S. Colo. Orthopaedic Clinic Sports Med. & Arthritis Surgeons, P.C. v. Weinstein

• Decision Date: 18 December 2014
• Docket Number: Court of Appeals No. 13CA2011
• Citation: 343 P.3d 1044,2014 COA 171
• Parties: SOUTHERN COLORADO ORTHOPAEDIC CLINIC SPORTS MEDICINE AND ARTHRITIS SURGEONS, P.C., a Colorado professional corporation, a/k/a Premier Orthopedics and Sports Medicine Specialists, P.C., Plaintiff–Appellant, v. David M. WEINSTEIN, M.D., Defendant–Appellee.
• Court: Colorado Court of Appeals

343 P.3d 1044

2014 COA 171

SOUTHERN COLORADO ORTHOPAEDIC CLINIC SPORTS MEDICINE AND ARTHRITIS SURGEONS, P.C., a Colorado professional corporation, a/k/a Premier Orthopedics and Sports Medicine Specialists, P.C., Plaintiff–Appellant

v.David M. WEINSTEIN, M.D., Defendant–Appellee.

Court of Appeals No. 13CA2011

Colorado Court of Appeals, Div. VI.

Announced December 18, 2014

Rehearing Denied January 15, 2015

Hamil/Martin, LLC, J. Lawrence Hamil, Denver, Colorado; Tsoucaris Law, LLC, Valissa A. Tsoucaris, Denver, Colorado, for Plaintiff–Appellant

Lewis Roca Rothgerber, LLP, Eric Hall, Edward Gleason, Colorado Springs, Colorado, for Defendant–Appellee

Opinion

Opinion by JUDGE BERNARD

¶ 1 This appeal focuses on a fee-shifting provision in an employment agreement. This provision states that the prevailing party in any action to enforce the agreement “shall be entitled to recover ... all attorney fees [and] costs.”

¶ 2 Does this provision require the trial court to award the prevailing party all its attorney fees and costs instead of awarding it only its reasonable attorney fees and costs? We answer this question “no.” As a result, we affirm the trial court's decision that awarded only reasonable attorney fees and costs to the plaintiff in this case, a professional corporation known as the Southern Colorado Orthopaedic Clinic Sports Medicine and Arthritis Surgeons, P.C.

I. Background

¶ 3 The litigation between the professional corporation and the defendant, Dr. David M. Weinstein, spans roughly seven years. (We note that there was another defendant involved in this case who is not a party to this appeal.) The professional corporation alleged that the doctor had breached his employment agreement with the professional corporation. The professional corporation sued the doctor, and it raised seven claims.

As is pertinent to our analysis, these claims included (1) breach of various terms of the employment agreement; and (2) an allegation that the doctor had not paid liquidated damages that he owed because he had violated a non-compete provision of the employment agreement. The doctor responded with counterclaims and third-party claims.

¶ 4 In 2009, the trial court presided over an eight-day jury trial. At its conclusion, the jury awarded the professional corporation $13 in nominal damages. The trial court then granted the professional corporation's request for a directed verdict, and it awarded the professional corporation $10,000 in liquidated damages because the doctor had breached the non-compete provision.

¶ 5 The trial court later decided that neither the professional corporation nor the doctor had prevailed at trial. It reasoned, in part, that the professional corporation had only obtained nominal damages. The court then declined the professional corporation's request for attorney fees and costs under the fee-shifting provision in the employment agreement.

¶ 6 The professional corporation appealed. (The other defendant participated in this first appeal.) A division of this court reversed the trial court's conclusion that the professional corporation had not prevailed for the purposes of the fee-shifting provision. S. Colo. Orthopaedic Clinic Sports Med. & Arthritis Surgeons, P.C. v. Weinstein, (Colo.App. No. 09CA2034, Dec. 2, 2010)(not published pursuant to C.A.R. 35(f) ). It reasoned that the professional corporation had prevailed because the judgment “favored [the professional corporation] on fifteen significant claims.” The division then remanded the case so that the trial court could hold “a new trial on the issue of damages on [the duty of loyalty claims] and to determine and award [the professional corporation's] attorney fees and costs, both at trial and on appeal.”

¶ 7 This appeal only concerns the award of attorney fees and costs. On remand, the professional corporation asked the court to order the doctor to pay it $821,452.58 in attorney fees and costs. (By this time, the other defendant had settled with the professional corporation. The details of this settlement are not in the record. The remand hearing on attorney fees and costs only involved the professional corporation and the doctor.) The trial court awarded the professional corporation $28,993.75. This figure included $9315.15 in attorney fees for the trial, $2328.79 in costs for the trial, and $17,349.81 in attorney fees and costs for the appeal.

II. Standard of Review

¶ 8 We review an award of attorney fees and costs for an abuse of discretion. Planning Partners Int'l, LLC v. QED, Inc., 2013 CO 43, ¶ 12, 304 P.3d 562. A trial court abuses its discretion when its “actions are manifestly arbitrary, unreasonable, or unfair.” Id. (citing Colo. Nat'l Bank of Denver v. Friedman, 846 P.2d 159, 167 (Colo.1993) ). “Accordingly, a trial court's determination of a reasonable attorney fee award will generally not be disturbed on review unless it is patently erroneous and unsupported by the evidence.” Id. (citing Hartman v. Freedman, 197 Colo. 275, 281, 591 P.2d 1318, 1322 (1979) ). But we review a trial court's interpretation of a contractual fee-shifting provision de novo. In re Estate of Gattis, 2013 COA 145, ¶ 35, 318 P.3d 549.

III. The Fee–Shifting Provision

¶ 9 The professional corporation contends that the trial court erred when the court did not award it all its attorney fees and costs. It bases this argument on the fee-shifting provision, which states that the professional corporation was entitled to all its attorney fees and costs because it was the prevailing party at trial. It adds that this clear language blocked the trial court from awarding only reasonable attorney fees and costs. We disagree. We therefore affirm the trial court, although we do so on somewhat different grounds. See Negron v. Golder, 111 P.3d 538, 542 (Colo.App.2004) (if the trial court reaches the correct conclusion, the Court of Appeals may affirm on different grounds).

A. The Law

¶ 10 Colorado courts follow the American rule, which requires parties to a lawsuit to pay their own legal expenses. QED, ¶ 6. There is an exception to this general rule. It applies if the parties agree, in a contract clause known as a fee-shifting provision, that the prevailing party will be entitled to recover its attorney fees and costs. Gattis, ¶ 34.

¶ 11 We should give an unambiguous fee-shifting provision its plain and ordinary meaning, and we should interpret it in a “ ‘common sense manner.’ ” Morris v. Belfor USA Grp., Inc., 201 P.3d 1253, 1259 (Colo.App.2008) (quoting Butler v. Lembeck, 182 P.3d 1185, 1189 (Colo.App.2007) ). But Colorado appellate courts have required trial courts to consider whether the requested attorney fees and costs are reasonable even if a fee-shifting provision in a contract does not mention reasonableness. See Agritrack, Inc. v. DeJohn Housemoving, Inc., 25 P.3d 1187, 1191–92 (Colo.2001) (affirming the trial court's award of “reasonable attorney's fees” where the fee-shifting provision stated that the liable party would be “responsible for all attorney's fees, costs, and interest”); see also Rock Wool Insulating Co. v. Huston, 141 Colo. 13, 18, 346 P.2d 576, 579 (1959) (requiring a showing of reasonableness where a promissory note awarded fees in a flat amount of 15%).

¶ 12 Courts in other jurisdictions also impose a reasonableness requirement on similarly worded fee-shifting provisions. See, e.g., State ex rel. Chase Resorts, Inc. v. Campbell, 913 S.W.2d 832, 835 (Mo.Ct.App.1995). The court in Chase first observed that the contract in that case did not “expressly limit” an award of attorney fees to those “reasonably incurred....” Id. But it then concluded that “[a]n attorney is only entitled to fees which are fair and just and which adequately compensate him for his services.”Id . (internal quotation marks omitted). The rationale for this conclusion was that, “no matter what fee is specified in the contract ... an attorney, as a fiduciary, cannot bind his client to pay a greater compensation for his services than the attorney would have the right to demand if no contract had been made.” Id . So, the court reasoned, “as a matter of public policy, reasonableness is an implied term in every contract for attorney's fees.” Id . In other words, if clients cannot “lawfully contract” with their attorneys “for an unreasonable fee,” parties to an agreement cannot “lawfully contract for reimbursement of more than a reasonable fee.” Id . As a result of this reasoning, the contention that the losing party to a lawsuit was “obligated to pay the ‘total sum’ of its legal bills” to the winning party “without an inquiry into their reasonableness [was] without merit.” Id .

¶ 13 Additional opinions from other jurisdictions take a similar view. See McDowell Mountain Ranch Cmty. Ass'n, Inc. v. Simons, 216 Ariz. 266, 165 P.3d 667, 671 (Ariz.Ct.App.2007) (enforcing a fee-shifting provision only to the extent that fees were reasonable); Crest Plumbing & Heating Co. v. DiLoreto, 12 Conn.App. 468, 531 A.2d 177, 183 (1987) (“We construe the term ‘attorney's fees' as an award for ‘reasonable attorney's fees' in this case because the term ‘reasonable ’ is implied by law even when it is absent in the contractual provision.”); Rauch v. McCall, 134 Md.App. 624, 761 A.2d 76, 85 (2000) (“[T]he court was still required to analyze the reasonableness of the attorney's fees, despite the lack of the specific word ‘reasonable’ in the Agreement.”); McMullen v. Kutz, 925 A.2d 832, 834 (Pa.Super.Ct.2007) (same); Kurtz v. Kurtz, 158 S.W.3d 12, 19 (Tex.Ct.App.2004) (“[W]e hold that reasonableness is an implied term in the Decree's attorney's fees provision and construe the term ‘attorney's fees and costs' to unambiguously require that [defendant] pay only reasonable and necessary attorney's fees and costs.”); see also Diamond D. Enters. USA, Inc. v. Steinsvaag, 979 F.2d 14, 19 (2d Cir.1992) (same).

¶ 14 As we have just observed, courts rely on public policy to impose a reasonableness requirement on fee-shifting provisions, even if...