Summary
applying the less stringent Rule 54(b) standard to the reconsideration of an interlocutory order
Summary of this case from Franklin v. N. Cent. Narcotics Task ForceOpinion
Civil Action No. 3:00-CV-0800-BH
January 31, 2003
MEMORANDUM OPINION AND ORDER
Pursuant to the Order of the District Court dated October 22, 2002, this matter has been transferred to this Court for the conduct of all further proceedings and entry of judgment in accordance with 28 U.S.C. § 636(c). The following pleadings are presently before this Court:
1. Plaintiff Century Product Company's Brief and Supporting Evidence Regarding its Necessary and Reasonable Attorneys' Fees and Costs, filed January 7, 2002;
2. Plaintiff Century Product Company's Amended Brief and Supporting Evidence Regarding its Necessary and Reasonable Attorneys' Fees and Costs, filed January 8, 2002;
3. Appendix to Plaintiff Century Product Company's Brief and Supporting Evidence Regarding its Necessary and Reasonable Attorneys' Fees and Costs, filed January 8, 2002;
4. Cosco, Inc.'s Brief and Supporting Evidence in Response to Century Product Company's Brief and Evidence Regarding Necessary and Reasonable Attorneys Fees and Costs, filed January 28, 2002;
5. Appendix to Cosco, Inc.'s Brief and Supporting Evidence in Response to Century Product Company's Brief and Evidence Regarding Necessary and Reasonable Attorneys' Fees and Costs, filed January 28, 2002;
6. Century Product Company's Reply to Cosco, Inc.'s Brief in Response to Century Product Company's Amended Brief Regarding its Necessary and Reasonable Attorneys' Fees and Costs, filed February 26, 2002;
7. Century Product Company's Supplemental Brief Regarding Attorneys' Fees and Costs, filed July 12, 2002;
8. Cosco, Inc.'s Brief Regarding Recovery of Attorney's Fees under the Asset Purchase Agreement, filed July 12, 2002;
9. Century Product Company's Supplemental Brief Regarding Recovery of Attorneys' Fees in this Litigation, filed July 23, 2002;
10. Cosco, Inc.'s Second Motion for Reconsideration of March 15, 2001 Partial Judgment, filed August 8, 2002;
11. Cosco, Inc.'s Supplemental Brief Regarding Recovery of Attorneys' Fees in this Litigation, filed August 12, 2002;
12. Century Product Company's Response to Cosco's Supplemental Brief Regarding Recovery of Attorneys' Fees in this Litigation, filed August 22, 2002;
13. Century Product Company's Response to Cosco, Inc.'s Second Motion for Reconsideration of March 15, 2001 Partial Summary Judgment and Brief in Support Thereof, filed August 26, 2002;
14. Appendix to Century Product Company's Response to Cosco, Inc.'s Second Motion for Reconsideration of March 15, 2001 Partial Summary Judgment and Brief in Support Thereof, filed August 26, 2002;
15. Century Product Company's Motion for Leave to Amend Complaint, originally filed July 24, 2001, and re-asserted in its Response to Cosco, Inc.'s Second Motion for Reconsideration, filed August 26, 2002;
16. Cosco Inc.'s Reply to Century Product Company's Response to Cosco's Second Motion for Reconsideration, filed September 10, 2002; and
17. Cosco Inc.'s Reply to Century's Response to Cosco's Supplemental Brief Regarding Recovery of Attorneys' Fees in this Litigation, filed September 11, 2002.
Having reviewed the pertinent pleadings and the evidence submitted therewith, the Court finds that Cosco, Inc.'s Second Motion for Reconsideration of March 15, 2001 Partial Judgment should be DENIED, that Century Product Company's request for an award of attorneys' fees for its defense of the Todtenbier claim should be GRANTED, that Century Product Company's request for an award of attorneys' fees for the prosecution of the declaratory judgment action should be DENIED, and that Century Product Company's Motion for Leave to Amend Complaint should be DENIED.
I. BACKGROUND
A. Factual History
In August 1998, Century Products Company ("Century") and Cosco, Inc. ("Cosco") entered into an asset purchase agreement ("APA") whereby Cosco purchased substantially all of the assets of Okla Homer Smith Manufacturing Company ("OHS"), a division of Century. (Appendix to Century's Response to Cosco's Second M. for Reconsideration, Exhibit C.) Under the APA, Cosco expressly assumed all liabilities and obligations of OHS relating to injury, death, or damage to persons or property resulting from the ownership, possession, or use of products sold or manufactured by OHS that arose prior to the contract's closing date, except for certain retained liabilities identified in the APA. Id. at 9, § 3.1(d).
Century failed to disclose to Cosco a claim which arose prior to the August 1998 closing date, involving a chest of drawers manufactured by OHS, which fell on and killed a child (the "Todtenbier Claim"). (Mem. Order of Mar. 15, 2001, at 6.) When the parents of the child filed a products liability suit against Century in June 1999, Century demanded that Cosco assume the defense of the Todtenbier Claim and indemnify Century for any judgment rendered against Century or any reasonable settlement reached in connection with the Todtenbier Claim. Id. at 7-8. Because the Todtenbier Claim was not listed as a retained liability in the APA, Century claimed it was an assumed liability of Cosco. Id. at 8. Cosco refused to assume Century's defense or to indemnify Century based on the failure to disclose. Id.
B. Procedural History
On March 20, 2000, Century filed its petition for declaratory judgment with a Dallas County district court, seeking a declaration that Cosco was obligated to indemnify Century for any and all liabilities arising from the Todtenbier Claim pursuant to the terms of the APA. (Pet. for Decl. J. at 5.) Century also sought an award of attorneys' fees incurred in both the defense of the Todtenbier Claim and the prosecution of the declaratory judgment action. Id. On April 17, 2000, Cosco removed the case to federal court on the basis of diversity jurisdiction. (Def.'s Notice of Removal.) Thereafter, Cosco asserted the affirmative defense of fraud as well as counterclaims for fraud, breach of contract, and negligent misrepresentation. (Def.'s Orig. Answer ¶¶ 17-18.)
On November 27, 2000, Century moved for summary judgment on its declaratory judgment claim and on Cosco's counterclaims. (Mot. for Summ. J. at 1.) In December 2000, Century settled the Totenbier Claim. (Mem. Op. and Order of Dec. 6, 2001, at 2 n. 2.) On March 15, 2001, the District Court granted partial summary judgment to Century on its declaratory judgment claim and on Cosco's breach of contract and fraud counterclaims. (Partial J. at 1.) Only Cosco's counterclaim for negligent misrepresentation remained for trial. On April 13, 2001, Cosco filed a Motion for Reconsideration of Partial Judgment Order of March 29, 2001, which the District Court denied on July 17, 2001.
Pursuant to the parties' consent, the case was reassigned to a United States Magistrate Judge for resolution of the one remaining issue. (Partial J. at 2.) The matter was set for trial on October 29, 2001. On July 24, 2001, Century filed a Motion for Leave to File Amended Complaint, seeking to assert a breach of contract claim for monetary damages measured by the amounts expended by Century in defense of the Todtenbier Claim and in the prosecution of the declaratory judgment action. (Mot. for Leave to File Am. Compl. at 1-2.) The Court denied the motion, reasoning that it was futile because Century's complaint contained a request for attorneys' fees pursuant to Tex. Civ. Prac. Rem. Code § 37.009. (Order of Aug. 20, 2001, at 3-4.) On October 4, 2001, Century filed a Motion for Leave to file a Second Motion for Summary Judgment on Cosco's remaining counterclaim for negligent misrepresentation, which the Court granted on October 29, 2001. Century filed its Second Motion for Summary Judgment on October 29, 2001.
On December 6, 2001, the Court granted Century's Second Motion for Summary Judgment and ordered that Century recover its costs and attorneys' fees for defending against the Todtenbier Claim and in prosecuting the declaratory judgment action. (Mem. Op. and Order of December 6, 2001, at 9-10.) Century was ordered to submit a brief and supporting evidence regarding its necessary and reasonable attorneys' fees within thirty days. Id. Though the December 6, 2001 Order disposed of the only remaining claim, and the case was closed by the District Clerk on December 6, 2001, a Rule 58 final judgment was not entered.
On January 7, 2002, Century filed a Brief and Supporting Evidence Regarding its Necessary and Reasonable Attorneys' Fees, detailing the fees and costs incurred in defending the Todtenbier claim and in prosecuting the declaratory judgment action. Cosco filed a Brief and Supporting Evidence in Response on January 28, 2002, and Century filed a Reply on February 26, 2002. The case was transferred back to the District Court on May 15, 2002, following the Magistrate Judge's appointment to the position of United States Attorney. On May 17, 2002, the District Court referred the case to a second United States Magistrate Judge for recommendation on the issue of attorneys' fees. (Order of Reference of May 17, 2002.)
After review of the briefs and applicable case law, the Court issued an order stating that it questioned whether Century was entitled to attorneys' fees under the Texas Declaratory Judgment Act and the indemnity provision of the APA. (Order of June 3, 2002.) Finding that the issue of attorneys' fees under the Texas Declaratory Judgment Act had been adequately briefed, the Court requested further briefing on the issue of whether Century was entitled to recover attorneys' fees incurred in defense of the Todtenbier claim. Id. In a footnote, the Order directed the parties to brief the issues of (1) whether the express negligence doctrine was applicable to the APA with respect to the recovery of attorneys' fees and (2) whether Texas or New York law governed. Id. Both parties filed extensive supplemental briefing in response to the Court's Order. Subsequently, on August 8, 2002, Cosco filed its Second Motion for Reconsideration of March 15, 2001 Partial Judgment with the District Court based on the alleged applicability of the express negligence doctrine. Cosco's motion alleged that because the APA failed to clearly express Century's intent to seek indemnity for its own negligence or strict product liability, it was not required to indemnify Century for the Todtenbier Claim.
The express negligence doctrine provides that "a party seeking indemnity from the consequences of that party's own negligence must express that intent in specific terms within the four corners of the contract" Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993).
The parties are in agreement that Texas law is applicable to interpret the APA. (Tr. at 29-30.) Accordingly, the Court will not address the choice of law issue.
By Order dated September 11, 2002, the case was transferred from the second Magistrate Judge to the undersigned Magistrate Judge for recommendation on the issue of attorneys' fees. On October 22, 2002, after receiving the consent of the parties, the District Court transferred the case to the undersigned Magistrate Judge for the conduct of all further proceedings and entry of judgment in accordance with 28 U.S.C. § 636(c). A hearing on all pending matters was held on the record on December 11, 2002.
II. COSCO'S SECOND MOTION FOR RECONSIDERATION OF MARCH 15, 2001 PARTIAL JUDGMENT
A. Applicable Standard for Reconsideration
By its August 8, 2002 Second Motion for Reconsideration, Cosco seeks to have this Court reconsider the District Court's March 15, 2001 Partial Judgment on the basis of a previously unasserted legal theory. Rule 54(b) of the Federal Rules of Civil Procedure provides, in relevant part, that an
order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all claims and the rights and liabilities of all the parties.
Thus, a court may reconsider an interlocutory order at any time before the entry of final judgment pursuant to Rule 54(b). Matagorda Ventures, Inc. v. Travelers Lloyds Ins. Co., 208 F. Supp.2d 687, 688 (S.D. Tex. 2001). Because a partial summary judgment is interlocutory in nature, review of such a judgment is within the court's discretion. Calpetco 1981 v. Marshall Exploration, Inc., 989 F.2d 1408, 1414 (5th Cir. 1993). The March 15, 2001 Partial Judgment is clearly an interlocutory order, which may be reconsidered prior to entry of final judgment, under Rule 54(b).
By the time the Second Motion for Reconsideration was filed on August 8, 2002, however, all remaining claims of all parties (except attorneys' fees) had been resolved by the December 6, 2001 Memorandum Opinion and Order. A judgment is final if it conclusively determines the rights of the parties and all that remains for the court is to execute the order or resolve collateral issues. Ludgood v. Apex Marine Corp. Ship Mgmt., 311 F.3d 364, 368 (5th Cir. 2002) (citations omitted). Generally, an unresolved issue of attorneys' fees is collateral and does not prevent judgment on the merits from being final. Budinich v. Becton Dickinson and Co., 486 U.S. 196, 200-02 (1988); Deus v. Allstate Ins. Co., 15 F.3d 506, 521 (5th Cir. 1994). Given that all claims, rights, and liabilities of all parties had been adjudicated on the merits and the case was closed by the District Clerk, it appears that the court intended to enter a final judgment. Nevertheless, Rule 58 of the Federal Rules of Civil Procedure requires that "[e]very judgment shall be set forth on a separate document" and that "the judgment is effective only when so set forth." The sole purpose of Rule 58's separate document requirement is to clarify when the time for an appeal begins to run, thus preventing uncertainty over what actions constitute an entry of judgment and prejudice to litigants as a result of any uncertainty. Ludgood, 311 F.3d at 368.
Because no Rule 58 final judgment was entered in this case despite resolution of all issues on the merits and closure of the case, this Court concludes that the applicable standard for reconsideration of this case is the less stringent Rule 54(b) standard, rather than the Rule 60(b) standard applicable to final judgments. See Gridley v. Cleveland Pneumatic Co., 127 F.R.D. 102, 104 (M.D. Pa. 1989) (noting that the Rule 54(b) standard for reconsideration of interlocutory orders is less stringent than the Rule 60(b) standard for post-judgment reconsideration); cf. Acme Printing Ink Co. v. Menard, Inc., 891 F. Supp. 1289, 1295 (E.D. Wis. 1995) (finding that a motion to reconsider an interlocutory order is not subject to same restrictions as Rule 60(b) motion to reconsider final judgment).
B. Rule 54(b) Standard for Reconsideration of Interlocutory Orders
A court "has the inherent power to modify, vacate, or set aside interlocutory orders when the interests of justice require and will `often accept such motions in the interest of substantial justice.'" Group Dealer Serv., Inc. v. Southwestern Bell Mobile Sys., 2001 WL 1910565, at *3 (W.D. Tex. Sept. 19, 2001) (citing FED. R. Civ. P. 54(b) and Baustian v. Louisiana, 929 F. Supp. 980, 981 (E.D. La. 1996) (noting that courts often accept motions for reconsideration of judgments "as being in the interest of substantial justice")). Motions for reconsideration have a narrow purpose and are only appropriate to allow a party to correct manifest errors of law or fact or to present newly discovered evidence. Texas Instruments, Inc. v. Hyundai Elec. Indus., Co., 50 F. Supp.2d 619, 621 (E.D. Tex. 1999) (citations omitted); cf. California v. Summer Del Caribe, Inc., 821 F. Supp. 574, 577 (N.D. Cal. 1993) (finding that reconsideration of an interlocutory order may be justified "on the basis of an intervening change in the law, or the need to correct a clear error or prevent manifest injustice"). Reconsideration has been permitted in cases where new evidence was discovered or where there was a change in the law. See Acme Printing Ink Co., 891 F. Supp. at 1295 (granting reconsideration where case had remained pending before court for several years, and in the interim, new evidence was discovered and case law changed); Summer Del Caribe, Inc., 821 F. Supp. at 574, 578 (granting reconsideration where the court's ruling on an issue was inconsistent with decisions of other courts addressing same issue as well as with Congressional intent); Gridley, 127 F.R.D. at 103-104 (granting reconsideration on basis of newly discovered evidence). A ruling should only be reconsidered where the moving party presents substantial reasons for requesting reconsideration. Baustian, 929 F. Supp. at 981; Louisiana v. Sprint Communications Co., 899 F. Supp. 282, 284 (M.D. La. 1995).
See also Acme Printing Ink Co., 891 F. Supp. at 1295 (noting that a motion to reconsider an interlocutory order may be entertained and granted as justice requires); Gridley, 127 F.R.D. at 103-104 (combining "consonant with equity" standard in John Simmons Co. v. Grier Bro. Co., 258 U.S. 82, 88-91 (1922) with Rule 60(b) pre-amendment requirements of mistake, inadvertence, surprise, and excusable neglect).
In this case, Cosco does not seek reconsideration of the District Court's March 15, 2001 Partial Judgment on the basis of new evidence or a manifest error of law or fact. Rather, Cosco seeks to advance a new legal theory. At the hearing, Cosco conceded that the facts underlying its new legal theory were known to it at the time of the summary judgment motion, and that the advancement of the theory was not based on evidence discovered after the partial judgment was entered. (Tr. at 14-15.) In essence, Cosco conceded that the theory could have been advanced in response to the motion for summary judgment. Id. However, motions for reconsideration "should not be used to raise arguments that could, and should, have been made before the entry of judgment." Texas Instruments, Inc., 50 F. Supp.2d at 621 (quoting Lupo v. Wyeth-Ayerst Labs., 4 F. Supp.2d 642, 645 (E.D. Tex. 1997) and citing Resolution Trust Corp. v. Holmes, 846 F. Supp. 1310, 1316 (S.D. Tex. 1994) (noting that a motion to reconsider is not "the proper vehicle for advancing legal theories that could have been presented earlier")); see also Anderson v. Red River Waterway Comm'n, 16 F. Supp.2d 682, 683 (W.D. La. 1998) (stating that "advancing new arguments or supporting facts which were otherwise available [when the original motion was filed] is likewise inappropriate") (quoting Van Skiver v. United States, 952 F.2d 1241, 1243 (10th Cir. 1991)).
Moreover, Cosco's Second Motion for Reconsideration was not filed until August 8, 2002, well over a year after entry of the disputed March 15, 2001 Partial Judgment and more than eight months after the Court's December 6, 2001 Order resolved all remaining issues on the merits. The litigation was essentially concluded at the time Cosco filed its Second Motion. Century had obtained full relief on its claims, and only its collateral motion for attorneys' fees remained for resolution. Cosco now seeks to re-litigate this case based on the alleged applicability of a new legal theory which could have previously been raised, but provides absolutely no justification for doing so. The Court is not convinced that the interests of justice require reconsideration under these circumstances.
Accordingly, Cosco's Second Motion for Reconsideration of March 15, 2001 Partial Judgment is DENIED.
III. CENTURY'S ENTITLEMENT TO ATTORNEYS' FEES
A. Todtenbier Fees
The District Court held that the APA obligated Cosco to indemnify Century for the Todtenbier Claim. (Mem. Order of Mar. 15, 2001, at 19.) Pursuant to the Partial Judgment, the original Magistrate Judge ordered that Century recover its costs and attorneys' fees for defending the Todtenbier Claim. (Mem. Op. and Order, Dec. 6, 2001, at 9-10.) By Order filed June 3, 2002, however, the second Magistrate Judge ordered briefing on the issue of whether Century is entitled to indemnification for attorneys' fees and costs incurred in defending the Todtenbier Claim in light of the express negligence doctrine. As in its Second Motion for Reconsideration, Cosco for the first time asserts that because the APA failed to clearly express Century's intent to seek indemnity for its own negligence, Cosco is not required to indemnify Century for fees incurred in defending that claim.
Cosco concedes that if Century is entitled to indemnification for the Todtenbier Claim, Century is also entitled to attorneys' fees incurred in defending the underlying claim. (Tr. at 19.) Both the District Court and this Court have declined to reconsider the March 15, 2001 partial summary judgment wherein the District Court found that Cosco was obligated to indemnify Century. (Order of July 17, 2001; Section II above.) Accordingly, because Century is entitled to indemnification for the Todtenbier Claim pursuant to the March 15, 2001 Memorandum Order, its request for attorneys' fees incurred in the defense of the Todtenbier Claim is GRANTED.
B. Declaratory Judgment Action Fees
In its December 6, 2001 Memorandum Opinion and Order, the original Magistrate Judge held that Century was entitled recover its costs and attorneys' fees for prosecuting the declaratory judgment action pursuant to the Texas Declaratory Judgment Act, TEX. CIV. PRAC. REM. CODE § 37.001, et seq. (Mem. Op. and Order of December 6, 2001, at 9-10.) In its Brief and Supporting Evidence in Response to Century Product Company's Brief and Evidence Regarding Necessary and Reasonable Attorneys' Fees and Costs, filed January 28, 2002, Cosco argued that the Texas Declaratory Judgment Act did not authorize fees for prosecuting this action. In the June 3, 2002 Order, the second Magistrate Judge expressly questioned whether Century was entitled to attorneys' fees under the Texas Declaratory Judgment Act.
Because the December 6, 2001 award of attorneys' fees pursuant to the Texas Declaratory Judgment Act appears to be an error of law, the amount of the fees has not yet been determined, and Cosco timely asserted its objections, the Court finds that it is in the interests of substantial justice to reconsider the award. See Baustian, 929 F. Supp. at 981 (reconsideration of judgments is appropriate when "in the interest of substantial justice"); Texas Instruments, Inc., 50 F. Supp.2d at 621 (reconsideration serves the narrow purpose of allowing a party to correct manifest errors of law). The Court further deems it to be in the interests of substantial justice to consider Century's alternative bases for recovery of fees incurred in prosecuting this action.
1. Texas Substantive Law
Federal courts follow the American Rule that, absent an enforceable contract or statute, litigants pay their own attorneys' fees. Alyeska Pipeline Serv. Co. v. Wilderness Soc'y., 421 U.S. 240, 247 (1975). The Federal Declaratory Judgment Act, 18 U.S.C. § 2201, et seq., does not authorize an award of attorneys' fees in a diversity action that are not otherwise available under substantive state law. Mercantile Nat'l Bank v. Bradford Trust Co., 850 F.2d 215, 218 (5th Cir. 1988).
The Texas Declaratory Judgment Act, TEX. CIV. PRAC. REM. CODE § 37.001 et seq., permits recovery of reasonable and necessary attorneys' fees in a declaratory judgment action. TEX. CIV. PRAC. REM. CODE § 37.009. However, the Fifth Circuit has clearly held that the Texas Declaratory Judgment Act functions as a procedural mechanism and does not provide the necessary substantive legal basis for awarding attorneys' fees in a federal diversity action. Utica Lloyd's of Texas v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998). Because this case is a diversity action seeking declaratory judgment, the Texas Declaratory Judgment Act does not entitle Century to an award of attorneys' fees for prosecuting its claim. The Court finds no substantive Texas law under which a plaintiff is entitled to recover attorneys' fees for prosecution of a declaratory judgment action.
Century cites Tubb v. Bartlett, 862 S.W.2d 740, 751 (Tex.App. — El Paso, 1993), which states that "an indemnitee may recover litigation costs incurred while enforcing an indemnity agreement" as authority for the fee award. However, the cases cited by the El Paso Court of Appeals in support of this statement, Continental Steel Co. V. H.A. Lott, Inc., 722 S.W.2d 513 (Tex.App.-Dallas 1989) and Fisher Construction Co. v. Riggs, 320 S.W.2d 200 (Tex.Civ.App.-Houston 1959), rev'd on other grounds, 325 S.W.2d 126 (1959), hold only that an indemnitee may recover attorneys' fees for defense of indemnified claims and do not state that attorneys' fees are recoverable for prosecution of a declaratory judgment action. Century concedes that the erroneous statement in Tubb is the only support for the award under Texas case law. (Tr. at 44-45.)
Because the award of attorneys' fees under TEX. CIV. PRAC. REM. CODE § 37.009 for prosecution of this action was an error of law, the Court declines to follow that portion of the December 6, 2001 decision. The Court holds that Century is not entitled to attorneys' fees under Texas substantive law for prosecution of this action. Cf. United States v. O'Keefe, 128 F.3d 885, 891 (5th Cir. 1997) (noting that under the law of the case doctrine and principles of comity, a successor judge may reconsider and decline to follow a prior decision which was erroneous).
2. The APA
Century claims that the terms of the APA entitle it to recover attorneys' fees incurred in prosecuting the declaratory judgment action. Cosco asserts that the APA does not provide for recovery of fees incurred in enforcing the contract.
Attorneys' fees are recoverable where provided for by statute or a contract between the parties. Engel v. Teleprompter Corp., 732 F.2d 1238, 1241 (5th Cir. 1984). Although the parties have agreed that Texas law is to be applied in interpreting the APA, the parties' express intent at the time of drafting and execution, as set forth in § 11.11 of the APA, was for the contract to be governed under New York law. (Appendix to Century's Response to Cosco's Second M. for Reconsideration, Exhibit C at 35, § 11.11.) Thus, attorneys' fees are not recoverable under the Texas statutory scheme. Unlike Texas, New York does not have a statutory scheme which provides for attorneys' fees in any action brought on a contract. Accordingly, in order for Century to recover the fees incurred in prosecuting the declaratory judgment action under the contract, liability for such fees must be provided for in the APA itself.
The Texas attorneys' fees statutory scheme, TEX. CIV. PRAC. REM. CODE § 38.001, et seq., is part of any contract entered into under Texas law, unless the parties specifically waive their right to recover attorneys' fees under that section. Texas Nat. Bank v. Sandia Mortg. Corp., 872 F.2d 692, 701 (5th Cir. 1989).
Century claims that § 9.3 of the APA entitles it to attorneys' fees for prosecuting the declaratory judgment action. Section 9.3 of the APA reads:
[Cosco] will indemnify [Century] for any claim or Liability that may be asserted against or incurred by [Century] resulting from or arising out of (a) the breach of any of the covenants made by [Cosco] in this Agreement or (b) any of the Assumed Liabilities.
(Appendix to Century's Response to Cosco's Second M. for Reconsideration, Exhibit C at 30.) Century argues that because the District Court held that Century was entitled to indemnification for the Todtenbier claim, Cosco breached the APA and is therefore liable for Century's fees. (Century's Supplemental Brief Regarding Recovery of Attorneys' Fees in this Litigation at 5.) In response, Cosco argues that the word "covenants" in § 9.3 refers to § 7 of the APA, which is entitled "COVENANTS," and that because the indemnification provision is not found in § 7, it is not liable.
In construing a contract under Texas law, "the thing of first importance is the language of the contract itself." Gallup v. St. Paul Ins. Co., 515 S.W.2d 249, 250 (Tex. 1974). Further, the language contained in the contract is to be accorded its plain grammatical meaning unless to do so would defeat the contracting parties' intent. DeWitt County Elec. Co-Op. v. Parks, 1 S.W.3d 96, 101 (Tex. 1999).
Cosco's argument that § 9.3 refers only to covenants set forth in § 7 is contrary to the plain language of the APA. Section 11.2 expressly provides that the headings of sections "are inserted for convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement." (Appendix to Century's Response to Cosco's Second M. for Reconsideration, Exhibit C at 33.) Cosco's interpretation uses the heading of§ 7 to affect the meaning of§ 9.3. Furthermore, it is a fundamental rule of contract construction that "specific terms and exact terms are given greater weight than general language." RESTATEMENT (SECOND) OF CONTRACTS § 203(c) (1981); see also Jamie Sec. Co. v. The Limited, Inc., 880 F.2d 1572, 1576-77 (2d Cir. 1989); ARTHUR LINTON COREN, CORBIN ON CONTRACTS §§ 545-54, at 521 (1952). The APA, in accordance with this tenet, uses specific terms when referring to particular sections of the APA. If § 9.3 was intended by the parties to be limited in application only to the covenants listed in § 7 of the APA, it would have contained specific terminology referring to § 7. Thus, the Court finds that the plain language of the APA refutes Cosco's argument that § 9.3 is limited to the covenants listed in § 7.
However, the plain language of the APA does not support Century's argument that § 9.3 of the APA entitles it to attorneys' fees for prosecuting this declaratory judgment action, either. It is evident from the plain language of § 9.3 and the context of §§ 9.2 and 9.4 that the parties intended to contract for indemnification of fees and costs incurred while defending third-party suits resulting from a breach of any covenants in the APA, Assumed Liabilities, or Retained Liabilities. However, neither the language of § 9.3 or the conversely identical § 9.2 plainly or unambiguously state an agreement for the recovery of attorneys' fees and costs for enforcing the APA. In contrast, the APA is very explicit in other sections about the parties' obligation to pay attorneys' fees in certain situations.
See APA § 7.4 ((Appendix to Century's Response to Cosco's Second M. for Reconsideration, Exhibit C at 26) ("[A]ll fees, commissions, and other expenses incurred by any of the parties in connection with negotiation of this Agreement and in preparing to complete the transactions contemplated by this Agreement, including the fees of their respective . . . counsel . . . will be borne by" the party incurring the fees.); APA § 7.14(b) ((Appendix to Century's Response to Cosco's Second M. for Reconsideration, Exhibit C at 29) ("From and after Time of Closing, Purchaser will promptly reimburse the Company for any and all expenses (including attorneys' fees) and any settlement amounts which have been paid by the Company in respect of the Pending Products Liability Claims."); APA § 9.4 (Appendix to Century's Response to Cosco's Second M. for Reconsideration, Exhibit C at 31) ("If the Indemnifying Party does not assume the defense of the Third Party Claim, the Asserting Party will have the right to assume the defense of the Third Party Claim at the Indemnifying Party's Expense . . .")
Texas courts which have found contractual liability for fees and costs incurred in enforcing a contract have generally based their holdings on very explicit language in the respective contracts. Additionally, "indemnification provisions must be strictly construed." Smith v. Tenneco Oil Co., 803 F.2d 1386, 1388 (5th Cir. 1986). In the absence of a plain, unambiguous agreement for the award of attorney's fees and costs, a court should not create such a remedy. See Allison v. Bank One-Denver, 289 F.3d 1223, 1244-45 (10th Cir. 2002). Given the parties' specificity regarding attorneys' fees in other parts of the APA, the context of § 9.3, the overall specificity of the contract, and the lack of a specific provision regarding costs of enforcing the APA, the Court cannot conclude that the parties intended to contract for indemnification of attorneys' fees and costs for enforcing the APA.
See, e.g. McCutchin v. Summerall, 2002 WL 318313 (Tex.App. — Dallas) (holding that a contract which provided that "[i]f either party shall be required to employ an attorney to enforce or defend the rights of such a party hereunder, the prevailing party shall be entitled to recover reasonable attorney's fees" unambiguously provided that the prevailing party was entitled to recover fees whether seeking to enforce or defend its rights); Emery Air Freight Corp. v. General Transport Systems, Inc., 933 S.W.2d 312 (Tex.App.-Houston [14 Dist.], 1996) (holding that a contract which provided that the non-prevailing party in an action to enforce the agreement should pay all costs and expenses incurred by the prevailing party provided clear contractual justification for the award of fees and costs); One Call Systems, Inc. v. Houston Lighting and Power, 936 S.W.2d 673 (Tex.App.-Houston [14th Dist.], 1996) (holding that a contract stating that in an action to enforce or interpret the agreement, "either party shall be entitled to recover from the other reasonable attorney's fees, costs and necessary disbursements in addition to any other relief' permitted the plaintiff to recover attorneys' fees even if no other relief was requested).
Accordingly, the terms of the APA do not entitle Century to an award of attorneys' fees for its prosecution of the declaratory judgment action.
3. The Joint Pretrial Order
Century alleges that the Joint Pretrial Order ("JPO"), filed by the parties on February 23, 2001, conclusively establishes that Century is entitled to recover attorneys' fees for this action. In particular, Century points to the fact that whether the law permitted recovery of attorneys' fees at all in this action was not listed as a contested issue of fact or law or as a defense in the JPO. Instead, both parties merely disputed the reasonableness and necessity of attorneys' fees.
The JPO controls the scope and course of a trial, narrowing the claims, issues, and evidence. Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 604 (5th Cir. 2000). A claim or issue omitted from the JPO is waived. Id. However, exacting detail of every possible theory of recovery is not required. Thrift v. Estate of Hubbard, 44 F.3d 348, 356 (5th Cir. 1995). The JPO is required only to give each party fair notice of the opposing party's claims and the grounds upon which they rest. Id. The issue of attorneys' fees was raised by both parties as a contested issue of fact, and the Court finds this sufficient to permit Cosco to contest Century's entitlement to attorneys' fees.
4. Judicial Estoppel
Century alleges that Cosco is judicially estopped from opposing recovery of the fees because in response to Century's motion for leave to amend, Cosco took the position that amendment to seek recovery of attorneys' fees for breach of contract was unnecessary where Century had already sought fees in connection with its declaratory judgment action. (Resp. to Cosco's Supplemental Br. at 6.) Century claims that the Court accepted Cosco's position in denying the motion for leave to amend, and therefore, the doctrine of judicial estoppel precludes Cosco from disputing Century's right to recover the fees under TEX. CIV. PRAC. REM. CODE § 37.009. Id.
Under the doctrine of judicial estoppel, a party who assumes a certain position in a legal proceeding may be estopped from assuming an inconsistent position. New Hampshire v. Maine, 532 U.S. 742, 749 (2001). Several factors assist in determining whether to apply the doctrine: (1) whether a party's later position is "clearly inconsistent" with the position taken earlier; (2) whether the party successfully persuaded a court to accept the earlier position such that judicial acceptance of the second, inconsistent position will create the perception that the court was misled; and (3) whether the party asserting an inconsistent position will obtain an unfair advantage or impose unfair prejudice on the opposing party if not estopped. Id. at 750-51. The court may consider additional factors applicable to the specific factual context of the case. Id. at 751.
As to the first factor, the positions taken by Cosco in its response to Century's motion for leave to amend and its response to Century's brief regarding attorneys' fees are not clearly inconsistent. Cosco alleged three grounds for denying leave. First, Cosco alleged that Century was attempting to relitigate the issue of attorneys' fees, which Cosco believed were implicitly denied by the district court in its grant of partial judgment. (Cosco's Resp. in Opp'n to Century's M. for Leave to File Am. Compl. at 3.) Next, Cosco stated that Century had an opportunity to assert its claims for attorneys' fees and costs from the outset, had in fact done so, and had an opportunity to seek leave to amend its complaint prior to the entry of partial judgment. Id. at 3-4. Lastly, Cosco asserted that leave to amend should be denied because of Century's undue delay in seeking to amend and the prejudice to Cosco should leave be granted. Id. at 4. Cosco did not assert that amendment was unnecessary because the fees were already recoverable under the Texas Declaratory Judgment Act. In fact, Cosco argued that Century was not entitled to an award of fees because the Texas Declaratory Judgment Act did not govern Century's claim for fees in a federal declaratory judgment action in the response to Century's request for attorneys' fees. (Cosco's Br. and Supp. Evidence in Resp. to Century's Br. and Evidence Regarding Necessary and Reasonable Att'ys Fees and Costs at 9.)
With regard to the second factor, it does not appear that Cosco successfully persuaded the Court to accept its arguments. In its order denying the motion for leave to amend, the Court found "it would be futile to allow Century to amend its Complaint because the Complaint already contains a request for attorneys' fees and expenses in connection with its declaratory judgment action, brought pursuant to TEX. CIV. PRAC. REM. CODE § 37.001, et seq." (Order of August 20, 2001, at 3.) The Court determined that it could consider a request for attorneys' fees upon proper motion. Id. at 4. Thus, because Cosco's response to the motion for leave to amend did not include a claim of futility on the basis that the fees were already recoverable, it cannot be said that the Court accepted and relied upon a prior inconsistent position.
Finally, because the Court's earlier finding that Century was entitled to attorneys' fees for the declaratory judgment action was an error of law, permitting Cosco to oppose recovery of the fees would not impose an unfair detriment upon Century even assuming its position was inconsistent with a prior position.
Based on consideration of the factors set forth in New Hampshire v. Maine, the Court finds that Cosco is not judicially estopped from disputing Century's right to recover attorneys' fees for prosecution of the declaratory judgment action.
For the foregoing reasons, Century's request for attorneys' fees incurred in the prosecution of the declaratory judgment action is DENIED.
IV. CENTURY'S MOTION FOR LEAVE TO AMEND COMPLAINT
Century asserts that it should now be permitted to amend its complaint to add a claim for money damages because the Court denied its Motion for Leave to Amend Complaint solely on the basis that it was futile because Century's complaint contained a request for attorneys' fees pursuant to TEX. CIV. PRAC. REM. CODE § 37.009. (Century's Supp. Br. Regarding Recovery of Att'ys Fees in this Litigation at 8-9.) Although Century's characterization of the reasoning behind the denial of the motion is correct, other reasons require upholding the denial of Century's Motion for Leave to Amend Complaint.
Pursuant to the District Court's Order of May 16, 2000, all amendments of pleadings were to be submitted by August 15, 2000. On March 15, 2001, summary judgment was granted in Century's favor on its complaint and on the majority of Cosco's counterclaims. Century's Motion for Leave to Amend Complaint was filed on July 20, 2001, almost a year after the deadline to file amended pleadings and four months after the District Court granted Century summary judgment on all its claims. At the time the motion for leave to amend was filed, the only remaining issue for determination at trial was Cosco's counterclaim for negligent misrepresentation.
Century's basis for seeking to amend its complaint at that late date was that until the Todtenbier Claim was settled, the settlement amount paid, and Century's expenditures fixed, Century did not have the option of asserting its claim for monetary damages, measured by its attorneys' fees and expenses. (M. for Leave to File Am. Compl. at 2-3.) However, the fact that its damages would not be fixed until the conclusion of the Todtenbier Claim did not make the breach of contract claim premature. See Diamond Offshore Co. v. A B Builders, Inc., 302 F.3d 531, 540 n. 5 (5th Cir. 2002) (finding that despite the fact that damages for party seeking indemnification for third party litigation would not be fixed until conclusion of third party litigation, breach of contract claim was not premature). Century acknowledges that its breach of contract claim could have been asserted with the declaratory judgment action. (Tr. at 47.) At the outset of the case, Century chose to seek only a declaratory judgment and, after its case was essentially over, it sought to add a new cause of action. Moreover, the Todtenbier Claim was settled in December 2000, and Century did not seek to amend its complaint for approximately seven months.
Leave to amend "shall be freely given when justice so requires." FED. R. CIV. P. 15(a). In the absence of bad faith, undue delay, or dilatory motive on the part of the movant, or undue prejudice to the opposing party, a court should grant leave to file an amended pleading. Martin's Herend Imports, Inc. v. Diamond Gem Trading, 195 F.3d 765, 770 (5th Cir. 1999). However, at some point, delay in seeking amendment can be procedurally fatal. Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148, 1154 (5th Cir. 1981). In the absence of justification or excuse, an inordinate delay in filing an amendment is properly considered strongly against a motion to amend. Id. The grant or denial of leave to amend is with the discretion of the court. Id. Century acknowledged during the hearing that the Court's denial of the July 24, 2001 motion for leave was not an abuse of discretion. (Tr. at 45.)
Although the basis for denial of Century's motion for leave was erroneous, there were other valid bases for denial of the motion at the time. These reasons are even more compelling at this stage of the litigation. The only remaining issue is the amount of attorneys' fees and costs. Just as it does not serve the interests of justice to reopen this case to consider the applicability of a new defensive legal theory which Cosco admittedly could have asserted earlier, it does not serve the interests of justice to reopen the case to consider a new theory of recovery which Century admittedly could have asserted earlier in the litigation.
Accordingly, Century's Motion for Leave to File an Amended Complaint is DENIED.
V. CONCLUSION
For the foregoing reasons, Cosco's Second Motion for Reconsideration of March 15, 2001 Partial Judgment is hereby DENIED, Century's request for its reasonable and necessary attorneys' fees and costs for the Todtenbier Claim is GRANTED, Century's request for its reasonable and necessary attorneys' fees and costs for the prosecution of its declaratory judgment action is DENIED, and Century's Motion for Leave to File an Amended Complaint is DENIED. Century shall re-submit to the Court its application for its reasonable and necessary attorneys' fees and costs incurred in defending the Todtenbier claim in accordance with the requirements set forth in the accompanying Order.