Morris v. Scenera Research, LLC, 2016 NCBC 99.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 09 CVS 19678
ROBERT PAUL MORRIS, ) ) Plaintiff, ) ) v. ) ORDER AND OPINION ON ) REQUEST FOR ATTORNEYS’ SCENERA RESEARCH, LLC and ) FEES RYAN C. FRY, ) ) Defendants. ) )
1. THIS MATTER is now before the Court on Plaintiff’s four motions for
attorneys’ fees (collectively the “Motions”). After reviewing the record, briefs, and
authorities cited, and hearing arguments of counsel, the Court concludes that while
there may be a factual basis to apportion prejudgment attorneys’ fees, Plaintiff is
entitled to recover all such fees, unless Defendants can demonstrate a factual basis
for finding that some prejudgment fees can be allocated to tasks that did not directly
benefit the litigation of the claims upon which Plaintiff was successful and that were
not directed toward developing or presenting a factual record that serves as the
common nucleus for all claims. The Court further concludes that there is a clear basis
for apportioning attorneys’ fees incurred in connection with postjudgment appeals
based on a closed factual record, and that Plaintiff should recover attorneys’ fees
incurred on appeal in defending the portion of the judgment regarding claims on
which he prevailed, but not those incurred in attacking the portion of the judgment
on which he did not prevail. Finally, the Court concludes that, in order to meet their burden, Defendants are entitled to review Plaintiff’s underlying billing records,
redacted as necessary to protect privileges, and that further submissions are required
upon which the Court can make its final award of attorneys’ fees consistent with the
mandate of the North Carolina Court of Appeals.
Young Moore and Henderson, P.A., by Walter E. Brock, Jr. and Andrew P. Flynt, for Plaintiff.
Parker Poe Adams & Bernstein LLP, by Catharine B. Arrowood and Scott E. Bayzle, for Defendants.
Gale, Chief Judge.
I. THE MATTER BEFORE THE COURT
2. A complete background of the claims, counterclaims, and defenses in
this action is available in the several published opinions issued during the course of
this litigation. See, e.g., Morris v. Scenera Research, LLC, No. 09-CVS-19678, 2012
NCBC LEXIS 29 (N.C. Super. Ct. May 14, 2012), aff’d in part and rev’d in part, 229
N.C. App. 31, 747 S.E.2d 362 (2013), aff’d in part and rev’d in part, 368 N.C. 857, 788
S.E.2d 154 (2016); Morris v. Scenera Research, LLC, No. 09-CVS-19678, 2012 NCBC
LEXIS 1 (N.C. Super. Ct. Jan. 4, 2012). The only remaining matter is Plaintiff’s
request for an award of attorneys’ fees. There are four pending motions requesting
recovery of fees incurred through efforts litigating the action through judgment
following a jury trial and efforts on appellate proceedings before both the North
Carolina Court of Appeals and the North Carolina Supreme Court.
3. First, Plaintiff’s Motion for Supplemental Relief, which was filed on
March 7, 2012, and supplemented on April 18, 2012, and on May 10, 2012, seeks an award in the amount of $819,752.41 for fees incurred through April 30, 2012. The
Court ruled on this motion in its Judgment entered on May 14, 2012, awarding
attorneys’ fees in the amount of $450,000. See Morris, 2012 NCBC LEXIS 29, at *33.
The Court reduced the amount requested because Plaintiff succeeded on some claims
but not others. On appeal, the Court of Appeals held that this Court did not make
adequate findings in its Judgment to support apportioning attorneys’ fees among
Plaintiff’s successful and unsuccessful claims, and remanded the matter for further
consideration.
4. Second, Plaintiff’s Motion for Attorneys’ Fees Incurred After Entry of
Judgment, filed on July 19, 2012, seeks an award in the amount of $29,049.56 for fees
incurred between May 1, 2012, and June 30, 2012, prior to the appeals. On
September 14, 2012, the Court issued an order explaining that it could not consider
this motion while the case was on appeal.
5. Third, Plaintiff’s Motion for Attorneys’ Fees and Expenses Incurred on
Appeal to the North Carolina Court of Appeals, filed in this Court on June 28, 2016,
seeks an award of fees in the amount of $133,027.16 in connection with the appeal to
the North Carolina Court of Appeals in the period between July 1, 2012, and
September 5, 2013. This motion was filed after the Court of Appeals denied without
prejudice an earlier motion for costs on September 11, 2013, reserving Plaintiff’s right
to seek such fees from this Court.
6. Fourth, Plaintiff-Appellee/Cross-Appellant’s Motion for Attorneys’ Fees
Incurred on Appeal seeks an award in the amount of $163,101.83 for fees incurred between September 6, 2013, and May 19, 2015, related to the proceedings before the
Supreme Court. This motion was originally filed with the North Carolina Supreme
Court. On June 30, 2016, the Supreme Court remanded the motion to this Court for
7. Now that the Court’s Judgment has been affirmed in all respects except
for the issue of attorneys’ fees, Plaintiff’s Motions are ripe for the Court’s
consideration upon remand from the North Carolina Court of Appeals.
II. PROCEDURAL HISTORY
8. The dispute arises out of Plaintiff Robert Paul Morris’s prior
employment with Defendant Scenera Research, LLC (“Scenera”), where his duties
included work that led to the filing of multiple patent applications on which Morris
was listed as an inventor. Defendant Ryan C. Fry is Scenera’s CEO.
9. Scenera implemented a bonus program pursuant to which
employee-inventors were paid a bonus when a patent application for which they were
an inventor was filed, and an additional bonus when a patent based on that
application was issued. Defendants contended, and Plaintiff denied, that Scenera
terminated that bonus program effective year-end 2007. Plaintiff’s employment
ended in July 2009, at which time he contended that Scenera owed him unpaid
bonuses totaling $210,000. Prior to the litigation, Scenera, while denying liability,
tendered to Plaintiff the $210,000 for contested accrued unpaid bonuses, but
conditioned that tender on Plaintiff’s acknowledging that Scenera owned all the
disputed patents and patent applications. Plaintiff did not accept the tender. 10. Plaintiff contended, and Defendants denied, that Plaintiff was
terminated in retaliation for asserting his right to receive bonuses for the period after
January 1, 2008. Thereafter, the parties’ dispute extended to whether the bonus
program, even if deemed to remain in place as to Plaintiff, required that an employee
be employed at the time a patent issued to be entitled to receive a patent-issuance
bonus. As the dispute continued, Plaintiff contended that, because Scenera refused
to pay the bonus wages, he was entitled both to refuse to assign invention rights to
Scenera for inventions made in the course of his employment and to rescind prior
assignments.
11. Scenera was the first to initiate litigation. On September 17, 2009, it
initiated a federal court action asking for, among other things, a declaratory
judgment that because the inventions arose during the course of and within the
scope of Plaintiff’s employment, Scenera owned the various patents and patent
applications. See Scenera Research, LLC v. Morris, Nos. 5:09-CV-412-FL, 5:09-CV-
439-FL, 2011 U.S. Dist. LEXIS 14601, at *1–2 (E.D.N.C. Feb. 14, 2011).
12. After Scenera filed the federal court action, Plaintiff filed this state
court action on September 25, 2009, which Scenera removed to federal court. See
id. Plaintiff presented a claim for bonus compensation pursuant to the North
Carolina Wage and Hour Act (“WHA”), and a claim under the North Carolina
Retaliatory Employment Discrimination Act (“REDA”). The REDA claim asserted
that Plaintiff was terminated in retaliation for pursuing his wage claim. Plaintiff
also alleged claims of fraudulent inducement, unjust enrichment, and breach of contract, based on essentially the same facts, contending that Plaintiff had earlier
agreed to withdraw his demand for bonus compensation upon Scenera’s assertion
that an alternative favorable compensation agreement would be offered. Scenera
defended on the basis that the bonus program had been effectively terminated and
that Plaintiff was not terminated but instead had voluntarily resigned.
13. Discovery proceeded in the federal actions. After expiration of the
discovery period, on February 14, 2011, the United States District Court for the
Eastern District of North Carolina dismissed Scenera’s initial action for lack of
subject matter jurisdiction, and Plaintiff’s action was remanded to the Wake
County Superior Court. Id. at *19. Scenera then recast the claims presented in its
federal action as amended counterclaims in Plaintiff’s remanded action, seeking a
declaration that Scenera owns all intellectual property resulting from Plaintiff’s
employment, that Scenera owed Plaintiff no bonuses, and that Plaintiff was liable
to Scenera for damages because of his failure to fulfill his fiduciary duties to support
Scenera’s patent prosecutions. Defendants filed a notice of designation on March
31, 2011. The case was designated a mandatory complex business case on April 1,
2011, and assigned to the undersigned on April 6, 2011.
14. There was substantial motion practice in this Court before trial. The
Court was first required to resolve discovery disputes that had been presented in
federal court but were not ruled on before the case was remanded. See Morris v.
Scenera Research, LLC, No. 09-CVS-19678, 2011 NCBC LEXIS 34 (N.C. Super. Ct.
Aug. 26, 2011). Later, the Court narrowed the issues for trial by partially granting summary judgment in favor of Defendants and dismissing Plaintiff’s claims of
fraudulent inducement and unjust enrichment, primarily on the basis that those
claims were duplicative of his other claims. Morris, 2012 NCBC LEXIS 1, at *35.
The Court also determined that Scenera would succeed on its claim that it was the
exclusive owner of inventions made during Plaintiff’s employment pursuant to the
hired-to-invent doctrine, unless Plaintiff could present evidence at trial that he and
Scenera had entered into an employment agreement that made the hired-to-invent
doctrine inapplicable. Id. at *12–13, *25–26. Before trial, Scenera dismissed its
claim that Plaintiff had breached his fiduciary duty, but maintained its damages
counterclaim.
15. The case was called for jury trial on January 30, 2012. At the
conclusion of the trial, the Court submitted ten issues reflecting the various claims
and defenses to the jury. Before submitting those issues to the jury, at the close of
the evidence, the Court granted Scenera’s motion for a directed verdict on the issue
of patent ownership, finding that Plaintiff had failed to present evidence of any
express agreement that would take his employment outside of the hired-to-invent
doctrine, and that as a result, that doctrine vested exclusive ownership in Scenera
for inventions made in the course of Plaintiff’s employment.
16. The Court denied Scenera’s further motion for a directed verdict on
Plaintiff’s WHA and REDA claims. Throughout trial, Scenera maintained its
defenses against Plaintiff’s bonus claims, contending that: (1) Plaintiff had
consented to terminate the bonus program effective December 31, 2007, (2) alternatively, Scenera had terminated the bonus program effective December 31,
2007, and (3) even if the bonus program remained in place, Plaintiff had not earned
the right to any bonus for a subsequently issued patent, because the bonus program
required him to be employed when the patent issued. Scenera further contended
that potential bonuses for patents not yet issued were not calculable and therefore
were not recoverable as wages under the controlling definitions in the WHA.
Finally, Scenera claimed that any recovery that Plaintiff might obtain should be
discounted because of his failure to mitigate damages by seeking alternative
employment.
17. Plaintiff’s evidence was that, as of the date of trial, he was owed
$210,000 in unpaid bonuses, with $145,000 of that amount having accrued prior to
January 1, 2008. Plaintiff further asserted that his right to patent-issuance
bonuses had vested at the time the patent application was filed, that
patent-issuance bonuses were not conditioned on continued employment and had
been paid to other employees after their employment terminated, and that future
issuance bonuses could be calculated based on a formula derived from Scenera’s
historical patent-issuance success. Plaintiff offered a formula that multiplies the
number of patent-pending applications for which he was an inventor—150—times
Scenera’s historical patent-issuance success rate—90%—times $5,000, yielding a
total of $675,000 (150 pending applications x 90% x $5,000).
18. The jury found for Plaintiff on all ten issues presented to it. On the
WHA claims, the jury found that Plaintiff was entitled to $210,000 for bonuses that accrued while he was employed at Scenera, and $675,000 for future patents that
might issue based on the 150 pending applications for which Plaintiff was listed as
an inventor, accepting the formula that he presented. The jury further found that
Plaintiff had not resigned, but that Scenera had terminated him, and that such
termination was retaliatory. On the REDA claim, the jury awarded Plaintiff
$540,000 because of the retaliatory discharge but found that this amount should be
reduced by $150,000 for a failure to mitigate, yielding a net REDA award of
$380,000. The jury found against Defendants on their counterclaim.
19. In sum, at the conclusion of trial, Plaintiff had prevailed on all
bonus-related claims, including the retaliatory-discharge claim, and Scenera had
prevailed on the issue of patent ownership, which effectively precluded Plaintiff
from successfully asserting that he had the right to refuse to assign or to rescind
prior assignments for inventions made in the course of his employment. However,
after trial, Plaintiff continued to argue that he had an election of remedies and
could elect between payment of unpaid bonuses or his ownership rights to
inventions by either not assigning those patents that had yet to be assigned to
Scenera, or by rescinding his prior assignments.
20. Based on the jury verdict, Plaintiff requested supplemental relief
under both the WHA and the REDA. He requested interest and liquidated
penalties on his WHA claim pursuant to N.C. Gen. Stat. § 95-25.22(a1) (2015),
which provides that such penalties can be avoided upon an employer’s
demonstration that it acted in good faith. The Court awarded Plaintiff interest and a liquidated penalty on the $210,000 WHA award for bonuses earned during his
employment, but not on the $675,000 WHA award for the future bonuses, upon
finding that Scenera acted in good faith when contesting future patent-issuance
bonuses. Plaintiff requested that his net REDA recovery be trebled because
Defendants had acted willfully. The Court denied the request for treble damages
upon finding that the termination was not willful.
21. Plaintiff also requested attorneys’ fees pursuant to
sections 95-25.22(d) and 95-243(c), seeking a total fee award of $819,752.41. The
Court concluded, in its discretion, that the total fees requested arose both from
claims on which Plaintiff had succeeded and those on which he had not, and that
any award should be reduced accordingly. Before making its final determination,
the Court reviewed the governing statutes and opinions of the North Carolina Court
of Appeals, including Whiteside Estates, Inc. v. Highlands Cove, LLC, 146 N.C.
App. 449, 553 S.E.2d 431 (2001) and Hamilton v. Memorex Telex Corp., 118 N.C.
App. 1, 454 S.E.2d 278 (1995). Based on its review, the Court concluded that it had
discretion under the controlling law to determine first, whether to award attorneys’
fees, and assuming it decided to do so, that it then had discretion to determine
whether to allocate fees incurred among successful and unsuccessful claims.
22. The Court entered judgment on May 14, 2012, awarding Plaintiff the
right to recover the monetary damages described above, declaring Scenera the
owner of all the intellectual property in dispute, and ordering Plaintiff to complete
assignments of all relevant patent inventions to Scenera, effectively rejecting Plaintiff’s claim that he was entitled to elect between accepting payment of monies
awarded to him or rescinding prior patent applications that he had executed and
not executing other applications. Without making specific findings as to what
efforts had been directed to what claims, the Court, in its discretion, awarded
Plaintiff $450,000 in attorneys’ fees. The Judgment became final when the Court
denied Defendants’ motion for judgment notwithstanding the verdict on June 27,
2012.
23. Defendants appealed on July 11, 2012. On July 19, 2012, Plaintiff
filed his notice of cross-appeal with the North Carolina Court of Appeals and filed
with this Court a motion seeking attorneys’ fees for the period between May 1, 2012,
and July 11, 2012. On August 20, 2013, the North Carolina Court of Appeals issued
a fifty-five page opinion, reciting its belief that several issues presented on appeal
were matters of first impression in North Carolina. Morris, 229 N.C. App. at 44,
747 S.E.2d at 370.
24. Defendants first challenged Plaintiff’s recovery under both the WHA
and the REDA. Defendants eventually abandoned their appeal of the REDA claim
but continued their challenge to the award of liquidated damages for the $210,000
in bonuses, which the jury determined had accrued before trial, and the award of
$675,000 for future issuance bonuses for patents that had not been issued at the
time Plaintiff’s employment had terminated. The Court of Appeals found no error.
Id. at 40, 747 S.E.2d at 368. 25. Through his cross-appeal, Plaintiff presented five assignments of
error. The first assignment challenged the denial of liquidated damages under the
WHA on the jury award of $675,000 for bonuses for future patents. Id. at 48, 747
S.E.2d at 373. The second assignment challenged the denial of treble damages for
the REDA award. Id. The Court of Appeals found that the first two assignments
were without merit. Id. at 50, 56, 747 S.E.2d at 374, 377. Plaintiff’s third
assignment of error challenged the Court’s reduction of attorneys’ fees based on
Plaintiff succeeding on some claims but not on others. Id. at 48, 747 S.E.2d at 373.
The Court of Appeals adopted some of Plaintiff’s contentions, but remanded the
issue of attorneys’ fees to this Court for further consideration in light of the Court
of Appeals’ opinion. Id. at 59, 747 S.E.2d at 379. Plaintiff’s fourth and fifth
assignments of error challenged this Court’s Judgment that required him to assign
all invention rights to Scenera. Id. at 48, 747 S.E.2d at 373. Plaintiff maintained
his argument that he could elect between remedies of accepting payment for monies
owed to him or obtaining rights to pursue patent applications on inventions made
during the course of his employment. Id. at 59, 747 S.E.2d at 379. The Court of
Appeals held that Plaintiff should have an election of remedies but did not
otherwise discuss how the hired-to-invent doctrine should be applied in this case.
Id. at 62, 747 S.E.2d at 381.
26. Defendants then sought discretionary review of the Court of Appeals’
opinion by the North Carolina Supreme Court on three issues: (1) whether this
Court erred by denying Defendants’ motions for a directed verdict and JNOV, (2) whether Plaintiff must be foreclosed from any election of remedies because he has
no ownership rights in his inventions based on the hired-to-invent doctrine, and (3)
whether Plaintiff could recover issuance bonuses on patents that had not issued at
the time his employment terminated. Morris, 368 N.C. at 861–62, 867, 788 S.E.2d
at 157–58, 161. After the Supreme Court accepted the case for discretionary review,
Plaintiff requested that the Supreme Court additionally review the Court of
Appeals’ holding that this Court had properly rejected liquidated damages on a
portion of Plaintiff’s WHA recovery and his claim for trebling his net REDA
recovery. Id. at 864–65, 788 S.E.2d at 159–160.
27. Ultimately, the North Carolina Supreme Court considered five issues.
Defendants were unsuccessful on their challenge to this Court’s denial of their
motions for a directed verdict and JNOV on Plaintiff’s WHA and REDA claims. Id.
at 862, 788 S.E.2d at 158. Although the Supreme Court did not squarely address
application of the hired-to-invent doctrine to the facts of this case, Defendants
succeeded on the issues related to Scenera’s ownership of the disputed intellectual
property, and the Supreme Court rejected Plaintiff’s assertion that he had the right
to elect between remedies. Id. at 868, 788 S.E.2d at 162. Plaintiff successfully
defended his right to recover issuance bonuses for patents that had not issued at
the time he was terminated. Id. at 864, 788 S.E.2d at 159. Plaintiff was
unsuccessful on his challenge to this Court’s refusal to award liquidated damages
under the WHA or treble damages under the REDA. Id. at 865, 867, 788 S.E.2d at
160–61. 28. Ultimately, every aspect of this Court’s Judgment was affirmed except
for the award of attorneys’ fees, which was reviewed by the Court of Appeals but
not by the Supreme Court. The Court is now required, in conformity with the Court
of Appeals’ mandate, to revisit the award of attorneys’ fees incurred prior to
judgment, and further, to consider, for the first time, Plaintiff’s additional claims
for attorneys’ fees incurred during the appellate proceedings.
III. ANALYSIS
A. The Applicable Legal Standard
29. Plaintiff succeeded on statutory claims that allow for the recovery of
attorneys’ fees. The statute that governs actions under the WHA provides that “[t]he
court, in any action brought under this Article may, in addition to any judgment
awarded plaintiff, order costs and fees of the action and reasonable attorneys’ fees to
be paid by the defendant.” N.C. Gen. Stat. § 95-25.22(d). The statute does not require
a showing of bad faith. Fulk v. Piedmont Music Ctr., 138 N.C. App. 425, 435, 531
S.E.2d 476, 482 (2000). The statute that governs actions under the REDA similarly
provides that “[t]he court may award to the plaintiff and assess against the defendant
the reasonable costs and expenses, including attorneys’ fees, of the plaintiff in
bringing an action pursuant to this section.” N.C. Gen. Stat. § 95-243(c). Whereas
an award of treble damages under the REDA requires a finding that the employer’s
act was willful, no such finding is required for the award of attorneys’ fees. Id.
30. When entering judgment, this Court determined that it was appropriate
to grant Plaintiff only a portion of the requested attorneys’ fees because Plaintiff had prevailed on some claims but not on others. First, the Court read the terms of the
governing statutes to make the award of fees discretionary, because the statutes
stated that the Court “may” award rather than “shall” award. Id.
§§ 95-25.22(d),-243(c). Second, the Court consulted opinions of the Court of Appeals
that address cases where a plaintiff presented a mixture of claims that warranted
attorneys’ fees and claims that did not, as well as cases where a plaintiff was only
partially successful on claims presented. See Morris, 2012 NCBC LEXIS 29, at *30–
31 (first citing Whiteside Estates, 146 N.C. App. at 467–68, 553 S.E.2d at 443; then
citing Hamilton, 118 N.C. App. at 16–17, 454 S.E.2d at 286). The Court read this
precedent to provide that, while the Court is not required to apportion fees among
successful and unsuccessful claims, it has the discretion to do so.
31. The Court of Appeals apparently read this precedent more narrowly and
in a manner that more restrictively constrains the Court’s exercise of discretion.
While the Court of Appeals determined, in part, that this Court had not made
adequate findings of fact to demonstrate the basis for its award, the Court of Appeals
further adopted Plaintiff’s contention that the Court has no discretion to allocate fees
among claims absent express findings that the unsuccessful claims did not arise from
a common nucleus of operative fact upon which the successful claims were based.
Specifically, the Court of Appeals stated as follows:
On appeal, Morris argues that the business court erred by allocating among legal claims—and thereby reducing his award of attorneys’ fees—because (1) claims that arise from a common nucleus of operative facts should not be allocated; (2) the business court “failed to make any findings of fact or offer any conclusions of law on whether Morris’s claims and Defendants’ counterclaims [arose] from a common nucleus of operative fact[]”; and (3) the parties’ claims did, in fact, arise from a common nucleus of operative fact. We agree with Morris’s first two arguments and refrain from addressing the third.
229 N.C. App. at 56, 747 S.E.2d at 377–78 (alterations in original) (emphasis added)
(quoting Brief for Plaintiff/Cross-Appellant at 22–23, Morris, 229 N.C. App. 31, 747
S.E.2d 362 (No. COA12-1481)).
32. When focusing on the question whether all claims shared a common
nucleus of operative fact, the Court of Appeals relied on and quoted the following
language from the opinion of the United States Supreme Court in Hensley v.
Eckerhart:
Where the plaintiff has failed to prevail on a claim that is distinct in all respects from his successful claims, the hours spent on the unsuccessful claim should be excluded in considering the amount of a reasonable fee. Where a lawsuit consists of related claims, a plaintiff who has won substantial relief should not have his attorney[s]’ fee reduced simply because the district court did not adopt each contention raised. But where the plaintiff achieved only limited success, the district court should award only that amount of fees that is reasonable in relation to the results obtained.
461 U.S. 424, 440 (1983).
33. This Court was aware of Hensley when it entered its Judgment, and
read the holding in Hensley to reserve discretion to the trial court to assess the
reasonable relationship between the amount of fees requested and the final results
that Plaintiff achieved. Likewise, earlier opinions of our Court of Appeals expressly
referred to the trial court’s discretion. See, e.g., Okwara v. Dillard Dep’t Stores, Inc.,
136 N.C. App. 587, 595, 525 S.E.2d 481, 487 (2000) (stating that the determination of whether claims are inextricably interwoven “is left largely to the discretion of the
trial courts”).
34. The Court now reads the controlling mandate of the Court of Appeals in
this matter to be less tolerant of the notion that the Court can reduce the fee award
based on its discretionary balancing of the reasonableness of the amount of fees
requested and the success that Plaintiff achieved. Rather the Court of Appeals’
mandate now demands that this Court must make specific fact findings
distinguishing between efforts on successful claims and unsuccessful claims if it
wishes to reduce Plaintiff’s prejudgment attorneys’ fees award. More specifically, the
Court of Appeals appears to hold that Plaintiff must be awarded his prejudgment fees
unless the Court can find as a fact that efforts on which the fee request is based were
not incurred in developing a common nucleus of operative fact upon which all
Plaintiff’s claims were based.
B. The Process for Measuring “a Common Nucleus of Operative Fact”
35. There is little North Carolina appellate guidance on what constitutes a
common nucleus of operative fact. The Court has not found a comprehensive
definition of the term. Cases have held that claims may arise from a common nucleus
of operative fact even though they have different and distinct claim elements. See
Philips v. Pitt Cty. Mem’l Hosp., Inc., ___ N.C. App. ___, 775 S.E.2d 882, 884–85
(affirming the trial court’s finding that the punitive damages claim arose from a
“common legal and factual nucleus” even though it “did not share [certain elements]
with the underlying claims”), disc. review denied, 368 N.C. 434, 778 S.E.2d 84 (2015). Cases also suggest that a common nucleus of operative fact includes something more
than just a shared potential relevance, and instead exists when the claims are based
on facts that are “inextricably interwoven.” Okwara, 136 N.C. App. at 596, 525 S.E.2d
at 487 (2000); see also, Hensley, 461 U.S. at 436 (explaining that just because claims
are “interrelated” does not mean that they are inextricably interwoven).
36. Claims are inextricably interwoven when they “are so similar” that
“time spent litigating the [successful] claim directly benefitted ” the litigation of the
other claim, Hamilton, 118 N.C. App. at 17, 454 S.E.2d at 286 (emphasis added), or
when the “lawsuit cannot be viewed as a series of discrete claims” because “[m]uch of
counsel’s time will be devoted generally to the litigation as a whole, making it difficult
to divide the hours expended on a claim-by-claim basis,” Hensley, 461 U.S. at 435.
37. The Court discerns that there is both a policy issue and a practical issue
at play in these decisions. As a matter of policy, a successful plaintiff should not
suffer a reduced fee award based solely on some “arbitrary classification of attorney
activity.” Whiteside Estates, Inc., 146 N.C. App. at 467, 553 S.E.2d at 443 (quoting
Coastal Prod. Credit Ass’n v. Goodson Farms, Inc., 70 N.C. App. 221, 228, 319 S.E.2d
650, 656 (1984)). As a practical matter, a court should not reduce or apportion fees
unless there is a demonstrable basis for separating time spent on successful claims
from time spent on unsuccessful claims. Philips, 775 S.E.2d at 884–85 (affirming the
trial court’s finding that claims arose from a common nucleus where “apportionment
of legal fees between the claims was impractical”). 38. The Court concludes that it should assess whether attorneys’ fees were
incurred in connection with a common nucleus of operative fact by inquiring whether:
(1) the efforts resulting in such fees directly benefited the claims upon which Plaintiff
succeeded, and (2) the efforts were inextricably interwoven with claims on which
Plaintiff did not succeed.
C. The Final Award of Attorneys’ Fees Requires a Further Record Pursuant to Guidelines Provided by this Order and Opinion.
39. Plaintiff argues that all efforts underlying his fee requests directly
benefited and were inextricably interwoven with all claims, because no claims or
counterclaims would have arisen if Scenera had paid Plaintiff the bonuses that he
was entitled to receive. He contends that if such payment had been made, the patent
ownership dispute would not have been litigated. A corollary argument must be that
Plaintiff had the right to assert some ownership claim in the inventions because he
was not paid the wages that he was entitled to receive. The Court believes this
argument is too simplistic.
40. Defendants argue that Plaintiff could have litigated his contract claims
without asserting any claim of ownership in the inventions or without refusing to
cooperate in Scenera’s patent prosecution. But because Defendants were forced to
defend—and succeeded in defending—Scenera’s ownership of the patents, Plaintiff’s
attorneys’ fee award must be reduced to reflect that he made the litigation
unnecessarily expensive. That assertion is also too simplistic, particularly in light of
the Court of Appeals’ mandate. 41. There is no easily discerned demarcation line separating the part of the
factual record that relates only to the wage and retaliation claims from the part that
relates to the dispute regarding invention ownership. Each of those claims depend
upon a factual record regarding the nature of Plaintiff’s employment duties and the
terms of any employment agreement, including not only agreements as to bonus
compensation, but also any understanding between the parties as to whether Plaintiff
would have rights in inventions, notwithstanding the hired-to-invent doctrine.
However, Plaintiff’s right to wages was based on an employment contract, and it was
unnecessary to pursue any ownership rights in inventions to recover those wages.
Thus, efforts such as research, briefing, and argument separately and solely
dedicated to the ownership claims were unnecessary and therefore were not
inextricably interwoven with Plaintiff’s wage and retaliation claims.
42. The Court entered judgment awarding attorneys’ fees of only $450,000
of the $819,752.41 requested. The Court reduced the fee award based on its
determination that the litigation had been complicated and compounded by Plaintiff’s
coupling his wage and retaliation claims with a right to withhold patent assignments
and challenging assignments that he had previously made, which impacted Scenera’s
ability to prosecute patent applications. The Court made this reduction in the
exercise of its discretion and did not endeavor to make specific findings regarding
what attorney activity directly benefited one claim but not another, or whether such
activity was inextricably interwoven with all claims. 43. Having been directed to make more-specific findings, the Court now
concludes that the analysis, findings, and basis for allocating attorneys’ fees among
successful and unsuccessful claims may be different for attorneys’ fees incurred prior
to judgment and those incurred after judgment. While efforts to develop a
prejudgment factual record may be more difficult to assign to distinct claims, that is
not the case once the factual record was closed and the jury’s finding complete as
reflected in the Judgment entered prior to appeal. Thereafter, the legal arguments
arising from that factual-record and judgment were separate and distinct, at least in
substantial part, although there may have necessarily been some overlap in areas
such as brief and oral argument preparation.
44. As to efforts undertaken prior to the entry of judgment, the Court, at
this time, finds no reasoned basis for delineating between the discovery and factual
record development that would be relevant only to the contract claims and that which
would be relevant only to the patent-ownership claims. The facts underlying those
claims are clearly interrelated, and possibly, but not necessarily, inextricably
interwoven. As the Court construes the Court of Appeals’ mandate to be that Plaintiff
should recover all his prejudgment attorneys’ fees, unless there is a factual basis to
conclude that some portion of those fees arise from efforts that were not directed
toward developing or presenting a factual record relevant for all claims, there is
effectively a presumption in Plaintiff’s favor. To defeat Plaintiff’s claims to those fees,
Defendants must assume the burden of demonstrating a factual basis not to award
certain fees consistent with the Court of Appeals’ mandate. The Court does not believe that the same presumption and burden should apply to attorneys’ fees
incurred after entry of judgment.
IV. CONCLUSION AND DIRECTIVE
45. Based on the authorities and analysis discussed above, the Court finds,
concludes, and directs as follows:
1. Plaintiff succeeded on his claims of unpaid wages and retaliatory discharge,
and is therefore statutorily entitled to recover some attorneys’ fees. Such
fees should not be reduced on the grounds that Plaintiff did not succeed on
other claims, as long as the tasks for which fees incurred to prosecute his
unsuccessful claims or to defend against Defendants’ counterclaims directly
benefited the wage and retaliatory-discharge claims and were related to
developing or presenting facts that were inextricably interwoven with all
claims.
2. The Court has previously held, and now repeats and incorporates its
holding, that efforts by Plaintiff’s attorneys were reasonable and computed
at reasonable rates typically charged by comparably experienced North
Carolina counsel on comparable claims.
3. Plaintiff was not required to assert any ownership right in inventions made
during his employment in order to succeed on his wage and
retaliatory-discharge claims, and more specifically, it was not necessary to
such success that he refuse to assign or contest his prior assignments of
inventions made during his employment. 4. Even if the facts upon which Plaintiff’s wage claims and
retaliatory-discharge claims were based are inextricably interwoven with
Defendants counterclaims, the legal issues regarding such claims are
separate and distinct.
5. Plaintiff prevailed on his wage and retaliatory-discharge claims, but
Defendants prevailed on their counterclaim that Plaintiff was hired to
invent and therefore had no ownership rights in inventions made during
his employment.
6. Plaintiff is entitled to recover all attorneys’ fees incurred before judgment
unless there is a factual basis to conclude that any portion of those fees did
not directly benefit Plaintiff’s wage and retaliatory-discharge claims and
were not directed toward developing and presenting a factual record that
was inextricably interwoven with other claims and counterclaims.
7. If there is a factual basis to so determine, Plaintiff should not be awarded
attorneys’ fees incurred prior to judgment in connection with litigating the
unsuccessful claims or defending against Defendants’ counterclaims.
8. Defendants must assume the burden of demonstrating a factual basis on
which the Court may find that efforts for which prejudgment fees are
requested did not directly benefit Plaintiff’s wage and retaliatory-discharge
claims and were not directed toward developing and presenting a factual
record that was inextricably interwoven with other claims and
counterclaims. 9. Plaintiff was unsuccessful on his claims for fraudulent inducement, unjust
enrichment and breach of contract. However, no discount from requested
fees should be made based on these unsuccessful claims, because such
claims were duplicative of and inextricably interwoven with Plaintiff’s wage
and retaliatory-discharge claims.
10. The factual record was closed upon entry of judgment.
11. The various claims and counterclaims were no longer inextricably
interwoven following the jury verdict and entry of judgment, and the wage
and retaliatory-discharge claims on which Plaintiff succeeded were not
directly benefited by efforts on appeal challenging this Court’s rulings on
the hired-to-invent doctrine, granting a directed verdict in Defendants’
favor, or directing that Plaintiff assign inventions to Scenera.
12. Plaintiff was required on appeal to defend Defendants’ attack on his
monetary recoveries, and such efforts directly benefited the claims on which
Plaintiff prevailed.
13. Plaintiff should recover attorneys’ fees incurred on appeal that directly
benefited his ability to recover amounts awarded to him in the Court’s
Judgment.
14. Plaintiff should not recover attorneys’ fees incurred on appeal in an effort
to reverse rulings adverse to him, regardless of whether Plaintiff would
have independently elected to pursue any appeal or discretionary review, and whether such efforts were made only after Defendants had first
appealed or sought discretionary review.
15. Defendants should be allowed to review the nonprivileged records,
including specific time entries and billing records, upon which Plaintiff
asserts his right to recover attorneys’ fees.
16. After making any redactions necessary to preserve privileges, Plaintiff
shall produce to Defendants’ counsel those records on which the claim of
attorneys’ fees is made within twenty days of the date of this Order and
Opinion.
17. Within twenty days after their receipt of such records, Defendants shall
submit their position as to which attorneys’ fees incurred prior to judgment
they contend should be allocated to claims or counterclaims on which
Defendants’ prevailed, and document the evidentiary basis on which they
contend such an allocation can be made.
18. Plaintiff shall have ten business days to submit an opposition to
Defendants’ statement of position as to prejudgment fees that should not be
awarded.
19. Within twenty days after Defendants’ receipt of Plaintiff’s records as
directed above, Plaintiff and Defendants shall each submit their position on
how attorneys’ fees incurred after judgment and during the appellate
process should be allocated among claims, consistent with this Order and
Opinion. 20. The Court will thereafter issue its final award of attorneys’ fees.
IT IS SO ORDERED, this the 19th day of December, 2016.
/s/ James L. Gale James L. Gale Chief Business Court Judge