Wittig v. Westar Energy Inc

• Decision Date: 09 July 2010
• Docket Number: 746.,No. 102,102
• Parties: David C. WITTIG, Appellant,v.WESTAR ENERGY, INC., Appellee.
• Court: Kansas Court of Appeals

235 P.3d 535

David C. WITTIG, Appellant,v.WESTAR ENERGY, INC., Appellee.

No. 102,746.

Court of Appeals of Kansas.

July 9, 2010.

COPYRIGHT MATERIAL OMITTED

Syllabus by the Court

1. The interpretation and legal effect of a written contract are matters of law over which an appellate court has unlimited review.

2. Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect.

3. Where there are no disputed facts and an appellate court is required to interpret and give legal effect to a written contract, appellate review of a summary judgment order is de novo.

4. Attorney fees cannot be granted by a court in the absence of statutory authority or an agreement by the parties calling for an award.

5. Once it is determined that the district court had authority under an agreement to grant attorney fees, the district court's decision is reviewed under an abuse of discretion standard.

6. An advancement action determines both entitlement to and the reasonableness of the fees and expenses requested. Therefore, a district court has the authority to determine the reasonableness of any requests for advancement.

7. A district court must consider all of the KRPC 1.5(a) (2009 Kan. Ct. R. Annot. 460) factors to determine the reasonableness of attorney fees.

Jeffrey D. Morris, Jeremy S. Weis, Nick J. Kurt, and Kirk A. Peterson, of Berkowitz Oliver Williams Shaw & Eisenbrandt, LLP, of Kansas City, Missouri, for appellant.

Charles W. German, Kirk T. May, and Jason M. Hans, of Rouse Hendricks German May PC, of Kansas City, Missouri, for appellee.

Before HILL, P.J., GREEN and STANDRIDGE, JJ.

HILL, J.

Introduction

Westar Energy, Inc. promised in its Articles of Incorporation to advance attorney fees and expenses reasonably incurred by its officers and directors charged with a crime, sued, or the subject of a criminal or administrative investigation. If the company failed to make the advances within 30 days of the request and an officer or director was thereby forced to come to court to enforce this right of advancement, Westar promised to pay the expenses of that lawsuit as well. Westar breached this contract when it failed to advance fees reasonably incurred by David C. Wittig arising from his federal criminal prosecution. We affirm the district court's discretionary ruling here that Wittig's counsel was entitled to a higher rate of compensation than Westar advanced because the court carefully assessed each factor found in Kansas Rule of Professional Conduct 1.5(a) (2009 Kan. Ct. R. Annot. 460) when it made the fee determination. We reverse the court's decision to dismiss Wittig's breach of contract claim based on its conclusion that Westar was entitled to a second chance to comply with its contractual obligation because the company had paid some money to Wittig's lawyers. The court's conclusion rendered the contract meaningless and therefore was improper. Finally, we remand the matter to the district court for a determination of the costs of this action the court must assess against Westar because Wittig was successful in his action.

We give a brief review of the facts.

In December 2003, a federal grand jury indicted David C. Wittig for allegedly defrauding Westar Energy, Inc., a Kansas corporation. The United States began his prosecution in United States v. Wittig and Lake, 03-40142-JAR, a case that is awaiting a third trial. Wittig was the former Chief Executive Officer and Chairman of the Board of Directors of Westar when the grand jury handed down the indictment.

Based on the conditional grant of indemnity in Article XVIII(2)(a) of its Articles of Incorporation, Westar advanced legal fees and other costs incurred by Wittig in his defense. That article created a contract obligating Westar to advance legal fees and associated expenses reasonably incurred by its officers and directors in any criminal or civil action, or investigation or administrative proceeding arising from their role with the corporation. The corporation made these advances after Wittig signed a promise to repay any amounts advanced if it was later decided he was not entitled to indemnity from the corporation. Eventually, Westar disputed the fees it was paying and filed a lawsuit in the district court of Shawnee County, seeking declaratory judgment relief, setoff, and damages for breach of contract. In that lawsuit, the district court finally, by declaratory judgment, ruled that Westar could advance fees at a more reasonable hourly rate that was lower than that requested by Wittig's Washington, D.C. law firm, Piper Rudnick. Also, the court dismissed Westar's breach of contract claim and request for setoff. It ruled such requests were premature and held those claims must be litigated after the underlying legal action has ended and the parties have determined whether Wittig must repay any of the advances. The court's ruling in that case is on appeal before this court in Westar Energy, Inc. v. Wittig, No. 102,579. But the court's ruling did not end Wittig's need for more advances.

Wittig retained Paula Junghans to represent him in his third criminal trial. She was formerly with the law firm of Piper Rudnick and is now in the Zuckerman Spaeder LLP firm in Washington, D.C. Between January 2007 and August 2008, Zuckerman Spaeder presented bills to Westar for work done on Wittig's case. At the time, Junghans billed at a rate of $625-$675 per hour. Westar, however, only paid advances based on what the corporation thought was a reasonable hourly rate of $395 for Junghans. Because of Westar's reluctance to pay the full rate, Wittig decided to sue.

Therefore, Wittig filed a petition in Shawnee County District Court in February 2008, claiming Westar breached its contract to pay his reasonably incurred legal fees and expenses when it failed to advance full payment for services rendered by Zuckerman Spaeder. Wittig requested an award of “the full amount of all unpaid attorneys' fees and expenses.” Wittig also claimed Westar was liable for the fees and expenses he incurred to enforce his right to advancement or “fees on fees.” Finally, Wittig asked the court for a declaratory judgment holding the contract required Westar to advance the fees he incurred in the third trial at the normal hourly rates charged by his nonlocal counsel. Wittig received partial relief.

First, the district court held it was not reasonable to require Westar to advance significantly higher hourly rates for nonlocal attorneys than those charged by white-collar criminal defense attorneys in the greater Kansas City area for similar services. The court did agree with Wittig, however, that under the circumstances, it was reasonable to advance a higher hourly rate than Westar was then paying for Junghans' services. Then, after reviewing all the KRPC 1.5(a) factors, the court declared as reasonable $425 per hour for Junghans' services in 2007; $450 per hour in 2008; $475 per hour for 2009; and $500 per hour for 2010. After making this ruling, the court moved on to Wittig's breach of contract claim.

On the breach of contract claim, the court held the plain and unambiguous language in Westar's Article of Incorporation XVIII(2)(a) only obligated Westar to advance reasonably incurred fees and expenses. Dismissing Wittig's contract claim, the court reasoned the corporation was not ignoring its contractual obligation to advance fees and expenses, but Westar and Wittig had a legitimate dispute over what rate was reasonable. The court noted that Westar had made advancement at an hourly rate it believed to be reasonable. The court stated that although a dispute over the reasonableness of rates was proper for declaratory judgment, this did not mean Westar breached a contractual obligation by not paying at the rate charged by the law firm. The court also noted an advancement action offers but interim relief and any breach of contract claim could and should be resolved after the end of the underlying criminal case in federal court. Here, the district court was trying to make this ruling consistent with its ruling in the lawsuit brought by Westar. After that, the court addressed Wittig's request for fees.

On Wittig's request for “ ‘fees on fees,’ ” the court cited the language of Article of Incorporation XVIII(2)(b):

“If a claim under paragraph (a) of this Section is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim.”

The court dismissed Wittig's claim for “fees on fees.” It noted that Westar had advanced all the fees incurred by Wittig's Kansas City, Missouri, law firm during the third trial and had indeed advanced Junghans' fees at a rate of $395 per hour. Even though the court recognized the advances to Junghans represented only 93 percent and 88 percent of the amounts the court had declared as reasonable during 2007 and 2008, it ruled Westar had no contractual obligation to advance fees at a rate determined to be unreasonable. The court found the hourly rates charged by Junghans excessive and it would not enter a monetary judgment based on a declaratory judgment unless a petition for further relief was filed. The court concluded that under Article XVIII(2)(b), Wittig was required to make a written claim in order to give Westar the opportunity to advance additional sums to fulfill its obligation determined by the court in the declaratory judgment. The court said that if Westar failed to advance an amount consistent with its declaration, Wittig could then file a petition for further relief and then request “fees on fees.”

The court wrongly ruled Westar did not breach its contract with Wittig.

Wittig claims the district...