The Electric Man, Inc. v. Charos

The Electric Man, Inc. v. Charos (2004-542); 179 Vt. 351; 895 A.2d 193

2006 VT 16

[Filed 10-Feb-2006]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2006 VT 16

                                No. 2004-542


  The Electric Man, Inc. 	                 Supreme Court

            v.

  George Charos and John Charos
                                                 On Appeal from
       v.	                                 Windham Superior Court

  Ernest Salo and Linda Salo	                 September Term, 2005 


  Karen R. Carroll, J.

  Elizabeth A. Boepple of Witten, Woolmington, Campbell, Boepple, Welford &
    Sawyer, P.C., Manchester Center, for Third-Party Plaintiffs-Appellees.

  Joshua L. Simonds and Gregory S. Mertz of Mertz, Talbott & Simonds, PLC,
    Burlington, for Third-Party Defendant/Counterclaimant-Appellant. 


  PRESENT:  Reiber, C.J., Dooley, Johnson, Skoglund and Burgess, JJ.

        
       ¶  1.  DOOLEY, J.   Contractor Ernest Salo appeals from a superior
  court order awarding him only a portion of his attorneys' fees, pursuant to
  Vermont's prompt payment act, 9 V.S.A. § 4007(c), against owners George
  Charos, John Charos, and Patricia Costello.  The case arises out of a
  contract under which contractor was to remodel owners' house.  Contractor
  prevailed below on his claims for breach of contract and conversion, and on
  owners' claims for defective workmanship, but the superior court did not
  award him all of his attorneys' fees.  On appeal, contractor argues that
  the trial court erred when it:  (1) separated out the percentage of the
  total verdict that represented the payment-withholding claim from the
  claims for breach of contract and conversion, and awarded attorneys' fees
  under the prompt payment act only for that portion of the fees associated
  with the payment-withholding claim; and (2) specifically disallowed
  attorneys' fees associated with unsuccessful mandatory and voluntary
  mediation. We reverse and remand for imposition of a new attorneys' fee
  award.  

       ¶  2.  In the spring of 2001, contractor entered into an oral contract
  with owners to expand owners' vacation home in Jamaica, Vermont. 
  Contractor was to construct a one-story addition with two bedrooms, a
  bathroom, and a loft over an existing garage.  The parties did not enter
  into a single, written contract regarding the construction, but instead
  made plans through a series of conversations and e-mail correspondence. 
  Contractor began work on the project in early summer 2001.  As work
  progressed, owners made periodic payments by check or cash, and contractor
  used the funds to buy supplies and pay employees.  In September 2001,
  contractor requested additional funds from owners in order to complete the
  construction.  At one point he left owner a ledger sheet marking expenses
  and payments received, and indicating that his unreimbursed out-of-pocket
  expenses were $2,600.  Owners responded by leaving a message demanding that
  contractor stay away from the property or risk being arrested for trespass. 
  As a result, contractor was unable to retrieve ladders and building
  materials he had left on the premises before the falling-out.  On January
  2, 2002, contractor's lawyer sent owners a letter detailing the amount
  contractor claimed was owed to him.  The letter claimed a total of $7,231:
  (1) $3,218 for unreimbursed materials; (2) $3,040 for unreimbursed labor;
  and (3) $973 for three ladders owned by contractor but kept by owners. 
  Owners paid no additional funds to contractor and eventually hired a new
  contractor to complete the project with modifications.  
   
       ¶  3.  Due to the lack of payment by owners, contractor was unable
  to pay an electrical subcontractor who had worked on the home addition. 
  Subcontractor, who is not a party in this appeal, eventually sued owners
  for the amount owed and filed a mechanics' lien on owners' property. 
  Owners then impleaded contractor as a third-party defendant alleging breach
  of contract, among other reasons, for defective construction, and claiming
  compensatory and punitive damages.  Contractor answered the third-party
  complaint and counterclaimed for breach of contract, unjust enrichment,
  conversion, and violation of the Vermont's prompt payment act, 9 V.S.A. §§
  4001-4009.  He sought the amount due under the contract, payment for
  extras, sums for the value of materials and business equipment left on
  site, as well as interest and attorneys' fees pursuant to the statute. 

       ¶  4.  Prior to trial, the parties engaged in both court-ordered and
  voluntary meditation, but neither led to a settlement and there was no
  agreement that either party would bear the costs associated with the
  mediation attempts.  The case was tried to a jury, and the verdict was for
  contractor on each of his claims and against owners on each of theirs.  The
  jury awarded contractor $1,000 for breach of contract, $600 for money
  wrongfully withheld by the plaintiffs in violation of the prompt payment
  act, and $4,941 for conversion of property, for a total award of $6,541.  
   
       ¶  5.  In accordance with the favorable verdict, contractor filed a
  motion seeking attorneys' fees pursuant to the 9 V.S.A. §  4007(c),
  prejudgment interest on the damages awards for breach of contract and
  conversion, interest under § 4002(d), penalties under § 4007(b), and
  attorneys' fees for bad faith litigation if statutory attorneys' fees were
  not awarded.  After receiving subsequently ordered affidavits, the trial
  judge awarded prejudgment interest on the breach-of-contract award, but not
  on the conversion claim, and declined to award attorneys' fees based upon
  bad faith litigation.  The court found contractor to be the "substantially
  prevailing party" within the meaning of § 4007(c), but limited its award of
  attorneys' fees and interest under the statute to an amount in proportion
  to that part of the overall judgment that represented recovery of the
  wrongfully-withheld contract payment.  Finding that the contractor received
  a total judgment award of $6,541, of which $600, or about 10 percent, was
  for sums wrongfully withheld in violation of the prompt payment act, the
  court awarded contractor attorneys' fees only in the amount of $3,745, or
  approximately 10 percent, of his claimed $37,445.91 total for attorneys'
  fees.  The court also noted that part of the attorneys' fees contractor
  claimed were for legal services in connection with the mediations and ruled
  it  "[in]appropriate to award costs or fees for mediation to [contractor]
  because both parties are required to participate in mediation per Court
  order."  Accordingly, the trial court did not award attorneys' fees for
  contractor's breach-of-contract claims and defenses, or for his conversion
  claim.  Contractor now appeals this limitation on attorneys' fees under §
  4007(c), and appeals the trial court's specific decision to deny attorneys'
  fees for mediation-related expenses.

       ¶  6.  Contractor bases his claim for attorneys' fees on the prompt
  payment act, which in relevant part provides that "the substantially
  prevailing party in any proceeding to recover any payment within the scope
  of this chapter shall be awarded reasonable attorneys' fees in an amount to
  be determined by the court or arbitrator, together with expenses."  9
  V.S.A. § 4007(c).    The statute creates an exception to the "American
  Rule," which generally provides that parties to litigation are responsible
  for their own attorneys' fees regardless of the litigation outcome.  Galkin
  v. Town of Chester, 168 Vt. 82, 91, 716 A.2d 25, 31 (1998).  Under the
  statute, if a party has substantially prevailed as specified in the
  statute, an award of attorneys' fees is mandatory.  Fletcher Hill, Inc. v.
  Crosbie, 2005 VT 1, ¶ 12, 16 Vt. L. Wk. 1, 872 A.2d 292.  We review the
  trial court's ruling on the amount of attorneys' fees awarded for abuse of
  discretion.  Id. ¶ 3.
   
       ¶  7.  Contractor argues that he is entitled to an award of all the
  attorneys' fees he incurred, including the fees necessary to meet and
  defeat defendant's counterclaims, because the wording of § 4007(c) requires
  it, and because it is impossible to separate the dispute into component
  parts by cause of action as the trial court attempted.  In general, we
  agree and begin our analysis with the second point.

       ¶  8.  Although the jury separated its verdict into three components
  in response to the jury charge and interrogatories, it had substantial
  flexibility in how it labeled the award, especially because the contract
  between contractor and owners was oral, with little specificity in its
  terms.  Under the prompt payment act, the contractor is entitled to submit
  periodic invoices to the owner for progress payments, and the owner must
  pay invoices within twenty days.  9 V.S.A. §§ 4002(b), (c).  Contractor
  claimed that his lawyer's letter of January 2002 was an invoice under the
  statute, and it sought a progress payment covering both labor and
  materials.  Under the jury charge, the labor component could be covered in
  the verdict as breach-of-contract damages, damages for failure to make
  prompt payment on the invoice, or both.  The materials component could be
  covered under breach of contract, failure to make prompt payment, or
  conversion.  Only contractor's claim that owners kept some of his tools and
  equipment could not fit easily under the prompt-payment count.
   
       ¶  9.  We addressed a very similar situation in L'Esperance v.
  Benware, 2003 VT 43, ¶ ¶ 22-25, 175 Vt. 292, 830 A.2d 675.  In that
  case, the tenants made eight claims against their landlords, including
  consumer fraud for renting a house that was known to be in violation of
  health and safety codes.  The jury awarded compensatory and punitive
  damages on this claim.  The trial court awarded the tenants all of their
  attorneys' fees under the Consumer Fraud Act, 9 V.S.A. § 2461(b), even
  though they prevailed on other claims, including claims that the landlords
  failed to return a security deposit and were negligent in renting the house
  with unsafe water.  In response to the landlords' argument that attorneys'
  fees could not be awarded for time spent on non-Consumer-Fraud-Act claims,
  the court held that all of the claims involved a common core of facts that
  justified awarding fees for all time spent on the case.  We affirmed,
  holding:

    [P]laintiffs' lawsuit is not one which can be viewed as a series
    of discrete claims so that the hours expended can be divided on a
    claim-by-claim basis.  In the practice of law, it is quite common
    to have several claims arise out of a common core of facts. . . . 
    The court did not abuse its discretion in finding that the cases
    involved a common core of facts.

  Id. ¶ 24 (citations and quotations omitted).  In reaching this conclusion,
  we relied particularly on Hensley v. Eckerhart, 461 U.S. 424 (1983), an
  attorneys'-fees case under the federal Civil Rights Act in which the
  plaintiff had prevailed on some issues and not others.  In response to the
  defendant's argument that the plaintiff could receive fees only for the
  claims on which plaintiff prevailed, the Court in Hensley noted: 

    Much of counsel's time will be devoted generally to the litigation
    as a whole, making it difficult to divide the hours expended on a
    claim-by-claim basis.  Such a lawsuit cannot be viewed as a series
    of discrete claims.

  Id. at 435.  The Court also rejected the approach of comparing the number
  of issues on which plaintiff prevailed to the number of issues overall. 
  Id. at 435 n.11 ( "Such a ratio provides little aid in determining what is
  a reasonable fee in light of all relevant factors.").
   
       ¶  10.  Here, as in L'Esperance, the claims at issue share a common
  core of facts and multiple theories of recovery.  Virtually all of the
  evidence is relevant to all of the claims.  The lawsuit cannot "be viewed
  as a series of discrete claims."  L'Esperance, 203 VT 43, ¶ 24. 
  Apportioning the fee award based on the recovery on each claim was an abuse
  of the trial court's discretion.

       ¶  11.  We also agree with contractor's second point, that allowing
  full attorneys'-fees recovery where there is a common core of facts is
  consistent with the language of the statute.  The statute authorizes
  contractor to recover attorneys' fees if he is the substantially prevailing
  party "in any proceeding to recover any payment within the scope of this
  chapter."  9 V.S.A. § 4007(c) (emphasis added).  Nothing in the statute
  limits attorneys'-fees recovery to representation associated with a
  payment-withholding claim, to the exclusion of recovery for representation
  for other claims, such as breach of contract, arising out of the same
  controversy. 
   
       ¶  12.  There are practical and policy reasons to apply the statute
  relatively broadly.  A claim of failure to pay will virtually always be met
  with some defense that reflects a breakdown in the working relationship
  between the owner and the contractor-for example, as here, a defense of
  breach of contract or defective workmanship. In fact, the prompt payment
  act specifically contemplates owners withholding payments in good faith on
  grounds such as "unsatisfactory job progress, defective construction,
  disputed work or third-party claims."  9 V.S.A. § 4007(a).  It will always
  be possible to use different labels and theories to describe claims and
  defenses.  The purpose of the prompt payment act is to provide protection
  against nonpayment to contractors and subcontractors.  See R.W. Sidley,
  Inc. v. United States Fid. & Guar. Co., 319 F. Supp. 2d 554, 560 (W.D. Pa.
  2004) (decided under virtually identical Pennsylvania statute).  If the
  statute's attorneys'-fees authorization is read narrowly, as the trial
  court read it here, contractors and subcontractors will not be able to
  recoup collection costs even when they are found to have fully complied
  with their contractual obligations.  Similarly, owners who demonstrate that
  they should not have to pay a contractor's bill because of nonperformance
  or poor-quality work may end up, through a narrow reading of the attorneys'
  fee provision, paying attorneys' fees that exceed the amount of their
  nonpayment.  We believe that the Legislature intended a more effective
  remedy provision than the trial court allowed.

       ¶  13.  Significantly, our most relevant precedent, DJ Painting, Inc.
  v. Baraw Enterprises, Inc., 172 Vt. 239, 776 A.2d 413 (2001), supports a
  broad reading of the attorneys'-fee authorization consistent with its
  remedial purpose.  In DJ Painting, a painting subcontractor brought a
  breach of contract and wrongful termination action against the general
  contractor and the owner.  The subcontractor made no claim under the prompt
  payment act.  On summary judgment, the claims against the general
  contractor were dismissed because the subcontractor failed to submit them
  to arbitration as required by the contract.  We affirmed the award of
  attorneys' fees to the contractor under § 4007(c) because the contractor
  was the substantially prevailing party "in a 'proceeding to recover any
  payment' due under a construction contract."  Id. at 247, 776 A.2d  at 420. 
  It made no difference to this conclusion that the subcontractor's theories
  of recovery were based on the common law-breach of contract and wrongful
  termination-and the contractor made no claim under the prompt payment act. 
  Id.  Nor was the contractor's recovery reduced because of the nature of the
  subcontractor's claims.  Id.  For the exact reason that the contractor was
  able to recover all of his attorneys' fees in DJ Painting, the contractor
  should be able to recover all of his fees in this case.
   
       ¶  14.  Before addressing the relief appropriate for the trial
  court's general error in addressing the attorneys'-fee award, we turn to
  contractor's additional argument that the court erred in failing to award
  fees related to mediation.  The trial court ruled that it would not award
  attorneys' fees associated with mandatory or voluntary mediation in this
  case because "both parties must participate in such mediation."  This
  rationale for refusing to award attorneys' fees in mediation activity is
  cryptic and, with respect to the voluntary mediation, partially inaccurate. 
  Many of the steps in litigation are mandatory; we do not understand what
  differentiates mediation in that regard. 
   
       ¶  15.  Our main difficulty with the court's reasoning, however, is
  that instead of justifying its denial of attorneys' fees for participation
  in mediation, its rationale speaks to why we should in fact allow such
  recovery.  Mediation has become an important part of litigation in this
  state.  See Gates v. Gates, 168 Vt. 64, 72, 716 A.2d 794, 800 (1998)
  (acknowledging crucial role of alternative dispute resolution in settling
  disputes).  Our civil rules now require parties to attempt alternative
  dispute resolution in many types of civil cases, see V.R.C.P. 16.3(a)(2);
  usually this is mediation.  The purpose of alternative dispute resolution
  in most cases is to achieve a voluntary settlement of the litigation
  without a trial and with as little litigation expense as possible.  See 
  New Eng. Educ. Training Servs., Inc. v. Silver St. P'ship, 148 Vt. 99, 101,
  528 A.2d 1117, 1118 (1987) ("[C]ompromises of disputed liability are
  favored by the courts as a matter of public policy"); Dutch Hill Inn, Inc.
  v. Patten, 131 Vt. 187, 192, 303 A.2d 811, 814 (1973) ("Public policy . . .
  strongly favors settlement of disputed claims without litigation.").  To
  the extent we deny recovery for attorneys' fees for participating in
  mediation on prompt payment act disputes, we discourage parties from
  voluntary participation or encourage only minimal participation.  For this
  reason, other courts have held that attorneys' fees can be awarded for
  representation in mediation.  See Paris v. Dallas Airmotive, Inc., 2004 WL
  2100227, at *8 (N.D. Tex.) (awarding fees for services of lawyer who
  specialized in mediation and noting that although no settlement resulted,
  decision to put special resources into mediation was reasonable); E.M. v.
  Millville Bd. of Educ., 849 F. Supp. 312, 315 (D.N.J. 1994) (allowing
  attorneys' fees for work related to mediation).  We agree that, absent an
  agreement between the parties that provides otherwise, attorneys' fees may
  be recovered for the participation in mediation in this case.

       ¶  16.  We also find no support in the statutory language for the
  court's decision with respect to representation in mediation.  Section §
  4007(c) states that "the substantially prevailing party in any proceeding"
  shall recover reasonable attorneys' fees.  Id.  (emphasis added).  To the
  extent that the language suggests dividing litigation into stages,
  mediation is clearly a "proceeding" and falls within the  statute.

       ¶  17.  For the above reasons, we hold that the court erred in both
  limiting contractor's attorneys'-fee award to reflect the proportion of the
  recovery for violation of the prompt payment act and in denying recovery
  for legal fees related to mediation.  Ordinarily, we would remand for the
  trial court to exercise its discretion and fashion an award in light of the
  considerations we have announced in this opinion.  For example, the
  determination of whether there is a common core of facts, and to what
  extent, is normally entrusted to the trial court in the first instance. 
  See L'Esperance, 2003 VT 43, ¶ 24 (affirming trial court's finding of a
  core of operative facts). 
   
       ¶  18.  Nevertheless, we conclude that such a remand is unnecessary. 
  The court found that contractor was the substantially prevailing party, so
  an award of attorneys' fees was mandatory.  Contractor's fee request was
  supported by a lengthy and detailed affidavit of an experienced commercial
  litigator.  The court did not question the reasonableness of the fees
  charged by contractor's counsel or the time expended in the litigation, and
  based its calculation on those fees.  Neither the trial court nor the
  parties sought the kind of adjustment discussed in L'Esperance.  Contractor
  apparently received close to the damages he sought, defeated all
  counterclaims, and recovered on every theory he raised.  While the trial
  court may have indicated that the case was close and that owners' "claims
  were not meritless," a fee award is compensatory, so owners' good faith in
  pursuing their claims is not a significant factor.  Perhaps most
  importantly, we hold as a matter of law that there was a common core of
  facts shared among every claim on which contractor recovered.  Thus,
  consideration of this question by the trial court is unnecessary.

       ¶  19.  The affidavits of contractor's counsel and the commercial
  litigator who served as contractor's expert witness on fees indicate that
  contractor incurred attorneys' fees of $43,244, some of which was for
  expenses.  Contractor is entitled to an award of fees in this amount.  In
  addition, contractor has sought an award of attorneys' fees for
  representation on appeal in accordance with Vermont Rule of Appellate
  Procedure 39(f).  On appropriate motion in accordance with that rule,
  contractor is entitled to additional fees because he has prevailed on
  appeal.

       Reversed and remanded for proceedings consistent with this opinion.



                                      FOR THE COURT:



                                      _______________________________________
                                      Associate Justice