APPLICATION OF SET-OFF WHEN DETERMINING PREVAILING PARTY FOR PURPOSES OF ATTORNEY’S FEES

The recent opinion from the Second District Court of Appeal in Hayward Baker, Inc. v. Westfield Ins. Co., 2020 WL 7767859 (2nd DCA 2020) demonstrates that the significant issues test for determining the prevailing party for purposes of attorney’s fees applies to disputes involving payment bonds under Florida’s Lien Law (Florida Statutes Chapter 713).  The significant issues test is more or less a subjective test where the party that is deemed to have prevailed on the significant issues in the case is the prevailing party for purposes of attorney’s fees in the case.  A trial court has discretion to determine the prevailing party which will not be disturbed absent an appellate court finding the trial court abused that discretion.   This significant issues test is an important consideration so that parties understand just because money ends up going their way does not necessarily mean they prevailed on the significant issues in the case.  It could mean that.  But it may not based on the claims and moneys involved in the dispute.

In Hayward Baker, the subcontractor recovered a final judgment of $290,000 against the general contractor and payment bond surety. Both the subcontractor and general contractor moved for attorney’s fees as the party that prevailed on the significant issues in the dispute.  The subcontractor was awarded the full amount due under the subcontract; however, there was a set-off issue.  The general contractor asserted a claim against the subcontractor for property damage associated with the subcontractor’s work and received $450,000 from an insurance carrier relative to that claim in a settled dispute.   The subcontractor was able to set-off this recovered amount from the property damages the general contractor sought against the subcontractor. Thus, the issue was when factoring in the set-off, which party prevailed on the significant issues.  The Second District held it was the subcontractor that recovered the final judgment in its favor:

[T]he ruling on [the subcontractor’s] motion to set off the $450,000 [the general contractor] had received from the [insurance carrier] in the 2012 [settled] Case against the damages award entered against [the subcontractor] was pivotal to the prevailing party determination. The result of applying the setoff against [the general contractor’s] damages award was that [the general contractor] received none of the benefit it sought in the litigation: a judgment was not entered against [the subcontractor] for any of the damage caused to the hospital property. On the other hand, [the subcontractor] received all of the benefit it sought in the litigation, as it obtained $290,000 plus prejudgment interest for the work it performed under the subcontract and it was relieved from paying any damages to [the general contractor]. [The subcontractor], therefore, was the prevailing party in the underlying litigation and entitled to an award of attorneys’ fees

Hayward Baker, 2020 WL at *2.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: DISCRETION IN DETERMINING PREVAILING PARTY FOR PURPOSES OF ATTORNEY’S FEES

In prior articles I have discussed that courts apply the significant issues test to determine the prevailing party for purposes of being entitled to attorney’s fees.   A party that recovers an affirmative judgement is NOT the de facto prevailing party for purposes of an entitlement to attorney’s fees in a breach of contract action (or a construction lien foreclosure action).  This was the issue in a recent appeal discussed here where the party that recovered an affirmative judgment on a breach of contract case was not deemed the prevailing party for purposes of attorney’s fees.  While the party prevailed on one of its claims, it did not prevail on others, and it recovered less than half of the damages it originally sought.  The appellate court, affirming the trial court, held that the trial court has discretion to determine that the party that recovered an affirmative judgement was not the prevailing party entitled to its attorney’s fees under the signifiant issues test.  This was not what the party was expecting when the attorney’s fees it expended far exceeded the judgment it recovered.

There is not an objective, brightline standard to determine which party should be deemed the prevailing party for purposes of an attorney’s fees award.  There is subjectivity involved at the discretion of the trial court.  This is a valuable consideration as the case progresses and there are decisions relating to settlement.  Banking on recovering attorney’s fees is not always the wisest of choices.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ATTORNEY’S FEES FOR LITIGATING THE AMOUNT OF ATTORNEY’S FEES

Attorney’s fees’ provisions are common in construction contracts.  They are an important provision if you want to create a contractual entitlement to recover your attorney’s fees in the event there is a contractual dispute.  Presuming you prevail on the significant issues of your dispute and are entitled to attorney’s fees, there is an evidentiary hearing as to the reasonableness of attorney’s fees — both as to the reasonableness of the hours expended and of the hourly rates.   Generally, the attorney’s fees incurred in litigating the amount of attorney’s fees is not recoverable.  This is oftentimes referred to as “fees on fees.”  With that said, such fees on fees can be recoverable if the contractual provision is drafted broad enough to allow the prevailing party to recover reasonable attorney’s fees including fees incurred in litigating the reasonable amount of fees.   If you want to recover fees on fees, you will want to include this language in your construction contract.  For more information on this issue, please check this article.   

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ATTORNEY’S FEES ENTITLEMENT AND APPLICATION UNDER SUBCONTRACT DEAULT PROVISION

Many subcontracts contain a provision in the default section that reads something to the effect:

 

Upon any default, Subcontractor shall pay to Contractor its attorney’s fees and court costs incurred in enforcing this Subcontract or seeking any remedies hereunder.” 

 

Oftentimes, a party may wonder as to the enforceability of the provision and how it is applied in the context of a dispute between a contractor and its subcontractor where both parties have asserted claims against the other.   

 

In an opinion out of the Middle District of Georgia, U.S. f/u/b/o Cleveland Construction, Inc. v. Stellar Group, Inc., 2019 WL 338887 (M.D.Ga. 2019), a subcontractor and prime contractor on a federal construction project each asserted claims against the other in the approximate amount of $4 Million, meaning there was a potential $8 Million swing in the dispute.

 

The subcontract contained a provision entitling the contractor to recover attorney’s fees incurred in enforcing the subcontract or seeking remedies under the subcontract upon any default, identical to the provision above. 

 

The case proceeded to a jury trial and a general verdict form was presented to the jury that did not differentiate between the claims each party sought.  The jury found the contractor was liable to the subcontractor for approximately $2.5 Million and the subcontractor was liable to the contractor for approximately $1.3 Million, leaving a net verdict in favor of the subcontractor for approximately $1.2 Million.

 

The contractor, however, sought its attorney’s fees (and costs) pursuant to the default provision since the jury found the subcontractor was liable to it for approximately $1.3 Million.   The subcontract provided that upon a default, the contractor is entitled to attorney’s fees incurred in (i) enforcing the subcontract or (ii) seeking remedies under the subcontract.  But, to be entitled to fees, there had to be a subcontractor default. 

 

The trial court found the subcontract was unclear as to the actual connection that needed to exist between the default and what is actually recoverable at trial.  In other words, it was unclear whether there needed to be a relationship between the default and the recoverable attorney’s fees or whether the contractor could recover attorney’s fees upon any default regardless of whether the attorney’s fees incurred related to that specific default.  The trial court did not interpret the default attorney’s fees provision that broadly and held the contractor must show a causal connection between the default, the enforcement of the subcontract or remedies sought under the subcontract, and the attorney’s fees incurred.  “Under the [subcontract] enforcement prong, [Contractor] would be expected to show that the fees it incurred related to the successful pursuit of the claim for default.  Similarly, under the remedies [sought under the subcontract] prong, [Contractor] would only be entitled to fees incurred in the actual obtaining of a remedy for [Subcontractor’s] default.”  Stellar Group, 2019 WL at *2.  

 

This is not an easy feat, and here lies the problem.    Based on a general jury verdict form, the jury was not asked to make specific findings as to facts that could support the issues relating to the default or the claims prevailed on.  Thus, allocating those attorneys’ fees incurred to the default and enforcement of the subcontract it prevailed on is taking a shot in the dark.

 

Notwithstanding, there are lessons learned from this case.  First, the trial court did not find the attorney’s fees provision unenforceable even through the net judgment went in favor of the subcontractor.  That is promising.  Second, for purposes of a jury trial, had the contractor objected to a general verdict form and requested special interrogatories in the verdict form relating to this issue, the contractor may have been able to allocate certain attorney’s fees incurred to the claims or issues it prevailed on at trial.  And, third — perhaps the most important — this subcontract language can be revisited to make the entitlement and application of attorney’s fees more clear in favor of the contractor.   With that said, the trial court’s interpretation that the fees incurred should have a causal connection to the default and enforcement / remedies under the subcontract prevailed on is not an unreasonable application by any means. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CGL POLICY COVERING ATTORNEY’S FEES IN PROPERTY DAMAGE CLAIMS

shutterstock_195189626Does a CGL policy cover attorney’s fees and costs in property damages claims, to the extent there is a contractual or statutory basis to recover attorney’s fees? Naturally, you need to review the policies and this is not a clear-cut issue, but there is law to argue under.  

 

A case I have argued in support of CGL policies providing for coverage for attorney’s fees as a component of property damage claims when there is a contractual or statutory basis is Assurance Co. of America v. Lucas Waterproofing Co., Inc., 581 F.Supp.2d 1201 (S.D.Fla. 2008).  In this case, the following applied:

 

-The policy provided coverage for “those sums that the insured becomes legally obligated to pay as damages of… ‘property damage’….

– Property damage was defined as “physical injury to tangible property, including all resulting loss of use of that property.”

-The term damage, in of itself, was not defined in the policy.

 

The trial court looked at whether  attorneys’ fees and costs are damages arising because of ‘property damage’ to which the insurance policy at issue applies.  

 

If an insurer may defend against a claim that is covered by the policy without taking into account potential attorneys’ fees and costs that will be awarded if the opposing party prevails, the insurer creates an externality whereby, in the course of seeking to minimize its own liability, it imposes potential costs on the insured at no additional cost to itself.  This externality undermines the very reason why an insurer can at once possess a duty and a right to defend, which is that the interests of the insured and the insurer are presumed to be aligned with respect to a claim for damages covered by the policy.  Every dollar of liability for a covered claim for which the insured cannot be held liable is a dollar saved by the insurance company.  If, however, when defending against a claim that is covered by the policy, an insurer can increase the liability of the insured while simultaneously decreasing its own liability, the interests of the insurer and insured are no longer aligned, giving rise to a conflict between the insurer and insured and making the coexistence of the right and duty to defend untenable. 

***

Therefore, this Court finds that attorneys’ fees and costs that an insured becomes obligated to pay because of a contractual or statutory provision, which are attributable to an insurer’s duty to defend the insured against claims that would be covered by the policy if the claimant prevails, constitute damages because of ‘property damage” within the meaning of a CGL policy.

Assurance Co. of America, 581 F.Supp.2d at 1214-15. 

 

In July of 2018, the Ninth Circuit Court of Appeals reached a similar conclusion in Association of Apartment Owners of Moorings, Inc. v. Dongbu Insurance Co., Ltd., 731 Fed.Appx. 713 (9thCir. 2018). The issue on appeal was whether the liability insurer was required to indemnify its insured for attorneys’ fees its insured was ordered to pay against a third-party that prevailed on a water damage claim.  Similar to above, the policy did not define the term “damage” and the Ninth Circuit explained:

 

The policy provides coverage for damages Moorings [insured] must pay “because of” covered property damage.  This phrase, which is undefined, connotes a non-exacting causation requirement whereby any award of damages that flows from covered property damage is covered, unless otherwise excluded.  The Bradens [third-party claimant] were awarded fees…because their home incurred water damage, and they incurred additional loss in order to recover for this damage.  The fee award is thus properly considered an award of damages that Moorings must pay “because of” that covered property damage and is not otherwise excluded. 

Association of Apartment Owners of Moorings, Inc., 731 Fed.Appx. at 714.

 

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

INDEMNIFICATION PROVISIONS DO NOT CREATE RECIPROCAL ATTORNEY’S FEES PROVISIONS

shutterstock_121868692In a good, recent decision, the Eleventh Circuit in International Fidelity Insurance Co. v. Americabe-Moriarity, JV, 2018 WL 5306683 (11th Cir. 2018), held that Florida Statute s. 57.105(7) cannot be used to shift attorney’s fees in a contractual indemnification clause in a dispute between a general contractor and subcontractor’s performance bond surety, when the dispute does not involve an actual indemnification claim stemming from a third-party.

 

In this case, a prime contractor terminated a subcontractor and looked to the subcontractor’s performance bond surety to pay for the completion work.  The subcontractor had a standard AIA A312 performance bond that requires the prime contractor to comply with the terms of the bond, as well as the incorporated subcontract, in order to trigger the surety’s obligations under the bond.  The surety filed an action for declaratory relief against the prime contractor arguing that the prime contractor breached the terms of the performance bond through non-compliance thereby discharging the surety’s obligations.  The trial court agreed and the surety moved for attorney’s fees. 

 

The surety’s argument for attorney’s fees was threefold: (1) the indemnification provision requiring the subcontractor to indemnify the prime contractor required the subcontractor to indemnify the prime contractor for, among other things, attorney’s fees; (2) Florida Statute s. 57.105(7) provides that one-sided contractual attorney’s fees provisions must apply to both parties (and treated reciprocally), hence the inclusion of attorney’s fees in the indemnification provision means that the surety should be entitled to attorney’s fees; and (3) since the subcontract was incorporated into the performance bond, the surety should be entitled to attorney’s fees since it steps in the shoes of the subcontractor under principles of surety law.

 

Surprisingly, the trial court agreed with the surety.  However, thankfully, the Eleventh Circuit held that the indemnity provision in the subcontract was an indemnity clause that applies only to third-party claims and not suits between the general contractor and subcontractor.  Thus, the requirement of reciprocity for attorney’s fees provisions pursuant to Florida Statute s. 57.105 does not apply.  The Eleventh Circuit, however, did not enter a ruling as to whether even if s. 57.105 did apply such that attorney’s fees must be reciprocal in an indemnification clause, whether such rationale would allow the performance bond surety to recover attorney’s fees under principles of surety law. 

 

This decision is useful for a few reasons:

 

(1)  If a contractor, subcontractor, etc. is trying to create an argument for attorney’s fees based on an indemnification clause, this decision is helpful to put that issue to bed since the indemnification provision applies in the context of third-party claims, and is not related to independent claims between the contracting parties;

(2) A party looking to take advantage of a performance bond must, and I mean, must, make sure to properly comply with the terms of the bond.  Certain sureties will raise any argument to avoid obligations under a performance bond hoping that the beneficiary of the bond undertakes an act that allows the surety to discharge its obligations; and

(3) General (prime) contractors should explore subcontractor default insurance, which is a first-party insurance policy, as an alternative to performance bonds to avoid the issues associated with delays and other arguments a surety may raise in furtherance of avoiding obligations under the bond.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

PRE-SUIT SETTLEMENT OFFERS AND CONSTRUCTION LIEN ACTIONS

shutterstock_127849640It is unfortunate, but in certain matters, a construction lien foreclosure action is not actually driven by the principal amount in dispute.  Oh no.  Rather, it is driven by attorney’s fees.  That’s right.  Attorney’s fees. This is true even though Florida applies the significant issues test to determine the prevailing party for purposes of attorney’s fees.  However, oftentimes  the prospect of attorney’s fees is enough for parties to fear that exposure. 

 

There is a 1985 Florida Supreme Court case that I like to cite if applicable, C.U. Associates, Inc. v. R.B. Grove, Inc., 472 So.2d 1177, 1179 (Fla. 1985), that finds, “in order to be a prevailing party entitled to the award of attorney’s fees pursuant to section 713.29 [a construction lien claim], a litigant must have recovered an amount exceeding that which was earlier offered in settlement of the claim.”  Accord Sullivan v. Galske, 917 So.2d 412 (Fla. 2d DCA 2006) (explaining that although contractor is receiving a judgment in his favor, he may not be the prevailing party if the homeowner offered to settle prior to the lawsuit for an amount equal to or greater  than the award in the judgment).

 

If there is a pre-suit settlement offer on the table, and it is a good faith offer (which presumably it is), than that offer can very well come into play to determine whether the party that will the action should be deemed the prevailing party for purposes of attorney’s fees.  This is still good law.  Therefore, before readily dismissing a pre-suit offer, consider the potential ramifications if you are unable to beat this offer at trial. Banking on attorney’s fees may not be prudent if there is a pre-suit offer that is within striking distance from where you need to be or can very well be a likely outcome based on a reasonable argument raised by the opposing party.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

RECEIVING A $0 VERDICT AND STILL BEING DEEMED THE PREVAILING PARTY FOR PURPOSES OF ATTORNEY’S FEES

shutterstock_336450779Low and behold, a party can be the prevailing party for purposes of attorney’s fees even if that party is awarded $0.  That’s right, even if the party is awarded a big fat zero, they can still be the prevailing party for purposes of being entitled to attorney’s fees.   This is because a party is the prevailing party if they prevail on the significant issues in the case.  A party can prevail on the significant issues even if that party is awarded $0. Whoa!

 

For example, in Coconut Key Homeowner’s Association, Inc. v. Gonzalez, 43 Fla.L.Weekly D1045a (Fla. 4th DCA 2018), a homeowner sued her homeowner’s association claiming the association breached its governing documents. There was a basis for fees under Florida’s homeowner’s association law (and there likely was a basis under the governing documents).  At trial, the jury held that the association breached its governing documents, but awarded the homeowner nothing ($0). The trial court also issued injunctive relief in favor of the homeowner.  The homeowner claimed she should be deemed the prevailing party for purposes of attorney’s fees; however, this was denied by the trial court  based on the $0 verdict and no fees were awarded to the homeowner.

 

On appeal, however, the Fourth District took a different stance.  The Court, relying on other Florida appellate decisions, maintained that the homeowner could be deemed the prevailing party despite receiving no monetary award:

 

While the prevailing party determination does not depend solely on the magnitude of relief Gonzalez [homeowner] obtained, she was required, at the least, to secure some relief on the merits of her claim to achieve such status. “ [P]laintiffs may be considered a ‘prevailing party’ for attorney’s fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.’ ”  Although there is ongoing debate in the courts on whether a plaintiff who recovers no money damages can be a prevailing party, a party who receives affirmative judicial or equitable relief is clearly considered a prevailing party under the law. Gonzalez was indisputably a prevailing party on her injunctive claim in equity, regardless of her marginal victory on the breach count. Thus, prevailing party attorney fees should be awarded to Gonzalez in this dispute. 

Gonzalez, supra (internal citations omitted).

 

The Fourth District  justified declaring the homeowner the prevailing party because an injunction was also issued in her favor.  Hence, she did receive some benefit by bringing the suit even if she recovered no monetary damages.  However, even if the homeowner did not bring a claim for injunctive relief, it is highly likely the same result would have been reached by the Fourth District.  Since the jury found that the association breached the governing documents, the homeowner would have achieved some benefit in bringing the suit and, therefore, prevailed on the significant issues.  Gonzalez, supra (“When there is a prevailing party statute or contract, reasonable attorney fees must be awarded.”). 

 

As of now, it is uncertain how this would be reconciled with the significant issues test to determine the prevailing party in a construction lien action.  Case law has held that a court has discretion to determine no party is the prevailing party for purposes of attorney’s fees in a construction lien action.  Putting this aside, however, this holding should apply to breach of contract cases and to other potential statutory claims that afford a basis for attorney’s fees to the prevailing party. Despite a party receiving no monetary award, they may still be deemed the prevailing party for purposes of attorney’s fees if they prevail on the significant issues in the case (e.g., the jury determined the other party committed a breach). 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

APPELLATE ATTORNEY’S FEES AND THE SIGNIFICANT ISSUES TEST

shutterstock_379140319The significant issues test to determine the prevailing party in construction lien actions (which, by the way, also applies to breach of contract actions) applies to appellate attorney’s fees too!  Under this test, the trial court has discretion to determine which party prevailed on the significant issues of the case for purposes of attorney’s fees.  The trial court also has discretion to determine that neither party was the prevailing party for purposes of attorney’s fees

 

In a recent decision, Bauer v. Ready Windows Sales & Service Corp., 42 Fla. L. Weekly D1417a (Fla. 3d DCA 2017), there were competing motions for appellate attorney’s fees.   Both parties believed they should be deemed the prevailing party under Florida Statute s. 713.29 (statute that authorizes prevailing party attorney’s fees under Florida’s Construction Lien Law).    The appellate court held that neither party was the prevailing party under the significant issues test:  “[W]e conclude that each party lost on their appeal, while each party successfully defended that part of the judgment in their favor on the other party’s cross-appeal. Because both parties prevailed on significant issues, this Court finds that appellate fees are not warranted for either party.” Bauer, supra

 

Attorney’s fees can very easily drive construction lien and bond disputes.  Just remember, the significant issues test to determine the prevailing party for purposes of attorney’s fees applies to fees incurred at the trial court and appellate court levels.  This test has a subjective component that gives a court an easy out—determine that neither party prevailed on the significant issues or, as in the above case, both parties prevailed on the significant issues, meaning neither party is entitled to attorney’s fees. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

PRIME CONTRACTOR & SURETY’S RECOVERY OF ATTORNEY’S FEES IN MILLER ACT LAWSUIT

imagesCan a claimant recover attorney’s fees in a Miller Act payment bond dispute even though the Miller Act does not contain a prevailing party attorney’s fee provision?  Yes, if the underlying contract that formed the basis of the suit provided for attorney’s fees.  

 

What about a prime contractor and surety—can they recover their attorney’s fees if they prevail in a Miller Act payment bond claim and the underlying contract provides a basis for fees?   The Eleventh Circuit Court of Appeals in U.S.A. f/u/b/o RMP Capital Corp. v.  Turner Construction Co., 2017 WL 244066 (11th Cir. 2017) seemingly just answered this question in the affirmative when it reversed a lower court’s ruling that precluded a prime contractor and surety that prevailed in a Miller Act claim from recovering their attorney’s fees:

 

Like all other parties to contracts, general contractors on federal projects and their sureties can recover attorney’s fees where a contract allocates attorney’s fees to them. Here the contract that Turner [prime contractor] and the Sureties claim entitles them to an award of attorney’s fees was between Southwick [sub-subcontractor] and Bolena [subcontractor]. We remand to the district court to interpret that contract in the first instance, so as to determine whether it entitles Turner and the Sureties to an award of attorney’s fees, and if so how much.  Id at *2 (internal citation omitted).

 

 

While this ruling may seem harmless, it is a favorable ruling to a prime contractor and surety that prevail in a Miler Act payment bond claim when the underlying contract provides for attorney’s fees (which would likely be the same contract the claimant relies on to seek attorney’s fees).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.