(Watch your Language [with Attorneys’ Fees Provisions]
& Say What You Mean, Precisely or a Judge Will Tell You What You Meant #14)
By: Stephen D. Richman, Esq.-Senior
Counsel-Kohrman, Jackson & Krantz
Watch Your Language. As established in other “Watch Your Language” articles for this Blog, as a general rule,
courts will uphold language in commercial agreements, unless it is contrary to
statutory law or public policy. They traditionally presume that commercial
parties are on more of an equal playing field and are more sophisticated
concerning commercial transactions (such as commercial real estate deals),
since both parties will usually have attorneys to review their documents. Because
of this judicial deference to commercial language, you must, “say what
you mean, precisely, or a judge will decide what you meant.” Failure to follow this axiom left the landlord in Simbo Properties, Inc. v. M8 Realty, LLC,
2019-Ohio-3091 (8th Dist. Ct. of Appeals, Cuyahoga County) with a bill for its tenant’s
attorneys’ fees in excess of the landlord’s claims for damages.
Attorneys’ Fees in
General. Ohio courts follow the
so-called “American Rule,” which requires that each party involved in
litigation pay his or her own attorneys’ fees.
There are, however three well-recognized exceptions to this rule: (1)
where statutory provisions specifically provide that a prevailing party may
recover attorneys’ fees; (2) where there has been a finding of bad faith; and
(3) where the contract between the parties provides for it (sometimes referred
to as “fee shifting”).
So
called fee shifting or attorneys’ fees provisions are often drafted in general terms, with the
parties assuming that their intent is clear. Frequent language calls for “reasonable attorneys’ fees to be awarded to
the prevailing party.” Who is the prevailing party, however, when there are
multiple counts, with one party prevailing on some counts and the other party
prevailing on others? Does an award of “reasonable” fees mean that a prevailing
party on one count is only entitled to fees related to that one count? The
relatively recent case of Simbo
Properties, Inc. v. M8 Realty, LLC reinforces
the need to be specific and leave as little as possible to “interpretive
chance.”
Simbo Properties, Inc. v. M8 Realty, LLC – (The Facts). The facts of the “Simbo”
case are simple enough (the law, not so much). In December, 2012, Simbo
Properties, Inc. (“Simbo”) and M8 Realty, LLC (“M8”) entered into a written
lease pursuant to which Simbo leased commercial real property to M8. The initial term of their lease agreement
was for eighteen (18) months. Simbo
claimed that M8 violated several provisions of the lease resulting in the
filing by Simbo of a lawsuit in the Cuyahoga County Court of Common Pleas
(“trial court”). Simbo filed a four-count
complaint against M8 seeking the following:
Count 1 — rent (in excess of $150,000); Count 2 — real estate taxes
($32,158.34); Count 3 — property damage (in excess of $30,000 for flag pole and
storm sewer damage); and Count 4 — breach of other pertinent lease provisions. M8
filed a counterclaim for damages claimed by M8. In pre-trial motions, M8
prevailed on Count 4 by virtue of the trial court granting M8’s motion for
summary judgement. Of the remaining issues before the trial court, Simbo
prevailed on Count 2, on part of Count 3 and on M8’s counterclaim. M8 prevailed
upon Count 1 and part of Count 3.
After the judgement was rendered, both parties
filed post-trial motions, including claims for attorneys’ fees. Simbo and M8 based their claims for
attorneys’ fees on the fact that they each prevailed upon at least part of the
litigation, and their lease agreement contained a fee shifting provision directing legal fees be awarded to
the prevailing party of a lawsuit. Specifically, Section 37 of the Simbo/M8
lease agreement provides: “If a
lawsuit is filed with respect to this Lease, the prevailing party shall be
entitled to collect all reasonable attorneys’ fees and costs.”
On the issue of the award of attorneys’ fees
under the lease, the trial court determined that M8 was the “prevailing party”
since it won the “main issue” in the lawsuit (Count 1) and, as a result was
entitled to all of its attorneys’ fees, as provided in the lease agreement.
Simbo then filed an appeal of the $238,335.73 award
of attorneys’ fees and expenses to M8 and also challenged other aspects of the
trial court’s rulings. Simbo argued that since it prevailed on two counts of
the complaint and M8’s counterclaim, it should be considered the “prevailing
party”
under the lease agreement’s fee-shifting
provision.
Simbo Properties, Inc. v. M8 Realty, LLC – (Case Analysis). On appeal, the 8th
District Court of Appeals first acknowledged that there were complications inherent
in the trial court’s attorneys’ fees award because: (1) the term “prevailing party” was not
defined within the lease agreement; and (2) a determination of whether Simbo or
M8 is the “prevailing party” was also complicated by a jury verdict in favor of
both parties.
Nonetheless, the 8th District Court
of Appeals in Simbo easily resolved
the complications by virtue of precedent (prior court rulings on point)
established in the 10th District Court of Appeals case, EAC Properties LLC v Brightwell
(2014-Ohio-2078). EAC Properties
was a landlord-tenant case on similar facts as Simbo, whereby the landlord (EAC Properties) brought suit against its
tenant, Brightwell re: $30,000 of unpaid, additional rent (deemed the “primary
claim” by the EAC court because it
was the largest dollar amount claimed) and $3,000 of unpaid utilities. The
court in EAC Properties determined
that the landlord’s primary claim for additional rent failed, and because the
landlord did not prevail on that primary issue, it was not entitled to collect any
attorneys’ fees under the lease agreement.
Applying what it termed EAC’s’ “main issue standard,” the court of
appeals in Simbo easily determined M8
to be the “prevailing party” because it received a jury verdict on the main
issue of the case; the count (Count 1) that represented the largest dollar
amount, as well as being the count that counsel for M8 spent the largest
percentage of time defending.
The court in Simbo did acknowledge that there is a “some relief” (vs “main issue”)
standard that has been applied to define a “prevailing party” in connection
with statutory claims for attorneys’ fees such as is authorized in consumer
protection and civil rights laws. However, the Simbo court did not find the “some
relief standard” applicable in a contractual case like Simbo, reasoning that “While public policy in consumer protection
and civil rights litigation supports a broader interpretation of ‘prevailing
party’, no similar need exists in negotiated commercial fee-shifting clauses
between sophisticated parties… represented by counsel[who] knowingly and
willingly negotiated a commercial lease agreement.”
As if to reinforce our moral of the story
below, the court of appeals in Simbo
also reasoned that: “If the parties had
desired to define “prevailing party,” e.g., as the party that prevails on the
most counts in the litigation, Simbo and M8 could have drafted that provision
into the lease… or [could have]
defined the term “prevailing party,” but chose not to do so. [Accordingly], we must follow the intent of
the parties and apply the terms of the lease agreement.” In other words, the parties did not say what they meant,
precisely, so the judge told them what they meant.
Since the court of appeals in Simbo determined that the parties
intended to define “prevailing party” as the party that prevailed upon the main
issue of the case, then such party should only be able to collect its attorneys’
fees with respect to the main issue. Right? That was the landlord’s argument. Simbo
argued that M8 should recover only those attorneys’ fees attributable to Count
1, the count on which M8 prevailed at the trial court. The court of appeals in Simbo, however upheld the trial court’s award of M8’s total legal
fees incurred with respect to all of the counts of the litigation, including
the counts the landlord prevailed upon. The Simbo court explained that claims
that involve common facts or legal theories are too difficult to divide as to
the time and hours spent on litigating the individual claims. Accordingly, the court of appeals in Simbo
held that “[W]here multiple claims are
rooted in the same allegations, facts, discovery, and legal arguments, a trial
court does not abuse its discretion in awarding attorney fees for the time
spent on [all of] the claims.”
What is the moral of this story? “Say what
you mean, precisely, or a judge will tell you what you meant.” Clearly, the
landlord in Simbo did not intend to
pay more in legal fees than it had in claims, especially when it prevailed on
some of those claims. Nevertheless, since there was no definition of
“prevailing party” in the lease, the court, in effect found one.
Listen to what judges are saying with regard to interpreting leases
and other commercial contracts: “When the language of a written contract is
clear, a court may look no further than the writing itself to find the intent
of the parties” [So, be clear].
Define “prevailing party” in commercial fee shifting provisions; define
“reasonable fees” or consider a “floor” or “ceiling.” Also, be clear as to whether or not your intent is to be
reimbursed for legal fees after a default, whether or not it ends up in
litigation.
In other
words, the “well-known and established principle of contract interpretation
is that [c]ontracts are to be interpreted so as to carry out the intent of the
parties, as that intent is evidenced or not evidenced by the contract language”
[So, evidence your intent in your
documents].
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