Opinion
Civil Action No. 3:99-CV-0556-L.
September 8, 2004
FINDINGS, CONCLUSIONS, RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
Pursuant to the District Court's Order of Reference, filed April 16, 2004, this matter has been referred to the undersigned United States Magistrate Judge for hearing, if necessary, and to submit proposed findings and recommendation. Before the Court are the following pleadings:
1. Plaintiff's Amended Application for Attorneys' Fees and Expenses, filed May 10, 2004, ("Pl. Am.");
2. Appendix in Support of Plaintiff's Amended Application for Attorneys' Fees and Expenses, filed May 10, 2004, ("Pl. App.");
3. Defendant's Response to Plaintiff's Amended Application for Attorneys' Fees and Expenses, filed June 7, 2004, ("Def. Br.");
4. Appendix in Support of Defendant's Response to Plaintiff's Amended Application for Attorneys' Fees and Expenses, filed June 7, 2004, ("Def. App.");
5. Reply to Defendant's Response to Plaintiff's Amended Application for Attorneys' Fees and Expenses, filed June 18, 2004, ("Reply");
6. Appendix in Support of Plaintiff's Reply to Defendant's Response to Plaintiff's Amended Application for Attorneys' Fees and Expenses, filed June 18, 2004, ("Reply App.");
7. Centers' Supplemental Brief Regarding Plaintiff's Request for Attorneys' Fees, filed July 26, 2004, ("Def. Supp. Br.");
8. SG/IP's Plaintiff's Supplemental Brief Supporting Award of Attorneys' Fees and Expenses, filed July 26, 2004, ("Pl. Supp. Br."); and
9. Centers' Second Supplemental Brief Regarding Plaintiff's Request for Attorneys' Fees, filed July 28, 2004, ("Def. 2nd Supp. Br.").
After careful consideration of the above pleadings, the evidence submitted therewith, and the applicable authority, the Court recommends that Plaintiff's Amended Application for Attorneys' Fees and Expenses be DENIED.
I. BACKGROUND
This fee application arises out of an action originally filed in Texas state court by Plaintiff, SG/IP, Ltd. ("SG/IP") against Defendant, William L. Centers ("Centers"), seeking declaratory judgment on whether Centers had a right to purchase an interest in SG/IP's partnership under an option agreement. Centers removed the Texas state court action to federal court on the basis of diversity on March 15, 1999, and filed a motion to dismiss on March 30, 1999. On July 1, 2000, Centers filed a motion to extend the parties' pretrial deadlines and to stay the action. The District Court granted the motion on June 6, 2000, and stayed the action pending the resolution of an appeal in a related Florida state court proceeding. On October 21, 2002, the parties jointly moved to reopen the case, and the district court reopened it on October 25, 2002.On April 4, 2003, Centers filed a motion for partial summary judgment. SG/IP filed a competing motion for partial summary judgment on April 28, 2003. On March 31, 2004, the District Court denied Centers' motion for partial summary judgment, granted SG/IP's motion for partial summary judgment, and entered judgment in favor of SG/IP. In its Order and judgment, the District Court awarded SG/IP its reasonable and necessary attorneys' fees and directed SG/IP to submit an application pursuant to FED. R. CIV. P. 54(d).
Although the motions requested "partial" summary judgment, in their subsequent joint motions to continue, the parties agreed that the granting of either motion would resolve the entire case.
SG/IP timely filed its application for attorneys' fees on April 14, 2004, and the District Court referred the application to this Court for the submission of proposed findings and recommendations. This Court issued an Order on April 21, 2004, directing the parties to meet face-to-face in an effort to resolve the fee dispute. If the parties could not reach an agreement, the Order also directed SG/IP to refile its application with supporting documentation and an analysis of the factors relevant to an award of attorneys' fees. Following unsuccessful negotiations, SG/IP refiled its attorneys' fees application with supporting documentation on May 10, 2004.
Neither the fee application, response nor reply specified the statute, rule, or other grounds which entitled SG/IP to an award of fees in this case, as required by FED. R. CIV. P. 54(d)(2)(B). Because it appeared from the District Court's March 31, 2004 Order that SG/IP asserted its claim for attorneys' fees and expenses pursuant to TEX. CIV. PRAC. REM. CODE § 37.009 of the Texas Declaratory Judgment Act, this Court ordered supplemental briefing on July 9, 2004, regarding whether an award of attorneys fees was authorized and whether the issue had been waived. On July 26, 2004, SG/IP and Centers filed supplemental briefs. This case is now ripe for determination.
II. ANALYSIS
A. Recovery of Attorneys' Fees in a Declaratory Judgment ActionThe general American Rule for awarding attorneys' fees is that the parties must bear their own costs unless some statute allows the court to award the prevailing party its fees. Buckingnon Bd. and Care Home, Inc. v. West Virginia Dep't of Health and Human Res., 532 U.S. 598, 598-99 (2001) (citing Key Tronic Corp. v. United States, 511 U.S. 809, 819 (1999)). Pursuant to Federal Rule of Civil Procedure 54(d)(2)(B), claims for attorneys' fees must be made by motion specifying the statute, rule, or other grounds entitling the moving party to the award. Litigants in a diversity case must state a ground of state substantive law that entitles them to attorneys' fees. McLeod, Alexander, Powell Apffel, P.C. v. Quarles, 894 F.2d 1482, 1487 (5th Cir. 1990).
In this case, SG/IP bases its request for fees on TEX. CIV. PRAC. REM. CODE § 37.009 of Texas Declaratory Judgment Act ("TDJA"), which permits recovery of reasonable and necessary attorneys' fees in a declaratory judgment action. However, the Fifth Circuit has clearly held that the TDJA functions as a procedural mechanism and does not provide the necessary substantive legal basis for awarding attorneys' fees in a federal diversity action. Utica Lloyd's of Texas v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998). See also Olander v. Compass Bank, 363 F.3d 560, 567-68 (5th Cir. 2004).
SG/IP argues that it would be unjust to deny attorneys' fees that would have been granted under the TDJA but for removal of the case to federal court on diversity grounds. (SG/IP's Supp. Br., at 3). In support of its position, SG/IP cites Citizens Nat'l Bank v. Kirchman Cos., 1991 WL 131945, at *6 (N.D. Tex., 1991), which held that removal from state to federal court should not deprive plaintiffs of their right to recover attorneys' fees under § 37.009. That case, however, was decided seven years prior to the Fifth Circuit's holding in Utica, which explicitly eliminates the distinction between cases originally filed in federal court and removal cases for the purpose of determining awards of attorneys' fees under § 37.009. Utica, 138 F.3d at 210.
SG/IP has stated no ground of substantive state law which entitles it to an award of attorneys' fees. Accordingly, SG/IP is not entitled to attorneys' fees absent a finding that Centers waived his right to challenge an award of fees under the TDJA in this case.
B. Waiver
The Court next considers whether, in light of Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d 761 (5th Cir. 1999), Centers waived the issue of recovery of attorneys' fees and expenses under the TDJA by failing to raise it before the District Court or in its initial briefing before this Court. In Travelers, Travelers Indemnity Company ("Travelers"), sought a declaratory judgment in a diversity action to determine whether it had a duty to defend and indemnify defendants Citgo Petroleum Corp. ("Citgo"). Travelers, 166 F.3d at 763. On appeal, the Fifth Circuit affirmed summary judgment in favor of Travelers and an award of attorneys' fees. Travelers, 166 F.3d at 763, 772. The Fifth Circuit acknowledged that Travelers was not entitled to attorneys' fees under the TDJA, but found that Citgo had waived its right to challenge the validity of the award. Id. at 772. The court pointed out that not only had Citgo failed to challenge the award prior to appeal, it had also requested fees on its own behalf under the same statute. Id. Under those circumstances, the Fifth Circuit held that Citgo had waived its argument against the award of attorneys' fees. Id.
This Court finds that the facts in this case are distinguishable from those in Travelers. First, this is not a case where Centers made multiple requests for compensation under the same statute he later challenged, as in Travelers. Rather, Centers made a single request for attorneys' fees under the TDJA as part of an affirmative defense in his state court answer filed in 1999. (Centers' 2nd Supp. Br., at 1). Centers' failure to amend a four-year-old state court pleading to remove a request for attorneys' fees relating to an unsuccessful affirmative defense does not evoke a sense of inconsistency that would rise to the level of playing "fast and loose with the courts to suit the exigencies of self interest." See In re Coastal Plains., Inc., 179 F.3d 197, 205 (5th Cir. 1999) (applying equitable doctrine of judicial estoppel to prevent parties from taking inconsistent positions in their arguments and pleadings) (citing Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir. 1988)). Second, the District Court has not yet entered final judgment regarding the amount of attorneys' fees in this case. This Court thus finds that under these circumstances, Centers did not waive his ability to challenge the award of attorneys' fees under the TDJA. Accordingly, SG/IP is not entitled to attorneys' fees.
III. RECOMMENDATION
For the foregoing reasons, the undersigned Magistrate Judge hereby RECOMMENDS that Plaintiff's Amended Application for Attorneys' Fees and Expenses be DENIED.