Hometown Folks Llc v. S & B Wilson Inc.

643 F.3d 520

HOMETOWN FOLKS, LLC, Plaintiff–Appellant/Cross–Appellee,

v.S & B WILSON, INC.; William L. Wilson; Sally B. Wilson, Defendants–Appellees/Cross–Appellants.

Nos. 09–6004

09–6007.

United States Court of Appeals, Sixth Circuit.

Argued: Dec. 7, 2010.Decided and Filed: June 30, 2011.Rehearing and Rehearing En Banc Denied Aug. 9, 2011.

ARGUED: John P. Konvalinka, Grant, Konvalinka & Harrison, P.C., Chattanooga, Tennessee, for Appellant. Thomas Greenholtz, Chambliss, Bahner & Stophel, P.C., Chattanooga, Tennessee, for Appellees. ON BRIEF: John P. Konvalinka, Charles G. Fisher, Richard G. Pearce, Grant, Konvalinka & Harrison, P.C., Chattanooga, Tennessee, for Appellant. Thomas Greenholtz, T. Maxfield Bahner, Richard W. Bethea, Chambliss, Bahner & Stophel, P.C., Chattanooga, Tennessee, for Appellees.Before: MARTIN, NORRIS, and COOK, Circuit Judges.MARTIN, J., delivered the opinion of the court. NORRIS, J. (pp. 536–37), delivered a separate opinion concurring in the result reached by the majority opinion, in which COOK, J., joined.

OPINION

BOYCE F. MARTIN, JR., Circuit Judge.

Hometown Folks, LLC entered into an Agreement with S & B Wilson Corporation to buy eleven Burger King restaurants. S & B Wilson terminated the Agreement, and Hometown sued for breach of contract and breach of the duty of good faith and fair dealing. After a trial, the jury found that S & B Wilson had properly terminated the Agreement but had breached the duty of good faith and fair dealing, and it awarded Hometown $190,907.27 in damages. Over one year later, the district court entered a partial judgment relative to the jury verdict. The district court denied specific performance and awarded Hometown $5,176.24 of the $424,282.19 in attorneys' fees and expenses that it incurred in connection with the litigation.

On appeal, the parties raise a number of issues. As an appellant, Hometown argues that the district court erred in: (1) refusing to award Hometown all of its attorneys' fees and expenses incurred in connection with the litigation; (2) failing to enter judgment promptly after the jury verdict; and (3) denying Hometown's claim for specific performance. As a cross-appellant, S & B Wilson argues that the district court erred in: (1) denying S & B Wilson's motion for judgment as a matter of law as to the claim alleging breach of the duty of good faith and fair dealing; (2) denying S & B Wilson's motion for judgment as a matter of law with respect to damages; and (3) awarding any attorneys' fees and expenses to Hometown.

The district court correctly denied S & B Wilson's motion for judgment as a matter of law as to the claim alleging breach of the duty of good faith and fair dealing. However, we REVERSE the district court's denial of judgment as a matter of law to S & B Wilson on damages. Furthermore, although the district court used an acceptable method to determine a reasonable attorneys' fee award, it applied this method incorrectly. Therefore, we REVERSE the award of attorneys' fees and REMAND for a new determination. Because we grant judgment as a matter of law to S & B Wilson on damages, we need not address Hometown's remaining claims that the district court erred in failing to enter judgment promptly after the jury verdict and in denying Hometown's claim for specific performance.

I. FACTUAL AND PROCEDURAL BACKGROUND

William and Sally Wilson are the sole shareholders, directors, and officers of S & B Wilson, which owns and operates eleven Burger King restaurants in the Gainesville, Georgia area. Gordon Davenport and Elliott Davenport are the only members of Hometown, which owns and operates a number of Burger King restaurants in the Chattanooga, Tennessee area. The Wilsons decided to sell their restaurants, and Hometown and S & B Wilson entered into a Purchase and Sale Agreement for the eleven Burger King restaurants on October 4, 2005.

The Agreement required Burger King Corporation to consent to the transaction. On November 8, Burger King sent a letter to Gordon Davenport stating that Hometown had been approved to purchase S & B Wilson's Burger King restaurants. The letter stated that Burger King would require S & B Wilson to place $98,800 in escrow at closing. The jury found, and it is not disputed, that this was the date that Burger King consented to the transaction.

While conducting due diligence on the properties, Hometown became aware of environmental issues at two of the restaurant locations. The transaction stalled during January and February of 2006 as Hometown and S & B Wilson proposed various solutions such as escrow arrangements and set-offs to the purchase price. Hometown's attorney sent one proposal to S & B Wilson's attorney on March 7. S & B Wilson's attorney responded that he was out of the country until March 20, but that he would continue to work on the deal when he returned. On March 14, Hometown notified S & B Wilson that it intended to close the transaction on March 29.

On March 21, S & B Wilson sent a letter to Hometown stating that it was terminating the Agreement pursuant to Section 9.1, which states:

This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing:

....

(d) By Seller if the Closing shall not have occurred on or before the Outside Date [120 days after the Consent Date]; provided that Seller shall not be entitled to terminate this Agreement pursuant to this clause if the failure of Seller to fulfill any of its obligations under this Agreement shall have been the reason that the Closing shall not have occurred on or before said date....

.... (g) By Seller if Burger King requires in excess of $100,000 of remodeling and repair expenditures in order to provide the Burger King Consent.

On April 3, Hometown filed suit against S & B Wilson in the United States District Court for the Eastern District of Tennessee, alleging breach of contract and breach of the duty of good faith and fair dealing, and requesting specific performance and indemnification. On July 10, S & B Wilson moved to dismiss the case for lack of personal jurisdiction and for summary judgment. The district court denied both motions.

The district court determined that a jury should decide the claims related to breach of contract, breach of the duty of good faith and fair dealing, and indemnification, except for those portions related to attorneys' fees and expenses associated with the litigation. After the jury trial, the district court planned to decide the issues of specific performance, attorneys' fees incurred during the underlying transaction, and expenses incurred by Hometown related to the litigation.

The district court held a twelve-day jury trial beginning on November 13, 2007. The parties presented evidence about their intent with regard to the meaning of disputed contract terms, particularly sections 9.1(d) and 9.1(g). In addition, Hometown presented evidence that S & B Wilson breached its duty of good faith and fair dealing by failing to diligently carry out its responsibilities pursuant to the Agreement.

On November 29, S & B Wilson moved for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50 on a number of grounds. Among other things, S & B Wilson asserted that Hometown presented no evidence to allow a reasonable jury to find that a breach of the duty of good faith and fair dealing prevented a closing from taking place. The district court granted the motion for judgment as a matter of law with respect to a claim that S & B Wilson waived certain contractual defenses, but denied the motion on all other grounds. S & B Wilson renewed its motion at the close of its case, and the district court again denied the motion.

On December 11, the jury returned a verdict on a special verdict form. As to Section 9.1(d), the jury found that the “Outside Date” had passed when S & B Wilson terminated the Agreement. It also found that the reason that the transaction had not closed by the Outside Date was not due to S & B Wilson's failure to fulfill any of its obligations under the Agreement. The jury found, however, that S & B Wilson should be estopped from terminating the Agreement pursuant to this section.

As to Section 9.1(g), the jury found that Burger King required more than $100,000 in repair and maintenance expenditures in order to grant its consent to the transaction. The jury also found that S & B Wilson should not be estopped from terminating the contract pursuant to this section. According to the jury instructions, as discussed further below, these findings imply that the jury found that S & B Wilson properly terminated the Agreement under this provision.

The jury found that S & B Wilson had breached its duty of good faith and fair dealing so as to constitute a breach of contract by either its actions leading up to the termination of the Agreement or its course of conduct in carrying out the terms of the Agreement. The jury awarded Hometown $190,907.27 in damages. This amount is equal to Hometown's expenses in connection with the transaction, exclusive of attorneys' fees, to which a representative testified at trial.

After the trial, the district court ordered the parties to submit briefs on whether Hometown was entitled to specific performance, attorneys' fees and expenses in connection with the transaction, and attorneys' fees and expenses relating to the litigation. On April 3, 2008, the district court entered an order that denied specific performance, but concluded that Hometown could recover its fees and expenses incurred in the underlying transaction and its fees and expenses “arising out of the instant litigation, with the caveat that Plaintiff is entitled to only those expenses that arose out of, or resulted from, the Defendants' breach of the duty of good faith and fair dealing.” The district court ordered Hometown to submit proof of attorneys' fees and expenses.

Hometown submitted proof of attorneys' fees and...