1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 CLEAR BLUE SPECIALTY INSURANCE Case No. 21-cv-08764-EJD COMPANY, 9 ORDER REGARDING DISTRIBUTION Plaintiff, OF INSURANCE PROCEEDS 10 v. 11 Re: ECF Nos. 108, 140, 141 OZY MEDIA, INC., et al., 12 Defendants.
13 On November 3, 2023, the Court granted Ford O’Brien Landy LLP’s (“Ford O’Brien” or 14 “FOBL”) motion to intervene in this action to enforce a charging lien under New York Judiciary 15 Law § 475 against the proceeds of the Directors & Officers Employment Practices Liability and 16 Fiduciary Liability Policy (“D&O Policy”) issued by Plaintiff Clear Blue Insurance Company 17 (“Clear Blue”) to Defendant Ozy Media Inc. (“Ozy Media” or the “Company”). See Order 18 Granting Mot. to Intervene (“Intervention Order”), ECF No. 121. The Court had previously 19 ordered Clear Blue to advance the insurance proceeds for Defendant Carlos Watson’s (“Mr. 20 Watson and, with the Company, “Defendants”) legal fees in a related criminal action. See Prelim. 21 Inj. Order, ECF No. 82. In the Intervention Order, the Court found Ford O’Brien to hold a valid 22 charging lien, but requested additional information from the parties prior to determining the 23 amount of the lien. See Intervention Order 15–17. Having received additional submissions from 24 Ford O’Brien and the parties, the Court now determines the value of Ford O’Brien’s charging lien. 25 I. BACKGROUND 26 A. Underlying Proceedings and Order to Advance Defense Costs 27 In recent years, Ozy Media has faced four parallel legal proceedings (the “Underlying 1 Proceedings”): (i) a criminal investigation by the U.S. Attorney’s Office for the Eastern District 2 of New York (the “E.D.N.Y. Criminal Action”); (ii) a civil enforcement investigation by the U.S. 3 Securities and Exchange Commission (the “SEC Investigation”); (iii) a civil securities fraud action 4 filed by an Ozy Media investor in the N.D. Cal. (LifeLine Legacy Holdings, LLC v. Ozy Media, et 5 al., No. 21-cv-07751-BLF, N.D. Cal.) (the “LifeLine Lawsuit”); and (iv) the present action. See 6 Intervention Order 1–2. Clear Blue initiated the present action on November 11, 2021, seeking to 7 rescind the D&O Policy based on material misrepresentations. See Compl., ECF No. 1. On July 8 12, 2022, Defendants moved for injunctive relief. See Mot. for Prelim. Inj., ECF No. 51. In an 9 order dated April 20, 2023 (the “Preliminary Injunction Order”), the Court granted injunctive 10 relief as to Mr. Watson only, and accordingly ordered Clear Blue to advance Mr. Watson’s 11 defense costs in the E.D.N.Y. Criminal Action. See Prelim. Inj. Order. The D&O Policy limit as 12 to Mr. Watson’s defense costs is $2,000,000. See Joint Status Report 4, ECF No. 129. 13 B. Work Performed by Ford O’Brien 14 Ford O’Brien, a New York law firm, represented Ozy Media in the Underlying 15 Proceedings from approximately October 25, 2021 until November 15, 2022. See Decl. of Kevin 16 O’Brien in Supp. of Mot. to Intervene (“O’Brien Intervention Decl.”) ¶ 5, ECF No. 108-1. The 17 retainer agreement between Ford O’Brien and Ozy Media is governed by New York law. See 18 Intervention Order 1. Ford O’Brien has $1,255,871.87 in unpaid invoices to Ozy Media for fees 19 and related expenses. See O’Brien Intervention Decl. ¶ 5; see also Joint Status Report 3, ECF No. 20 129; Decl. of Kevin J. O’Brien in Supp. of Charging Lien (“O’Brien Lien Decl.”), Exh. A 21 (“Verified N.Y. Compl.”) ¶¶ 17–39, ECF No. 141-1. Ford O’Brien has further calculated, to the 22 best of its ability in light of its practice of block billing, that the time value of the work performed 23 to acquire the benefit in this action—i.e., the advancement of defense costs from Clear Blue—is 24 $233,945. See FOBL Letter Brief 1, ECF No. 152. The time value of Ford O’Brien’s work as an 25 intervenor in this action was $227,410 as of January 16, 2024. See id. at 1–2. However, after 26 counsel for Defendants sent a substantive email to the Court without leave, see ECF No. 151, Ford 27 O’Brien spent an additional 29.8 hours valued at $26,550 in crafting its response. See FOBL 1 Suppl. Mem. in Supp. of Charging Lien (“FOBL Suppl. Mem.”) 1 n.1, ECF No. 154. 2 C. Insurance Proceeds and Defense Costs 3 To date, Clear Blue has advanced $1,045,160.42 in fees and costs for Mr. Watson’s 4 defense in the E.D.N.Y. Criminal Action, which is set for trial in about three months. See Defs.’ 5 Mem. Re Charging Lien (“Defs.’ Mem.”) 1–2, ECF No. 140 (citing Decl. of Ronald S. Sullivan 6 (“Sullivan Decl.”) ¶¶ 16–17, ECF No. 127-5); id. at 6. A temporary stay on payments from Clear 7 Blue has been in effect since October 25, 2023, and expires on February 16, 2024. See ECF Nos. 8 120, 121, 130, 137, 144, 147, 150. Mr. Watson’s defense team has also submitted to Clear Blue— 9 but not yet received payment for—$556,393.16 in invoices for work undertaken in reliance of the 10 availability of insurance proceeds. See Sullivan Decl. ¶ 17. All but one of the outstanding bills 11 was invoiced before the Court entered the temporary stay; the last bill was issued on November 6, 12 2023 for services performed in October 2023. See Defs. Mem 1–2. 13 II. LEGAL STANDARD 14 New York law provides that an attorney “has a lien upon his or her client’s cause of action, 15 claim or counterclaim, which attaches to a verdict, report, determination, decision, award, 16 settlement, judgment or final order in his or her client's favor, and the proceeds thereof in 17 whatever hands they may come.” N.Y. Jud. Law § 475. This “charging lien was created by the 18 common-law courts as a device to protect an attorney by ‘disabling clients from receiving the 19 fruits of recoveries without paying for the valuable services by which the recoveries were 20 obtained.’” LMWT Realty Corp. v. Davis Agency, 649 N.E.2d 1183, 1187 (N.Y. 1995) (quoting 21 Goodrich v. McDonald, 112 N.Y. 157, 163 (N.Y. 1889)). “[A]lthough originating at common law 22 . . . [a charging lien] is equitable in nature.” Sutton v. N.Y.C. Transit Auth., 462 F.3d 157, 161 (2d 23 Cir. 2006) (internal citations omitted). Thus, “[a]bsent an express attorney-client agreement to the 24 contrary, the amount of a charging lien may be computed ‘on a quantum meruit basis, ascertaining 25 the reasonable value of the legal services rendered up to the date of’ counsel’s withdrawal or 26 discharge.” Margolies v. County of Putnum N.Y., No. 09 Civ.2061, 2011 WL 721698, at *1 27 (S.D.N.Y. Feb. 23, 2011) (quoting Sequa Corp. v. GBJ Corp., 156 F.3d 136, 148 (2d Cir. 1998)). 1 A trial court has discretion to determine the reasonable value of the services at issue. See 2 id. at *1 (citing Sequa Corp., 156 F.3d at 149). Relevant factors include “the difficulty of the 3 matter, the nature and extent of the services rendered, the time reasonably expended on those 4 services, the quality of performance by counsel, the qualifications of counsel, the amount at issue, 5 and the results obtained (to the extent known).” Sequa Corp., 156 F.3d at 148. Courts generally 6 award fees using the lodestar method, under which a reasonable hourly rate—i.e., the appropriate 7 market rate for counsel—is multiplied by the reasonable number of hours expended, as supported 8 by materials such as billing records and affidavits, to arrive at a presumptively reasonable fee. 9 See, e.g., Margolies, 2011 WL 721698, at *1; Arbor Hill Concerned Citizens Neighborhood Ass’n 10 v. County of Albany, 522 F.3d 182, 190 (2d Cir. 2008); see also, e.g., Moreno v.
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 CLEAR BLUE SPECIALTY INSURANCE Case No. 21-cv-08764-EJD COMPANY, 9 ORDER REGARDING DISTRIBUTION Plaintiff, OF INSURANCE PROCEEDS 10 v. 11 Re: ECF Nos. 108, 140, 141 OZY MEDIA, INC., et al., 12 Defendants.
13 On November 3, 2023, the Court granted Ford O’Brien Landy LLP’s (“Ford O’Brien” or 14 “FOBL”) motion to intervene in this action to enforce a charging lien under New York Judiciary 15 Law § 475 against the proceeds of the Directors & Officers Employment Practices Liability and 16 Fiduciary Liability Policy (“D&O Policy”) issued by Plaintiff Clear Blue Insurance Company 17 (“Clear Blue”) to Defendant Ozy Media Inc. (“Ozy Media” or the “Company”). See Order 18 Granting Mot. to Intervene (“Intervention Order”), ECF No. 121. The Court had previously 19 ordered Clear Blue to advance the insurance proceeds for Defendant Carlos Watson’s (“Mr. 20 Watson and, with the Company, “Defendants”) legal fees in a related criminal action. See Prelim. 21 Inj. Order, ECF No. 82. In the Intervention Order, the Court found Ford O’Brien to hold a valid 22 charging lien, but requested additional information from the parties prior to determining the 23 amount of the lien. See Intervention Order 15–17. Having received additional submissions from 24 Ford O’Brien and the parties, the Court now determines the value of Ford O’Brien’s charging lien. 25 I. BACKGROUND 26 A. Underlying Proceedings and Order to Advance Defense Costs 27 In recent years, Ozy Media has faced four parallel legal proceedings (the “Underlying 1 Proceedings”): (i) a criminal investigation by the U.S. Attorney’s Office for the Eastern District 2 of New York (the “E.D.N.Y. Criminal Action”); (ii) a civil enforcement investigation by the U.S. 3 Securities and Exchange Commission (the “SEC Investigation”); (iii) a civil securities fraud action 4 filed by an Ozy Media investor in the N.D. Cal. (LifeLine Legacy Holdings, LLC v. Ozy Media, et 5 al., No. 21-cv-07751-BLF, N.D. Cal.) (the “LifeLine Lawsuit”); and (iv) the present action. See 6 Intervention Order 1–2. Clear Blue initiated the present action on November 11, 2021, seeking to 7 rescind the D&O Policy based on material misrepresentations. See Compl., ECF No. 1. On July 8 12, 2022, Defendants moved for injunctive relief. See Mot. for Prelim. Inj., ECF No. 51. In an 9 order dated April 20, 2023 (the “Preliminary Injunction Order”), the Court granted injunctive 10 relief as to Mr. Watson only, and accordingly ordered Clear Blue to advance Mr. Watson’s 11 defense costs in the E.D.N.Y. Criminal Action. See Prelim. Inj. Order. The D&O Policy limit as 12 to Mr. Watson’s defense costs is $2,000,000. See Joint Status Report 4, ECF No. 129. 13 B. Work Performed by Ford O’Brien 14 Ford O’Brien, a New York law firm, represented Ozy Media in the Underlying 15 Proceedings from approximately October 25, 2021 until November 15, 2022. See Decl. of Kevin 16 O’Brien in Supp. of Mot. to Intervene (“O’Brien Intervention Decl.”) ¶ 5, ECF No. 108-1. The 17 retainer agreement between Ford O’Brien and Ozy Media is governed by New York law. See 18 Intervention Order 1. Ford O’Brien has $1,255,871.87 in unpaid invoices to Ozy Media for fees 19 and related expenses. See O’Brien Intervention Decl. ¶ 5; see also Joint Status Report 3, ECF No. 20 129; Decl. of Kevin J. O’Brien in Supp. of Charging Lien (“O’Brien Lien Decl.”), Exh. A 21 (“Verified N.Y. Compl.”) ¶¶ 17–39, ECF No. 141-1. Ford O’Brien has further calculated, to the 22 best of its ability in light of its practice of block billing, that the time value of the work performed 23 to acquire the benefit in this action—i.e., the advancement of defense costs from Clear Blue—is 24 $233,945. See FOBL Letter Brief 1, ECF No. 152. The time value of Ford O’Brien’s work as an 25 intervenor in this action was $227,410 as of January 16, 2024. See id. at 1–2. However, after 26 counsel for Defendants sent a substantive email to the Court without leave, see ECF No. 151, Ford 27 O’Brien spent an additional 29.8 hours valued at $26,550 in crafting its response. See FOBL 1 Suppl. Mem. in Supp. of Charging Lien (“FOBL Suppl. Mem.”) 1 n.1, ECF No. 154. 2 C. Insurance Proceeds and Defense Costs 3 To date, Clear Blue has advanced $1,045,160.42 in fees and costs for Mr. Watson’s 4 defense in the E.D.N.Y. Criminal Action, which is set for trial in about three months. See Defs.’ 5 Mem. Re Charging Lien (“Defs.’ Mem.”) 1–2, ECF No. 140 (citing Decl. of Ronald S. Sullivan 6 (“Sullivan Decl.”) ¶¶ 16–17, ECF No. 127-5); id. at 6. A temporary stay on payments from Clear 7 Blue has been in effect since October 25, 2023, and expires on February 16, 2024. See ECF Nos. 8 120, 121, 130, 137, 144, 147, 150. Mr. Watson’s defense team has also submitted to Clear Blue— 9 but not yet received payment for—$556,393.16 in invoices for work undertaken in reliance of the 10 availability of insurance proceeds. See Sullivan Decl. ¶ 17. All but one of the outstanding bills 11 was invoiced before the Court entered the temporary stay; the last bill was issued on November 6, 12 2023 for services performed in October 2023. See Defs. Mem 1–2. 13 II. LEGAL STANDARD 14 New York law provides that an attorney “has a lien upon his or her client’s cause of action, 15 claim or counterclaim, which attaches to a verdict, report, determination, decision, award, 16 settlement, judgment or final order in his or her client's favor, and the proceeds thereof in 17 whatever hands they may come.” N.Y. Jud. Law § 475. This “charging lien was created by the 18 common-law courts as a device to protect an attorney by ‘disabling clients from receiving the 19 fruits of recoveries without paying for the valuable services by which the recoveries were 20 obtained.’” LMWT Realty Corp. v. Davis Agency, 649 N.E.2d 1183, 1187 (N.Y. 1995) (quoting 21 Goodrich v. McDonald, 112 N.Y. 157, 163 (N.Y. 1889)). “[A]lthough originating at common law 22 . . . [a charging lien] is equitable in nature.” Sutton v. N.Y.C. Transit Auth., 462 F.3d 157, 161 (2d 23 Cir. 2006) (internal citations omitted). Thus, “[a]bsent an express attorney-client agreement to the 24 contrary, the amount of a charging lien may be computed ‘on a quantum meruit basis, ascertaining 25 the reasonable value of the legal services rendered up to the date of’ counsel’s withdrawal or 26 discharge.” Margolies v. County of Putnum N.Y., No. 09 Civ.2061, 2011 WL 721698, at *1 27 (S.D.N.Y. Feb. 23, 2011) (quoting Sequa Corp. v. GBJ Corp., 156 F.3d 136, 148 (2d Cir. 1998)). 1 A trial court has discretion to determine the reasonable value of the services at issue. See 2 id. at *1 (citing Sequa Corp., 156 F.3d at 149). Relevant factors include “the difficulty of the 3 matter, the nature and extent of the services rendered, the time reasonably expended on those 4 services, the quality of performance by counsel, the qualifications of counsel, the amount at issue, 5 and the results obtained (to the extent known).” Sequa Corp., 156 F.3d at 148. Courts generally 6 award fees using the lodestar method, under which a reasonable hourly rate—i.e., the appropriate 7 market rate for counsel—is multiplied by the reasonable number of hours expended, as supported 8 by materials such as billing records and affidavits, to arrive at a presumptively reasonable fee. 9 See, e.g., Margolies, 2011 WL 721698, at *1; Arbor Hill Concerned Citizens Neighborhood Ass’n 10 v. County of Albany, 522 F.3d 182, 190 (2d Cir. 2008); see also, e.g., Moreno v. City of 11 Sacramento, 534 F.3d 1106, 1111 (9th Cir. 2008). However, “the overriding criterion for 12 determining the amount of a charging lien is that it be fair.” Sutton, 462 F.3d at 161 (internal 13 quotation marks and citation omitted). 14 III. DISCUSSION 15 Ford O’Brien argues that it is entitled to a charging lien in the full amount it is owed by 16 Ozy Media1—although it is “willing to forego 24% of its total fees and expenses and seek 17 recovery only from the undistributed balance of the [] D&O Policy”—as well as an award for the 18 fees it has spent on its intervention efforts in this action. FOBL Mem. in Supp. of Charging Lien 19 (“FOBL Mem.”) 1, ECF No. 141; see also FOBL Suppl. Mem. 3. Ford O’Brien argues that the 20 charging lien should include the value of its services in all four Underlying Proceedings because 21 each of the Underlying Proceedings should be considered “as aspects of the same ‘cause of 22 action,’” and the New York Court of Appeals has recognized that a recovery on a cause of action 23 may arise “in an action different from the one in which the services were rendered.” FOBL Mem. 24 2 (quoting Cohen v. Grainger, Tesoriero & Bell, 622 N.E.2d 288, 289 (N.Y. 1993) (citations 25 omitted)). Defendants counter that § 475 does not apply to the D&O Policy proceeds because the 26
27 1 The Court previously found that Ford O’Brien has “appeared” for Mr. Watson for the purposes of the charging lien statute. See Intervention Order 15–17. 1 preliminary injunction requiring Clear Blue to advance defense costs is not a final determination, 2 so that Mr. Watson may eventually have to return the disbursements to Clear Blue; that the 3 amounts invoiced to Clear Blue but not yet paid should not be considered available to Ford 4 O’Brien; that Ford O’Brien is at most entitled to the quantum meruit value of its services in 5 connection with its services in this action; and that the interests of equity require that the limited 6 insurance funds be advanced towards Mr. Watson’s criminal defense. See Defs.’ Mem. 3–8. 7 A. Applicability of § 475 8 Turning first to Defendants’ threshold argument that § 475 does not apply to the D&O 9 Policy proceeds paid pursuant to the Preliminary Injunction Order because the order was not 10 sufficiently final, see Defs.’ Mem. 3–4, the Court notes that this argument concerns the existence 11 of the charging lien, rather than the subject of the Court’s request for the briefing, which was the 12 value of such a lien, see ECF No. 137. The Court has already found, following briefing—where 13 the issue of finality was raised, see ECF No. 111, at 4—and oral argument, that Ford O’Brien has 14 an enforceable charging lien on the advanced defense funds. See Intervention Order. The Court 15 thus finds that Defendants’ finality argument is in essence a motion for the Court to reconsider its 16 order finding the existence of a charging lien. A motion for reconsideration may not be filed 17 without leave, and requires a showing of “reasonable diligence in bringing the motion” and one of 18 three grounds for reconsideration. See Civ. L.R. 7-9(a)–(b). Defendants have not requested leave 19 to file this argument for reconsideration, and—given that they previously requested leave to file a 20 motion for reconsideration that did not raise the present finality argument, see ECF No. 127-1— 21 have not shown reasonable diligence in bringing the motion; nor have they shown that any of the 22 three grounds for reconsideration apply here. The Court accordingly denies Defendants’ implicit 23 motion for reconsideration and does not consider the finality argument to be properly raised. 24 B. Relevant Work Performed by Ford O’Brien 25 The Court next considers the scope of work performed by Ford O’Brien that should inform 26 the value of the charging lien. Ford O’Brien argues that the Underlying Proceedings constitute a 27 single cause of action, so that its charging lien on the D&O Policy proceeds in this action should 1 be valued by considering all of the work Ford O’Brien has performed throughout the Underlying 2 Proceedings. See FOBL Mem. 2. Defendants counter that Ford O’Brien cannot recover “the full 3 face amount of its bills to Ozy Media” because the relevant quantum meruit value of Ford 4 O’Brien’s services is limited to the work leading to the recovery to which the lien attaches, i.e., the 5 advance payment of the insurance proceeds. See Defs.’ Mem. 4–5. 6 A charging lien is intended to ensure attorneys are paid for their services in obtaining a 7 recovery for a client based on a client’s “cause of action, claim or counterclaim.” N.Y. Jud. § 475; 8 see LMWT Realty Corp., 649 N.E.2d at 1187 (The “charging lien was created . . . to protect an 9 attorney by ‘disabling clients from receiving the fruits of recoveries without paying for the 10 valuable services by which the recoveries were obtained.’”) (citation omitted). As the Court has 11 previously noted, the recovery at issue here is Clear Blue’s advancement of defense costs to Mr. 12 Watson pursuant to the D&O Policy. See Intervention Order 17. Accordingly, the charging lien 13 here is intended to ensure Ford O’Brien is paid for its services related to Mr. Watson’s receipt of 14 the advanced funds for defense costs, rather than all of Ford O’Brien’s outstanding bills. See First 15 Nat. Bank & Tr. Co. of Ellenville v. Hyman Novick Realty Corp., 72 A.D.2d 858, 859 (3d Dep’t 16 1979) (“[T]he statutory lien does not cover all the services rendered by respondent . . ., but only 17 those services which produced the [recovered] funds.”). The Court will therefore consider only 18 Ford O’Brien’s work in this action in furtherance of obtaining the Preliminary Injunction Order 19 requiring Clear Blue’s advancement of defense costs to Mr. Watson. 20 Pursuant to the invoice records provided by Ford O’Brien, its “billings specific to the work 21 completed to acquire the benefit in this matter, that is, the advancement of defense costs from 22 Clear Blue Specialty Insurance Company to [Mr.] Watson” have a time value of $233,945. See 23 FOBL Letter Brief 1. The Court need not and does not consider Defendants’ argument that their 24 submitted but unpaid invoices should be excluded from the potential funds available for Ford 25 O’Brien’s recovery, as Defendants’ proposal would leave $398,446.42 in insurance proceeds, 26 which is greater than the time value of Ford O’Brien’s work spent on obtaining the recovery. 27 The Court has reviewed Ford O’Brien’s billing statements, which Ford O’Brien has 1 submitted as invoices with highlighted entries relevant to the work performed to acquire the 2 || recovery for Mr. Watson. See ECF No. 153-2. In considering the importance of the funds 3 || obtained for Mr. Watson’s defense, the complexity and urgency of the preliminary injunction at 4 || issue, the quality of performance by counsel in obtaining the results, and the $2,000,000 recovery, 5 the Court finds the requested $233,945 to be a reasonable value for the services at issue. 6 C. —_ Remaining Equities 7 Defendants argue that the entirety of the remaining insurance proceeds should be paid to 8 Defendants’ counsel for their work defending Mr. Watson in the E.D.N.Y. Criminal Action. See 9 Defs.’ Mem. 6-8. The Court acknowledges the importance of the work performed in advance of 10 || trial, but finds that the equities demand that Ford O’Brien receive the benefit of its work 11 performed in obtaining these funds for Mr. Watson. 12 The Court will additionally award Ford O’Brien the value of its work performed in 13 response to the unrequested and inappropriately submitted email argument following the Court’s 14 || request for billing statements from Ford O’Brien. See ECF No. 151. Ford O’Brien spent 29.8 3 15 hours crafting its response to the email, with a time value of $26,550. See FOBL Suppl. Mem. 1 a 16 || n.1. The Court accordingly finds that the total value of Ford O’Brien’s charging lien is the sum of 3 17 || $233,945 and $26,550, which equals $260,495. 18 IV. ORDER 19 For the foregoing reasons, the Court hereby ORDERS as follows: 20 1. The value of Ford O’Brien’s charging lien on the insurance proceeds paid by Clear 21 Blue for Mr. Watson’s defense is $260,495. 22 2. Clear Blue shall distribute to $260,495 of the proceeds from the D&O Policy to 23 Ford O’Brien. 24 IT IS SO ORDERED. 25 Dated: February 16, 2024 26 □□□ EDWARD J. DAVILA 27 United States District Judge 28 || Case No.: 21-cv-08764-EJD ORDER RE DISTRIBUTION OF INSURANCE PROCEEDS