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Highmark, Inc. v. Northwest Pipe Co.

United States District Court, D. South Dakota, Western Division

November 30, 2016

HIGHMARK, INC., Plaintiff,
NORTHWEST PIPE COMPANY, a Washington Corporation, Defendant.


          Lawrence L. Piersol United States District Judge.

         Plaintiff, Highmark, Inc. ("Highmark"), has filed a Motion for Attorneys' Fees, Sales Tax, and Costs pursuant to the contract executed between Highmark and Defendant, Northwest Pipe Company ("Northwest Pipe"), Rule 54 of the Federal Rules of Civil Procedure, Local Rule 54.1, and 28 U.S.C. § 1920 as the "prevailing party." Doc. 217. Based on the following, the motion is granted in part and denied in part.


         The facts of this case have been thoroughly explained in this Court's prior memorandum opinion and orders. See Docs. 173 and 192. As such, the Court will only recite the facts directly pertinent to this pending motion.

         On March 1, 2016, the Court granted Highmark's Motion for Partial Summary Judgment as to its claims for breach of contract and breach of warranty. Doc. 173. In so doing, the Court found Highmark to be a prevailing party and entitled to attorneys' fees. Id. at 7. On August 16, 2016, the Court ordered that the only remaining question was for the recovery of attorneys' fees by Highmark. Doc. 192 at 6-7. On September 21, 2016, the Court held a pre-trial conference with all parties present. Doc. 203. At the conference, the Court set dates concerning the submission of Highmark's Motion for Attorneys' Fees, Third Party Defendants, RustNot Corrosion Control Services and Ferber Engineering Company (collectively "Third Party Defendants"), desire to file a Motion for Summary Judgment on the issue of attorneys' fees, and Northwest Pipe's response brief. Docs. 203 and 206. Thereinafter, the parties filed their respective motions and response and reply briefs. See Docs. 210, 214, 217, 233, and 242.

         On October 14, 2016, Northwest Pipe and Third Party Defendants filed a joint stipulation dismissing Northwest Pipe's contribution/indemnity claim against Third Party Defendants as it concerns the recovery of any attorneys' fees awarded to Highmark. Doc. 236. On October 17, 2016, the Court held a status conference hearing where it noted that the Third Party Defendants had been dismissed[1] and that the only remaining question was the recovery of reasonable attorneys' fees by Highmark, which, by agreement of the remaining two parties, could be resolved by the Court through briefing. See Docs. 239 and 240.


         Attorney Fees

         "In a diversity case, state law generally governs the question [of] whether there is a right to attorney's fees." Ferrell v. West Bend Mut Ins Co., 393 F.3d 786, 796 (8th Cir. 2005); see also Orion Financial Corp of South Dakota v American Foods Group, Inc , 281 F.3d 733, 738 (8th Cir. 2002) (explaining that "[a]s a federal court, our role in diversity cases is to interpret state law . . . ."). "South Dakota utilizes the American rule that each party bears the burden of the party's own attorney fees." In re South Dakota Microsoft Antitrust Litigation, 2005 S.D. 113, ¶ 29, 707 N.W.2d 85, 98. However, there are two exceptions to this general rule. Id. "[F]irst[, ] when a contractual agreement between the parties entitles the prevailing party to attorney fees, and second[, ] when an award of attorney fees is authorized by statute." Id. Thus, in order for a party to collect attorneys' fees under the "contractual agreement" exception, a Court must determine whether that party was the "prevailing party."

         Prevailing Party

         The South Dakota Supreme Court has defined "prevailing party" broadly as "the party in whose favor the decision or verdict is or should be rendered and judgment entered." City of Aberdeen v Lutgen, 273 N.W.2d 183, 185 (S.D. 1979) (interpreting prevailing party under SDCL 15-15-1) (citation omitted). The South Dakota Supreme Court has held that a party to a contract is not required to prevail on every issue to be the prevailing party. See Crisman v Determan Chiropractic, Inc., 2004 S.D. 103, ¶ 23, 687 N.W.2d 507 (citing Alvine v Mercedes- Benz of North America, 2001 S.D. 3, § 25, 620 N.W.2d 608, 613). Rather, '"[a] prevailing party is the party prevailing on the main issue in dispute.'" Barkley, Inc v Gabriel Bros, Inc , 829 F.3d 1030 (8th Cir. 2016) (quoting Flamingo Pools, Spas, Sunrooms & More Store, Inc v Penrod, 993 S.W.2d 588, 590 (Mo.Ct.App. 1999). Parties to a contract are allowed to agree to contractual provisions shifting the responsibility for attorneys' fees to the losing party in a contract dispute.

         Here, Highmark argues that it is entitled to attorneys' fees under the "contractual agreement" exception as the "prevailing party." While Northwest Pipe admits that the language of the contract expressly provides for attorneys' fees, [2] it challenges whether Highmark is the prevailing party. The primary issue and reason this lawsuit was brought was to get conforming performance as quickly as possible by Northwest Pipe, the seller and the provider of the pipe. There was an additional reason Highmark wanted prompt and full performance, that was the City of Rapid City was threatening to disqualify Highmark, a local contractor, from future city jobs. In addition, at some point Highmark's bonding company had to be reassured. After commencement of this lawsuit, Highmark succeeded in getting performance despite Northwest Pipe claiming they had performed or would have performed anyway. Once that primary reason for the lawsuit was accomplished, with Highmark prevailing on that issue, then attention turned to three issues as between Highmark and Northwest Pipe: (1) Highmark's claims for breach of warranty, breach of contract, and for damages for the delay, (2) the lesser issue of Northwest Pipe's Counterclaim, and (3) attorneys' fees. Delay does cause expense in construction, but how much of the $800, 000 delay claim was well supported is still an open question. Highmark, through counsel, has not appeared to understate its claims. The Counterclaim of $141, 000 was payment withheld pending performance, so the Counterclaim was not a significant issue. As a result, Highmark prevailed on the primary prompt performance issue and breach of warranty and breach of contract claims, and lost on the secondary issue of delay damages.

         The source of Highmark's entitlement to attorneys' fees in this case is the contract itself, which Northwest Pipe breached. Highmark prevailed on the breach of contract and breach of warranty claims. The parties continued to litigate the damages that resulted from Northwest Pipe's breach. On March 1, 2016, this Court issued a Memorandum Opinion and Order upholding the exclusion of the damages provision in the contract, which resulted in a conclusion that Highmark was not entitled to any monetary damages under the contract.[3] In that same Opinion, the Court also found that the Counterclaim "would not have arisen but for the breach of contract and breach of express warranty by Northwest Pipe so the attorney fees [Northwest Pipe] incurred are not recoverable." Doc. 173 at 7-8 (emphasis added). After hearing argument from the parties at a status conference on May 16, 2016, the Court reconsidered its holding and agreed that the contract allowed for damages that are not classified as either consequential or incidental, and Highmark was given an opportunity to prove any such damages. See Doc. 184. Highmark did not come forward with any evidence of damages not classified as consequential or incidental.

         In summary, South Dakota law allows for an award of attorney fees to the party who prevails on the main issue in dispute when the parties agreed to it in their contract. Here, Northwest Pipe agreed to it, Highmark prevailed, and there is no reason why the attorney fee provision in the contract should not be enforced against Northwest Pipe. Highmark and Northwest Pipe continued to litigate over the damages issue and the Counterclaim brought by Northwest Pipe against Highmark was not disposed of until March of 2016. Under the facts of the case, Highmark is the prevailing party and entitled to attorneys' fees under the contract. However, that does not mean that Highmark should recover all of the attorney fees requested in the current amount of $302, 185.25.


         Upon a finding that Highmark was the "prevailing party, " the Court must then determine whether the requested attorneys' fees are reasonable. In re South Dakota Microsoft Antitrust Litigation, 2005 S.D. 113, ¶ 29, 707 N.W.2d at 98 (explaining that "[t]he fees awarded by the court in each case must be reasonable for the services rendered."). "The starting point in determining attorney fees is the lodestar, which is calculated by multiplying the number of hours reasonably expended by the reasonable hourly rates." Fish v St Cloud State University, 295 F.3d 849, 851 (8th Cir. 2002) (citing Hensley v Eckherhart, 461 U.S. 424, 433 (1983)). A strong presumption exists that the figure resulting from the above calculation (i.e., the lodestar figure) is reasonable. See Perdue v Kenny A ex rel Winn, 559 U.S. 542, 554 (2010); see also In re South Dakota Microsoft Antitrust Litigation, 2005 S.D. 113, ¶ 30, 707 N.W.2d at 99 (explaining that "we are convinced that this simple mathematical exercise is the only legitimate starting point for analysis.").

         Once the lodestar is calculated, the Court considers several factors in order to determine whether the lodestar figure should be adjusted upward or downward. Id. (explaining that "[i]t is only after such a calculation that other, less objective factors, can be introduced into the calculus."). Those factors include:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.

City of Sioux Falls v. Kelley, 513 N.W.2d 97, 111 (S.D. 1994).

         '"[T]he fee applicant bears the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates.'" Fish, 295 F.3d at 851 (quoting Hensley, 461 U.S. at 437). "[T]he party seeking attorney's fees has the burden to prove that its request for attorney's fees is reasonable. Baker v John Morrell & Co, 263 F.Supp.2d 1161, 1189 (N.D. Iowa 2003). "When determining reasonable hourly rates, district courts may rely on their own experience and knowledge of prevailing market rates." Hanig v Lee, 415 F.3d 822, 825 (8th Cir. 2005).

         Calculating the Fee

         The attorney fee claim is complicated by several factors. After this federal lawsuit was filed in November of 2010, Highmark brought a state court lawsuit concerning this same construction project against the City of Rapid City (Defendant), Northwest Pipe (Third-Party Defendant/Third-Party Plaintiff), and Ferber Engineering Company, Inc., Dowl, LLC, and RustNot Corrosion Control Services, Inc. (Third-Party Defendants). The state court lawsuit went on until it was settled in May of 2014. Highmark represented that it would separate out the attorney fee billings that apply to the state court lawsuit. It is apparent in reviewing the 90 pages of billing that the segregation of those charges has only been modestly undertaken despite the fact that such segregation is Highmark's burden. There are instances where no one could be expected to record or recall how much time was spent on each action with two lawsuits pending concerning the same construction project. In those instances the Court split the time in half and awarded half of the requested fees.

         Another complication is that there was mediation while both cases were pending. Highmark claims all of the attorney fees related to the mediation and Northwest Pipe disagrees. All parties to both lawsuits were included in the mediation. In reviewing both lawsuits, the attorney fee billings, the briefs, and the supplemental information requested by the Court, it is the Court's conclusion that two-thirds of the attorney fees devoted to mediation should be allocated to this federal case. As such, even though the Court has found that Highmark is the prevailing party, it still is not ...

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