Boyd Rosene and Associates, Inc. v. Kansas Mun. Gas Agency

• Decision Date: 13 April 1999
• Docket Number: No. 97-5216,97-5216
• Citation: 174 F.3d 1115
• Parties: 1999 CJ C.A.R. 2280 BOYD ROSENE AND ASSOCIATES, INC., Plaintiff-Appellant, v. KANSAS MUNICIPAL GAS AGENCY, an interlocal municipal agency; City of Winfield, Kansas, a municipality, Defendants-Appellees. Tenth Circuit
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1115

174 F.3d 1115

1999 CJ C.A.R. 2280

BOYD ROSENE AND ASSOCIATES, INC., Plaintiff-Appellant, v. KANSAS MUNICIPAL GAS AGENCY, an interlocal municipal agency;

City of Winfield, Kansas, a municipality,

Defendants-Appellees.

No. 97-5216.

United States Court of Appeals,

Tenth Circuit.

April 13, 1999.

Mark Banner, of Hall, Estill, Hardwick, Gable, Golden & Nelson, Tulsa, Oklahoma (Steven M. Harris and Michael D. Davis, of Doyle & Harris, Tulsa, Oklahoma, with him on the briefs) for Appellant, Boyd Rosene and Associates, Inc.

Richard B. Noulles, of Gable, Gotwals, Mock, Schwabe, Kihle, Gaberino, (M. Benjamin Singletary, of Gable, Gotwals, Mock, Schwabe, Kihle, Gaberino, Tulsa, Oklahoma, with him on the brief, for Appellee, Kansas Municipal Gas Agency; J. David Jorgenson, of Inhofe, Jorgenson, Balman & Waller, P.C., Tulsa, Oklahoma, for Appellee, City of Winfield, Kansas).

Before BRORBY and MURPHY, Circuit Judges, and MARTEN, ^* District Judge.

MURPHY, Circuit Judge.

Boyd Rosene and Associates, Inc., appeals an award of attorney's fees granted to Kansas Municipal Gas Agency and the City of Winfield, Kansas. Rosene argues on appeal that under Oklahoma choice-of-law principles, Kansas law applies and the grant of attorney's fees to the defendants pursuant to Oklahoma Statute title 12,s 936 was inappropriate. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court concludes that Oklahoma choice-of-law principles would compel the application of Kansas law on attorney's fees. Because Kansas disallows recovery of attorney's fees in the absence of a contractual or statutory provision to the contrary, the district court's award of attorney's fees is Reversed.

I. Background

Boyd Rosene and Associates, Inc. ("Rosene"), sued Kansas Municipal Gas Agency ("KMGA") and the City of Winfield, Kansas ("Winfield") in a breach of contract and tort action. Rosene filed its diversity action in federal court in the Northern District of Oklahoma. In a paragraph entitled "Choice of Law," the underlying contract provided that it was to be governed and construed in accordance with Kansas law but was silent on the issue of attorney's fees. The district court entered summary judgment in favor of the defendants, KMGA and Winfield, and ordered all parties to pay their own attorney's fees. The district court's decision was initially affirmed on appeal. See Boyd Rosene & Associates v. Kansas Mun. Gas Agency, Nos. 96-5199, 96-5209, 96-5211, 1997 WL 297677 (10th Cir.1997) (Rosene I ). KMGA and Winfield, however, successfully petitioned for rehearing en banc on the issue of their entitlement to attorney's fees.

Upon rehearing en banc, this court clarified Bill's Coal Co. v. Board of Public Utilities, 887 F.2d 242 (10th Cir.1989), and held that in a contract suit, "rather than automatically applying the law of the state providing the substantive contract law, a district court must first apply the forum state's choice-of-law rules in resolving attorney's fees issues." Boyd Rosene & Assocs. v. Kansas Mun. Gas Agency, 123 F.3d 1351, 1353 (10th Cir.1997) (Rosene II ). The en banc court remanded the case to the district court for the application of Oklahoma's choice-of-law rules in resolving defendant's claims for attorney's fees. See id.

In applying Oklahoma's choice-of-law rules, the district court noted that matters of procedure, in contrast to matters of substantive law, are governed by the law of the forum. The district court then held that Oklahoma's attorney's fee statutes are procedural, not substantive, and proceeded to apply Oklahoma statute title 12, § 936, which provides for the imposition of attorney's fees in a breach-of-contract claim. ¹ The court concluded that KMGA and Winfield were entitled to reasonable attorney's fees on Rosene's breach-of-contract claim and ordered that Rosene pay $100,365.88 to KMGA and $33,727.26 to Winfield.

II. Discussion

Review of a district court's determinations of state law in a diversity case is de novo. See Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991); Mitchell v. State Farm Fire & Cas. Co., 902 F.2d 790, 792-93 (10th Cir.1990) (reviewing choice-of-law determination in diversity case de novo ). Underlying factual determinations are reviewed for clear error. See Mid-America Pipeline Co. v. Lario Enters., 942 F.2d 1519, 1524 (10th Cir.1991).

A. Choice of law: General Principles

A federal court sitting in diversity must engage in a two-step inquiry. See Servicios Comerciales Andinos, S.A. v. General Electric Del Caribe, Inc., 145 F.3d 463, 479 (1st Cir.1998). First, the court must determine whether a particular matter is procedural or substantive for Erie Railroad Co. v. Tompkins purposes. 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). If the matter is procedural, then federal law applies; if the matter is substantive, then the court follows the law of the forum state. See Erie, 304 U.S. at 78 (holding that federal court sitting in diversity must apply state substantive law). Second, if the court has determined that the matter is substantive, then it looks to the substantive law of the forum state, including its choice of law principles, to determine the applicable substantive law. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Barrett v. Tallon, 30 F.3d 1296, 1300 (10th Cir.1994). These two steps are distinct inquiries; thus, what is substantive or procedural for Erie purposes is not necessarily substantive or procedural for choice-of-law purposes. See Sun Oil Co. v. Wortman, 486 U.S. 717, 726, 108 S.Ct. 2117, 100 L.Ed.2d 743 (1988) (rejecting notion that "there is an equivalence between what is substantive under the Erie doctrine and what is substantive for purposes of conflict of laws") (citing Guaranty Trust Co. of N.Y. v. York, 326 U.S. 99, 108, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945)). Consequently, even though attorney's fees are substantive for diversity purposes, see King Resources Co. v. Phoenix Resources Co., 651 F.2d 1349, 1353 (10th Cir.1981), they are not thereby necessarily substantive under Oklahoma choice-of-law rules.

B. Oklahoma Choice of Law

Oklahoma choice-of-law principles require a court to apply Oklahoma rules to procedural matters even when those principles require the application of the substantive law of another jurisdiction. See Veiser v. Armstrong, 688 P.2d 796, 799 n. 6 (Okla.1984) ("In a conflict-of-law analysis matters of procedure are governed by the law of the forum.") (citing Northern Pac. Ry. Co. v. Babcock, 154 U.S. 190, 194, 14 S.Ct. 978, 38 L.Ed. 958 (1894)); cf. Restatement (Second) of Conflict of Laws § 122 (1971) ("A court usually applies its own local law rules prescribing how litigation shall be conducted even when it applies the local law rules of another state to resolve other issues in the case."). Unfortunately, Oklahoma law is silent ² on the classification of attorney's fees as substantive or procedural for choice-of-law purposes. ³ Nonetheless, it is this court's responsibility to ascertain how the Oklahoma Supreme Court would decide the choice-of-law issue. ⁴ See Klaxon, 313 U.S. at 496-97; First Nat. Bank of Durant v. Trans Terra Corp. Int'l, 142 F.3d 802, 806 (5th Cir.1998).

Oklahoma courts have classified attorney's fees as procedural, but did so in the context of determining a statute's retroactive application. ⁵ See, e.g., McCormack v. Town of Granite, 913 P.2d 282, 285 (Okla.1996) ( "[S]tatutes relating to the award of attorney fees to a prevailing party are procedural, and subject to retrospective operation."); Qualls v. Farmers Ins. Co., 629 P.2d 1258, 1259 (Okla.1981) (" 'Taxing of attorneys' fees as costs relates to a mode of procedure.' " (quoting Phoenix Fed. Sav. & Loan v. Great S.W. Fire Ins. Co., 603 P.2d 356, 358 (Okla.Ct.App.1979) (internal quotation omitted))); Cox v. American Fidelity Assur. Co., 581 P.2d 1325, 1327 (Okla.Ct.App.1977) (same);Jeffcoat v. Highway Contractors, Inc., 508 P.2d 1083, 1087 (Okla.Ct.App.1972) (holding that § 936 related only to the remedy or mode of procedure). KMGA argues that these cases resolve the issue here.

The characterization of an issue as procedural for retroactivity purposes cannot be so easily transplanted into a choice-of-law context. Recalling the admonition that the substantive/procedural dichotomy for Erie purposes is not the same for choice-of-law purposes, the Restatement (Second) of Conflict of Laws cautions generally that "[substantive/procedural] characterizations, while harmless in themselves, have led some courts into unthinking adherence to precedents that have classified a given issue as 'procedural' or 'substantive,' regardless of what purposes were involved in the earlier classifications." § 122 cmt. b. The Restatement then provides the example of a decision classifying an issue as procedural for retroactivity purposes which "might mistakenly be held controlling on the question whether [the issue] is 'procedural' for choice-of-law purposes." Id. The Supreme Court has iterated this principle: "The line between 'substance' and 'procedure' shifts as the legal context changes. 'Each implies different variables depending upon the particular problem for which it is used.' " Hanna v. Plumer, 380 U.S. 460, 471, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) (quoting Guaranty Trust Co. of N.Y. v. York, 326 U.S. 99, 108, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945)).

The purposes underlying the substantive/procedural dichotomies employed in retroactivity and choice-of-law cases are completely different. In the choice-of-law context, most matters are treated as substantive. Only in particular instances should a court consider a matter to be procedural. If a case "has foreign contacts and ... many issues in the case will be decided by reference to the local law of another state," a state should label an issue "procedural" and thus apply its own law only when to do so would serve the purpose...