Opinion
No. C 03-02436 WHA.
November 5, 2004
ORDER GRANTING IN PART AND DENYING IN PART AND DEFENDANTS' MOTION FOR ATTORNEY'S FEES AND DENYING MOTION FOR SANCTIONS
An earlier order dismissed the case. Defendants now seek attorney's fees and costs and sanctions. This order addresses solely the motion by defendants AGM-Nevada, LLC, Anthony S. Brandon, L. Rogers Brandon, and Charles H. Salisbury. The other defendants' fee motion is addressed in a companion order. For the reasons stated below, the AGM defendants' motion for attorney's fees is GRANTED IN PART AND DENIED IN PART. The motion for sanctions is DENIED.
STATEMENT
This case was over a "flip" in sale and resale of two radio stations KNJY and KCDA. Each plaintiff originally owned one station. Defendant AGM-Nevada, LLC, bought them and then resold them to strangers to the litigation. Defendants Anthony S. Brandon, L. Rogers Brandon and Charles H. Salisbury were officers and directors of AGM. The facts surrounding the parties' transaction were described in detail in the order granting defendants' motion for summary judgment, dated August 6, 2004.In brief, starting in late 1996, plaintiffs and defendant AGM began discussing the sale of plaintiffs' two radio stations with the assistance of a broker, defendant William A. Exline, Inc., and its officer, defendant W. Dean LeGras. About August 15, 1997, AGM entered into a confidentiality agreement. This allowed AGM to obtain information concerning the radio stations in order to evaluate them. Thereafter, AGM made several offers to plaintiffs. Finally, in 1998, plaintiffs accepted AGM's offer. On August 8, 1998, plaintiffs and AGM executed two Asset Purchase Agreements, one agreement per radio station.
A central theme in the suit was an alleged promise not to flip the stations. The buyer's contractual representations and warranties did not contain any such promise or representation. Nor did it provide that the buyer would not resell the stations. Plaintiffs relied namely on the following recitals: "Buyer desires to purchase and acquire the Station as an ongoing business" and "in order to establish a competitive presence in the Spokane/Coeur d'Alene radio market, Buyer must own at least three FM station [sic] in the market" (Def. App. in Support of Summary Judgment at Exhs. G and H). Plaintiffs allegedly thought AGM would retain these radio stations and not resell them. (The summary-judgment order rejected this as insufficient.) The original sale to AGM closed on November 24, 1998.
Prior to the close of the sale, AGM agreed to sell one radio station to a nonparty, Citadel Communication Corporation. Without question, notice was given to plaintiff of this resale, as follows. On February 10, 1999, AGM wrote to John Rook, who AGM had believed was an officer of plaintiff Rook Broadcasting, stating that AGM intended to sell KNJY. Mr. Rook also received portions of the purchase agreement between Citadel and AGM around the same time. Although the precise channel of these communications was ambiguous on the summary-judgment record, what was clear and significant was that Mr. Rook forwarded information regarding the Citadel-AGM sale to Mr. Hochstadt, the managing officer of both plaintiffs. Some portion of the Citadel-AGM purchase agreement was faxed by Mr. Rook to Albert Hochstadt on February 22, 1999.
Later, in 2000, AGM sold the remaining radio station KCDA. Combined, the resale price for these two radio stations exceeded the amount plaintiff received from AGM.
Apparently feeling they had sold too low, plaintiffs sued their broker and the AGM defendants. Initially, plaintiffs only sued their broker and its officer (the Exline defendants). The AGM defendants were not named in the original complaint. They were later named in the first amended complaint. In the first amended complaint, plaintiffs asserted contract claims based on two different contracts: (1) the 1997 confidentiality agreement and (2) the 1998 purchase agreements. These contract claims were asserted only against AGM. In contrast, plaintiffs asserted six tort claims against all of the AGM defendants. For all these claims, plaintiffs alleged that AGM purchased the two radio stations from them with a purported promise to keep and operate and not resell the radio stations (First Am. Compl. ¶¶ 25, 27, 40, 53, 65, 76, 81, 86, 90, 99, 104).
The AGM defendants moved for summary judgment on all these claims. The motion was granted. No triable issue was found on the contract claims. The confidential agreement was superseded by the Asset Purchase Agreement, which expressly provided that it superseded all prior agreements (Order 13). Thus, all claims based on the confidentiality agreement were dismissed. As to the contract claim based on the Asset Purchase Agreement, the Court found that the purchase agreement did not contain any promise by AGM to operate the radio stations for an indefinite period of time and not to resell ( id. at 14-15).
With respect to the tort claims, they were held to be barred by the statute of limitation ( id. at 11). Based on the undisputed facts, the Court found that plaintiffs' claims accrued on February 22, 1999, based on Mr. Hochstadt's receipt of the Citadel-AGM purchase agreement on that date ( id. at 12). Plaintiffs, however, had not joined the AGM defendants until November 14, 2003. Thus, plaintiffs' tort claims were barred by either a three-year statute of limitations, as contended by defendants, or a four-year statute of limitations, as contended by plaintiffs.
* * *
Now, the AGM defendants move for an award of attorney's fees and costs as the prevailing party under the attorney's fee provision of the Asset Purchase Agreement. In addition, they seek monetary sanctions against plaintiffs, their counsel and Mr. Hochstadt for allegedly multiplying proceedings in bad faith. Each request is considered in turn.ANALYSIS
1. MOTION FOR ATTORNEY'S FEES.
The AGM defendants seek attorney's fees as the prevailing party. The Asset Purchase Agreements expressly provided that "the prevailing party shall be entitled to receive such attorney's fees and costs as a court may adjudge reasonable in addition to any other relief granted" (First Am. Compl. Exhs. G and H). These agreements also provided that Washington law would govern over the purchase agreements ( ibid.). Under Washington law, the term "prevailing party" is defined as "the party in whose favor final judgment is rendered." Wash. Rev. Code Ann. § 4.84.330 (2004).
Since the initial filing of the present motion, each side has conceded an issue. Initially, the fee request was made on behalf of all four of the AGM defendants: AGM, Anthony Brandon, L. Rogers Brandon and Charles Salisbury. Plaintiffs have conceded that AGM is entitled to reasonable attorney's fees incurred in defending against plaintiffs' contract claims (Opp. 2). Plaintiffs, however, have opposed any award of fees based on the purchase agreements to the individual defendants since they were strangers to the contracts. In their reply brief, the individual defendants admitted that they cannot recover attorney's fees (Reply Br. 4) (emphasis added): "The Brandons and Salisbury concede that Washington law does not provide for strangers to a contract to recover attorneys' fees except in a suit by a third party. Therefore, the Brandons and Salisbury may not recover attorneys' fees based on the APAs." Accordingly, there is no issue to resolve regarding entitlement to attorney's fees for the contract claims. Only AGM is entitled to attorney's fees for the contract claims. There are two remaining issues.
At the hearing, the individual defendants reversed field and argued for entitlement based on a new theory of alter ego. The new argument after a concession will not be entertained.
First, the parties disagree on whether any of the AGM defendants are entitled to recover on the tort claims. Under Washington law, where both contract claims and tort claims are asserted, a court may award attorney's fees arising out of the tort claims if the tort claims are based on a contract central to the dispute including an attorney's fee provision. Hill v. Cox, 41 P.3d 495, 505 (Wash.Ct.App. 2002). Plaintiffs contend that their tort claims were not based on the Asset Purchase Agreements. This order disagrees.
Even plaintiffs admit that they did allege "certain statements in the ASPs [sic] created contractual obligations that were breached" (Opp. 5). Contrary to plaintiffs' argument, those statements based in the purchase agreements were central to plaintiffs' entire action. Every tort claim except for negligence was based on the purported representation by the AGM defendants that they would continue to operate the radio stations and not resell them (First Am. Compl. ¶¶ 20, 24-28, 33, 40, 45, 53-54, 65-66, 76, 99). It is undisputed that the purchase agreements were fully integrated and superseded all prior agreements and understanding between the parties (Order 13; Def. App. Exhs. G and H). Thus, the only representations that could form the basis for any tort claim had to be those explicitly provided in the purchase agreements. As to the negligence claim, the only basis for a breach of a duty of care was based on the contractual relationship. Goel v. Jain, 259 F. Supp. 2d 1128, 1137 (W.D. Wash. 2003) ("The parties to an impersonal market transaction owe no duty of disclosure to one another absent a fiduciary or agency relationship, prior dealings, or circumstances such that one party has placed trust and confidence in the other"). As stated in the summary-judgment order, "all of plaintiff's claims relate to AGM's purchase of the two radio stations with a purported promise to operate and not resell the radio stations" (Order 11). Thus, the tort claims arose out of the purchase agreements. As discussed above, the individual defendants admitted they cannot recover fees based on the purchase agreements. AGM, however, is entitled to recover attorney's fees incurred in defending against plaintiffs' tort claims. Second, the parties also disagree on the actual amount of reasonable attorney's fees. The AGM defendants seek a total of $318,213.25 in attorney's fees and costs of $13,849.43. This total is for all claims and all of the AGM defendants. Plaintiffs request that the AGM defendants segregate their attorney's fees into only those for which they are entitled. Since they contested AGM's right to fees for tort claims and the individual defendants, plaintiffs contend that the Court should only award fees incurred on behalf of AGM for the contract claims.
This order agrees with plaintiffs in principle — defendants should only be awarded reasonable fees and costs. As discussed above, however, AGM is the only party entitled to fees incurred for defending against both contract and tort claims. The actual amount, however, cannot be calculated upon the present record. As acknowledged by the AGM defendants, the present record does not subtract out the fees incurred for defending the individual defendants. It is difficult to tell whether even the amounts claims for AGM were reasonable.
The following procedure will be used to determine the amount of an award herein. It will be structured to allow meaningful evaluation of the time expended and to provide opportunity to reach stipulation as to amounts recoverable.
1. No later than NOVEMBER 18, 2004, AGM's attorneys must file and serve a detailed declaration, organized by discrete projects, breaking down all attorney and paralegal time and costs sought to be recovered as to AGM. For each project, there must be a detailed description of the work, giving the date, hours expended, attorney name, and task for each work entry, in chronological order. A "project" means a deposition, a motion, a witness interview, and so forth. It does not mean generalized statements like "trial preparation" or "attended trial." It includes discrete items like "prepare supplemental trial brief on issue X." The following is an example of time collected by a project.
PROJECT: ABC DEPOSITION (2 DAYS IN FLORIDA) Date Time-keeper Description Hours x Rate = Fee 01-08-01 XYZ Assemble and photocopy exhibits for 2.0 $100 $200 use in deposition 01-09-01 RST Review evidence and prepare to 4.5 $200 $900 examine ABC at deposition 01-10-01 XYZ Research issue of work-product 1.5 $100 $150 privilege asserted by deponent 01-11-01 RST Prepare for and take deposition 8.5 $200 $1700 01-12-01 RST Prepare for and take deposition 7.0 $200 $1400 ___ _____ Project Total: 23.5 $4350 ==== ===== 2. All entries for a given project must be presented chronologically one after the other, i.e., uninterrupted by other projects, so that the timeline for each project can be readily grasped. Entries can be rounded to the nearest quarter-hour and should be net of write-down for inefficiency or other cause. Please show the sub-totals for hours and fees per project, as in the example above, and show grand totals for all projects combined at the end. Include only entries for which compensation is sought, i.e., after application of "billing judgment." For each project, the declaration must further state, in percentage terms, the proportion of the project directed at issues for which fees are awardable and must justify the percentage. This percentage should then be applied against the project total to isolate the recoverable portion (a step not shown in the example above).3. A separate summary chart of total time and fees sought per individual timekeeper (not broken down by project) should also be shown at the end of the declaration. This cross-tabulation will help illuminate all timekeepers' respective workloads and roles in the overall case. The actual bills sent to the client must also be provided.
4. The declaration must also set forth (a) the qualifications, experience and role of each attorney or paralegal for whom fees are sought; (b) the normal rate ordinarily charged for each in the relevant time period; (c) how the rates were comparable to prevailing rates in the community for like-skilled professionals; and (d) proof that "billing judgment" was exercised. On the latter point, as before, the declaration should describe adjustments made to eliminate duplication, excess, associate-turnover expense, and so forth. These adjustments need not be itemized but totals for the amount deleted per timekeeper should be stated. The declaration must identify the records used to compile the entries and, specifically, state whether and the extent to which the records were contemporaneous versus retroactively prepared. It must state the extent to which any entries include estimates (and what any estimates were based on). Estimates and/or use of retroactively-made records may or may not be allowed, depending on the facts and circumstances.
5. Ordinarily, no more than one attorney and one paralegal need be present at a deposition; more will normally be deemed excessive. Ordinarily, no more than one attorney need attend a law-and-motion hearing; more will normally be deemed excessive. To allow for symmetry, however, the award will take into account the staffing used by the opposing party.
6. If the opposing party doubts the accuracy of the declaration, then the moving party must immediately produce the original underlying time records for inspection upon request. The opposing party must then file and serve any opposition. In this case, the opposition will be due FOURTEEN CALENDAR DAYS after plaintiff's detailed declaration is filed. If the opposing party contends that any item or project was excessive, then the opposition must explain why and provide a declaration setting forth completely all time expended by the opposing party on the same and on similar projects, in the same format described above, so that symmetry may be considered, making available the underlying records for inspection if requested. If any billing rates are challenged, then the opposition must state the billing rates charged to the opposing party for all professionals representing the opposing party in the case and their experience levels. The opposing declaration must also state, as to each project, the percentage of the project the opposition contends was directed at issues on which fees are awardable, stating reasons for the percentage. This percentage should then be applied against the project total to isolate the recoverable portion.
7. The opposing submissions may not simply attack the numbers in the application. It must also set forth a counter-analysis. The counter-analysis should be in the same format required of the applicant, arriving at a final number. The opposition must clearly identify each line item in the application challenged as excessive, improper or otherwise unrecoverable and explain why. The opposition, for example, may annotate (legible handwriting will be acceptable) the applicant's declaration to isolate the precise numbers at issue.
8. With the benefit of both sides' filings, representatives of the parties with final decision authority shall meet in person and confer to try to resolve all differences as to the amount. If no agreement is reached, the moving party must file and serve a declaration showing full compliance with this paragraph, explaining when, where and who met, their decision authority, how long they met, what documents were reviewed together, and the principal points of disagreement. This must be done within 28 CALENDAR DAYS of the filing of movant's detailed declaration.
9. If no agreement is reached, a special master shall be appointed pursuant to FRCP 54(d)(2)(D). If the parties cannot agree on a special master, then the Court shall select a special master. The parties must so advise the Court on this within 28 CALENDAR DAYS of the filing of movant's detailed declaration. Please note that the entire expense of a special master can be wholly avoided by taking advantage of the foregoing opportunities to meet and confer over the appropriate amount.
10. The special master shall have all the powers set forth in FRCP 53(c). The parties shall provide the special master with copies of all motion papers and other documents relevant to this dispute. The special master shall review the briefs and declarations by the parties on the pending motion, hear argument, and then determine a reasonable amount to award, including any fees on fees. The special master shall also determine the extent to which any discovery should be permitted — with the caution that further discovery should be the exception and not the rule. The special master shall then prepare and file a report on recommended findings and amount.
11. Absent any supplementation allowed by the special master, the foregoing submissions (together with the briefs already filed) shall be the entire record for the motion. There will be no replies unless allowed later by the special master. Any further submissions for the special master's use should not be filed with the Court. If objections are later made to the special master's report, the objecting party must file a declaration submitting to the Court a complete appendix of relevant communications with the special master.
12. The Court will allocate the fees of the special master in a fair and reasonable manner, taking into account the reasonableness of the parties' respective positions and the special master's recommendation in this regard. If the movant must pay, then the special master's compensation shall be deducted from the attorney's fee award. If the opposing party must pay the special master, then it shall pay the special master and pay the award. The Court will, however, reserve final judgment on allocation of the expense of the special master until a final determination of the fee issue. A final award shall then be entered.
13. Statutory costs will be determined in strict compliance with the local rules by the Clerk's office. All other expenses will be determined according to the procedure set forth above.
2. MOTION FOR SANCTIONS.
A. Sanctions Pursuant to 28 U.S.C. 1927.
The AGM defendants also seek sanctions against plaintiffs' counsel, the law firm of Goodin, MacBride, Squieri, Ritchie Day, LLP, pursuant to 28 U.S.C. 1927. Section 1927 provides in relevant part: "Any attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, and attorneys' fees reasonably incurred because of such conduct." Sanctions pursuant to section 1927 must be supported by a finding of subjective bad faith. See Estate of Blas ex rel. Chargualaf v. Winkler, 792 F.2d 858, 860 (9th Cir. 1986). "Bad faith is present when an attorney knowingly or recklessly raises a frivolous argument or argues a meritorious claim for the purpose of harassing an opponent." Ibid. (citations omitted). "For sanctions to apply, if a filing is submitted recklessly, it must be frivolous, while if it is not frivolous, it must be intended to harass." In re Keegan Management Co., Sec. Litig., 78 F.3d 431, 436 (9th Cir. 1996).
Overall, the Goodin firm conducted the litigation cautiously and reasonably as its attorneys honored their professional obligations. The Goodin firm awaited for evidence before naming the AGM defendants. It conducted discovery to ferret out support for plaintiffs' claims. When it could find none, the Goodin firm did not oppose defendants' arguments. The AGM defendants admit that they do not challenge the Goodin firm's decision to initiate litigation and pursue through discovery. Instead, they object to counsel's failure to abandon certain claims during an one-month period between discovery of key information and defendants' filing of their summary-judgment motion. The AGM defendants contend that the Goodin firm acted in bad faith based on four purported untenable decisions. Even after considering each argument in turn and the combined effect, this order does not find bad faith or unreasonable and vexatious multiplication of proceedings. The brief lapse in time weighs against finding of bad faith.
First, the AGM defendants contend that counsel should not have continued to litigate plaintiffs' sixth claim based on supposed improper disclosure of confidential information. The only proffer is that plaintiffs failed to present evidence in opposing summary judgment. It is unclear from this record how and when plaintiffs' counsel would have learned from reasonable inquiry that there was no such evidence of disclosure. The last day for fact discovery was May 28. The AGM defendants filed their summary-judgment motion on June 17. This argument is unpersuasive.
Second, the AGM defendants contend that counsel should have dismissed their claims based on an earlier confidentiality agreement soon after counsel admitted in discovery that the purchase agreements were completely integrated. Plaintiffs' counsel did not rebut this point in their opposition. This argument has arguably some merit. It is unclear from the present record, however, how this action "so multiplie[d] the proceedings" to warrant sanctions under Section 1927. The only proceeding that occurred after discovery was the AGM defendant's motion for summary judgment, at least that is all that has been shown on this record. No authority has been provided that one instance of misjudgment or delayed response is sufficient for sanction. In the authority provided by the AGM defendants, the Fifth Circuit found that the record was "littered with indications that [the plaintiff's counsel] abandoned suit but willfully required GM to continue to defend it, and required to the court to continue to consider its merits." Edwards v. General Motors Corp., 153 F.3d 242, 246 (5th Cir. 1998). This is not the situation here. Even when combined with defendants' third argument, it cannot be said counsel multiplied proceedings in this case unreasonably and vexatiously as required by Section 1927.
Third, the AGM defendants contend that counsel acted in bad faith when it continued to litigate the present action after discovering evidence that suggest plaintiffs' action was barred by statute of limitations. The evidence in question was the fax from Mr. Rook to Mr. Hochstadt regarding the Citadel/AGM sale. During Mr. Hochstadt's deposition on May 7, 2004, the AGM defendants produced that fax. Th fax dated February 22, 1999, gave notice to plaintiffs that AGM intended to resell the radio stations. Accordingly, plaintiffs' claims accrued as of February 22, 1999. After Mr. Hochstadt's deposition, plaintiffs' counsel was arguably at fault for continuing to assert based on Mr. Hochstadt's belief that he did not know of the resale until 2000. It would have been more wise if counsel had in fact relinquished plaintiffs' tort claims against the AGM defendants.
Still, the AGM defendants filed their motion for summary judgment only a month after Mr. Hochstadt's deposition. The AGM defendants failed to provide any evidence that any proceedings occurred in that one-month interim. Despite the AGM defendants' contention, it cannot be said that plaintiffs multiplied proceedings vexatiously by responding to the request by defense counsel for a settlement demand. As stated above, no authority was provided that two instances of misjudgments leading to one summary-judgment motion would be sufficient to award sanctions under Section 1927.
Fourth, the AGM defendants contend that no reasonable person could find that the recitals in the purchase agreements precluded AGM from reselling the radio stations. It is true that the Court found no triable issue on this point. It cannot, however, be said that this argument was frivolous.
Two instances of misjudgment simply does not meet the high standard of Section 1927. Plaintiffs' counsel has acted honorably throughout the present litigation and, at all times, was candid with the Court, a trait often set aside by many attorneys under the guise of zealous advocacy. This record does not establish bad-faith conduct by the Goodin firm that unreasonably and vexatiously multiplied proceedings. The AGM defendants' request is DENIED.
B. Sanctions Pursuant to the Court's Inherent Powers.
The AGM defendants also sought sanctions against plaintiffs, their counsel and Mr. Hochstadt pursuant to the Court's inherent powers. The Court declines to exercise that power for the same reasons stated above.
With respect to Mr. Hochstadt, he is a nonparty who has never named the AGM defendants. Although he was initially a party in the original complaint, the first amended complaint superseded and nullified any legal effect of the original complaint. The Court also notes that this is the first time defendants had proffered an alter-ego theory to pierce the corporate veil and sanction plaintiffs' managing officer. The Court refuses to consider this new theory, which inherently requires factual findings, at this juncture.