Dewberry & Davis v. C3NS, Inc. ( 2012 )

Present: Kinser, C.J., Lemons, Goodwyn, Millette, Mims, and
Powell, JJ., and Koontz, S.J.
DEWBERRY & DAVIS, INC.
OPINION BY
v. Record No. 111661 SENIOR JUSTICE LAWRENCE L. KOONTZ, JR.
September 14, 2012
C3NS, INC., ET AL.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
R. Terrence Ney, Judge
In this appeal, we consider whether the circuit court
erred in applying an attorneys' fees provision of a contract.
The court determined that the plaintiff, the prevailing party
on both its claim for compensation under the contract and the
defendant's counterclaim for the plaintiff's alleged breach of
the contract, was entitled to only a nominal award of one
dollar in attorneys' fees for its defense of the counterclaim
because the defendant had a "good faith" basis for alleging
the breach. We further consider an assignment of cross-error
asserting that any award of attorneys' fees on the
counterclaim was subject to a further provision in the
contract for calculating fees in an action to collect
compensation owed under the contract.
BACKGROUND
The material facts are not in dispute and may be
summarized in the following manner. On May 12, 2008, Dewberry
& Davis, Inc. ("Dewberry"), an engineering firm, entered into
a contract with C3NS, Inc. to prepare a survey and site plan
for the construction of a building on property owned by C3
Holdings, LLC in an industrial park located in Louisa,
Virginia. The building would house a tire recycling plant to
be operated by C3RS, Inc. 1
"Attachment B" to the contract included certain "standard
terms and conditions" including a provision that
[C3] shall furnish [to Dewberry] all plans,
drawings, surveys, deeds and other documents related
to the services in your possession and shall inform
us in writing about all special criteria or
requirements related to Services . . . . [Dewberry]
may obtain deeds, plats, maps and any other
information filed with or published by any
governmental entity . . . . [C3] agree[s] to give
prompt notice to [Dewberry] of any development or
occurrence that affects the scope or timing of
Services.
Also included in Attachment B was the following provision
concerning the payment of attorneys' fees and expenses in the
event of litigation arising from the contract ("attorneys'
fees provision"):
The losing party shall pay the winning party's
reasonable attorneys' fees and expenses for the
prosecution or defense of any cause of action, claim
or demand arising under this Agreement in any court
or in arbitration. The attorneys' fees payable to
us for the collection of compensation you owe us
shall be twenty-five percent of any judgment or
award against you and our attorneys' fees, expenses,
and collection costs.
1
C3NS, Inc., C3 Holdings, LLC, and C3RS, Inc. are related
entities. We will refer to them collectively as "C3."
2
Under the terms of an addendum signed by C3 on June 15,
2008, Dewberry was required to relocate the proposed building
site from the location originally designated by C3 to "allow[]
for a closer proximity to the Dominion Virginia Power (DVP)
service area" within the industrial park so that the building
would "receive power service from DVP." The addendum
indicated that C3 was acquiring additional acreage in the
industrial park in order to facilitate this change.
Prior to the execution of the addendum, Dewberry received
from Rappahannock Electric Cooperative ("Rappahannock
Electric"), the other electric service provider for the
industrial park, materials which purported to show the
division of the service areas of the two providers. Unknown
to Dewberry, the materials were inaccurate. However, using
these materials, Dewberry prepared a building site plan that
did not meet the criteria of the June 15, 2008 addendum.
Also prior to the execution of the addendum, C3 had
received from DVP an aerial photograph which accurately
reflected the service areas of the two electric service
providers. This photograph showed that no portion of the
building site, including the additional acreage acquired by
C3, was within DVP's service area. C3, which apparently was
unaware of the photograph's significance, failed to provide it
to Dewberry as required by the contract.
3
When C3 learned that the site plan prepared by Dewberry
would not place the building within the DVP service area, it
withheld payment to Dewberry on the balance owed under the
contract. Dewberry subsequently obtained a mechanic's lien on
the property to secure this debt.
On May 21, 2009, Dewberry filed in the Circuit Court of
Fairfax County, C3's principal place of business, a complaint
against C3 seeking to collect the balance owed on the
contract. On November 10, 2009, C3 filed in the same circuit
court a complaint against Dewberry alleging, among other
things, breach of contract and seeking 1.5 million dollars in
damages allegedly incurred as a result of the tire recycling
plant not being located within DVP's service area. Both
parties sought an award of attorneys' fees and expenses under
the contract. Ultimately, the suits were consolidated for
trial with C3's complaint nominated as a counterclaim.
Following an extended period of discovery and pre-trial
motions, the case was set for a bench trial, limited to the
issue of liability on the complaint and counterclaim. In this
regard, the court had entered a consent order reflecting the
parties' agreement that neither party would be required to
present evidence concerning attorneys' fees until after a
judgment had been rendered on the merits of the asserted
claims. The consent order stated that "[a]ttorney[s'] fees
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and expenses may be awarded in accordance with" the attorneys'
fees provision of Attachment B. (Emphasis added.)
The trial commenced on February 28, 2011, and evidence in
accord with the above recited facts was received by the
circuit court. At the conclusion of the trial on March 10,
2011, the court entered an order awarding Dewberry judgment
for $49,459.85 on its claim. In its summation, the court
concluded that even if Dewberry had breached the contract by
failing to discover the inaccuracy in the information obtained
from Rappahannock Electric and, thus, not providing a site
plan in accord with the criteria of the June 15, 2008
addendum, C3 could not recover on its counterclaim. The court
reasoned that this was so because C3 had been the first to
breach the contract by failing to provide Dewberry with the
aerial photograph provided by DVP. The court further stated
that it would consider an award of attorneys' fees, "[b]ut it
strikes [the court] that this was a legitimate, good-faith
dispute, a difference of opinion, and without making any
decision, [the court is] not likely to shift fees absent any
other evidence presented."
On April 15, 2011, citing the attorneys' fees provision,
Dewberry filed a motion, supported by numerous billing records
and other documentation, for an award of attorneys' fees and
expenses for both the prosecution of its complaint and the
5
defense of the counterclaim. Dewberry calculated the award
due for collection of compensation owed under the second
sentence of the attorneys' fees provision to include 25% of
the judgment in addition to attorneys' fees and expenses of
$5,795.50, while it claimed $338,356.60 in attorneys' fees and
expenses for successfully defending the counterclaim.
In response, C3 contended that although the attorneys'
fees provision required that "[t]he losing party shall pay
. . . reasonable attorneys' fees and expenses," the use of the
term "may" in the consent order had modified the contract and
allowed the circuit court the discretion to decline awarding
attorneys' fees to Dewberry. (Emphasis added.) C3 noted that
the court had observed that the suit involved a "legitimate,
good-faith dispute," and, thus, it contended that an award of
attorneys' fees would be a "windfall for Dewberry," while
penalizing C3 for pursuing a legitimate, though ultimately
unsuccessful, claim for breach of contract.
C3 further contended that the attorneys' fees provision
limited any recovery by Dewberry to that available under its
second sentence. C3 maintained that where a contract provides
for an award of liquidated cost of collection damages that
includes attorneys' fees, such an award necessarily includes
the cost of the defense of any counterclaim.
6
Lastly, C3 contended that Dewberry's request for
attorneys' fees included amounts that were "unrecoverable"
because these fees related to "claims" on which Dewberry had
not prevailed. These "claims" were "unsuccessful defenses
[that] were outside the scope of the [attorneys' fees] clause
or were unreasonable," including a pre-trial motion for
partial summary judgment and motions to compel discovery.
In response, Dewberry maintained that the consent order
was not intended as a novation of the contract, but merely
provided for the manner of conduct of the trial. Dewberry
further contended that because it had prevailed on all issues
regarding liability, it was entitled to recover all attorneys'
fees related to both the prosecution of its complaint and the
defense of the counterclaim and that it would be an abuse of
discretion for the circuit court not to enforce the attorneys'
fees provision as written.
Thereafter, the circuit court held a hearing on the
motion for attorneys' fees. On June 14, 2011, the court
issued an order with an incorporated opinion letter. The
court first concluded that "the only logical purpose of the
[c]onsent [o]rder was to bifurcate the attorneys' fees issue
from the trial on the merits." Nonetheless, the court further
concluded that "the 'may' versus 'shall' argument is
ultimately a distinction without a difference [because, while]
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the language of the [c]ontract is mandatory, under Virginia
law, this Court must still be satisfied that fees should be
awarded."
The circuit court then discussed the nature of the
counterclaim, concluding that "this was a good faith dispute."
Thus, although "C3 [did] not dispute" that "Dewberry's fees
for its defense of C3's [c]ounterclaim standing alone are fair
and reasonable," the court nonetheless concluded that "given
the nature of the dispute, shifting [the burden of attorneys'
fees] to C3 is not warranted." However, recognizing that the
attorneys' fees provision was "mandatory," the court awarded
Dewberry attorneys' fees of $18,160.46 for the prosecution of
its complaint and one dollar for the defense of the
counterclaim. 2 The circuit court did not address C3's
arguments that Dewberry could recover only under the second
sentence of the attorneys' fees provision and that Dewberry
was barred from recovering fees associated with the pre-trial
motions on which it had not prevailed.
Dewberry filed a motion for reconsideration of the award
of one dollar as attorneys' fees and expenses for its
successful defense of the counterclaim. Dewberry maintained
2
The record is not clear regarding how the amount of the
award was calculated with regard to Dewberry's complaint.
However, that issue is not presented in this appeal.
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that the court had improperly rewritten the parties' contract
through its "adoption of [a] 'good faith dispute'" standard.
Dewberry asserted that it was entitled to an award of
reasonable attorneys' fees for its successful defense of C3's
counterclaim, regardless of whether C3 had a good faith basis
for asserting that claim.
Having previously suspended the order entered June 14,
2011, the circuit court issued a final order with an
incorporated opinion letter on July 8, 2011 denying Dewberry's
motion for reconsideration. The court stated that while its
prior opinion letter had "take[n] into consideration the
nature of the dispute, it was to explain the circumstances
that led to the result of the dispute." In the court's view,
although "Dewberry may have prevailed in the trial . . . it
still plainly breached its contract . . . because it failed to
provide C3 access to [DVP's service area] as it had agreed."
Thus, because both parties had breached the contract and
Dewberry had prevailed on C3's counterclaim only because C3
had been the first to breach the contract, the court reasoned
that "based on the result of the dispute, the . . . decision
to award Dewberry its attorneys' fees of $1.00 is reasonable."
We awarded Dewberry an appeal on the following assignment
of error:
9
The trial court erred by abusing its discretion in
awarding Dewberry only $1.00 in attorneys' fees and
expenses for its successful defense of [C3's]
Counterclaim in contravention of clear contract
language directing recovery by a prevailing party of
reasonable attorneys' fees and expenses for the
prosecution or defense of any claim.
We also awarded an appeal to C3 on its assignment of
cross-error: 3
The trial court incorrectly construed the contract
when it failed to find that the second sentence of
section twenty two of the standard terms of the
Contract, which states "The attorneys' fees payable
to us [Dewberry] for the collection of compensation
you [C3] owe shall be twenty-five percent of any
judgment or award against you and our attorney's
fees, expenses, and collection costs," did not cover
all of Dewberry's Attorneys' fees, including defense
of counterclaims filed in response to Dewberry's
action.
DISCUSSION
At no time have the parties contended that the attorneys'
fees provision is ambiguous, nor is there any dispute that
Dewberry was the "winning party," as that term is used in the
contract on both its complaint and C3's counterclaim. Under
these circumstances, this Court applies a de novo standard of
review to interpret an unambiguous provision of a contract.
PMA Capital Ins. Co. v. US Airways, Inc., 271 Va. 352, 357-58,
626 S.E.2d 369, 372 (2006). Moreover, the contract is to be
3
C3 also filed a cross-appeal addressing the merits of
the underlying case. We refused C3's petition for appeal by
order. C3NS, Inc. v. Dewberry & Davis, Inc., Record No.
111778 (December 19, 2011).
10
"construed as written, without adding terms that were not
included by the parties." Id. at 358, 626 S.E.2d at 372.
"Under the so-called 'American rule,' a prevailing party
generally cannot recover attorneys' fees from the losing
party." Ulloa v. QSP, Inc., 271 Va. 72, 81, 624 S.E.2d 43, 49
(2006). This rule, however, does not prevent parties to a
contract from adopting provisions that shift the
responsibility of attorneys' fees to the losing party in
disputes involving the contract. Id.
A prevailing party who seeks to recover attorneys' fees
pursuant to a contractual provision such as the one at issue
here has the burden to present a prima facie case that the
requested fees are reasonable and necessary. Chawla v.
BurgerBusters, Inc., 255 Va. 616, 623, 499 S.E.2d 829, 833
(1998); see also Seyfarth, Shaw, Fairweather & Geraldson v.
Lake Fairfax Seven Ltd. P'ship, 253 Va. 93, 96, 480 S.E.2d
471, 473 (1997). We have identified several factors that are
relevant to the determination of this issue:
[A] fact finder may consider, inter alia, the time
and effort expended by the attorney, the nature of
the services rendered, the complexity of the
services, the value of the services to the client,
the results obtained, whether the fees incurred were
consistent with those generally charged for similar
services, and whether the services were necessary
and appropriate.
11
Chawla, 255 Va. at 623, 499 S.E.2d at 833; accord Ulloa, 271
Va. at 82, 624 S.E.2d at 49.
Dewberry asserts that the circuit court misapplied the
guidance given in Chawla by inferring that the "whether the
services were necessary and appropriate" language permitted
the court to consider the "nature of the dispute" and apply a
"good faith" requirement to limit the prevailing party's
recovery. Dewberry contends that a trial court's
consideration of the reasonableness of the attorneys' fees
requested should be limited to the substance and relationship
of the fees to the prosecution or defense of a claim, without
consideration of whether the opposing party had a good faith
basis for taking an adverse position at trial. Thus, because
the court determined that the fees and expenses Dewberry
submitted for the defense of C3's counterclaim were otherwise
"fair and reasonable," Dewberry asserts that the court abused
its discretion in limiting Dewberry's recovery of attorneys'
fees for the defense of the counterclaim because it found that
the counterclaim arose from a "legitimate dispute." We agree.
In its June 14, 2011 opinion letter, the circuit court
expressly stated that it was limiting Dewberry's recovery
because "given the nature of the dispute, shifting [the burden
of attorneys' fees] to C3 is not warranted." Although the
court subsequently clarified that it had "take[n] into
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consideration the nature of the dispute . . . to explain the
circumstances that led to the result of the dispute," the
result of the dispute is relevant only to determining under
the contract which party is the "winning party" and therefore
entitled to seek an award of attorneys' fees. Moreover, the
court reasoned that not shifting the burden of the attorneys'
fees to C3 was "warranted" because Dewberry had prevailed on
the counterclaim only by virtue of the affirmative defense
that C3 had first breached the contract. This reasoning is
plainly wrong. It is not in accord with the contract
provision providing that the "losing party shall pay the
winning party's reasonable attorneys' fees and expenses for
the . . . defense of any . . . claim . . . under this
Agreement."
A trial court may, when determining the reasonableness of
the fees and expenses claimed by a prevailing party, deduct
from the award any fees and expenses associated with claims
and defenses the court views to be frivolous, spurious, or
unnecessary. Chawla, 255 Va. at 624, 829 S.E. 2d at 833;
Ulloa, 271 Va. at 83, 624 S.E.2d at 50. However, "[c]ourts
will not rewrite contracts; parties to a contract will be held
to the terms upon which they agreed." The Bank of Southside
Virginia v. Candelario, 238 Va. 635, 640, 385 S.E.2d 601, 603
(1989). Here, the award of one dollar as reasonable
13
attorneys' fees essentially required the circuit court to
rewrite the parties' contract. It takes no analytical leap to
conclude that an award of one dollar was not contemplated by
the parties' contract. Accordingly, we hold that the circuit
court abused its discretion in limiting Dewberry's recovery of
attorneys' fees and expenses for its successful defense of
C3's counterclaim to one dollar.
We turn now to consider C3's assignment of cross-error.
The thrust of C3's various assertions is that Dewberry was
limited to one award of attorneys' fees rather than two and
the amount of that award was limited by the provisions of the
second sentence in the attorneys' fee provision of the
parties' contract.
C3 maintains that Dewberry's complaint was "for the
collection of compensation" as contemplated by the second
sentence of the attorneys' fees provision and would have
included the costs of the necessary efforts to dispute C3's
claim that Dewberry had breached the contract and, thus,
excused or mitigated C3's lack of payment of compensation
otherwise due to Dewberry. C3 contends that the costs of
these efforts would have been incurred by Dewberry even if C3
had not also sought an "affirmative recovery" through its
counterclaim. C3 thus maintains that because there was only
one action for the collection of compensation, Dewberry was
14
limited to one award of attorneys' fees and the award was
limited to "twenty-five percent of any judgment . . . against
[C3] and [Dewberry's] attorneys' fees, expenses, and
collection costs."
C3's assertions are flawed on multiple grounds. First,
C3's assertion that Dewberry would have been required to
respond to the claim that it had breached the contract even if
C3 had not asserted its counterclaim and sought an
"affirmative recovery" belies the fact that C3 actually sought
to recover damages for Dewberry's alleged breach that were
well in excess of those claimed in Dewberry's complaint. The
counterclaim did not seek merely to mitigate or alleviate C3's
liability, but to impose a significant liability on Dewberry
as well. By increasing the magnitude of the amount in
controversy, C3 necessarily increased the costs to defend a
claim that otherwise would have been presented only as an
affirmative defense to a much smaller amount in controversy.
Second, the nature of the counterclaim expanded the scope
of the litigation far beyond a collection of compensation
dispute. An examination of the record shows that the greater
portion of the lengthy discovery process and the nine-day
trial was devoted to the prosecution and defense of the
counterclaim. In this context, there was never any real
dispute that Dewberry was owed compensation under the
15
contract, only whether it had breached the contract in a
manner that would bar it from collecting the balance due.
Indeed, while a claim of $338,356.60 in attorneys' fees for
contesting an affirmative defense to the claim for
compensation of less than one-sixth that amount would be
excessive and unreasonable, a different calculus would apply
where the same amount is expended in defending against a claim
for $1,500,000 in damages.
Accordingly, we do not agree with C3 that because the
facts asserted to support its counterclaim might also have
served as a defense to the complaint, the entire matter was
"for the collection of compensation" and, thus, all fees to be
awarded would be subject to the second sentence of the
attorneys' fees provision. We hold that the defense of the
counterclaim was not part of the collection action and the
circuit court did not err in failing to find that an award of
attorney's fees and expenses to Dewberry on the counterclaim
would be controlled by the second sentence of the attorneys'
fees provision. 4
Having determined that the circuit court erred in
limiting the award of attorneys' fees and expenses for
4
In light of this holding, we need not address C3's
further assertion concerning the method for calculating an
award under the second sentence of the attorneys' fees
provision.
16
Dewberry's successful defense of C3's counterclaim to one
dollar and that the calculation of the award is not subject to
the "for the collection of compensation" clause of the
attorneys' fees provision, we must now consider what result
should obtain in this Court. Dewberry contends that because
the court determined that the claim for $338,356.60 in
attorneys' fees and expenses was "fair and reasonable," we
should remand with instruction to award that amount. Dewberry
further requests that upon remand it be permitted to seek an
award of attorneys' fees and expenses for the prosecution of
this appeal and defense of the assignment of cross-error.
C3 responds that we should remand the case to the circuit
court with "instruction regarding [the] attorneys' fees that
can be awarded against" C3, but without specifically directing
the court to award the amount claimed by Dewberry. C3
conceded at trial that it was not challenging the
reasonableness of the hourly billing rate nor the number of
hours billed by Dewberry's counsel for defense of the
counterclaim. However, C3 maintains that it did not concede
the necessity of all the charges at trial and that the court
made no express ruling on this issue. The record supports
this contention. During oral argument of this appeal, counsel
explained that "there had been no reason" to contest the
necessity of individual elements of the fees in light of the
17
court's ultimate award of only one dollar. Accordingly,
counsel expressly requested at the conclusion of oral argument
that the issue be remanded with instruction for the circuit
court to receive evidence as to whether all the fees claimed
were necessary to the defense of the counterclaim.
In its opposition to Dewberry's motion for attorneys'
fees, at trial C3 clearly contested the necessity of some of
the fees claimed, specifically asserting that Dewberry should
not recover for unsuccessful motions related to discovery and
an unsuccessful motion for partial summary judgment on the
counterclaim. While we have held that a party entitled to
recover attorneys' fees may do so only for those issues on
which it prevailed and which relate to the contract, Ulloa,
271 Va. at 83, 624 S.E.2d at 50, heretofore we have not
required the party to show that it was successful in every
aspect of its prosecution or defense related to those issues
on which it prevailed, and we decline to adopt such a rule
now.
Rather, the question is whether, given the factors set
forth and explained in Chawla, Ulloa, and their progeny, the
fees were reasonable, necessary and appropriate to the
particular circumstances of the litigation. Chawla, 255 Va.
at 623, 499 S.E.2d at 833; Ulloa, 271 Va. at 82, 624 S.E.2d at
49. Merely because a party loses a pre-trial motion related
18
to an issue on which the party ultimately prevails does not
mean that the pre-trial motion was not appropriate at the time
it was filed and under the circumstances of the case. It is
the province of the trial court to determine whether fees for
these services were necessary.
We are of opinion that the circuit court's finding that
"[attorneys'] fees for [Dewberry's] defense of [C3's]
counterclaim standing alone are fair and reasonable" did not
resolve the issue whether all of those fees were necessary.
"Fair" and "reasonable," the terms used by the court in its
opinion letter, are synonymous in meaning. Here, no evidence
was received concerning the necessity of those fees and no
express ruling on that issue was made by the court.
Undoubtedly this was because of the court's erroneous ruling
limiting the recovery of attorneys' fees on the counterclaim
to one dollar. Moreover, we are further of opinion that the
trial court should be afforded the opportunity to exercise its
discretion to resolve this issue in the first instance rather
than for this Court to resolve the issue in this appeal.
Accordingly, we hold that while the reasonableness of the
hourly rate of Dewberry's claim for attorneys' fees and
expenses will not be subject to challenge upon remand, the
court may receive evidence on the issue whether all the fees
charged with respect to the defense of the counterclaim were
19
necessary applying the guidance found in Chawla and Ulloa as
discussed herein.
CONCLUSION
For these reasons, we will reverse the judgment of the
circuit court awarding one dollar in attorneys' fees and
expenses to Dewberry for its successful defense of C3's
counterclaim. We will remand the case to the circuit court
for further proceedings to determine a proper award to
Dewberry for attorneys' fees and expenses for its successful
defense of C3's counterclaim. Additionally, upon remand,
Dewberry may submit to the circuit court a claim for
additional attorneys' fees and expenses, and the court shall
award such fees and expenses that it determines to be
reasonable and necessary for the successful prosecution of
this appeal and defense of C3's assignment of cross-error
thereto.
Reversed and remanded.
20