Tag Archives: Attorneys Fees

The American Rule Stands? Appellate Court Remands for Prevailing Party to Segregate Between Recoverable and Non-Recoverable Fees

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John Mark Goodman | BuildSmart

Another week, another fee-shifting case. This ones involves a 28-unit condo project in the Houston Heights neighborhood of Houston (see 2017 Yale Development, LLC v. Steadfast Funding, LLC, 2023 WL 3184028 (Tex. App. May 2, 2023)). The project failed after the developer defaulted on its loans and several contractors filed liens on the property. Litigation ensued.  The developer asserted numerous claims including fraud and breach of contract against the lenders and others, and the lenders countersued for fraud and breach of contract. The trial court rendered summary judgment against the developer on its claims and in favor of the lenders on their breach of contract counterclaim. The case proceeded to a trial on the issue of the lenders’ breach of contract damages.  The trial court awarded the lenders a total of $8.3 million, including $765,000 in attorneys’ fees, which were recoverable under a fee-shifting provision in the promissory note.

On appeal, the developer raised 33 issues. The appellate court rejected all but one: the appropriateness of the fee award. On that issue, the appellate court held that the lenders had failed to properly segregate their attorneys’ fees between recoverable and non-recoverable claims as required under Texas law. For example, while the lenders could be entitled to attorneys’ fees on their breach of contract claim, they would not be entitled to recover fees incurred in pursuit of fraud claims. The court therefore remanded the case to the trial court to allow the lenders to properly prove up their recoverable attorneys’ fees. As to what proof would be required on remand, the court cited the following cases as guidance: Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311, 314 (Tex. 2006) (noting that standard for segregation of attorney’s fees “does not require more precise proof for attorney’s fees than for any other claims or expenses” and stating that attorney’s opinion that a certain percentage “of their drafting time would have been necessary even if there had been no fraud claim” would have sufficed); Hillegeist Fam. Enters., LLP v. Hillegeist, 2022 WL 3162367, at *5 (Tex. App. Aug. 9, 2022) (stating that when segregation is required, attorneys do not have to keep separate time records for each claim).

The Yale Development case serves as another useful lesson on the recoverability of attorneys’ fees. Understanding the requirements and limits to fee awards in a specific state can be important. In this case, early recognition of the requirement to segregate fees incurred on different claims may have allowed lenders the ability to more easily prove up their attorneys’ fees claims at trial and on remand.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

The American Rule Doesn’t Stand: Contractor Uses Offer of Judgment to Recover Attorneys’ Fees in Retention Dispute

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John Mark Goodman | BuildSmart

Last week we saw the Menard court reject the use of an indemnity clause to shift fees in a dispute between contracting parties. This week, a very recent decision from Nevada highlights another creative way to shift fees where there is no statute or contract provision on point: offers of judgment (see Helix Electric of Nevada v. APCO Construction, Inc., 2023 WL 2987662 (Nev. Apr. 17, 2023)). Helix Electric involved a payment dispute between the electrical subcontractor, Helix, and the initial general contractor, APCO Construction, which left the project before it was completed. The gist of the dispute was whether APCO owed Helix retention that had accrued when APCO left the project. APCO argued that it did not owe the retention because (1) under the contract the retention did not become due and payable until project completion and (2) Helix and the new general contractor entered an assignment and novation of the subcontract thereby relieving APCO of its obligations under the original subcontract. Helix argued the retention provision was an illegal and unenforceable “pay-if-paid” provision. The lower court ruled in APCO’s favor, and the Nevada Supreme Court affirmed. 

On the attorneys’ fees issue, the Nevada Supreme Court rejected APCO’s argument that it was entitled to recover under the fee-shifting provision in the contract. That’s because of the assignment and novation: Once the subcontract was assigned and novated, APCO was no longer a party to it and could not enforce it. Enter the offer of judgment, an often-overlooked procedural tool designed to encourage settlement that can be used to recover certain litigation costs and, in some jurisdictions, attorneys’ fees. In Nevada, Rule 68 of the Nevada Rules of Civil Procedure provides that any party may serve an offer of judgment at least 21 days before trial. If the offer is not accepted and the offeree fails to obtain a more favorable judgment at trial, the offerer may recover post-offer costs and reasonable attorneys’ fees. 

That’s exactly what happened in Helix Electric. APCO made an offer of judgment more than 21 days before the trial. Helix did not accept the offer, and then failed to obtain a more favorable judgment. Helix was therefore ordered to pay APCO’s post-offer attorneys’ fees and expenses. Note that while most jurisdictions have a similar procedural tool, the mechanics of making an offer of judgment and what can be recovered (e.g., costs, fees or both) varies from jurisdiction to jurisdiction. Nevertheless, the next time you find yourself with no clear path to recover fees, consider making an offer of judgment. It may just be your ticket to stick the other side with your fees.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

How To Draft Fee-Shifting Provisions in Indemnification Clauses

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Heather Benzmiller Sultanian and Jarrett H. Gross | Sidley Austin

Delaware courts have determined that even quite broad language referencing attorneys’ fees may not be explicit enough to shift fees in first-party litigation.

Deal lawyers will be very familiar with indemnification clauses, which are a standard term in most M&A contracts.

Although the precise language may vary, the buyer or the seller (or both) typically agrees to indemnify the other for “losses” arising from a breach of the contract or specific terms of the contract.

A typical indemnification agreement defines the scope of those losses in expansive terms, and often includes “attorneys’ fees” or “legal fees” in the list of indemnifiable losses.

In the event the parties to a contract wind up in litigation over an alleged breach, a question often arises: Does the indemnification clause allow the indemnified party to recover its attorneys’ fees incurred in the litigation between the parties over the alleged breach (assuming the indemnified party prevails)? The answer to that question is more complicated than it might appear.

In a line of recent cases, Delaware courts have explained that, to accomplish “fee-shifting” in litigation between the parties to the contract (referred to as “first-party litigation”), it is not enough just to list attorneys’ fees as one of the types of indemnifiable losses.

So, if a deal lawyer wants to draft language entitling her client to recover attorneys’ fees incurred in litigation over a future breach of the contract, she should keep a few principles in mind.

1. Understand the default

Delaware courts follow the “American Rule,” under which each party to litigation bears its own attorneys’ fees and expenses.

Contracting parties can modify that rule by agreement, but they must be explicit if they wish to do so—and general references to attorneys’ fees will not suffice.

The requirement for clear and unequivocal language reflects a desire to preserve the American tradition of all parties paying their own legal expenses, unless the parties truly intend to deviate from that practice.

Courts reason that, if a generic reference to attorneys’ fees were sufficient to shift fees, a typical indemnification clause might swallow the American Rule.

2. Use explicit fee-shifting language

In the face of the American Rule, Delaware courts have determined that even quite broad language referencing attorneys’ fees may not be explicit enough to shift fees in first-party litigation.

For example, indemnification provisions stating that a party will be indemnified for “reasonable attorneys’ fees” have been deemed not sufficiently clear and unequivocal, as there are many types of attorneys’ fees that might be encompassed by that language apart from fees incurred in first-party litigation between the contracting parties.

Even an agreement that requires indemnification for attorneys’ fees “whether or not arising out of third party claims” has been found not to clearly convey the parties’ intent to shift fees in first-party litigation.

If parties to a contract governed by Delaware law intend to shift fees in litigation between the parties, they should explicitly address that scenario in the contract.

An effective fee-shifting provision should, first and foremost, explicitly reference litigation to enforce the agreement that is commenced by either party to the contract.

In addition, courts search in the provision for a reference to a “prevailing party,” which has long been a “hallmark term” of fee-shifting provisions.

Ultimately, although there is no specific language that must be used to accomplish fee-shifting, Delaware courts will look for terms and words that show the contracting parties had first-party litigation in mind.

3. Consider contract structure

When analyzing whether an indemnification agreement provides for fee-shifting, Delaware courts also frequently look to provisions elsewhere in the contract that explicitly permit fee-shifting under a more narrow set of circumstances—such as for breach of specific provisions of the contract or in first-party litigation regarding a specific subject matter.

There are a couple of reasons that these more specific provisions in the contract provide additional support for the conclusion that general indemnification provisions—even if they reference “attorneys’ fees”—do not shift fees in first-party litigation across the board.

First, courts reason that the existence of provisions that explicitly provide for fee-shifting under some circumstances shows that the parties knew how to draft a fee-shifting clause and could have done so in the general indemnification provision had they intended.

Second, if the general indemnification provision is read to provide for fee-shifting in all first-party litigation, there would have been no need to draft the separate term providing for fee-shifting under a more limited set of circumstances.

Courts are hesitant to read a general indemnification clause in a way that renders the more specific provision superfluous. So to reinforce the language of a provision intended to shift fees for first-party litigation, contracting parties should consider how other terms in the agreement shed light on the meaning and scope of the provision.

Concluding thoughts

Counsel negotiating indemnification provisions for M&A contracts should carefully consider whether they intend for either party to cover the other’s attorneys’ fees in litigation arising from a breach of the contract. There are sound reasons why a party may or may not want such fees to be recoverable.

But if the parties intend to contract around the American Rule and provide for fee-shifting in first-party litigation, the language and structure of the contract must clearly and unequivocally reflect that intent.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Construction Litigation Roundup: “You Win Some, You Lose Some”

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Daniel Lund III | Phelps Dunbar

You win some, you lose some. 

A surety and its principal (the general contractor) in litigation concerning an Air Force project in Nevada prevailed in the case and sought to recover their attorneys’ fees. 

The dispute involved a first-tier subcontractor and the related subcontract, which contained an attorneys’ fees clause. At the end of the trial, the Nevada federal district court held: “‘[General contractor and surety] are the prevailing parties in this case and should be awarded their attorneys’ fees/expenses in an amount to be determined upon motions as directed in the Court’s Order.’” The subcontractor moved to have the court reconsider its awards of attorneys’ fees. 

Noting the “American rule” that “litigants generally must pay their own attorneys’ fees in absence of a rule, statute, or contract authorizing such an award…,” the court re-examined its award of attorneys’ fees to the GC and surety. As regards the GC, a principal argument against the attorneys’ fees award was that the GC should not have been considered a “prevailing party” (the term used in the attorneys’ fees clause in the subcontract) entitling it to the recovery. The federal district court disagreed: the “prevailing party, for purposes of attorneys’ fees, is one that ‘succeeds on any significant issue in litigation which achieves some of the benefit it sought in bringing suit.’” 

However, the inquiry on the award of fees to the surety went deeper: “…the court finds that it has committed a clear error and therefore will reconsider its award of attorneys’ fees to [the surety]. …[T]he Miller Act does not provide for attorneys’ fees as a matter of law…,” and “[surety] does not point to any other rule, statute, or contract that make an award of attorneys’ fees available. 

“[Surety] argues that nothing in the …subcontract prevents it from recovering attorneys’ fees and costs. … But whether the subcontract prevents attorneys’ fees is not relevant; it must affirmatively provide that [surety] may recover them.

“[Surety] essentially argues that it should be considered a ‘party’ under the [subcontract]… . Previously, the court conflated [GC and surety] as parties to this contract. Upon review, that was clear error. … 

“The relevant subsection allocating attorneys’ fees refers specifically to ‘the parties,’ which the contract defines in the recitals as [subcontractor and general contractor]. … The court erred in finding that [the surety] was entitled to fees under a subcontract it was not a party to. …” 

(Of course, the likely upshot of the ruling against the surety is: the principal, because of its indemnity agreement with the surety, no doubt was required to reimburse the surety for its attorneys’ fees.)

United States ex rel. Wells Cargo, Inc. v. Alpha Energy & Elec., Inc., 2023 U.S. Dist. LEXIS 46228 (D. Nev. Mar. 20, 2023) 

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Payment Bond Surety Entitled to Award of Attorneys’ Fees Although Defended by Principal

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Garret Murai | California Construction Law Blog

For contractors involved in California public works projects the scenario is not uncommon: The general contractor awarded the public works project is required to obtain a payment bond for the benefit of subcontractors and suppliers and the payment bond surety issuing the payment bond requires the general contractor to defend and indemnify the surety from and against any claims against the payment bond.

In Cell-Crete Corporation v. Federal Insurance Company, 82 Cal.App.5th 1090 (2022), the 4th District Court of Appeal examined  whether a payment bond surety, who prevails in a claim against the payment bond, is entitled to statutory attorneys’ fees when the party actually incurring the attorneys’ fees was the general contractor, pursuant to its defense and indemnity obligations, as opposed to the surety itself.

The Cell-Crete Case

General contractor Granite Construction Company was awarded a public works contract issued by the City of Thermal known as the Airport Boulevard at Grapefruit Boulevard and Union Pacific Railroad Grade Separation Project. We’ll just call it the “Project.” Subcontractor Cell-Crete Corporation entered into a subcontract with Granite for lightweight concrete and related work.

As required under Civil Code section 9554, Granite furnished a payment bond on the Project. The payment bond was issued by Federal Insurance Company. Federal, as a condition of issuing the payment bond, required Granite to defend and indemnify Federal from and against any claims against the payment bond “including court costs and attorneys’ fees, which it shall at any time incur by reason of its execution and/or delivery of said bond or bonds or its payment of any claim or liability thereunder.”

The subcontract between Cell-Crete and Granite included an arbitration clause, and when a dispute arose on the Project, Cell-Crete and Granite arbitrated the dispute over seven days starting October 8, 2018 and ending on January 23, 2019. During the arbitration, Cell-Crete sought $309,557 for work performed and delay costs. Federal was not a party to the arbitration. At the conclusion of the arbitration, the arbitrator awarded damages to both Cell-Crete and Granite with Granite eking out a net positive award of $130.82. The arbitrator declined to award attorneys’ fees or costs to either party.

Prior to arbitrating the dispute, Cell-Crete had filed a lawsuit against Granite in the Riverside Superior Court. In its lawsuit, Cell-Crete, in addition to suing Granite, also sued Federal under the payment bond. The same law firm that represented Granite in the arbitration also represented Federal in the superior court action.

After the arbitration award, Grant petitioned the trial court to confirm the arbitration award. After the arbitration award was confirmed and Cell-Crete’s action was dismissed, Federal filed a motion for attorneys’ fees and costs. The trial court, however, denied Federal’s motion. Although the trial court recognized Federal as the “prevailing party” and that Federal would otherwise wise be entitled to recovery of its attorneys fees under Civil Code section 9564, the trial court found that “Federal incurred no such expenses. Instead all such costs and fees were borne by Granite” and “[h]aving paid nothing in fees and costs, Federal has suffered not loss, and thus may not collect any compensation for the non-existent loss.”

Federal appealed.

The Appeal

On appeal, Federal argued that it was entitled to recover its costs under the plain language of Code of Civil Procedure section 1032(b) which provides that a prevailing party is “entitled as a matter of right to recover costs in any action of proceeding” and under Code of Civil Procedure section 1033.5(c)(1) which provides that “[c]osts are allowable if incurred, whether or not paid.”

Citing to a decision by the 1st District Court of Appeal in Litt v. Eisenhower Medical Center, 237 Cal.App.4th 1217 (2015), in which the 1st District reversed a trial court’s denial of costs and expert fees because those costs were paid by another party pursuant to an indemnity provision, the Court of Appeal held that “Federal incurred the legal liability to pay the litigation costs even though Granite agreed to indemnify them for their expense” and that “[w]e see no reason to depart from the plain meaning of the statute or the construction given it by our sister court.”

As to attorneys’ fees, the Court of Appeal explained that, “[u]nlike in the case of costs, there’s no separate statute specifying [that] it doesn’t matter whether the prevailing party paid the litigation expenses.” Nevertheless, held the Court of Appeal, “we conclude there’s no need to add that belt to the suspenders of section 9564(c).” “The general rule with respect to fee-shifting statutes,” explained the Court of Appeal, “is that the judge must award reasonable attorney fees to the prevailing party regardless of whether the prevailing party ultimately is responsible to pay the fees.”

Finally, responding to Cell-Crete’s argument that Federal would be obligated to pay any attorneys’ fees awarded to Granite, and therefore should not be awarded attorneys’ fees as at all because it was Granite rather than Federal that incurred those fees, the Court of Appeal held that the “issue is not properly before us, but we would not be dissuaded from our interpretation should it turn out to be true” since “[t]he right of a party to seek an award of statutory attorney fees is not equivalent to a right to retain such fees.”

Conclusion

For payment bond sureties and their principals, the Cell-Crete decision clarifies that prevailing payment bond sureties, even if defended by their principals pursuant to a defense and indemnity agreement, are entitled to recover the attorneys’ fees incurred in defending against claims against the payment bond. For principals, the case also suggests that sureties are likely required to pass along any attorneys’ fees awarded by a court to offset attorneys’ fees actually incurred by the principal in defending the surety.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.