Opinion
CIVIL ACTION NO. 03-10196-RWZ.
September 29, 2006
MEMORANDUM OF DECISION AND ORDER
In the summer of 2001, defendant Wood Recycling, Inc. ("Wood") decided to find a new insurer for its waste management and recycling facilities. Through the brokerage services of some time third-party defendant International Insurance Group, Ltd. ("IIG"), it eventually purchased a policy from plaintiff RLI Insurance Company ("RLI"), effective August 1, 2001 through August 1, 2002.
On July 26, 2002, Wood suffered a fire in a debris pile at its Southbridge, Massachusetts facility. The fire was not extinguished until August 2. From that day through August 12, the facility remained closed, by order of the fire chief. Wood was then allowed to reopen the Southbridge site, but the town ordered Wood to eliminate the remaining burnt debris within a certain amount of time. When Wood failed to do so, the town issued an order prohibiting it from accepting new construction and demolition ("C D") material until the burnt debris was gone. This prohibition remained in effect from October 21 to December 12, 2002, though during the interim, the town twice modified the order to allow Wood to accept a limited amount of C D material to aid in the processing of burnt debris. As a result of the fire and its aftermath, Wood sought recovery under the policy for its business interruption losses for the period beginning on July 26, the date of the fire, until the end of 2002. RLI initially denied all of Wood's claims for such losses in a letter dated November 6, 2002. (Trial Ex. 14.)
It was apparently more effective to mix C D material and burnt debris, rather than processing burnt debris alone. (See Walters Aff., Exs. 29-30.)
On January 31, 2003, RLI filed suit, seeking declaratory relief denying or, in the alternative, limiting Wood's coverage. Wood answered and counterclaimed; it also filed a third-party complaint against IIG, arguing that if the policy did not cover its losses, IIG was liable. IIG answered Wood's complaint and also filed a direct claim, subsequently amended, against RLI. RLI, in turn, counterclaimed against IIG.
In an order dated August 16, 2004, I disposed of the parties' initial round of summary judgment motions, granting in part and denying in part Wood's motion, denying RLI's motion, and granting IIG's motion. This order established RLI's liability for business interruption coverage at Wood's Southbridge facility. See RLI Ins. Co. v. Wood Recycling, Inc., No. 03-10196, 2004 WL 1895132 at *3 (D. Mass. Aug. 16, 2004). Although the summary judgment order dismissed the third-party complaint against IIG, Wood was subsequently allowed to refile against IIG. (Docket #103.)
A subsequent order dated March 30, 2006, responded to a second round of summary judgment and evidentiary motions from all parties on various portions of their claims and counterclaims. In that order, I denied RLI's motion to exclude October 21, 2002 to December 12, 2002, from the "Restoration Period" covered by the policy, but granted its motion for summary judgment on Counts II (misrepresentation), III (fraud), IV (negligent supervision), and V (Chapters 93A and 176D) of Wood's counterclaim, leaving intact only Wood's breach of contract counterclaim. See RLI Ins. Co. v. Wood Recycling, Inc., No. 03-10196, 2006 WL 839514 at *8 (D. Mass. Mar. 30, 2006). In that order, I also allowed IIG's motion for summary judgment, and again removed it from the case. Id. at *11.
Mass. Gen. Laws ch. 93A addresses Regulation of Business Practices for Consumers Protection and Unfair Methods of Competition and Mass. Gen. Laws ch. 176D addresses Unfair and Deceptive Acts and Practices in the Business of Insurance.
After a ten-day trial in June 2006, the jury found for Wood in the amount of $1,643,654.90 for business interruption losses through the end of 2002, but while finding breach of contract, denied Wood's claims for consequential damages. (See Docket #326.) Wood now seeks to assess attorneys' fees against RLI and prejudgment interest on the jury award.
I. Wood's Motion for Prejudgment Interest
A. Date for Commencement of Prejudgment Interest
Massachusetts law provides for an award of prejudgment interest in actions based on contractual obligations. The statute provides:
In all actions based on contractual obligations, upon a verdict, finding or order for judgment for pecuniary damages, interest shall be added by the clerk of the court to the amount of damages, at the contract rate, if established, or at the rate of twelve percent per annum from the date of the breach or demand. If the date of the breach or demand is not established, interest shall be added by the clerk of the court, at such contractual rate, or at the rate of twelve percent per annum from the date of the commencement of the action. . . .
Mass. Gen. Laws ch. 231, § 6C (2000). The parties agree on the applicability of the statute, but disagree on its application. Wood claims that it is entitled to prejudgment interest on both the jury award and any attorneys' fees awarded by this court. It also asks the court to calculate the accrual of prejudgment interest from the date of RLI's letter, November 6, 2002, denying coverage. RLI, on the other hand, argues that because the "date of the breach" was never determined by the jury or by the court, prejudgment interest is due only from the commencement of the action, January 31, 2003. In addition, while strongly contestingany award of attorneys' fees, RLI argues that if fees are awarded they should not be subject to prejudgment interest because they are not an element of damages.
Additionally, RLI argues that if this court should determine prejudgment interest is applicable to attorneys' fees, it should be computed from the date the fees are actually paid by Wood, and not from the date of the breach or commencement of the action. Because I find that prejudgment interest is not applicable to the award of attorneys' fees, I do not address this argument. See infra section B.
The Supreme Judicial Court ("SJC") has been unwilling to interpret Mass. Gen. Laws ch. 231, § 6C as limiting the date for accrual of interest on an award to the prevailing party solely to a choice of the date of breach or the commencement of the action, as the plain language of the statue would require. Rather, the SJC cites the intent of the statute to ensure "that a person wrongfully deprived of the use of money should be made whole for his loss" in determining when interest should begin to accrue. Sterilite Corp. v. Continental Casualty Co., 397 Mass. 837, 841 (1986) (internal quotation marks removed). In Sterilite, the SJC refused to calculate prejudgment interest on an award of legal fees from either the date the defendant insurance company notified plaintiff it would not defend it in litigation or from the later date on which the action was filed. Id. at 841-42. Rather, reasoning that there was no loss of the use of money until it paid its legal bills, the SJC determined that prejudgment interest "should be calculated . . . on the basis of the various dates on which the legal bills were paid by Sterilite," even though the bulk of these dates were later than either date specified in the statute. Id. at 837, 841-42. See also Coyne Indus. Laundry of Schenectady, Inc. v. Gould, 359 Mass. 269, 279 (1971) (awarding prejudgment interest from the date by which all damages were sustained in order that plaintiff be "placed in the same position in reference to the injury as if the damages directly resulting from the injury had been paid immediately").
The SJC acknowledged that its interpretation was in conflict with the plain meaning of the statutory language. Sterilite, 397 Mass. at 839 ("Ordinarily, if the language of a statute is plain and unambiguous it is conclusive as to the legislative intent. . . . However, time and again we have stated that we should not accept the literal meaning of the words of a statute without regard for that statute's purpose and history.") (citations omitted).
Applying similar reasoning here, RLI's argument, advocating the January 31, 2003 date because the date of the breach was never determined, does not compensate Wood for the loss of use of the money owed it by RLI after the fire in July of 2002. It was clear from RLI's November 6 letter that it intended to "den[y] any and all liability to Wood Recycling for any business interruption loss arising out of the fire . . . at the Southbridge . . . facility," a decision the jury found wrongfully breached the insurance contract. (Trial Ex. 14 at 1.) The jury also found that Wood suffered a monetary loss which totaled $1,643,654.90 as of December 12, 2002, the day on which Wood was able to resume normal operations. Thus, "the date by which all damages were sustained" is December 12, 2002, and prejudgment interest should be calculated on the basis of that date. Coyne, 359 Mass. at 279.
B. Prejudgment Interest on Award of Attorneys' Fees
Massachusetts courts generally view awarded attorneys' fees as not subject to prejudgment interest. See, e.g., Osborne v. Biotti, 404 Mass. 112, 116 (1989) ("Unlike an award of costs, an award of attorney's fees is not included in any definition of the term judgment.") (internal quotation marks removed); Int'l Totalizing Systems, Inc. v. PepsiCo, Inc., 29 Mass. App. Ct. 424, 437 (1990) ("Interest on the portion of the award representing attorneys' fees should, however, be calculated from the time judgment was entered . . ., not from the time the complaint was filed."); Patry v. Liberty Mobilehome Sales, Inc., 394 Mass. 270, 272 (1985) ("Attorney's fees are not part of the damages suffered in a G.L. c. 93A action."). Cf. Interstate Brands Corp. v. Lily Transp. Corp., 256 F. Supp. 2d 58, 65 n. 5 (D. Mass. 2003) (noting that "attorneys' fees may be subject to interest as damages in situations where the underlying breach is a failure to reimburse fees").
Wood cites Patry v. Liberty Mobilehome Sales, Inc., 394 Mass. 270 (1985) to support its claim for prejudgment interest on awarded attorneys' fees from the date of RLI's breach. (See Wood's Mem. of Law in Supp. of its Mot. for Prejudgment Interest 5.) Patry, however, does not support this proposition. The SJC inPatry declined to award prejudgment interest on attorney's fees awarded under Mass. Gen. Laws ch. 231, § 6B (requiring the addition of prejudgment interest from the date of commencement of an action for pecuniary damages awarded for personal injury).Patry, 394 Mass. at 272. In dicta the court noted, however, that interest should be awarded if the attorney's fees are part of a plaintiff's damages, citing Coyne Indus. Laundry of Schenectady, Inc. v. Gould, 359 Mass. 269, 277 (1971). See Patry, 394 Mass. at 272-73. In Coyne, the SJC limited accrual of interest on the attorneys' fee award to the date of the master's report determining the amount of reasonable attorney's fees, even though they allowed prejudgment interest on the remainder of the award to accrue from the earlier "date by which all the damages were sustained." Coyne, 359 Mass. at 279 (citing to Mass. Gen. Laws ch. 235, § 8 allowing for interest to be computed from the time when an award is made to the time judgment is entered at the prejudgment interest rate). Wood has cited no case that would support its contention that the date for accrual of interest on an award of attorneys' fees commenced on November 6, 2002, the date of RLI's letter denying coverage.
These cases establish that an award of attorneys' fees is normally not viewed as an element of damages flowing from breach, but rather an award incident to prevailing on the underlying claim of liability. Because a prevailing party is not entitled to them until they are awarded by the court, attorneys' fees are not subject to the accrual of prejudgment interest.
II. Wood's Motion to Assess Attorneys' Fees
A. Wood's Entitlement to Attorneys' Fees
Massachusetts normally follows the "American Rule" in disallowing the award of attorneys' fees to the prevailing party in a litigation. The SJC, however, has carved out a court-created exception to this traditional rule where "reasonable attorney's fees and expenses [are] incurred in successfully establishing the insurer's duty to defend under the policy." Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 98 (1997); accord Rubenstein v. Royal Ins. Co. of America, 429 Mass. 355, 358 (1999) (extending Gamache to allow prevailing insured to recover "regardless of which party instituted the declaratory judgment action"). RLI, of course, disputes Wood's entitlement to attorneys' fees and costs.
In particular, RLI distinguishes Gamache and Rubenstein as narrowly applying only to cases establishing the insurance company's obligation to defend a policyholder against claims from a third party. RLI argues that a Massachusetts appellate decision extending Gamache and Rubenstein to award fees for the failure of the insurance company in its obligation to indemnify the policyholder, Safety Ins. Co. v. Day, 65 Mass. App. Ct. 15, 25-26 (2005), is poorly reasoned and urges this court instead to follow the precedent set in Liberty Mut. Ins. Co. v. Black Decker Corp., 383 F. Supp. 2d 200, 219-20 (D. Mass. 2004).
In Liberty Mutual, the court predicted that the SJC would not allow successful insureds to recover attorneys' fees and expenses "attributable to establishing the existence and scope of the duty to indemnify." 383 F. Supp. 2d at 220. That case, however, was decided in 2004, in the context of ambiguous rulings from the SJC. Id. (noting that the SJC's rulings in Rubenstein, 429 Mass. at 359, and Gamache, 426 Mass. at 96, "left open" the question of an insured's entitlement to fees for indemnification disputes). Since that time, the Massachusetts Appeals Court expressly held that a prevailing insured is entitled to attorneys' fees attributable to coverage litigation. Safety, 65 Mass. App. Ct. at 25-26 ("The prevailing insured is entitled under her contract both to a defense and to indemnification; if she must incur legal fees and related expenses to obtain either, the value of her contract is diminished."). Without any indication that the SJC will overturn the appellate court's decision, this court must follow its precedent. C.I.R. v. Bosch's Estate, 387 U.S. 456, 465 (1967);Liberty Mut., 383 F. Supp. 2d at 215.
RLI further argues that Gamache, Rubenstein and Safety are distinguishable as cases awarding attorneys' fees solely in instances in which the insurance company had an obligation to defend or indemnify the insured against third-party claims. It argues that here, where its only obligation was to indemnify Wood for its loss, i.e., a first-party claim, the precedent set by these cases does not apply. This is a distinction without a difference. While it is true that Rubenstein addressed a situation in which the insurance company refused to defend its insured against a third party, the rationale articulated by the SJC applies equally to first-party insurance. That is, in order for the insured to receive the full benefit of the insurance policy, the insurer must indemnify against first-party claims without forcing the insured to become entangled in a lawsuit.
The citations selected by the SJC to explain its decision to award fees in Rubenstein make no distinction between first- and third-party insurance:
Even if the insured were eventually compensated for its defense of the third party action, it would remain permanently uncompensated for the costs associated with the declaratory judgment action it was forced to initiate because of the insurer's violation of its duty to defend. See Olympic S.S. Co., Inc. v. Centennial Ins. Co., [ 117 Wash.2d 37,] 53, 811 P.2d 673 [(1991)] ("an award of fees is required in any legal action where the insurer compels the insured to assume the burden of legal action, to obtain the full benefit of his insurance contract"); Miller v. Fluharty, 201 W.Va. 685, 694, 500 S.E.2d 310 (1997) ("a policyholder buys an insurance contract for peace of mind and security . . . not to be embroiled in litigation"); Hayseeds, Inc. v. State Farm Fire Cas., 177 W. Va. 323, 329, 352 S.E.2d 73 (1986) ("when an insured purchases a contract of insurance, he buys insurance — not a lot of vexatious, time-consuming, expensive litigation with his insurer").429 Mass. at 359.
RLI points to nothing in the court's rationale suggesting that its logic was based on the insurance company's refusal to indemnify the insured for a loss to a third party rather than to the insured itself. Indeed, the rule as stated in Safety makes no such distinction. 65 Mass. App. Ct. at 25 ("That an insured who prevails in coverage litigation is entitled to reasonable attorney's fees and expenses is established."). In addition, the SJC has shown an unwillingness to limit the rule it first established in Gamache on narrow grounds. See Rubenstein, 429 Mass. at 357 ("There is no sound reason to differentiate between homeowner's [liability] insurance and other kinds of liability insurance in applying the rule in Gamache."); Hanover Ins. Co. v. Golden, 436 Mass. 584, 586 (2002) ("Although the Gamache andRubenstein cases each involved circumstances that amounted to a breach of the terms of the policy, the principle we articulated does not require the insured to prove the existence of a breach.").
Given the rationale advanced by the SJC for this exception to the traditional rule, the apparent unwillingness of the SJC to narrowly limit the rule and the lack of a principled reason to limit attorney fee awards only to cases of third-party indemnification, I find that Wood is entitled to reasonable attorneys' fees and costs.
At least one Massachusetts court has come to the same conclusion. In Wilkinson v. Citation Ins. Co., No. 020396, 18 Mass. L. Rptr. 700, 2005 WL 503727, at *3 (Mass.Super. Jan. 27, 2005), the court awarded attorneys' fees to plaintiffs who were forced to litigate against their homeowners insurance company to recover for property damage caused by a fire at their home.
B. Determination of Reasonable Attorneys' Fees and Costs
Massachusetts courts have broad discretion in determining the amount of a reasonable attorneys' fee. E.g., Linthicum v. Archambault, 379 Mass. 381, 388 (1979); Blanchette v. Cataldo, 734 F.2d 869, 878 (1st Cir. 1984) ("The responsibility for establishing a reasonable fee under Massachusetts law lies primarily with the court, not with the party requesting fees."). The factors to be considered in deciding the fee include "the nature of the case and the issues presented, the time and labor required, the amount of damages involved, the result obtained, the experience, reputation and ability of the attorney, the usual price charged for similar services by other attorneys in the same area, and the amount of awards in similar cases." Berman v. Linnane, 434 Mass. 301, 302-03 (2001) (quoting Linthicum, 379 Mass. at 388-89) (internal quotation marks removed). A factor-by-factor analysis, however, is not required. Id.
Wood claims that Massachusetts law entitles it to recover all attorneys' fees that it has expended resulting from RLI's breach of the policy including costs associated with litigating its counterclaims. It argues that, under the federal rules, it was forced to present its compulsory counterclaims or lose them. In addition, Wood believes it is entitled to attorneys' fees for expenses it incurred up to and including the trial. RLI counters that, even if Wood is entitled to its costs in establishing RLI's liability, that liability was established at summary judgment. Any continuing litigation after summary judgment dealt with establishing the limits of RLI's liability for the business interruption caused by the town and Wood's remaining counterclaim for consequential damages, and, therefore, is not subject to recovery.
RLI also argues that Wood's motion is procedurally deficient because it fails to "state the amount or provide a fair estimate of the amount sought" for attorneys' fees and expenses as required by the Federal Rules. Fed.R.Civ.P. 54(d)(2)(B). Wood has moved for leave to file a reply arguing that a statement of amount is not required, but also including information on its costs. (See Docket #330 and Docket #332.) Because I am limiting Wood's recovery in a manner that requires a new submission of costs, any deficiencies in its motion are moot.
The exception to the American Rule established by the SJC inGamache and Rubenstein is limited to "the reasonable attorney's fees and expenses incurred in successfully establishing the insurer's duty to defend under the policy." Gamache, 436 Mass. at 98 (emphasis added); Rubenstein, 429 Mass. at 359; see also Hanover, 436 Mass. at 587 ("The entitlement of an insured to attorneys' fees and costs incurred in establishing contested coverage depends exclusively on whether that coverage isultimately determined to exist.") (emphasis added). Here, RLI's liability to Wood for business interruption resulting from the fire at its Southbridge facility between July 26 and August 2, 2002, was established by this court on August 16, 2004. RLI, 2004 WL 1895132 at *3. As I noted in that decision, RLI's liability for the periods the facility was closed by order of the town could not be resolved on summary judgment as the nature of those orders was unclear. Id. at *2. Because coverage was already established, attorneys' fees and expenses incurred by Wood subsequent to the August 16, 2004, order were directed solely to determining the appropriate "Restoration Period" covered by the policy and to litigating its counterclaim for breach of contract and consequential damages against RLI. It is not entitled to recovery of its costs for those endeavors.
In addition, Wood is not entitled to recover attorneys' fees and expenses from RLI for that portion of its costs prior to summary judgment not related to establishing RLI's liability under the policy. This would include any costs associated with Wood's litigation against IIG and all costs associated with its counterclaims against RLI. Cf. Nasco, Inc. v. Public Storage, 127 F.3d 148, 154 (1st Cir. 1997) (upholding an attorneys' fee adjustment to eliminate any award for legal services rendered in connection with unsuccessful claims).
Thus, Wood is entitled to an award of attorneys' fees and expenses limited solely to its costs in litigating the indemnification claim to summary judgment. It is not possible, however, to determine from the submissions Wood attached to its proposed motions (Docket #330 and Docket #333) what fees and expenses it expended in establishing RLI's liability.
Therefore, Wood shall submit a revised and coherent accounting detailing the work performed in establishing its right to indemnification to the extent described herein, together with the time expended therefore and the reasonable hourly rate of counsel who did the work:
Wood is not required to resubmit duplicate copies of the billing statements from Campbell Campbell Edwards Conroy (Docket #330, Affidavit of Kristin L. Fitzgerald, Ex. A) and the billing statements from Lawson Weitzen, LLP (Docket #330, Affidavit of Richard B. Weitzen, Ex. A).
Total attorneys' billings for fees at the regular full hourly rate (i.e. not under the special billing arrangement) and expenses for litigating the indemnification issue to summary judgment. This total shall not include any costs associated with Wood's counterclaims or any litigation against IIG.
Wood entered into a special billing arrangement with at least one of its law firms requiring it to pay 100% of the out-of-pocket expenses but only 50% of the billed labor costs, with the law firm additionally receiving 20% of the total amount that Wood recovers in the litigation.
Of course, awarded attorneys' fees and expenses may also be limited if the actual expenditures are unreasonable. See, e.g.,Star Fin. Servs. v. Aastar Mortg. Corp., 89 F.3d 5, 31 (1st Cir. 1996) (upholding a fee award reduction where "the simplicity of the case rendered the fees excessive and warranted a reduction for over-lawyering"); Berman, 434 Mass. at 302-03.
III. Conclusion
Accordingly, Wood's Motion for Prejudgment Interest (Docket #335) is allowed on the amount of the jury verdict only. No prejudgment interest is allowed on the award of attorneys' fees and expenses. Prejudgment interest is to be calculated as of December 12, 2002.
Wood's Motion to Assess Attorneys' Fees (Docket #324) is granted only for attorneys' fees and expenses necessary to establish the existence of RLI's liability for business interruption coverage consequent to the 2002 fire at the Southbridge facility. The amount of reasonable attorneys' fees and expenses will be determined after Wood provides the accounting outlined herein. The court will enter an order for attorneys' fees after Wood's resubmission as directed herein.
Wood's Motion for Leave to File a Reply to RLI Insurance Co. ("RLI")'s Opposition to Wood Recycling Inc.'s Motion to Assess Attorneys' Fees (Docket #330) and its Motion to Submit Attorney's Fees Application and Request for Oral Argument (Docket #332) are denied as moot.
Judgment may be entered:
(1) declaring RLI's obligation to indemnify Wood for business interruption loss in the amount of $1,643,654.90;
(2) for RLI on Counts II, III, IV and V on Wood's counterclaim in accordance with the Court's decision on RLI's motion for summary judgment;
(3) for Wood on Count I of its counterclaim in accordance with the verdict of the jury; and
(4) for IIG on Wood's counterclaim in accordance with the court's ruling on its motion for summary judgment.
Counsel shall file a proposed form of judgment within 5 days.