Capital Asset Research Corp. v. Roger Finnegan , 216 F.3d 1268 ( 2000 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
JUNE 30 2000
THOMAS K. KAHN
No. 99-12932 CLERK
________________________
D. C. Docket No. 96-00453-CV-GET-1
CAPITAL ASSET RESEARCH CORPORATION,
Plaintiff-Counter-
Defendant-Appellant,
versus
ROGER FINNEGAN,
BREEN CAPITAL HOLDINGS, INC.,
Defendants-Counter-
Claimants-Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(June 30, 2000)
Before ANDERSON, Chief Judge, BLACK and HALL*, Circuit Judges.
PER CURIAM:
*
Honorable Cynthia Holcomb Hall, U.S. Circuit Judge for the Ninth Circuit, sitting by
designation.
Capital Asset Research Corporation (“Capital Asset”) brought suit against
Roger Finnegan and Breen Capital Holdings, Inc. The instant appeal is brought by
Capital Asset, challenging the district court’s award of attorneys’ fees to Finnegan.
Capital Asset makes two primary arguments on appeal: (1) that the district court
lacked subject matter jurisdiction to award attorneys’ fees to Finnegan; and (2) that
any such award should have been denied in any event because Finnegan’s motion for
attorneys’ fees was untimely.
BACKGROUND
The background facts and proceedings relevant to the above-mentioned issues
on appeal can be stated concisely. Capital Asset asserted three claims against
Finnegan: (1) a breach of contract claim asserting a breach of the Consulting
Agreement; (2) a breach of contract claim asserting a breach of the Non-disclosure
Agreement; and (3) a claim asserting a violation of the Georgia Trade Secrets Act.
After a 1997 bench trial, the district court found in favor of Finnegan with respect to
the two breach of contract claims; in other words, Finnegan successfully defended the
contract claims. However, the district court found in favor of Capital Asset on its
trade secrets claim. As a result of prevailing on its trade secrets claim, Capital Asset
was awarded by the district court all of the relief that it could have received had it
2
prevailed on its breach of contract claims. After the district court’s judgment in its
favor, Capital Asset moved for attorneys’ fees. The district court granted same.
Finnegan appealed.1 This Court reversed both the judgment in favor of Capital Asset
and its award of attorneys’ fees. On remand, Finnegan moved for an award of
attorneys’ fees based on a contractual provision allowing attorneys’ fees to the
prevailing party, and the district court granted same. Capital Asset now appeals the
district court’s award of attorneys’ fees in favor of Finnegan. We turn first to Capital
Asset’s argument on appeal that the district court had no subject matter jurisdiction
to award fees to Finnegan.
DISCUSSION
A. Subject Matter Jurisdiction
Capital Asset argues that motions for attorneys’ fees filed after judgment are
usually governed by Fed. R. Civ. P. 54(d)(2),2 but that Rule 54(d)(2) does not apply
1
Actually, both Finnegan and Breen appealed, as the judgment in favor of Capital Asset was
against both Finnegan and Breen. We refer only to Finnegan, however, because at the later stage
after remand, see infra, attorneys’ fees were awarded only to Finnegan, and thus Breen is not
involved in this appeal.
2
Rule 54(d)(2) provides that “Claims for attorneys’ fees and related nontaxable 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 Rule requires
that such motions be “filed and served no later than 14 days after entry of judgment.” Fed. R. Civ.
P. 54(d)(2)(B).
3
in the instant case because in the instant case “the substantive law governing the
action provides for recovery of such fees as an element of damages to be proved at
trial.” Fed. R. Civ. P. 54(d)(2)(A). Continuing its argument, Capital Asset asserts that
when substantive law (such as the contractual provision here) provides for the
recovery of such fees, they must be pled and proved as damages at trial, and that the
district court has no jurisdiction to entertain a plea for attorneys’ fees when such a
request was not made in the pleadings. In the instant case, Capital Asset argues,
Finnegan made no request for attorneys’ fees in its pleadings, and thus the district
court had no subject matter jurisdiction to entertain Finnegan’s motion for attorneys’
fees.
We reject Capital Asset’s jurisdictional argument. It is clear that the district
court had subject matter jurisdiction of this diversity case under 28 U.S.C. § 1332.
Nothing in Rule 54(d)(2) suggests that the district court in the instant case had no
subject matter jurisdiction to entertain Finnegan’s request for attorneys’ fees. Rule
54(d)(2)(A) mandates that claims for attorneys’ fees be made by a 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). It is true that
the Advisory Committee notes clarify that Rule 54(d)(2) is not applicable to attorneys’
fees recoverable as an element of damages, and the Advisory Committee cites
4
attorneys’ fees pursuant to the terms of a contract as an example thereof. The
Advisory Committee notes go on to say that such damages “typically” are to be
claimed in a pleading, and may involve issues to be resolved by a jury. However,
nothing in the language of the Rule itself or in the Advisory Committee notes suggests
that the failure to seek attorneys’ fees in a pleading is a defect depriving the district
court of subject matter jurisdiction. To the contrary, the Advisory Committee notes
state that such damages are “typically” to be claimed in a pleading. Moreover, a
failure to plead is rarely, if ever, a jurisdictional defect. Rather, both the text of Rule
15(a) and the cases indicate that leave to amend pleadings shall be freely given when
justice so requires. See Fed. R. Civ. P. 15(a). Indeed, even jurisdictional defects may
often be cured by amendment. See 28 U.S.C. § 1653 (“Defective allegations of
jurisdiction may be amended, upon terms, in the trial or appellate courts.”).
Contrary to Capital Asset’s argument that the failure to plead entitlement to
such fees is a defect depriving the district court of subject matter jurisdiction, Rule
54(c) expressly provides that “every final judgment shall grant the relief to which the
party in whose favor it is rendered is entitled, even if the party has not demanded such
relief in the party’s pleadings.”3
3
We note incidentally that Finnegan’s pleading did seek “such other and further relief as the
Court deems just and proper.”
5
The case law also supports our conclusion that Finnegan’s failure to make an
explicit request for attorneys’ fees in its pleadings is not a defect depriving the district
court of subject matter jurisdiction. In Engel v. Teleprompter Corp., 732 F.2d 1238
(5th Cir. 1984), the Fifth Circuit held that it was appropriate to award attorneys’ fees
to a prevailing defendant despite its failure to seek attorneys’ fees in its pleadings.
There, the plaintiff in its pleadings had sought an award of attorneys’ fees, as provided
for in the relevant contract. Plaintiff prevailed in the district court. Defendant
appealed and obtained a reversal. On remand, defendant for the first time moved for
attorneys’ fees. The Fifth Circuit held that the defendant’s failure to seek attorneys’
fees in its original pleadings did not bar it from seeking an award of fees upon
attaining the status of prevailing party. The court held that Rule 54(c) – providing that
“every final judgment shall grant the relief to which the party in whose favor it is
rendered is entitled, even if the party has not demanded such relief in its pleadings”
– justified an award of fees under the circumstances despite the pleading failure. The
Fifth Circuit did not expressly address an argument that there was no subject matter
jurisdiction, but its exercise of jurisdiction constitutes a holding inconsistent with
Capital Asset’s argument in the instant case. Accord Klarman v. Santini, 503 F.2d 29,
36 (2d Cir. 1974) (relying on Rule 54(c) and rejecting an argument that a party’s
failure specifically to request attorneys’ fees in its pleadings is in itself a bar to
6
recovery); Paliaga v. Luckenbach Steamship Co., 301 F.2d 403, 410 (2d Cir. 1962)
(same); see also Thorstenn v. Barnard, 883 F.2d 217, 218 (3d Cir. 1989) (citing Rule
54(c) and holding that a plaintiff who finally succeeded on appeal could rely on 42
U.S.C. §§ 1983 and 1988 to support an award of attorneys’ fees even though plaintiff
failed to rely on such statutes in the complaint in the district court).4 For the foregoing
reasons, we reject Capital Asset’s argument that the district court lacked subject
matter jurisdiction to entertain Finnegan’s request for attorneys’ fees.
B. Timeliness
4
Capital Asset relies upon Allgood Electric Company v. Martin K. Eby Construction
Company, Inc., 179 F.R.D. 646 (M.D. Ga. 1998) and Caremark, Inc. v. Coram Health Care
Corporation, 924 F. Supp. 891 (N.D. Ill. 1996). In both cases, the district court declined to entertain
a motion for attorneys’ fees, where entitlement to fees was based on a contractual provision, because
the request for attorneys’ fees was made by motion and the party had failed to seek attorneys’ fees
in its pleadings. Both cases noted that Rule 54(d)(2) – providing that attorneys’ fees should be
sought by motion no later than 14 days after judgment – does not apply where, inter alia, the
substantive law governing the action (e.g., a contractual provision) provides for recovery of such
fees as an element of damages. In declining to entertain a request for attorneys’ fees that was not
included in the pleadings, the court in Caremark used jurisdictional terminology – “I do not have
jurisdiction under Rule 54(d)(2) to order Caremark to pay Coram its attorneys’ fees.” Id. at 892.
While Allgood may well have been based upon an exercise of the district court’s discretion, its
citation of Caremark with approval might be interpreted as suggesting a jurisdictional basis. For the
reasons set out in the text above, we reject as unpersuasive any implication in Caremark or Allgood
that the failure to plead and prove attorneys’ fees before judgment deprives a district court of subject
matter jurisdiction to entertain a request for attorneys’ fees after judgment.
Capital Asset also cites dicta from an unpublished opinion from the Sixth Circuit, Clarke v.
Mindis Metals, Inc., 99 F.3d 1138 (table), No. 95-5517, 1996 WL 616677 (6th Cir. Oct. 24, 1996).
Capital Asset cites the jurisdictional language used by the court at *8 in the context of noting that
a Rule 54(d)(2) motion was unnecessary and in referring to the Caremark court’s holding that the
district court in such a context would have no jurisdiction to hear such a motion. We construe the
Sixth Circuit as having inadvertently picked up Caremark’s loose jurisdictional terminology, and
in any event, the cited phrase is dicta. The Clarke court specifically rejected the argument that the
district court had no subject matter jurisdiction. Indeed, the jurisdictional ruling in Clarke is entirely
consistent with our jurisdictional holding.
7
Having established the district court’s jurisdiction and authority to award
attorneys’ fees notwithstanding the pleading defect, we turn to Capital Asset’s
argument that Finnegan’s motion for attorneys’ fees was untimely. To understand
Capital Asset’s argument, it is appropriate to recall that Finnegan successfully
defended the breach of contract claims asserted by Capital Asset during the 1997
bench trial. Finnegan’s entitlement to attorneys’ fees is based upon a contractual
provision that provides in substance that in any lawsuit brought to enforce the
contract, the prevailing party, either plaintiff or defendant, would be entitled to
attorneys’ fees. The gist of Capital Asset’s argument is that Finnegan had prevailed
with respect to the contract claims as of the conclusion of the 1997 trial, after the
district court held that Finnegan had successfully defended against Capital Asset’s
claims of breach of contract. Thus, Capital Asset argues, Finnegan should have
sought attorneys’ fees either before the 1997 judgment or within a short time
thereafter (suggesting by analogy the 14-day period indicated in Rule 54(d)(2)).
Instead, Capital Asset points out that Finnegan waited until after its successful appeal
of the 1997 judgment against Finnegan on Capital Asset’s trade secrets claim. Capital
Asset argues that Finnegan’s motion for attorneys’ fees on remand after its successful
appeal was untimely.
8
We reject Capital Asset’s arguments. We emphasize that an award of attorneys’
fees in circumstances such as those presented in this case is a matter addressed to the
broad discretion of the district court. Because most of the arguments asserted by
Capital Asset on appeal were also presented to the district court, we construe the
district court’s award of attorneys’ fees in this case as an exercise of its broad
discretion. In affirming the district court’s exercise of discretion in this case, we deem
it significant that the parties in the instant case “agreed during the trial of this matter,
and the court consented, to the bifurcation of attorneys’ fees for later hearing.” Dist.
Ct. Order dated March 25, 1998.5 Thus, Capital Asset’s assertions of surprise and
prejudice – on account of not having been forewarned of attorneys’ fees by
Finnegan’s pleadings – ring hollow.
Even more significant is the fact that Capital Asset, as a result of prevailing at
the 1997 trial on its trade secrets claim, received relief at the expense of Finnegan
which amounted to all of the relief that it could have received had it prevailed on its
breach of contract claims. Capital Asset conceded this fact in its brief on appeal, and
also made the same representation to the district court.6 In light of the fact that Capital
5
The district court so found in the course of awarding attorneys’ fees in favor of Capital Asset
after the 1997 trial. Finnegan had opposed Capital Asset’s motion for attorneys’ fees on the grounds
that it was untimely, not having been filed within 14 days of the 1997 judgment.
6
In seeking reimbursement of all of its attorneys’ fees following the 1997 trial, plaintiff
represented to the district court that “plaintiff’s success on the trade secrets claim afforded plaintiff
9
Asset received all of the relief it would have received had it prevailed on the contract
claims, it can hardly be said that Finnegan, although it successfully defended against
recovery of such relief on the contract theories, was the prevailing party.7 Cf. Taylor
v. City of Ft. Lauderdale, 810 F.2d 1551, 1555-56 (11th Cir. 1987) (“In order to
qualify as a prevailing party under 42 U.S.C. §1988, the plaintiff must be successful
on the central issue in the case, exhibited by the fact that the plaintiff acquired the
primary relief sought.”); Miami Herald Publishing Co. v. City of Hallandale, 742 F.2d
590, 591 (11th Cir. 1984) (“Prevailing for purposes of §1988 is exhibited by the fact
that the litigant ‘has acquired the primary relief sought.’”) (quoting from Iranian
Students Association v. Edwards, 604 F.2d 352, 353 (5th Cir. 1979)); see also
Worthington v. Lick, 783 F.2d 1369, 1370 (9th Cir. 1986) (Although the case
presented several theories of recovery, and although the plaintiff prevailed on his
conversion claim, the action was a single lawsuit, and the defendant “prevailed”
because he was the one who received the net award and the party in whose favor
judgment was rendered). In any event, it is entirely understandable that Finnegan
would thus construe the matter.
the complete relief it sought from defendants.” Dist.Ct. Order dated March 25, 1998.
7
As the Supreme Court stated in Hensley v. Eckerhart, 461 U.S. 424, 103 S. Ct. 1933 (1983),
“the most critical factor is the degree of success obtained.” Id. at 436, 103 S. Ct. at 1941.
10
The Fifth Circuit Engel case discussed above is also relevant to our inquiry
concerning timeliness. Although the Engel court held that a district court has the
authority to award attorneys’ fees (pursuant to a contractual provision) to a prevailing
defendant who has failed to plead same and who seeks same for the first time after
successfully appealing a judgment in favor of plaintiff, the court also recognized
potential prejudice to the opposing party, and indicated that an award in such
circumstances would be discretionary. Examining the plaintiff’s assertion of prejudice
there, the Engel court acknowledged that the defendant had not sought attorneys’ fees
in its pleadings, but noted that the contract was in evidence and clearly provided that
the prevailing party could recover attorneys’ fees, that plaintiff’s own application for
attorneys’ fees had specifically focused attention on the attorneys’ fees clause, and
that “[o]nly the identity of the prevailing party had to be established before that
party’s right to this form of relief became manifest.” Engel, 732 F.2d at 1242.
In the instant case, the same factors are present: although Finnegan did not seek
attorneys’ fees in its pleadings, the contract was in evidence and expressly provided
for attorneys’ fees for the prevailing party, and only the identity of the prevailing party
had to be established before that party’s right to attorneys’ fees became manifest. It
is true that Engel is distinguishable in that the appeal in Engel involved the very
11
contract claim on which the entitlement to attorneys’ fees depended.8 On the other
hand, in the instant case, Finnegan’s original appeal challenged only the district
court’s judgment in favor of Capital Asset on the trade secrets claim. Indeed,
Finnegan had successfully defended Capital Asset’s claim against it based upon
breach of the contract. However, the instant case is like Engel in that, as a practical
matter, the identity of the prevailing party could not be ascertained until after the
appeal. As explained above, although Finnegan had successfully defended Capital
Asset’s claim that Finnegan had breached the contract, Finnegan probably would not
have been considered the prevailing party because Capital Asset obtained via its trade
secrets claim all of the relief that it might have gotten had it succeeded on its breach
of contract claim.
Under the particular circumstances of this case, we hold that the district court
did not abuse its discretion in finding Finnegan’s request for attorneys’ fees timely,
and in awarding same.
Accordingly, the judgment of the district court is
8
The Advisory Committee notes to Rule 54(d)(2) state that “[a] new period for filing [i.e., a
new 14-day period] will automatically begin if a new judgment is entered following reversal or
remand by the appellate court.” Although we suspect that the commentary was contemplating an
appeal and reversal on the very issue on which entitlement to fees hinged, as in Engel, the common
sense of the proposition lies in the fact that the identity of the prevailing party is unascertained until
after the appeal.
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AFFIRMED.9
9
Capital Asset’s other arguments on appeal – that Finnegan was not the prevailing party and
that the district court abused its discretion with respect to the amount of the fees – are rejected
without need for discussion. Thus, the district court’s award of fees and the amount thereof are
affirmed without modification. In addition, Finnegan’s motion for attorneys’ fees on appeal is
granted as to entitlement, and that matter is remanded to the district court for a determination of
amount.
13