Opinion
No. 218-2015-CV-1406
01-25-2018
DG Whitefield, LLC, et al. v. Cate Street Capital, Inc., et al.
ORDER
The Plaintiffs have moved to reconsider this Court's Order granting an attachment against the Defendants in the amount of $250,000. By order dated September 21, 2017, the Court allowed supplemental briefing. For the reasons stated in this Order, the Motion to Reconsider is DENIED.
I
This case arises out of a lawsuit by Cate Street Capital, Inc. ("Cate Street") against DG Whitfield, LLC and Indeck Energy-Alexandria, LLC (collectively "Whitefield") seeking to set aside three agreements which were entered into as part of a global settlement of claims between the parties, resolution of which was necessary in order for Cate Street to complete financing of a biomass power plant in Berlin, New Hampshire. Cate Street's Complaint alleged that Whitefield had proceeded against it in bad faith and that the agreements were void as the result of economic duress because it was forced to settle the litigation against it in order to complete the project. Eventually Whitefield moved for summary judgment on the grounds that Cate Street had executed releases and covenants not to sue in favor of it when the three agreements at issue were executed. On April 5, 2016, the Court dismissed all of Cate Street's claims and granted summary judgment for Whitefield, finding in substance that the releases barred Cate Street's claims. Cate Street Capital, Inc. v. DG Whitefield, LLC, Merrimack Cnty. Superior Ct., No. 218-2013-CV-734, at 25 (Order, McNamara, J.), 2016 N.H. Super. LEXIS 4 (Apr. 5, 2016). Cate Street appealed that decision to the New Hampshire Supreme Court, which affirmed. Cate Street Capital, Inc. v. DG Whitefield, LLC, No. 2016-0355, 2017 N.H. LEXIS 27 (Jan. 27, 2017). The merits of Cate Street's underlying claim were never adjudicated.
DG Whitefield, LLC and Indeck Energy-Alexandria, LLC (collectively "Whitefield") then filed the present action against Cate Street Capital, Inc. ("Cate Street"), John Hallé, and Robert Desrosiers, alleging breach of contract against Cate Street (Count I), abuse of process against Cate Street (Count II), violation of the Consumer Protection Act against Cate Street (Count III), malicious prosecution against Cate Street (Count IV), and civil conspiracy against all the Defendants (Count V), and seeking enhanced compensatory damages (Count VI) and attorney's fees and costs (Count VII). The Defendants filed a Motion to Dismiss. The Motion to Dismiss was GRANTED, as it related to Count III and V, and DENIED, as it related to Counts I—II and IV.
The Plaintiffs have also filed suit against Wells Fargo Bank, National Association as a trustee process defendant only.
When the case had been filed, the Court granted an attachment in the amount of $1 million. After issuance of the Order on the Motion to Dismiss, the attachment was reduced to $250,000, but the Court did not issue a narrative order explaining its reasoning. Whitefield moved to reconsider, Cate Street objected, and a hearing was held on September 21, 2017. The Court directed the parties to address whether attorney's fees may be recovered for the breach of the covenant not to sue and whether or to what degree the attorney's fees incurred by Whitefield relate to the ultimately successful defense of release.
II
Under RSA 511-A: 3, a pre-judgment attachment may be obtained by a plaintiff if, after a hearing, the plaintiff can show that there is a "reasonable likelihood that the plaintiff will recover judgment including interest and costs on any amount equal to or greater than the amount of the attachment." Upon satisfying this burden, the plaintiff is entitled to the attachment unless the defendant establishes to the satisfaction of the court that his assets will be sufficient to satisfy the judgment with interest and costs if the plaintiff recovers the same. See generally Diane Holly Corp. v. Bruno & Stillman Yacht Co., 559 F. Supp. 559, 560 (D.N.H. 1983).
A
Following the Order on the Plaintiffs' Motion to Dismiss, essentially three claims survived against Cate Street: an abuse of process claim, a malicious prosecution claim, and a breach of contract claim. While there is no law specifically on point in New Hampshire, it is generally assumed that attorney's fees can be awarded for abuse of process and/or malicious prosecution. The Plaintiffs have properly pled a claim for both torts. However, the Plaintiffs have not attempted to present evidence from which a court could find by a preponderance of the evidence that they are likely to succeed on either claim. To establish a likelihood of success on these claims, the Plaintiffs appear to argue that since they were successful in obtaining judgment by asserting the defense of release, it follows that Cate Street committed both torts. But this argument cannot succeed.
The fact that an action was dismissed based upon a defendant raising the affirmative defense of release does not establish a likelihood that a plaintiff will thereby be able to prove that the action was brought "primarily to accomplish a purpose for which it is not designed." Long v. Long, 136 N.H. 25, 29 (1992) (adopting the definition of the tort of abuse of process in Restatement (Second) of Torts, § 682.) Similarly, the fact that Cate Street unsuccessfully instituted an action against Whitefield asserting that a release it signed was the product of duress and thereby ineffective, does not establish that Whitefield was subjected to a civil proceeding "instituted by the defendant . . . without probable cause . . . [and] with malice." Paul v. Sherburne, 153 N.H. 747, 749 (2006).
Apparently recognizing as much, Whitefield devotes virtually all of its briefing to an argument that it is entitled to attorney's fees as a result of its contract claim because the release which it successfully asserted also contained a covenant not to sue. While the Court agrees that the judgment entered against Cate Street based upon the release and covenant not to sue may establish a likelihood of success on the merits on Whitefield's breach of contract claim, it does not mean that Whitefield is entitled to the attorney's fees that it incurred in defending against Cate Street's lawsuit.
B
The Settlement Agreement between the parties provided in relevant part:
Article Parties' Mutual Releases. In consideration of the foregoing agreement, each Party, for itself and for its Related Persons, hereby releases, remises, discharges, holds harmless and covenants not to sue each of the other Parties and its respective Related Persons, from or with respect to any and all claims, demands, damages, losses, suits, proceedings, actions, causes of action, injunctive relief or
other equitable or legal remedies, of any kind or nature, whether at law or in equity, whether asserted or unasserted, whether known or unknown, and whether now or hereafter existing . . . .(Pls.' Supplemental Br. at 34 (emphasis in original)).
The Plaintiffs' argue that they are entitled to all of the approximately $1.2 million that they incurred in attorney's fees because attorney's fees directly flow as damages from breach of the covenant not to sue. (Pls.' Supplemental Br. at 34-38.) Indeed, the Plaintiffs explicitly state that "this is not a request for fees for litigation misconduct" but rather that the foreseeable damages for breach of the covenant not to sue includes attorney's fees. (Id. at 34.)
The New Hampshire Supreme Court has never directly addressed whether or not attorney's fees and costs are recoverable for violation of a release and covenant not to sue. However, the majority of courts that have applied state contract law have held that attorney's fees and expenses are not recoverable, as a matter of course, merely for violation of a release and covenant not to sue. W.R. Grace & Co. - Conn. v. Goodyear Tire & Rubber Co., No. 1:99-CV-305, 1999 U.S. Dist. LEXIS 22553 at *8-10 (W.D. Mich. Nov. 30, 1999) (collecting cases); see generally Recovery of Attorney's Fees and Costs of Litigation Incurred as a Result of Breach of Agreement Not to Sue, 9 A.L.R. 5th 933 (1993, updated 2017). A defendant normally may not recover litigation expenses for breach of a covenant not to sue unless the parties specifically intended such recovery. Kamfar v. New World Rest. Group, Inc., 347 F. Supp. 2d 38, 50 (S.D.N.Y. 2004). The primary function of the usual covenant not to sue:
See generally RESTATEMENT(SECOND)CONTRACTS § 285, explaining that a release extinguishes a claim while a covenant not to sue merely requires forbearance. To avoid circuity of actions, common law courts allowed covenants not to sue to be pled as a bar. 13 Corbin on Contracts § 67.14 at 145 (2003).
is to serve as a shield rather than as a sword. . . In the absence of contrary evidence, sufficient effect is given the usual covenant not to sue if, in addition to its service as a defense, it is read as imposing liability only for suits brought in obvious breach or otherwise in bad faith . . . .Artvale, Inc. v. Rugby Fabrics Corp., 363 F.2d 1002, 1008 (2d Cir. 1966).
The Second Circuit did not state whether it relied on state or federal law but stated that "nothing in New York law would lead us to a different approach". Id. at 1007. The Court believes that Artvale is based upon common law principles of contract. --------
Thus, it is generally held that "absent contractual language to the contrary, a party who brings an action which is ultimately held to be in breach of the covenant not to sue but which was based upon a reasonable and good faith belief that the covenant did not bar the suit or that the covenant was obtained by unfair means, is not liable for his opponent's litigation expenses". Bellefonte Reinsurance Co. v. Argonaut Insurance Co., et al., 586 F. Supp. 1286, 1288 (S.D.N.Y. 1984); Le Cordon Bleu, S.A. v. BPC Publishing Ltd., 451 F.Supp. 63, 71 (S.D.N.Y. 1978). This principle is based upon the so-called American Rule, which provides that "attorney's fees and disbursements are incidents of litigation and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties or by statute or court rule." Versatile Housewares & Gardening Sys. Inc. v. Thill Logistics, Inc., 819 F. Supp. 2d 230, 241 (S.D.N.Y. 2011) (quotation & citation omitted). The American Rule is said to provide "freer and more equal access to the courts . . . [and] promotes democratic and libertarian principles." Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 199 (2d Cir. 2003). The American Rule is based upon "the high priority accorded free access to the courts and a desire to avoid placing barriers in the way of those desiring judicial redress of wrongs." Versatile Housewares & Gardening Sys. Inc., 819 F. Supp. 2d at 241 n.6.
New Hampshire generally follows the American Rule; "absent statutory or judicially created exceptions, parties pay their own attorney's fees." Jesurum v. WBTSCC Ltd. P'ship, 169 N.H. 469, 482 (2016). The First Circuit has noted that under the American Rule, attorney's fees and costs are generally not recoverable by the prevailing litigant in the absence of an explicit contractual provision or other applicable rule or statute, and has held that since the American Rule is followed in Massachusetts attorney's fees cannot be recovered for breach of a release and covenant not to sue under Massachusetts law. Bukuras v. Mueller Group, LLC, 592 F.3d 255, 267 n.7 (1st Cir. 2010). The Court believes that the New Hampshire Supreme Court would, if the issue presented to it, like other American jurisdictions, hold that absent explicit language authorizing recovery, attorney's fees are not recoverable for breach of a covenant not to sue.
The parties to the underlying litigation, as noted in the Court's prior orders, were sophisticated, and represented by extremely able counsel. After extensive negotiation they entered into a settlement agreement and release which contained a covenant not to sue. Whitefield could have insisted upon an agreement which provided that breach of the covenant not to sue would result in payment of attorney's fees by the breaching party. See, e.g., WHS Homes, Inc. v. Traditional Living, Inc., et al., No. 2012-CV-0037 (Merrimack Cnty. Superior Ct., Sept. 29, 2016), aff'd, No. 2016-0583 (N.H. Sup. Ct., Dec. 21, 2017). Since it chose not to do so, it can recover attorney's fees for breach of the covenant not to sue only if it is able to establish the exceptional circumstances under which attorney's fees are available under New Hampshire law: where an individual is forced to seek judicial assistance to secure a clearly defined and established right if bad faith can be established; where litigation is instituted or unnecessarily prolonged through a party's oppressive, vexatious, arbitrary, capricious or bad-faith conduct; or for those who are forced to litigate against an opponent whose position is patently unreasonable. Clipper Affiliates v. Checovich, 138 N.H. 271, 278 (1994).
But Whitefield has specifically stated that it is not claiming that Cate Street's litigation falls within the narrow exception to the American Rule that both parties pay their own attorney's fees; it states "...we note that this is not a request for fees for litigation misconduct, nor is the request subject to the "American rule", where parties generally bear their own expense of litigation". (Pls.' Supplemental Br. at 34.). Its submission consists solely of an argument that its attorney's fees are the damages proximately caused by breach of the covenant not to sue, along with a compendium of fees and expenses that it incurred, with a request that the Court find that the amount of fees is reasonable. Whitefield's argument puts the cart before the horse.
The Court can only enforce the agreement before it. The covenant not to sue entered into by the parties does not call for an award of attorney's fees. It follows that the Motion to Reconsider must be DENIED.
SO ORDERED
1/25/18
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/