NCJC, Inc. v. WMG, L.C.

960 N.W.2d 58

NCJC, INC., Appellee,

v.WMG, L.C., Appellant.

No. 19-0241

Supreme Court of Iowa.

Submitted February 17, 2021

Filed May 28, 2021

Thomas W. Lipps (argued) of Peterson & Lipps, Algona, for appellant.

Wesley T. Graham of Duncan Green, P.C., Des Moines, and Philip J. Kaplan (argued) of Anthony Ostlund Baer & Louwagie, P.A., Minneapolis, Minnesota, for appellee.

Waterman, J., delivered the opinion of the court, in which Christensen, C.J., and Mansfield, McDonald, Oxley, and McDermott, JJ., joined. Appel, J., filed an opinion concurring in part and dissenting in part.

WATERMAN, Justice.

In this appeal from rulings on cross-motions for attorney fees in a contract dispute, we must decide three legal issues: (1) who is "the prevailing party"; (2) whether Iowa Code section 625.25 (2017) precludes a fee award when the presuit demand for unliquidated damages greatly exceeded the jury verdict; and (3) whether a rejected offer to confess judgment precludes recovery of the plaintiff's postoffer contractual attorney fees by operation of Iowa Code section 677.10. The parties litigated claims over the breach of a farm lease that entitled "the prevailing party" to recover reasonable attorney fees. The plaintiff's presuit demand was $190,564. The defendant offered to confess judgment for $75,000 before trial, which the plaintiff rejected. The district court granted the defendant's motion for partial summary judgment, the case proceeded to trial on the remaining count, and the jury awarded the plaintiff $41,453.57. Both sides sought attorney fees. The district court ruled the plaintiff alone was the prevailing party entitled to fees and that neither statute barred the fee award. The court of appeals reversed in part, holding that the plaintiff recovering less than the amount of the offer to confess cannot recover postoffer attorney fees that are expressly taxed as costs under section 625.22. Both sides applied for further review, which we granted.

On our review, we affirm the ruling that the plaintiff alone is the prevailing party and the defendant is entitled to no fees. We determine that the district court did not abuse its discretion in finding the plaintiff complied with section 625.25. We read sections 625.22 and 677.10 together to hold that prevailing-party contractual attorney fees are considered "costs" when determining the effect of an offer to confess judgment. When, as here, the plaintiff recovers less at trial than the amount of the offer, the statute bars recovery of its attorney fees incurred after the rejected offer to confess. This furthers the purpose of section 677.10 : to encourage settlements. We affirm the court of appeals decision and remand the case to the district court to reduce the fee award consistent with this opinion.

I. Background Facts and Proceedings.

On February 24, 2012, WMG, L.C., as landlord, and NCJC, Inc., as tenant, executed a commercial lease of 600 acres of farmland in Kossuth County for annual cash rent of $136,449.70.¹ The one-year lease term ran to February 28, 2013, but would automatically renew absent written notice of termination. The lease provided that if it was not renewed, WMG would reimburse NCJC for the remaining benefits of fertilizer NCJC had previously applied to the land. The lease gave a right of first refusal to NCJC to purchase the leased land. And Section 20 of the lease provided, "If either party files suit to enforce any of the terms of this Lease, the prevailing party shall be entitled to recover court costs and reasonable attorney's fees."

On March 1, 2017, WMG terminated the lease. WMG refused NCJC's demands for reimbursement for fertilizer it had previously applied. WMG distributed several parcels of the farmland to WMG members without allowing NCJC to exercise its right of first refusal. NCJC demanded $190,564 in reimbursement for fertilizer, an amount that exceeded the annual cash rent for the farmland. WMG rejected that demand as excessive.

On March 31, NCJC filed suit against WMG, alleging breach of contract. Count I sought recovery for WMG's failure to reimburse for fertilizer NCJC had applied. Count II alleged WMG's failure to allow NCJC to exercise its right of first refusal and sought specific performance. NCJC demanded payment of its attorney fees under Section 20 of the lease. WMG filed an answer, alleging that the right of first refusal expired when the lease was terminated and that NCJC had failed to provide support for its reimbursement claims. WMG counterclaimed for slander of title; on October 12, the district court dismissed the counterclaim.

On November 1, WMG moved for summary judgment on count II; NCJC resisted. On November 17, WMG filed its offer to confess judgment in the amount of $75,000, which NCJC rejected. On February 28, 2018, the district court granted summary judgment in favor of WMG dismissing count II, ruling that "WMG's distribution of the Real Estate to the Members [was not] a sale triggering NCJC's right of first refusal."

The case proceeded to trial on count I. On May 9, the jury returned a verdict in favor of NCJC, finding that WMG breached the lease agreement by failing to reimburse input costs and awarding $41,453.57 in damages. The parties filed cross-motions for attorney fees and costs. Each side claimed to be a prevailing party entitled to attorney fees under Section 20 of the lease. The district court ruled that NCJC alone was the prevailing party for purposes of the contractual fee award, and declined to award WMG any attorney fees. The district court rejected WMG's contention that NCJC failed to comply with Iowa Code section 625.25, which in certain cases requires a presuit "reasonable opportunity to pay the debt" before allowing attorney fees. The district court also rejected WMG's argument that Iowa Code section 677.10 precluded attorney fees incurred after NCJC rejected its offer to confess judgment. Finally, the district court evaluated what amount to award NCJC as a reasonable attorney fee, and awarded $55,000, just under half of the $107,484.50 in fees sought.

WMG appealed, and we transferred the case to the court of appeals, which affirmed in part and reversed in part. The court of appeals concluded that NCJC was the prevailing party and affirmed the district court's ruling denying any fee award to WMG. The court of appeals affirmed the ruling that NCJC complied with Iowa Code section 625.25. The court of appeals reversed the award of attorney fees to NCJC incurred after WMG's offer to confess judgment, holding that attorney fees are included as costs under sections 625.22 and 677.10. Both parties applied for further review, which we granted.

II. Scope and Standard of Review.

"We review the court's award of attorney fees for an abuse of discretion." Boyle v. Alum-Line, Inc. , 773 N.W.2d 829, 832 (Iowa 2009) (per curiam). "Reversal is warranted only when the court rests its discretionary ruling on grounds that are clearly unreasonable or untenable." Id. (quoting Gabelmann v. NFO, Inc. , 606 N.W.2d 339, 342 (Iowa 2000) ). "[M]isapplication of the statute constitutes an abuse of discretion." Gabelmann , 606 N.W.2d at 344.

"A review of statutory construction is at law." De Stefano v. Apts. Downtown, Inc. , 879 N.W.2d 155, 164 (Iowa 2016) (quoting GE Money Bank v. Morales , 773 N.W.2d 533, 536 (Iowa 2009) ); see also Harris v. Olson , 558 N.W.2d 408, 409 (Iowa 1997) (reviewing the district court's interpretation of Iowa Code chapter 677 for the correction of errors at law).

III. Analysis.

"Iowa follows the American rule: ‘the losing litigant does not normally pay the victor's attorney's fees.’ " Guardianship & Conservatorship of Radda v. Wash. State Bank , 955 N.W.2d 203, 214 (Iowa 2021) (quoting Thornton v. Am. Interstate Ins. , 897 N.W.2d 445, 474 (Iowa 2017) ). "Generally, attorney fees are recoverable only by statute or under a contract." Id. (quoting Thornton , 897 N.W.2d at 474 ). This appeal involves no underlying fee-shifting statute and both sides seek their attorney fees pursuant to Section 20 of their lease agreement, which provides, "If either party files suit to enforce any of the terms of this Lease, the prevailing party shall be entitled to recover court costs and reasonable attorney's fees."

We have three issues to decide: First, who is the prevailing party? Second, did the district court abuse its discretion in finding that NCJC complied with Iowa Code section 625.25 ? Third, does the term "costs" in Iowa Code section 677.10 include contractual attorney fees taxed as costs under section 622.22? We address each issue in turn.

A. WMG Is Not the Prevailing Party. In the posttrial motions for attorney fees, each party argued that it was the "prevailing party." Their lease entitles "the prevailing party"—singular—to reasonable attorney fees. There is only one prevailing party here. WMG argues that it prevailed because NCJC recovered far less at trial than its first demand of $190,564 and the district court granted WMG's motion for partial summary judgment dismissing count II. WMG further argues it is the prevailing party in the phase of litigation after NCJC rejected its $75,000 offer to confess judgment, because the jury awarded a lower amount. The district court and court of appeals determined that NCJC alone was the prevailing party because it recovered $41,453 from WMG in the judgment on the jury verdict for fertilizer.

We agree with the district court and court of appeals that NCJC alone is the prevailing party based on its recovery of a money judgment against WMG. See Lee v. State , 874 N.W.2d 631, 645 (Iowa 2016) ("[B]ecause ‘the prevailing party inquiry does not turn on the magnitude of the relief obtained,’ even an award of nominal damages confers eligibility to receive an attorney fee award under that standard." (quoting Farrar v. Hobby , 506 U.S. 103, 113–14, 113 S. Ct. 566, 574, 121 L.Ed.2d 494 (1992) )). "Generally speaking, ‘status as a prevailing party is determined on the outcome of the case as...