Exxon Corp. v. Burglin

• Decision Date: 23 January 1995
• Docket Number: No. 94-20123,94-20123
• Citation: 42 F.3d 948
• Parties: EXXON CORPORATION, Plaintiff-Appellee, v. Cliff BURGLIN, Charles Hamel, T.J. Miklautsch, Weldtest, Inc., and CFM Corporation, Defendants-Appellants. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 948

42 F.3d 948

31 Fed.R.Serv.3d 1491

EXXON CORPORATION, Plaintiff-Appellee, v. Cliff BURGLIN, Charles Hamel, T.J. Miklautsch, Weldtest, Inc., and CFM Corporation, Defendants-Appellants.

No. 94-20123

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Jan. 23, 1995.

G.P. Hardy, III, Billie P. Garde, Hardy & Johns, Houston, TX, David A. Devine, Groh, Eggers & Price, Anchorage, AK, for appellants.

David J. Beck, Ann H. Muroock, Beck, Redden & Secrest, Randall Miles Ebner, Houston, TX, for appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before GARWOOD, HIGGINBOTHAM and DAVIS, Circuit Judges.

GARWOOD, Circuit Judge:

Defendants-appellants Cliff Burglin, Charles Hamel, T.J. Miklautsch, Weldtest, Inc., and CFM Corporation (Defendants) appeal for a second time an award of attorneys' fees in favor of plaintiff-appellee Exxon Corporation (Exxon). We vacate and remand for entry of judgment in conformity herewith.

Facts and Proceedings Below

This suit originated in Exxon's purchase of Defendants' interest in a limited partnership, the property of which included two Alaskan oil and gas leases. Defendants threatened suit in Alaska, claiming that Exxon, a general partner in the limited partnership, had breached its fiduciary duty under the partnership agreement by failing to disclose information necessary for the valuation of Defendants' interests in the purchased leases. ¹ Thereafter, while the suit in Alaska was still pending, Exxon sued in Texas state court, seeking a declaration that it had no duty to disclose information it considered confidential. On the basis of diversity of citizenship, Defendants removed the Texas action to the court below, where, after extensive discovery, Exxon was awarded summary judgment and full attorneys' fees incurred amounting to $664,454.29.

On appeal, this Court upheld the grant of summary judgment but reversed and remanded the award of full attorneys' fees, finding error in the district court's choice of Texas law. Exxon Corp. v. Burglin, 4 F.3d 1294 (5th Cir.1993). We remanded the action with instructions to apply Alaska, not Texas, fee-shifting rules. The choice of law was critical because, under Alaska Rule of Civil Procedure 82, where a money judgment is not awarded a court generally may award full attorneys' fees only in the case of vexatious or otherwise bad-faith conduct by the losing party. In all other such cases, the goal of Alaska's fee-shifting rules is partial compensation: to shift a portion of the prevailing party's fees onto the unsuccessful litigant. Our remand specifically instructed the district court to apply these principles in calculating a new fee award.

On remand, Exxon filed a supplemental motion to set and recover attorneys' fees. Over Defendants' objection, the district court awarded Exxon $624,631.91, which included fees for Exxon's appeal. This new award represents ninety-four percent of the initial, vacated award and eighty percent of the total amount of fees Exxon incurred before judgment and on appeal. We agree with Defendants that this award is manifestly unreasonable under Alaska law and therefore vacate the judgment of the district court.

Discussion

Alaska law allows partial recovery of pre-judgment fees incurred by the prevailing party. ALASKA R.CIV.P. 82(b)(2). Before the court can determine what fraction of the fees to shift, the prevailing party must establish the total amount actually and necessarily incurred. Id. The district court in this case set the amount incurred before the first appeal at $664,454.29. On remand, the court added to this amount the $116,335.60 Exxon expended on appeal, bringing the aggregate to $780,789.89. From this total figure, the district court calculated a new award of $624,631.91. Before determining whether the new award was excessive, we consider Defendants' contentions with respect to the aggregate.

I. The Aggregate

A. Appellate Fees

Defendants argue that the district court erred in including amounts attributable to appellate work in the aggregate. We agree. In the last appeal, we held that "[t]he award of attorneys' fees is governed by the law of the state whose substantive law is applied to the underlying claims" and cited Rule 82 of the Alaska Rules of Civil Procedure. Exxon Corp. v. Burglin, 4 F.3d 1294, 1302 (5th Cir.1993). Construing our instructions to include the recovery of appellate fees, the district court relied on section 508 of the Alaska Rules of Appellate Procedure. Under this rule, an appellate court may allow a party prevailing on appeal to recover partial attorneys' fees and costs incurred on appeal or, in the case of a frivolous suit, full fees.

The critical issue here is whether Alaska Rule 508 or Federal Rule of Appellate Procedure 38 applies to the award of appellate fees. Federal courts apply state substantive law "when adjudicating diversity-jurisdiction claims, but in doing so apply federal procedural law to the proceedings." Cates v. Sears, Roebuck & Co., 928 F.2d 679, 687 (5th Cir.1991); see Hanna v. Plummer, 380 U.S. 460, 465-67, 85 S.Ct. 1136, 1141, 14 L.Ed.2d 8 (1965); Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Where the state rule reflects a substantive state policy not in conflict with the plain meaning of the federal rule, then the state rule is the rule of decision and should be applied under the terms of the Erie doctrine. ² See Alyeska Pipeline Co. v. Wilderness Soc'y, 421 U.S. 240, 260 n. 31, 95 S.Ct. 1612, 1622 n. 31, 44 L.Ed.2d 141 (1975); see also Powell v. Old Southern Life Ins. Co., 780 F.2d 1265, 1267 (5th Cir.1986) ("[F]ederal courts in diversity ... follow[ ] state statutes allowing attorney's fees unless the state practice directly conflicts with a ... rule of court."); see also 6 Jeremy C. Moore, MOORE'S FEDERAL PRACTICE p 54.78 (2d ed. 1994) (observing that state law of attorneys' fees applies "unless ... application of the state law would infringe upon some statute, rule, or important federal policy"). Where, on the other hand, a federal procedural rule is "clearly applicable," then it applies unless unconstitutional or outside the scope of the Rules Enabling Act. Walker v. Armco Steel Corp., 446 U.S. 740, 747-49, 100 S.Ct. 1978, 1984, 64 L.Ed.2d 659 (1980). As one treatise has remarked, "If the [federal] Rule speaks to the point in dispute and is valid, it is controlling, and no regard need be paid to contrary state provisions." 19 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, FEDERAL PRACTICE AND PROCEDURE Sec. 4508 (1982).

By allowing even minimal recovery of attorneys' fees in every civil appeal, Alaska Rule 508 directly collides with FED.R.APP.P. 38, which allows the recovery of attorneys' fees only in the case of a frivolous appeal. ³ The federal rule therefore applies unless it is unconstitutional or outside the scope of the Rules Enabling Act. The burden of establishing the invalidity of a federal rule is heavy because all federal rules of court enjoy presumptive validity. Id. Indeed, to date the Supreme Court "has never squarely held a provision of the civil rules to be invalid on its face or as applied." Paul M. Bator, HART AND WECHSLER'S THE FEDERAL COURTS AND THE FEDERAL SYSTEM 769 (1988). Moreover, because the Supreme Court and this Circuit have already specifically held that Rule 38 conforms to Articles I and III of the Constitution, we need only consider its as-applied legitimacy under federal statutory law. Burlington Northern Railroad Co. v. Woods, 480 U.S. 1, 5-8, 107 S.Ct. 967, 970-71, 94 L.Ed.2d 1 (1987); Affholder, Inc. v. Southern Rock, Inc., 746 F.2d 305, 310-11 (5th Cir.1984).

The Rules Enabling Act confers upon the Supreme Court rulemaking authority over general matters of practice and procedure in the federal courts. The Act mandates, however, that these federal procedural rules "shall not abridge, enlarge or modify any substantive right." 28 U.S.C. Sec. 2072. Evidently, the district court assumed that Alaska Rule 508 creates or reflects some significant substantive right similar to that found in Alaska Rule 82. We disagree. FED.R.APP.P. 38 does not invade the realm of state substantive law protected by the Rules Enabling Act. Even if Alaska Rule 508 is not wholly procedural, it is certainly more procedural than substantive. ⁴ See Hanna, 380 U.S. at 470-72, 85 S.Ct. at 1144. In so concluding, we observe that Alaska Rule 508 is clearly distinguishable from Alaska Rule 82, which represents a substantive state right to attorneys' fees. Unlike Rule 508, Rule 82 wholly keys the award of fees to success on the merits. That is, it is available only to the "prevailing party," which Alaska law defines as the party which wins the central issue in dispute. Foss Alaska Line, Inc. v. Northland Services, Inc., 724 P.2d 523, 526 (Alaska 1986). An award under Alaska Rule 82 thus is based on the success or defeat of the underlying legal claim. See Affholder, 746 F.2d at 310. Conversely, an award of appellate fees under Alaska Rule 508 may have nothing to do with the merits of the underlying suit or with any rights that predate the suit's filing. ⁵ Such an award, in short, does not necessarily depend on which party ultimately prevails. ⁶

Thus, unlike Alaska Rule 82, which links recovery to the merits and reflects a substantive state policy in favor of compensating litigants somehow successful on the underlying cause of action, the Alaska appellate rule essentially "affects only the process of enforcing litigants' rights and not the rights themselves." Burlington, 480 U.S. at 8, 107 S.Ct. at 971 (1987); see also Chambers v. NASCO, Inc., 501 U.S. 32, 50-52, 111 S.Ct. 2123, 2136, 115 L.Ed.2d 27 (1991) (giving as an example of a state substantive law "fee-shifting rules that embody a substantive policy, such as a statute which permits a prevailing party in certain classes of litigation to recover fees"). ⁷ This difference tracks the blurry...