Velocity Press, Inc. v. Key Bank, N.A.

VELOCITY PRESS, INC., a Utah corporation, Plaintiff,

v. KEY BANK, N.A., Q.A.M., INC., a Virginia corporation dba SANDEN USA, INC.;Q.A.M. INTERNATIONAL, a Nevada corporation; ROBERT PITEL, an individual;DOUGLAS JUSTUS, an individual; DOE DEFENDANTS I through X, Defendants.

Case No. 2:09-CV-520 TS

UNITED STATES COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION

DATED December 17, 2012

MEMORANDUM DECISION AND

ORDER ON PLAINTIFF'S MOTION

FOR ATTORNEY FEES AND

RELATED NONTAXABLE

EXPENSES

This matter is before the Court on Plaintiff Velocity Press, Inc.'s Motion for Award of Attorney Fees and Related Nontaxable Expenses.

I. BACKGROUND

Plaintiff is a commercial printer that has specialized in web printing since January 2004. In 2006, Plaintiff began negotiating with Sanden Machine Limited ("Sanden") to purchase apress from Sanden. Plaintiff ultimately agreed to purchase the press and arranged financing through Defendant. Unbeknownst to Plaintiff, Defendant and Sanden made additional agreements in regards to the financing of the press which ultimately culminated in Sanden declaring bankruptcy and the press Plaintiff ordered not being built. Plaintiff filed suit against a number of parties, which eventually proceeded to a bench trial against Defendant. In its June 8, 2009, Complaint, Plaintiff brought claims for breach of fiduciary duty, and unjust enrichment. On February 24, 2010, Plaintiff amended its Complaint to include claims of breach of contract and breach of the implied covenant of good faith and fair dealing. On August 20, 2012, the Court issued its Findings of Fact and Conclusions of Law.¹ The Court made several conclusions that are relevant to the current Motions. First, the Court found that Defendant did not breach its contract with Plaintiff:

As Velocity made only one loan disbursement request, which was honored by KeyBank, KeyBank had no obligation under the contract to advance further funds until it received a request from Velocity. As Velocity made no such request, there was no obligation for disbursement and, therefore, there was no breach by KeyBank.²

However, even though the Court did not find a breach of any express contract terms, the Court did find that Defendant breached its implied covenant of good faith and fair dealing:

KeyBank did not have a contractual right 1) to renegotiate the Velocity/Sanden Contract without Velocity's knowledge or 2) to tell Sanden, after the Loan Agreement was completed, that a letter of credit needed to be in place before KeyBank would make the second progress payment. By doing so, KeyBank's actions were not consistent with the agreed common purpose of the LoanAgreement and Velocity's justified expectations. KeyBank's actions injured Velocity . . . . Therefore, the Court finds that KeyBank violated the implied covenant of good faith, thereby breaching the Loan Agreement.³

In addition to finding that Defendant breached its implied covenant of good faith and fair dealing, the Court found that Defendant breached its fiduciary duty to Plaintiff⁴ and that Defendant fraudulently induced Plaintiff to enter into the loan agreement.⁵ On September 24, 2012, the Court entered Judgment in favor of Plaintiff on its claims for breach of the covenant of good faith and fair dealing, fraud, and breach of fiduciary duty.⁶ On October 5, 2012, Plaintiff filed the Motion for Attorney Fees and Related Nontaxable Expenses at issue here.

II. DISCUSSION

Defendant opposes Plaintiff's Motion for Attorney Fees and Costs on several grounds. First, Defendant argues that Plaintiff is not entitled to attorney fees on its contractual claims because there is no contractual or statutory basis for the Court to award attorney fees. Second, Defendant argues that Utah law does not allow the Court to grant an award of attorney fees for a breach of fiduciary duty outside of the insurance context. Third, Defendant argues that some of the requested fees are unrelated to claims on which Plaintiff prevailed. Finally, Defendant argues that Plaintiff is not entitled to an award of costs because Plaintiff does not provide sufficient detail and support for the requested costs. These arguments will be considered in turn below.

A. STATUTORY FEES

Under Utah's reciprocal fee statute, Utah Code Ann. § 78B-5-826:

A court may award costs and attorney fees to either party that prevails in a civil action based upon any promissory note, written contract, or other writing . . . when the provisions of the promissory note, written contract, or other writing allow at least one party to recover attorney fees.

Defendant asserts that the applicable provision in the promissory note at issue in this case only allows for an award of attorney fees to Defendant in a collection action. Thus, applying the statute to the provision would only allow Plaintiff to recover attorney fees if it prevailed in a collection action brought by Defendant.

"[W]hen a contract creates 'an unequal exposure to the risk of contractual liability for attorney fees,' district courts may apply section 78B-5-826 to ensure that both parties are subject to the attorney fee provision."⁷ "The statute levels the playing field by allowing both parties to recover fees where only one party may assert such a right under contract, remedying the unequal allocation of litigation risks built into many contracts of adhesion."⁸ Under the statute, "courts should award fees liberally . . . where pursuing or defending an action results in an unequal exposure to the risk of contractual liability for attorney fees."⁹ The Court may award attorney fees "if two main conditions are met. First, the civil action must be based upon any promissorynote, written contract, or other writing. And second, the provisions of the promissory note, written contract, or other writing must allow at least one party to recover attorney fees."¹⁰

A straightforward reading of the statute and contract leads to the conclusion that attorney fees may be awarded here. The action was based upon a promissory note signed by the parties, and under the terms of that note Defendant was entitled to attorney fees if Plaintiff did not make payments. However, Defendant urges a narrow reading of the statute, arguing that reciprocal attorney fees can only be awarded under the terms of the contract. In this case, the contract stated that if Defendant incurred attorney fees or expenses in an attempt to collect on the note, Plaintiff would be responsible for those fees.¹¹ Defendant argues that the statute only operates to award Plaintiff attorney fees if Plaintiff prevails in a collection action brought by Defendant. Thus, under Defendant's argument, the statute does not apply here, where Plaintiff prevailed under a breach of contract theory, but where there was no default of payment or collection action.

Defendant's argument is supported in dicta by PC Crane Service, LLC v. McQueen Masonry, Inc.¹² The court found that although a request for fees under Utah Code Ann. § 78B-5-826 was not properly before it on appeal, nothing in "previous case law, or the statute itself permits a party to recover fees beyond those provided for by the contract's terms."¹³ The court reasoned as follows:

The statute does not create an independent right to a fee award that the contract's attorney fee provision would not allow to either party simply because the fee provision is one-sided. Because we have previously decided that neither the notes nor the deed of trust provide for an award of attorney fees in the absence of a default, we decline to accept, on the same basis, McQueen's claim that it is entitled to fees under the statute . . . .¹⁴

Defendant urges the Court to adopt the reasoning of the Utah Court of Appeals, and find that in the absence of default, there can be no award of attorneys fees.

Plaintiff urges a broader reading of the statute, arguing that in order for the statute to "level the playing field" and remedy "the unequal allocation of litigation risks built into many contracts of adhesion,"¹⁵ it must award attorney fees to the Plaintiff if it prevails on a breach of contract claim, instead of just if Plaintiff prevails when Defendant brings a collection action. Since the only way that Plaintiff can breach the contractual terms of the promissory note would be to not pay, the contract in effect gives Defendant the right to attorney fees in any suit it brought for breach of contract. Plaintiff would interpret the statute to give it the same right.

Plaintiff's reading of the statute also draws support from Utah case law. In Dejavue, Inc. v. U.S. Energy Corp., a sublease agreement provided that "in the event of default by [plaintiff], [defendant] shall have the right to recover reasonable attorney fees."¹⁶ The court found that even though the underlying contract only provided for attorney fees in a collection action for the plaintiff's default, under the statute the plaintiff was "clearly entitled to an award of attorney fees if it indeed prevailed on either its own breach of contract claim, or in defending against U.S.Energy's breach of contract counterclaim."¹⁷ The court kept with its policy of awarding fees liberally and leveled the playing field. If one party was entitled to attorneys fees in the case of breach, the other party should be as well, even if the contractual wording used the word default instead of breach.

The Utah Supreme Court has given further guidance in applying this statute. When considering a case in which only one party was a party to the original contract, the court adopted a hypothetical framework under which the court evaluates "the question whether the contract allows at least one party to recover attorney fees under a hypothetical alternative in which the case was resolved the other way."¹⁸ In Hooban, the court awarded attorneys fees even though the losing party was not a party to the contract because, if the case had been decided the other way and the losing party prevailed, it would have acceded to...