Rayco Mfg., Inc. v. Murphy, Rogers, Sloss & Gambel

• Decision Date: 19 September 2019
• Docket Number: No. 106714,106714
• Citation: 142 N.E.3d 1267,2019 Ohio 3756
• Parties: RAYCO MANUFACTURING, INC., Plaintiff-Appellant/Cross-Appellee, v. MURPHY, ROGERS, SLOSS & GAMBEL, a Professional Law Corporation, et al., Defendants-Appellees/Cross-Appellants.
• Court: Ohio Court of Appeals

142 N.E.3d 1267

2019 Ohio 3756

RAYCO MANUFACTURING, INC., Plaintiff-Appellant/Cross-Appellee,

v.MURPHY, ROGERS, SLOSS & GAMBEL, a Professional Law Corporation, et al., Defendants-Appellees/Cross-Appellants.

No. 106714

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

RELEASED AND JOURNALIZED: September 19, 2019

EN BANC DECISION AND JOURNAL ENTRY AND OPINION

EILEEN A. GALLAGHER, J.:

{¶ 1} Pursuant to App.R. 26, Loc. App.R. 26, and McFadden v. Cleveland State Univ. , 120 Ohio St.3d 54, 2008-Ohio-4914, 896 N.E.2d 672, the en banc court determined that a conflict existed between (1) the panel decision in this case, which followed our prior decision in Berry v. Lupica , 196 Ohio App.3d 687, 2011-Ohio-5381, 965 N.E.2d 318 (8th Dist.), and (2) our prior decisions in R.C.H. Co. v. Classic Car Auto Body & Frame , Inc. , 8th Dist. Cuyahoga No. 83697, 2004-Ohio-6852, 2004 WL 2914923, and Mayfran Internatl. v. May Conveyor, Inc. , 8th Dist. Cuyahoga No. 62913, 1993 WL 266944 (July 15, 1993), regarding whether attorney fees incurred as a result of a motion to enforce a settlement agreement are recoverable as compensatory damages.

{¶ 2} In this case, plaintiff-appellant/cross-appellee Rayco Manufacturing, Inc. ("Rayco") appeals from the trial court's decision granting defendants-appellees/cross-appellants' (collectively, "appellees")¹ motion to enforce a settlement agreement that resolved legal malpractice claims Rayco had filed against appellees. Rayco contends that the trial court erred in finding that there was an enforceable settlement agreement. Appellees cross-appeal and contend that the trial court erred in denying their request to recover the attorney fees they incurred to enforce the settlement agreement. To secure and maintain uniformity of decisions within the district, we vacate the panel decision issued on November 29, 2018, Rayco Mfg. Inc. v. Murphy, Rogers, Sloss & Gambel , 8th Dist. Cuyahoga, 2018-Ohio-4782, 117 N.E.3d 153, consider appellees' cross-assignment of error en banc and issue this decision as the final decision in this appeal.

{¶ 3} This opinion is divided into two parts: (1) the decision of the en banc court and (2) the decision of the merit panel. The decision of the en banc court is limited to analysis and resolution of the issue raised in appellees' cross-assignment of error regarding whether attorney fees incurred as a result of a motion to enforce a settlement agreement are recoverable as compensatory damages. The merit panel reissues the original panel decision with respect to Rayco's three assignments of error, which is unaffected by this en banc review, and addresses appellees' cross-assignment of error in light of the en banc court's decision.

DECISION OF THE EN BANC COURT:

{¶ 4} The issue to be considered by the en banc court has been framed as follows: "Are attorney fees incurred as a result of a motion to enforce a settlement agreement recoverable as compensatory damages?" Upon en banc review, we hold that attorney fees can be awarded as compensatory damages to the prevailing party on a motion to enforce a settlement agreement when the attorney fees are incurred as a direct result of a breach of the settlement agreement.

{¶ 5} Ohio follows the "American Rule," which provides that a prevailing party in a civil action may not generally recover its attorney fees as part of the "costs of litigation" unless attorney fees are provided for by statute, the nonprevailing party acts in bad faith or there is an enforceable contract that "specifically provides for the losing party to pay the prevailing party's attorney fees." Wilborn v. Bank One Corp. , 121 Ohio St.3d 546, 2009-Ohio-306, 906 N.E.2d 396, ¶ 7.

{¶ 6} In Berry v. Lupica , 196 Ohio App.3d 687, 2011-Ohio-5381, 965 N.E.2d 318, this court held that, notwithstanding the American Rule, a party was entitled to recover its attorney fees as compensatory damages when the fees were incurred as a direct result of the breach of a settlement agreement. In that case, Berry filed suit against his supervisor and employer, Wachovia Securities ("Wachovia"), alleging that Wachovia breached an agreement to pay the full amount of Berry's share of an arbitration award that had been entered against Berry in an arbitration between Berry and his former employer, Merrill Lynch. Id. at ¶ 1. The arbitration panel awarded Merrill Lynch $250,000 on its claims against Berry and awarded Berry $125,000 on his claim against Merrill Lynch. Id. at ¶ 2. Wachovia paid the $250,000 judgment against Berry. Id. at ¶ 3. Berry endorsed the $125,000 check he received from Merrill Lynch and gave it to his Wachovia branch manager with a note requesting that the check be placed on deposit "to offset the interest due on our contract" and indicating that "[t]he $125,000 is to be returned on demand." Id. at ¶ 3-4. The check was deposited into a Wachovia account dedicated to legal settlements. Berry later asked to have the check returned to him, but Wachovia refused to return it. Id. at ¶ 5. Berry filed suit, alleging that Wachovia had breached an agreement to hold Berry's Merrill Lynch proceeds and produce them on demand; Wachovia filed a counterclaim, alleging that Berry had breached a settlement agreement that he would reimburse Wachovia for certain of the amounts it had paid to Merrill Lynch in satisfaction of the arbitration award. Id. at ¶ 1, 6. Wachovia sought to recover as damages the attorney fees it expended or would be required to expend to enforce the settlement agreement. Id. at ¶ 6.

{¶ 7} The jury found against Berry on all of his claims and in favor of Wachovia on its counterclaim; it awarded Wachovia $432,000 in damages for the attorney fees Wachovia expended in enforcing the settlement agreement. Id. at ¶ 8.

{¶ 8} Berry appealed to this court, asserting, among other arguments, that the award of attorney fees to Wachovia violated the American Rule. Id. at ¶ 18-19. This court disagreed. The court held that Berry had breached the settlement agreement when he filed suit against Wachovia, seeking the return of the $125,000. Id. at ¶ 15. The court further held that the attorney fees Wachovia incurred to enforce the settlement agreement were recoverable as compensatory damages resulting from Berry's breach of their agreement. Id. at ¶ 19-20. As the court explained:

Ohio adheres to the rule that "a prevailing party in a civil action may not recover attorney fees as a part of the costs of litigation." Wilborn v. Bank One Corp. , 121 Ohio St.3d 546, 2009-Ohio-306, 906 N.E.2d 396, at ¶ 7. However, attorney fees are allowed as compensatory damages when the fees are incurred as a direct result of the breach of a settlement agreement. See Raymond J. Schaefer, Inc. v. Pytlik , 6th Dist. Ottawa No. OT-09-026, 2010-Ohio-4714 [2010 WL 3820552], ¶ 34 ; Tejada-Hercules v. State Auto. Ins. Co. , 10th Dist. Franklin No. 08AP-150, 2008-Ohio-5066 [2008 WL 4416534], ¶ 10. The rationale behind the exception for allowing attorney fees expended as a result of enforcing a settlement agreement is that "any fees incurred after the breach of the settlement agreement were relevant to the determination of compensatory damages, including those fees [a party was] ‘forced’ to incur by filing the action." Tejada-Hercules at ¶ 10.

The legal fees awarded in this case were the measure of compensatory damages directly related to Wachovia's need to enforce the settlement agreement. The court did not err by awarding Wachovia its attorney fees as compensatory damages.

Id. at ¶ 19-20 ;² see also Shelly Co. v. Karas Properties, Inc. , 8th Dist. Cuyahoga No. 98039, 2012-Ohio-5416, 2012 WL 5877556, ¶ 41 (citing Berry and observing that "[c]ourts often award attorney fees incurred after the breach of a settlement agreement because ‘when a party breaches a settlement agreement to end litigation and the breach causes a party to incur attorney fees in continuing litigation, those fees are recoverable as compensatory damages in a breach of settlement claim,’ " but ultimately concluding that Berry did not apply because the breach of contract claim at issue did not involve a settlement agreement), quoting Shanker v. Columbus Warehouse Ltd. Partnership , 10th Dist. Franklin No. 99AP-772, 2000 WL 726786 (June 6, 2000).

{¶ 9} In Mayfran Internatl. v. May Conveyor, Inc. , 8th Dist. Cuyahoga No. 62913, this court held that a party who prevailed on a motion to enforce a settlement agreement was not entitled to recover the attorney fees it incurred to enforce the agreement as compensatory damages because there had been no finding that the other party had acted in bad faith. In that case, Mayfran International, Inc. ("Mayfran") sued May Conveyor, Inc. and several related defendants (collectively, "May Conveyor"), asserting various claims relating to the alleged misappropriation of trade secrets. Id. at *1. Prior to trial, the parties reached an alleged settlement. Id. at *1. After execution of a handwritten settlement agreement, but before execution of a final "definitive agreement," a dispute arose as to the meaning of one of the terms of the alleged settlement, and Mayfran filed a motion to enforce the settlement agreement. Id. at *2. After a series of hearings, the trial court determined that the parties had entered into an enforceable settlement agreement and that May Conveyor had breached that agreement. It awarded Mayfran lost profits and its attorney fees as compensatory damages for breach of the settlement agreement. Id. at *4. May Conveyor appealed. On appeal, this court reversed the attorney fee award, concluding that the attorney fee award was "not proper" because there had been no finding that May Conveyor acted in bad faith and, "[a]bsent a statutory provision, a prevailing party is not entitled to an award of attorney fees unless the party against whom the fees are taxed was found to have acted in bad faith." Id. at *6, citing State ex rel. Kabatek v. Stackhouse , 6 Ohio St.3d 55, 451 N.E.2d 248 (1983).

{¶ 10} In ...