Airlines Reporting Corp. v. Sarrion Travel, Inc.

• Decision Date: 24 February 2012
• Docket Number: Civil Action No. 1:11cv930.
• Citation: 846 F.Supp.2d 533
• Court: U.S. District Court — Eastern District of Virginia
• Parties: AIRLINES REPORTING CORPORATION, Plaintiff, v. SARRION TRAVEL, INC., et al., Defendants.

846 F.Supp.2d 533

AIRLINES REPORTING CORPORATION, Plaintiff,

v.SARRION TRAVEL, INC., et al., Defendants.

Civil Action No. 1:11cv930.

United States District Court,

E.D. Virginia,

Alexandria Division.

Feb. 24, 2012.

Jonathan S. Gelber, Joanna Katherine Wood, The Law Offices of Jonathan Gelber PLLC, Falls Church, VA, for Plaintiff.

MEMORANDUM OPINION

T.S. ELLIS, III, District Judge.

At issue on an objection to a Report and Recommendation is whether the magistrate judge erred in finding that plaintiff, Airlines Reporting Corporation (“ARC”), was not entitled to attorney's fees as part of a default judgment entered against defendants. A de novo review of the record reveals that ARC is entitled to some attorney's fees, although not the amount requested.

I.

ARC filed this action on September 2, 2011 against defendants Sarrion Travel, Inc. (“Sarrion”) and Edith Vargas (“Vargas”). ARC is a Delaware corporation engaged in the business of issuing travel documents and other forms to travel agents. Defendant Sarrion is a New York corporation that operates as a travel agency. Defendant Vargas is the owner and manager of Sarrion. ARC and Sarrion entered into an Agent Reporting Agreement (“ARA”) which allowed Sarrion to obtain travel documents, such as airline tickets, from ARC for issuance to Sarrion's customers. In its complaint, ARC alleges that Sarrion breached the ARA when it failed to pay ARC for airline tickets. ARC also alleges that both Sarrion and Vargas breached their fiduciary duty to ARC and committed the intentional tort of conversion through the same conduct. ARC seeks $152,141.56 in damages, the amount it claims Sarrion owes ARC under the ARA, plus costs and attorney's fees.

Plaintiff served both defendants with process on October 19, 2011, Neither defendant answered the complaint, appeared, or participated in this matter in any way. As a result, on November 22, 2011, ARC obtained an entry of default from the Clerk pursuant to Rule 55(a), Fed.R.Civ.P., and then filed the motion for default judgment at issue here. The matter was referred to the magistrate judge, pursuant to 28 U.S.C. § 636(b)(1), who then issued a timely Report and Recommendation (“R & R”) on January 18, 2012, 2012 WL 610989. In the R & R, the magistrate judge determined that there was subject matter jurisdiction on the basis of diversity of citizenship, and personal jurisdiction because defendants had transacted business in Virginia and utilized ARC's computer network in Virginia. See R & R, 2–3 ( citing28 U.S.C. § 1332(a)(1), Virginia Code § 8.01–328.1(A)(1) and (B)). The magistrate judge also found that venue was proper because the events giving rise to ARC's claim occurred in Virginia. See R & R, 3 ( citing28 U.S.C. § 1391).

As the magistrate judge correctly recognized, the facts alleged in the complaint are deemed admitted in the event of default. See Globalsantafe Corp. v. Globalsantafe.Com, 250 F.Supp.2d 610, 612 n. 3 (E.D.Va.2003). Yet importantly, default does not constitute an admission with respect to conclusions of law; instead, a court must “determine whether the well-pleaded allegations ... support the relief sought.” Ryan v. Homecomings Financial Network, 253 F.3d 778, 780 (4th Cir.2001). In this respect, after considering the complaint and supporting evidence, the magistrate judge determined that ARC was entitled to relief on all three of its claims: (i) breach of contract, (ii) conversion, and (iii) breach of fiduciary duty. Specifically, the magistrate judge recommended that ARC be awarded $152,141.56, the full amount alleged to be owed, as well as costs in the amount of $616.64 and post-judgment interest pursuant to 28 U.S.C. § 1961(a). Finally, the magistrate judge recommended that no attorney's fees be awarded to ARC at this time.

ARC filed a timely objection to the R & R solely with respect to attorney's fees, arguing that an award of $60,856.62 in attorney's fees is proper. Defendants, continuing their absence from this litigation, filed no objections. A de novo determination must be made with respect to those portions of the R & R to which there was timely objection, namely the denial of attorney's fees. See28 U.S.C. § 636(b)(1). The remainder of the R & R is reviewed to ensure “there is no clear error on the face of the record,” Diamond v. Colonial Life & Acc. Ins. Co., 416 F.3d 310, 315 (4th Cir.2005). A review of the record, through the lens of these standards, reveals that, contrary to the magistrate judge's recommendation, ARC should be awarded some attorney's fees at this time, although not the amount requested, and that the magistrate judge did not err with respect to the remainder of its recommendations.

II.

The ARA includes a fee-shifting provision which states that if Sarrion fails to make full payment of amounts owed to ARC then:

In addition to any amounts due and owing by [Sarrion] under the ARA, [Sarrion] shall also be liable to ARC for any and all attorney's fees and costs actually incurred by ARC for the collection of such sums owing by [Sarrion].

ARA, p. 11. Pursuant to this provision, ARC seeks attorney's fees in the amount of $60,856.62. which is 40% of the amount owed to ARC. ARC bases this request on its fee agreement with counsel, which provides that counsel will be compensated “on a 25% contingent fee basis with respect to any and all sums recovered and collected from the Defendants on behalf of the Plaintiff in Virginia,” and on a 40% basis “with respect to any and all sums recovered and collected” when the matter is referred to out-of-state counsel for collection purposes, as must occur here because defendants reside in New York. See Gelber Declaration ¶ 3.

Because this is a diversity action in which attorney's fees are awarded on the basis of a contractual provision, Virginia law ¹ governs whether fees are available and, if so, in what amount. See Western Insulation, L.P. v. Moore, 362 Fed.Appx. 375, 379 (4th Cir.2010) (“As this case is a diversity action based on state contract law, the contract, including its provisions on attorneys' fees, is to be interpreted using state law.”). ² To begin with, under Virginia law. “contractual provisions shifting attorneys' fees ... are valid and enforceable,” Signature Flight Support Corp. v. Landow Aviation Ltd. Partnership, 730 F.Supp.2d 513, 518 (E.D.Va.2010). And, in this respect, the Supreme Court of Virginia has made clear that where, as here, such provisions do not fix the precise amount of the fees, “a fact finder is required to determine from the evidence what are reasonable fees under the facts and circumstances of the particular case.” Mullins v. Richlands National Bank, 241 Va. 447, 449, 403 S.E.2d 334 (1991). The burden is on the party seeking to recover fees— i.e., ARC—to demonstrate that it is entitled to fees and that the amount of fees requested is reasonable. See Chawla v. BurgerBusters, Inc., 255 Va. 616, 623, 499 S.E.2d 829 (1998). In determining what amount of fees is reasonable, the Supreme Court of Virginia directs that:

a fact finder may consider, inter alia, the time and effort expended by the attorney, the nature of the services rendered, the complexity of the services, the value of the services to the client, the results obtained, whether the fees incurred were consistent with those generally charged for similar services, and whether the services were necessary and appropriate.

Id.See alsoWest Square, L.L.C. v. Communication Technologies, Inc., 274 Va. 425, 433–435, 649 S.E.2d 698 (2007);Mullins, 241 Va. at 449, 403 S.E.2d 334. Another principle pertinent here is that, as the magistrate judge notes and ARC does not dispute, while ARC's contingency fee agreement with counsel is a factor considered in assessing what attorney's fees to award, it is not controlling. Rather, an independent evaluation of the reasonableness of the fee request is required.³ It is also significant that, as Virginia law makes clear, where there is a fee-shifting provision in a contract, a party may recover attorney's fees for legal services not yet performed. In this respect, the Supreme Court of Virginia has instructed:

If future services of an attorney will be required in connection with a case, the fact finder should make a reasonable estimate of their value. In so doing, the fact finder should estimate the time to be consumed, the effort to be expended, the nature of the services to be rendered, and any other relevant circumstances.

Mullins, 241 Va. at 449, 403 S.E.2d 334.

Although Virginia law governs, federal law—which requires consideration of similar factors—also may be consulted to the extent it is a “persuasive, nonconflicting guide in interpreting reasonable fees under Virginia law.” GE Supply, a Div. of General Elec. Co. v. Thomas, 62 F.3d 1414, at *7 (4th Cir.1995) (unpublished table opinion).⁴ And in this respect, the Fourth Circuit has provided clear guidance for courts to follow in evaluating the reasonableness of claims for attorney's fees:

In calculating an award of attorney's fees, a court must first determine a lodestar figure by multiplying the number of reasonable hours expended times a reasonable rate. In deciding what constitutes a “reasonable” number of hours and rate, we have instructed that a district court's discretion should be guided by the following twelve factors:

(1) the time and labor expended; (2) the novelty and difficulty of the questions raised; (3) the skill required to properly perform the legal services rendered; (4) the attorney's opportunity costs in pressing the instant litigation; (5) the customary fee for like work; (6) the attorney's expectations at the outset of the litigation; (7) the time limitations imposed by the client or circumstances; (8) the amount in controversy and the results obtained; (9) the experience, reputation and ability of the attorney; (10) the undesirability of the case within the legal community in which the suit arose; (11) the nature and length of the professional...