Opinion
No. 215-2012-CV-37
09-29-2016
WHS Homes, Inc. v. Traditional Living, Inc., et al. and Traditional Living, Inc., et al. v. WHS Homes, Inc.
ORDER
After a lengthy trial in this matter, on January 15, 2016, this Court found in favor of Tod Schweizer and Traditional Living, Inc. (collectively "TLI") and against WHS Homes, Inc. and William H. Silverstein, Inc. (collectively "WHS") and found that TLI is not liable to WHS and that WHS was liable to TLI in the amount of $1,022,997.99. The lawsuit between the parties involved an Asset Purchase Agreement ("APA") and a promissory note that provided for attorney's fees for the prevailing party in the event of a lawsuit. The Court's Order of January 15, 2016 therefore provided that because TLI was the prevailing party, it was entitled to reasonable attorney's fees, which must be submitted to the Court for approval. TLI filed a Motion for Approval of Fees, to which WHS has objected. Upon consideration of the pleadings, the Court awards TLI fees in the amount of $702,882 and costs in the amount of $34,896.22 for a total of $737,778.22.
I
To put the fee dispute in context, it is necessary to briefly outline the claims between the parties. As discussed in the Court's January 15, 2016 Order, the dispute began when a creditor of TLI, Brockway-Smith Company, attempted to collect the amount owed on its open account from both or either WHS or TLI. That claim has been resolved. However, the litigation between WHS and TLI became complex. Initially, TLI filed cross-claims against WHS for breach of contract, unjust enrichment, and indemnification, while WHS filed a single cross-claim against TLI for indemnification. As the dispute progressed, WHS filed additional claims against TLI for misrepresentation, breach of warranty, reimbursement, indemnification, unjust enrichment, and conversion, all based on the APA between WHS and TLI. WHS then filed for partial summary judgment on TLI's cross-claim, which was denied. TLI subsequently sought, and was permitted, to file an amended cross-claim, including five claims for breach of contract, unjust enrichment, and indemnification.
The Court held a bench trial during the week of October 26, 2015. By the time of trial, there were three areas of dispute. First, TLI alleged WHS was responsible for paying $1.7 million in trade payables pursuant to the APA, but did not do so. Second, TLI alleged WHS failed to perform a number of obligations that it undertook as part of the APA in that it failed to pay a $430,000 promissory note, a broker's fee, and rent on properties TLI owned. Finally, WHS claimed TLI was liable to WHS for a number of missing assets that were not turned over to it at the closing.
After finding in favor of TLI and against WHS, the Court ordered WHS to pay attorney's fees pursuant to two specific contractual provisions. The APA provides in section 4.3 that WHS:
indemnifies, saves and holds harmless [TLI] from and against any and all Losses suffered, sustained, incurred or required to be paid . . . in connection with or arising out of: (a) the untruth, inaccuracy or breach of, or the failure to fulfill, any representation, warranty, agreement, covenant or statement of Buyer contained in this Agreement . . .; (b) the Assumed Liabilities; (c) the use of the Assets by [WHS] or the operation of the Business by [WHS] following the Closing; or (d) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including reasonable attorneys' fees) incident to any of the foregoing or to the enforcement of this Section 4.3.
Similarly, paragraph 5 of the promissory note executed in accordance with the APA provided that WHS would "pay on demand all costs of collection and attorney's fees incurred or paid by [TLI] in enforcing" the promissory note.
WHS claims that the fee shifting provision of the promissory note is inapplicable, because WHS never refused to pay on the promissory note, but simply asserted that it was not required to pay because it was entitled to a setoff relating to the assumed liabilities under the APA. The short answer to this response is that the Court determined that its claim of setoff had no merit; therefore, as a matter of common sense, it did refuse to pay the promissory note.
In its order of January 15, 2016, the Court found that WHS is also liable for fees pursuant to section 4.3 of the APA. WHS asserts that the provision is inapplicable to the so called "missing equipment claim"— WHS's claim that certain production assets of TLI that were listed on the corporate books did not exist. The Court found this claim to be without merit. As explained in the January 15, 2016 Order:
WHS has also made a claim that assets were missing as a part of the transaction. In section 215(b) of the APA, TLI represented that the acquired assets "constituted all the assets, tangible or intangible necessary to operate the business in a manner operated by seller immediately prior to the closing." There was no list of assets appended to the APA. WHS does
not contend that any of the assets which were necessary to operate the business in the manner operated by seller immediately prior to the closing were not produced.Order, January 15, 2016, at 16-17.
A. Production Assets
WHS's primary claim is that there was production equipment listed on TLI books of account valued at $1,005,600, which was not present at closing. It argues that it is entitled to damages, because in the APA, TLI warranted that "the books of account of seller reflect all . . . of its assets and liabilities required to be reflected therein. Seller maintains its financial statements and its books and records in accordance with generally accepted accounting principles." WHS does not dispute that it was aware that not every item on TLI books was transferred. Silverstein performed no asset inventory prior to closing, made no site visit to two of three plants, and made no valuation of any assets, pre- or post-closing. Less than 30 days from closing, Silverstein submitted a financial statement to a bank in order to obtain a line of credit, asserting that the assets were worth $5 million. Two years later, he submitted a financial statement averring that the assets were valued at $8.1 million.
The testimony at trial established clearly that the vast majority of the claim for production equipment related to the equipment installed in the 1970s and 1980s that had either been removed when TLI installed more modernized and efficient equipment or had simply worn out from use. In support of its claim for damages were missing equipment, WHS called Bob Best, a WHS employee who had worked for many years for TLI, as an expert. Best has no formal education in valuing equipment of the kind used in this business and has never been involved in purchasing or selling such equipment as a broker. Nonetheless, Best claimed expertise in the market for used equipment. The Court finds he is not qualified to act as an expert witness and further finds his testimony incredible.
WHS argues that section 4.3 of the APA does not apply to this claim because it made "no representation, warranty, statement, etc. about the Missing Assets"; that section 4.3(b), regarding assumed liabilities, does not apply to TLI's defense of the missing equipment claims; and that because TLI did not suffer losses in connection with the use of the missing equipment (because WHS never received the equipment), section 4.3(c) is not applicable. (WHS Obj. to Attorney's Fees 1, 2-3 ("WHS Obj.").) Further, according to WHS, section 4.3(d) is not applicable because that subsection applies only to actions "incident to any of the foregoing— i.e., to the matters covered in subsections (a), (b), and (c)." (WHS Obj. 1, 2-3).
However, as TLI points out, section 4.3 applies to both "the use of the Assets by [WHS] or the operation of the Business by [WHS] following the Closing." (TLI's Reply in Support of Mot. for Attorney's Fees 1, 3 ("TLI's Reply Mem.").) WHS's claim about what equipment it needed and expected to run the business life in the so-called "missing equipment claim" "arises out of" and "is connected with" WHS's use of the equipment or operation of the business. See generally Town of Nottingham v. Newman, 147 N.H. 131, 136 (2001). WHS's claim that TLI never gave it notice of the missing equipment claim as it was required to do under the APA cannot succeed. TLI never made a missing equipment claim; WHS did. There is obviously no need to send a notice of claim to a party who is asserting the claim, for that party surely has knowledge of its own claims. S. Broad. Grp., LLC v. Gem Broad. Inc., 145 F. Supp.2d 1316, 1326-27 (M. D. Fla. 2001).
II
WHS also challenges the reasonableness of the fees. The reasonableness of a fee is determined based upon an examination of eight factors, which include:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly.
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.
(3) the fee customarily charged in the locality for similar legal services.
(4) the amount involved and the results obtained.
(5) the time limitations imposed by the client or by the circumstances.
(6) the nature and length of the professional relationship with the client.
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and.In re Estate of Rolfe, 136 N.H. 294, 299 (1992), quoting N.H. R. Prof. Conduct 1.5(a). "There can be no rigid, precise measure of reasonableness, however, because the weight accorded each factor depends upon the circumstances of each particular case." McCabe v. Arcidy, 138 N.H. 20, 29 (1993).
(8) whether the fee is fixed or contingent.
As the moving party, the party seeking fees has the burden of establishing their reasonableness. Id. at 30; see also Wilson v. Port City Air, Inc., No. 13-cv-129-LM, 2014 WL 7333016, at *3 (D. N.H. Dec. 19, 2014) (decided under federal fee shifting statute). TLI has submitted billing records that are itemized by attorney, date, time, and task. WHS objects that the time records do not distinguish between the assumed liabilities claim and the missing equipment claim. However, the Court has already decided that all the claims that were litigated are within the scope of the explicit indemnification agreement under section 4.3 of the APA and paragraph 5 of the promissory note.
WHS also asserts that TLI's "time records are replete, and consistent, with gross overbilling." It nonetheless states that "[i]t is not feasible to analyze all 310 pages of billing records," but provides examples that it asserts establishes overbilling. (WHS Obj. 1, 7.) The Court cannot address speculation, but can and does address the specific claims made by WHS.
A
WHS first complains that at all depositions, TLI had two attorneys and a paralegal present the entire time even though a single attorney conducted the deposition. However, it is common in complex civil litigation to staff cases with multiple attorneys. See, e.g. Rodriguez-Hernandez v. Miranda-Velez, 132 F.3d 848, 860 (1st Cir. 1998) ("Time spent by two attorneys on the same general task is not . . . per se duplicative. Careful preparation often requires collaboration and rehearsal. . . ."). It is often much more efficient, and ultimately far less expensive for the client, to have junior attorneys and paralegals assisting a more senior attorney who conducts the deposition. As a practical matter, in most commercial litigation, a paralegal and/or junior attorney is responsible for reviewing documents, and selecting documents that the senior attorney can use at the deposition. It is often necessary and efficient to have a junior attorney who is more familiar with the documents than a senior attorney, and a paralegal who can quickly locate that document, at a deposition.
Even so, in this case "[o]nly one attorney billed for his time during all but two depositions," the depositions of the two principals, Tod Schweizer of TLI and William Silverstein of WHS. (TLI's Reply Mem. 1, 7.) Additionally, although many of the depositions were conducted in the Hanover, New Hampshire/Norwich, Vermont area, Attorney Connolly, who practices in Boston, only billed 20 hours of travel time over a two-year period because he did not bill most of his travel time. In any event, "[t]ravel is often a necessary incident of litigation, and an attorney's travel time may be reimbursed in a fee award." Hutchinson ex rel. Julien v. Patrick, 636 F.3d 1, 15 (1st Cir. 2011).
WHS also complains that TLI's lawyers overbilled for the deposition of a witness that WHS called as an expert on the missing equipment claim, and that the Court ultimately found unqualified to act as an expert, Bob Best. WHS complains that Best's deposition on October 9, 2014 "lasted 4 hours and 20 minutes, less one hour and 40 minutes taken by TLI's counsel during that time as breaks." (WHS's Obj. 1, 7.) TLI billed 83.6 hours on October 2, 4, 6, 7, 8, and 9, divided between two attorneys and a paralegal, for deposition preparation. TLI argues that the recesses it took assisted its attorneys in streamlining the deposition, and ultimately were cost effective and to its client's benefit.
A critical factor in determining the reasonableness of attorney's fees is the "skill requisite to perform the legal service properly" and the "amount involved and the results obtained" In re Estate of Rolfe, 136 N.H. at 299. WHS claimed that TLI breached the asset purchase agreement because $1 million in equipment was missing. It principally relied on Best as an expert witness to support its claim. Based on the cross-examination of Best done at trial, which presumably was the result of careful preparation and deposition, the Court found that Best was "not qualified to act as an expert witness" and found his testimony "incredible," thus defeating the entire $1 million claim. Order, January 15, 2016 at 17. The Court cannot find that the time preparing for and examining Best in his role as an expert witness was excessive. See In re Estate of Rolfe, 136 N.H. at 299. The recesses taken may well have streamlined the deposition, and led to the positive result.
Moreover, the Court finds that much of the extensive litigation in this matter was the result of WHS's decision to pursue non-meritorious claims, and in particular the missing equipment claim. In rejecting WHS's argument that it was the prevailing party on this claim, even though the Court determined after hearing Best's testimony that the supposed missing equipment was of no value, the Court found in its Order of January 15, 2016 that WHS's assertion of the missing assets claim was "obstinate":
The Court cannot find that WHS was the prevailing party on this claim. First, there is no value to the "missing equipment" claim because it is a claim based on obvious error by TLI in failing to remove junked or scrapped material from inventory books which had nothing to do with whether or not TLI delivered the assets it was required to deliver pursuant to the APA. There was no list of assets appended to the APA, and it is a
matter of common knowledge that in any organization, items taken out of service are sometimes left in inventory. There is no claim that TLI breached any warranty to provide all of the equipment needed to operate the plants. A prudent buyer concerned about the issue would do an audit. Moreover, as pointed out in TLI's memo, as a result of this claim, the litigation was complicated. Although meritless, TLI was required to defend a $1 million claim that required it to depose Best twice and retain an expert to analyze the equipment claim. Despite the fact that the Court rejected its theory of damages in a pretrial order, WHS produced evidence to support it at trial. At least a full day of the 4 day trial was based on the missing equipment claim. Even if WHS were entitled to fees, the Court would set them off based on WHS's obstinate conduct in pursuing this claim.Order, January 15, 2016 at 20.
B
TLI also claims $42,648 in fees prior to filing suit. It claims these expenses were incurred due to WHS's failure to make payments and that all of these claims would have been incurred in litigation. Plaintiff provides no explanation of why this is so. The APA does not specifically provide for the award of pre-suit expenses, but only provides for award of reasonable attorney's fees. It is true that under some circumstances, pre-suit services may be considered "part and parcel" of the litigation. Liberty Mut. Ins. Co. v. Cont'l Cas. Co., 771 F.2d 579, 586 (1st Cir. 1985). In such cases, the testimony of witnesses must "strongly suggest that most, if not all, of the pre-suit services would have been performed after suit was filed had they not been performed before." Id. TLI has not shown that the expenses it incurred prior to suit would necessarily have been performed after suit was brought had they not been earlier performed. Accordingly, TLI may not recover these fees.
C
TLI also seeks $34,896.22 in costs. WHS has filed no objection to TLI's claim of costs. Superior Court Civil Rule 45 governs taxation of costs and provides that costs "shall be allowed as of course to the prevailing party" unless the court otherwise directs. Super. Ct. Civ. R. 45(a). TLI has not attempted to recover costs for expert witnesses. Compare Martinez v. Nicholson, 154 N.H. 397 (2006). It has sought to recover its share of the cost of a certified stenographic reporter, which allowed the parties to obtain a real-time transcript, and which both the parties agreed to use pursuant to the Standing Orders of the Business and Commercial Dispute Docket. The use of a real-time transcript was doubtless helpful during trial and during preparation of the post-trial memoranda, which were lengthy and fact based.
The award of costs is generally said to lie within the discretion of the trial court. Cutter v. Town of Farmington, 126 N.H. 836, 843 (1985). Based on the complexity and magnitude of the litigation, and the necessity for the costs sought, the Court finds the costs reasonable and approves them.
III
This case proceeded in the Business and Commercial Dispute Docket and can fairly be characterized as complex commercial litigation. The litigation involved eleven depositions of expert and non-expert witnesses, several summary judgment motions, and a four-day trial. WHS asserted claims of $2 million, which the Court rejected. TLI was awarded $1,022,997.99 in damages. Therefore more than $3 million in total claims was involved. TLI has been awarded $702,882 in attorney's fees and $34,896.22 in costs, roughly 25% of the $3 million in total claims. TLI's attorneys' billing rates range from $140-$280/hour, which WHS has stipulated were reasonable hourly rates.
The Court finds that TLI has satisfied its burden of establishing the reasonableness of its fees incurred during the litigation. The Court approves attorney's fees in the amount of $702,882 and costs in the amount of $34,896.22. WHS is therefore liable to TLI for $737,778.22 in costs and fees. 9/29/16
DATE
This represents TLI's requested fees of $745,530 minus the $42,648 worth of pre-suit fees. --------
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/