Virgo Inv. Grp. v. Poggi, Case No. 3:20-cv-00856-IM
| Decision Date | 19 March 2021 |
| Docket Number | Case No. 3:20-cv-00856-IM |
| Parties | VIRGO INVESTMENT GROUP, LLC, Plaintiff, v. BRIAN POGGI, Defendant. |
| Court | U.S. District Court — District of Oregon |
Andrea Kim, Sarah Ring & William Haacker, Daniels & Tredennick, LLP, 6363 Woodway Dr., Suite 700, Houston, TX 77057; Meredith Bateman & Philip M. Guess, K&L Gates LLP, One SW Columbia, Suite 1900, Portland, OR 97204. Attorneys for Plaintiff.
Joanna T. Perini-Abbott, Angeli Law Group LLC, 121 SW Morrison Street, Suite 400, Portland, OR 97204; Matthew T. Kemp & Peter Ray Silverman, Shumaker, Loop & Kendrick LLC, 1000 Jackson Street, Toledo, OH 43604-5573. Attorneys for Defendant.
Before this Court is Plaintiff Virgo Investment Group's ("VIG") Motion for Attorney's Fees and Costs, ECF 70, after prevailing on its Motion for Summary Judgment, ECF 47.1 VIGrequests $218,334.50 in attorney's fees and $2,502.60 in nontaxable costs based on Oregon Revised Code § 20.096. ECF 70 at 5-8; ECF 77 at 1-7, 10; ECF 71 at 2; ECF 75 at 2.
Defendant Poggi, an Oregon resident and franchisee of Zippy Shell, Inc. ("Zippy"), had initiated arbitration proceedings in the District of Columbia against Plaintiff VIG and Zippy based on an arbitration provision in a franchise agreement between Poggi and Zippy. VIG brought an action before this Court seeking declaratory relief that it was not bound by the arbitration provision as a non-signatory to the franchise agreement. ECF 1. VIG filed a summary judgment motion with this Court to determine whether VIG could be bound to the franchise agreement between Poggi and Zippy as an alter ego of Zippy. ECF 47. In support of VIG's position that it could not be bound by the arbitration provision, VIG argued that Delaware law should apply, and that under Delaware law VIG is not an alter ego of Zippy. Therefore, VIG argued, it could not be required to arbitrate under the franchise agreement between Zippy and Defendant Poggi. This Court agreed2 and concluded that VIG was not Zippy's alter ego at the time the franchise agreement was entered into and that Defendant Poggi had not alleged therequisite injustice to pierce Zippy's corporate veil and bind VIG to the franchise agreement's terms.
Now, in requesting fees, VIG argues that Oregon law governs the issue of whether VIG is entitled to attorney's fees, rather than Delaware law. Defendant Poggi responds that this Court must apply Delaware law, the same law that this Court applied to the substantive dispute in this case. ECF 76 at 4-5. For the following reasons, VIG's Motion is DENIED.
The parties agree that for Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), and choice of law purposes, this is a diversity action and Oregon is the forum state. ECF 70 at 5 n.1; ECF 76 at 3. Oregon courts consider "the issue of entitlement to attorneys' fees" to be substantive rather than procedural, and so "a choice of law analysis must be made." Medford Corp. v. Crawford & Co., 119 F.3d 6, 1997 WL 408035, at *5 (9th Cir. 1997) (Table) (citing Seattle-First Nat'l Bank v. Schriber, 625 P.2d 1370, 1373 (Or.Ct.App. 1981)); see also Alaska Rent-A-Car, Inc. v. Avis Budget Grp., Inc., 738 F.3d 960, 973-74 (9th Cir. 2013).
In Oregon, courts generally evaluate "the contractual rights and duties of the parties" under "the law or laws that the parties have chosen." ORS 15.350(1). The law chosen by the parties "does not apply to the extent that its application would . . . "[c]ontravene an established fundamental policy embodied in the law that would otherwise govern the issue in dispute . . . ." ORS 15.355.3
There are two potential candidates for the parties' "choice of law" with respect to fees: Delaware and D.C. The franchise agreement chooses District of Columbia law. ECF 1-1 at 36-37. On summary judgment, VIG argued that Delaware law governs the substantive question of whether VIG is bound as Zippy's alter ego to the franchise agreement. See, e.g., ECF 47 at 19-21.
D.C. law could be the parties' "choice" for purposes of Oregon's statutory analysis because that is the contract's choice of law. VIG argues that it was not a party to the franchise agreement, and so it did not choose D.C. law. ECF 77 at 4. However, VIG premised its fees argument on what Poggi would be entitled to if he had succeeded in binding VIG to the franchise agreement. See, e.g., ECF 70 at 6 (). If Poggi had succeeded in demonstrating that VIG was bound to the franchise agreement, D.C. law would be the relevant choice of law for purposes of Oregon's choice of law analysis.
On the other hand, this Court determined at VIG's urging that the alter ego question is governed by Delaware law. ECF 68 at 10. The Ninth Circuit has interpreted Oregon's choice of law analysis in this context as follows: "the state law chosen by the parties to control the substantive issue under dispute also controls the issue of attorney's fees, unless doing so would circumvent a fundamental public policy of Oregon law." Avery v. First Resol. Mgmt. Corp., 568 F.3d 1018, 1023 (9th Cir. 2009) (citing Fiedler v. Bowler, 117 Or.App. 162 (1992)); see also Northon v. Rule, 637 F.3d 937, 938-39 (9th Cir. 2011) (); Alaska Rent-A-Car, 738 F.3d at 964, 970, 973-74 (). Here, the substantive issue under dispute, the alter ego question, was decided under Delaware law.
This Court concludes that under either potential "choice" of law, VIG is not entitled to fees.
"As a general matter, the District of Columbia follows the American Rule under which every party to a case shoulders its own attorneys' fees, and recovers from other litigants only in the presence of statutory authority, a contractual arrangement, or certain narrowly-defined common law exceptions, such as the conventional bad faith exception." Harris v. Howard Univ., Inc., 48 F. Supp. 2d 43, 45 (D.D.C. 1999) (quoting Oliver T. Carr Co. v. United Techs. Comm. Co., 604 A.2d 881, 883 (D.C.1992)) (quotation marks and ellipses omitted). VIG does not engage with D.C. law and does not explain how it might be entitled to fees under D.C. law. Without such argument or authority, VIG has not satisfied its burden of proving its entitlement to fees. Accordingly, the general American Rule applies, and each party shoulders its own attorneys' fees.
"Delaware follows the general rule that, regardless of the outcome of litigation, each party is responsible for paying his or her own attorneys' fees." In re SS & C Techs., Inc. S'holders Litig., 948 A.2d 1140, 1149 (Del. Ch. 2008) (citation omitted). "This is commonly referred to as the American Rule and it has several recognized exceptions, including the 'bad faith' exception." Id. (citation omitted).
VIG's argument with respect to this law is that "[e]ven if Delaware law did apply, VIG may be entitled to its fees." ECF 77 at 4 n.1. However, VIG does not suggest that an exception to the American Rule, such as bad faith, applies in this case. See, e.g., In re SS & C Techs., 948 A.2d at 1151-52 (). VIG cites a footnote in a recent Delaware Supreme Court opinion, in which the court noted that a party had attempted to defend a lower court's award of fees by arguing that the court "correctly followed a trend towards mutual fee-shifting provisions." Washington v. Preferred Commc'n Sys., Inc., 157 A.3d 1226, 1229 n.12 (Del. 2017); see ECF 77 at 4 n.1. The court characterized this argument as the party "respectfully [ ] attempting to defend the Court of Chancery's ruling . . . by the only reasoning they could," while also "primarily argu[ing]" another ground to uphold the fee award. Washington, 157 A.3d at 1229. The court ultimately evaluated the text of the relevant fee provisions to determine if specific contractual conditions for fee shifting occurred. Id. at 1229-32. This context hardly evinces enthusiasm for VIG's mutuality argument and does not by itself justify awarding VIG fees under Delaware law. VIG does not develop its argument any further; indeed, VIG only argues that it "may" be entitled to fees under Delaware law. ECF 77 at 4 n.1. Accordingly, VIG has not established that it is entitled to fees under Delaware law.
The application of either Delaware or D.C. law in this case does not circumvent Oregon's fundamental policy of protecting weak consumers from one-sided attorney fee provisions. VIG has not established that applying the law that the contracting parties chose, or the law that VIG itself argued governed the substantive issue in this case, would interfere with a fundamental policy of Oregon.
VIG argues that "Oregon law is the correct law to apply to attorney fees because Poggi is located in Oregon, because this lawsuit was initiated in Oregon, and because Oregon has [a] fundamental interest in preventing one-sided attorney fee provisions." ECF 77 at 4. However, Poggi initiated the arbitration underlying this lawsuit in D.C.; VIG, not Poggi, initiated this lawsuit in Oregon; and the applicable fee provision in the franchise agreement is not one-sided.4 Even if it were one-sided, Oregon courts recognize the ability of parties of similar bargaining power to contract for the application of certain law to their disputes, even when that law would uphold one-sided fee provisions in the contract. See Fiedler v. Bowler, 117 Or. App. 162, 166 (1992). In such a case, the...
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