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United States District Court, Southern District of New York

May 12, 2003


The opinion of the court was delivered by: Robert P. Patterson, Jr., United States District Judge


Kaye, Scholer, Fierman, Hays and Handler LLP ("Kaye Scholer"), former counsel for Diversinet Corp. ("Diversinet"), seeks attorneys' fees from in the amount of $247,342.98, following a fee dispute, ancillary to the underlying action. For the following reasons, Diversinet is ordered to pay Kaye Scholer $244,282.87.


By notice of motion dated July 24, 2002, Kaye Scholer moved this Court for an order, pursuant to 28 U.S.C. § 1367 and Local Rule 1.4, permitting Kaye Scholer to withdraw as counsel for Diversinet, formerly known as The Instant Publisher Inc., and for attorneys' fees. On July 25, 2002, the Court denied the motion for failure to show that notice of the application had been served on Diversinet or to give notice of the total amount of attorneys' fees and expenses allegedly owed by Diversinet to Kaye Scholer. By letter dated July 30, 2002, Kaye Scholer identified Bruce D. Margles, Diversinet's in-house counsel, as having received notice of the motion, and renewed its application that Diversinet be ordered to pay Kaye Scholer's outstanding fees and expenses of $247,342.98 contained in invoices dated December 7, 2001, January 30, 2002, and April 20, 2002.

On August 19, 2002, Mr. Margles, general counsel of Diversinet, filed an affidavit ("Margles Affidavit") in further support of Diversinet's opposition to the motion of Kaye Scholer for its fees and expenses, stating: (1) Diversinet did not have a written retainer agreement with Kaye Scholer; (2) Kaye Scholer applied an inordinate amount of resources to the Silva Run file without Diversinet's approval after the fall of 2001; (3) Diversinet explicitly directed Kaye Scholer to seek its prior approval for attendance at depositions and other expenditures after receipt of Kaye Scholer's November 27, 2001 letter to Diversinet's auditors; (4) Diversinet was misled by Kaye Scholer during the January, February and March 2002 period about work being performed by Kaye Scholer at a time when Kaye Scholer knew Diversinet was very short of financial resources. (Margles Aff. ¶¶ 2-10.) Mr. Margles suggested the matter be resolved by binding arbitration before the New York County Lawyers Association. (Id. ¶ 19.)

At a hearing on August 22, 2002, Kaye Scholer rejected Mr. Margles' suggested binding arbitration but indicated that it might accept non-binding mediation. (August Hearing Transcript at 3, 8.) Kaye Scholer agreed, however, to turn over their attorney file to James D. Christo, Esq., of Robert Christo & Associates, incoming counsel for Diversinet, and waived its attorneys' lien. (Id. at 6-7.) The Court agreed to exercise ancillary jurisdiction over that portion of Kaye Scholer's fee claim that related to unpaid fees for this litigation and recommended the parties settle or mediate the matter. (Id. at 5.)

By letter dated December 13, 2002, Kaye Scholer notified the Court that Diversinet had refused to discuss settlement, that the Christo firm was not returning its telephone calls, and requested a Court determination of its fee application. On December 16, 2002, the matter was set for hearing on January 8, 2003, and, thereafter, adjourned to January 23, 2003, at which time an evidentiary hearing was held.

January 2003 Hearing

At the hearing on January 23 and 24, 2002, Mr. Fredric Yerman of Kaye Scholer testified that in May 1999 Kaye Scholer, previously retained as counsel to Diversinet on corporate matters, was asked by Ms. Crystal Witterick, a Canadian lawyer, then general counsel for Diversinet, a Canadian company, to substitute as counsel for Diversinet in this litigation, replacing the Proskauer firm which was in a fee dispute with Diversinet. (January Hearing Transcript at 13-14.) In retaining Kaye Scholer, Ms. Witterick explained to Mr. Yerman that Diversinet "needed a sophisticated, competent litigation firm," with "sufficient staff and resources to handle the securities litigation, Silva Run Worldwide Limited v. Gaming Lottery, et al., 96 Civ. 3231 (RPP). (Id. at 16.) Ms. Witterick instructed Mr. Yerman that Kaye Scholer should do what was necessary to defend the case, to `try to be efficient and cost effective, but also to handle the case as [Kaye Scholer] would normally handle litigation" of this type, i.e., "do what ever was necessary to protect the interests of the company." (Id. at 16-17.) Bills were to be rendered on a timely basis at Kaye Scholer's regular rates. (Id. at 17.)

From June 15, 1999 to April 12, 2002, Kaye Scholer rendered the following bills in this matter to Diversinet, most of which have been paid:

6/15/99 5/1/99 - 5/31/99 18,407.60 9/9/99 2 7/28/99 6/1/99 - 6/30/99 9,772.99 9/9/99 2 9/28/99 7/1/99 - 8/31/99 63,293.94 12/10/99 2 11/9/99 9/1/99 - 10/31/99 12,188.91 12/30/99 2 12/10/99 11/1/99 - 11/31/99 8,995.47 2/14/00 2 2/23/00 12/1/99 - 1/31/00 8,635.18 6/19/00 3 4/14/00 2/1/00 - 3/31/00 44,931.19 5/3/00 3 10/26/00 4/1/00 - 9/30/00 109,963.90 12/26/00 3 12/15/00 10/1/00 - 11/30/00 3,634.20 2/12/01 3 2/27/01 12/1/00 - 1/31/01 630.70 5/7/01 5 7/16/01 2/1/01 - 6/30/01 18,982.46 12/26/01 6 10/31/01 7/1/01 - 9/30/01 1,790.70 1/15/02 9 11/21/01 10/1/01 - 10/31/01 52,357.85 2/6/02 10 12/7/01 11/1/01 - 11/30/01 84,931.06 UNPAID 4 1/30/02 12/1/01 - 12/31/01 60,992.61 UNPAID 7 4/12/02 1/1/02 - 3/31/02 101,419.20 UNPAID 8

TOTAL BILLED $600,990.06 TOTAL PAID 353.647.79 TOTAL OUTSTANDING $247,342.87
On cross examination, Mr. Yerman testified that he had never been instructed by Diversinet not to do any particular work or not to do anything without checking first with anyone at Diversinet. (Id. at 61.) He acknowledged, however, being told by Mr. Margles in November/December 2001, "[t]he bills are getting high, we want to try to keep the costs down, it's getting expensive, very expensive, and we want you to spend as little as possible." (Id. at 60-61.) As a result, he stated Kaye Scholer did not act aggressively and only reacted to the moves of other litigants in the action, but that the contentiousness between other counsel and Diversinet's role as a key defendant made it difficult to keep costs down. (Id. at ¶ 1-62.) Mr. Yerman stated that it was his understanding that Kaye Scholer was to "perform such work as we deemed necessary to protect the interests of [Diversinet]" (id. at 59) and that Diversinet's exposure in the lawsuit was in excess of $6M. (Id. at 61.)

Michael A. Lynn, counsel at Kaye Scholer, testified that he had done some work on the reply brief to Diversinet's motion to dismiss in the summer of 2000 (Id. at 92), but took on a more active role in May 2001 after the Court had denied the defendants' motions to dismiss. (Id. at 93.) He recalled advising Mr. Margles that Diversinet had to file an answer to the third amended complaint and prepare for discovery in the case. (Id. at 94-95.) He also testified that he was not told by Mr. Margles not to engage in discovery. (Id. at 95.) Mr. Lynn stated that due to the events of September 11, 2001, the discovery got pushed back into November (id. at 97-98), and that he had advised Mr. Margles of the scheduled depositions of the principals of Silva Run (Mr. Salazar and Mr. Gomez) (Id. at 98.) Mr. Lynn stated that, prior to those depositions, he and Ms. Holly Levinson, a junior associate, did an extensive review of all documents that had been produced in the case, particularly those produced by Silva Run, focusing their efforts primarily on the transaction involving the private purchase by Silva Run of the common stock of Instant Publisher (now Diversinet) in August 1995 ($16 million of common stock pursuant to a Regulation S offering). (Id. at 98-99; Third Amended Complaint ¶ 165.) Although Mr. Lynn testified that he reported what was going on in the case to Mr. Yerman, he testified that Mr. Yerman was not billing his own time due to the economic concerns of the client. (Jan. Hrg. Tr. at 102.)

By letter dated November 26, 2001, Kaye Scholer responded to Diversinet's request to report to Peat Marwick, Diversinet's auditors, as to the status of the litigation and the amount of unpaid fees, and stated that Diversinet then owed Kaye Scholer for services and disbursements $141,478.34. (Pl. Exh. 12.)*fn1

Mr. Lynn stated that in late November, he advised Mr. Margles that there would be a "slight lull in litigation activity in December," but that the depositions of plaintiff would recommence and third-party discovery would commence in January 2002, and Lynn sent summaries of the November depositions of plaintiff to Mr. Margles. (Jan. Hrg. Tr. at 104-05.) Mr. Lynn stated he was never told by Mr. Margles not to do any particular work but that he did advise Mr. Margles that, in order to save legal expenses, counsel for the various defendants were dividing responsibility for the remaining third-party discovery of a number of witnesses and bank records. (Id. at 106-08.) He also advised Mr. Margles that the defendants were seeking to prove an affirmative defense of "in pari delicto" for a summary judgment motion. (Id. at 107-08.)

Mr. Lynn testified that he advised Mr. Margles following the continued depositions of plaintiff in January, of a possible withdrawal of plaintiffs counsel, and later of the receipt of a document discovery request from plaintiff. (Id. at 116-17.) He stated that the production of documents was conducted with the assistance of Mr. Margles and his assistant, and that the documents were reviewed for completeness and attorney/client privilege by Ms. Levinson during March 2002. (Id. at 116-18.)

On April 12, 2002, a bill for Kaye Scholer's services from January to March 31, 2002 was sent to Diversinet. (Pl. Exh. 8.)

On cross examination, Mr. Lynn acknowledged that, in late November 2001, he received a call from Mr. Margles about the auditors' letter figure of $141,000 in unpaid fees and that they discussed steps to be taken to minimize the expense of the litigation. (Jan. Hrg. Tr. at 132.) Mr. Lynn told Mr. Margles of defense counsel's dividing responsibility for third-party depositions and that he was not attending plaintiffs depositions but having Ms. Levinson attend them instead (id. at 132-33), and that Kaye Scholer would do what it could to minimize expense. (Id. at 135.) He said he was not asked to inform Mr. Margles of any further activity that was going on, but did discuss ways to minimize future costs. (Id. at 133.) Mr. Lynn stated that he explained to Mr. Margles that he would not be going to each of the scheduled depositions of plaintiffs principals, even though they were the most important depositions, but was having Ms. Levinson attend, as well as prepare for certain third-party depositions and review the newly produced documents from the plaintiff in advance of its continued depositions. (Id. at 133-34.) Mr. Lynn testified that he did not recall any discussion with Mr. Margles regarding the December 7, 2001 invoice (Pl. Exh. 4) after it was sent to Mr. Margles. (Jan. Hrg. Tr. at 135-36.) He did recall a discussion with Mr. Margles after the January 30, 2002 invoice (Pl. Exh.7) in which he advised Mr. Margles of the possibility of the withdrawal of plaintiffs counsel, and stated that they decided to hold off on third-party depositions in the case until that was resolved. (Jan. Hrg. Tr. at 136.) He also testified that upon receipt of plaintiffs request for the production of Diversinet's documents, he had discussions with Mr. Margles on February 21, March 15 and March 20, 2002. (Id. at 138-39.) Mr. Lynn testified he had Ms. Levinson attend the deposition of plaintiffs counsel in December 2001 because he felt it was important to see if plaintiffs counsel was aware of plaintiffs fraud. (Id. at 185.) He acknowledged he had not spoken to Mr. Margles about anyone attending that deposition. (Id. at 186.)

On redirect, Mr. Lynn testified that, since plaintiffs new document production in December 2001 consisted of documents in Spanish, interpreters had to be utilized, that this increased document review costs (Id. at 113), and that, in his opinion, Ms. Levinson was capable and the use of Ms. Levinson for depositions reduced costs to the client. (Id. at 193-95.)

The defense case consisted of Mr. Margles' testimony. He testified that after taking over from Ms. Witterick, he had a meeting at Kaye Scholer around September 23, 2000, which Mr. Yerman and Mr. Geraci attended, to update him on the Silva Run matter. (Id. at 205-206.) He stated that Mr. Yerman and Mr. Geraci of Kaye Scholer were told that, "we had to minimize fees, we had to have constant communication about any matters that would arise . . . that [Mr. Margles] wanted to be apprised of any substantive matters that came before Kaye Scholer, with respect to the Silva Run matter" and "[Mr. Margles] just wanted to be kept informed and I wanted to have input into how the litigation was going to be handled going forward." (Id. at 206.) He testified that he also explained that "we were in a tight, tight bind and we had to preserve cash going forward." (Id.) He also testified that Yerman and Geraci stated that "they would respond to my requests, they would notify me of any substantive issues that came before Kaye Scholer with respect to Silva. . . ." (Id. at 207.) Mr. Margles acknowledged that he approved Kaye Scholer's bills of 10/26/00 and 12/15/00 (Pl. Exh. 3), 2/27/01 (Pl. Exh. 5), 7/16/01 (Pl. Exh. 6), and 10/31/01 (Pl. Exh. 9), when he received them and that, from October 2000 through October 2001, there was constant communication with Mr. Yerman, and that the matters which were detailed in those invoices were not "substantive" to the corporation. (Jan. Hrg. Tr. at 213, 220.)

Mr. Margles testified, however, that on November 27, 2001, Kaye Scholer's fees became an issue for Diversinet when he received a copy of Exhibit 12, Kaye Scholer's letter to the auditors stating the amount of accumulated unpaid and unbilled time. (Id. at 213-214.) He stated that he called Mr. Lynn to ask him to correct the letter and that Mr. Lynn called back and said no, that the amount of $141,000 of accumulated unbilled (and unpaid) time was correct. (Id. at 215.) Mr. Margles testified that, "I had no prior knowledge that this work had been done, and the amount of work seemed excessive" (id. at 216), that he told Mr. Lynn that he hadn't been notified. (Id. at 216-217.) Mr. Margles stated that he and Mr. Lynn then had a general discussion about the need to attend depositions and that Mr. Lynn told him, "it was imperative that we attend," and that he explained to Mr. Lynn that, "our cash position didn't enable us to participate in all the depositions that were ongoing because [Mr. Lynn] explained that there were depositions, more depositions planned for the new year." (Id. at 217.) Mr. Margles testified that Mr. Lynn "assured me that there [was] nothing plied . . . for December, and that he would contact me before any further expenditures were made on the file." (Id.)

Mr. Margles testified further, "I made it explicitly clear to him that our cash position didn't entitle us and enable us to participate in all the matters that were before the Silva Run litigation file and that we had to be very judicious in our attendance and that I would make the decisions . . . and I should be at least informed prior to any depositions, prior to any substantive expenditures." (Id. at 218.)

Mr. Margles testified he was "absolutely horrified" when he received the bill for December 2001 services (Pl. Exh. 7) early in February 2002, and that he called Mr. Lynn for an explanation. (Jan. Hrg. Tr. at 221-222.) Mr. Lynn stated that there had been court-ordered depositions (of plaintiffs counsel), but had no explanation as to why he had not called Mr. Margles about attendance. (Id. at 222.) He testified that he then called Mr. Yerman, who said he had not reviewed the invoices. (Id.) Mr. Margles testified that he told Mr. Yerman that the work had been unauthorized and Mr. Yerman stated he would look into it and get back to him, though he never did. (Id. at 222-223.) Mr. Margles also testified that he told Mr. Yerman that, if Mr. Lynn were lead counsel on this litigation, he expected to have the last say on whether Diversinet was going to spend substantial sums of money on this matter. (Id. at 223.)

The Court received in evidence contemporaneous notes of three telephone calls by Mr. Margles: defendant Diversinet Exhibits A-1, dated November 27, 2001, A-2 dated February 5, 2002, and A-3 dated February 14, 2002:

Message, returned call, spoke with Michael Lynn re audit letter and 140,000 amount, not a mistake. . . . Mike Lynn said depositions under way, asked why 140
No letters from Kaye Scholer or calls notifying us of discovery. Spoke with Michael Lynn about our lack of funds and need to not spend on this litigation. . . . Michael Lynn understood and said no further discovery is planned [Mr. Margles testified this meant in December 2001]*fn2 and will send transcripts of discovery. [Mr. Margles testified I think rather than transcript, I think he probably said summary, but [just wrote transcripts.]
(Jan. Hrg. Tr. at 241; Df. Exh. A-1 — 11/29/01.)

Message left, [Michael Lynn called back or I called Michael Lynn back.] Another 60,000 for December. Michael Lynn said unexpected court ordered depositions in December. There's no explanation for not letting me know. I said I was in the office most of December and should have been notified. I reiterated that we had to approve any major expenditures — expenses. All quiet now, no further depositions scheduled. "Kaye Scholer will not do any work without my approval other than answer letters, etc. . . . If he doesn't go to any discoveries, there's a risk that we can't ask any questions at trial. Again, does it matter. . . . Just cut all costs.
(Jan. Hrg. Tr. at 242; Df. Exh. A-2 — 2/5/02.)

Call to Fred Yerman, message left on the 14th message left on the 21st. [And then I wrote] February 25, [so either Fred got back to me or I got back to Fred.] I explained to Fred that the costs got out of control and were unreasonable given our expectation [settlement discussion]. . . . I asked Mr. Yerman to look at the bills. Fred agreed to talk with Lynn Toby Fisher and reduction. [That might say] going way ahead, [going forward maybe]. [I don't understand what I was saying there, but,] I told Fred that I wanted better communications from Kaye Scholer and I wanted reduction in the attendance and research, other than that which is necessary for our defense. And I also suggested we delay anything that's possible, because we have no money.
(Jan. Hrg. Tr. at 242-43; Df. Exh. A-3 — 2/14/02.)

In rebuttal, Kaye Scholer recalled Mr. Lynn, who testified he had advised Mr. Margles on October 23, 2001 of the upcoming depositions of plaintiffs principals (Pl. Exh. 10 at 3; Jan. Hrg. Tr. at 263-64), and third-party discovery in mid-2001 (Jan. Hrg. Tr. at 266-67), and continued depositions of plaintiff and third-party discovery during their discussion of the audit letter on November 27, 2001. (Id.)

Mr. Lynn also testified that, on or about March 15, 2002, he discussed with Mr. Margles postponing the depositions of the third party witnesses (Mr. King, Mr. Franzella and Mr. Lofredo) that had been scheduled and already put off. (Id. at 271.) He also testified that he had never been instructed not to respond to plaintiffs discovery requests (Id.), and that he had never been told that he should not do specific tasks and that such an instruction was so unusual that he would immediately have informed Mr. Yerman. (Id. at 271-72.)

Mr. Yerman was recalled and testified he was never told by Mr. Margles or anyone at Diversinet that Kaye Scholer needed to have specific approval for any specific task that it was going to perform. (Id. at 274.) Mr. Yerman also testified that on November 9, 2001, he had a discussion with Mr. Margles concerning settlement of the Silva Run case during which they agreed on the necessity to keep the expenses down. (Id. at 276.) Mr. Yerman also stated that, in his February 14, 2002 telephone conversation, Mr. Margles never stated he was unwilling to pay the bills. (Id. at 279.)

Mr. Margles was then recalled by Diversinet and testified he did not recall any conversation with Mr. Yerman about the level of legal expenses on November 9, 2001. (Id. at 282.)


The issue raised by Diversinet is only directed at the level of discovery conducted by Kaye Scholer. Diversinet does not contend that the quality of Kaye Scholer's services was substandard. (Id. at 261.) However, the credibility issues in this attorneys' fees dispute, ancillary to the underlying action, may best be evaluated by an analysis of the circumstances under which it arose.

Exhibit 4

When Mr. Margles took over responsibility for legal affairs from Ms. Witterick, Diversinet had just completed a private placement of $17.1 million and had roughly $22 million in cash. (Id. at 202-04.) It was about at this time that he had his first meeting with Kaye Scholer in the fall of 2000. (Id. at 204.) Thereafter, Mr. Margles approved Kaye Scholer's bill of $109,963.90, basically services involving its motion to dismiss Silva Run's third amended complaint. (Pl. Exh. 3.) Thus after Mr. Margles' first meeting with Kaye Scholer in September 2000, Kaye Scholer rendered a hefty bill for services without any indication of complaint by Mr. Margles. This indicates that Mr. Margles' recollection of the September 2000 conversation is faulty and that Mr. Yerman's recollection of learning of Diversinet's financial predicament in the fall of 2001 is correct. In the spring of 2001, the Court denied defendants' motion to dismiss plaintiffs third amended complaint. Accordingly, answers had to be filed and discovery commenced. Mr. Margles testified that through October 2001, he received good communication from Mr. Yerman with respect to the status of the case and the actions planned. (Id. at 220.) Those actions had to incorporate discovery of documents requested from plaintiff and preparation for depositions. Indeed, it would have had to have included notice of the Mr. Salazar and Mr. Gomez (sometimes referred to as Lopez) depositions which commenced November 5, 2001 but were scheduled before September 11, 2001. (Pl. Exh. 4 at 1.)

It is inconceivable, based on Mr. Margles' own admissions, that he was unaware that Kaye Scholer was preparing for and engaged in taking these depositions in its efforts to dispose of the case on a summary judgment motion based on the affirmative defense of in pari delicto. Indeed, Mr. Margles did not deny that he had been told that Kaye Scholer had to conduct discovery. He said, however, "In hindsight, I didn't understand what the nature of that discovery would be." (Jan. Hrg. Tr. at 256.) He said, "I don't recall ever having a discussion about expensive discovery." (Id. at 257.) These admissions demonstrate that he did not educate himself sufficiently as to the complex nature of discovery in a securities litigation such as Silva Run v. Gaming Lottery, et. al. and has been surprised at its comprehensive nature.

The Margles Affidavit only states that he made an explicit direction to seek his prior approval for attendance at depositions and other expenditures after receipt of Kaye Scholer's letter of November 27, 2001 to Diversinet's auditors. (Margles Aff. ¶¶ 4-6.) Accordingly, the preponderance of the evidence shows that Kaye Scholer advised Diversinet of the nature of the services it would be performing in November 2001, and that Diversinet, did not take any steps to limit the extent of Kaye Scholer's discovery efforts prior to November 27, 2001. Thus, the Kaye Scholer bill of $84,931.06 for services for November 2001, (Pl. Exh. 4), is fully warranted.*fn3

Exhibits 7 and 8

With respect to work after November 2001 (Pl. Exhs. 7 and 8), Mr. Margles' testimony is not that he ordered Kaye Scholer to cease all work. (Jan. Hrg. Tr. at 250.) He does not dispute that he was advised that the continued depositions of plaintiff had to be taken in January 2002, or that the depositions of Mr. Franzella or of Mr. Loffredo and Mr. King, the broker allegedly handling the short selling of Diversinet stock by Mr. Gomez during the restricted period of regulation, were crucial to Diversinet's in pari delicto defense and he did not testify that he instructed Kay Scholer not to attend. Accordingly, Kaye Scholer had to prepare for those depositions to ensure that the short selling of Gaming Lottery and Diversinet stock in accounts controlled by Mr. Gomez and his girlfriend was clearly established. Although Mr. Margles testified that he notified Kaye Scholer that Diversinet could not afford to attend all the depositions in the case, the weight of the evidence is that he understood and agreed that the continued depositions of plaintiff and the depositions of Franzella, King and Loffredo were crucial and had to be attended. In fact, the depositions of Franzella, King and Loffredo were postponed until after Kaye Scholer's withdrawal, and therefore, Diversinet has not been billed by Kaye Scholer for attendance at those depositions. What Mr. Margles failed to understand was that preparation for those depositions involved the expenditure of a lot of time assembling and reviewing the relevant documents in advance of attending. Mr. Margles never told Kaye Scholer not to engage in that preparatory work. Indeed, to do so would not have been in Diversinet's best interests.

Furthermore, Mr. Margles apparently failed to understand the degree of care and amount of time required of defense counsel in preparing responses to the plaintiffs document request in February 2002. Mr. Margles cooperated in the document discovery that plaintiff demanded of Diversinet in February and March 2002, so he knew that Kaye Scholer was engaged in preparing Diversinet's responses. He did not testify, however, that he took any steps to control Kaye Scholer's time in preparing for these and in assembling documents preparing responses to document requests and a privilege log, in order to meet the standards of this Court. Accordingly, the time billed by Kaye Scholer in bills Exhibits 7 and 8 is time for which Kaye Scholer should clearly be compensated.

Review of plaintiffs Exhibits 7 and 8 does raise one questionable issue: whether Kaye Scholer is entitled to be paid for preparing for and attending the deposition of plaintiffs attorney. Mr. Margles testified that on November 27, 2001, he advised Mr. Lynn that Diversinet could not afford to attend all the depositions in the case, and discussed with him which depositions Kaye Scholer would attend. (Jan. Hrg. Tr. at 217-18.) Mr. Lynn testified that he informed Mr. Margles of plaintiffs continued deposition, but he did not testify that he informed Mr. Margles of plaintiffs counsel's deposition and, in fact, told him of a lull in litigation activity in December 2001. (Id. at 104-05.) Under these circumstances, the Court finds that Mr. Lynn should have advised Mr. Margles about the deposition of plaintiffs counsel. Mr. Lynn acknowledged that he did not. (Id. at 186.)

Examination of Exhibit 7 shows that Ms. Levinson spent approximately eighteen hours preparing for and attending the deposition of plaintiffs counsel, and that Mr. Lynn billed about one hour on the same subject. Accordingly, Kaye Scholer's outstanding bills of $247,342.98 are reduced by $3,060, the cost of time spent on that endeavor by Ms. Levinson and Mr. Lynn, for the time spent in preparation for and attendance at the deposition of plaintiffs counsel.

It is hereby ordered that Diversinet pay Kaye Scholer $244,282.87 for outstanding fees and expenses.


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