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Court Awards Kirkland Client More in Attorneys' Fees Than Damages

The folks over at Emigrant Savings Bank won't easily forget Kirkland & Ellis. In May, after a breach of contract bench trial before Milwaukee federal district court judge J.P. Stadtmueller, Kirkland won a ruling that permitted its client, Metavante Corporation, to keep $3.8 million that Emigrant wanted--and granted Metavante $2 million in damages. That was bad, but here's a big, fat insult to add to that injury: Last Friday, the judge ordered Emigrant to pay nearly $10 million in attorneys' fees and costs to Kirkland and a Wisconsin firm.

The underlying case involves a technology outsourcing agreement Emigrant signed with Metavante in 2004. Metavante, represented by the Milwaukee firm Kravit Hovel & Krawczyk, claimed in a Wisconsin state court suit that Emigrant broke the terms of the agreement. Emigrant's lawyers at Constantine Cannon filed counterclaims and had the case removed to federal court. As the May 2009 trial date approached, Metavante brought in Kirkland.

Following a two-week trial, Judge Stadtmueller ruled in favor of Metavante. He also ordered Emigrant to pay Metavante's legal bills, which he said was required under the outsourcing agreement. Emigrant objected to the bills submitted by Kirkland and Kravit Hovel, arguing that it shouldn't have to pay the full amount since the judge did not award Metavante the entire termination fee it sought. Emigrant also questioned the reasonableness of the fees.

But in Friday's decision, Judge Stadtmueller rejected both of Emigrant's arguments. He found that under the agreement between Emigrant and Metavante, the legal costs of the "prevailing party" in a dispute would be paid by the other side, and that Metavante was the prevailing party. And in dismissing Emigrant's objections to the reasonableness of Metavante's legal bills, he noted the seriousness of Emigrant's counterclaims, which "made the stakes of the litigation immense, as Metavante would have been forced to pay hundreds of millions of dollars in damages as a result of an adverse judgment."

The judge also noted Emigrant's unwillingness to disclose its own legal bills for the sake of comparison. "Perhaps most damaging for Emigrant [lawyers] is their failure to disclose any of the costs and attorneys' fees incurred by themselves in this litigation, which would provide a strong basis to gauge the reasonableness of Metavante's fee petition," he wrote. "While Emigrant is not required to disclose [its] own costs to demonstrate the unreasonableness of Metavante's costs, the defendant's silence on this issue is more than deafening."

Emigrant's legal bills--whatever they are--are only going to get bigger. The bank has appealed Judge Stadtmueller's damage award to the U.S. Court of Appeals for the Seventh Circuit, and has brought on none other than David Boies of Boies, Schiller & Flexner to help out on the appeal. (Here's Emigrant's Seventh Circuit brief.) Metavante, which is sticking with Kirkland at the Seventh Circuit, filed its response brief last week.

We left a message with Robert Begleiter of Constantine, who represented Emigrant at trial, but we didn't hear back. (Fun fact: Emigrant CEO Howard Milstein's wife, Abby Milstein, is a partner at Constantine.) John Tober of Boies Schiller told us there were "substantial grounds for appeal." He disputed Judge Stadtmueller's characterization that Metavante had prevailed on all its claims since he did not award the company the $22 million termination fee that it sought. "He got the prevailing party wrong," said Tober.

Paul Garcia and Andrew Bloomer of Kirkland & Ellis represented Metavante at trial. Not surprisingly, Garcia told us that Judge Stadtmueller got the fees opinion "exactly right," but he said he expects Emigrant to appeal this ruling as well. "It's not over," he said.