Tuesday, October 4, 2011

Cover Me Part II: The Attorney’s Fees Special Edition

Southwick v. City of Rutland, 2011 VT 105

If this case sounds familiar, that’s because it is.  We wrote about it a few months back.  That time, the issue was whether an indemnification provision was applicable to require a swim club to indemnify the City for an incident that occurred at a club meet held at the City’s pool.  This time it’s whether the attorney’s fees portion of the same indemnification provision applies to indemnity and third-party claims.  The SCOV holds that it does not.  

A young girl (Southwick) was injured at a swim meet held on Rutland City property.  She sued the City for negligence.  The City sought indemnification from the sponsor of the swim meet, the Vermont Swim Association (VSA).  Before trial, the City settled with the Plaintiff, but reserved its right to pursue VSA for reimbursement based on an indemnification provision in the contract between the City and VSA.  

The trial court held that the City was entitled to indemnification under the terms of its contract and the SCOV upheld that ruling in the first appeal.  The City filed a motion for attorney’s fees and expenses.  The motion included all expenses—not just the expenses of defending the action, but also, the expenses the City incurred going after the VSA for payment.  The trial court found that all the claims were based on a common core of facts and that the attorney’s fees provision was all encompassing.  The trial court awarded $166,000 plus in fees.  Naturally, the VSA appealed.

The SCOV begins by quoting the applicable indemnification paragraph in its entirety.  The last sentence makes VSA responsible “for all costs of defense, including reasonable attorney’s fees.” (my emphasis).  What you need to know is that Vermont follows what courts call the “American Rule,” which means that unless there’s a statute or contractual provision that allows for attorney’s fees, each party is expected to bear that expense.  In contrast, the British, as with many things, do it differently.  They allow the winning party to recover its legal fees, and thus the “English Rule” creates a winner-take-all type system.

But let’s go back to the new world.  At first glance from the language quoted above, one might think that attorney’s fees are covered by the parties’ agreement.  And to a certain extent they are.  The primary dispute, though, is whether third-party actions fall within the language of the clause.  The SCOV notes that a court may depart from the American Rule only so far as the contract provides.  In this case, the SCOV reasons that the scope of the attorney’s fees provision is limited by the use of the word “defense.”  Accordingly, because none of the City’s third-party claims were, in a word, “defense,” the provision does not apply and the City can’t recover those expenses. 

The SCOV also disagrees with the trial court’s reasoning that the claims arose from a common core of fact, which can sometimes justify an award of attorney’s fees beyond the plain language of the contractual provision.  While the SCOV notes that the claims might have been set in motion by the same event, it differentiates between the Southwick’s claim for negligence and the City’s contract-interpretation claims.  You know—different theories of recovery, proofs, burdens, etc.  Accordingly, the SCOV concludes that the hours and expenses incurred for the discrete claims can easily be separated.

Although the City argued that it was VSA’s refusal to indemnify that necessitated the indemnification suit, the SCOV does not find this to be one of those “exceptional” cases in which an attorney’s fees award would be warranted.  The SCOV notes that such an award is reserved for bad faith, and reasons that there was a legitimate contractual dispute between VSA and the City based on the City’s negligence. 

The final issue raised by the VSA concerned the level of detail in the City’s billing records.  VSA claimed that these were deficient and needed to be clarified.  As the City had already submitted revised records, the SCOV notes that those records might be helpful on remand and leaves the question for the trial court to unpack.   

For the want of a broader term, City’s arguments fail to carry the day.  So much, it seems, turns on a single word.  Certainly gives you something to think about when you scroll through and click the “I agree” button on a piece of software or a webpage.   I know I will be looking closer. 

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