Litton Industries v. Imo Industries
| Citation | 982 A.2d 420,200 N.J. 372 |
| Decision Date | 02 November 2009 |
| Docket Number | A-10/11 September Term 2008 |
| Parties | LITTON INDUSTRIES, INC. and Litton Systems, Inc., Plaintiffs-Respondents and Cross-Appellants, v. IMO INDUSTRIES, INC., Varo, Inc., Baird Corporation and Optic-Electronic International, Inc., Defendants-Appellants and Cross-Respondents. |
| Court | United States State Supreme Court (New Jersey) |
George C. Lamb, III, a member of the Texas bar, Dallas, TX, argued the cause for appellants and cross-respondents (Duane Morris, attorneys; Frank A. Luchak, on the briefs, Princeton).
James T. Smith, argued the cause for respondents and cross-appellants (Blank Rome, attorneys, Princeton; Mr. Smith, Stephen M. Orlofsky, Princeton and Anthony Merlino, on the briefs).
The principal issue in this appeal is the award and computation of attorneys' fees arising out of a breach of contract action. Plaintiffs sought $9 million in damages for the alleged breach of two provisions in the contract and for fraud. The jury found that defendants breached one provision of the contract, rejected plaintiffs' other claims, and awarded plaintiffs $2.3 million in damages. The trial court determined that the contract provided for attorneys' fees and costs and awarded plaintiffs $3,858,725 in attorneys' fees, $896,920 in experts' fees, $180,718 in consultants' fees, and $1,039,540 in costs, as well as prejudgment interest.
The Appellate Division essentially affirmed, but remanded on an issue not relevant to this appeal. We granted both defendants' petition for certification related to the attorneys' fees and costs, and plaintiffs' cross-petition related to the calculation of prejudgment interest and two asserted trial errors. We reverse in part and remand. We hold that the agreement provided for attorneys' fees and costs and that the amount of the fee award is governed by traditional principles applicable to attorneys' fee awards, within the context of the contract. We also hold that the trial court did not abuse its discretion in the amount awarded for prejudgment interest or commit error in the claimed trial deviations.
The underlying litigation centered on a complex contract between plaintiffs Litton Industries, Inc. and Litton Systems, Inc. (collectively Litton or plaintiffs), and defendants IMO Industries Inc., Varo, Inc., Baird Corporation, and Optic Electronic International, Inc. (collectively defendants). In May 1995, plaintiffs agreed to purchase certain assets of defendants' optical system business for $52 million. The Purchase and Sale Agreement (Agreement) provided for a transfer date of June 2, 1995. Defendants warranted that they did not reasonably anticipate that any of their government bids or contracts would result in a loss and agreed not to submit any government bid or contract that they estimated in good faith would result in a loss during the period before the transfer date.
Prior to the transfer date, defendants submitted a bid to the United States Army for the refurbishment and manufacture of certain military equipment. The transfer occurred in early June 1995, and shortly thereafter the Army awarded the military equipment contract to defendants. The Army contract ultimately resulted in a huge financial loss for plaintiffs.
On May 8, 1997, plaintiffs filed a complaint against defendants alleging that they lost approximately $16 million in fulfilling the obligations under the Army contract on which defendants improperly bid. Plaintiffs initially made two claims: breach of § 3.12(a)(iv) of the Agreement and a fraud claim based on the same alleged breach. Section 3.12(a)(iv) provided in part that
[e]xcept as described on Schedule 3.12(a)(iv), none of the Government Contracts, Sales Contracts, Bids or Government Bids of the Sellers with respect to the Business is reasonably anticipated to result in a Contract Loss upon completion of performance. ...
[(emphasis added).]
Plaintiffs asserted that defendants breached that provision because they should have anticipated a loss on the bid submitted to the Army.
In June 2003, plaintiffs moved to amend their complaint to include an additional claim based on the alleged violation of § 5.3(ii) of the Agreement, which prohibited defendants from making any government bid or contract that they estimated in good faith would result in a loss. Section 5.3 of the Agreement provided in part that
[e]xcept as otherwise may be required by Applicable Law, Antitrust Law, or Government Contract Law, the Sellers shall not, without the prior consent of Litton ... make or enter into any Contract, Government Bid or Bid respecting ... (ii) Contracts for which the total cost estimate at the time of execution thereof or at the time of the Government Bid or Bid, as the case may be, as estimated in good faith by the Sellers, would result in a net loss on the applicable Contract. ...
At trial plaintiffs sought $9,022,042 for the claims based on the theories of fraud and breach of both § 3.12(a)(iv) and § 5.3(ii) of the Agreement. Ultimately, plaintiffs prevailed on the breach of contract claim premised on § 5.3(ii), but the jury rejected all other claims. The jury awarded plaintiffs $2.3 million in damages, which the parties agreed to reduce to $2.1 million to correct an error.
Defendants moved for judgment notwithstanding the verdict, and plaintiffs filed a motion to recover attorneys' fees and costs in the amount of $6,411,354. Section 11.1 of the Agreement provided that defendants agreed to indemnify and reimburse plaintiffs for
any and all Losses suffered or incurred by the Buying interest (whether suffered or incurred with respect to any Third-Party Claim or otherwise) and resulting from or arising out of each of the following:
. . . .
(b) Breach of Covenant of Agreement
Any breach of nonfulfillment by [defendant] or any Seller of any of their covenants, agreements, or other obligations set forth in this Agreement. ...
"Losses" is defined in the Agreement as "all demands, claims ... actions or causes of action ... losses, damages, costs, expenses, liabilities, judgments, awards ... and amounts paid in settlement (including reasonable attorneys' fees and costs incident to any of the foregoing). ..."
The trial court denied defendants' motion for judgment notwithstanding the verdict and appointed a Special Master1 on the issue of attorneys' fees. Specifically, the trial court asked the Special Master to determine and recommend ... a lodestar amount for the attorneys['] fees and costs reasonably incurred by Plaintiffs in the litigation of their claim under [s]ection 5.3(ii) of the [Agreement], the claim on which the Plaintiffs prevailed at trial. The Court will conduct its proportionality analysis and determine the amount of any fee award, so the Special Master need only determine the lodestar amount for that claim.
The Special Master found that plaintiffs' claims under § 3.12 and § 5.3 arose from a "common core of facts" and that those claims were so interrelated that the legal services on the § 3.12 claim were to be included in the lodestar amount for the § 5.3 claim. The Special Master focused on the fact plaintiffs would have had to establish the same proofs to succeed on a claim under either § 3.12 or § 5.3. The Special Master determined that the attorneys' fees and costs would be better adjusted through a proportionality analysis than by parsing out each and every fee from the intermingled claims, and that a reduction was necessary for the failed fraud claim. Because the fraud claim was one of plaintiffs' three basic claims, the Special Master found it would be fair and reasonable to reduce plaintiffs' request for attorneys' fees by one-third. The Special Master also reduced plaintiffs' request for costs by a similar amount. After calculating the reduction, the Special Master recommended an award of $2,971,295 for attorneys' fees and $693,026.96 for costs.
The trial court received the Special Master's report and rendered a decision on September 13, 2006. The court denied defendants' motion for judgment notwithstanding the verdict, and awarded plaintiffs legal fees, costs, and prejudgment interest at a simple rate of interest from the date of commencement of the litigation. In addressing the legal fees, the trial court agreed with the Special Master that the contractual claims under § 3.12 and § 5.3 constituted a "common core of facts." The trial court explained that
[t]he claims themselves are inextricably intertwined. ... The claims relate and overlap and it is impossible to envision a manner of separating the legal work and expenses associated with one claim from the other. It simply cannot be done. They indeed are based upon a common core. Accordingly, and without qualification, this court finds that the legal work, costs and expenses attributable to the two contractual claims may be attributed entirely to the § 5.3(ii) claim for purposes of determining the [lode]star.
However, the trial court rejected the Special Master's conclusion that the fraud claim represented an equal one-third amount of legal work, expenses and costs, as compared to the two contractual claims. The court found that the fraud claim could be easily separated and required markedly less work than the contractual claims. The court accepted the itemized reductions proposed by plaintiffs' counsel and ordered a total fee offset for the fraud claim of $226,250. The court approved a lodestar of $4,287,472, and concluded that plaintiffs' costs of $1,039,540 were fully allocated to their successful claim, as were the experts' fees of $896,920, and the consultants' fees of $180,718.
The trial court next discussed proportionality Generally, a proportionality analysis relates to a modification of a [lode]star fee, by virtue of fee-shifting statutes, in order to accommodate the level of success achieved in litigation. Here, the basis for the fee application is the [Agreement] and the [lode]star computation work was performed...
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