Diamond D Enterprises USA, Inc. v. Steinsvaag
| Decision Date | 21 October 1992 |
| Docket Number | No. 1860,D,1860 |
| Citation | 979 F.2d 14 |
| Parties | DIAMOND D ENTERPRISES USA, INC., Plaintiff-Counter-Claim-Defendant-Appellee, v. Richard STEINSVAAG; Wedding Services, Inc., Defendants-Counter-Claim-Plaintiffs-Appellants, Reception Plus, Inc.; David J. Lesser, Counterclaim-Defendants. ocket 91-9196. |
| Court | U.S. Court of Appeals — Second Circuit |
Kari A. Steinsvaag, Redding, Conn., for appellants.
Nicholas J. Damadeo, Hicksville, N.Y. (Steven Bret Drelich, Fran G. Hirmes, Nicholas J. Damadeo, P.C., Hicksville, N.Y., of counsel), for appellee.
Before: WINTER, MINER and McLAUGHLIN, Circuit Judges.
Diamond D Enterprises USA, Inc., a franchisor of wedding-service businesses, entered into a franchise agreement with Wedding Services, Inc. ("WSI"), a corporation owned by Richard Steinsvaag, who personally guaranteed WSI's obligations. After WSI stopped making royalty payments, Diamond sued WSI and Steinsvaag for breach of contract in the United States District Court for the Southern District of New York. WSI and Steinsvaag asserted counterclaims against Diamond, its president, David Lesser, and an affiliate, Reception Plus, Inc.
The case was tried before Senior District Judge Lee P. Gagliardi and a jury, which returned a $1,300 verdict for Diamond on its breach of contract claim and rejected defendants' counterclaims. Finding the $1,300 verdict inadequate, Judge Gagliardi granted Diamond's motion under Fed.R.Civ.P. 59(a) for a new trial on damages only. The damages trial was then heard by Chief Judge Charles L. Brieant and a jury, which awarded Diamond $17,109. The district court also awarded Diamond a total of $40,978 for attorney's fees pursuant to a fee-shifting clause in the franchise agreement. On appeal, WSI and Steinsvaag argue principally that the district court erred by (1) ordering a new trial limited to damages only, and (2) awarding excessive attorney's fees. We now affirm.
Diamond is the franchisor of a one-stop wedding service, operating under the name "Receptions Plus". As anyone who has ever given a wedding reception will attest, there is a distinct market for this service. Franchisees of Receptions Plus will arrange the entire reception, coordinating catering, photography, limousines, floral arrangements and all the other "necessities" of a modern wedding. Diamond's President, David Lesser, had operated his own company called Reception Plus, Inc. for several years before deciding to franchise the wedding-service business through Diamond.
In October 1985, Diamond entered into a franchise agreement with WSI, a corporation owned by Steinsvaag, who personally guaranteed WSI's obligations under the contract. The franchise agreement required WSI to pay Diamond royalties of five percent of gross receipts and to contribute another one percent to a system-wide advertising fund. These payments were due weekly, along with a written statement of gross receipts for the week.
In March 1986, WSI opened its Receptions Plus franchise in Bridgeport, Connecticut, and quickly ran into financial difficulty. By October 1987, WSI could no longer make its weekly payments, although it continued to submit the weekly statements to Diamond. In March 1988, Diamond sent WSI a notice to cure default under the franchise agreement. WSI did not respond. Diamond then terminated WSI's franchise, effective April 17, 1988. Despite the termination, WSI continued to use the Receptions Plus mark, and continued to hold itself out as a Receptions Plus franchise, until September 1988. In June 1988, Diamond sued WSI and Steinsvaag for breach of the franchise agreement, seeking damages and an injunction restraining the defendants from using Receptions Plus's materials or mark.
The defendants asserted three affirmative defenses and eight counterclaims, naming Lesser and his original company, Reception Plus, Inc., as additional counterclaim defendants. Although the counterclaims alleged various contract, tort, and statutory claims, they shared a common nucleus: that Diamond fraudulently induced WSI to execute the franchise agreement by misrepresenting the prospects of franchises in the Receptions Plus system.
The defendants later moved to amend their answer to add four more counterclaims alleging violations of the federal antitrust statutes. The district court denied the motion to amend and this ruling is not challenged on appeal. Also not at issue on appeal is the district court's pretrial dismissal of all but two of the counterclaims: one for fraudulent misrepresentation and one for violations of the Connecticut Unfair Trade Practices Act ("CUTPA"), Conn.Gen.Stat. § 42-110a et seq.
The case was tried for two days before Judge Gagliardi and a jury, which then returned a verdict of $1,300 for Diamond on its breach of contract claim, and rejected defendants' surviving counterclaims. Alleging that the jury's award of damages was inadequate, Diamond moved for conditional additur or for a new trial on damages only. Judge Gagliardi granted the motion for a new trial on damages only, holding that
Diamond also moved for an interim award of $48,795 in attorney's fees pursuant to a fee-shifting clause in the franchise agreement. Judge Gagliardi referred the fee motion to Magistrate Judge Joel J. Tyler, who issued a Report and Recommendation ("R & R") setting the fee award at $34,288, which Judge Gagliardi adopted without modification.
The damages trial was eventually conducted before Chief Judge Brieant and a jury, which awarded Diamond damages of $17,109. To this Chief Judge Brieant added $6,690 for attorney's fees incurred since the first fee award.
On appeal, the defendants principally argue that the district court's grant of only a partial new trial was an abuse of discretion and that the award of attorney's fees was both unauthorized and excessive.
Steinsvaag argues that Judge Gagliardi erred by not ordering a total new trial, to include both liability and damages. Fed.R.Civ.P. 59(a), however, authorizes a district court to grant a new trial "on all or part of the issues," id. (emphasis added), and we will disturb a ruling on a Rule 59 motion only if we find an abuse of discretion. See Wheatley v. Beetar, 637 F.2d 863, 865 (2d Cir.1980).
The "most common example" of a partial new trial is "a new trial limited to damages when liability has been properly determined...." 11 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 2814, at 93 (1973). "[A] new trial on damages only is not proper if there is reason to think that the verdict may represent a compromise among jurors with different views on whether defendant was liable or if for some other reason it appears that the error on the damage issue may have affected the determination of liability." Id. § 2814, at 29 (Supp.1992); see also Spell v. McDaniel, 824 F.2d 1380, 1400 (4th Cir.1987), cert. denied, 484 U.S. 1027, 108 S.Ct. 752, 98 L.Ed.2d 765 (1988).
An inadequate damages award, standing alone, does not indicate a compromise among jurors. See, e.g., Hadra v. Herman Blum Consulting Eng'rs, 632 F.2d 1242, 1245-46 (5th Cir.1980), cert. denied, 451 U.S. 912, 101 S.Ct. 1983, 68 L.Ed.2d 301 (1981). Besides inadequate damages, there must be other indicia of compromise, such as difficulty in jury deliberations or close questions of liability. Compare Skinner v. Total Petroleum, Inc., 859 F.2d 1439, 1445-46 (10th Cir.1988) () and Mekdeci v. Merrell Nat'l Labs., 711 F.2d 1510, 1514-15 (11th Cir.1983) (same) with Phav v. Trueblood, Inc., 915 F.2d 764, 768-69 (1st Cir.1990) () and Burger King Corp. v. Mason, 710 F.2d 1480, 1487-88 (11th Cir.1983) (same), cert.
denied, 465 U.S. 1102, 104 S.Ct. 1599, 80 L.Ed.2d 130 (1984).
In this case, as in the Phav and Burger King cases, supra, there were no indicia of a jury compromise other than the low damages award. The jury deliberated only one day, without incident, and the issue of the defendants' liability for breach of contract was reasonably clear. Accordingly, Judge Gagliardi's grant of a partial new trial was well within his discretion.
The franchise agreement, which both parties agree is governed by New York law, contained a fee-shifting clause that is hardly a paragon of clarity:
In the event FRANCHISOR is required to employ legal counsel or to incur other expense to enforce any obligation of FRANCHISEE hereunder, or to defend against any claim, demand, action, or proceeding by reason of FRANCHISEE's failure to perform any obligation imposed upon FRANCHISEE by this Agreement, and provided that legal action is filed by or against FRANCHISOR and such action or the settlement thereof establishes FRANCHISEE's default hereunder, then FRANCHISOR shall be entitled to recover from FRANCHISEE the amount of all reasonable attorney's fees of such counsel and all other expenses incurred in enforcing such obligation or in defending against such claim, demand, action, or proceeding, whether incurred prior to or in preparation for or contemplation of the filing of such action or thereafter.
Steinsvaag reads this ambling one-sentence clause to provide for reimbursement only of those attorney's fees "incurred in enforcing" the franchise agreement. It would, therefore, exclude an award of fees for defending counterclaims.
We agree with the district court, however, that the nature--not the...
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