Title: Berger Farms v. First Interstate Bank

State: oregon

Issuer: Oregon Supreme Court

Document:

Filed: March 3, 2000
IN THE SUPREME COURT OF THE STATE OF OREGON
BERGER FARMS,an Oregon partnership;
KEITH A. BERGER; KENNETH A. 
BERGER;REBECCA BERGER; STEVEN 
BERGER,
Petitioners on Review,
	v.
FIRST INTERSTATE BANK OF OREGON, N.A.,a national banking association,
Respondent on Review.
(TC 9509-06466; CA A91677; SC S44594)
	On review from the Court of Appeals.*
	Argued and submitted November 9, 1998.
	Jeffrey M. Edelson, of Markowitz, Herbold, Glade & Mehlhaf,
P.C., Portland, argued the cause for petitioners on review. 
David B. Markowitz filed the petition for review.  J. David
Yeager, David B. Markowitz, and Jeffrey M. Edelson filed the
brief.  Also on the petition and brief was Markowitz, Herbold,
Glade & Mehlhaf, P.C., Portland.
	Thomas W. Sondag, of Lane Powell Spears Lubersky LLP,
Portland, argued the cause and filed the brief for respondent on
review. 
	Before Carson, Chief Justice, and Gillette, Van Hoomissen,
Durham, and Kulongoski, Justices.**
	CARSON, C.J.
	The order of the Court of Appeals is reversed.
    *Appeal from Multnomah County Circuit Court.
	148 Or App 33, 939 P2d 64 (1997).
   **Leeson and Riggs, JJ., did not participate in the
consideration or decision of this case.
		CARSON, C.J.
Plaintiffs challenge a Court of Appeals order that
awarded attorney fees to defendant on appeal under a contractual
provision granting to the "prevailing party" the right to obtain
reasonable attorney fees.  We are presented with two questions on
review:  (1) whether the Court of Appeals had authority to award
attorney fees, given its earlier conclusion that most of the
parties' underlying dispute was subject to arbitration; and (2)
whether defendant was entitled to attorney fees at that
particular stage of the proceedings as the "prevailing party"
under ORS 20.015. (1)  We conclude that the Court of Appeals was
without authority to award attorney fees incurred on the claims
that were subject to arbitration and that defendant was not the
prevailing party as to the remaining claims.  We therefore
reverse the order of the Court of Appeals.
		This dispute arose from two loan agreements between
plaintiffs and defendant.  The agreements, which were executed in
1992 and 1994, respectively, contained binding arbitration
clauses that provided, in part:
"7.	MANDATORY ARBITRATION OF ALL DISPUTES.
	"7.1  Binding Arbitration.  All disputes arising
out of or in connection with or related to this
Agreement or any related agreements or instruments or
any transaction of which this Agreement is a part shall
be resolved by binding arbitration in accordance with
Title 9 of the United States Code and the then
effective Commercial Arbitration Rules of the American
Arbitration Association.
	"7.2  Dispute Defined.  'Dispute' is defined to
mean any action, demand, dispute, claim, counterclaim
or controversy between the parties whether in contract,
tort, arising out of statute, or otherwise."
In 1995, plaintiffs filed an action against defendant
in circuit court, alleging seven claims:  breach of fiduciary
duty, negligent misrepresentation, breach of oral contract,
interference with business relations, fraudulent
misrepresentation, fraud, and racketeering.  Defendants moved to
stay the court action pending arbitration of plaintiffs' claims
under section 3 of the Federal Arbitration Act (FAA), 9 USC § 3. (2)

 
The trial court denied that motion, and defendant appealed.  The
Court of Appeals concluded that, with the exception of the
negligent misrepresentation claim and part of the breach of
fiduciary duty claim, plaintiffs' claims were subject to
arbitration under the FAA.  Accordingly, the Court of Appeals
affirmed in part and reversed in part the order of the trial
court.  Berger Farms v. First Interstate Bank, 148 Or App 33, 939
P2d 64 (1997).  This court denied both parties' petitions for
review.  Berger Farms v. First Interstate Bank, 326 Or 62, 944
P2d 949 (1997).
		In the meantime, defendant petitioned the Court of
Appeals for an award of attorney fees on appeal in the amount of
$52,895.78, under the following "prevailing party" provision in
the parties' loan agreements:
	"8.2  Attorney Fees.  In the event that
[defendant] uses its own or an outside attorney to
construe, interpret, or enforce any of the provisions
of this Agreement or any of the Loan Documents, * * *
[defendant] shall be entitled to recover from
[plaintiffs] its reasonable attorney fees and other
costs incurred irrespective of whether any legal
proceeding is commenced.  If any legal action,
arbitration or other proceeding is brought, the
prevailing party shall be entitled to recover its
reasonable attorney fees and other costs incurred, both
at trial and on any appeal or petitions for review."
(Emphasis added.)  Plaintiffs opposed defendant's petition,
arguing that:  (1) ORS 20.015 did not authorize an award of
attorney fees at that stage of the proceedings; (2)
alternatively, the Court of Appeals should determine the
appropriate amount of attorney fees, but condition the actual
award upon the ultimate outcome on the merits under ORAP
13.10(3); (3) and, (3) in any event, the amount requested was
excessive.  In September 1997, the Court of Appeals entered an
order allowing defendant attorney fees on appeal in the amount of
$30,000.  The order did not condition payment of the attorney
fees upon the ultimate outcome of the case and did not apportion
the amount awarded between those attorney fees incurred on the
arbitrable claims and those incurred on the nonarbitrable claims.
		Plaintiffs petitioned for review of the Court of
Appeals' order.  In allowing review, this court requested that
the parties address the following question in their briefs on the
merits:
"Does the parties' agreement to resolve all disputes
through binding arbitration deprive the Court of
Appeals of authority to award attorney fees on appeal
in this case?" (4)
In response to that question, plaintiffs argue that defendant's
request for attorney fees "falls within the jurisdiction of the
arbitration and should be decided without judicial involvement." 
Plaintiffs also continue to assert that, in any event, the Court
of Appeals' order was not authorized under ORS 20.015. (5) 
Defendant, in turn, contends that the Court of Appeals retained
the authority to award attorney fees, despite that court's
conclusion that most of plaintiffs' claims were subject to
arbitration. 
		For the reasons that follow, we agree with plaintiff
that the Court of Appeals was without authority to award attorney
fees to defendant that it incurred on the claims subject to
arbitration.  As to the remaining attorney fees, we conclude that
defendant was not the "prevailing party" under ORS 20.015.
		We begin with the attorney fees that defendant incurred
on the arbitrable claims.  As noted, at the time when it awarded
attorney fees to defendant, the Court of Appeals already had
concluded that, with the exception of plaintiffs' claim for
negligent misrepresentation and part of their claim for breach of
fiduciary duty, the trial court must stay the proceedings on the
parties' underlying dispute under section 3 of the FAA pending
arbitration.  Berger Farms, 148 Or App 33.  The effect of that
decision was to halt the court proceedings on the arbitrable
claims, thereby suspending the court's involvement in those
claims.  It follows that the Court of Appeals had no authority to
award attorney fees incurred on those claims, because it already
had determined that an arbitrator must decide the underlying
dispute.  Stated differently, because the Court of Appeals was
without authority to decide the merits of the parties' underlying
dispute on the arbitrable claims, it likewise was without
authority to decide whether defendant was entitled to attorney
fees arising out of that dispute.  See generally John Wiley &
Sons v. Livingston, 376 US 543, 557, 84 S Ct 909, 11 L Ed 2d 898
(1964) (once court determines that parties are obligated to
submit the underlying dispute to arbitration, certain questions
"which grow out of the dispute" also should be left to the
arbitrator); Glass v. Kidder Peabody & Co., Inc., 114 F3d 446,
453-54 (4th Cir 1997) (applying John Wiley & Sons to the FAA and
stating that, "once a * * * court has completed its substantive
arbitrability inquiry and ordered the parties to arbitration,   
* * * the * * * court has exhausted its function and may not
intervene again until a party objects to the arbitration award or
seeks enforcement thereof" (internal quotation marks omitted)). 
		As to the attorney fees incurred on the remaining,
nonarbitrable claims, the Court of Appeals' authority depends
upon the application of ORS 20.015 to this case.  We now turn to
that issue.
		As noted, the parties' agreements granted the
"prevailing party" the right to recover reasonable attorney fees
on appeal, "[i]f any legal action, arbitration or other
proceeding is brought."  The agreements do not define the term
"prevailing party."  We therefore apply the statutory definition
set out in ORS 20.096(5).  See Carlson v. Blumenstein, 293 Or
494, 499-500, 651 P2d 710 (1982) (in absence of evidence that
parties intended otherwise, court will apply statutory meaning of
"prevailing party" to private agreement referring to "successful
party"); see also Anderson v. Jensen Racing, Inc., 324 Or 570,
579, 931 P2d 763 (1997) (applying ORS 20.096(5) under Carlson to
contract referring to "prevailing party").  ORS 20.096(5)
provides:
	"Except as provided in ORS 20.015, as used in this
section * * * 'prevailing party' means the party in
whose favor final judgment or decree is rendered."
(Emphasis added.)  ORS 20.015 provides:
	"As used in this chapter 'prevailing party' on
appeal may include, at the discretion of the appellate
court, any party who obtains a substantial modification
of the judgment, decree or other decision of the trial
court."
Thus, ORS 20.015 grants to the Court of Appeals the discretion to
award attorney fees on appeal to a party who has obtained a
"substantial modification" of the decision below.
		Here, in respect of the nonarbitrable claims -- the
only claims for which the Court of Appeals, rather than an
arbitrator, had authority to award attorney fees -- defendant did
not prevail on appeal, because it lost its attempt on appeal to
require plaintiffs to arbitrate those claims.  Consequently,
defendant was not the "prevailing party" within the meaning of
ORS 20.015 and, therefore, was not entitled to an award of
attorney fees for work on those claims.
		In sum, we conclude that the Court of Appeals was
without authority to award attorney fees to defendant incurred on
the claims that were subject to arbitration and that, in any
event, defendant was not entitled to an award of attorney fees
incurred on the remaining nonarbitrable claims.  We therefore
hold that the Court of Appeals erred when it awarded attorney
fees to defendant.
		The order of the Court of Appeals is reversed.

1. 	ORS 20.015 is set out in the text below.

2. 	9 USC section 3 provides:
	"If any suit or proceeding be brought in any of
the courts of the United States upon any issue
referable to arbitration under an agreement in writing
for such arbitration, the court in which such suit is
pending, upon being satisfied that the issue involved
in such suit or proceeding is referable to arbitration
under such an agreement, shall on application of one of
the parties stay the trial of the action until such
arbitration has been had in accordance with the terms
of the agreement, providing the applicant for the stay
is not in default in proceeding with such arbitration."
3. 	ORAP 13.10(3) provides, in part:
	"When a party prevails on appeal or on review and
the case is remanded for further proceedings in which
the party who ultimately will prevail remains to be
determined, the prevailing party on appeal or review
may petition the appellate court for attorney fees
within the time and in the manner provided in this
rule.  If the appellate court determines an amount of
attorney fees under this subsection, it may condition
the actual award of attorney fees on the ultimate
outcome of the case. * * *"
(Footnote omitted.)

4. 	ORAP 13.10(9) provides, in part:
	"In the absence of timely filed objections to a
petition under this rule, the Supreme Court and the
Court of Appeals, respectively, will allow attorney
fees in the amount sought in the petition, except in
cases in which:
	"* * * * *
	"(b)  when the Supreme Court or the Court of
Appeals is without authority to award fees."
By setting out a circumstance -- the lack of authority to award
attorney fees -- in which no objection is necessary to preclude
an award, that rule demonstrates that the appellate courts will
determine whether such authority exists, despite the failure of
any party to object upon the ground that the court lacks
authority to award attorney fees.
		Here, as noted, plaintiffs filed a timely objection to
defendant's request for attorney fees; however, that objection
did not raise the issue of the Court of Appeals' authority to
award those fees, in light of its earlier conclusion that most of
plaintiffs' claims were subject to arbitration.  In accordance
with ORAP 13.10(9)(b), this court then raised that issue on its
own initiative.  We continue to emphasize, however, that a party
objecting to a request for attorney fees who fails to set out its
objection with particularity does so at its own peril.  See
Dockins v. State Farm Ins. Co., ___ Or ___, ___, ___ P2d ___
(February 24, 2000) (slip op at 6-7) (in determining reasonable
attorney fees, court "depend[s] on a petitioner's opponent to
raise objections to the petitioner's request with as much
particularity as possible and to support those objections with
argument * * * that will assist this court in its efforts");
McCarthy v. Oregon Freeze Dry, Inc., 327 Or 185, 189, 957 P2d
1200 (1998) (on reconsideration) (noting that opposing party's
objection "play[s] an important role in framing any issues that
are relevant to the court's decision to award or deny attorney
fees"). 

5. 	Plaintiffs do not challenge on review the amount of
attorney fees awarded.