Express Recovery Services v. Olson , 397 P.3d 792 ( 2017 )

2017 UT App 71THE UTAH COURT OF APPEALS
EXPRESS RECOVERY SERVICES INC.,
Appellee,
v.
DANIEL PAUL OLSON,
Appellant.
Opinion
No. 20151013-CA
Filed April 27, 2017
Third District Court, West Jordan Department
The Honorable Bruce C. Lubeck
No. 140415183
Grant D. Gilmore, Attorney for Appellant
Edwin B. Parry and Joshua R. Dunyon, Attorneys
for Appellee
JUDGE J. FREDERIC VOROS JR. authored this Opinion, in which
JUDGES STEPHEN L. ROTH and MICHELE M. CHRISTIANSEN
concurred.
VOROS, Judge:
¶1 The principal question posed by this appeal concerns
which party prevailed at trial and thus can claim the benefit of a
contractual attorney fee provision. Express Recovery Services
Inc., assignee of All Pro Appliance Service Inc., sued Daniel Paul
Olson on a debt arising from an employment agreement between
Olson and All Pro. Olson counterclaimed seeking a setoff (but no
net damage award). Neither party proved its claims at trial. The
trial court awarded no attorney fees, reasoning that neither party
had prevailed. Olson contends on appeal that he prevailed at
trial because he achieved his optimal outcome: zero recovery.
We agree. We accordingly vacate the trial court’s order declining
Express Recovery Services v. Olson
to award attorney fees and remand the case for a determination
of a reasonable fee award.
BACKGROUND
¶2 All Pro hired Olson as an appliance service technician in
September 2011. The employment agreement contained a
liquidated damages provision requiring Olson to reimburse All
Pro for training costs if he was terminated within two years after
he completed his training. Within the two-year period, All Pro
and Olson parted company.
¶3 Hoping to recoup the training costs, All Pro assigned its
rights under the employment agreement to Express Recovery, a
debt collector. Express Recovery sued Olson for breach of
contract, seeking $10,348.25 in damages for training costs and
other amounts allegedly owed. Olson counterclaimed for breach
of contract and unjust enrichment, seeking a setoff of
approximately $1,600 for amounts allegedly owed. Olson did
not, however, seek a net recovery.
¶4 After a bench trial, the court ruled that Express Recovery
had failed to prove its breach of contract claim and that Olson
had failed to prove his counterclaims. Both parties requested
attorney fees under a provision in the employment agreement
entitling the prevailing party to attorney fees and costs. The trial
court denied attorney fees to both parties. Olson appeals,
seeking attorney fees incurred in the trial court and on appeal.
ISSUE AND STANDARDS OF REVIEW
¶5 Olson contends that the trial court abused its discretion
when it failed to name him as the prevailing party. “‘Whether
attorney fees are recoverable in an action is a question of law,
which we review for correctness.’” Anderson & Karrenberg v.
Warnick, 2012 UT App 275, ¶ 8, 289 P.3d 600 (quoting Valcarce v.
20151013-CA 2 2017 UT App 71Express Recovery Services v. Olson
Fitzgerald, 961 P.2d 305, 315 (Utah 1998) (plurality opinion)). We
“review the trial court’s determination as to who was the
prevailing party under an abuse of discretion standard.” R.T.
Nielson Co. v. Cook, 2002 UT 11, ¶ 25, 40 P.3d 1119.
ANALYSIS
¶6 Olson’s main contention on appeal is that the trial court
abused its discretion “when it failed to name [him] the
prevailing party and award him his reasonable costs and
attorney fees in accordance with the contract.” Express Recovery
responds that the trial court “did not abuse its discretion in
determining that neither party prevailed.”
¶7 The trial court ruled that “[w]hile the Employment
Agreement contains a provision for attorney fees, . . . the court
believes that each party acted in good faith herein and no
attorney fees should be or are awarded to either party.” The
court concluded that “[n]either party prevailed and neither party
breached improperly this original contract.” Thus, the court
ruled that “[n]either party is entitled to a money judgment,” and
“[e]ach party is to bear its own fees and costs.”
¶8 “Attorney fees are generally recoverable in Utah only
when authorized by statute or contract.” Reighard v. Yates, 2012
UT 45, ¶ 41, 285 P.3d 1168 (citation and internal quotation marks
omitted). “If the legal right to attorney fees is established by
contract, Utah law clearly requires the court to apply the
contractual attorney fee provision and to do so strictly in
accordance with the contract’s terms.” Hahnel v. Duchesne Land,
LC, 2013 UT App 150, ¶ 16, 305 P.3d 208 (citation and internal
quotation marks omitted). “‘Since the right is contractual, the
court does not possess the same equitable discretion to deny
attorney’s fees that it has when fashioning equitable remedies, or
applying a statute which allows the discretionary award of such
fees.’” Cobabe v. Crawford, 780 P.2d 834, 836 (Utah Ct. App. 1989)
20151013-CA 3 2017 UT App 71Express Recovery Services v. Olson
(quoting Spinks v. Chevron Oil Co., 507 F.2d 216, 226 (5th Cir.
1975)).
¶9 Here, the trial court properly ruled that attorney fees were
recoverable because “the Employment Agreement contains a
provision for attorney fees.” The dispute on appeal focuses on
whether Olson qualified for a fee award as the prevailing party.
¶10 Utah courts generally apply a “common sense ‘flexible
and reasoned’ approach . . . to the interpretation of contractual
‘prevailing party’ language.” A.K. & R. Whipple Plumbing &
Heating v. Guy, 2004 UT 47, ¶ 14, 94 P.3d 270 (quoting Mountain
States Broad. Co. v. Neale, 783 P.2d 551, 556–57 & n.7 (Utah Ct.
App. 1989)). This approach begins with the “net judgment rule,”
which provides that “the party in whose favor the ‘net’
judgment is entered must be considered the ‘prevailing party’
and is entitled to an award of its fees.” See Mountain States, 783
P.2d at 557–58. While the “net judgment rule” is a starting point,
the court should also consider “common sense factors in
addition to the net judgment.” A.K. & R. Whipple, 2004 UT 47,
¶¶ 26–28; see also R.T. Nielson Co. v. Cook, 2002 UT 11, ¶ 25, 40
P.3d 1119 (enumerating relevant factors). “‘This approach
requires not only consideration of the significance of the net
judgment in the case, but also looking at the amounts actually
sought and then balancing them proportionally with what was
recovered.’” Olsen v. Lund, 2010 UT App 353, ¶ 7, 246 P.3d 521(quoting A.K. & R. Whipple, 2004 UT 47, ¶ 26). Ultimately, “[t]he
focus should be on ‘which party had attained a comparative
victory, considering what a total victory would have meant for
each party and what a true draw would look like.’” Id. ¶ 8(quoting J. Pochynok Co. v. Smedsrud, 2005 UT 39, ¶ 11, 116 P.3d
353 (additional internal quotation marks omitted)). “Comparative
victory—not necessarily a shutout—is all that is required.”
Id. ¶ 12.
¶11 Furthermore, where the parties request attorney fees
pursuant to a contract, only claims based on or related to that
20151013-CA 4 2017 UT App 71Express Recovery Services v. Olson
contract figure into the prevailing-party analysis. See Anderson &
Karrenberg v. Warnick, 2012 UT App 275, ¶ 16, 289 P.3d 600(concluding that, while attorney fees related to a breach of
contract claim were recoverable, those related to an unjust
enrichment claim were not).
¶12 Olson argues that “[b]y any calculation, [he] is the
prevailing party. [Express Recovery] brought multiple claims
against [him] seeking over $10,000 in damages plus fees and
interest and recovered nothing, a total loss. Conversely, [Olson]
successfully defended against [Express Recovery’s] claims and
avoided a money judgment, a complete victory.” Olson also
argues that the fact that his counterclaim was unsuccessful is
immaterial, because he “could not have realized a net gain
regardless of the outcome.” In other words, because his
counterclaim was brought “for the limited purpose of an offset,”
his “maximum recovery was $0, which he realized.”
¶13 Express Recovery responds that although it did not
prevail on its claim against Olson, it did prevail on its defense
against Olson’s counterclaim. Express Recovery also argues that
although Olson’s counterclaim was an offset, “it is still a
counterclaim and must be treated as such,” and that “had Olson
successfully brought his Counterclaims, the Trial Court would
have likely awarded him his attorney fees.”
¶14 First we consider the legal effect of Olson’s counterclaim.
Olson is correct that he could not have recovered a net damage
award against Express Recovery. Although Express Recovery
sued on an obligation, All Pro, not Express Recovery, was the
obligee; Express Recovery sued as All Pro’s assignee. Where the
assignee of a claim sues the obligor, the obligor’s claim against
the assignor may offset the claim of the assignee only to the
extent of the assignee’s claim; the obligor must sue the assignor
in a separate suit for the balance of the counterclaim. See Chesney
v. District Court of Salt Lake County, 108 P.2d 514, 518 (Utah 1941).
Thus, “the assignee cannot be subject to an affirmative judgment
20151013-CA 5 2017 UT App 71Express Recovery Services v. Olson
for the surplus of the counterclaim or to another suit to recover
the excess.” Id. In other words, “‘[t]he obligor on the note may
assert setoffs against it or may have defenses that make the note
uncollectible, but the obligor cannot make affirmative claims for
damages against the note assignee based upon some tort or breach
of contract by the original payee.’” Winegar v. Froerer Corp., 813
P.2d 104, 109 (Utah 1991) (quoting Murr v. Selag Corp., 747 P.2d
1302, 1309 (Idaho Ct. App. 1987)). 1
1. Other courts have also recognized that the defendant cannot
assert its claim against the assignor offensively to recover
damages from the assignee, but only defensively, as a setoff, to
reduce the amount of the assignee’s recovery. See, e.g., Walters v.
Iowa-Des Moines Nat’l Bank, 295 N.W.2d 430, 434 (Iowa 1980)
(concluding that a “counterclaim can be used against [the
assignee] only defensively to reduce the amount of its claim
against [the obligor]” and that “[i]t cannot result in a personal
judgment against [the assignee]”); Standard Insulation & Window
Co. v. Dorrell, 309 S.W.2d 701, 704 (Mo. Ct. App. 1958) (“It is well
settled that in an action by an assignee, a claim in favor of
defendant against the assignor can be allowed as a set-off,
counterclaim, or reconvention only to the extent of the claim
sued on, and judgment cannot be rendered against the assignee
for the excess. Defendant is entitled to use his claim defensively,
and not offensively . . . .” (citation and internal quotation marks
omitted)); Pargman v. Maguth, 64 A.2d 456, 459 (N.J. Super. Ct.
App. Div. 1949) (“No citations are necessary in support of the
well settled doctrine, that recovery . . . on a counterclaim or
setoff against an assignee, where based on a demand against the
assignor, cannot be affirmative; it can be defensive only.”);
Premier Capital, LLC v. Baker, 972 N.E.2d 1125, 1136 (Ohio Ct.
App. 2012) (“It is well settled that an assignment does not cast
any affirmative liability upon the assignee of the contract unless
the assignee assumes those obligations.” (citation and internal
quotation marks omitted)); Litton ABS v. Red-Yellow Cab Co., 411
N.E.2d 808, 810 (Ohio Ct. App. 1978) (“In an action between the
(continued…)
20151013-CA 6 2017 UT App 71Express Recovery Services v. Olson
¶15 So while “‘[t]he assignee [stands] in the shoes of the
assignor,’” see, e.g., Sunridge Dev. Corp. v. RB & G Engineering,
Inc., 2010 UT 6, ¶ 13, 230 P.3d 1000 (alterations in original)
(quoting 9 John E. Murray, Jr., Corbin on Contracts § 51.1 (rev. ed.
2007)), it does so only so far as the assigned claim is concerned,
not to whatever extent recovery on the counterclaim of the
obligor may exceed the assigned claim. Thus, for example, if a
doctor assigns a medical bill to a collection agency, the patient
may use their medical malpractice claim defensively to reduce
the collection agency’s recovery, but not offensively to recover a
net damage award. 2
¶16 Here, All Pro assigned its rights to sue Olson under the
employment agreement to Express Recovery. Express Recovery,
as assignee, brought suit against Olson for breach of contract,
and Olson, as obligor, asserted a counterclaim for a setoff against
Express Recovery. Olson explained below that his counterclaim
was a “claim[] which could have been asserted against [All Pro]
prior to the alleged assignment and [did] not exceed the value of the
assigned claims.” (Emphasis added.) As explained above, Olson
could not as a matter of law have won a net damage award
(…continued)
obligor and the assignee the claims of breach of warranty or
breach of contract are available only defensively; if the obligor
seeks damages or restitution he must go directly against the
assignor.”).
2. Former rule 13(j) of the Utah Rules of Civil Procedure, which
was in effect on the date that Olson filed his “counterclaim,”
recognized this distinction. See Utah R. Civ. P. 13(j) (repealed
2016) (“[A]ny claim, counterclaim, or cross-claim which could
have been asserted against an assignor at the time of or before
notice of such assignment, may be asserted against his assignee,
to the extent that such claim, counterclaim, or cross-claim does
not exceed recovery upon the claim of the assignee.”).
20151013-CA 7 2017 UT App 71Express Recovery Services v. Olson
against Express Recovery. See Chesney, 108 P.2d at 518. Thus,
though styled as a counterclaim under former rule 13(j) of the
Utah Rules of Civil Procedure, Olson’s counterclaim was in fact
nothing more than a setoff. “A ‘setoff’ is a counterclaim which a
defendant may have against a plaintiff to be used in full or
partial satisfaction of whatever is owed.” Mark VII Fin.
Consultants Corp. v. Smedley, 792 P.2d 130, 132 (Utah Ct. App.
1990) (citing Studley v. Boylston Nat’l Bank, 229 U.S. 523, 528
(1913)). The trial court recognized this, ruling explicitly that
Olson’s “counterclaim” was as a matter of law a setoff.
Accordingly, we agree with Olson’s contention that the
maximum net recovery on his counterclaim against Express
Recovery, as assignee, was $0. See id.
¶17 Turning now to the question of whether Olson prevailed
at trial, we apply a flexible and reasoned approach, balancing the
amounts sought by the parties against what they recovered. See
Olsen v. Lund, 2010 UT App 353, ¶ 7, 246 P.3d 521. Express
Recovery sought $10,348.25 at trial and recovered $0. Olson
sought to pay nothing and paid nothing. True, Olson recovered
nothing on his counterclaim, but that counterclaim served only
as a setoff to reduce any recovery won by Express Recovery.
Because Express Recovery won no recovery, Olson’s
counterclaim played no role in the ultimate judgment. Thus,
despite the complete failure of his counterclaim, Olson achieved
his optimal trial outcome. Although a “[c]omparative victory—
not necessarily a shutout—is all that is required,” see id. ¶ 12,Olson did achieve a shutout.
¶18 The trial court denied attorney fees to both parties on the
ground that “the court believes that each party acted in good
faith herein.” Under the bad faith fee statute, “the court shall
award reasonable attorney fees to a prevailing party if the court
determines that the action or defense to the action was without
merit and not brought or asserted in good faith . . . .” Utah Code
Ann. § 78B-5-825 (LexisNexis 2008). However, Olson did not
seek an award of fees under the statute, but under a contractual
20151013-CA 8 2017 UT App 71Express Recovery Services v. Olson
fee provision. “If the legal right to attorney fees is established by
contract, Utah law clearly requires the court to apply the
contractual attorney fee provision and to do so strictly in
accordance with the contract’s terms.” Hahnel v. Duchesne Land,
LC, 2013 UT App 150, ¶ 16, 305 P.3d 208 (citation and internal
quotation marks omitted). Accordingly, Olson’s entitlement to a
fee award did not depend on a showing that Express Recovery’s
action was not asserted in good faith.
¶19 In sum, we conclude that the trial court exceeded its
discretion in determining that neither party was the prevailing
party. Accordingly, we vacate the order denying Olson attorney
fees and remand for the trial court to determine a reasonable
attorney fee for Olson under the relevant legal factors. See Griffin
v. Cutler, 2014 UT App 251, ¶ 26, 339 P.3d 100 (citing Dixie State
Bank v. Bracken, 764 P.2d 985, 990 (Utah 1988)).
¶20 Finally, we consider the parties’ requests for attorney fees
on appeal. “[W]e interpret the contractual provision allowing
attorney fees in connection with litigation to include appeals.”
Cobabe v. Crawford, 780 P.2d 834, 837 (Utah Ct. App. 1989)
(citation and internal quotation marks omitted). Moreover, the
employment agreement in this case explicitly entitles the
prevailing party to “reasonable attorneys’ fees and costs
including those incurred on appeal.” Thus, as the prevailing
party on appeal, Olson’s attorney fee award on remand should
include reasonable attorney fees he incurred on appeal.
CONCLUSION
¶21 For the foregoing reasons, we vacate the order denying
Olson attorney fees at trial, and we remand the case for the trial
court to determine Olson’s reasonable fees incurred both in the
trial court and on appeal.
20151013-CA 9 2017 UT App 71