BRUCE S. JENKINS, Senior District Judge.
On October 11, 2011, this court docketed the mandate of the court of appeals in the above-entitled proceeding. See Robert Lamkin, et al., v. Morinda Properties Weight Parcel, LLC, Case No. 11-4022 (10th Cir., decided Sept. 19, 2011). The court of appeals reversed this court's prior order denying defendant Morinda's motion to compel arbitration
On November 23, 2011, Morinda filed a "Motion to Refer Parties to Arbitration and for Entry of Judgment Awarding Attorney's Fees and Costs Pursuant to Order of Tenth Circuit Court of Appeals," (CM/ECF No. 38), with an accompanying memorandum in support (CM/ECF No. 39). On December 12, 2011, the plaintiffs filed a memorandum in opposition,
The court then calendared a hearing on Morinda's motion for attorney's fees on February 17, 2012, which was continued at plaintiffs' request to March 28, 2012. On March 28th, the court heard testimony and argument of counsel, received exhibits concerning the amount of fees and costs requested by Morinda, and took the matter under advisement. (See Minute Entry, dated March 28, 2012 (CM/ECF No. 52).) The next day, this court ordered counsel to supplement the record with a copy of everything that both parties had filed with the court of appeals,
On April 18, 2012, Morinda filed a supplemental request for additional attorney's fees and costs that purportedly "are reasonable because they were necessary to obtain an order compelling the parties to arbitrate,"
As directed by the court of appeals' mandate, this court must now determine the proper amount of the award sought by Morinda as "its costs and reasonable attorney fees" pursuant to the terms of its contracts with the plaintiffs.
On August 25, 2010, the plaintiffs filed a complaint against Morinda, alleging default on contractual obligations and invoking the diversity jurisdiction of the court under § 1332. On September 20, 2010, Morinda filed a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction,
Morinda's Rule 12(b)(1) motion was footed upon a dubious premise: Morinda assumed that lack of jurisdiction was the basis for dismissal in Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161 (5th Cir. 1992), a case cited by Morinda in which the district court had entered orders compelling arbitration of all claims pursuant to § 4 of the Federal Arbitration Act, and then dismissed the action with prejudice rather than staying further proceedings pending arbitration pursuant to § 3 of the Act. In fact, according to the Fifth Circuit, "[b]ecause it determined that all of Alford's claims were subject to arbitration, the district court acted within its discretion when it dismissed this case with prejudice." Id. at 1164 (emphasis added).
In contrast to the dismissal in Alford, dismissal by a district court for lack of subject matter jurisdiction is mandatory,
Moreover, in Adair Bus Sales, Inc. v. Blue Bird Corp., 25 F.3d 953 (10th Cir. 1994), the Tenth Circuit vacated the district court's dismissal of a complaint upon entry of an order compelling arbitration of all claims under § 4 of the Federal Arbitration Act, ruling that the proper remedy was entry of a stay of proceedings pursuant to § 3 of the Act.
Almost as an afterthought, Morinda then devoted one page of its memorandum to suggesting that "should the Court not be inclined to dismiss this case, at the very least, the court should compel arbitration," and that "all proceedings in this Court should be stayed pending the Court's determination of the arbitrability of this dispute" pursuant to the Utah Uniform Arbitration Act, Utah Code Ann. § 78B-11-108.
Although the Supreme Court has long recognized and enforced a "liberal federal policy favoring arbitration agreements," Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983),
As the Supreme Court has pointed out, "[a]bsent some ambiguity in the agreement, . . . it is the language of the contract that defines the scope of disputes subject to arbitration." E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289 (2002) (citing Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995) ("[T]he FAA's proarbitration policy does not operate without regard to the wishes of the contracting parties")). And "nothing in the statute authorizes a court to compel arbitration of any issues, or by any parties, that are not already covered in the agreement." Waffle House, 534 U.S. at 289.
Id. at 293, 294 (citation omitted); see also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n. 12 (1967) ("[T]he purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so").
As the Court explained more recently in Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009),
Id. at 629-30 (footnote omitted).
Clearly, it is for the court to determine whether under the terms of their contract, the parties have made an enforceable agreement to arbitrate a particular dispute, and to enforce their agreement to do so according to its terms, either by compelling arbitration under § 4 of the FAA or staying litigation in favor of arbitration under § 3, or both.
Conceding at the outset that arbitrability was a question for the court to decide, Morinda argued that the plaintiffs' claims were covered by their arbitration agreement because they arose from the same contracts: "Plaintiffs' breach of contract claims fall squarely within the scope of the arbitration agreements because these claims allege breaches of the very [Real Estate Purchase Contracts] which contain the agreements."
The parties' contractual duty to arbitrate thus turned on the existence of a "dispute" arising out of or relating to the contracts, not merely the making of a "claim" based on the contracts.
The plaintiffs' pleaded claims alleged that Morinda had defaulted on its obligations under their Real Estate Purchase Contracts. Morinda's memoranda supporting its September 20th motion nowhere squarely state that Morinda actually disputed the plaintiffs' allegations of default; Morinda argued only that the plaintiffs' claims of default arose out of the contracts and were thus arbitrable under the language of Section 15 quoted above.
Discerning a genuine distinction between a claim and a dispute, this court inquired as to the existence of an actual "dispute" concerning Morinda's alleged default that would be referable to arbitration under that contractual language, in contrast to an uncontroverted allegation of default that would leave nothing to arbitrate in light of the contracts' exclusive remedy provision as to default.
At least before this court, Morinda proved very reluctant to assert in writing (pleaded in an answer, or otherwise) that it actually disputed the plaintiffs' allegations of default—purportedly for fear of waiver of the right to arbitrate, even though Morinda cited and quoted from a Tenth Circuit case in which that court rejected the argument that a party waived its right to arbitration by participating in court litigation for several months after answering the complaint before seeking an order compelling arbitration.
In striking contrast, at page 30 of its Opening Brief on appeal, Morinda states: "The parties clearly have a dispute. Plaintiffs allege that Morinda breached the REPCs and Morinda contends it did not." Had Morinda said as much in a simple, straightforward motion to compel arbitration filed with this court in the first instance, the existence of an arbitrable dispute could readily have been determined, obviating the need for this court's January 24, 2011 Order and for Morinda's appeal of that order to the Tenth Circuit, as well as the added expenditure of attorney time—and the corresponding accrual of attorney's fees—that followed.
On January 24, 2011, this court denied the motion to dismiss or alternatively, to compel arbitration because (1) first and foremost, dismissal was plainly unwarranted on jurisdictional grounds; (2) the language of Section 15 of the Real Estate Purchase Contracts explicitly refers to "disputes" rather than "claims"; and (3) Morinda had not averred in writing the existence of an actual "dispute" concerning the alleged default that was referable to arbitration under that express language, whether in an answer or otherwise.
Pursuant to the court of appeals' mandate and the applicable Utah law, this court is tasked with determining whether in fact "the fees and costs sought by Morinda are reasonable because they were necessary to obtain an order compelling the parties to arbitrate," as Morinda now asserts.
Trayner v. Cushing, 688 P.2d 856, 858 (Utah 1984) (footnotes omitted) (citing Turtle Mgmt., Inc. v. Haggis Mgmt., Inc., 645 P.2d 667 (Utah 1982)). In Dixie State Bank v. Bracken, 764 P.2d 985, 990 (Utah 1988), the Utah Supreme Court opined that in determining a reasonable attorney's fee, a court should find answers to four questions:
764 P.2d at 990 (footnotes omitted).
Morinda's motion for a judgment awarding attorney's fees seeks
Counsel for Morinda billed nearly forty hours of attorney time for preparation of the September 20th motion and supporting memoranda, including the reply.
Following the entry of this court's January 24, 2011 Order, counsel expended 7.5 hours reviewing that order and preparing to file a notice of appeal.
Through the end of June 2011, counsel for Morinda expended another forty-nine hours, reviewing the plaintiffs' response brief and preparing and filing Morinda's reply brief.
To assist in evaluating whether the attorney time billed by counsel for Morinda was reasonably necessary to adequately prosecute the matter entrusted to them, this court ordered counsel for all parties to supplement this court's record in this case with copies of all materials filed with the court of appeals.
"An award of attorney fees must be based on the evidence and supported by findings of fact." Cottonwood Mall Co. v. Sine, 830 P.2d 266, 268 (Utah 1992). A party who seeks an award of attorney fees, therefore, has the burden of producing evidence to buttress the requested award, including "the hours spent on the case, the hourly rate or rates charged for those hours, and usual and customary rates for such work." Id.; see Hal Taylor Assoc. v. Unionamerica, Inc., 657 P.2d 743, 750-51 (Utah 1982). When the evidence presented is insufficient, an award of attorney fees cannot stand. See Dixie State Bank, 764 P.2d at 989.
Foote v. Clark, 962 P.2d 52, 55 (Utah 1998). "While a trial court may, in its discretion, deny fees altogether for failure to allocate, see Commerce Fin. v. Markwest Corp., 806 P.2d 200, 204 n.4 (Utah Ct. App. 1990), it may not award wholesale all attorney fees requested if they have not been allocated as to separate claims and/or parties." Valcarce v. Fitzgerald, 961 P.2d 305, 318 (Utah 1998).
In this case, the court of appeals understood that "Morinda seeks an award of fees and costs in connection with its efforts to compel arbitration" under the terms of its contracts, and it instructed this court to determine the amount of that award. Yet nothing in the language of Morinda's contracts or in the express terms of the court of appeals' mandate requires an award of fees incurred in connection with Morinda's ill-conceived and fruitless motion to dismiss this case for lack of subject matter jurisdiction—a motion which indeed worked at cross-purposes with Morinda's effort to enforce its arbitration agreements.
Consistent with the governing Utah law, then, this court must draw some meaningful distinction between the requested attorney's fees "attributable to the successful vindication of contractual rights within the terms of their agreement," and those that were not.
Counsel for Morinda offers little assistance in this regard.
At the March 28, 2012 evidentiary hearing, counsel for Morinda conceded that he did not allocate the fees incurred between Morinda's successful effort to vindicate its contractual right by compelling arbitration and its failed effort through its Rule 12(b)(1) motion to obtain dismissal of this case altogether.
(Tr. 3/28/12, at 19:3-20:5 (testimony of Mr. Kaye); see also Tr. 3/28/12 at 13:20-22 (testimony of Mr. Kaye) ("the Motion to Dismiss, which was contained in the Motion to Compel, was a very small part of that argument"); id. at 14:7-9 ("The primary thrust of the motion was to seek to compel arbitration, the request to dismiss was incidental to that").)
As explained above, Morinda's September 20th motion was framed first as a Rule 12(b)(1) motion to dismiss; the supporting memorandum's leading argument urged dismissal for lack of subject matter jurisdiction, followed by Morinda's "alternative" request to compel arbitration "should the Court not be inclined to dismiss this case"—as Morinda had argued it should in the preceding twelve pages of its memorandum. Counsel for Morinda also raised its subject-matter jurisdiction theory at the November 19th hearing,
Morinda's request for an order compelling arbitration took center stage in its appeal from this court's January 24, 2011 Order, and necessarily so: Section 16(a)(1) of the Federal Arbitration Act provides that an immediate appeal "may be taken from—(1) an order— (B) denying a petition under section 4 of this title to order arbitration to proceed," but says nothing about any appeal from an order denying a Rule 12(b)(1) motion to dismiss.
Having reviewed the record in this case in some detail, including the supplementary appellate materials furnished by the parties, and having considered the arguments of counsel in light of the factors enumerated in Dixie State Bank, Trayner, Foote and related cases, the court now finds as follows:
The legal work performed by counsel for Morinda is substantially reflected in the series of invoices annexed as exhibits to Morinda's Affidavit of Attorney's Fees and Costs and described by counsel in testimony heard at the March 28th evidentiary hearing. Much of the work consists of drafting, reviewing and editing various briefs and memoranda filed with this court or the court of appeals, and preparing for and appearing at hearings. Much of the work performed was reasonably necessary to vindicate Morinda's contractual right to arbitration of the dispute concerning plaintiffs' allegations of default, including the formulation of responses to the plaintiffs' strained but persistent theory of waiver of arbitration, as well as specific queries by the court concerning the scope and effect of the parties' contractual arbitration provision.
Based upon the very limited evidence presented,
To the extent there is relevant evidence in the record, this court has also considered the experience, reputation and ability of the lawyers performing the services, as well as the time and effort required to obtain the relief sought, the novelty and difficulty of the legal questions involved and the skill required to perform the legal services properly and to assist the court in reaching a sound result.
Essentially as outlined in its own initial memorandum,
This appears quite simple.
Both plaintiffs and Morinda acknowledged the existence of Section 15 of their Real Estate Purchase Contracts, expressly requiring arbitration of all disputes arising out of those contracts. The question whether there was an arbitrable dispute appears to have run off the rails when Morinda's September 20th motion asserted that the plaintiffs' claims, without more, were referable under Section 15's "all disputes" language.
So, at least in one sense, the time and effort required to obtain the relief sought should have been less than that actually expended in this case, particularly on the protracted litigation of issues on appeal that were not germane to the specific order under review.
Taking all of the aforementioned factors into account, this court finds that Morinda should be awarded attorney's fees and costs in an amount measured by the attorney's fees and costs actually billed by its counsel for the work performed in obtaining an order compelling arbitration, as "its costs and reasonable attorney fees" pursuant to Section 17 of its Real Estate Purchase Contracts, less the following downward adjustment.
Of the forty hours spent by counsel on the September 20th motion and memoranda, nearly twenty hours were expended preparing the initial moving papers and propounding counsel's most serious argumentative errors. This court finds counsel's misapprehension of the essential relationship between a district court's subject matter jurisdiction and the operation of the Federal Arbitration Act—so clearly delineated in the Supreme Court's recent Vaden opinion, among others—to be disconcerting, to say the least. Even more troubling is counsel's misreading of and misplaced reliance on the Fifth Circuit's Alford opinion, particularly in light of the Tenth Circuit's Adair opinion holding directly to the contrary. As potentially misleading as they were, counsel's initial moving papers at best provided only limited assistance to the court on the key question of arbitrability. Thus, the court finds that at least a portion of the fees incurred for their preparation is not fairly "attributable to the successful vindication of contractual rights within the terms of their agreement," as required by Utah law, and that portion exceeds the "very small percent" suggested by counsel at the evidentiary hearing. This court concludes that a reduction of
Taking that adjustment into account, Morinda shall be awarded
Morinda's Motion for Entry of Judgment Awarding Supplemental Request for Attorney's Fees and Costs Pursuant to Order of Tenth Circuit Court of Appeals, filed April 18, 2012 (CM/ECF No. 56), seeks an additional award of attorney's fees and costs for work performed after the court of appeals issued its Order and Judgment on September 19, 2011.
In fact, "an order compelling the parties to arbitrate" was expressly required by the court of appeals' mandate in this case,
The first document submitted by Morinda to this court following remand was its Affidavit of Attorney's Fees and Costs, filed on October 25, 2011. Indeed, almost all of the eighty-or-so hours of work billed to Morinda by counsel in the "supplemental" period after September 19th concerned attorney's fees—discussions with opposing counsel concerning the fee amount, preparation of the affidavits and request for an award of those fees, as well as Mr. Kaye's preparation for and testimony at the March 28th evidentiary hearing.
The actual Order of Referral to Arbitration & Stay of Judicial Proceedings was drafted and entered by this court on December 13, 2011, before the majority of counsel's "supplemental" fees had yet been incurred.
Later, after almost all of the "supplemental" fees had been incurred, counsel for Morinda testified as follows at the March 28th evidentiary hearing:
(Tr. 3/28/12, at 44:20-45:20 (testimony of Mr. Kaye).)
At that time, the court considered counsel's position to be well-taken. The same was taken into account as a factor weighing in favor of awarding substantially the amount of fees actually incurred through the conclusion of the appeal as reasonable and necessary to obtaining the relief sought, namely an order compelling arbitration.
Since the March 28th hearing, counsel and client apparently had a change of heart, and now seek an additional
Having examined and considered Morinda's supplemental fee request in the context of its original fee application and in the larger context of this case as a whole, this court is not persuaded that the requested "supplemental" fees are "reasonable because they were necessary to obtain an order compelling the parties to arbitrate," as counsel for Morinda insists. That goal was essentially achieved upon the issuance of the court of appeals' mandate in October 2011. At that point, the "litigation to enforce the arbitration provisions of this Contract" within the meaning of Section 17 of Morinda's contracts had essentially reached its conclusion, thus defining and delimiting "the prevailing party's" entitlement under Section 17 to "its costs and reasonable attorney fees in addition to the relief granted."
Remembering that "[f]ees provided for by contract . . . are allowed only in strict accordance with the terms of the contract," Foote, 962 P.2d at 54, Morinda's "costs and reasonable attorney fees" under Section 17 are those costs and attorney's fees reasonably and necessarily incurred in obtaining enforcement of its right to arbitration, in the amount already found by this court.
Adding what amounts to a thirty-percent premium onto Morinda's costs-and-fees claim for counsel simply having substantiated the amount of that claim reaches beyond the terms of Section 17 and in any event, is not reasonable under all of the facts and circumstances of this case.
For the reasons explained above in some detail,
West Liberty Foods, L.L.C. v. Moroni Feed Co., 753 F.Supp.2d 881, 889-90 (S.D. Iowa 2010) (quoting Precision Press Inc. v. MLP U.S.A., Inc., 620 F.Supp.2d 981, 995 (N.D. Iowa 2009)).
A few minutes spent with Alford using either KeyCite (Westlaw) or Shepard's Citations (LexisNexis) quickly points up the direct conflict between the Fifth and Tenth Circuits on the FAA dismissal issue as delineated in the West Liberty Foods opinion.
This standard bears directly upon the conduct of counsel before this court because "All attorneys practicing before this court, whether admitted as members of the bar of this court, admitted pro hac vice, or otherwise as ordered by this court, are governed by and must comply with . . . the Utah Rules of Professional Conduct, as revised and amended and as interpreted by this court." DUCivR 83-1.1(g).
Also pertinent is Fed. R. Civ. P. 11(b), which governs counsel's representations to the court:
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991) (citing Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-220 & n.6 (1985), and Scherk v. Alberto-Culver Co., 417 U.S. 506, 610 n.4 (1974)). Section 2 of the FAA "embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts . . . ." Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006).
Morinda's sixteen-page post-hearing supplemental memorandum similarly focused on reconciling the Real Estate Purchase Contracts' arbitration and default provisions, noting in passing that "Plaintiffs do not dispute that their claim is subject to, and within the scope, of the mandatory arbitration provision," again equating the plaintiffs' claims with an actual dispute within the language of Section 15 of the contracts. (Defendant Morinda Properties Weight Parcel, LLC, Supplemental Memorandum of Law in Support of Motion to Compel Arbitration and Stay Judicial Proceedings, filed December 6, 2010 (CM/ECF No. 12) ("Morinda Supp. Mem."), at 5 n.1.)
The existence of a defined "dispute" floats in space until Morinda reached Denver, where the existence of such a dispute was frankly acknowledged and indeed, asserted. This court notes the lack of any semblance of such candor on the part of counsel in the papers presented here.
(Reply Memorandum of Law in Support of Motion for Entry of Judgment Awarding Supplemental Request for Attorneys' Fees and Costs Pursuant to Order of Tenth Circuit Court of Appeals, filed June 1, 2012 (CM/ECF No. 65), at 11.) Indeed, the Kaelamakia court ruled that
2009 UT App 148, at ¶ 11 (citing Jones, Waldo, Holbrook & McDonough v. Dawson, 923 P.2d 1366, 1375 (Utah 1996)). And the Kaelamakia court explained why:
Id. at ¶¶ 11-12 (footnote omitted) (citing Florida Patient's Comp. Fund v. Rowe, 472 So.2d 1145, 1151 (Fla. 1985) (observing that "in no case should the court-awarded fee exceed the fee agreement reached by the attorney and his client.")).
In Softsolutions, the Utah Supreme Court explicitly rejected a market-rate formula in fixing the amount of attorney's fees awarded to a prevailing party who had been represented solely by its salaried in-house counsel, it being "convinced that a cost-plus rate is the more reasonable measure of attorney fees to in-house counsel, and is consistent with the public policy that the basic purpose of attorney fees is to indemnify the prevailing party and not to punish the losing party by allowing the winner a windfall profit." 2000 UT 46, at ¶ 51, 1 P.3d at 1107.
The Tenth Circuit captured the essence of these recent Utah cases in ClearOne Commc'ns, Inc. v. Biamp Sys., 653 F.3d 1163, 1185 (10th Cir. 2011):
Counsel for Morinda—like counsel in Kealamakia—cites no case law that would support awarding contractual attorney fees exceeding the amount that Morinda has negotiated to pay its attorneys. Other than attempting to brush aside Kealamakia, Morinda's fee request memoranda shed no meaningful light on the recent Utah cases. Remembering "that legal argument is a discussion seeking to determine the legal premises properly applicable to the case," omissions of this kind prove troubling. See supra note 16.
A written agreement to arbitrate cannot serve to divest the court of subject matter jurisdiction because the court must have such jurisdiction to compel arbitration under § 4 of the Act. Morinda's counsel conceded as much at the November 19th hearing, (see Tr. 11/19/10, at 39:16-21 (Mr. Kaye)), and now characterizes Morinda's Rule 12(b)(1) motion as "sort of a throw-in argument that the case should be dismissed as well, which is something that is fairly standard when you file a Motion to Compel." (Tr. 3/28/12, at 14:4-6 (testimony of Mr. Kaye).)
In effect, Morinda's attorneys are now asking to be paid between $300 and $500 an hour for getting in their own way.
Mr. Kaye also opined as to the reasonableness of the fees and consistency of his own billing rates with those in the marketplace. (See, e.g., Tr. 3/28/12, at 17:11-18:11, 46:3-48:10.)
Counsel's focus on the arbitrability of plaintiffs' claims arising out of Morinda's contracts rather than the existence of an actual referable dispute as to the alleged default only served to protract the matter.
