Filed: Jan. 26, 2012
Latest Update: Mar. 02, 2020
Summary: Case: 10-31099 Document: 00511738347 Page: 1 Date Filed: 01/26/2012 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED January 26, 2012 No. 10-31099 Lyle W. Cayce Clerk HOMESTEAD INSURANCE COMPANY, Plaintiff–Appellant, Cross-Appellee v. GUARANTEE MUTUAL LIFE COMPANY, Defendant–Appellee, Cross-Appellant Appeals from the United States District Court for the Eastern District of Louisiana USDC No. 2:03-CV-3116 Before SMITH, PRADO, and ELROD
Summary: Case: 10-31099 Document: 00511738347 Page: 1 Date Filed: 01/26/2012 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED January 26, 2012 No. 10-31099 Lyle W. Cayce Clerk HOMESTEAD INSURANCE COMPANY, Plaintiff–Appellant, Cross-Appellee v. GUARANTEE MUTUAL LIFE COMPANY, Defendant–Appellee, Cross-Appellant Appeals from the United States District Court for the Eastern District of Louisiana USDC No. 2:03-CV-3116 Before SMITH, PRADO, and ELROD,..
More
Case: 10-31099 Document: 00511738347 Page: 1 Date Filed: 01/26/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 26, 2012
No. 10-31099 Lyle W. Cayce
Clerk
HOMESTEAD INSURANCE COMPANY,
Plaintiff–Appellant, Cross-Appellee
v.
GUARANTEE MUTUAL LIFE COMPANY,
Defendant–Appellee, Cross-Appellant
Appeals from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:03-CV-3116
Before SMITH, PRADO, and ELROD, Circuit Judges:
EDWARD C. PRADO, Circuit Judge:*
This appeal follows the district court’s judgment on remand from this
court’s decision in Homestead Insurance Co. v. Guarantee Mutual Insurance Co.,
287 F. App’x 306 (5th Cir. 2008). The plaintiff, Homestead Insurance Company
(“Homestead”), appeals the district court’s determination that the defendant,
Guarantee Mutual Insurance Company (“Guarantee”), did not act in bad faith
in violation of Louisiana Revised Statutes § 22:1973, or its predecessor, La. Rev.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
Case: 10-31099 Document: 00511738347 Page: 2 Date Filed: 01/26/2012
No. 10-31099
Stat. § 22:1220.1 Guarantee cross-appeals the district court’s award of
$50,527.16 in attorney’s fees as damages to Homestead. We AFFIRM the
district court’s ruling on bad faith and VACATE the award of attorney’s fees.
I.
In April 1994, Tonti Development Corporation (“Tonti”) purchased an
insurance package containing a worker’s compensation policy provided by
Guarantee and an employer’s liability policy provided by Homestead. In
September 1994, one Tonti employee, Julie Green (“Green”), drove a golf cart
into another Tonti employee, James Payne (“Payne”), who was consequently
injured on the job. Payne brought a worker’s compensation claim against Tonti,
which Guarantee defended on Tonti’s behalf. Payne also brought a tort action
against Tonti and Green in Louisiana state court, alleging that Green
intentionally drove the golf cart into him. Payne’s state court suit sought
damages for mental and physical pain and suffering, past wage loss and future
loss of earning capacity, and medical expenses. Guarantee initially undertook
Tonti’s defense in Payne’s state court suit, paying for the lawyer that filed an
answer to Payne’s petition. Yet, Guarantee neglected to reserve any of its rights
while undertaking Tonti’s defense.
On April 9, 1997, Payne filed an amended petition. He added Guarantee
as a defendant and alleged that Guarantee was liable in tort for failure to
provide timely medical treatment. Like the original petition, the amended
petition alleged an intentional tort. On April 30, 1997, Guarantee, through its
worker’s compensation administrator, delivered a letter to Tonti stating that the
amended complaint “alleges an action that is not covered by Guarantee Mutual’s
1
Effective January 2009, La. Rev. Stat. § 22:1220 was re-numbered La. Rev. Stat. §
22:1973. The change in numbering did not affect the section’s language or meaning. For
consistency of discussion, this opinion refers to § 22:1220, the section in use at the time of the
underlying events.
2
Case: 10-31099 Document: 00511738347 Page: 3 Date Filed: 01/26/2012
No. 10-31099
coverage to you” and notifying Tonti that Guarantee would no longer represent
Tonti in the state court proceeding. Tonti then contacted Homestead, which
agreed to provide a defense for the state court suit but specifically reserved its
rights. The reservation of rights provided that the complaint alleged an
intentional tort but that, if the tort were proven, it would fall outside Tonti’s
policy coverage. Homestead then proceeded to pay for Tonti’s lawyer.
The state litigation continued from May 1997 through 2005. After two
jury trials and two appeals, the Louisiana Court of Appeal absolved Tonti and
Homestead of liability for Green’s tortious conduct, Payne v. Tonti Realty Corp.,
888 So. 2d 1090, 1097 (La. Ct. App. 2004), and Payne’s claims against both were
ultimately dismissed in their entirety.
Meanwhile, on November 3, 2003, Homestead filed this suit in federal
court against Tonti and Guarantee, seeking a declaratory judgment that Payne’s
damages were not covered by Homestead’s liability insurance policy issued to
Tonti because the policy specifically excluded coverage for bodily injury
intentionally caused by an employee. In May 2004, as the state court proceeding
was wrapping up, Homestead amended its complaint, seeking a declaration that
Guarantee was liable for all of Tonti’s attorney’s fees in defending Payne’s state
court suit. Thereafter, Tonti entered into a Stipulation of Judgment whereby
Homestead dismissed its case against Tonti and in exchange Tonti assigned to
Homestead its rights against Guarantee. Homestead and Tonti entered into an
Assignment of Subrogation and Assignment of Rights, which provided: “The
Assignment shall include any and all of Tonti’s rights to pursue Guarantee for
any penalties, interests and attorney’s fees to which Tonti may be entitled as a
result of Guarantee Mutual’s failure to comply with its obligations under the
Policy and other applicable law, statutes, or regulations.”
In 2007, Homestead and Guarantee filed cross-motions for summary
judgment on the issue of whether Guarantee was liable for Tonti’s defense of
3
Case: 10-31099 Document: 00511738347 Page: 4 Date Filed: 01/26/2012
No. 10-31099
Payne’s state court suit. Although the district court found that Guarantee had
no obligation to defend Payne’s tort suit against Tonti, on appeal, this court
reversed. In an unpublished decision, we held that Guarantee had waived its
right to assert a policy defense by defending Tonti for over twenty months
without a reservation of rights. Homestead, 287 F. App’x at 308. We further
held that the assignment was valid, and that Homestead was the proper party
to assert Tonti’s claims against Guarantee because Homestead was standing in
the place of Tonti based on Tonti’s assignment of its rights to Homestead. Id. at
309. That is, we stated that “Homestead may recover in the place of Tonti under
the assignment of rights.”
Id.
We remanded, and pursuant to our decision, the district court granted
Homestead’s motion for summary judgment on the issue of Guarantee’s liability
for the entire cost of Tonti’s defense of Payne’s state court suit. Guarantee
appealed that ruling, but the appeal was dismissed for lack of jurisdiction
because it was not a final order of the district court.
On September 23, 2010, the district court issued its Findings of Facts and
Conclusions of Law (“Findings”) on the issue of the amount Guarantee was liable
to Homestead. The district court ruled that: (i) Guarantee was liable to
Homestead for all the costs of Tonti’s defense of Payne’s state court suit, in the
amount of $98,993; (ii) Homestead was entitled to pre-judgment interest on the
amounts incurred for Tonti’s attorney’s fees prior to the date of judicial demand
at the customary rate under Louisiana law from the date of judicial demand to
the date of judgment; (iii) Guarantee was liable to Homestead, through Tonti’s
assignment of rights to Homestead, for the attorney’s fees Tonti expended in
defending itself in the present litigation, i.e., the declaratory judgment action,
in the amount of $50,527.16; (iv) Homestead was not entitled to pre-judgment
interest on those attorney’s fees; and (v) Homestead was not entitled to “bad
faith” damages from Guarantee’s violation of its duty of good faith and fair
4
Case: 10-31099 Document: 00511738347 Page: 5 Date Filed: 01/26/2012
No. 10-31099
dealing under La. Rev. Stat. § 22:1220, because Guarantee had not acted in bad
faith. The third and fifth rulings are before us on appeal.
II.
We have jurisdiction pursuant to 28 U.S.C. § 1291. As federal jurisdiction
over this case is based on diversity, we follow Louisiana’s substantive law, see
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), Ashland Chem. Inc. v. Barco Inc.,
123 F.3d 261, 265 (5th Cir. 1997), but we apply the federal standard of review,
see Moore v. Johns-Manville Sales Corp.,
781 F.2d 1061, 1063–64 (5th Cir. 1986).
The district court’s determination that Guarantee did not act in bad faith
under La. Rev. Stat. § 22:1220 is a question of law that we review de novo. See
Pendarvis v. Am. Bankers Ins. Co. of Fl., 354 F. App’x 866, 869 (5th Cir. 2009)
(unpublished). Furthermore, we review the district court’s award of attorney’s
fees to Homestead for abuse of discretion, the factual findings supporting the
award for clear error, and the legal conclusions underlying the award de novo.
See Volk v. Gonzalez, 262 F.3d 528, 534 (5th Cir. 2001); see also Wal-Mart Stores,
Inc. v. Qore, Inc.,
647 F.3d 237, 242–43 (5th Cir. 2011); Navigant Consulting, Inc.
v. Wilkinson,
508 F.3d 277, 297 (5th Cir. 2007). Because the “fee award is
governed by the same law that serves as the rule of decision for the substantive
issues in the case,” Louisiana law “controls both the award of and the
reasonableness of fees awarded.” See Mathis v. Exxon Corp.,
302 F.3d 448,
461–62 (5th Cir. 2002); accord Wal-Mart Stores,
Inc., 647 F.3d at 242. Lastly,
we “may affirm the district court’s judgment on any basis supported by the
record.” United States v. Le,
512 F.3d 128, 134 (5th Cir. 2007) (citation and
internal quotation marks omitted).
III.
Homestead appeals the district court’s determination that Guarantee did
not act in bad faith under La. Rev. Stat. § 22:1220. We agree that Guarantee did
not act in bad faith under this section and thus affirm the district court’s ruling.
5
Case: 10-31099 Document: 00511738347 Page: 6 Date Filed: 01/26/2012
No. 10-31099
A.
Subsection A of La. Rev. Stat. § 22:1220 provides: “An insurer . . . owes to
his insured a duty of good faith and fair dealing. The insurer has an affirmative
duty to adjust claims fairly and promptly and to make a reasonable effort to
settle claims with the insured or the claimant, or both.” Subsection B provides:
“Any one of the following acts, if knowingly committed or performed by an
insurer, constitutes a breach of the insurer’s duties imposed in Subsection A: (1)
Misrepresenting pertinent facts or insurance policy provisions relating to any
coverages at issue. . . .” In addition to misrepresentation, Subsection B
proscribes five other acts.
Louisiana case law has clarified that “[t]he term ‘bad faith’ is a generic
term used to describe the conduct of an insurer who breaches its statutorily
imposed duty to act in ‘good faith’ and engage in ‘fair dealing’” by committing one
of the six acts proscribed by La. Rev. Stat. § 22:1220(B). Bourque v. Audubon
Ins. Co., 704 So. 2d 808, 814 (La. Ct. App. 1997). Moreover, “[b]ad faith in
handling insurance claims obviously includes something more than an evil
intent. The facts and circumstances of each case must be evaluated to determine
whether the insurer . . . breached” Subsection B. Louis’ Florist Shop of Lake
Charles, Inc. v. United Fire & Cas. Co.,
887 So. 2d 696, 699 (La. Ct. App. 2004).
To assert a claim, “a plaintiff must allege that the defendant–insurer knowingly
committed one of the acts set out in [the subsection].” Spear v. Tran,
682 So. 2d
267, 269 (La. Ct. App. 1996) (emphasis added).
With respect to the first act enumerated in Subsection B,
“[m]isrepresentation can occur when an insurer either makes untrue statements
to an insured concerning pertinent facts or fails to divulge pertinent facts to the
insured.” Dufrene v. Gautreau Family, LLC, 980 So. 2d 68, 85 (La. Ct. App.
2008) (holding that insurer breached Subsection B(1) by failing to produce
coverage policies in response to a discovery request); see also McGee v. Omni Ins.
6
Case: 10-31099 Document: 00511738347 Page: 7 Date Filed: 01/26/2012
No. 10-31099
Co., 840 So. 2d 1248, 1256 (La. Ct. App. 2003) (holding that insurer breached
Subsection B(1) by failing to communicate plaintiff’s settlement offer to insured);
Credeur v. McCullough,
702 So. 2d 985, 987 (La. Ct. App. 1997) (holding that
insurer breached Subsection B(1) by failing to provide counsel to insured after
entering into settlement agreement whereby insurer expressly promised to do
so). Subsection B(1) is “penal in nature and must be strictly construed.” Talton
v. USAA Cas. Ins. Co.,
981 So. 2d 696, 709 (La. Ct. App. 2008) (citation omitted).
B.
The facts and circumstances of our case demonstrate that Guarantee did
not knowingly misrepresent to Tonti any pertinent fact or policy provision
relating to a coverage issue and that, therefore, Guarantee did not act in bad
faith under La. Rev. Stat. § 22:1220(B)(1).
Homestead argues on appeal that Guarantee acted in bad faith by
abruptly withdrawing its defense of Tonti after initially defending Tonti for
twenty months without a reservation of rights. Guarantee explained to Tonti
that it was withdrawing its defense because Payne’s amended complaint had
alleged an intentional tort, which was excluded under Guarantee’s insurance
contract with Tonti. But, Homestead argues, because Payne’s original complaint
had already alleged this intentional tort, there was no change in Payne’s
allegations that would have justified Guarantee’s withdrawal. Homestead thus
claims that in the course of withdrawing its defense, Guarantee misrepresented
facts and policy provisions about coverage—including the fact of whether the
amended complaint first put Guarantee on notice that a policy exclusion applied.
Homestead further argues that the district court incorrectly found that Payne’s
amended complaint contained the first allegation of an intentional tort and first
notified Guarantee of the policy exclusion. According to Homestead, because the
district court relied on this erroneous factual understanding when it rejected
7
Case: 10-31099 Document: 00511738347 Page: 8 Date Filed: 01/26/2012
No. 10-31099
Homestead’s claim of bad faith, the district court’s determination as to bad faith
should be reversed.
To be sure, the district court was wrong to assume that the amended
complaint contained the first allegation of an intentional tort.2 Nonetheless, we
affirm the district court’s ruling that Guarantee did not violate La. Rev. Stat. §
22:1220(B)(1). Homestead has presented no evidence that Guarantee knowingly
misrepresented facts or policy provisions about coverage. While Guarantee
initially provided for Tonti’s defense, there is no evidence that Guarantee was
aware that the original complaint contained an intentional tort allegation.3
Even if Guarantee’s initial defense of Tonti constituted a misrepresentation
about coverage, the record does not show that this misrepresentation was made
knowingly. Furthermore, the record shows that upon receiving the amended
complaint, Guarantee noticed—for the first time—that Payne was alleging an
intentional tort. Consequently, Guarantee withdrew its defense and delivered
a letter to Tonti stating that the amended complaint “alleges an action that is
not covered by [Guarantee].” By representing that the amended complaint
alleged an intentional tort and that, therefore, Guarantee would not be providing
coverage, Guarantee was not making a false representation. After all, it is
2
In its Findings, the district court stated: “Guarantee provided Tonti’s defense in
Payne’s state court suit for 20 months, but withdrew from the representation when Payne
amended his complaint to allege that his injury was caused by the intentional acts of another
Tonti employee.” This statement is incorrect. The original complaint was not amended to
include an intentional tort allegation; rather, the original complaint itself contained an
intentional tort allegation. The district court later stated: “Guarantee withdrew from
providing the defense after Payne filed an amended complaint in which he alleged that his
injury was caused by the intentional actions of another Tonti employee. At that point,
Guarantee realized that Payne’s claims may not have been covered by the insurance policy
that it issued to Tonti because of a specific exclusion of an intentional tort of an employee.”
To the extent that this statement suggests that the amended complaint contained the first
allegation of an intentional tort, the district court is, again, incorrect.
3
Presumably, if Guarantee had known that the original complaint alleged an
intentional tort, then Guarantee would have fought not to provide Tonti’s defense in the first
instance.
8
Case: 10-31099 Document: 00511738347 Page: 9 Date Filed: 01/26/2012
No. 10-31099
undisputed that Guarantee’s policy did not provide coverage for intentional
injury. Guarantee is liable for the underlying injury action only by waiver, not
by contract. Guarantee’s representation was thus truthful; it is true that the
amended complaint alleged an action that was not covered by the policy.
Overall, although Homestead conclusorily alleges a myriad of knowing
misrepresentations, Homestead has failed to identify any misrepresentation that
was made knowingly or any knowing representation that was made falsely.
Because Guarantee did not knowingly misrepresent facts or policy provisions
related to coverage, we hold that Guarantee did not act in bad faith under La.
Rev. Stat. § 22:1220.4
IV.
Guarantee cross-appeals the district court’s award of attorney’s fees in
the amount of $50,527.16 to Homestead. We hold that granting the award
was an abuse of discretion, and we vacate the award.
A.
The district court ruled that Homestead was entitled to recover $50,527.16
in attorney’s fees from Guarantee. Specifically, the court ruled that Tonti—and
Homestead through the assignment of rights—was entitled to recover, against
Guarantee, Tonti’s attorney’s fees in defending the declaratory judgment action
that Homestead brought against Tonti and Guarantee to determine coverage.
According to the district court, Guarantee had not only contracted with Tonti to
provide worker’s compensation insurance, but had also undertaken an obligation
to defend Tonti against Payne’s state court suit by providing for Tonti’s defense
for twenty months without a reservation of rights. When Guarantee withdrew
the defense, Guarantee breached its obligations to Tonti, thereby causing
4
Because we affirm the district court’s determination that Guarantee did not act in bad
faith under La. Rev. Stat. § 22:1220(B)(1), we do not reach the issue of “bad faith damages”
compensable under the statute.
9
Case: 10-31099 Document: 00511738347 Page: 10 Date Filed: 01/26/2012
No. 10-31099
damage to Tonti by necessitating Homestead to step in, pay for Tonti’s defense,
and file the declaratory judgment action against Tonti and Guarantee. The
district court found: “If Guarantee had not breached its obligations to Tonti,
Homestead would not have been involved in the Payne litigation, and would not
have filed this suit against Tonti and Guarantee.” The district court cited
Articles 1994 and 1995 of the Louisiana Civil Code, which provide that an
obligor is liable for the damages caused by his breach, and ultimately found that
“Tonti’s attorneys fees in this matter are damages that resulted from
Guarantee’s breach of its obligations to Tonti, and Homestead, to whom Tonti
has assigned its rights, is entitled to recover $50,527.16, the stipulated amount,
for Tonti’s attorneys’ fees in defending this suit.” Nonetheless, we conclude that
it was error for the district court to determine that Tonti’s attorney’s fees were
compensable as an element of damages caused by Guarantee’s breach of its
obligations to Tonti, because there is neither statutory nor contractual
authorization for such an award.5
B.
It is beyond peradventure that, under Louisiana law, attorney’s fees are
recoverable only if they are authorized by statute or by contract. Sher v.
Lafayette Ins. Co., 988 So. 2d 186, 201 (La. 2008) (“Louisiana courts have long
held that attorney’s fees are not allowed except where authorized by statute or
contract.”); Hernandez v. Harson,
111 So. 2d 320, 327 (La. 1959); Chauvin v. La
Hitte,
85 So. 2d 43, 45 (La. 1956) (“On numerous occasions this court has said
that ordinarily attorney’s fees are not assessable as an item of damages unless
provided for by law or by contract. The clear import of the language of the
opinions is that no award of them can be made if not so particularly
5
Because we agree with the district court that Guarantee did not breach in bad faith
under La. Rev. Stat. § 22:1220, we do not reach Homestead’s alternative argument that
Homestead was entitled to attorney’s fees under La. Rev. Stat. § 22:1220.
10
Case: 10-31099 Document: 00511738347 Page: 11 Date Filed: 01/26/2012
No. 10-31099
authorized.”); Montz v. Theard, 818 So. 2d 181, 192 (La. Ct. App. 2002) (“As a
general rule, attorney’s fees are not assessable as an item of damages except
where provided by statute or by contract.”). A breach of contract action does not
fall within one of the limited exceptions to the general rule; if the parties fail to
expressly provide an obligation to pay attorney’s fees, the law will not imply one.
Maloney v. Oak Builders, Inc.,
235 So. 2d 386, 390 (La. 1970); Rutherford v.
Impson,
366 So. 2d 944, 947 (La. Ct. App. 1978). Because the award of attorney’s
fees is exceptional and penal in nature, attorney’s fees statutes are construed
strictly. Cracco v. Barras,
520 So. 2d 371, 372 (La. 1988); Frank L. Beier Radio,
Inc. v. Black Gold Marine, Inc.,
449 So. 2d 1014, 1015–16 (La. 1984).
Plainly, there is no contractual authorization for the award at issue.
Neither the district court nor Homestead identifies any provision in any contract
that could be interpreted to require Guarantee to cover Tonti’s attorney’s fees in
defending Homestead’s declaratory judgment action. Cf. Steptore v. Masco
Constr. Co., Inc., 643 So. 2d 1213, 1218 (La. 1994) (“[T]he insurance contract did
not impose a duty on the insurer to pay attorney’s fees in connection with the
insured’s pursuit of the coverage issue.”).
Nor is there any statutory authorization for the award. The district court
suggested that Louisiana Civil Code Articles 1994 and 1995 authorized the
award of attorney’s fees as an item of damages caused by Guarantee’s breach of
its obligations to Tonti. Under Louisiana law, however, attorney’s fees
characterized as breach of contract damages are not compensable under Article
1994 and its corresponding statutes.
While Louisiana Civil Code Article 1994 sets forth the familiar principle
that “[a]n obligor is liable for the damages caused by his failure to perform a
conventional obligation,” Articles 1996 and 1997 develop this principle by
explaining how it applies to good-faith and bad-faith breaches, respectively;
Article 1996 states that “[a]n obligor in good faith is liable only for the damages
11
Case: 10-31099 Document: 00511738347 Page: 12 Date Filed: 01/26/2012
No. 10-31099
that were foreseeable at the time the contract was made,” and Article 1997
states that “[a]n obligor in bad faith is liable for all the damages, foreseeable or
not, that are a direct consequence of his failure to perform.” Article 1995
provides that “[d]amages are measured by the loss sustained by the obligee and
the profit of which he has been deprived.”
Louisiana case law compels the conclusion that Articles 1994 et seq. cannot
support an award of attorney’s fees to Tonti. To illustrate, in holding that
Article 1997 could not serve as a statutory basis for a fee award, the Louisiana
Supreme Court stated the following:
Plaintiff argues that, pursuant to C.C. art. 1997, he is entitled to
attorney’s fees due to [Defendant’s] bad faith breach of contract.
Louisiana courts have long held that attorney’s fees are not allowed
except where authorized by statute or contract. Article 1997 reads
in its entirety, “An obligor in bad faith is liable for all the damages,
foreseeable or not, that are a direct consequence of his failure to
perform.” Neither the statute nor the insurance contract mentions
attorney’s fees. In keeping with our past holdings, we find that in
cases of breach of contract, Article 1997 does not provide for an
award of attorney’s fees.
Sher, 988 So. 2d at 201 (citations omitted). The Sher court’s reasoning applies
with equal force to Article 1997’s counterpart, Article 1996. Indeed, none of the
Articles 1994 et seq. specifically authorizes, or even mentions, attorney’s fees.
The statutes merely recite and encode elementary principles of contract law.
Following the Louisiana Supreme Court’s logic to its inexorable conclusion,
Articles 1994 et seq. may not provide statutory authorization for an award of
attorney’s fees as an element of breach of contract damages. If Homestead
cannot identify contractual authorization for Tonti’s fee award, it should not look
toward Articles 1994 et seq. for statutory help, for those codes will not avail it.6
6
Prior to Sher, Louisiana courts routinely and consistently held that a good-faith
contractual breach under Article 1995 or Article 1996 could not give rise to an award of
attorney’s fees as a measure of damages. See Airline Const., Inc. v. Ted Hicks & Assocs., Inc.,
506 So. 2d 554, 557–58 (La. Ct. App. 1987); Lamonte v. Premier Sales, Inc.,
776 So. 2d 493, 497
12
Case: 10-31099 Document: 00511738347 Page: 13 Date Filed: 01/26/2012
No. 10-31099
The Louisiana legislature’s approach to other Louisiana codes and statutes
supports the conclusion that Articles 1994 et seq. were not designed to authorize
awards of attorney’s fees. Unlike Articles 1994 et seq., numerous other civil code
provisions explicitly specify that attorney’s fees are recoverable. See, e.g., La.
C.C. art. 2545 (buyer may recover fee from seller in redhibitory action if fraud
on part of seller is established); La. C.C.P. art. 3506 (dissolution of attachment);
La. C.C.P. Art. 595 (class action). Numerous Louisiana statutes also explicitly
provide for attorney’s fees. See, e.g., La. Rev. Stat. § 9:3253 (lessee may recover
fee for lessor’s failure to timely return lessee’s deposit); La. Rev. Stat. §§ 23:631,
23:632 (employee may recover fee for employer’s failure to timely provide
accrued salary post-termination); La. Rev. Stat. § 42:26 (prevailing party may
(La. Ct. App. 2000); see also Delta Truck & Tractor, Inc. v. Navistar Int’l Transp. Corp., 833
F. Supp. 587, 590 (W.D. La. 1993) (finding that, under Louisiana law, art. 1995 and art. 1996
did not support fee award as item of damages for good faith contractual breach because
“[t]hese articles make no mention of attorney’s fees” and because agreement at issue did not
provide for fees). Likewise, pre-Sher, the clear weight of Louisiana authority held that even
a bad-faith contractual breach under Article 1997 could not give rise to an award of attorney’s
fees as a measure of damages. See, e.g., Lancaster v. Petroleum Corp. of Del.,
491 So. 2d 768,
779 (La. Ct. App. 1986); David Y. Martin, Jr., Inc. v. Heublein, Inc.,
943 F. Supp. 637, 644
(E.D. La. 1996). Although a minority line of case law suggested that a bad-faith breach under
Article 1997—or under its predecessor, Article 1934—could give rise to an award of attorney’s
fees as a measure of damages, these cases conceded and further confirmed that a good-faith
breach could never do so; that is, these cases considered bad faith or fraud an exception to the
general rule against awarding attorney’s fees as an item of contract damages. See Raney v.
Gillen,
31 So. 2d 495, 497–98 (La. Ct. App. 1947); Berry v. Ginsburg,
98 So. 2d 548, 551–52
(La. Ct. App. 1957); Cobb v. Gallet,
392 So. 2d 134, 135 (La. Ct. App. 1980); Rye v. Terminix
Serv. Co., Inc.,
423 So. 2d 754, 757 (La. Ct. App. 1982). The majority of Louisiana courts
departed from and overruled this minority line, maintaining that Article 1934/1997 could not
authorize attorney’s fees as damages. Lloyd v. Merit Loan Company of Shreveport, Inc.,
253
So. 2d 117, 120 (La. Ct. App. 1971) (holding that art. 1934 cannot authorize fee award as item
of breach of contract damages because it does not mention attorney’s fees, whether or not
breach was in bad faith, and overruling the Raney/Berry line); Rutherford v. Impson,
366 So.
2d 944, 947 (La. Ct. App. 1978); see also Delta Truck &
Tractor, 833 F. Supp. at 590 (noting,
pre-Sher, that although “neither the Louisiana Supreme Court nor the U.S. Fifth Circuit has
issued an opinion directly ruling on the issue of whether Article 1997 allows for attorney’s fees
to be recovered for bad faith breach of contract,” “this issue is by no means novel and has been
answered clearly in the negative by various Louisiana courts of appeal.”). In any event, Sher
foreclosed the minority line. Now, Louisiana law holds that Articles 1994 et seq. cannot
authorize an award of attorney’s fees as a measure of breach of contract damages.
13
Case: 10-31099 Document: 00511738347 Page: 14 Date Filed: 01/26/2012
No. 10-31099
recover fee under Louisiana Open Meeting Law for bringing action).7 And
certain statutes relating to insurance explicitly specify attorney’s fees. See, e.g.,
La. Rev. Stat. § 23:1201 (successful worker’s compensation claimant may recover
fee from employer or insurer). “Clearly, the Louisiana legislature contemplates
the propriety of attorney’s fees in drafting its damage provisions and includes
them when it feels they are appropriate. The Louisiana legislature did not
include attorney’s fees as an element of damages recoverable under [Articles
1994 et seq.] and we may not question their judgment.” See Delta Truck, 833 F.
Supp. at 591.
Finally, we note the principle laid down by the Louisiana Supreme Court
in the oft-cited Steptore v. Masco Construction Company: “Generally, if the
insured hires an attorney to represent him in coverage disputes, he will have to
bear those costs himself.” 643 So. 2d at 1218; accord Tillman v. Custom
Aggregate,
686 So. 2d 118, 120 (La. Ct. App. 1996). Absent statutory or
contractual authorization for the fee award here, we are unaware of a policy
consideration that would move us to depart from this principle and relieve Tonti
of its presumptive fee burden.
C.
The district court erred in concluding that Article 1994 could authorize an
award of attorney’s fees as an element of breach of contract damages. The
district court further erred when it determined that Tonti’s attorney’s fees were
compensable as damages caused by Guarantee’s breach of its obligations to
7
See also La. Rev. Stat. § 9:4855 (property owner may recover fee in action against
contractor for fraud in connection with perfection of contractor's lien). La. Rev. Stat. § 9:3902
(creditor may recover fee if bond surety fails to pay obligation); La. Rev. Stat. § 23:303(B)
(defendant in frivolous employment discrimination action may recover fee); La. Rev. Stat. §
9:2782, et seq. (suits on dishonored checks); La. Rev. Stat. § 9:2781 (suits on open accounts);
La. Rev. Stat. § 51:1409(A) (unfair trade practice in repossessing goods); La. Rev. Stat. §
19:201 (expropriation); La. Rev. Stat. § 46:1820 (crime victim reparation); La. Rev. Stat. §
9:398.1 (paternity).
14
Case: 10-31099 Document: 00511738347 Page: 15 Date Filed: 01/26/2012
No. 10-31099
Tonti. Therefore, the district court abused its discretion in ruling that
Homestead, by way of the assignment from Tonti, was entitled to recover
$50,527.16, the amount of Tonti’s attorney’s fees in defending the declaratory
judgment action by Homestead.
V.
Because Guarantee did not breach La. Rev. Stat. § 22:1220 (now La. Rev.
Stat. § 22:1973), we AFFIRM the district court’s ruling as to bad faith. Because
the district court’s award of $50,527.16 in attorney’s fees was an abuse of
discretion, we VACATE the award of attorney’s fees.
AFFIRMED, VACATED.
15
