Opinion
CAUSE NO. IP 99-1211-C H/K
January 15, 2002
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON ISSUE OF ATTORNEY FEES AND EXPENSES
Plaintiff Allied Enterprises brought this action against defendant Exide Corporation for breach of the terms of a commercial lease. For several years, Exide operated a facility in a building owned by Allied. Allied claimed that Exide had breached the terms of the lease by causing damage to the building, including lead contamination from Exide's distribution and servicing of lead batteries in the building.
The case was tried to a jury in August 2001, and the jury rendered a verdict in favor of plaintiff Allied for $50,514.53. By agreement of the parties, however, the issue of attorney fees and costs and expenses under the lease was left for later resolution by the court, based on the complete record. The court now states its findings of fact and conclusions of law on the issue.
Allied has requested a fee award of $92,661.68 and expenses of $18,799.51. Exide has opposed the request, arguing that there is no contractual basis for a fee award in this case. In the alternative, Exide argues that Allied's request is excessive in several respects. As explained below, the court finds: (1) that an award of fees and expenses beyond those costs ordinarily awarded to a prevailing party is warranted in this case; (2) that Allied is entitled to the entire requested attorney fee; and (3) that several adjustments to Allied's expense request are required. The court therefore awards fees of $92,661.68 and expenses of $12,539.44, and enters final judgment for those sums plus the jury verdict of $50,514.53, for a total judgment of $155,715.65.
I. Contractual Authority to Award Fees and Expenses
Allied bases its fee request on Paragraph 23 of the parties' commercial lease. Indiana law governs the issues in this diversity case. Under Indiana law, as Exide knows, as "a general rule, a contract for attorneys' fees is enforceable according to its terms unless contrary to law or public policy." Exide Corp. v. Millwright Riggers, Inc., 727 N.E.2d 473, 481 (Ind.App. 2000) (affirming denial of fee award to Exide under invalid indemnification clauses), citing Pond v. Pond, 700 N.E.2d 1130, 1136 (Ind. 1998); see also, e.g., Depeyster v. Town of Santa Claus, 729 N.E.2d 183, 190 (Ind.App. 2000) (affirming fee award under contract); Brendonwood Common v. Franklin, 403 N.E.2d 1136, 1143 (Ind.App. 1980) (reversing trial court's denial of fees required by contract); Honey Creek Corp. v. WNC Development Co., 331 N.E.2d 452, 459 (Ind.App. 1975) (affirming fee award under contract).
The interpretation of a written contract is a question of law unless the contract has a latent ambiguity and one of the parties seeks to rely on extrinsic evidence to support its interpretation. See, e.g., Trustees of First Union Real Estate Equity Mortgage Invs. v. Mandell, 987 F.2d 1286, 1289-90 (7th Cir. 1993) (applying Indiana law to interpretation of commercial lease). The parties in this case have not offered or relied upon any extrinsic evidence to support their interpretations, so the court interprets the lease in this case as a matter of law.
The critical provision is Paragraph 23. In the briefs, each party submitted an edited version of Paragraph 23 and each accused the other of selective editing. Here is the complete text of Paragraph 23:
Default. The following events shall be deemed to be a default by Lessee: 1) failure to pay any installment of rent, and such failure shall continue for ten days, 2) failure to comply with any provision of this lease, other than the payment of rent, and shall not cure [sic] such failure within fifteen days after written notice is sent to Lessee, 3) Lessee becomes insolvent; makes a transfer in fraud to creditors; makes an assignment for the benefit of creditors; files a petition under any section of the National Bankruptcy Act; is adjudged bankrupt; has a receiver appointed; deserts or vacates any substantial portion of the property; does or permits any act which creates a lien on the property; failure of Lessee to open for business for three consecutive business days while any portion of the rent is due.
Upon the occurrence of any of the above, Lessor may repossess the demised premises without any additional demand or notice of any kind to Lessee in which event Lessor shall not be under any obligation to relet all or any part of the demised premises but may, in its discretion, do so upon such terms and conditions as may be satisfactory to Lessor. In the event the demised premises are relet and a sufficient sum shall not be realized therefrom to equal or exceed the rents herein provided for the remainder of the lease term, Lessee shall pay unto Lessor upon demand the difference between the rents herein provided for the remainder of the lease term in the amount which lessor may reasonably expect to actually realize from any such reletting. The parties stipulate and agree that any such repossession and reletting shall not terminate this Lease and, in the event Lessee fails to pay upon demand the sums as hereinabove provided, Lessor may bring suit at once in a court of competent jurisdiction to recover, without relief from valuation and appraisement laws, all sums as may then or thereafter become due, together with all costs, expenses, bond premiums and attorney fees incurred by lessor. Provided, that Lessor's right to seek any remedy as herein provided shall not be deemed waived by the failure to exercise said right nor shall any such failure stop Lessor from afterwards asserting said right to seek any remedy as provided herein or as provided by law. The remedies of Lessor shall be cumulative, and include any and all remedies as provided by law or in equity, and no one of them shall be construed as exclusive of any other or of any remedy provided by law. Any recovery by Lessor shall include costs, expenses and attorney fees incurred by Lessor.
Paragraph 23 makes two references to payment of attorney fees and expenses, which the court has italicized above. Exide addressed its brief to the first reference, arguing that the attorney fee clause is limited to actions to collect rent on the remaining term of the lease where the owner has relet the premises but has not recovered all of the rent that Exide would have owed. The reading is plausible, primarily because the first attorney fee clause appears at the end of a long sentence addressing "such repossession and reletting."
But Exide omitted from its version of Paragraph 23 the last three sentences beginning "Provided . . .," which include the second attorney fee clause. The court reads those three broad sentences as applying to the subject of the entire paragraph — defaults by lessee Exide under the lease. Clause (2) in Paragraph 23 makes clear that a default may include any breach of a lease term, at least so long as Exide was given notice and an opportunity to cure the breach. The last two sentences are critical here: "The remedies of Lessor shall be cumulative, and include any and all remedies as provided by law or in equity, and no one of them shall be construed as exclusive of any other or of any remedy provided by law. Any recovery by Lessor shall include costs, expenses and attorney fees incurred by Lessor."
Read in context, those last two sentences apply to the remedies and recoveries of the Lessor for any breach of the lease, including the damage to and contamination of the property shown by Allied at trial. Exide's interpretation ignores these two sentences. Exide therefore has not even tried to explain how the second attorney fee clause might be limited to the narrow class of cases which, according to Exide, are also covered by the first attorney fee clause.
Under Exide's interpretation, the second attorney fee clause would become redundant, which is a result that Indiana courts generally try to avoid in construing a contract. E.g., Trustees of First Union Real Estate, 987 F.2d at 1290 ("a court must `make all attempts' to interpret a contract so as not to render any words, phrases, or terms ineffective or meaningless"), quoting Bicknell Minerals, Inc. v. Tilly, 570 N.E.2d 1307, 1316 (Ind.App. 1991). Under the court's interpretation, the first attorney fee clause addresses more specifically a subset of cases also covered by the second, more general clause. That interpretation is not elegant, but Paragraph 23 is not an elegantly drafted contract term. (Several awkward clauses in the first sentence do not even make grammatical sense.) It is reasonable to construe the second attorney fee clause as having some purpose rather than none, and it is not unusual for contracts to include some overlap between general and specific provisions.
The court's interpretation is also consistent with the overall tenor of the lease, which gives the lessor extensive legal protection in a host of ways. The Indiana Court of Appeals noted in Michels v. Dyna-Kote Industries, Inc.: "We do not look outside an unambiguous contract, but to the extent an instrument is ambiguous we may consider the situation of the parties, their motives in dealing with each other, and the object sought to be accomplished in determining the intent of the parties." 497 N.E.2d 586, 589 (Ind.App. 1986) (citation omitted), quoted in Trustees of First Union Real Estate, 987 F.2d at 1291 (interpreting ambiguous lease as a matter of law in light of common sense and the motivations and objectives underlying the lease).
In this case, a provision for payment of attorney fees in the event of a breach by lessee ensures (or at least increases the prospects for) complete satisfaction for the injured lessor. The purpose of attorney fee clauses in contracts is to make the injured party whole in the event that court action is necessary to vindicate its rights. E.g., Parrish v. Terre Haute Sav. Bank, 438 N.E.2d 1, 3 (Ind.App. 1982) (fee provision in loan agreement). The facts of this case demonstrate the value of such a provision, for Exide has fought long and hard to avoid any liability here. The cost to Allied of obtaining any recovery has substantially exceeded the amount of the original actual damages.
In the alternative, Exide argues that Allied is not entitled to a fee award because Allied failed to make a "demand" under Paragraph 23. The demand requirement is limited to cases of repossession before the expiration of the lease, and it does not apply to this case. The earlier reference in clause (2) of Paragraph 23 to notice and a 15-day opportunity to cure breaches of the lease was an issue that was tried to the jury. The jury rejected Exide's position on that issue. The evidence provides ample and reasonable support for the view that Allied notified Exide of the asserted breaches of the lease and gave Exide a fair opportunity to cure those breaches on its own. Exide chose instead to stonewall Allied. No further demand was required in order to trigger Exide's liability for fees under the second attorney fee clause in Paragraph 23.
Accordingly, Allied's recovery at trial of damages for Exide's breach of the lease is a recovery subject to the last sentence of Paragraph 23, meaning that Allied is entitled to "costs, expenses and attorney fees incurred by" Allied as lessor.
II. The Amount of Attorney Fees
Exide also objects to the amount of Allied's fee request. The governing law here is Indiana contract law. Indiana law leaves the amount of an award of attorney fees to the sound discretion of the trial court. Holliday v. Crooked Creek Villages Homeowners Ass'n, ___ N.E.2d ___, ___, 2001 WL 1558274, at *6 (Ind.App. 2001) (affirming fee award under contract); Castlewood Property Owners Ass'n v. Trepton, 720 N.E.2d 10, 14 (Ind.App. 1999). For guidance, both parties have also cited federal cases interpreting the numerous fee-shifting statutes that are litigated so often in modern federal practice.
Allied's claim for attorney fees is based almost entirely on the work of Gregory Cross, who has billed his time on this case at the rate of $200 per hour. There is no challenge to the reasonableness of his rate. Mr. Cross spent about 453 hours on the case over the course of about two years.
In challenging the amount of the fee request, Exide argues first that Allied's success was limited and that the fee request should be reduced proportionately. Exide points out that Allied asked the jury to award damages of $134,696, and the jury awarded only $50,514.53. Exide views that as a success rate of 37 percent, and it suggests that the court award only 37 percent of the requested fee. Exide's proposed approach is a vast oversimplification of the issue of limited success under state and federal law.
Indiana courts applying a fee-shifting statute recognize that fees can be apportioned when a party prevails on some claims but not others, and fees in such a case can be apportioned "according to the significance of the issues upon which a party prevails, balanced against those on which the party does not prevail." Stepp v. Duffy, 686 N.E.2d 148, 153 (Ind.App. 1997). In this case, however, Allied did not win on some claims and lose on others. Allied prevailed on all claims for relief it asserted. It did not win the maximum amount of damages it requested, but that is not the standard under Indiana or federal law.
To the extent that Indiana law may require a reasonable relationship between the result obtained and the effort expended, it is essential to focus as well on the effort required to overcome the defendant's opposition. In this case, Exide fought long and hard. It caused Allied to have to expend a great deal of time and effort to prevail. In such a case, the rule cannot be a simple mathematical ratio between damages awarded and fees awarded, or damages sought and damages awarded. See City of Riverside v. Rivera, 477 U.S. 561, 574 (1986) (plurality opinion); id. at 585 (Powell, J., concurring in judgment); Dunning v. Simmons Airlines, Inc., 62 F.3d 863, 873 (7th Cir. 1995). Exide was entitled to litigate this case to the hilt, but having done so, it cannot now complain that Allied's counsel had to spend too much time on the case in comparison to the ultimate damages recovered. See also Pressley v. Haeger, 977 F.2d 295, 298 (7th Cir. 1992) ("Three lawyers toiled a total of 1272 hours on Pressley's behalf. If this seems excessive in light of the stakes — as it did to the district judge, who trimmed the allowable hours to 1102 — it was not excessive in relation to the need to overcome a defense that Haeger and the Village waged with 2041 hours of lawyers' time;" where jury awarded $40,000 in damages, Seventh Circuit reversed fee award of $177,000 to be increased on remand because district judge had reduced requested hourly rates without justification). This same reasoning applies under Indiana law to a fee-shifting contract, for the purpose of such provisions is to make the winning party whole after it has vindicated its rights. E.g., Parrish v. Terre Haute Sav. Bank, 438 N.E.2d 1, 3 ( Ind. App. 1982).
The solution to Exide's dilemma was to make an early and substantial offer of judgment under Rule 68 of the Federal Rules of Civil Procedure. See Marek v. Chesny, 473 U.S. 1 (1985); Cole v. Wodziak, 169 F.3d 486, 487 (7th Cir. 1999). Exide did not do so, and instead chose to litigate this case for two expensive years through and past a jury verdict.
Under federal law, the leading case on limited success affecting a fee award is Hensley v. Eckerhart, 461 U.S. 424 (1983), which has thousands of progeny. The Supreme Court in Hensley declined to adopt the mechanical test proposed by Exide in this case. The Court instead adopted a broad and discretionary equitable standard intended to provide a reasonable fee. 461 U.S. at 435-36. A critical factor here is that Allied prevailed on all of its distinct claims for damages. This case does not fit the situation described in Hensley, where a plaintiff joins together "distinctly different claims for relief that are based on different facts and legal theories," and prevails on only some. 461 U.S. 434. In such cases, the court should not award fees for time spent only on the unsuccessful claims. Id. at 435.
Even in such cases, however, the court does not apply a crude 50 percent discount. Instead, the court asks what work would reasonably have been required if the plaintiff had pursued only the successful claim. A good example is a case cited by Exide itself, Merriweather v. Family Dollar Stores of Indiana, Inc., 103 F.3d 576 (7th Cir. 1996), where the plaintiff lost her race discrimination claim but prevailed on her retaliation claim. The district court discounted the fee request by 10 percent to account for the limited success, and the Court of Appeals affirmed because much of the factual development on the race discrimination claim was essential to fair presentation of the successful retaliation claim. Id. at 583 ("the critical question is whether the legal work for which Merriweather seeks reimbursement was necessary for the retaliation claim upon which she prevailed").
This is also not a case in which a plaintiff's success was offset by a defendant's victory on a counterclaim, which Indiana courts treat as a basis for reducing a fee award under a contract. See Willie's Const. Co. v. Baker, 596 N.E.2d 958, 964 (Ind.App. 1992); Burras v. Canal Const. Design Co., 470 N.E.2d 1362, 1370 (Ind.App. 1984).
The fact that Allied did not achieve its best imaginable result at trial does not mean its request should be reduced. Under the fee-shifting provision of the lease, and so long as the success achieved was substantial, the relevant question is what amount of attorney fees and expenses did Allied reasonably expend in order to gain the success that it actually achieved?
That question turns the focus to Exide's second attack on the amount of the fee petition. Exide contends that Allied's attorney devoted an unreasonable amount of time to the case. The only specific challenge, however, is to the 100 or so hours that Allied's counsel devoted to opposing Exide's motion for summary judgment. Exide now describes its motion for summary judgment as involving only simple issues of contract interpretation and mitigation of damages. The court does not remember that Exide itself presented the issues that way at the time.
In response to this attack, Allied correctly points out the importance of summary judgment practice and its tendency to amount to a paper trial. Although Exide's motion did not address all issues in the case, it certainly addressed the most substantial dollar amounts at stake in the case. To the extent that Exide is now suggesting that its motion was simple and that a successful response should have been much simpler and cheaper than Allied's, the court can only say that Exide's motion should not have been filed. Once it was filed, however, Allied was justified in working hard to defeat it.
In evaluating the reasonableness of the efforts to defeat the motion, it is also worth recalling that for every hour devoted to the task, Allied and/or its attorney took the risk that there would be no compensation from Exide for the work. Allied and attorney Cross thus had every economic incentive to do what needed to be done to defeat the motion for summary judgment, but to do so without wasting time. It ill fits Exide now to argue that Allied spent too much time defeating a motion for summary judgment that should not have been filed.
In fact, Exide has even gone so far as to accuse Allied of "overlawyering" the case. Coming from Exide, the charge is remarkable. Exide had at least four outside lawyers working the case at various times, as well as its inside counsel. Exide relied on two lawyers at trial; Allied used only one. By way of example, moreover, in addition to the summary judgment motion, Exide filed eleven separate written motions in limine just before trial. Exide has not disclosed its own attorneys' hours or billings on the case in an effort to demonstrate that Allied spent an unreasonable amount of time on it. If anyone "overlawyered" the case, it was not Allied.
Exide charges that Allied took too long to try the case and called too many witnesses. The two witnesses from Keramida Environmental dealt with different projects. Allied had to worry quite reasonably about having its proof stymied with objections based on lack of personal knowledge. The court does not recall many (or any) trial objections from Exide about the presentation of cumulative evidence. Allied's presentation was certainly thorough, but Exide's criticisms smack of 20-20 hindsight. As the Seventh Circuit acknowledged in Merriweather, "a competent attorney must do more at trial than present just the bare bones of his prima facie case . . . ." 103 F.3d at 583. The winning party's victory usually looks more inevitable after the verdict than it did before, when its lawyer had to do the work.
Exide also criticizes Allied for calling witnesses whose work was reflected in documents that were admitted by stipulation. The criticism does not reflect an understanding of trial practice and persuasion of a jury. Merely admitting a document into evidence does little to focus a jury's attention on the document. A face and voice can go a long way to bringing the document to life (for judges as well as jurors).
The one potentially valid point that Exide makes has to do with the issue of fumes from the Exide portion of the shared building before Exide vacated the building. The fumes were not an issue at trial, and Allied did not contend at trial that the emissions were breaches of the lease. In theory, Allied might not be entitled to attorney time devoted to that issue. However, Exide has not offered the court any indication of how much work was expended on this issue. The court will not undertake that search of the records when Exide has not bothered to do it. The court treats Exide's failure to even attempt to quantify the appropriate discount as a waiver of the point. See Stepp, 686 N.E.2d at 153-54 (defendant had waived issue regarding apportionment of attorney fee award by failing to present it to trial court).
Exide contends that 14.0 hours should be excluded because the time entries indicate only "telephone call" with named individuals. Exide does not contend that the calls did not occur, or that they had nothing to do with the case. The court is satisfied that the time was spent and that it related to the case. In light of the fact that neither Allied nor its attorney had any incentive to waste time on the case, the court will not deduct those hours from the fee award. The court will award Allied all of the requested fee, which is reasonable in light of all the circumstances, including the success achieved and the opposition overcome.
Allied has not requested that it be awarded its fees and expenses incurred in obtaining its fee and expense award. In the event of an appeal upon which Allied substantially prevails, however, all of Allied's post-verdict fees and expenses could be the subject of a supplemental request.
III. Costs and Expenses
Allied seeks costs and expenses of $18,799.51. Both Allied and Exide recognize that many of the expenses would not be properly taxed as costs under Fed.R.Civ.P. 54(d) or 28 U.S.C. § 1920, such as expert witness fees and travel expenses incurred in the case. Under the contract, however, Allied is entitled to its "expenses and costs." It is not limited to the costs that are awarded as a matter of course to prevailing parties in federal civil cases in federal court. Accordingly, the court finds that Allied is entitled to actual expert witness fees and expenses incurred in obtaining their testimony.
One objection the court finds well-founded is Exide's objection to payment of compensation to non-expert witnesses. These include Jacob Smith, Stuart Kline, Jodie Crandall, and Harold Stonebreaker. To the extent these witnesses testified as fact witnesses, the court does not believe it is fair to charge Exide for amounts that Allied paid to secure what it describes as "good will" with these witnesses. The expense request will be reduced to $40 per day for each of those witnesses. That produces a reduction of $5,021.50.
The same reasoning does not apply to travel expenses for Jodie Crandall. Although it would have been possible to use her deposition, any trial lawyer knows that having a live witness in the courtroom is ordinarily far preferable to relying on what is usually a not-so-dramatic reading of a transcript.
Exide also objects to paying for Mr. John Miller's hotel costs incurred during the trial and other miscellaneous costs he incurred. Mr. Miller was Allied's corporate representative. The court agrees and will deduct $777.89 in hotel costs and another $460.68 in miscellaneous costs from the requested costs.
Conclusion
The court finds that Allied is entitled to an attorney fee of $92,661.68 and expenses of $12,539.44, which must be added to the jury verdict of $50,514.53. The court will enter a judgment in Allied's favor for the sum of $155,715.65.
So ordered.