Planning Partners Int'l, LLC v. Qed, Inc.

• Decision Date: 27 October 2011
• Docket Number: No. 10CA1848.,10CA1848.
• Citation: 310 P.3d 126
• Parties: PLANNING PARTNERS INTERNATIONAL, LLC, Plaintiff–Appellee, v. QED, INC., Defendant–Appellant.
• Court: Colorado Court of Appeals

310 P.3d 126

PLANNING PARTNERS INTERNATIONAL, LLC, Plaintiff–Appellee,

v.QED, INC., Defendant–Appellant.

No. 10CA1848.

Colorado Court of Appeals,

Div. I.

Oct. 27, 2011.

Messner & Reeves, LLC, David W. Feeder, II, Derek C. Blass, Denver, Colorado, for Plaintiff–Appellee.

Campbell Killin Brittan & Ray, LLC, William C. Brittan, Benjamin P. Parrott, Denver, Colorado, for Defendant–Appellant.

Opinion by Judge ROTHENBERG.^*

In this breach of contract case, defendant, QED, Inc. (QED), appeals the trial court's judgment awarding attorney fees to plaintiff, Planning Partners International, LLC (PPI), of $188,748.80. The dispositive issue on appeal is the propriety of the court's award of those fees, and because we conclude the trial court erred as a matter of law in calculating them, we reverse and remand with directions.

I. Background

QED, an electrical supply company, decided to host a Mediterranean cruise for its employees and customers. The cruise was to leave on June 6, 2008 from Barcelona, Spain.

In February 2008, QED hired PPI to plan and coordinate the air travel from Colorado to Spain. The terms of PPI's service were set forth in a letter of agreement signed by the parties.

In March 2008, PPI entered into a standard charter agreement with Omni Air International, Inc. (Omni), a charter flight company. The agreement authorized Omni to assess a fuel surcharge if fuel prices rose, but provided that if the surcharge amounted to ten percent or more of the total contract price, QED would receive notice of it at least thirty days before the departure date.

Three days before the scheduled departure, Omni informed PPI that it was assessing a fuel surcharge of $122,428 (approximately twenty percent of the contract price), and threatened to delay service until it received payment. There was no authorized representative of QED in Colorado available to pay the surcharge, and so PPI agreed to pay it on QED's behalf if QED signed a promissory note and loan agreement (the Agreement). The Agreement was prepared by PPI and included the following provision for attorney fees:

[QED] agrees to pay on demand reasonable costs and expenses, if any, including reasonable attorneys' fees and expenses, in connection with the enforcement of this Loan Agreement & Promissory Note by PPI.

In July 2008, PPI filed this lawsuit alleging that QED had refused to repay PPI. PPI alleged claims for breach of contract, unjust enrichment, promissory estoppel, fraud, and breach of contract. As relevant here, QED filed counterclaims against PPI for breach of contract relating to the letter of agreement, breach of fiduciary duty, and negligence. The jury returned a verdict awarding PPI $131,725.27 on its breach of contract claim and awarding QED $58,534.65 on its breach of contract counterclaim, for a net judgment to PPI of $73,190.62.

The trial court conducted a hearing on attorney fees, and both parties presented expert witnesses who expressed opinions on the reasonableness of the attorney fees and the need to apportion them. QED argued in the trial court, as it does on appeal, that a significant portion of PPI's attorney fees were incurred in defending all of its counterclaims, including the ancillary ones, and that the trial court erred as a matter of law in refusing to apportion the fees on that basis. The trial court concluded it was not required to apportion the fees, reasoning:

[T]his is a discretionary function by the trial court in evaluating and assessing the reasonableness of the attorneys' fees requested, and there [are] a number of tools that I can rely on, not the least of which is the discretion to allocate fees amongst the claims sought, the specifics.... [T]his is a discretionary act for me to determine the reasonableness of the fees.

II. Apportionment of Attorney Fees

We review the amount of the trial court's award of attorney fees under an abuse of discretion standard. Haystack Ranch, LLC v. Fazzio, 997 P.2d 548, 556 (Colo.2000). But we review de novo the legal analysis employed by the court in reaching its decision. Colorado Citizens for Ethics in Gov't v. Comm. for Am. Dream, 187 P.3d 1207, 1220 (Colo.App.2008).

Colorado follows the American Rule which provides that, absent a specific statute, court rule, or contract provision to the contrary, attorney fees are not recoverable by a prevailing party in a contract or tort action. Bernhard v. Farmers Ins. Exch., 915 P.2d 1285, 1287 (Colo.1996); Allstate Ins. Co. v. Huizar, 52 P.3d 816, 819 (Colo.2002). We construe derogations of the American Rule narrowly. Sotelo v. Hutchens Trucking Co., 166 P.3d 285, 287 (Colo.App.2007).

The parties have not cited, and we have not found, controlling decisions of the Colorado Supreme Court addressing the apportionment of attorney fees issue before us, and divisions of this court have reached the issue under factually distinguishable circumstances. For example, in Husband v. Colorado Mountain Cellars, Inc., 867 P.2d 57, 61 (Colo.App.1993), on which PPI primarily relies, the defendant claimed a substantial portion of the attorney fees awarded were incurred by the plaintiff in defending against defendant's counterclaim and not in prosecuting his claims upon the notes.

However, Husband's procedural posture distinguishes it from the instant case because the attorney fees there were awarded by a jury as part of its general verdict, in a lump sum, and without any special jury instruction on or requests by the parties for apportionment. 867 P.2d at 61–62. Although the defendant in Husband argued that a portion of the plaintiff's award derived from defending against its counterclaims, the lump sum verdict made it unclear whether apportionment had actually occurred. As the division observed, “it [was] impossible to determine the amount awarded as fees.” Id. at 63.

Other cases relied upon by PPI are inapposite. Karg v. Mitchek, 983 P.2d 21, 27 (Colo.App.1998), quoted Husband but did not independently address the apportionment issue. Sperry v. Bolas, 786 P.2d 517, 518 (Colo.App.1989), addressed the scope of a contractual attorney fee provision that entitled the prevailing party to fees relating to the contract.

The cases on which QED relies are also distinguishable because they involved the construction of statutes. For example, in In re Marriage of Seewald, 725 P.2d 1171, 1173 (Colo.App.1986), the division concluded there was insufficient evidence in the record “to enable the court to determine the reasonable amount of attorney fees incurred or what portion should be allocated to issues not included with the pre-nuptial agreement.” 725 P.2d at 1173. But contrary to QED's contention, the division's decision did not require the trial court to allocate fees on remand. It required the trial court to base its award of fees on sufficient evidence in the record. See also Voller v. Gertz, 107 P.3d 1129, 1135 (Colo.App.2004) (remanding the issue of apportionment for lack of support in the record). Furthermore, attorney fees in the domestic context are distinguishable because section 14–10–119, C.R.S.2011, authorizes apportionment, even absent prenuptial contracts.

QED also relies on decisions apportioning award fees to the prevailing party. However, the attorney fee provision at issue here shifts the burden of fees to the borrower regardless of which party prevails. See Voller, 107 P.3d at 1135;Major v. Chons Bros., Inc., 53 P.3d 781, 788 (Colo.App.2002) (concluding Fair Labor Standards Act, 29 U.S.C. § 216(b), entitles prevailing plaintiffs to reasonable attorney fees and costs); Nouri v. Wester & Co., 833 P.2d 848, 852 (Colo.App.1992) (concluding a lease provided successful party with attorney fees for enforcing the lease's terms); Koontz v. Rosener, 787 P.2d 192, 199–200 (Colo.App.1989) (concluding former § 8–4–114 (repealed 2003) entitled “winning party” in enforcement of employee compensation payment to attorney fees); see also Hensley v. Eckerhart, 461 U.S. 424, 433–37, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983) (addressing courts' allocation of attorney fees to prevailing parties); American Water Development, Inc. v. City of Alamosa, 874 P.2d 352 (Colo.1994) (apportionment was express condition imposed by court for dismissal of a claim); Mitchell v. Ryder, 20 P.3d 1229, 1234 (Colo.App.2000) (C.R.C.P. 11 permitted attorney fees to be apportioned), rev'd on other grounds,54 P.3d 885 (Colo.2002).

We therefore turn to other jurisdictions for guidance, and they have taken three different approaches to the issue.

One approach is illustrated by Jackson v. Oppenheim, 533 F.2d 826, 830 (2d Cir.1976), in which the federal appeals court interpreted New York law. In Jackson, a debtor unsuccessfully sued his payee for securities fraud and the payee counterclaimed to recover the principal on two promissory notes that shifted “all costs of collections” to the debtor. 533 F.2d at 829–31. Although the payee fully recovered on the notes, the court refused to award him the attorney fees that he incurred defending the fraud claim, concluding it was “incidental” to the collection action. Id. at 831;cf. Towers Charter & Marine Corp. v. Cadillac Ins. Co., 894 F.2d 516, 524–25 (2d Cir.1990) (awarding a payee all attorney fees because defense of the breach of the loan agreement claim was not a “collateral attack” as was the fraud claim in Jackson ).

The rationale of the Jackson court in narrowly construing the fee-shifting clause of the note was that New York law on apportionment was unsettled, and the court was “reluctant to imply a result under that law which would conflict with the general ‘American rule’ against awarding fees against a losing party.” 533 F.2d at 831 (citing Alyeska Pipeline Srvc. Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975)). The Jackson court also reasoned that mandatory apportionment “avoid[ed] undue discouragement of the bringing of non-frivolous claims.” Jackson, 533 F.2d at 831. QED relies heavily on Jackson.

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