ABCS Troy, LLC v. Loancraft, LLC

337 Mich.App. 125

972 N.W.2d 317

ABCS TROY, LLC, Plaintiff-Appellee,

v.LOANCRAFT, LLC, Defendant-Appellant.

No. 349835

Court of Appeals of Michigan.

Submitted October 7, 2020, at Detroit.

Decided April 29, 2021, at 9:15 a.m.

Hardy, Lewis & Page, PC (by Russell G. Carniak ) for plaintiff.

Kerr, Russell and Weber, PLC (by Michael A. Sneyd and Broc Gullett ) for defendant.

Before: Swartzle, P.J., and Jansen and Borrello, JJ.

Swartzle, P.J.

Our district courts are courts of limited jurisdiction, and one of the limits is that the amount in controversy must not exceed $25,000. Damages are generally included in that calculation, while litigation expenses, including attorney fees, are generally excluded. The primary question on appeal is how to treat a claim for attorney fees under the parties' contractual fee-shifting provision—as damages, and therefore included in the amount in controversy, or as litigation expenses, and therefore excluded from the amount in controversy? As explained, we conclude that attorney fees sought under a contractual fee-shifting provision are a form of general damages and, as a result, are properly considered as part of the amount in controversy. Finding no error by the district court or circuit court on this issue, we affirm.

I. BACKGROUND

Plaintiff initiated this lawsuit against defendant in district court. Defendant had leased commercial space from plaintiff. When the lease expired, defendant vacated the premises, and plaintiff alleged that defendant left the premises in poor condition. Plaintiff claimed that it spent approximately $6,132 on repairs to the property necessitated by defendant's actions, and it sent defendant a bill for the cost of the repairs, but defendant declined to reimburse plaintiff.

Relevant to this appeal, the lease included a fee-shifting provision. Paragraph 52 of the lease reads in full, "In the event of a dispute arising hereunder, the non-prevailing party shall be responsible for the payment of the actual attorney fees incurred by the prevailing party."

Plaintiff sued defendant, alleging claims for breach of contract and promissory estoppel and seeking, among other relief, attorney fees. Defendant filed a counterclaim against plaintiff, alleging its own claim for breach of contract and seeking, among other relief, attorney fees. After a bench trial, the district court ruled in favor of defendant, awarding it $2,692.56 in damages on its counterclaim. Defendant moved for an award of attorney fees of $48,576.25 under the fee-shifting provision of the parties' contract.

The district court ruled that an award of attorney fees under the parties' contract qualified as damages subject to its jurisdictional limit of $25,000. The district court entered judgment in the amount of $25,000 in favor of defendant, including an award on the counterclaim of $2,692.56 and an award of fees under the fee-shifting provision of $22,307.44.

Defendant moved for reconsideration of that decision; the district court denied the motion. Defendant also moved for attorney fees as sanctions, arguing that plaintiff's lawsuit was frivolous. The district court found that plaintiff's complaint was not frivolous and denied the motion.

Defendant appealed to the circuit court. On appeal, defendant argued that the district court had erred by capping defendant's combined award at the district court's jurisdictional limit. According to defendant, attorney-fee awards should not count toward the jurisdictional limit, whether contractual or otherwise. Defendant also argued that the district court erred with respect to its denial of defendant's motion for sanctions. The circuit court affirmed the district court's judgment, including the cap on contractual attorney fees, but the court vacated the order denying defendant's motion for sanctions and remanded to the district court for further findings.

Defendant appealed, by leave granted, the circuit court's affirmance with respect to the contractual attorney fees. ABCS Troy LLC v. Loancraft LLC , unpublished order of the Court of Appeals, entered October 30, 2019 (Docket No. 349835). The matter involving sanctions is not at issue on appeal.

II. ANALYSIS

Defendant raises two claims of error on appeal. First, the district court misread existing caselaw by holding that attorney fees awarded under a contractual fee-shifting provision are counted against that court's jurisdictional cap of $25,000. Defendant points to cases holding that attorney fees are not included in the amount in controversy with respect to a district court's subject-matter jurisdiction. Second, the district court did not enforce the parties' lease as written, which called for the award of "actual" attorney fees, not reasonable fees.

We begin with the first claim, and as explained, our resolution of that claim moots the second one.

A. STANDARD OF REVIEW

Ordinarily, we review a trial court's decision on attorney fees for an abuse of discretion. Smith v. Khouri , 481 Mich. 519, 526, 751 N.W.2d 472 (2008). In this case, however, the critical question involves the jurisdiction of the district court. This presents a question of law that we review de novo. Bank v. Mich. Ed. Ass'n-NEA , 315 Mich. App. 496, 499, 892 N.W.2d 1 (2016).

B. DISTRICT COURT'S SUBJECT-MATTER JURISDICTION

Our circuit courts are this state's trial courts of general jurisdiction. Const. 1963, art. 6, § 1. The 1963 Michigan Constitution authorized the Legislature to create courts of limited jurisdiction, and the legislative body "exercised this constitutional authority in 1968 by creating the district court." Hodge v. State Farm Mut. Auto. Ins. Co. , 499 Mich. 211, 216, 884 N.W.2d 238 (2016). As set in statute, the district court has "exclusive jurisdiction in civil actions when the amount in controversy does not exceed $25,000.00." MCL 600.8301(1) (emphasis added). Our courts have held that, because the district court is limited to deciding cases in which the amount in controversy does not exceed $25,000, it "may not award damages in excess of that amount." Hodge , 499 Mich. at 216-217, 884 N.W.2d 238. "In other words, a plaintiff pleading a case of damages for $25,000 or less who proves and obtains a verdict for more than $25,000 would still be limited to awardable damages of not more than the district court's jurisdictional limit of $25,000." Meisner Law Group, PC v. Weston Downs Condo. Ass'n , 321 Mich. App. 702, 719, 909 N.W.2d 890 (2017), citing Hodge , 499 Mich. at 224, 884 N.W.2d 238.

C. THE CROSS OF TWO LINES OF PRECEDENT

The critical question in this case lies at the cross of two lines of precedent. In the first line, our courts have long recognized that this state follows "the American rule" with respect to attorney fees.

Pransky v. Falcon Group, Inc. , 311 Mich. App. 164, 193, 874 N.W.2d 367 (2015). Generally speaking, each party bears its own litigation expenses, including that party's own attorney fees, and therefore, these expenses are usually not part of the matter at controversy between the parties. See Hodge , 499 Mich. at 223-224, 884 N.W.2d 238 ; see also 14AA Wright & Miller, Federal Practice & Procedure (2020), § 3712; Denbo Iron & Metal Co. v. Transp. Ins. Co. , 792 F. Supp. 1234, 1236 (N.D. Ala., 1992). Trial courts can award expenses (including fees) to a prevailing party under certain circumstances, see, e.g., MCL 600.2591, but for the most part, each party is responsible for paying its own expenses to pursue its claims or mount its defenses. Moreover, it will not be known for certain at the outset how much a party will incur in attorney fees during the lawsuit, and subject-matter jurisdiction must be established at the outset. Accordingly, when determining the amount in controversy of a lawsuit, courts generally do not consider a party's own "fees, costs, and interest" in that calculation. Hodge , 499 Mich. at 223-224, 884 N.W.2d 238. And particularly relevant here, when "fees, costs, and interest" are not part of the amount in controversy, an award to the prevailing party for reimbursement of these expenses is not subject to the district court's $25,000 cap on damages. See Clohset v. No Name Corp. (On Remand) , 302 Mich. App. 550, 569, 840 N.W.2d 375 (2013).

The second line of precedent also begins with the American rule. This precedent recognizes that the American rule is not an absolute one and that parties can contract around it, as the parties did here with their fee-shifting provision in the lease. Central Transp., Inc. v. Fruehauf Corp. , 139 Mich. App. 536, 548, 362 N.W.2d 823 (1984) ("Contractual provisions for payment of reasonable attorney fees are judicially enforceable."). When parties do this, a claim of attorney fees under a contractual fee-shifting provision is one for general damages. Pransky , 311 Mich. App. at 194, 874 N.W.2d 367. And as relevant here, general damages count toward the amount in controversy. Souden v. Souden , 303 Mich. App. 406, 412, 844 N.W.2d 151 (2013).

These two lines of precedent cross in this case. If we hold, as defendant urges, that an award of contractual attorney fees is to be treated no differently than any other instance of "fees, costs, and interest" incurred by a party, then the district court's award to defendant of contractual fees under the lease would not be subject to that court's subject-matter jurisdiction. In that instance, the fee award would not be subject to the $25,000 cap. Alternatively, if we hold, as plaintiff argues, that an award of contractual fees is to be treated differently than other instances of "fees, costs, and interest" incurred by a party because it is an award on a claim for general damages, then the district court's fee award would be subject to that court's subject-matter jurisdiction and the $25,000. cap.

D. CONTRACTUAL ATTORNEY FEES AS PART OF THE AMOUNT IN CONTROVERSY

We begin our analysis by determining whether the district court had subject-matter jurisdiction in the first instance. See Clohset , 302 Mich. App. at 560, 840 N.W.2d...