Thames v. Evanston Insurance Co. , 665 F. App'x 716 ( 2016 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT December 14, 2016
_________________________________
Elisabeth A. Shumaker
Clerk of Court
GERRY G. THAMES,
Plaintiff - Appellant,
v. No. 15-5125
(D.C. No. 4:13-CV-00425-PJC)
EVANSTON INSURANCE CO., (N.D. Okla.)
Garnishee - Appellee.
–––––––––––––––––––––––––––––––––––
GERRY G. THAMES,
Plaintiff - Appellant/
Cross-Appellee,
No. 16-5051 and 16-5054
v. (D.C. No. 4:13-CV-00425-PJC)
(N.D. Okla.)
EVANSTON INSURANCE CO.,
Garnishee - Appellee/
Cross-Appellant.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before MATHESON, McKAY, and O’BRIEN, Circuit Judges.
_________________________________
*
After examining the briefs and appellate records, this panel has determined
unanimously to honor the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The cases are therefore
submitted without oral argument. This order and judgment is not binding precedent,
except under the doctrines of law of the case, res judicata, and collateral estoppel. It
may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1
and 10th Cir. R. 32.1.
Gerry G. Thames obtained a $120,000 confessed judgment against Brookside
Title & Escrow Inc. and its owner Debra Stockton. He sought to collect on that
judgment by initiating a garnishment action against Brookside’s insurer, Evanston
Insurance Company. Mr. Thames asserted that Evanston possessed property (the
insurance policy) that could pay for the confessed judgment. Evanston denied there
was any coverage under the policy for such a claim.
The district court entered judgment in Evanston’s favor. Mr. Thames appeals
from that decision in No. 15-5125. The district court later granted Evanston’s motion
for attorney fees but did not award the full amount requested. Mr. Thames and
Evanston cross-appeal from the fee award in Nos. 16-5051 and 16-5054, respectively.
Exercising jurisdiction over this diversity case under 28 U.S.C. § 1291, we
affirm the district court’s judgment in favor of Evanston in the garnishment action.
We affirm in part and reverse and remand in part the district court’s fee award.
I. BACKGROUND
A. Factual Background and Proceedings Prior to the Garnishment Action
Mr. Thames retained Brookside to provide closing and escrow services for a
cash-transaction real estate purchase. Mr. Thames wired a transfer payment of
$94,905.68 into Brookside’s escrow account to be used for the closing, which never
occurred.
On May 20, 2011, Mr. Thames sued Brookside and Ms. Stockton in state court
and requested a temporary restraining order (the “TRO Action”). He sought to
recover his funds from Brookside’s escrow account. On June 1, the state court
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granted a permanent injunction and awarded Mr. Thames all of the funds in
Brookside’s account.
Evanston provided professional liability insurance to Brookside. On June 3,
Michael Parks, counsel for Brookside and Ms. Stockton, notified Evanston of the
TRO Action and reported a shortage of approximately $91,000 in escrow funds. On
June 8, Mr. Parks spoke with Clara Celebuski, a senior claims examiner employed by
Markel Service, Inc., Evanston’s claims service manager, and suggested
Ms. Stockton possibly misallocated or stole the escrow funds.
On June 30, Mr. Thames sued Brookside and Ms. Stockton again in state court
(“the Lawsuit”), alleging breach of contract, breach of fiduciary duty and conversion,
fraud, and civil conspiracy to intentionally commit fraud and convert Mr. Thames’s
funds. Mr. Parks accepted service on behalf of Brookside and Ms. Stockton. Notice
of the Lawsuit was not provided to Evanston.
On July 18, Evanston issued a denial of coverage letter concerning the TRO
Action, stating the TRO Action did not seek damages as defined in the policy. The
letter concluded, “please advise the undersigned immediately if you are aware of
further or different facts that could have a bearing on our position regarding coverage
of the captioned matter.” No. 15-5125, Aplt. App. at A148.
On July 12, 2012, Mr. Thames filed an Amended Petition in the Lawsuit.
Evanston was not advised of the Amended Petition.
Also in July 2012, Ms. Stockton and her husband filed for bankruptcy.
Ms. Stockton listed the Lawsuit as an unsecured, non-priority debt eligible for
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bankruptcy discharge. Mr. Thames initiated an adversary proceeding in which the
bankruptcy court entered a default judgment against the Stocktons for $89,444.19 and
excepted the judgment from discharge.
On February 19, 2013, Brookside and Ms. Stockton filed an offer to confess
judgment in the Lawsuit in favor of Mr. Thames for $30,555.81 in addition to the
bankruptcy default judgment previously registered in the Lawsuit. Mr. Thames filed
an acceptance of the offer to confess judgment. Evanston was not advised that
Brookside and Ms. Stockton were contemplating confessing judgment in the Lawsuit
or that an offer to confess judgment was made to Mr. Thames.
On February 20, judgment was entered in the Lawsuit for $30,555.81, as
confessed and accepted by the parties, together with the $89,444.19, as the pre-
recorded judgment in the bankruptcy case, for a total of $120,000.
B. The Garnishment Action
On May 23, 2013, Mr. Thames filed a Garnishment Affidavit in the Lawsuit,
seeking payment of the judgment from Evanston based on the insurance policy issued
to Brookside. The Garnishment Affidavit was Evanston’s first notice of the
Lawsuit’s existence. Evanston responded via affidavit and denied coverage.
Mr. Thames then filed an Application for Hearing to Determine Insurance Coverage.
Evanston removed the case to federal court. Shortly thereafter, Mr. Thames
moved to remand the case to state court, but that motion was denied. Evanston then
moved for summary judgment on the coverage issue, which the district court denied.
Mr. Thames next filed his own motion for summary judgment, but the district court
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struck it as untimely. The parties engaged in unsuccessful settlement negotiations,
and the case proceeded to a bench trial.
After trial, the district court entered an Opinion and Order. The court
concluded that because Brookside and Ms. Stockton never provided notice of the
Lawsuit that led to the judgment at issue, the notice provisions in the policy were not
satisfied and coverage was precluded. The court alternatively found that, even if
notice had been provided, coverage would be precluded under the policy’s Amended
Exclusion O because Brookside and Ms. Stockton had misappropriated the escrow
funds. The court entered judgment in favor of Evanston because there was no money
or property in its possession that could be used to satisfy Mr. Thames’s garnishment
claim. Mr. Thames filed an appeal from the judgment (No. 15-5125).
After judgment was entered in its favor, Evanston moved for $103,036 in
attorney fees. Mr. Thames objected, arguing the fee award should be $47,718. The
district court awarded $88,427.68 to Evanston. Both parties disagreed with the fee
award and filed cross-appeals (No. 16-5051 and No. 16-5054).
II. DISCUSSION
We review the district court’s findings of fact after a bench trial for clear error
and its conclusions of law de novo. Sanpete Water Conservancy Dist. v. Carbon
Water Conservancy Dist., 226 F.3d 1170, 1177-78 (10th Cir. 2000). We review the
district court’s award of attorney fees for abuse of discretion. BP Am. Prod. Co. v.
Chesapeake Expl., LLC, 747 F.3d 1253, 1260 (10th Cir. 2014). “Because this is a
diversity action, we apply the substantive law of the forum state,” which is
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Oklahoma. Cornhusker Cas. Co. v. Skaj, 786 F.3d 842, 850 (10th Cir. 2015)
(foonote and internal quotation marks omitted).
A. The Appeal on the Merits (No. 15-5125)
Under Oklahoma law, “[i]nsurance policies are contracts interpreted as a
matter of law.” BP Am. Inc. v. State Auto Prop. & Cas. Ins. Co., 148 P.3d 832, 835
(Okla. 2005) (footnote omitted). The district court concluded that Brookside (the
named Insured) failed to give proper notice to Evanston of the Lawsuit, as required
under the policy, and therefore coverage was precluded for Mr. Thames’s judgment.
Mr. Thames argues the district court erred.
The parties agree that Evanston had notice of the TRO Action. Mr. Thames
asserts that notice of the TRO Action together with Brookside and Ms. Stockton’s
request to investigate the claims underlying the TRO Action provided Evanston with
sufficient knowledge to discover the Lawsuit.
Notice of the TRO Action, however, was inadequate under the terms of the
insurance policy to trigger coverage for the judgment resulting from the Lawsuit.
The policy’s Claim Reporting Provision provides that the Insured must give written
notice to Evanston of any claim made against the Insured as a condition precedent to
coverage. No. 15-5125, Aplt. App. at A124. This provision further states, “[i]n the
event a suit is brought against the Insured, the Insured shall immediately forward to
[Evanston] every demand, notice, summons or other process received.” Id. (emphasis
added). As the district court explained, “[t]he ‘every’ language employed in this
provision means that notice of the Lawsuit should have to be forwarded to Evanston
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regardless of any prior notice Evanston had received regarding the TRO action.” Id.at A23.
Brookside and Ms. Stockton did not inform Evanston that the Lawsuit had
been filed, forward the Lawsuit’s Petition or First Amended Petition to Evanston, or
inform Evanston they were contemplating confessing judgment. The first notice
Evanston had of the Lawsuit was its receipt of the post-judgment Garnishment
Affidavit. The district court determined that the lack of notice of the Lawsuit
prejudiced Evanston “because Evanston did not have the opportunity to control
Brookside’s defense in the Lawsuit, nor was Evanston a party to the negotiations that
led to Brookside’s and Mrs. Stockton’s confession to the judgment.” Id.We agree with the district court’s analysis, which is more fully stated in its
Opinion and Order, and its conclusion that Brookside and Ms. Stockton’s failure to
give notice of the Lawsuit to Evanston precluded coverage for the judgment in the
garnishment action.1 Accordingly, we affirm the district court’s judgment in favor of
Evanston for substantially the same reasons stated in its Opinion and Order dated
November 17, 2015.
B. The Appeal and Cross Appeal of the Fee Award (Nos. 16-5051 & 16-5054)
1
We note that the district court also relied on the insurance policy’s Amended
Exclusion O as an additional basis to conclude that Mr. Thames’s claims were not
covered under the policy. Although we see no reason to reach this issue given that
Evanston did not have notice of the Lawsuit, we agree with the district court’s
analysis and its conclusion on this issue for substantially the same reasons stated by
the district court in its Opinion and Order.
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At issue in these cross-appeals is the amount of fees due Evanston.2 Under
Oklahoma law, the first step in determining a fee award is calculating a lodestar fee
by multiplying the attorney’s hourly rate by the hours expended (relying on detailed
time records submitted by the attorney). Spencer v. Okla. Gas & Elec. Co., 171 P.3d
890, 895 (Okla. 2007). The fee may then be enhanced after considering the factors
set out in State ex rel. Burk v. Oklahoma City, 598 P.2d 659 (Okla. 1979). Spencer,
171 P.3d at 895. “Finally, any fee so calculated is subject to the rule that it must be
reasonable and bear some reasonable relationship to the amount in controversy.” Id.
“[C]ounsel for the prevailing party should make a good faith effort to exclude
from a fee request hours that are excessive, redundant or otherwise unnecessary.”
Malloy v. Monahan, 73 F.3d 1012, 1018 (10th Cir. 1996) (ellipsis and internal
quotation marks omitted). And “[t]he district court has a corresponding obligation to
exclude hours not reasonably expended from the calculation.” Id. (internal quotation
marks omitted).
In Evanston’s motion for fees, the affidavit submitted by one of Evanston’s
attorneys stated that the firm had charged $107,253 in fees for services related to
defending Evanston in the garnishment action. But the affidavit also explained that
pursuant to adjustments in the billing agreement between the firm and Evanston, that
amount had been reduced to $103,036, which was the amount Evanston requested in
2
Evanston’s entitlement to attorney fees arises from 12 Okla. Stat.
§ 1190(B)(1). Mr. Thames does not dispute that Evanston is entitled to an award of
attorney fees as the prevailing party in the garnishment action. His sole challenge is
to the amount of the award.
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its motion for attorney fees. Evanston further explained that because it was not
seeking an enhanced fee, the district court need only determine whether the rates
charged for the services and the time spent on those services was reasonable.
Mr. Thames filed a response, objecting to the amount requested as unreasonable. He
argued the proper amount was $47,718.
In its decision, the district court said the Burk factors should be considered
when determining the reasonableness of a request for attorney fees. It briefly
addressed a few of those factors, noting that (1) this case was more complex than a
typical insurance coverage lawsuit, (2) it required significant work by experienced
counsel, and (3) Mr. Thames had not challenged Evanston’s attorneys’ hourly rate.
The court next addressed one of Mr. Thames’s specific objections. It agreed
with Mr. Thames that the amount of fees should be reduced by $2,550 for the time
billed by Evanston’s attorneys, who were located in Oklahoma City, to travel to trial
and hearings in Tulsa. The court explained that “there was no need to hire counsel
outside the Northern District” and, therefore, “costs associated with travel time
[were] not justified.” Nos. 16-5051 & 16-5054, Aplt. App. at A238. This reduced
the base sum requested to $100,486.
The district court noted that Mr. Thames’s main objection to Evanston’s
request for attorney fees centered on the total number of hours. Mr. Thames pointed
out that his attorneys spent 621 hours on the case, while Evanston’s attorneys spent
832 hours. The court explained that Mr. Thames had “challenged specific areas of
legal work performed by Evanston’s counsel” and had suggested “that the number of
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lawyers working on the case—four—may have led to duplication of effort and
inefficiency for which Thames should not be held responsible.” Id. at A239.
The district court then stated:
From an overall review of the time records, it appears to the Court
that more hours than reasonable were expended on particular projects:
research regarding removal, client communication, summary judgment
briefing and the search for an expert witness, for example. Clearly, there
was some duplication of effort or inefficiency in the case; however, in
general, the Court cannot fault Evanston’s counsel for the way that they
have defended the case. The Court also notes that Evanston’s lawyers have
already exercised a degree of billing judgment by deleting certain charges
from their bills to the client.
Id. The court concluded: “After reviewing the billing records submitted, the Court finds
that a general reduction of 12 percent is appropriate to compensate for excessive hours
and inefficiencies. This results in a net award to Evanston of $88,427.68.” Id.
On appeal, Mr. Thames argues that, although “[t]he district court
acknowledged that ‘more hours than reasonable were expended on certain projects,’”
the court relied on cases from other jurisdictions to determine “that it did not have to
conduct a line-by-line analysis of Evanston’s bills and that it could arbitrarily pick a
percentage by which to reduce Evanston’s application.” Aplt. Corrected Br. in Chief
at 7. Mr. Thames asserts the fee award should be reversed and remanded because the
district court abused its discretion by not following Oklahoma precedent.
On cross-appeal, Evanston argues the district court improperly deducted
Evanston’s attorneys’ travel time, abused its discretion by applying an arbitrary
percentage to reduce the fees, and failed to consider the reasonableness of counsel’s
time in responding to Mr. Thames’s and his counsel’s strategic maneuvering.
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Evanston further asserts that even though the percentage-reduction was improper, the
district court correctly rejected Mr. Thames’s line-by-line analysis of Evanston’s
claimed fees.
1. Travel time
The district court acted within its discretion when it deducted the travel time
for Evanston’s attorneys to get from Oklahoma City to Tulsa. The court relied on
Ramos v. Lamm, 713 F.2d 546, 559 (10th Cir. 1983), in which we explained that
“because there is no need to employ counsel from outside the area in most cases, we
do not think travel expenses for such counsel between their offices and the city in
which the litigation is conducted should be reimbursed. Departure from this rule
should be made in unusual cases only.” Id.Evanston argues that it should be reimbursed for its attorneys’ travel time
because Oklahoma firms commonly have a statewide practice, the firm reduced its
hourly rate by 50% for travel time, and this practice is “similar to that approved in
other circuit courts involving the cost of an out-of-state specialist’s travel time.”
Aplee. Principal/Resp. Br. at 21. Mr. Thames responds that Evanston does not
provide any evidence that its counsel is a specialist who needed to travel from
Oklahoma City to Tulsa. The district court is the most familiar with this particular
litigation and the attorneys who practice before the court in the Northern District.
Given these circumstances, we defer to its determination.
2. Hours expended
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We “review the district court’s determination of reasonable hours for an abuse
of discretion. Under this standard, we will reverse the district court only if its
determination is arbitrary, capricious, whimsical, or manifestly unreasonable.”
Mallinson-Montague v. Pocrnick, 224 F.3d 1224, 1235 (10th Cir. 2000) (brackets and
internal quotation marks omitted). Both parties argue that the district court’s
imposition of a 12 percent reduction was arbitrary and constituted an abuse of
discretion. See Aplt. Corrected Br. in Chief at 5; Aplee. Principal/Resp. Br. at 22.
We agree.
In its fee order, the district court relied on authority from the Second Circuit to
support its decision to use a general percentage reduction. See Nos. 16-5051 &
16-5054, Aplt. App. at A235-36. In the Second Circuit, a district court
is not obligated to undertake a line-by-line review of [a] fee application. It
may, instead, exercise its discretion and use a percentage deduction as a
practical means of trimming fat. Using this form of “rough justice,” district
courts in [the Second] Circuit regularly employ percentage reductions as an
efficient means of reducing excessive fee applications.
Marion S. Mishkin Law Office v. Lopalo, 767 F.3d 144, 150 (2d Cir. 2014) (citation and
internal quotation marks omitted).
This approach, however, is inconsistent with Oklahoma and Tenth Circuit law.
The Oklahoma Supreme Court has explained that “the trial court should set forth with
specificity the facts, and computation to support [its] award [of attorney’s fees].”
Spencer, 171 P.3d at 896 (internal quotation marks omitted).
Likewise, our court has explained that “the record ought to assure us that the
district court did not eyeball the fee request and cut it down by an arbitrary percentage.”
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Robinson v. City of Edmond, 160 F.3d 1275, 1281 (10th Cir. 1998) (brackets and internal
quotation marks omitted). In Robinson, we reversed the district court’s decision to apply
“an across-the-board cut of 45 percent in the hours claimed by the plaintiffs’ attorney.”
Id. at 1280. And we recently relied on Robinson to reverse a fee award where a district
court determined that a “‘proportionality reduction’ was appropriate and reduced the total
amount of the [fee] request . . . by forty-five percent.” Ridgell-Boltz v. Colvin, No. 15-
1361, 2016 WL 6574001, at *5 (10th Cir. Nov. 7, 2016) (unpublished).
We note that in Jane L. v. Bangerter, 61 F.3d 1505, 1510 (10th Cir. 1995), we
held it was not an abuse of discretion for the district court to reduce the number of
compensable hours by 35%. In that case, we concluded that such a reduction was
appropriate because “[p]laintiffs’ rather sloppy and imprecise time records failed to
document adequately how plaintiffs’ attorneys utilized large blocks of time.” Id. We
explained that “[w]here the documentation of hours is inadequate, the district court
may reduce the award accordingly.” Id. (internal quotation marks omitted). But
there is no indication in this case that counsel for Evanston submitted imprecise or
inadequate time records so as to justify an across-the-board percentage reduction.
Although we are compelled to remand this matter to the district court for
further proceedings, we cannot agree with Mr. Thames that the court must conduct a
line-by-line analysis of Evanston’s claimed fees. On remand, “the district court need
not identify and justify every hour allowed or disallowed, as doing so would run
counter to the Supreme Court’s warning that a request for attorney’s fees should not
result in a second major litigation.” Malloy, 73 F.3d at 1018 (internal quotation
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marks omitted). But we cannot properly evaluate the district court’s determination
that more hours than reasonable were expended when it imposes a general 12 percent
reduction that is not sufficiently tied to any factual findings. On remand, the court
must provide more specific information to support its fee award.
III. CONCLUSION
In appeal No. 15-5125, we affirm the district court’s judgment on the merits of
the garnishment action. In cross-appeal Nos. 16-5051 and 16-5054, we affirm the
portion of the fee award deducting $2,550 from the total fees requested. We reverse
and remand the remainder of the fee award for further proceedings consistent with
this decision.
With respect to the motions filed in appeal No. 15-5125, we grant Evanston’s
unopposed motion to strike portions of Mr. Thames’s appendix because they are not
part of the district court record. We grant Mr. Thames’s motion to supplement his
appendix with a trial exhibit that was included in the district court record but was not
contained in his original appendix. We also grant Evanston’s request to supplement
the appendix with certain trial transcript excerpts, which are contained in its response
to Mr. Thames’s motion.
ENTERED FOR THE COURT,
Scott M. Matheson, Jr.
Circuit Judge
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