Paclik v. Ciy Foods, Inc.

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PENNY PACLIK, Plaintiff, v. CIY FOODS, INC. and FRANK JACKMAN, Defendants.

No. 4:23-CV-04131-KES

United States District Court, D. South Dakota, Southern Division

July 29, 2024

ORDER GRANTING IN PART AND DENYING IN PART PACLIK'S MOTION FOR ATTORNEY'S FEES

KAREN E. SCHREIER UNITED STATES DISTRICT JUDGE.

BACKGROUND

The clerk of courts entered a default judgment in favor of plaintiff, Penny Paclik. Docket 8 at 1. Paclik then moved for attorney's fees and taxes but did not supply sufficient details for the court to decide on the motion. Docket 13 at 1. This court then issued an order for more information regarding the number of hours worked, rates charged, and evidence relevant to a finding of reasonable fees. Docket 16 at 4. Paclik provided a Supplemental Brief in Support of Motion for Attorney's Fees and two affidavits from Lisa Prostrollo and Pamela Reiter. Dockets 17-19. After reviewing the submitted materials, the court issues the following order.

DISCUSSION

Federal Rule of Civil Procedure 54(d)(2) provides that “[a] claim for attorney's fees and related nontaxable expenses must be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages.” Fed.R.Civ.P. 54(d)(2). “State law governs the availability of attorney fees in diversity cases where no conflicting federal statute or court rule applies.” Ryan Data Exch., Ltd. v. Graco Inc., 913 F.3d 726, 735 (8th Cir. 2019) (quoting Burlington N. R.R. Co. v. Farmers Union Oil Co. of Rolla, 207 F.3d 526, 534 (8th Cir. 2000)) (cleaned up). Under South Dakota law, “attorney fees may only be awarded by contract or when explicitly authorized by statute.” In re Estate of O'Keefe, 583 N.W.2d 138, 142 (S.D. 1998) (quoting Schuldies v Miller, 555 N.W.2d 90, 100 (S.D. 1996)). “[E]ven if no statute authorizes an award of attorneys' fees ‘they are recoverable if the parties' contract so provides.' ” Arrowhead Ridge I, LLC v. Cold Stone Creamery, Inc., 800 N.W.2d 730, 737 (S.D. 2011) (quoting Credit Collection Servs., Inc. v. Pesicka 721 N.W.2d 474, 477 (S.D. 2006)). Under South Dakota law, attorney's fees must be reasonable. In re S.D. Microsoft Antitrust Litig., 707 N.W.2d 85, 98-99 (S.D. 2005). “The party requesting an award of attorneys' fees has the burden to show its basis by a preponderance of the evidence.” Arrowhead Ridge I, 800 N.W.2d at 737.

Here, the clerk of courts entered default judgment in favor of Paclik based on a contract between Paclik and defendants. See Docket 12; Docket 16 at 2. This contract specifies “[i]f any payment obligation under the Note is not paid when due, the borrower promises to pay all costs of collection, including reasonable attorney fees, whether or not a lawsuit is commenced as part of the collection process.” Docket 1-1 at 1. The contract also provides that the “Note shall be construed in accordance with the laws of the State of Minnesota.” Id. at 2.

The first issue the court must address is whether all of Paclik's requested attorney's fees fall under the agreement. Second, the court must also ensure that the attorney's fees recoverable under the contract are nonetheless still reasonable under South Dakota law.

I. Whether the Requested Fees Fall Under the Contract

To determine whether the fees requested by Paclik fall under the agreement, the court divides the hours requested into two categories: fees-for-fees, and time spent on default judgment. Paclik seeks to recover 7.2 hours spent preparing its motion for attorney's fees, commonly referred to as “fees-for-fees.” See State ex rel. Steffen v. Peterson, 607 N.W.2d 262, 273 (S.D. 2000) (explaining fees-for-fees involve “[a]ctions for attorney fees incurred in obtaining attorney fees for an underlying action”); see also Docket 18-1 (3.7 hours); Docket 18-2 (3.5 hours). As for the time spent on the default judgment, Paclik's counsel conducted: “pre-litigation investigation and review; informal settlement attempts; researching applicable substantive Minnesota law; researching applicable Minnesota procedural law for serving process on Minnesota residents and entities; drafting and filing the pleadings; arranging for service of process; drafting the necessary options and supporting documents for entry of default, default judgment[.]” Docket 18 at 2-3.

A. Fees-for-Fees

To determine whether Paclik can recover fees-for-fees, the court must interpret the relevant contract provision that provides for the borrower's “promise[] to pay all costs of collection, including reasonable attorney fees.”

Docket 1-1 at 1. Put differently, the issue here is whether the phrase “borrower promises to pay all costs of collection, including reasonable attorney's fees” includes not just the fees associated with the underlying motion for default judgment, but also the fees associated with obtaining attorney's fees.

The Eighth Circuit has recognized that “[f]ederal courts sitting in diversity apply the choice-of-law rules of the forum state.” Cicle v. Chase Bank USA, 583 F.3d 549, 553 (8th Cir. 2009). South Dakota courts honor contractual choice-of-law provisions unless they contravene South Dakota public policy. See Dunes Hosp., LLC v. Country Kitchen Int'l, Inc., 623 N.W.2d 484, 488 (S.D. 2001). Here, the agreement provides that the “Note shall be construed in accordance with the laws of the State of Minnesota.” Docket 1-1 at 2. Nothing about this agreement contravenes South Dakota public policy because South Dakota law and Minnesota's contract interpretation principles are identical. Compare Storms, Inc. v. Mathy Constr. Co., 883 N.W.2d 772, 776 (Minn. 2016), with Powers v. Powers, 974 N.W.2d 706, 713 (S.D. 2022). Thus, the contract will be interpreted under Minnesota law and the court will apply Minnesota's contract interpretation principles. See Dunes Hosp., 623 N.W.2d at 488.

Minnesota courts “look to the language of the contract to determine the parties' intent.” Storms, 883 N.W.2d at 776. “The primary goal of contract interpretation is to determine and enforce the intent of the parties.” Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267, 271 (Minn. 2004). To discern intent, “[the court] look[s] to the language of the contract as a whole, harmonizing all of its clauses.” Sawmill Golf Club, Inc. v. Ramsden, 2023 WL 3580602, at *2 (Minn.Ct.App. 2023). “[The court is] to interpret a contract in such a way as to give meaning to all of its provisions.” Brookfield Trade Center, Inc. v. Cnty. of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998). “[W]hen a contractual provision is clear and unambiguous, courts should not rewrite, modify, or limit its effect by a strained construction.” Valspar Refinish, Inc. v. Gaylord's, Inc., 764 N.W.2d 359, 364-65 (Minn. 2009).

Here, the contract provides that the “borrower promises to pay all costs of collection, including reasonable attorney fees[.]” Docket 1-1 at 1. The phrase “of collection” cabins the scope of “all costs,” by clarifying that the costs must relate to the collection of the amount the borrower owes. See id. The court must give full effect to the phrase “of collection” because otherwise, the phrase “of collection” would be meaningless and Minnesota courts “attempt to avoid an interpretation of the contract that would render a provision meaningless.” See Harkins v. Grant Park Ass'n, 972 N.W.2d 381, 387 (Minn. 2022). The phrase “of collection” makes all the difference here because of its allusion to the underlying loan agreement between parties. The breach of contract at issue resulting in the default judgment in this case was directly related to this loan agreement. Docket 1. In looking at the language of the loan agreement, the document provides the procedures for payment of the loan, identifies what constitutes a default, and articulates what the remedy would be in the event that a default occurs. Docket 1-1 at 1-2. These subsections indicate that the focus of the loan agreement is to create a procedure for collecting payments, and what to do if payments are not made. Id. Thus, in context, costs “of collection” refer to the costs of collecting payment for the loan.

Time spent calculating and litigating the attorney's fees in relation to the breach of contract is not a cost “of collection.” The fees-for-fees in this case are not aimed at collecting the amount that the borrower owes in the event of breach and are not included under the terms of the loan agreement. As a result, the plain language of the parties' contract does not encompass fees-for-fees. To allow collection of fees-for-fees would inappropriately “modify” the contract. See Travertine Corp., 683 N.W.2d at 271. Thus, the court finds Paclik is not entitled to collecting such fees, and the court excludes fees Paclik requests for time spent litigating the attorney's fees motion.

Comparing the language in this contract with language in other contracts confirms this result. For example, in Waverly at Las Olas Condo. Ass'n, Inc. v. Waverly Las Olas LLC, the court confronted a contract that provided an award of fees for “any litigation between the parties under this Agreement.” 88 So.3d 386, 387 (Fla. Dist. Ct. App. 2012) (emphasis added). The court noted that the prevailing assumption in Florida courts is to limit an attorney's fees award to time spent in litigating the entitlement to, but not the amount of, fees incurred. Id. at 389. The court further explained that the language of “any litigation” within the contractual provision was “broad enough to encompass fees incurred in litigating the amount of fees.” Id. Unlike in Waverly, the contract in this instant case does not provide for the recovery of fees for “any litigation” but rather for “all costs of collection.” See id.; see also Docket 1-1 at 1. As discussed above, the phrase “of...