Now that an appellate court has reversed more than half of a $310 million judgment against Mattel Inc., Bratz doll manufacturer MGA Entertainment Inc., its insurers and its former law firm are fighting over who gets the remaining money.
The U.S. Court of Appeals for the Ninth Circuit on January 24 reversed an award of $172.5 million to MGA based on a jury’s finding that Mattel had stolen trade secrets covering the Bratz doll. The court upheld the remaining $137.8 million granted to MGA for legal fees and costs incurred in defending against Mattel’s failed claim of copyright infringement.
Almost immediately, MGA, its insurers and lawyers at Orrick, Herrington & Sutcliffe sought to claim a portion of the fees. In response, Mattel on February 13 moved to permanently enjoin MGA and any third parties from enforcing the judgment and collecting on a $315 million bond it had posted pending its appeal of the initial judgment. Mattel insisted that it could still pay the $137.8 million award upheld by the Ninth Circuit.
"Absent an injunction, Mattel may be subject to multiple claims, including for enforcement against both the Judgment and the Appeal Bond, by multiple claimants," Mattel attorney Michael Zeller, a partner at Los Angeles-based Quinn Emanuel Urquhart & Sullivan, wrote.
Zeller declined to comment.
MGA has opposed that move, arguing in a February 19 filing that Mattel has no legal title to the bond. Furthermore, the claims by Orrick and the insurance firms are against MGA, not Mattel, MGA’s attorney, Jennifer Keller, of Keller Rackauckas in Irvine, Calif., wrote. In moving to exonerate the bond, "Mattel seeks to create the illusion of controversy to delay paying the Judgment it owes to MGA," she added.
Keller did not respond to a request for comment.
U.S. District Judge David Carter has scheduled a February 26 hearing on the matter.
Orrick’s attorney, Arthur Shartsis, founding partner of Shartsis Friese in San Francisco, called the dispute "classic creditors fighting over the money. That’s all it is."
Carter issued the original judgment for $310 million on August 4, 2011. The judgment reflected a trade-secrets jury verdict that year of $85 million, plus an additional $85 million in exemplary damages and $140 million in attorney fees and costs. Mattel posted the $315 million bond on August 18, 2011; meanwhile, the judgment was stayed pending appeal before the Ninth Circuit.
By the time that court ruled, the judgment including interest totaled about $172.5 million in trade-secrets damages for MGA and more than $137.8 million in fees.
One day after the Ninth Circuit’s ruling, Orrick filed court documents informing Carter that an arbitrator on January 11 had preliminarily granted the firm a partial final award of $23 million in unpaid fees against MGA.
"The notice we gave to the other creditors of MGA and to the court in the federal court was that we’d received a partial award, which entitled us to lock up some of the proceeds from the Mattel judgment," Shartsis said.
He said the award amounted to a lien on the judgment and that arbitration proceedings would wrap up this summer.
"Orrick has long been concerned that the MGA Parties, which have sought to delay and frustrate the arbitration proceedings through endless procedural maneuvers, will dissipate the proceeds of the Mattel litigation before the arbitration concludes, in order to deprive Orrick of an effective remedy and to deny Orrick payment for its very successful representation of the MGA parties," Shartsis wrote in February 15 court filing.
MGA challenged that award in a petition filed on February 4 in Orange County, Calif., Superior Court, alleging that the arbitrators had "greatly exceeded their powers" in granting an award to Orrick before the proceeding was concluded. MGA’s attorney in that matter, Edmond Connor, managing partner of Irvine-based Connor, Fletcher & Williams, did not respond to a request for comment.
MGA’s insurance providers also have opposed Orrick’s award, claiming they have received no evidence that it exists.
The insurance firms, which wrote letters to Mattel soon after the Ninth Circuit ruled, claimed they spent $130 million in legal fees on MGA’s behalf during the Mattel case. The insurers are Crum & Forster Specialty Insurance Co., Evanston Insurance Co., Lexington Insurance Co., National Union Fire Insurance Co. of Pittsburgh, Pa., and Chartis Specialty Insurance Co.
On February 20, they opposed MGA’s characterization that they have no claim on the judgment against Mattel.
"MGA’s opposition is nothing more than a transparent attempt to avoid a ruling on the equitable distribution of the proceeds of the Fee Award," wrote insurance attorneys Susan Field, a partner at Musick, Peeler & Garrett in Los Angeles, and Suzanne Stouder, a Los Angeles attorney at Drinker Biddle & Reath. "Certainly, there is a dispute among MGA, its insurers, and its attorneys as to their right to the funds."
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