FNBC IOWA, INC. , Plaintiff - Appell ee , vs. THE JENNESSEY GROUP, L.L.C., JEFF HENNESSEY and SCOTT JENNINGS , Defendant s - Appell ants .
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IN THE COURT OF APPEALS OF IOWA
No. 8-609 / 07-1883
Filed December 17, 2008
FNBC IOWA, INC.,
Plaintiff-Appellee,
vs.
THE JENNESSEY GROUP, L.L.C.,
JEFF HENNESSEY and SCOTT JENNINGS,
Defendants-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Marsha Beckelman,
Judge.
The defendants appeal from the district court‟s ruling, which ordered them
to pay attorney fees to the plaintiff. REVERSED AND REMANDED.
Robert M. Hogg and Patrick M. Roby of Elderkin & Pirnie, P.L.C., Cedar
Rapids, for appellants.
Kimberly H. Blankenship and Timothy Hill of Bradley & Riley, P.C., Cedar
Rapids, for appellee.
Heard by Vogel, P.J., and Mahan and Miller, JJ.
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VOGEL, P.J.
Jeff Hennessey and Scott Jennings appeal from the district court‟s ruling,
which ordered them to pay attorney fees to FNBC Iowa, Inc. (FNBC). Because
we conclude the contracts between the parties, and more specifically the
indemnification clauses, did not authorize the award of attorney fees, we reverse
and remand.
I. Background Facts and Proceedings
FNBC is a business brokerage firm that assists in the purchase and sale
of businesses. Prior to June 2005, Jennings was an independent contractor with
FNBC and Hennessey was a business broker who owned a fifty percent interest
in the company. Both Hennessey and Jennings had signed similar contracts with
FNBC that contained an indemnification provision, which stated:
[Associate/Partner] hereby agrees to indemnify, defend, and hold
harmless FNBC from and against any and all losses, costs, claims,
liability, damage or expense arising out of [Associate‟s/Partner‟s]
performance of his/her duties under this agreement or any other act
or conduct of [Associate/Partner] imputed or imputable to FNBC.
[Associate/Partner] has no right or authority, express or implied, to
bind FNBC on any contract or other commitment or by any written
or verbal representation by the [Associate/Partner] until the same is
agreed to and approved in writing by FNBC.
...
FNBC hereby agrees to indemnify, defend, and hold harmless
[Associate/Partner] from and against any and all losses, costs,
claims, liability, damage or expense arising out of FNBC‟s
performance of its duties under this agreement or any other act or
conduct of FNBC imputed or imputable to [Associate/Partner].
FNBC has no right or authority, express or implied, to bind
[Associate/Partner] on any contract or other commitment or by any
written or verbal representation by FNBC until the same is agreed
to and approved in writing by [Associate/Partner].
In June 2005, Hennessey and Jennings left FNBC and formed the
Jennessey Group, a competing business with FNBC.
Shortly after their
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departure, the remaining owners of FNBC became suspicious that Hennessey
and Jennings had copied confidential materials, namely ACT data that compiled
contact leads and past buyer and seller information. FNBC filed suit seeking
damages for breach of contract, conversion, fraud, misappropriation of trade
secrets, and securities fraud. Additionally, FNBC sought a declaratory judgment
and permanent injunction.
Hennessey and Jennings counterclaimed for
commissions they alleged FNBC owed them.
Following a two-day trial, both parties moved for a directed verdict. The
district court found that although Jennings had copied ACT data from the FNBC
computer network, the information had never been used by Jennessey and had
been destroyed. The district court denied FNBC‟s claims for damages for breach
of contract, conversion, fraud, misappropriation of trade secrets, and securities
fraud. However, pursuant to the breach of contract claim, the district court found
that “although there is no express grant of attorney fees in the contracts,” the
indemnity provision of the contracts permitted recovery of attorney fees:
[T]he indemnification clauses contained in the Independent
Contractor Agreements of both Jennings and Hennessey state that
each “hereby agrees to indemnify, defend, and hold harmless
FNBC from and against any and all losses, costs, claims, liability,
damage or expense arising out of [Associate‟s or Partner‟s]
performance of his/her duties under this agreement.” The Court
finds that this language is sufficient to permit recovery of
reasonable and proper legal costs and expenses.
...
[T]he court finds that an amount of $55,000 more properly reflects a
reasonable assessment of attorney fees in a case such as this, and
therefore awards FNBC $55,000 for its attorney fees under the
indemnification clause of the Independent Contractor Agreements.
Additionally, the district court issued a declaratory judgment and permanent
injunction that prohibited Hennessey, Jennings, and the Jennessey Group from
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using the ACT data. Finally, the district court ordered FNBC to pay $13,750 to
Hennessey and $13,750 to Jennings for unpaid commissions they had earned.
Hennessey and Jennings appeal and assert that the district court erred in
awarding attorney fees.
II. Scope of Review
Our review of an award of attorney fees is for errors at law. Iowa R. App.
P. 6.4; See Miller v. Rohling, 720 N.W.2d 562, 567, 573 (Iowa 2006) (reviewing
for errors at law whether the district court was authorized to award attorney fees).
III. Attorney Fees
Hennessey and Jennings assert that the award of attorney fees was
improper because the contract did not expressly authorize payment of attorney
fees. Generally, attorney fees are not allowable unless authorized by statute or
contractual agreement. W.P. Barber Lumber Co. v. Celania, 674 N.W.2d 62, 66
(Iowa 2003).
Iowa Code section 625.22 (2005) authorizes a court to award
attorney fees in an action where “judgment is recovered upon a written contract
containing an agreement to pay an attorney‟s fee.”
A written contract must
contain a clear and express provision regarding attorney fees and litigation
expenses in order for a court to be authorized to add attorney fees and litigation
expenses to a favorable judgment.
EFCO Corp. v. Norman Highway
Constructors, Inc., 606 N.W.2d 297, 301 (Iowa 2000). However, as the district
court acknowledged, the contracts between FNBC and Jennings and Hennessey
do not contain language expressly authorizing the award of attorney fees. See,
e.g., EFCO Corp., 606 N.W.2d at 301 (an award of attorney fees was proper
where a contract provision allowed for recovery of “all charges and expenses,
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including reasonable attorney fees”); Berryhill v. Hatt, 428 N.W.2d 647, 657 (Iowa
1988) (an award of attorney fees was proper where a contract provision allowed
recovery “of reasonable costs and attorney fees”).
Rather, the district court found that the award of attorney fees is
authorized pursuant to the indemnification clauses in the contracts. Both the
district court and FNBC on appeal cite to Bunce v. Skyline Harvestore Sys., Inc.,
348 N.W.2d 248 (Iowa 1984). Bunce involved an injured plaintiff who filed suit
naming as co-defendants the dealer and the manufacturer of a product. Id. at
249. One co-defendant sought indemnification for the “costs of defense” from
the other co-defendant. Id. Our supreme court held that:
As a general rule an indemnitee is entitled to recover, as part of the
damages, reasonable attorney‟s fees, and reasonable and proper
costs and expenses, which he is compelled to pay as a result of
suits by or against him in reference to the matter against which he
is indemnified, provided that under the circumstances of the case
he acts in good faith and with due diligence in prosecuting or
defending such suits. This rule is especially applicable where the
indemnitor is notified and given an opportunity to contest the
adverse litigation but fails or refuses to do so; or where the
employment of counsel is with the knowledge of the indemnitor.
Bunce, 348 N.W.2d at 250-51. Thus, when recovery is sought pursuant to an
indemnification provision, attorney fees are clearly recoverable.
However, in this case, FNBC did not seek recovery pursuant to the
indemnification provision. An indemnification clause “does not apply to claims
between the parties to the agreement.
Rather it obligates the indemnitor to
protect the indemnitee against claims brought by persons not a party to the
provision.”
Wallerstein v. Spirt, 8 S.W.3d 774, 780 (Tex. App. 1999).
The
indemnification provisions of the contracts between FNBC and Jennings and
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Hennessey clearly indicate the intent of the indemnification provisions was to
protect FNBC from claims brought by third parties, and not for breach of contract
claims between the parties. See Estate of Pearson v. Interstate Power & Light
Co., 700 N.W.2d 333, 344-45 (Iowa 2005) (stating that term „hold harmless‟ and
„indemnify‟ indicate an intent to protect from claims brought by a third party)
(citing Wallerstein, 8 S.W.3d at 779-80 (discussing the characteristics of an
indemnity agreement)). Thus, in this breach of contract suit, the indemnification
clause does not authorize an award of attorney fees as it is not applicable to a
breach of contract claim between the parties.
We conclude that there is no express contractual provision authorizing the
award of attorney fees and the indemnification clause does not allow for the
recovery of attorney fees. Therefore, we reverse the award of attorney fees and
remand to the district court.
REVERSED AND REMANDED.
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