Holsum De P.R. Inc. v. Compass Indus. Grp.

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HOLSUM DE PUERTO RICO, INC., Plaintiff, v. COMPASS INDUSTRIAL GROUP LLC; ILLINOIS TOOL WORKS, INC.; ITW FOOD EQUIPMENT GROUP LLC d/b/a PEERLESS FOOD EQUIPMENT; INSURANCE COMPANY ABC; INSURANCE COMPANY DEF; INSURANCE COMPANY XYZ, Defendants.

No. 3:18-cv-02004-JAW

United States District Court, D. Puerto Rico

August 11, 2022

ORDER ON PEERLESS' MOTION FOR ATTORNEY'S FEES

JOHN A. WOODCOCK, JR. UNITED STATES DISTRICT JUDGE

Following a two-week trial, a prevailing defendant argues that it is entitled to reasonable attorney's fees pursuant to the parties' contract, or, in the alternative, pursuant to Puerto Rico Rule of Civil Procedure 44 against the plaintiff who filed and pursued the unsuccessful lawsuit. The Court concludes that the fee-shifting provision of the parties' contract was not properly incorporated by reference so as to give the plaintiff adequate notice of its existence, and, in the alternative, that the defendant has not shown that the plaintiff acted obstinately under Rule 44. The Court denies the defendant's motion for attorney's fees.

I. PROCEDURAL BACKGROUND

On December 26, 2018, Holsum de Puerto Rico, Inc. (Holsum) filed a two-count complaint against Compass Industrial Group, LLC (Compass) alleging breach of contract and negligence. Compl. at 6-7 (ECF No. 1). On April 2, 2019, Compass answered the Complaint and filed a breach of contract counterclaim against Holsum. Answer to Compl. and Counterclaim (ECF No. 18). On May 13, 2019 Holsum filed an amended complaint adding ITW Food Equipment Group LLC d/b/a Peerless Food Equipment (Peerless) as a defendant and alleging breach of contract and negligence. Am. Compl. at 9-10 (ECF No. 36).

From March 28 to April 8, 2022, this Court presided over a jury trial to resolve Holsum's breach of contract and negligence claims against Compass and Peerless, and Compass' breach of contract counterclaim against Holsum. See Order (ECF No. 241). After two weeks of evidentiary presentations the jury found: (1) in favor of Holsum on Holsum's claim against Compass in the amount of $ 518,295.00; (2) in favor of Peerless on Holsum's claim against it; and (3) in favor of Compass against Holsum in the amount of $151,217.40.00 on Compass' counterclaim. Jury Verdict Form (ECF No. 260); J. (ECF No. 266) (J.).

On April 22, 2022, Peerless filed a motion for attorney's fees against Holsum. ITW Food Equipment Group LLC D/B/A Peerless Food Equipment's Mot. for Att'y's Fees and Expenses (ECF No. 270) (Peerless' Mot.). Peerless filed “Exhibit B” to its declaration in support of its motion for attorney's fees that same day. ITW Food Equipment Group LLC D/B/A Peerless Food Equipment's Mot. Submitting Ex. B to Decl. in Supp. of Mot. for Att'y's Fees and Expenses for Restricted Viewing Under Standing Order No. 9 (ECF No. 272) (Peerless' Ex. B). On May 25, 2022, Holsum responded in opposition to Peerless' motion for attorney's fees. Opp'n to ITW Food Equipment Group, LLC d/b/a Peerless Food Equipment's (“Peerless”) Mot. for Att'y's Fees at Docket No. 270 (ECF No. 301) (Holsum's Opp'n). On May 31, 2022, Peerless replied to Holsum's opposition. ITW Food Equipment Group LLC D/B/A Peerless Food Equipment's Reply to Holsum de Puerto Rico, Inc.'s Opp'n to Mot. for Att'y's Fees and Expenses (ECF No. 306) (Peerless' Reply). With leave of the Court, Holsum filed a sur-reply on June 7, 2022. Sur-Reply to ITW Food Equipment Group, LLC d/b/a Peerless Food Equipment's (“Peerless”) Reply to Holsum's Opp'n to Peerless's Request for Att'y's Fees (ECF No. 311) (Holsum's Sur-Reply).

II. THE PARTIES' POSITIONS

A. Peerless' Motion for Attorney's Fees

Peerless argues that it “is entitled to an award of its reasonable attorney's fees and expenses on two grounds: under the terms of its Agreement with Holsum, which contains a fee-shifting provision, and pursuant to Rule 44.1(d) of the Puerto Rico Rules of Civil Procedure.” Peerless' Mot. at 1. To its first point, Peerless says that the warranty section of the parties' contract directs Holsum to a complete list of Terms and Conditions on Peerless' website, which includes a “Limitation of Actions/Choice of Law/Litigation Costs” provision that stipulates that “the prevailing party is entitled, in addition to the relief granted, to a reasonable sum for their attorney's fees in such litigation.” Id. at 2 (emphasis omitted).

As to the application of Rule 44.1, Peerless argues that Holsum acted “obstinately and frivolously” based on the circumstances of the case. Id. at 3-4. In particular, Peerless says that Holsum acted “obstinately and frivolously” by including Peerless as a defendant in this case “based on the mere allegations in Compass's Answer to the Complaint and Counterclaim,” and through its unwillingness to settle the case at multiple junctures. Id. at 4, 10.

Peerless recounts Holsum's allegations in light of Puerto Rico breach of contract law and argues that “[t]he terms of [its contract with Holsum] were clear[;] . . . Holsum tendered payment to Peerless[;] . . . Peerless fully and timely complied with its contractual requirements[;] . . . [and] [t]he sandwiching machine was able and capable of undertaking the Cameo cookie project.” Id. at 7. Peerless submits that it “honored its agreement and warranty, and always acted in good faith with proper care” and that its Food Equipment “Warranty expressly precluded the type and nature of the remedies specifically claimed by Holsum in its Amended Complaint.” Id. at 8. In essence, Peerless claims that “Holsum knew or should have known that it would not be able to prove two elements of its contract claim against [it]: a breach and resulting damages.” Id.

As to Holsum's negligence claim against it, Peerless argues that “Holsum knew, or should have known, that any claim for negligence against Peerless had to arise out of conditions completely separate from the parties' contract” but that “Holsum's allegations about negligence [in the Amended Complaint] merely mirrored its allegations of a breach of the contract with Peerless.” Id. at 8-9. As a result, Peerless says that Holsum “does not have a separate cause of action for negligence.” Id. at 9.

To its second point, Peerless argues that “Holsum had many opportunities to settle its claims against Peerless and refused to do so.” Id. at 10. It explains that the parties held settlement conferences on August 26, 2019 and September 5, 2019, before then-Magistrate Judge Carreno-Coll; on February 2, 2020, Magistrate Judge Velez Rive held another settlement conference; on February 10, 2021, counsel for Holsum and Peerless met informally to discuss settlement; the parties met with a court-appointed mediator; and on March 17, 2022, Magistrate Judge Marcos Lopez held a final pretrial settlement conference. Id. at 10-11. Peerless says that “Holsum's position at each stage of settlement attempts was consistently disinterested in reaching a settlement without forcing Peerless to try the case.” Id. at 11. Peerless explains that such “recalcitrance” should make Holsum “liable to [it] for attorneys' fees under Rule 44.1(d).” Id.

Peerless also contends that it “is entitled to have its attorney's fees calculated using a hybrid lodestar-multifactor method.” Id. Although Peerless admits that the court is not required to award attorney's fees by multiplying the number of hours worked by the hourly rate, it argues that would be appropriate in this case because the rates charged, the hours expended, and the litigation expenses incurred were all reasonable. Id. at 11-15. As to the reasonableness of the hourly rate charged, Peerless says that two partner-level attorneys and two associate-level attorneys worked on the case and each attorney's rate “reflect[s] the rates prevailing in the community in which the attorney works for persons of comparable skill and experience.” Id. at 12. Peerless also says that it was reasonable to expend a total of 1,342.25 hours on this case in answering the Amended Complaint, engaging in discovery and depositions, filing procedural motions, engaging in settlement negotiations, and preparing and participating in trial. Id. at 13.

B. Holsum's Opposition

In opposition, Holsum maintains that “at no point has [it] acted in an ‘obstinate' or ‘frivolous' manner.” Holsum's Opp'n at 2. Regarding Peerless' contractual arguments, Holsum argues that “Puerto Rico law controls the attorney's fees issue not the fee-shifting provision found in Peerless'[]” contract because the contract is one of adhesion. Id. at 6. It contends that the contract it signed with Peerless “contained a hyperlink, which in turn led to a ‘second,' more extensive contract” and that it was only this second contract that included a provision for the payment of attorney's fees. Id. Such a provision, Holsum declares, “runs afoul of the ‘laws, morals, or public order' requirement found in the Puerto Rico Civil Code.” Id. at 7. As such, Holsum maintains that Peerless' ability to recover attorney's fees depends entirely on the issue of obstinacy. Id.

On that point, Holsum argues that its “claim against Peerless was ‘theoretically actionable'” and that the admissions made by Peerless' trial witness, Jason Switzer, show the absence of obstinacy on Holsum's part. Id. at 7-9. In particular, Holsum maintains that the verdict in favor of Peerless was “close” because, based on a note submitted to the Court by the jury, “[t]he jury deliberated under the incorrect assumption that the ‘machine part' installed by Holsum to manually load the cookies . . . was provided to Holsum by Peerless at no cost to Holsum --- as part of a warranty tendered by Peerless.” Id. at 9.

Furthermore Holsum argues that Peerless' request for attorney's fees is “devoid of any reasonableness” because Peerless itself...