Xeriant, Inc. v. Auctus Fund, LLC

Background

Xeriant’s complaint sought rescission—undoing certain transaction documents—under Section 29(b) of the Securities Exchange Act of 1934. Xeriant alleged that Auctus was an unregistered securities dealer when the parties entered into the transactions. Xeriant also asserted state-law claims. Auctus moved to dismiss the entire complaint, and the motion was granted. The dismissal was later affirmed on appeal.

The agreements for the relevant transactions provided that the successful party in litigation arising from or connected with the agreements could recover reasonable attorneys’ fees and costs. Auctus renewed its request for fees after the appeals court issued its mandate. It sought fees and expenses for the district-court proceedings and additional fees for the appeal.

Arguments about the fees

Xeriant did not dispute that it could be liable for fees under the agreements. It argued instead that the requested amounts were unreasonable under what it said was Nevada law. Xeriant contended that Auctus’s lawyers used too many lawyers and performed excessive work, charged excessive hourly rates, and billed about $5,300 for Westlaw research without enough detail. Xeriant also argued that the fee decision should be stayed because the appeal allegedly created a conflict between federal appeals courts and Xeriant intended to seek review by the Supreme Court.

District-court fees

The court found that the 185 hours spent on client consultation, factual investigation, review and analysis of the complaint, and briefing and litigating the successful dismissal motion were reasonable. The court noted that Auctus was seeking payment for only 173 hours of case work and 40 hours for the fee application, at rates somewhat below counsel’s regular rates. It awarded $158,060 for professional services and $5,360.52 for Westlaw costs, finding those amounts fair and reasonable, including under Nevada law if that law supplied the governing standard.

Appeal fees

Auctus sought $428,622 for approximately 321 hours of appellate work. The court rejected most of Xeriant’s objections, noting that Xeriant provided little factual support, that substantial time could properly be spent preparing for an important appellate argument, and that Auctus obtained complete dismissal of Xeriant’s roughly $7 million claims and prevailed on appeal.

The court nevertheless found some basis for reducing the appellate request. More than 100 of the approximately 321 hours were spent preparing for oral argument. Although extensive preparation can be justified in some appeals, the court concluded that this appeal did not warrant that level of preparation. It reduced the requested appellate fee by 20 percent and awarded $342,897 for the appeal.

Ruling

The court found no persuasive reason to stay its decision. It stated that there was no conflict between federal appeals courts and that Xeriant had not filed a petition asking the Supreme Court to review the case. The court said that even if such a petition were filed, the possibility that the Supreme Court would accept it and reverse the decision appeared very remote.

Judge Lewis Kaplan granted Auctus’s motion in all respects. The court directed the Clerk to enter judgment for Auctus and against Xeriant in the aggregate amount of $506,317.52, consisting of the district-court award and the reduced appellate award.