Intercontinental Group v. Kb Home

295 S.W.3d 650

INTERCONTINENTAL GROUP PARTNERSHIP, Petitioner, v. KB HOME LONE STAR L.P., Respondent.

No. 07-0815.

Supreme Court of Texas.

Argued March 12, 2009.

Decided August 28, 2009.

Edward C. Snyder III, Jesse R. Castillo, Castillo Snyder, P.C., San Antonio, TX, for Petitioner.

Diann M. Bartek, Renee Forinash McElhaney, Natalie L. Hall, Cox Smith Matthews Incorporated, San Antonio, TX, for Respondent.

Justice WILLETT delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice HECHT, Justice GREEN, and Justice JOHNSON joined.

This breach-of-contract case poses a straightforward question: What does "prevailing party" mean? We have construed this phrase in a discretionary fee-award statute¹ but not in a mandatory fee-award contract. Specifically, when a contract mandates attorney's fees to a "prevailing party," a term undefined in the contract, has a party "prevailed" if the jury finds the other side violated the contract but awards no money damages? We agree with the United States Supreme Court, which holds that to prevail, a claimant must obtain actual and meaningful relief, something that materially alters the parties' legal relationship.² That is, a plaintiff must prove compensable injury and secure an enforceable judgment in the form of damages or equitable relief. The plaintiff here secured neither. We thus reach the same conclusion as in another breach-of-contract case decided today: "a client must gain something before attorney's fees can be awarded."³ We reverse the court of appeals' judgment and render a take-nothing judgment.

I. Background

KB Home Lone Star L.P. (KB Home), a national homebuilder, contracted with Intercontinental Group Partnership (Intercontinental), a real estate developer, to develop lots in a McAllen subdivision known as Santa Clara and sell them to KB Home. The contract provided:

Attorney's fees. If either party named herein brings an action to enforce the terms of this Contract or to declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by losing party as fixed by the court.

"Prevailing party" was not defined.

Intercontinental began selling Santa Clara lots to other buyers, and KB Home sued for breach of contract (among other theories) and sought specific performance, damages, injunctive relief, and attorney's fees.⁴ KB Home did not seek a declaratory judgment under the contract. At trial, KB Home sought only one type of actual damages: lost profits due to Intercontinental's alleged breach. Intercontinental counterclaimed, asserting that KB Home failed to honor an oral agreement to buy Santa Clara at a below-market price in exchange for an exclusive partner arrangement for future property acquisitions.

The jury found that Intercontinental breached the written contract but answered "0" on damages, though it did award KB Home $66,000 in attorney's fees.⁵ The jury rejected Intercontinental's oral-agreement claim and consequently did not answer the conditional question about Intercontinental's attorney's fees related to that claim. Both parties moved for judgment, claiming attorney's fees as the "prevailing party." The trial court sided with KB Home and signed a judgment in its favor for $66,000, concluding that KB Home "should recover its damages against [Intercontinental] as found by the jury. ..." The court of appeals affirmed.⁶

II. Is KB Home the Prevailing Party?

Under the American Rule, litigants' attorney's fees are recoverable only if authorized by statute or by a contract between the parties.⁷

A. Applicability of Chapter 38 to KB Home's Breach Claim

We first address the applicability of the discretionary attorney's-fees provision in Chapter 38 of the Civil Practice and Remedies Code.⁸ As seen here, the statutory and contract provisions are similar in general but dissimilar in particular:

---------------------------------------------------------------------
     THE CONTRACT CHAPTER 38
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If either party named              A person may recover
herein brings an action to         reasonable attorney's fees
enforce the terms of this          from an individual or corporation
Contract or to declare             in addition to the
rights hereunder, the prevailing   amount of a valid claim and
party ... shall be                 costs, if the claim is for 
entitled to his reasonable         an oral or written contract
attorney's fees to be paid
by losing party as fixed by
the court
---------------------------------------------------------------------

We held in Green International, Inc. v. Solis that before a party is entitled to fees under section 38.001, that "party must (1) prevail on a cause of action for which attorney's fees are recoverable, and (2) recover damages."⁹ If Green and Chapter 38 applied to this case, KB Home could not recover attorney's fees since it did not recover any damages. But Green, while instructive, is not controlling, nor is Chapter 38.

Parties are free to contract for a fee-recovery standard either looser or stricter than Chapter 38's, and they have done so here. As KB Home points out, Chapter 38 permits recovery of attorney's fees "in addition to the amount of a valid claim," while nothing in the contract expressly requires that a party receive any "amount" of damages. The triggering event under the contract is that a party prevail in an action "to enforce the terms of this Contract or to declare rights hereunder ...." True enough, but the question remains: what does "prevailing party" mean under the contract?

B. Attorney's Fees Under the Contract

The contract leaves "prevailing party" undefined, so we presume the parties intended the term's ordinary meaning.¹⁰ We have found the United States Supreme Court's analysis helpful in this area.¹¹ In Hewitt v. Helms, the Court was faced with the question of whether a plaintiff who obtained a favorable judicial pronouncement in the course of litigation, yet suffered a final judgment against him, could be a prevailing party.¹² Helms had sued several prison officials alleging a violation of his constitutional rights.¹³ The district court granted summary judgment against him on the merits of his claim, but the court of appeals reversed, holding that he had a valid constitutional claim.¹⁴ On remand, the district court still rendered summary judgment against him, finding that the defendants were shielded by qualified immunity.¹⁵ Helms then sought his attorney's fees, claiming that the court of appeals' decision made him the prevailing party.¹⁶ The Supreme Court disagreed, saying "[r]espect for ordinary language requires that a plaintiff receive at least some relief on the merits of his claim before he can be said to prevail."¹⁷ And since Helms did not obtain a damages award, injunctive or declaratory relief, or a consent decree or settlement in his favor, he was not a prevailing party.¹⁸ Five years later in Farrar v. Hobby, a federal civil-rights case, the Court elaborated:

[T]o qualify as a prevailing party, a ... plaintiff must obtain at least some relief on the merits of his claim. The plaintiff must obtain an enforceable judgment against the defendant from whom fees are sought, or comparable relief through a consent decree or settlement. Whatever relief the plaintiff secures must directly benefit him at the time of the judgment or settlement. Otherwise the judgment or settlement cannot be said to "affect the behavior of the defendant toward the plaintiff." Only under these circumstances can civil rights litigation effect "the material alteration of the legal relationship of the parties" and thereby transform the plaintiff into a prevailing party. In short, a plaintiff "prevails" when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff.¹⁹

The Court concluded that the plaintiff "prevailed" in Farrar because he was awarded one dollar in damages: "A judgment for damages in any amount, whether compensatory or nominal, modifies the defendant's behavior for the plaintiff's benefit by forcing the defendant to pay an amount of money he otherwise would not pay."²⁰ Farrar did not speak to whether a plaintiff awarded zero damages can claim prevailing-party status, but under the Farrar Court's analysis, a plaintiff who receives no judgment for damages or other relief has not prevailed.

The trial-court judgment in today's case recited the jury's finding that "[t]he sum of zero dollars would fairly and reasonably compensate KB" for its damages, if any, resulting from Intercontinental's breach, and that "[t]he sum of sixty-six thousand dollars and zero cents" constituted a reasonable fee for the necessary services of KB Home's attorneys. The judgment continued, however:

It appearing to the Court that, based upon the verdict of the jury, KB Home Lone Star should recover its damages against the International Group Partnership as found by the jury, and the Court so finds.

IT IS ACCORDINGLY ORDERED, ADJUDGED AND DECREED that KB Home Lone Star have and recover from the International Group Partnership judgment for the sum of sixty-six thousand dollars and zero cents ($66,000.00).²¹

The court erred in making that award. The jury answered "0" on damages, and KB Home sought no other type of relief, so the trial court should have rendered a take-nothing judgment against KB Home on its contract claim.²²

It seems beyond serious dispute that KB Home achieved no genuine success on its contract claim. Whether a party prevails turns on whether the party prevails upon the court to award it something, either monetary or equitable. KB Home got nothing except a jury finding that Intercontinental violated the contract. It recovered no damages; it secured no declaratory or injunctive relief; it obtained...