Sw. Sys. Tech., Inc. v. Koh Young Am., Inc.

• Court: U.S. District Court — Northern District of Texas
• Writing for the Court: SIDNEY A. FITZWATER UNITED STATES DISTRICT JUDGE
• Decision Date: 23 December 2016
• Docket Number: Civil Action No. 3:15-CV-2152-D
• Citation: Sw. Sys. Tech., Inc. v. Koh Young Am., Inc., Civil Action No. 3:15-CV-2152-D (N.D. Tex. Dec 23, 2016)
• Parties: SOUTHWEST SYSTEMS TECHNOLOGY, INC., Plaintiff, v. KOH YOUNG AMERICA, INC., Defendant.

SOUTHWEST SYSTEMS TECHNOLOGY, INC., Plaintiff, v. KOH YOUNG AMERICA, INC., Defendant.

Civil Action No. 3:15-CV-2152-D

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

December 23, 2016

MEMORANDUM OPINION AND ORDER

Following a jury verdict and the entry of judgment in favor of plaintiff Southwest Systems Technology, Inc. ("Southwest Systems"), Southwest Systems moves for an award of attorney's fees and nontaxable expenses, and defendant Koh Young America, Inc. ("KYA") moves the court to determine whether Arizona law governs Southwest Systems' fee application. For the following reasons, the court grants in part and denies in part the parties' motions, awards Southwest Systems the sum of $240,950 in attorney's fees, and denies without prejudice Southwest Systems' request for $7,462.99 in nontaxable expenses.

I

Southwest Systems brought this lawsuit in Texas state court against KYA, alleging claims for breach of contract (a Sales Representative Agreement ("Agreement") between Southwest Systems and KYA), breach of the Texas Sales Representative Act ("TSRA"), Tex. Bus. & Com. Code Ann. §§ 54.001-06 (West 2016), and quantum meruit. Southwest Systems sought an award of treble damages under the TSRA. Following removal, and after the close of discovery, KYA moved for partial summary judgment on the TSRA claim. In response, Southwest Systems withdrew the claim. The parties later tried the case to a jury, which returned a verdict in favor of Southwest Systems in the sum of $108,866.60 on Southwest Systems' remaining claims for breach of the Agreement and quantum meruit. Southwest Systems elected to recover on its claim for breach of the Agreement.

Southwest Systems now moves under Rule 54(d)(2) for an award of $253,683.75 in attorney's fees and $7,462.99 in nontaxable expenses pursuant to Tex. Civ. Prac. & Rem. Code Ann. § 38.001 (West 2016). KYA opposes the motion and separately moves for a determination of the parties' contractual choice of law provision and the applicability of Arizona substantive law to the fee application.

II

The court begins with KYA's motion.

A

The Agreement contains a choice-of-law clause that provides that it "will be governed and construed according to the laws of the State of Arizona." P. 9/7/16 App. 3. KYA contends that Arizona law governs the court's determination of attorney's fees; that, under Arizona law, the court has discretion to determine who is the successful party when there are multiple parties and multiple claims; that because Southwest Systems voluntarily dismissed its claim under the TSRA—in which it sought treble damages—it is apparent from the face of Southwest Systems' pleadings that it lost on three-quarters of its alleged damages; and that with respect to the totality of the litigation, KYA is the "prevailing party" and is entitled toits own fees, or, by offset, a reduction of fees awarded to Southwest Systems, for prevailing on a significant majority of Southwest Systems' contractual and statutory damages claims asserted against it.

Southwest Systems responds that there is substantial similitude between Texas and Arizona law regarding the award of attorney's fees; that Arizona's attorney's fee statute does not apply in this case because the Agreement provides that the prevailing party will be entitled to reasonable attorney's fees and costs; that Southwest Systems' claims against KYA "from the inception of this dispute has been for the 5% commission it was owed on sales for which it was responsible," P. 9/7/16 Br. 3; that, at the inception of the lawsuit, the actual dollar amount of commissionable sales was unknown to Southwest Systems; that it was only after protracted discovery that the actual dollar amount of commissionable sales became liquidated such that Southwest Systems was able to identify sales on which it had not been paid commissions; and that Southwest Systems clearly prevailed on its commission claim.

B

A federal court sitting in diversity follows the choice of law rules of the state in which the court sits—here, Texas. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Crawford Prof'l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 258 (5th Cir. 2014). "Under the Texas rules, in those contract cases in which the parties have agreed to an enforceable choice of law clause, the law of the chosen state must be applied." Resolution Tr. Corp. v. Northpark Joint Venture, 958 F.2d 1313, 1318 (5th Cir. 1992) (citing DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 678 (Tex. 1990)). The Agreement provides that it"will be governed and construed according to the laws of the State of Arizona." P. 9/7/16 App. 3. Accordingly, the court interprets the Agreement according to Arizona law.

The Agreement provides, in pertinent part:

[i]f any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, cost and necessary disbursements, in addition to any other relief to which it may be entitled.

Id. "Where a contract provides for an award of fees to the prevailing party, Arizona law requires the Court to honor that provision and award fees as stipulated in the agreement." Nat'l Bank of Ariz. v. Munn, 2010 WL 5067697, at *1 (D. Ariz. Dec. 7, 2010) (citing McDowell Mountain Ranch Cmty. Ass'n v. Simons, 165 P.3d 667, 670 (Ariz. Ct. App. 2007); Dorn v. Robinson, 762 P.2d 566, 574 (Ariz. Ct. App. 1988)). "The awarding of attorneys' fees to a prevailing party pursuant to a contract between the parties is mandatory." Bennett v. Appaloosa Horse Club, 35 P.3d 426, 432 (Ariz. Ct. App. 2001); see also Lisa v. Strom, 904 P.2d 1239, 1242 n.2 (Ariz. Ct. App. 1995) ("[W]hen a contract has an attorney's fees provision it controls to the exclusion of the statute."); Chase Bank of Ariz. v. Acosta, 880 P.2d 1109, 1121 (Ariz. Ct. App. 1994) ("Unlike fees awarded under A.R.S. § 12-341.01(A), the court lacks discretion to refuse to award fees under [a] contractual provision.").

The court concludes that Southwest Systems was the "prevailing party" on its claim for breach of the Agreement, and that it is therefore entitled to an award of attorney's fees pursuant to the fee provision in the Agreement. Arizona courts follow the "general rule" that "the successful party in a contract litigation is the one who 'obtains judgment for an amountin excess of the setoff or counterclaim allowed.'" Suenos, LLC v. Goldman, 2013 WL 11313165, at *1 (D. Ariz. Aug. 21, 2013) (quoting Ocean W. Contractors, Inc. v. Halec Constr. Co., 600 P.2d 1102, 1105 (Ariz. 1979); Trollope v. Koerner, 515 P.2d 340, 344 (Ariz. App. 1973)); see also McEvoy v. Aerotek, Inc., 34 P.3d 979 (Ariz. Ct. App. 2001) ("[A] plaintiff is the prevailing party when a jury reaches a verdict in favor of the plaintiff and awards damages."). Here, the jury found for Southwest Systems on its breach of contract claim. Although the sum of $108,866.60 in damages that the jury awarded Southwest Systems is substantially less than the sum of $1 million that Southwest Systems sought in its state-court original petition,¹ Arizona courts "have specifically rejected the notion that partial success warrants denial of a request for attorneys' fees and costs" in contract actions in which the contract provides for the payment of attorney's fees to the prevailing party. See K.P. Ltd. Props., Inc. v. Built-To-Last Indus., LLC, 2010 WL 2677279, at *4 (Ariz. Ct. App. July 6, 2010) (citing Henry v. Cook, 938 P.2d 91, 93 n.1 (Ariz. Ct. App. 1996)). The sum of $108,866.60 that the jury awarded Southwest Systems is not an insignificant amount, and, in any event, as explained above, "the successful party is the net winner." Ayala v. Olaiz, 776 P.2d 807, 809 (Ariz. Ct. App. 1989). As between Southwest Systems and KYA, Southwest Systems is clearly the net winner with regard to Southwest Systems' breach of contract claim, and is therefore the prevailing party for purposes of the Agreement's feeprovision.²

Accordingly, the court grants KYA's motion to the extent of concluding that the Agreement, including the attorney's fee provision, is governed by Arizona law, but it otherwise denies KYA's motion.

III

The court now turns to Southwest Systems' application for attorney's fees and nontaxable expenses.

The Agreement provides for the award of "reasonable" attorney's fees. Under Arizona law,³ "[t]he beginning point in a development of a reasonable fee is the determination of the actual billing rate which the lawyer charged in the particular matter." Schweiger v. China Doll Rest., 673 P.2d 927, 931 (Ariz. Ct. App. 1983) ("China Doll") (addressing "reasonable" attorney's fees when provided by contract). To enable the court to make this determination, "the affidavit submitted in connection with an application forfees must indicate the agreed upon hourly billing rate between the lawyer and the client for the services performed." Id. at 932.

The court, of course, is not bound by the agreement between the parties. While it is unlikely that the court will adjust the hourly rate upward, upon the presentation of an opposing affidavit setting forth reasons why the hourly billing rate is unreasonable, the court may utilize a lesser rate.

China Doll, 673 P.2d at 932 (citations omitted).

Where attorney's fees are permitted by statute or contract, the prevailing party is "'entitled to recover a reasonable attorney's fee for every item of service which, at the time rendered, would have been undertaken by a reasonable and prudent lawyer to advance or protect his client's interest in the pursuit' of a successful claim." China Doll, 673 P.2d at 932 (quoting Twin City Sportservice v. Charles O. Finley & Co., 676 F.2d 1291, 1313 (9th Cir. 1982)). The party seeking reasonable attorney's fees bears the initial burden of establishing an entitlement to such fees by filing a fee application and supporting affidavit indicating "the type of legal services provided, the date...