Western United Realty, Inc. v. Isaacs

• Decision Date: 26 March 1984
• Docket Number: No. 82SC64,82SC64
• Citation: 679 P.2d 1063
• Parties: WESTERN UNITED REALTY, INC., and Marilyn Lovejoy, Petitioners, v. Jack E. ISAACS and Patricia Isaacs, Respondents.
• Court: Colorado Supreme Court

Page 1063

679 P.2d 1063

WESTERN UNITED REALTY, INC., and Marilyn Lovejoy, Petitioners, v. Jack E. ISAACS and Patricia Isaacs, Respondents.

No. 82SC64.

Supreme Court of Colorado,

En Banc.

March 26, 1984.

Harry A. Tucker, Jr., Craig, for petitioners.

Paul Tochtrop, Craig, for respondents.

ROVIRA, Justice.

We granted certiorari to review the decision of the Colorado Court of Appeals in Isaacs v. Wilkinson, No. 80CA0590 (Colo.Ct.App. December 17, 1981) (NSFP), reversing the trial court's award of attorney fees against Jack and Patricia Isaacs (Isaacs) for maintaining a frivolous or groundless lawsuit. We affirm.

I.

In October 1978, the Isaacs asked their real estate agent, Robert White, to assist them in inspecting a rural residence owned by J.C. and Carol Wilkinson (Wilkinsons). He arranged for the Isaacs to view the property with Marilyn Lovejoy (Lovejoy), an employee of Western United Realty, Inc. (Western). During the inspection, the Isaacs asked Lovejoy about the water well. She stated that it was a good well, that it had provided the Wilkinsons with sufficient water, and that there had only been one occasion when the Wilkinsons had a problem with the capacity of the well. Subsequently, the Isaacs purchased the property. A short time later, the well went dry, and during the winter months it produced water only every three or four days.

The Isaacs filed an action against the Wilkinsons alleging fraudulent and negligent misrepresentation. They also named Lovejoy and Western as defendants, alleging negligent misrepresentation. The defendants denied liability. Lovejoy and Western counterclaimed for attorney fees on the ground that the Isaacs' action against them was frivolous and groundless. See section 13-17-101, C.R.S.1973 (1983 Supp.).

During the course of discovery, the Isaacs served interrogatories on Mr. Wilkinson, requesting him to provide all of the information he had given Lovejoy concerning the well. In response, Wilkinson stated that he had informed Lovejoy that the well was a good well, that it had always been sufficient for his family's needs, and that on one occasion the well had gone dry when some trees had been watered for a long time.

At a pretrial conference, Lovejoy and Western brought the interrogatories and responses to the court's attention. Counsel noted that the information Lovejoy gave to the Isaacs about the well was the same information that Wilkinson had given Lovejoy and that information was the sole basis of the Isaacs' claim against Lovejoy and Western. The trial court then advised the Isaacs that their claim against Lovejoy and Western appeared unsubstantial and that, in the event the evidence at trial was not different from what had been discussed at the pretrial conference, it would be disposed to grant a motion to dismiss.

After a three-day jury trial, the trial court granted Lovejoy and Western's motion for a directed verdict. The jury awarded the Isaacs $9,000 on their claim of fraud against the Wilkinsons. Subsequently, the trial court awarded Lovejoy and Western $2,711.88 for attorney fees incurred after the pretrial conference and up to the termination of the trial. In granting the award of attorney fees, the court found that Lovejoy had merely told the Isaacs what she had been told by the Wilkinsons. There was no evidence that Lovejoy knew or had any reason to know that the information given to her by Mr. Wilkinson was false. The court further noted that

"[t]he evidence given by the Wilkinsons at trial and the evidence previously given by all the parties in their depositions indicated that those communications were exactly the communications that were given to Lovejoy by the Wilkinsons and that she had no reason to question or to challenge those communications, nor any duty to inquire further."

The trial court also found that the evidence as it unfolded at trial was available to counsel during the course of preparation for trial and during discovery. The court then referred to its statement at the pretrial conference and concluded by holding that the Isaacs' persistence in pursuing the case against Lovejoy and Western without additional evidence beyond what was known at the pretrial conference was "frivolous and groundless persistence."

The court of appeals affirmed the order of the trial court granting a directed verdict in favor of Lovejoy and Western. It held that in order for the Isaacs to succeed in their claim against Lovejoy and Western, they had to establish that Lovejoy failed to exercise "reasonable care or competence in obtaining or communicating the information." The court further stated that "the record contains no evidence upon which a jury could conclude that Lovejoy possessed facts which would have prompted a reasonable real estate agent to make an independent inquiry into the accuracy of the information supplied by J.C. Wilkinson, Lovejoy's principal."

The court of appeals decided, however, to reverse the judgment awarding Lovejoy and Western attorney fees. While recognizing that a trial court has discretion to award attorney fees in a civil action if it concludes that the filing or continuation of such action is frivolous or groundless, it concluded that the Isaacs' claim presented a justiciable issue and, under the circumstances of this case, that the trial court abused its discretion in assessing attorney fees against the Isaacs.

The only issue we address is the awarding of attorney fees, since the Isaacs have not requested further review of the directed verdict issue.

II.

The basis for awarding attorney fees due to the bringing or maintaining of a "frivolous or groundless" action is section 13-17-101 C.R.S.1973 (1983 Supp.). This statute provides that, subject to the provisions of subsections (2) and (3), the trial court shall award reasonable attorney fees in any suit involving money damages. Subsection (3) provides:

"The court shall not award attorney fees among the parties unless it finds that the bringing, maintaining, or defense of the action against the party entitled to such award was frivolous or groundless. The court must make findings either affirmative or negative as to the matters set forth in this subsection (3)." (emphasis added). ¹

The issue in this case is whether the Isaacs brought or maintained a frivolous or groundless action against Lovejoy and Western. The trial court decided that the Isaacs maintained a frivolous action by proceeding to trial after receiving the court's admonition at the pretrial conference. The court of appeals disagreed. In its view, the Isaacs' claim against Lovejoy and Western presented a justiciable issue and was not frivolous. We agree with the court of appeals and take this opportunity to consider appropriate guidelines for determining when the bringing, maintaining, or defense of an action is frivolous or groundless. Section 13-17-101(3) fails to define either term or establish standards for use in analyzing specific cases. A related statute, section 13-17-102(1), C.R.S.1973 (1983 Supp.), ² states only that "[t]he [trial] court may exercise its discretion in determining whether attorney fees are to be awarded...." It then lists five factors for the court to consider before exercising its discretion. These factors are helpful in determining whether an action is frivolous or groundless under section 13-17-101(3), but they are not comprehensive. We therefore look to additional sources for guidance.

One source includes other court decisions awarding attorney fees for frivolous or groundless actions. In International Technical Instruments, Inc. v. Engineering Measurements Co., 678 P.2d 558 (Colo.Ct.App.1983) (cert. denied 1984), the third-party plaintiff, after conducting "no discovery whatsoever," "nominally attempted to establish its breach of contract claim" at trial. The trial court awarded attorney fees under section 13-17-101, and the Colorado Court of Appeals affirmed. It defined a frivolous claim or defense as one for which "the proponent can present no rational argument based on the evidence or law in support of his or her claim or defense." It defined a groundless claim as "one in which the complaint contains allegations sufficient to survive a motion to dismiss for failure to state a claim, but which are not supported by any credible evidence at trial." By adopting these definitions, the court of appeals attempted to clarify the vague standard used prior to International Technical Instruments whether the action presents a justiciable issue. See, e.g., Wyatt v. United Airlines, Inc., 638 P.2d 812 (Colo.Ct.App.1981) (issue was one of first impression and was justiciable); Rocky Mountain Sales & Service, Inc. v. Havana RV, Inc., 635 P.2d 935 (Colo.Ct.App.1981) (action involved genuine disputed issue and was not frivolous); Moore v. De Bruine, 631 P.2d 1194 (Colo.Ct.App.1981) (evidence of nonliability rendered issue nonjusticiable); Wood v. Jenson, 41 Colo.App. 301, 585 P.2d 309 (1978) (continuation of present action based on compulsory counterclaims from prior action was frivolous).

The federal district court in Colorado previewed the approach used in International Technical Instruments in Morton v. Allied Stores Corp., 90 F.R.D. 352 (D.Colo.1981). The plaintiff in Morton alleged that several defendants conspired to defraud him in the purchase of an airplane. Applying Colorado law, the district court granted summary judgment for the defendants and awarded attorney fees under section 13-17-101. It held the plaintiff's conspiracy claim to be both frivolous and groundless, defining the former as being "of little weight or importance having no basis in law or fact," and the latter as "lacking cause or reason for support." Id. at 357. The court did not elaborate on how it reached its decision, except to say that it found "no support for [the conspiracy] claim in the uncontroverted facts." Id. Other federal courts, however, have adopted this rationale as evidence of a party's ...