Nelson, Donald v. Adams USA, Inc., et al. (04/25/2000)

By: Frenita Buddy, Medill News Service

Questions presented

Can attorney fees be exacted from a company employee who was originally not a defendant in the case?

Brief

In May 1994, Ohio Cellular sued Adams USA in federal court for infringing upon their molding process patent but Adams USA countersued and won.

Federal Judge David A. Katz concluded that Ohio Cellular's president Donald Nelson had withheld information from the U.S. Patent and Trademark Office with the intent to deceive. The patent was ruled invalid and the case was dismissed.

Three years later, Adams USA and its affiliate, Apehead Manufacturing, asked Ohio Cellular to pay their attorney fees.

In response, Ohio Cellular's attorney, Richard M. Kerger, sent a letter on Oct. 13, 1997 stating that the company would be in financial straits and suggested negotiations.

""I am writing to potentially save you some time. The fact is that if the attorney fee award exceeds a very limited amount, you will not collect it because the company will be liquidated. If you wish to discuss a resolution on a nominal basis, please let me know.""

The negotiations were not successful and Adams USA submitted a fee petition. On Jan. 20, 1998, the district court granted more than $175,000 to Adams USA.

Worried they might not receive the entire amount of attorney fees, Adams USA and Apehead Manufacturing sought to include Nelson as a third-party defendant in the petition.

On March 25, 1998, the district court agreed, thus making Nelson in part responsible for the attorney fees of Adams USA and Apehead Manufacturing.

A divided panel of the Court of Appeals for the Federal Circuit affirmed, holding that the trial court had not abused its discretion by allowing Nelson to be liable for the fee award.

""Nelson does not argue that Defendants [Adams USA & Apehead Manufacturing] should have known of the potential liquidation of Ohio Cellular before receiving the letter,"" Judge Paul R. Michel wrote for the majority. ""Thus, [the decision to add Nelson] appears particularly excusable and non-prejudicial here, where Defendants were made aware of the threatened liquidation only when they received the October letter and acted promptly to add Nelson once the amount was determined.""

In dissent, Judge Pauline Newman said adding Nelson to the suit was ""an unusual procedure, indeed, unprecedented."" She said that Adams USA did not provide sufficient reasons as to why they did not include Nelson in the first place.

Nelson's appeal to have the case heard en banc (by all the judges on the Federal Circuit) was denied.

The U.S. Supreme Court granted certiorari on Nov. 29, 1999.

On April 25, 2000, a unanimous Court reversed, holding for Nelson that attorneys added to a case after final judgment must be given a chance to contest the fees levied against them.

It was a violation both of federal rules and constitutional due process for someone to be ""adjudged liable the very first moment his personal liability was legally at issue,"" wrote Justice Ruth Bader Ginsburg for the Court. ""Procedure of this style has been questioned even in systems, real and imaginary, less concerned than ours with the right to due process.""

Justice Ginsburg then proceeded to cite the following example from Lewis Carroll's Alice in Wonderland:

""ÔHerald, read the accusation! said the King. On this the White Rabbit blew three blasts on the trumpet, and then unrolled the parchment scroll, and read as follows: ÔThe Queen of Hearts, she made some tarts, All on a summer day: The Knave of Hearts, he stole those tarts, And took them quite away! ÔConsider your verdict, the King said to the jury. ÔNot yet, not yet! the Rabbit interrupted. ÔTheres a great deal to come before that! ""