Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-02072/USCOURTS-ca10-91-02072-0/pdf.json

Parties Involved:
El Paso Pipe and Supply Co.
Not Party
General Electric Company
Appellant
The American Insurance Company
Appellee

Document Text:

PUBLISH FIL~-· u United States Cou ·:~ of Appealr r.renth Cirr:uit 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

NOV 2 1992 

ROBERT L HOECKER 

THE AMERICAN INSURANCE COMPANY, a 

New Jersey corporation, 

Plaintiff-Appellee, 

vs. 

EL PASO PIPE AND SUPPLY CO., a Texas 

corporation, doing business under the 

names of EPPSCO ELECTRICAL SUPPLY CO. 

and EPPSCO ELECTRICAL SUPPLY, and 

GENERAL ELECTRIC COMPANY, a New York 

corporation, 

Defendants-Appellants. 

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Clerk . 

Consolidated Appeal 

Nos. 91-2070, 91-2072 

Appeal from the United States District Court 

for the District of New Mexico 

(D.C. No. CIV-88-0858 M) 

Briggs F. Cheney (Rodney L. Schlagel with him on the brief) of 

Butt, Thornton & Baehr, Albuqueque, New Mexico, for PlaintiffAppel lee. 

Rex D. Throckmorton (Odgen M. Reid and James P. Bieg with him on 

the brief) of Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, New 

Mexico, for Defendant-Appellant General Electric Company. 

Cameron Peters, Kemp, Smith, Duncan & Hammond, Santa Fe, New 

Mexico, for Defendant-Appellant El Paso Pipe and Supply Co. 

Before LOGAN, TACHA, Circuit Judges and COOK, Senior District 

Judge* 

*Honorable H. Dale Cook, Senior United States District Judge for 

the Northern District of Oklahoma, sitting by designation. 

1 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 1 
COOK, Senior District Judge 

This action arose out of the construction of the Veteran's 

Administration Hospital in Albuquerque, New Mexico. The Brown-Olds 

Corporation (Brown-Olds) was the subcontractor responsible for 

providing all labor and material for the construction of the 

mechanical and electrical segments of the project. General 

Electric (GE) and its distributor El Paso Pipe and Supply Company 

(EPPSCO) were the successful bidders to supply the electrical 

equipment to Brown-Olds. 

During the course of negotiations between GE and Brown-Olds 

for the contract to supply the equipment for the project, GE made 

oral and written representations concerning service, equipment, 

delivery schedules, and price. On June 9, 1983 GE sent a 19-page 

list of materials to Brown-Olds. This written quotation had the 

fol~owing provision: 

"Sale of any products or services covered by 

this quotation is conditioned upon the terms 

contained herein (including those on back of 

this letter). Any additional or different 

terms proposed by Buyer are objected to and 

will not be binding upon Seller unless 

specifically assented to in writing by 

Seller's authorized representative." 

GE's quotation al so provided, "unless otherwise stated, this 

quotation ... expires 15 days fron its date and may be modified or 

withdrawn by Seller prior to any acceptance .... " 

This 15-day limit was never officially extended. However, GE 

and Brown-Olds continued to negotiate the bid. On October 3, 1983 

Brown-Olds sent its purchase order to GE in care of EPPSCO. The 

purchase order enumerated materials, price, shipping schedules, and 

specifications to be observed. 

2 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 2 
The back of the purchase order had several boiler-plate terms 

and conditions. Paragraph 15 (b) of the purchase order was an 

integration clause stating that the purchase order and any written 

attachments constituted the entire agreement of the parties and all 

prior oral and written communications were withdrawn. 

15(d) provided: 

"In the event there should be legal action in 

connection with this Purchase Order, then if 

the Seller is not the prevailing party in such 

action, Seller agrees to pay the reasonable 

legal fees and other costs incurred in such 

legal action by the Purchaser." 

Paragraph 

During the course of the project Brown-Olds became bankrupt 

and its bonding company, American Insurance Company (American), 

assumed responsibility for completion of the construction. 

American, as Brown-Old's successor-in-interest, initiated this 

diversity action in federal court on August 7, 1989 against GE and 

EPPSCO. It alleged breach of contract, breach of warranty, and 

negligence in furnishing electrical equipment to the construction 

project. 

The case was tried before a jury on October 11-19, 1989. The 

jury determined that a contract existed between Brown-Olds and both 

GE and EPPSCO. The jury also determined that both GE and EPPSCO 

breached the contract and warranties. However, the jury found that 

American's damages of $34,114 . 14 resulted from GE's breach of 

contract alone. Therefore, EPPSCO was not found liable for any of 

American's damages. 

Following the trial, A~erican moved for an award of attorney 

fees and costs based on the contractual provision located on the 

3 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 3 
back of the purchase order. Although the jury determined that a 

contract existed between Brown-Olds and both GE and EPPSCO, it was 

never asked to determine if the purchase order was the operative 

agreement between the parties. It, therefore, was also not asked 

to determine whether the attorney fee provision was a term of the 

contract. Pursuant to Fed. R. Civ. P. 49(a) the trial court found 

that GE and EPPSCO waived their right to have the jury decide these 

issues. 1 Therefore, the court made the determinations itself and 

granted American's motion. It awarded American $158,355.70 in 

attorney fees and $17,909.06 in costs. 

The court first stated that the substantive law of New Mexico 

would be applied in this diversity action. It then noted that 

under the law of New Mexico recovery of attorney fees is permitted t 

if their recovery is provided for in a contract, citing Hickey v. 

Griggs, 106 N.M. 27, 738 P.2d 899 (1987). It determined that the 

primary purpose of the contract in question was the sale of goods 

and, therefore, the provisions of the Uniform Commercial Code (UCC) 

controlled. N.M. Stat. Ann. Sec. 55-1-101 et seq. (1978); State v. 

Kent Nowlin Constr. 1 Inc., 106 N.M. 539, 746 P.2d 645 {1987). The 

court then referred to UCC section 2-207(1) which provides: 

1 Rule 49(a) "permits the court to require a jury to return a 

verdict specific upon each issue of fact. These questions are to 

be submitted to the jury in written form, susceptible of brief 

answers. If in submitting these questions the court omits any 

issue of fact raised by the pleadings or by the evidence, each 

party waives the right to a trial by jury of the issues so omitted 

unless before the jury retires, he demands its submission to the 

jury. In case an issue of fact is omitted without such demand, the 

court may make a finding." Merrill v. Beaute Vues Corp., 235 F.2d 

893, 896-97 (10th Cir . 1956). 

4 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 4 
"A definite and seasonable expression of 

acceptance or a written confirmation which is 

sent within a reasonable time operates as an 

acceptance even though it states terms 

additional to or different from those offered 

or agreed upon, unless acceptance is expressly 

made conditional on assent to the additional 

or different terms." 

N.M. Stat. Ann. 55-2-207(1) (1978). It found that the Brown-Olds 

purchase order was a written confirmation of the parties' agreement 

as envisioned by this statute. 

Next the court referred to UCC section 2-207(2) which states: 

"The additional terms are to be construed as 

proposals for addition to the contract. 

Between merchants, such terms become part of 

the contract unless: (a) the offer expressly 

limits acceptance to the terms of the offer; 

(b) they materially alter it; or (c) 

notification of objection to them has already 

been given or is given within a reasonable 

time after notice of them is received." 

N.M. Stat. Ann. Sec. 55-2-207(2) (1978). The court determined that 

GE, EPPSCO, and Brown-Olds were all merchants for purposes of this 

discussion, citing Cement Asbestos Products v. Hartford Accident & 

Indemnity Co., 592 F.2d 1144 {10th Cir. 1979). It therefore 

concluded that the additional terms in the Brown-Olds purchase 

order were terms of the agreement unless they fell into one of the 

section 2-207(2) exceptions. 

The court rejected the argument that the June 9, 1983 GE 

quotation was an offer that expressly limited the acceptance to the 

terms of the offer under exception (a). 2 The court then rejected 

2 The court found that the GE quotation and its conditions, by 

its own terms, expired after fifteen days. "Although the parties 

continued to negotiate and ultimately came to an agreement, there 

is no indication that any of the terms or conditions of acceptance 

5 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 5 
the argument that the GE quotation operated as notice of objection 

to the attorney fees provision in the purchase order under 

exception (c). 3 

appeal. 4 

None of the above conclusions are at issue on 

GE and EPPSCO appeal the award of attorney fees and costs to 

American. 5 They challenge the court's finding that the attorney 

fees provision in the Brown-Olds purchase order does not constitute 

a material alteration to the parties' agreement. Appellants also 

assert that the court erred in its conclusions regarding prevailing 

set out in the boiler plate language of the quotation were carried 

forward after the expiration of the 15-day period." Memorandum 

Opinion and Order at 7-8, The American Ins. Co. v. El Paso Pipe & 

Supply Co. and General Electric Co. (No. 88-858-M Civil) 

(hereinafter referred to as "Memorandum Opinion".] 

3 The court again explained that the GE quotation had 

expired. In addition, the court stated that even if the quotation 

had not expired "it could not operate so selectively." Memorandum 

Opinion at 8. The quotation provided that any terms not included 

in the quotation were additional terms and GE objected to them. Id. 

However, the quotation consisted of only a basic list of equipment. 

Id. "Therefore, every other term contained in the Brown-Olds 

purchase order such as price, delivery date, and job specification 

was an additional term just as the attorney fees provision was." 

Id. The court found that under the conditions of the quotation GE 

would have objected to all of these additional terms unless it 

assented to them in writing. Id. It stated that there was no 

evidence that GE assented in writing to any additional terms in the 

purchase order. Id. "Yet, GE went along with the additional terms. 

GE cannot now select which additional terms it finds 

objectionable." Id. 

4 Appellants note in their brief that they placed an objection 

to any additional terms on the quotation that they sent to BrownOlds. They do not, however, assert or cite any authority to 

support an argument that the court erred in its findings of fact or 

conclusions of law on the issue of whether the additional term fell 

within exception (a) or (c) to UCC 2-207(2). 

5 GE and EPPSCO filed separate appeals which raise the ?ame 

issues. The appeals have been consolidated pursuant to this 

Court's order. 

6 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 6 
party status in the case and the reasonableness of the fee award. 

A. Material Alteration 

In reviewing the district court's decision concerning whether 

the attorney fees provision materially altered the agreement 

between the parties we apply the clearly erroneous standard. 

Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758, 763 (10th Cir. 

1983). A district court's findings will be overturned under the 

clearly erroneous standard when "although there is evidence to 

support it, the reviewing court on the entire evidence is left with 

the definite and firm conviction that a mistake has been 

committed." Anderson v. Bessemer City, 470 U.S. 564, 573 (1985). 

The New Mexico courts have not yet decided the issue of 

whether an attorney fee provision constitutes a material alteration 

to a contract. 6 The district court based its decision regarding 

this issue on the reasoning set forth in a Colorado Court of 

Appeals case, Offen, Inc. v. Rocky Mountain Constructors, 765 P.2d 

600 (Colo. Ct. App. 1988). Appellants argue that though the Offen 

case is similar to the case at bar, there is an important disparity 

between the facts of the two cases which the district court 

ignored. We agree. Furthermore, we believe the district court 

6 It should be noted that in Cement Asbestos Products v. 

Hartford Accident & Indemnity Co., 592 F.2d 1144 {10th Cir. 1978) 

the 10th Circuit held that an attorney fees provision which was an 

additional term appearing on a written confirmation became a term 

of the contract between the parties. Id. at 1148. However, the 

case is inapposi te to the case at bar. There the UCC 2-207 ( 2) 

exceptions were not at issue. The only issue before the court was 

whether the parties were merchants for purposes of the 2-207 

analysis. Because no exceptions applied and because the parties 

were found to be merchants the court held that the attorney fees 

provision became a term of the contract. Id. 

7 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 7 
misinterpreted the Off en case. We, therefore, find that the 

district court ' s reliance on that case was misplaced and its 

opinion does not adequately reflect the analysis required under ucc 

2-207 (2) (b). 

The Offen case invplved an additional term in the plaintiff's 

delivery tickets which provided that an 18% interest rate and 

attorney fees would be owed if a collection action was necessary. 

Id. at 600. Invoices which contained similar language in bold face 

type were mailed after delivery. Id . These invoices were found to 

be written confirmations of the terms earlier agreed upon by the 

parties. Id. at 601. Both parties were merchants and defendant 

never objected to the clause. Id. The court was asked to 

determine whether the additional term materially altered the 

agreement between ·the parties. It held that it did not. 

In evaluating what constitutes a material alteration the Offen 

court correctly looked to the Official Comments to UCC 2-207 for 

guidance. Official Com~ent 4 states that an addition to a contract 

is a material alteration when it "results in surprise or hardship 

if incorporated without the express awareness by the other party." 

Comment 4 also lists several examples of provisions that constitute 

material alterations and Comment 5 lists some examples of those 

that do not. An atto~ney fee provision is not included in either 

list. 

The Offen court began its discussion by referring to Comment 5 

which states: "[E)xamples of clauses which involve no element of 

unreasonable surprise and which therefore are to be incorporated in 

8 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 8 
the contract unless notice of objection is seasonably given are ... 

a clause providing for interest on overdue invoices .... " 765 P.2d 

at 601. The court then found that the "concept implicit in this 

statement applies to the interest and attorney fee provision 

included on the invoice at issue here." Id. 

We can readily understand why the Offen court would find that 

the provision allowing for interest on overdue invoices became a 

part of the agreement. It is precisely one of the examples of 

clauses that do not constitute material alterations listed in 

Comment 5. In addition, "it is common in commercial circles, 

including transactions with non-merchants, for balances to be 

subjected to interest charges." Herzog Oil Field Service, Inc. v. 

Otto Torpedo Co., 391 Pa. Super. 133, 137, 570 A.2d 549, 551 (Penn. 

1990). We, however, fail to see how it could be said that the 

concept implicit in the Comment 5 language quoted by the court 

applies to an attorney fee provision. 7 "(A] n attorney's fee 

provision is considerably less common than an interest rate 

provision; thus, 

anticipated." Id. 

it would not be as readily expected or 

The majority of courts reviewing whether an addition to a 

contract constitutes a material alteration hold that it depends on 

7 "Many factors are relevant in assessing materiality. 

Perhaps here lies the chief criticism of the Official Comments, 

namely, that the drafters presumed to establish guidelines through 

limited examples. What is and what is not material is an 

enormously complex issue, dependent upon a variety of circumstances 

almost as broad as human conduct itself. A variance in one 

situation may be material but not in another." 3 Richard W. 

Duesenberg & Lawrence P. King, Sales and Bulk Transfers under the 

Uniform Commercial Code, S 3.03(1) (1992). 

9 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 9 
the unique facts of every case. Luedtke Eng. Co. v. Ind. Limestone 

Co., 740 F.2d 598, 600 (7th Cir. 1984); Transamerica, 723 F.2d 758, 

765 (10th Cir. 1983); N & D Fashions, Inc. v. DHJ Industries, Inc., 

548 F.2d 722, 726 (8th Cir. 1977); Medical Development Corp. v. 

Industrial Molding Corp., 479 F.2d 345, 348 (10th Cir. 1973); St. 

Charles · Cable TV v. Eagle Comtronics, Inc., 687 F.Supp. 820 

(S.D.N.Y. 1988). Determining whether a term results in surprise or 

hardship "requires the trial court to make a factual evaluation of 

the parties' position in each case." Luedtke, 740 F.2d at 600. 

The district court in the present case failed to make the 

proper factual findings. Instead the court relied on the Offen 

court's conclusory statement that an attorney fee provision is 

similar to examples of other clauses that are not considered 

material alterations listed in the Official Comments to UCC 2-207. 

The'' court appears to have read the case as standing for the 

proposition that an attorney fees provision will never involve 

unreasonable surprise or hardship. We disagree with this 

proposition as well as this interpretation of Offen. 

Unlike the district court in this case, the Offen court 

considered the facts of the case before it as they pertained to the 

attorney fees provision. See Comark Merchandising, Inc. v. 

Highland Group, Inc., 932 F.2d 1196, 1203 n.8 (7th Cir. 1991). 

Based on those facts it gave a sound reason why the provision 

should not have surprised the defendant: 

"The transactions between the parties 

established that invoices would follow 

purchase orders, and since (defendant) had 

received numerous invoices during their course 

10 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 10 
of dealing, the term regarding attorney fees 

should have come as no surprise to 

[defendant]." 

Offen, 765 P.2d at 601. 

In the instant case there was no prior course of dealing 

between the parties and there was only one written confirmation. 

consequently, this case and the Offen case are distinguishable. 

However, a single written confirmation and the absence of a prior 

course of dealing may not necessarily indicate that GE and EPPSCO 

were unreasonably surprised. 

UCC 2-207 "in essence supplies a presumption that the 

additional terms contained in confirmation forms are not read by 

the opposing party." Dale R. Horning Co. v. Falconer Glass 

Industries, 730 F.Supp. 962, 966 (S.D. Ind. 1990). Comment 4 to 

UCC 2-207 states that surprise occurs "when a term is included 

without the express awareness of the other party." Comark, 932 F.2d 

at 1202 n.7 (emphasis in original). "[A)wareness does not 

necessarily require a party actually to have read the additional 

term." Id. Therefore, on the issue of surprise there is both a 

subjective and an objective element to the inquiry. Dale R. Horning 

Co., 730 F.Supp. at 966. Courts should first make factual findings 

as to whether a nonassenting party subjectively knew of an added 

term. It must then make findings of fact concerning whether that 

party should have known that such a term would be included. Id. 

In the case at bar the district court found that at trial 

American met its burden of establishing that GE saw the purchase 

11 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 11 
order. 8 The court did not, however, make any findings of fact 

pertaining to whether GE or EPPSCO knew about or should have known 

about the added attorney fee provision. 

There are many factors that courts properly consider when 

determining whether a party to a contract was unreasonably 

surprised by an additional term. As mentioned above, a prior 

8 Appellants argue that the district court erred in relying on 

circumstantial evidence and concluding that they saw the purchase 

order. They claim that the direct evidence is to the contrary. 

Direct evidence is "evidence which, if believed, proves the 

existence of the fact in issue .... " 29 Am.Jur.2d Evidence§ 4 

(1967). It is ciear from the jury's verdict and from the court's 

Memorandum Opinion that the direct evidence which appellants 

proffered on this point was not believed. "It is acceptable for 

a party bearing the burden of proof to utilize sufficient 

circumstantial evidence to support his or her position." Dillon v. 

Fibreboard Corp., 919 F.2d 1488, 1490 (10th Cir. 1990). In 

determining whether the district court erred in finding that 

American met its burden of proof, we accept the factual findings of 

the trial court unless clearly erroneous. See Fed. R. Civ. R. 

52(a). In its order the trial court stated: 

"GE "booked" the Brown-Olds order on October 

7, 1983 and filled out a GE project 

requisition. A comparison of the terms and 

provisions of the Brown-Olds purchase order 

and the GE · requisition shows that the 

information regarding the order on both forms 

is virtually identical, indicating that GE had 

the Brown-Olds purchase order in its 

possession when it entered the order. In 

addition, on November 5, 1983, EPPSCO 

submitted its purchase order to GE. The 

EPPSCO purchase order directs GE to follow 

instructions which appeared on the Brown-Olds 

order. The EPPSCO purchase order does not 

contain information sufficient for GE to have 

used it alone to fill Brown-Olds' order." T 

Memorandum Opinion at 5. 

We have reviewed the briefs, the exhibits, and the limited 

transcripts supplied to us thoroughly and find no error in the 

district court's assessment of this issue. 

12 

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course of dealing and the number of written confirmations exchanged 

between the parties is important to. evaluate. Comark, 932 F.2d at 

1202; Schulze and Burch Biscuit Co. v. Tree Top. Inc., 831 F.2d 

709, 714 (7th Cir. 1987); Barliant v. Follett Corp., 138 Ill.App.3d 

756, 483 N.E.2d 1312, 1316 (1985).; Offen, 765 P.2d at 601. In 

addition, absence of industry custom should be regarded. Comark, 

932 F. 2d at 1202-03. Courts should also consider whether the 

addition was clearly marked on the written confirmation. Barliant, 

483 N.E.2d at 1316. And whether a party includes an attorney fees 

provision in its own standard contract forms is a significant 

factor. Comark, 932 F.2d at 1202. The district court failed to 

make factual findings concerning any of these factors. 

The district court also failed to make factual findings on the 

issue of hardship. The district court misread the Offen decision 

as including hardship with unreasonable surprise as factors for not 

finding the attorneys' fee provision to be a material alteration to 

the contract. The Off en court did not discuss hardship. The 

district court based its determination of no material alteration 

upon its reading of Off en, but did not make factual findings 

regarding hardship in this case. In a transaction involving the 

sale of goods the analysis of the existence of hardship focuses on 

whether the clause at issue "would impose 'substantial economic 

hardship' on the nonassenting party." Dale R. Horning Co., 730 

F.Supp. at 967, quoting Trans-Aire International, Inc. v. Northern 

Adhesive Co. 1 Inc., 882 F.2d 1254, 1262 (7th Cir. 1989). The court 

should therefore consider whether GE and/or EPPSCO will suffer 

13 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 13 
significant economic hardship if the attorney fee provision becomes 

a term of the contract by operation of law under UCC 2-207(2). 

Because of its erroneous reading of Offen, the district court 

failed to indicate any factual basis for its ultimate conclusion 

that the attorney fee provision was not a material alteration. We, 

therefore, remand for further proceedings to permit the trial court 

to apply the appropriate criteria and make the missing findings of 

fact. Pullman-Standard v. Swint, 456 U.S. 273, 291 {1982). On 

remand GE and EPPSCO will have the burden of proving surprise or 

hardship. 9 

B. Prevailing Party 

Appellants argue that even if the attorney fees provision is 

a term of the contract between American, GE and EPPSCO, American 

doe~ not automatically recover them. Appellants maintain that ,. 

American cannot recover attorney fees unless it was the prevailing 

party. The attorney fee provision in the purchase order, however, 

states that if legal action becomes necessary "in connection with 

this Purchase Order, then if the Seller is not the prevailing party 

in such action, Seller agrees to pay reasonable legal fees and 

costs II Therefore, it is not American's status as prevailing 

party that is relevant. Rather it is appellants'. The district 

9 The nonassenting party has burden of proving surprise or 

hardship. Comark, 932 f.2d at 1201; Dale R. Horning Co., 730 F.2d 

at 966 n.2. The reason for this is "between merchants paragraph 2-

207(2) (b) presumes the inclusion of the additional clause unless 

one of the three exceptions is met." Comark, 932 F.2d at 1201. Thus 

the party opposing the inclusion of an added term bears the burden 

of proving an exception. Id. , · 

14 

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court held that neither EPPSCO nor GE prevailed against American. 

Factual questions pertaining to whether appellants prevailed in the 

case will be reviewed under the clearly erroneous standard, while 

any legal analysis providing the basis for the court's decision 

will be reviewed de novo. See Supre v. Ricketts, 792 F.2d 958, 961 

(10th Cir.1986). 

Appellants first argue that receiving an affirmative recovery 

does not necessarily make American a prevailing party . 10 GE 

asserts that American sought hundreds of thousands of dollars of 

damages in the categories of administrative costs, liquidated 

damages, lost interest, direct costs, and extended insurance but 

the jury awarded American only its direct costs. GE claims that 

because it avoided the bulk of potential liability to American it 

should be considered a prevailing party. EPPSCO argues that it is 

entitled to prevailing party status because it was not found liable 

for any of American's damages. 

As to GE's argument, the district court found that because the 

"special verdict form did not ask for a determination of damages by 

category" it would be impossible to "determine whether GE succeeded 

in avoiding liability in any category of damages." 

Opinion at 10. We find no error in this conclusion. 

Memorandum 

As to EPPSCO's argument, the district court first noted that 

the courts of New Mexico hold "that the 'prevailing party' is the 

10 Appellants cite Hutchins v. Schwartz, 724 P.2d 1194, 1204 

(Alaska 1986); Tippie v. Delisle, 55 Wash. App. 417, 777 P.2d 1080, 

1082-83 (1989); Dennis' Seven Dees Landscape, Inc. v. Platt, 91 Or. 

App. 663, 756 P.2d 683, 685 (1988); Owen Jones & Sons, Inc. v. C.R. 

Lewis Co., 497 P.2d 312 (Alaska 1972). 

15 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 15 
party that wins the lawsuit." Id., citing South v. Lucero, 92 N.M. 

798, 595 P.2d 768 {Ct.App. 1979), cert. denied 92 N.M. 675, 593 

P.2d 1078 {1979). It then stated that a party who recovers only 

nominal damages will be considered the prevailing party. Id., 

citing Burk v. Unified School Dist. No. 329, 116 F.R.D. 16 (D. Kan. 

1987). It concluded "[a)lthough American did not seek or receive 

nominal damages against EPPSCO, nominal damages are recoverable 

against a party who breaches a contract even where no actual 

damages can be proved." Id., citing 11 Samuel Williston, A Treatise 

on the Law of Contracts §1339A {3d ed. 1968). We agree with this 

analysis. American alleged and the jury found that EPPSCO breached 

the contract and breached the express warranties. "The 

determination of who is the prevailing or successful party is based 

upon success upon the merits, not upon damages . 

Cost s§ 11 (1990). 

"20 C.J.S. 

Appellants' second assertion is based on the fact that on 

September 13, 1989 they made an offer of judgment in the amount of 

$35,000.00 pursuant to Rule 68 of the Federal Rules of Civil 

Procedure. Rule 68 permits a party defending against a claim to 

recover all costs incurred after the making of an offer of judgment 

if the offeree rejected the settlement offer and ultimately was 

awarded less at trial. Appellants cite Tippie v. Delisle, 777 P.2d 

1080 (Wash. App. 1989) for the proposition that a party who rejects 

a Rule 68 offer and obtains a judgment less than the offer cannot 

be considered a prevailing party. They contend that American 

cannot be judged the prevailing party in the lawsuit because 

16 

Appellate Case: 91-2072 Document: 010110145654 Date Filed: 11/02/1992 Page: 16 
American recovered less than $35,000.00 at trial. We will assume 

that appellants are arguing that if American is not the prevailing 

party in the case then they are. 

In Tippie, the Tippies brought suit claiming they were damaged 

when the Delisles' car collided with the car driven by Mrs. Tippie. 

Tippie, 777 P.2d at 1081 . . Before trial the Delisles offered the 

Tippies $2,500.00 plus costs to settle. Id. The Tippies refused 

the offer. Id. At trial Mrs. Tippie was awarded $2,000.00 and her 

husband was awarded nothing. Id. A state statute allowed attorney 

fees and costs to prevailing parties in tort actions. Id. at 1082. 

The trial court ruled that the Tippies were the prevailing parties 

because they obtained a judgment. Id. The Delisles sought costs and 

attorney fees pursuant to a state statute which is virtually 

identical to Rule 68 of the Federal Rules of Civil Procedure. Id. 

The trial court judged both parties to have prevailed and offset 

the amount of the Delisles' costs against the Tippies' costs. Id. 

On appeal the Tippies claimed that they were the prevailing 

parties and therefore entitled to attorney fees and costs without 

the offset. Id. The Delisles argued that they were entitled to 

recover costs because their settlement offer was higher than the 

award the Tippies recovered at trial. Id. The issue on appeal was 

how the statute granting attorney fees to prevailing parties and 

the offer of judgment statute should be reconciled. Id. at 1082. 

The appellate court found that a party who rejects a Rule 68 

offer and then obtains less than the offer at trial cannot be 

considered a prevailing party under the state statute. Id. 

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Therefore, it held that the Delisles were entitled to their costs 

and attorney fees which accrued after the offer of judgment and the 

Tippies were not entitled to fees because they did not prevail. Id. 

The Tippie case is distinguishable from the present case. 

Rule 68, by its terms, applies to a situation where the offerer 

tries to recover its post settlement offer costs from the offeree. 

This is what happened in Tippie. GE never sought Rule 68 costs 

from American. · EPPSCO did seek Rule 68 costs but the district 

court denied the request and EPPSCO has not appealed the denial. 

Rule 68 simply is not applicable to the instant case. We refuse to 

extend the "prevailing party" analysis set forth in Tippie beyond 

the context of a case where Rule 68 is actually being employed. 11 

In addition to the $35,000.00 Rule 68 offer of judgment, 

appellants also claim that they attempted to settle the case on 

June 27, 1989 for the amount of $50,000.00. At that time the trial 

date was set for August 16, 1989. Then five days before the actual 

trial date they offered $40,000.00. Appellants suggest that 

because American ignored all of these offers and received less at 

trial it acted unreasonably and should, therefore, be estopped from 

receiving the attorney fees. We disagree. · 

It is acceptable for courts, on equitable grounds, to refuse 

to honor an attorney fees provision in a contract where the offeree 

declines a defendant's generous settlement offers before trial. 

See e.g., Cable Marine, Inc . v. M/V Trust ME II, 632 F.2d 1344 (5th 

11 The Tippie case is also of no help to appellants because 

the court there did not say that the Delisles were prevailing 

parties. 

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Cir. 1980). However, appellants do not make a strong case that 

their settlement offers were generous. As to the $50, ooo, 

$25, ooo. 00 was offered by counsel for GE. Counsel for EPPSCO 

merely stated that he would recommend contributing $25,000.00 for 

a total of $50,000.00. Neither the so-called $50,000.00 offer nor 

the $40,000.00 offer which came five days before trial included 

costs or attorney fees. Certainly by the time the $40,000.00 offer 

came in American had incurred the bulk of its attorney fees and 

costs. And with the original trial date set in August there is no 

doubt that at the time of the $50,000.00 offer a substantial amount 

of attorney fees had been incurred. 

The formal offer of judgment offered "$35,000.00, with costs 

accrued to date." Appellants claim the offer implicitly included 

the pre-offer attorney fees because attorney fees were provided for 

in the purchase order. They argue, "that the term 'costs' in Rule 

68 was intended to refer to all costs properly awardable under the 

relevant substantive statute or other authority," quoting Marek v. 

Chesny, 473 U.S. 1, 9 (1984). Appellants cite two other cases 

consistent with Marek, David v. AM Intern., 131 F.R.D. 86, 88-89 

(E.D. Pa. 1990) and Said v. Virginia Com. Univ./ Medical College, 

130 F.R.D. 60, 64 (E.D.Va. 1990). The cases cited by appellants 

involved situations where the courts were considering whether, 

pursuant to specific civil rights statutes, attorney fees are an 

item of costs under Rule 68. These cases are not persuasive in 

this situation. 

Here the attorney fees were recoverable pursuant to a private 

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contract instead of substantive law. In addition the district 

court stated that GE and EPPSCO steadfastly denied that they were 

parties to the purchase order. We strongly doubt that had American 

accepted the offer appellants would have been forthcoming with not 

only the $35,000.00 but also over $100,000.00 in attorney fees 

which American had accrued as of the date of the offer. The 

district court found that American did not act inequitably or 

unreasonably in this case by refusing appellants' offers. We agree 

and affirm the district court's decision on this issue. 

C. Reasonableness of Attorney Fees 

The purchase order provided for "reasonable legal fees and 

other costs incurred II American sought $158,355.70 in attorney 

fees and $17,909.06 in expenses. GE and EPPSCO challenge the 

district court's determination that the award was reasonable. We 

review the reasonableness of a fee award under the clearly 

erroneous standard. Carter v. Sedgwick County, Kan., 929 F.2d 1501, 

1506-07 (10th Cir. 1991). 

In its order the district court first listed the factors that 

must be considered in determining the reasonableness of an attorney 

fee award under New Mexico law: 

( 1) the time 

difficulty 

required; 

and 

of 

labor required--the novelty and 

the questions involved and skill 

(2) the fee customarily charged in the locality 

for similar services; 

(3) the amount involved and the results obtained; 

(4) the time linitations inposed by the client or 

by the circumstances; and 

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(5) the experience, reputation and ability of the 

lawyer or lawyers performing the services. 

Memorandum Opinion at 11, quoting Thompson Drilling Inc. v. Romig. 

105 N.M. 701, 705, 736 P.2d 979, 1983 (1987). 

Appellants argue that although the district court recognized 

its obligation to consider the reasonableness of the fees and costs 

under these standards it failed to conduct the requisite analysis. 

We disagree. 

We recognize that the trial court has the opportunity to 

observe the attorney's work first hand and that it also has a 

greater understanding of the litigation. See Poolaw v. City of 

Anadarko, Okl., 738 F.2d 364, 368 (10th Cir. 1984). Though the 

factors set out in Thompson Drilling are helpful guidelines, there 

is no fixed formula that can be employed in making a determination 

of the reasonableness of attorney fees. 

Both here and in the district court appellants challenge the 

reasonableness of the fee award based only on the grounds of 

excessive time spent and the results obtained. They assert that 

the case was not particularly difficult or complicated and that 

American spent sixty-five percent more time on the case than GE 

did. They, therefore, assert that the effort-to-result ratio was 

unreasonable. In addition they argue that the award is 

unreasonable because it is five times more than the jury verdict 

against GE and it increased EPPSCO's liability from nothing to 

$178,463.26. 

The district court first stated that American had provided an 

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extensive breakdown of its fees which included the date, time, 

attorney/staff and rate for each service and activity for which it 

billed. 12 It then noted that GE and EPPSCO did n·ot object to any 

specific activity as superfluous or as taking an unreasonable 

amount of time. In addition neither party objected to the hourly 

rate of any person providing services. 

The district court found that all parties in the suit were 

represented by superior counsel. 

simple contract case: 

It stated that this was not a 

"Both GE and EPPSCO denied that they were 

parties to the contract. GE, in particular, 

took the position adamantly throughout trial 

that it only deals through distributors to 

sell electrical equipment. American was 

forced to prove the existence of the contract 

with each defendant. In addition, the parties 

engaged in good faith efforts to settle this 

case from its initiation. I cannot say that 

American's refusal to settle was unreasonable. 

The offer of judgment was made very near the 

date of trial after American had incurred 

significant legal expenses. American believed 

that it was entitled to its legal expenses as 

a term of the contract if it prevailed, which 

was not reflected in the amount of the offer." ' . 

Memorandum Opinion at 12. 

The tr ia 1 court is in a better position to assess the 

applicable factors set forth in Thompson Drilling. The court has 

broad discretion on the issue of the reasonableness of fees. We 

find no error in the court's analysis nor in its ultimate 

conclusion on this issue. We, therefore, affirm the district 

court's granting of the fee award to American. 

12 We have reviewed these documents and agree that they are 

clear and thorough. 

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Conclusion 

We affirm the district court's rulings on the issues of 

prevailing party status and the reasonableness of the amount of 

attorney fees. However, because we believe that the district court 

did not make sufficient findings of fact on the issue of whether 

the attorney fee provision was a material alteration to the 

paLties' agreement, we reverse the judgment and remand for further 

proceedi ng consistent with this opinion. 

AFFIRMED IN PART, REVERSED IN PART AND REMANDED. 

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