Dennis I. Spencer Contractor, Inc. v. City of Aurora, 93SC529

• Decision Date: 07 November 1994
• Docket Number: No. 93SC529,93SC529
• Parties: DENNIS I. SPENCER CONTRACTOR, INC., a Colorado corporation, Petitioner, v. CITY OF AURORA, Colorado, a Municipal corporation, Respondent.
• Court: Colorado Supreme Court

Page 326

884 P.2d 326

DENNIS I. SPENCER CONTRACTOR, INC., a Colorado corporation, Petitioner, v. CITY OF AURORA, Colorado, a Municipal corporation, Respondent.

No. 93SC529.

Supreme Court of Colorado,

En Banc.

Nov. 7, 1994.

Faegre & Benson, Michael J. Cook, Natalie Hanlon-Leh, Denver, for petitioner.

Office of the City Atty., Charles H. Richardson, Aurora, Gulley and Gaar, P.C., Dale A. Gaar, Englewood, York & Associates, Marcia G. O'Brien, Littleton, for respondent.

Justice VOLLACK delivered the Opinion of the Court.

Dennis I. Spencer Contractor, Inc. (Spencer Contractor), petitions this court to review the decision by the court of appeals in Dennis Spencer Contractor Inc. v. City of Aurora, No. 92CA0176 (Colo.App. Mar. 25, 1993) (not selected for official publication), affirming the trial court's ruling that the respondent, the City of Aurora (Aurora), which was found by the trial court to have breached a construction contract and a settlement agreement, was the prevailing party on the settlement agreement and entitled to attorney fees.

We granted certiorari to decide the standard for determining the prevailing party for purposes of awarding attorney fees pursuant to a fee-shifting provision in a settlement agreement which provides for reasonable attorney fees to the prevailing party in any enforcement action. We hold that, where a claim exists for a violation of a contractual obligation, the party in whose favor the decision or verdict on liability is rendered is the prevailing party for purposes of awarding attorney fees. We reverse the court of appeals' decision and remand to the court of appeals with directions to remand this matter to the trial court for a determination of the reasonable attorney fees to which Spencer Contractor is entitled as the prevailing party.

I.

In August 1988, Spencer Contractor entered into an agreement with Aurora for construction of an underground sanitary sewer line, as part of the Alameda Parkway Project (the construction contract). During the course of construction, Spencer Contractor encountered a number of unexpected delays resulting from site conditions. Spencer Contractor requested additional time and compensation to complete the construction contract. Aurora granted a fourteen-day time extension, but refused to compensate Spencer Contractor for additional construction costs. Aurora subsequently assessed liquidated damages against Spencer Contractor when it failed to complete the project on time.

In August 1989, Spencer Contractor filed a civil action, claiming that Aurora had breached the construction contract by refusing to issue time change orders and by failing to exercise good faith in performing its duties. Approximately one year later, Spencer Contractor amended its complaint to add a claim alleging that Aurora had breached a settlement agreement, executed by the parties in connection with a 1985 lawsuit, which resolved a dispute involving the Emporia Street Storm Sewer Project (the settlement agreement).

According to the amended complaint, Aurora breached a provision of the settlement agreement which prohibited Aurora from "treating Spencer Contractor or any bid submitted by it differently [than] any other contractor" by retaliating against Spencer Contractor in connection with the bidding and performance of the Alameda Parkway Project construction contract. ¹ Aurora filed a counterclaim alleging breach of the settlement agreement by Spencer Contractor.

The case proceeded to trial in October 1991. ² Following the trial, the jury returned a special verdict finding that Aurora had breached both the construction contract and the settlement agreement. ³ The jury additionally concluded that Spencer Contractor had incurred actual damages of $57,000 as a result of Aurora's breach of the construction contract. The jury found that Aurora had breached the settlement agreement but did not award any damages to Spencer Contractor on the settlement agreement.

Both parties then submitted requests for attorney fees based on a fee-shifting provision in the settlement agreement entitling a "prevailing party" in any enforcement action to recover all costs and reasonable attorney fees. Subsequently, the Arapahoe County District Court ruled that Aurora was the "prevailing party" on the claim for the breach of the settlement agreement and awarded attorney fees in the amount of $30,000 to Aurora. ⁴

Spencer Contractor appealed the trial court's order to the court of appeals. The court of appeals affirmed in part, reversed in part, and remanded the case to the trial court. The court of appeals affirmed the trial court's ruling that Aurora was the prevailing party on the settlement agreement, slip op. at 2-3, but reversed and remanded on the grounds that the trial court's findings were insufficient for the appellate court to determine that the fees awarded were actually incurred and were reasonable. The court of appeals reasoned as follows:

In order to receive the benefit of a contract provision which calls for an award of attorney fees to the prevailing party, the applicant must "have succeeded upon a significant issue presented by the litigation and must have achieved some of the benefits that he sought in the lawsuit." Overland Development Co. v. Marston Slopes Development Co., 773 P.2d 1112, 1115 (Colo.App.1989).

Here, Aurora succeeded in arguing that any breach of the settlement agreement did not result in damages to Spencer. As a result, it achieved its goal of avoiding payment of damages to Spencer. Contrary to the position taken by Spencer, this court has previously recognized that such a result by a defendant is sufficient to support a trial court's conclusion that the defendant was the prevailing party for purposes of awarding attorney fees. Odenbaugh v. County of Weld, 809 P.2d 1059 (Colo.App.1990).

Spencer Contractor, slip op. at 2-3.

II.

Spencer Contractor maintains that it succeeded on the merits of its claim for breach of both the construction contract and the settlement agreement and should be deemed the prevailing party for purposes of awarding attorney fees. ⁵

The question of who is a prevailing party for purposes of awarding attorney fees pursuant to a settlement agreement which provides for attorney fees to the prevailing party, in litigation regarding a breach of a construction contract and a breach of a settlement contract, and the appropriate standard for making this determination presents an issue of first impression for this court. ⁶ Relying on Overland Development Co. v. Marston Slopes Development Co., 773 P.2d 1112 (Colo.App.1989), the court of appeals determined that, pursuant to a fee-shifting provision in a settlement agreement which provides for reasonable attorney fees to the prevailing party, the applicant must "have succeeded upon a significant issue presented by the litigation and must have achieved some of the benefits that he sought in the lawsuit." Spencer Contractor, slip op. at 2. Based on this standard, the court of appeals concluded that Aurora had prevailed on the breach of the settlement agreement since the breach did not result in any damages to Spencer Contractor. The court of appeals determined that Aurora had achieved its goal of avoiding payment of damages to Spencer Contractor. Relying upon Odenbaugh v. County of Weld, 809 P.2d 1059 (Colo.App.1990), the court of appeals concluded that Aurora was the prevailing party for purposes of awarding attorney fees.

In Overland Development, a purchaser brought an action for breach of contract, fraud, and negligent misrepresentation against the land developer who contractually agreed to perform certain landscaping. The purchaser claimed, inter alia, that the land developer had failed to fulfill its contractual obligation to install landscaping. The trial court agreed that the defendant had breached its contractual obligation to install landscaping, but the trial court concluded that the purchaser, in the resale of the property, had not suffered any actual damages by the breach. Overland Dev., 773 P.2d at 1115.

On appeal, the purchaser contended that it was entitled to attorney fees as the prevailing party on the breach of contract claim, ⁷ despite the fact that no actual damages were awarded. The court of appeals disagreed. Relying on the standard enunciated in Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983), for awarding attorney fees under the Civil Rights Attorney's Fees Awards Act, 42 U.S.C.A. § 1988 (West 1981), the court of appeals, in determining which party was entitled to receive the benefit of an attorney fees provision that entitles the prevailing party to attorney fees, embraced the Supreme Court's two-part test: the applicant must "have succeeded upon a significant issue presented by the litigation and must have achieved some of the benefits that he sought in the lawsuit." ⁸ Overland Dev., 773 P.2d at 1115. Under this standard, a party must prevail upon a "significant" issue, and a party need not prevail on the "central" issue. The benefits achieved must be more than de minimis. Id. (citing Texas State Teachers Ass'n v. Garland Indep. Sch. Dist., 489 U.S. 782, 109 S.Ct. 1486, 103 L.Ed.2d 866 (1989)). ⁹ "[T]he mere judicial declaration that one of the plaintiff's legal assertions is correct does not mean that he has prevailed in the litigation, unless some benefits flow, or may be anticipated to flow, to the plaintiff from that declaration." Overland Dev., 773 P.2d at 1115-16 (citing Hewitt v. Helms, 482 U.S. 755, 107 S.Ct. 2672, 96 L.Ed.2d 654 (1987); Rhodes v. Stewart, 488 U.S. 1, 109 S.Ct. 202, 102 L.Ed.2d 1 (1988)).

Applying this standard, the court of appeals concluded that, although the purchaser succeeded on a significant legal issue, its recovery of nominal damages was de minimis and therefore the purchaser was not the "prevailing party." The court of appeals, however, did not hold that the defendant was the prevailing party...