Opinion
Case No. 95-11683-DPW.
August 1, 2008
MEMORANDUM
Following a non-jury trial regarding disputes over a contract (the "License Agreement") between Computer Associates International, Inc. ("CA") and Rockland Trust Company ("Rockland Trust"), I found that Rockland Trust breached the License Agreement and CA did not. I then entered judgment for CA in the amount of $1,089,113.73 as damages and an additional $272,78.43 for prejudgment interest. At the time, I expressly declined to address CA's claim for attorney's fees and costs, but indicated I would be hospitable to further submissions. CA has moved pursuant to Fed.R.Civ.P. 52(b), 54(d), and 59(e) to alter or amend the judgment to include attorney's fees and expenses — and corresponding prejudgment interest — CA incurred in defending against Rockland Trust's claims and pursuing its counterclaim. For the following reasons, I conclude that CA may seek to amend the judgment pursuant to Rule 59(e) and that the License Agreement provides CA with a right to recover attorney's fees and expenses incurred in this litigation, but that proof of the costs of collection needs to be made by me as a trier of fact. As a result of these conclusions, I am prepared to permit evidentiary development regarding the costs with a view toward issuing an amended judgment.
I. STATEMENT OF FACTS
Because I set out detailed Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52 to resolve the trial on the merits in that litigation, Rockland Trust Co. v. Computer Assocs. Int'l, Inc., No. 95-11683-DPW, 2007 WL 2746804 (D. Mass. Aug. 31, 2007) ("Findings and Conclusions"), I provide only a brief overview here to frame the current issues. CA and Rockland Trust entered into the License Agreement in 1991. In the License Agreement, CA undertook to deliver various software products to Rockland Trust in exchange for payment from Rockland Trust. Disputes between the parties occurred which culminated in Rockland Trust filing suit against CA alleging various causes of action, including breach of contract. CA responded by filing a counterclaim for breach of contract.
In the Findings and Conclusions, I found CA was not liable on any of Rockland Trust's claims and that Rockland Trust had breached the License Agreement. The License Agreement included a "Breach and Termination" section. In relevant part, this provision reads: "Any invoice which is unpaid by [Rockland Trust] when due shall be subject to an interest charge of 2% per month or part thereof plus such late payment charge as CA may reasonably require to cover its additional costs of administration and collection." I noted that CA had asserted it incurred $1,160,586.81 in attorney's fees and costs in collecting the outstanding unpaid invoices which it contended Rockland Trust was obligated to pay. Id. at *14. Further, in an effort not to delay an already much delayed entry of judgment on the merits, I declined to address the issue of attorney's fees and costs in the memorandum but noted that CA could choose to pursue attorney's fees and costs post judgment through Rule 52(b) or Rule 59(e) motion. Id.
The relevant portion of the Findings and Conclusions read as follows:
Computer Associates asserts in a recent filing that it has incurred $1,160,586.81 in attorney's fees and costs as the costs of collection of the outstanding unpaid invoices. The propriety of the award of attorneys fees and costs is disputed by Rockland Trust. Rather than delay entry of judgment further, I will direct the clerk to enter judgment on the core damages claim. Computer Associates may choose to pursue attorney's fees and costs through, for example, a motion to amend or make additional findings under Fed.R.Civ.P. 52(b) or a motion to alter or amend the judgment under Fed.R.Civ.P. 59(e).Rockland Trust Co. v. Computer Assocs. Int'l., 2007 WL 2746804, at *14 (D. Mass. Aug. 31, 2007).
CA thereupon filed a motion to alter or amend the Judgment pursuant to Rules 52(b), 54(d) and 59(e). In its motion, CA requests that the Judgment be amended to account for its attorney's fees and costs in connection with this litigation.
II. DISCUSSION
CA claims that it is entitled to attorney's fees and costs pursuant to the "Breach and Termination" provision of the License Agreement. Rockland Trust has presented four arguments in support of its contention that CA is not entitled to attorney's fees. First, Rockland Trust claims that CA may not properly seek attorney's fees pursuant to Rule 52(b) or 59(e) motion. Second, Rockland Trust asserts that CA is not entitled to attorney's fees and costs under the License Agreement. Third, Rockland Trust asserts that CA needed to prove that it was entitled to attorney's fees at trial and failed to do so. Finally, Rockland Trust contends that I should decline to award costs under Fed.R.Civ.P. 54(d)(1) to CA because of CA's unreasonably and unnecessarily contentious litigation conduct. I will address each of these arguments separately.
A. May Rule 52(b) Or Rule 59(e) Be Used To Seek Attorney's Fees?
Rule 52(b) motions are designed "to correct, clarify, or amplify the findings." 9 Moore's Federal Practice § 52.60[3] (3d ed.). Rule 59(e) is designed to permit for the "alteration or amendment of a judgment, often by way of the court's finding of additional facts." 12 Moore's Federal Practice § 59.05[6] (3d ed.). Rule 52(b) and Rule 59(e) differ in that a party seeks an alteration or amendment of a judgment pursuant to Rule 59(e). Id. By contrast, "a Rule 52(b) motion seeks only the correction of findings or the finding of additional facts without the amendment of the judgment." Id. A motion pursuant to Rule 52(b) and 59(e) may properly seek "to correct manifest errors of law or fact or to present newly discovered evidence." Wallace v. Brown, 485 F. Supp. 77, 78 (S.D.N.Y. 1979). However, a party may not utilize these motions to assert new theories not raised at trial. Ultimately, the decision to grant or deny a motion to amend lies within the discretion of the court. Dash v. Chicago Ins. Co., No. 00-11911-DPW, 2004 WL 2337021, at *1 (D. Mass. Oct. 18, 2004); Sequa Corp. v. GBJ Corp., 156 F.3d 136, 143 (2d Cir. 1998).
CA does not argue that there was a manifest error of law in the final judgment nor does it present what may be traditionally characterized as newly discovered evidence in support of its motion. Rather, CA offers the traditional submissions in support of attorney's fees and costs after the conclusion of trial. Read strictly, CA's motion does not fit comfortably within the requirements of Rule 52(b) or Rule 59(e). Nevertheless, despite the uneasy fit, I conclude CA's claim for attorney's fees is properly considered under Rule 59(e) because additional findings are sought. B. Is There A Contractual Basis For CA To Recover Attorney's Fees In The License Agreement?
Of course, because the full extent of the attorney's fees associated with collection cannot be known until, at the earliest, trial on the merits is completed, a portion of the costs of collection is not ultimately "discovered" until then.
In the alternative, I would be prepared to vacate the current judgment under Fed.R.Civ.P. 60(b), and reopen the case in its entirety to resolve the attorney's fees issue. Cf. Clarke v. Mindis Metals, Inc., 1996 WL 616677, at *6 (6th Cir. 1996).
Massachusetts generally follows the American rule for attorney's fees. Police Comm'r of Boston v. Gows, 429 Mass. 14, 17 (1999); Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 271 (1975). Under this rule each party pays its own attorney's fees regardless of the outcome in litigation. Key Tronic Corp. v. United States, 511 U.S. 809, 814 (1994). There are, however, various exceptions to the American rule. For example, parties who enter a contract may agree that in litigation arising from the contract the successful party's attorney's fees will be paid by the losing party. See GE Supply v. C G Enters., Inc., 212 F.3d 14, 19 (1st Cir. 2000). The issue to be resolved here is whether the License Agreement contained a valid contractual provision that required Rockland Trust to pay CA's attorney's fees.
The relevant provision of the License Agreement, titled "BREACH AND TERMINATION" reads: "Any invoice which is unpaid by Licensee when due shall be subject to an interest charge of 2% per month or part thereof plus such late payment charge as CA may reasonably require to cover its additional costs of administration and collection." Doc. 350, Exh. 1 at 2 (emphasis in original). CA argues that the "costs of administration and collection" language includes attorney's fees CA incurred in litigation.
According to well-established rules of contract interpretation, I read the disputed provision in its "usual and ordinary sense" unless I find the language to be ambiguous. Sherman v. Employers' Liab. Assurance Corp., 343 Mass. 354, 356 (1961). I do not find this language to be ambiguous and conclude that the "costs of administration and collection" include attorney's fees and other costs associated with litigation necessary to obtain collection. This interpretation makes sense for several reasons.
First, the other language in the provision suggests that the costs of collection includes attorney's fees. The provision contemplates that if Rockland did not pay for an invoice then CA could collect the unpaid amount, plus interest, plus its costs of collection. In this context, it is obvious that costs of collection include the costs CA would incur in taking legal action against Rockland Trust to recover the unpaid invoices.
Second, other courts that have interpreted similar language, albeit in certain cases involving more express particularizing language, to include attorney's fees. For example, in John Hancock Mut. Life Ins. Co. v. Case, 155 F.2d 229, 233 (1st Cir. 1946), the First Circuit held the obligation "to pay all costs of collection when incurred, including reasonable attorney's fees," authorized recovery of attorney's fees. The further specification "including attorney's fees" simply set out expressly what is ordinarily understood to be encompassed by "costs of collection." Similarly, The Supreme Judicial Court in Leventhal v. Krinsky, 325 Mass. 336 (1950) interpreted the phrase "costs and all legal expense for the enforcement and collection" to include attorney's fees. Id. at 342-43. When faced with similar language, other courts have reached the same conclusion. See, e.g., Paulman v. Filtercorp, 127 Wash.2d 387, 394 (1995) (explaining that the phrase "costs of collection" includes "attorney fees and court costs"); Top Line Distributors, Inc. v. Spickler, 525 A.2d 1039, 1041 (Me. 1987) (explaining the language "cost of collection" in a promissory note "usually means the same as `collection fees,' `expenses of collection' or `attorneys' fees'"). These interpretations comport with the customary dictionary definition of "cost of collection." Black's Law Dictionary 373 (8th ed. 2004) (defining "cost of collection" as "[e]xpenses incurred in receiving payment of a note; esp., attorney's fees created in the effort to collect a note"). By contrast, Rockland Trust has not identified any case where a court has concluded that the language "cost of collection" does not include attorney's fees.
Rockland Trust asserts that John Hancock and Leventhal are distinguishable because they involved promissory notes while the License Agreement was a vendor contract. Rockland Trust does not elaborate on why the phrase "costs of collection" should be given one meaning in the context of a promissory note and a different construction in so-called "vendor contracts." I find the phrase "costs of collection" to have the same meaning in both contexts.
The cases Rockland Trust does cite stand for the unobjectionable proposition that a contractual provision must clearly provide for the right of a party to recover attorney's fees in order to deviate from the American rule. Alternative Energy, Inc. v. St. Paul Fire Marine Ins. Co., 311 F.3d 450, 452 (1st Cir. 2002); Gordon v. Woods, 202 F.2d 476, 479 (1st Cir. 1953). Because I conclude the License Agreement mandates that CA would be reimbursed for attorney's fees associated with collecting unpaid invoices, these cases are not inconsistent with my view.
Rockland Trust asserts that the "costs of administration and collection" language refers only to a late payment charge and that the late payment charge does not include attorney's fees because the contract does not specifically reference attorney's fees, litigation, or legal costs. Rockland Trust is correct, of course, that the Breach and Termination Provision of the License Agreement states that in the event Rockland Trust breaches it would be required to pay a late payment charge. However, the late payment charge itself includes CA's "costs of administration and collection." I find that the License Agreement's reference to "costs of administration and collection" include attorney's fees.
Having determined that CA is entitled to recover attorney's fees under the License Agreement, the subsidiary question becomes the scope of CA's recovery. More specifically, can CA recover the legal fees it incurred for the entire litigation or only for legal costs narrowly associated with its counterclaim? As previously discussed, the Breach and Termination provision in the contract allows CA to collect reasonable "costs of administration and collection" it incurs when recovering unpaid invoices. In light of this language, "costs of collection" plainly includes attorney's fees CA incurred pursuing its counterclaim.
It is arguably less clear — at least as a theoretical matter — whether CA may recover legal fees it incurred defending against Rockland Trust's claims. However, Massachusetts takes the common sense — as distinguished from theoretical — approach that all effectively related litigation costs should be reimbursed as expenses a party incurs in the litigation. In Leventhal v. Krinsky, a party sought attorney's fees and costs pursuant to a promissory note. 325 Mass. at 337. The promissory note provided that the obligor pay the principal as well as "`all costs and all legal expense for the enforcement and collection hereof.'" Id. The obligor did not fulfill his obligation under the note and the obligee took a number of steps, including initiating foreclosure proceedings and filed a separate suit directed at collecting on the note. Id. at 342. The obligee then sought attorney's fees and costs for all proceedings. Id. The obligor claimed that "only costs and expense arising out of an action on the note or directly connected therewith can be recovered." Id. The Supreme Judicial Court rejected this argument and concluded that the obligee could recover legal fees for all "proceedings . . . directed to collection the amount due . . . on the note." Id. at 342. All costs arising out of and incidental to the collection of the note, including the foreclosure proceedings, were included. Id. at 343.
I do not find this case to be distinguishable from Leventhal. There, the obligee initiated a series of legal actions directed at collecting money due on the promissory note. Here, after Rockland Trust undertook a preemptive litigation strategy to avoid paying its obligations under the License Agreement (and coupled that strategic gambit with a choice actually to stop paying under the License Agreement), CA responded promptly with its breach of contract counterclaim. The entire litigation is grounded in the dispute over whether CA could collect under the License Agreement. Thus, all the attorney's fees CA incurred in the litigation were in the pursuit of collecting unpaid invoices and therefore were squarely within the scope of the costs of collection provision.
C. Was CA Required To Prove Attorney's Fees At Trial?
The next relevant issue is whether, as Rockland Trust contends, CA was required to prove it was entitled to attorney's fees at trial. The parties make their arguments regarding this issue in relation to Rule 54(d). Rule 54(d)(2)(A) reads: "Claims for attorneys' fees and related non-taxable expenses shall be made by motion unless the substantive law governing the action provides for the recovery of such fees as an element of damages to be proved at trial." Fed.R.Civ.P. 54(d)(2)(A). The Committee Note explains that Rule 54(d) does not "apply to fees recoverable as an element of damages, as when sought under the terms of a contract; such damages typically are to be claimed in a pleading and may involve issues to be resolved by a jury." Fed.R.Civ.P. 54(d)(2)(A), Advisory Committee Notes, 1993 Amendments. Rockland argues that CA's motion for attorney's fees should be denied because the attorney's fees are an element of damages that CA needed to prove at trial. CA claims that it can properly recover attorney's fees though a post judgment motion.
"Attorneys' fees can be either an element of damages to be proven at trial or a collateral matter to be determined following adjudication of the relevant claims." Pride Hyundai, Inc. v. Chrysler Fin. Co., LLC, 355 F. Supp. 2d 600, 602 (D.R.I. 2005) (citing Clarke v. Mindis Metals, Inc., 1996 WL 616677, at *9). In making this distinction, courts have differentiated between claims for attorney's fees based on "prevailing party" contractual provisions and claims for attorney's fees based on other types of contractual provisions. A line of cases has treated attorney's fees as a collateral issue when a party seeks them pursuant to a prevailing party contract provision. Rissman v. Rissman, 229 F.3d 586, 587-88 (7th Cir. 2000); Capital Asset Research Corp. v. Finnegan, 216 F.3d 1268, 1269-71 (11th Cir. 2000) (per curiam); Wiley v. Mitchell, 106 Fed. Appx. 517, 523 (8th Cir. 2004) (per curiam). Prevailing party provisions generally state that when a dispute over the contract arises the party who loses in litigation must pay the legal fees of the party who prevails in litigation. Rissman v. Rissman, 229 F.3d at 587-88; Capital Asset Research Corp. v. Finnegan, 216 F.3d at 1269-71; Wiley v. Mitchell, 106 Fed. Appx. at 523. When attorney's fees are collateral a party may properly seek them pursuant to a Rule 54(d)(2) motion. Clarke v. Mindis Metal, Inc., 1996 WL 616677, at *9.
By contrast, when a party seeks attorney's fees stemming from a breach of contract, courts have found the issue of attorney's fees to be an element of damages. Pride Hyundai, Inc. v. Chrysler Fin. Co., LLC, 355 F. Supp. 2d at 602; Carolina Power and Light Co. v. Dynegy Mktg. and Trade, 415 F.3d 354, 359 (4th Cir. 2005); Lynch v. Sease, No. 6: 03-479-DCR, 2006 WL 1206472, at *3 (E.D. Ky. May 2, 2006). In those situations, a party's claim for attorney's fees is analogous to contractual damages and should be proven at trial. Clarke v. Mindis Metal, Inc., 1996 WL 616677, at *9; Pride Hyundai, Inc. v. Chrysler Fin. Co., LLC, 355 F. Supp. 2d at 603.
In short, the distinction between a claim for attorney's fees based on a prevailing party provision and attorney's fees based on a breach of contract is said to turn on the condition precedent to recovery. When a party seeks attorney's fees pursuant to a prevailing party provision, the condition precedent to recovery is "the successful litigation of a claim." Carolina Power and Light Co. v. Dynegy Marketing and Trade, 415 F.3d 354, 359 (4th Cir. 2005). Conversely, when a party seeks attorney's fees as a result of a breach "the condition precedent to recovering legal costs is a breach of contract by [a party]." Id.
I am compelled to observe that the distinctions teased out in these cases demonstrate a certain arid formalism. The entitlement to attorney's fees in both set of circumstances turns on whether the claimant prevails. Legally unsupportable collection efforts do not, of course, give rise to recoverable attorney's fees. Only those circumstances in which the claimant is the prevailing party in collection proceedings would provide the basis for recovery. Indeed, as I have noted, Note 1 supra, the amount of attorney's fees does not become fully liquidated until conclusion of trial(s) on the merits.
The question can, of course, be broken into separate determinations. In Rissman v. Rissman, 229 F.3d 586 (7th Cir. 2000), for example, the defendant, after prevailing at trial, brought a motion for attorney's fees pursuant to Rule 54(d)(2) based on a prevailing party provision in a contract between the parties. Id. at 587. The district court denied the motion, in part because the defendants failed to seek the attorney fees by filing a counterclaim against the plaintiff. Id. The Seventh Circuit reversed and awarded attorney's fees to the defendant. In reaching this conclusion, the court explained that "a party seeking legal fees . . . incurred by the [party] before the litigation begins" should raise its claims before trial. Id. at 588. By contrast, "[f]ees for work done during the case should be sought after decision, when the prevailing party has been identified and it is possible to quantify the award." Id. Capital Asset Research Corp. v. Finnegan, 216 F.3d 1268 (11th Cir. 2000) illustrates a similar approach. There the defendant prevailed on several claims at trial. Id. at 1269. After the entry of judgment in his favor, the defendant moved for attorney's fees pursuant to Rule 54(d)(2) on the basis of a contractual provision that granted attorney's fees to the prevailing party at trial. Id. The district court granted the motion and the plaintiff appealed. Id. The Eleventh Circuit concluded that the motion for attorney's fees was timely because the parties had agreed to bifurcate the issue of attorney's fees from the merits. Id. at 1271.
That said, in this case, I find CA seeks attorney's fees as a result of Rockland Trust's breach of the License Agreement. CA claims it is entitled to attorney's fees and costs pursuant to a provision in the License Agreement titled "BREACH AND TERMINATION." This provision is not by terms a traditional prevailing party provision. Instead, the provision states that CA is entitled to costs of collection, which I have found to include attorney's fees, only if Rockland Trust does not fulfill its obligations to pay invoices to CA. "Unlike `prevailing party' attorneys' fees that are collateral to the merits of an action and which do not accrue until the litigation is actually brought, attorneys' fees under the contract between the parties in this case arose upon breach of the agreement by [Rockland Trust]." Lynch v. Sease, 2006 WL 1206472, at *11-12. Therefore, I conclude that CA's claim for attorney's fees would be viewed as a substantial element of damages under the existing case law and must be proved to the trier of fact.
Although I recognize the law of attorney's fees recovery bristles with formalistic distinctions much beloved by lawyers and judges, I believe it more worthwhile to step back and view the matter functionally. It is essentially a matter of order of proof and judicial economy. In that sense, the issue calls for sensible timing. When an element of damages is not completely liquidated, it is ordinarily premature to resolve the matter until the underlying factual circumstances have been concluded. Of course, here, as in virtually every recovery case involving attorney's fees as substantive damages, a significant portion of the costs of collection had already been incurred and could have been presented at trial with an evidentiary mopping up exercise thereafter. See Note 6 supra. That approach is comparatively painless in a non-jury case such as this but becomes significantly more burdensome if supplementary jury determinations are required. Fortunately, parties are, for the most part, content to find an efficient, practical and workable procedure for the ultimate resolution of such disputes.
However, the formalism which can attend resolution of the attorney's fees issue contains traps for the unwary, principally in the timing of an appeal. If attorney's fees are characterized as a substantive matter, rather than a collateral matter, the failure to resolve them renders any judgment interlocutory with the consequent loss of efficiencies from an aborted appeal. If, by contrast, the attorney's fees issue is characterized as collateral, a failure to notice a timely appeal from any judgment entered on the merits, despite the absence of the resolution of the attorney's fees issue, may lead to the loss of appellate rights.
I note that able counsel for CA carefully avoided these traps by timely filing post trial motions under Fed.R.Civ.P. 52 and 59, which will lead to a restarting of the appeal clock after final disposition of those motions. See Fed.R.App.P. 4(a)(4). Here, given the prospect of an amended judgment, the appeal period will likely begin to run again upon the entry of that judgment.
In this case, I followed my customary practice of resolving merits issues other than attorney's fees fully before addressing the resolution of attorney's fees. Nevertheless, because attorney's fees are a substantive matter, CA may be foreclosed from resorting to a motion under Rule 54(b) to recover them. Clarke v. Mindis Metal, Inc., 1996 WL 616677, at *7 ("[T]he plain text of Rule 54(d)(2)(A) mandates that the procedures relating to attorney's fees in the remainder of Rule 54(d)(2) do not apply when attorney's fees are recoverable under the substantive law governing the action."). Instead, to prevail CA may be required to submit evidence as to legal costs to the trier of fact. Pride Hyundai, Inc. v. Chrysler Fin. Co., LLC, 355 F. Supp. 2d at 605; see also Town of Poughkeepsie v. Espie, 221 Fed. Appx. 61, 62 (2d Cir. 2007) ("The plain text of Rule 54(d) and the Advisory Committee Notes to the 1993 Amendments clearly indicate that the recovery of attorney's fees that must be submitted to the jury as an element of damages in a counterclaim cannot be awarded merely on the basis of the adjudication of a post-judgment motion."). At trial, CA did not present evidence that showed precise attorney's fees as part of the damages for breach of contract. Nevertheless, I conclude this is not the end of line for CA's attorney's fees claim. In light of the fact that CA referenced this issue before the close of trial and because I declined to address this issue in my Findings and Conclusions, I find it fair and appropriate to permit further evidentiary development on the issue of attorney's fees.
Indeed, it has been my practice to defer ruling on attorney's fees issues in close and contestable cases on the merits, until appellate proceedings have been concluded.
In her trial submission, CA's damages expert, Deserie Zaragoza, did suggest that CA sought costs of administration and collection. She explained that "the books and records of CA show that [Rockland Trust] is obligated to CA under the License Agreement in the amount of $1,089,113.73, plus accruing late charges, interest, and costs of administration and collection." Zaragoza Aff. 1/9/2001, ¶ 4 (emphasis added). During her live testimony, Zaragoza was not asked about attorney's fees or costs of administration and collection. TR. 1/9/01, p. 32-43. In her supplemental affidavit, submitted in response to my inquiry in anticipation of completion of the Findings and Conclusions, Zaragoza brought the figures up to date with an affidavit stating that "CA incurred legal fees and expenses in connection with this litigation . . . [that] total to date $1,160,586.70." Zaragoza Aff. 8/21/2007, ¶ 4.
D. Unreasonably And Unnecessarily Contentious Litigation Conduct
Rockland Trust claims that even if the other requirements for attorney's fees are met, I should exercise my discretion by not awarding CA's Bill of Costs under Fed.R.Civ.P. 54(d)(1) because of CA's unreasonable litigation conduct. I have carefully considered this contention and, while this litigation was conducted by both parties — as is not infrequently the case for civil proceedings involving significant damages — in an aggressive and contentious manner, litigation conduct provides no valid grounds for denying such costs.
I note that, although CA has brought a separate bill of costs under Fed.R.Civ.P. 54(d)(1), it is my intention, consistent with the treatment of attorney's fees as costs of collection damages, to incorporate even those costs claimed under Fed.R.Civ.P. 54(d)(1) in the amended judgment.