to a contractual provision for the recovery of legal costs:

As a general matter of New York law, . . . when a contract provides that in the event of litigation the losing party will pay the attorneys' fees of the prevailing party, the court will order the losing party to pay whatever amounts have been expended by the prevailing party, so long as those amounts are not unreasonable. . . . A variety of factors informs the court's determination of whether a requested amount of attorneys' fees is reasonable or unreasonable, including the difficulty of the questions involved; the skill required to handle the problem; the time and labor required; the lawyer's experience, ability and reputation; the customary fee charged by the Bar for similar services; and the amount involved. In general, the court uses a "lodestar" method, in which the hours reasonably spent by counsel, as determined by the Court, are multiplied by the reasonable hourly rate. The lodestar analysis is, however, tempered by a policy requiring that contractual provisions for the payment of attorneys' fees be strictly construed, and general language will not be sufficient to warrant an award for a type of expense that is not customarily reimbursed.

F.H. Krear & Co., 810 F.2d at 1250 (quotations and citations omitted).

3. In this case, it is useful to note at the outset that the parties agree that any award of legal costs is limited to the difference between the amount of damages already found based on the Sureties' breach of their obligations under the Bonds and the amount of the Bonds. This is because the provisions for damages that includes "legal costs" in the Bonds is limited to the amount of the Bonds. (S-72A ¶ 6; S-123 ¶ 6.) With respect to the P-19 Bond, the total damages were $90,600,000. (Findings of Fact ("FOF") ¶ 464.) The amount of the P-19 Bond was $110,532,660. (FOF ¶ 76.) Thus, the total recoverable legal costs for the P-19 Bond could not exceed $19,932,660. With respect to the P-31 Bond, the total damages were $146,201,776. (FOF ¶ 472.) The amount of the P-31 Bond was $163,000,021. (FOF ¶ 141.) Thus, the total recoverable legal costs for the P-31 Bond could not exceed $16,798,245. The total recoverable legal costs therefore cannot exceed $36,730,905. As explained below, the total amount of legal costs actually incurred, taking into account the reasonable success fee that was contracted for, was much in excess of this amount. Moreover, whether measured by the lodestar method, or a reasonable percentage of recovery, the amount of the legal costs sought is wholly reasonable.

4. Brasoil and the Japanese Banks seek the attorneys' fees and costs for four law firms: Cameron & Hornbostel, LLP and Fox Horan & Camerini, New York law firms that represented Brasoil; Tostes, Schver & Associados Advogados, a Brazilian law firm that represented Brasoil; and Schindler, Cohen & Hochman, a New York law firm that represented the Japanese Banks. The amount of those fees and costs are detailed in sworn declarations submitted by responsible persons from each of those firms together with the contemporaneous computerized billing records and the monthly invoices. The computerized billing records reflect detailed daily time entries for each of the professionals working on the matter. The invoices were reviewed by the Petrobras defendants on an ongoing basis and paid. As Howard Vickery, the lead lawyer for Cameron & Hornbostel, LLP explained:

The Petrobras Defendants reviewed all bills submitted by counsel, item by item, before they were paid. Mr. Claudio Uribbe Castro, an engineer, was responsible for scrutinizing each bill and verifying the accuracy of the statement. From time to time, he and Mr. Rui Berford Dias, the General Counsel of Petrobras, questioned items on our bills and received explanations therefor. In some cases, bills were redone and resubmitted to address the client's concerns.

(Supplemental Declaration of Howard Vickery dated September 9, 2002 ("Vickery Supp. Decl.") ¶ 37.)

5. Cameron & Hornbostel, LLP and Fox, Horan & Camerini performed their services pursuant to an agreement with Petrobras whereby they charged hourly rates 20% less than their normal billing rates. In return they were entitled to receive "10% of the final recovery, less the amount of hourly fees paid to [them] since the initiation of the litigation." (Declaration of Howard Vickery ("Vickery Decl."), sworn to August 7, 2002, Ex. 5; Declaration of John Horan, sworn to September 9, 2002.) This success fee was wholly reasonable. It provided an immediate benefit to the clients by reducing the fees by 20%. It provided an incentive to the lawyers to succeed in the litigation, but the litigation was hard fought and there was no guarantee of success. Moreover, by providing for the subtraction from the success fee of any attorneys' fees already paid, there was an incentive for the attorneys to perform their work as efficiently as possible. As a result of this success fee, the lodestar in this case is artificially low because it is calculated at the attorneys' billing rates which are 20% lower than their regular billing rates.

Partners

Cameron & Hornbostel, LLP $200-$250
Fox Horan & Camerini ...

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