Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-01049/USCOURTS-ca10-91-01049-0/pdf.json

Parties Involved:
Carl Bartecchi
Appellee
Michael Bird
Appellee
David Chaney
Appellee
Paul Clarkin
Appellee
Columbia Casualty Company
Appellant
Phillip Hilvitz
Appellee
Thomas Lemley
Appellee
James C. Moore
Appellee
Lawrence Ochs
Appellee
Roman Tafoya
Appellee
Bruce Wellens
Appellee

Document Text:

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UNITED STATES COURT OF APPEALS F I L E D 

FOR THE TENTH CIRCUIT United States Court of Appeals 

BRUCE WELLENS; DAVID CHANEY; THOMAS 

LEMLEY; ROMAN TAFOYA; PAUL CLARKIN; 

MICHAEL BIRD; CARL BARTECCHI; 

PHILLIP HILVITZ; LAWRENCE OCHS; 

JAMES C. MOORE, 

Plaintiffs-Appellees, 

v. 

COLUMBIA CASUALTY CO., an Illinois 

corporation, 

Defendant-Appellant. 

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ORDER AND JUDGMENT* 

Tenth Circuit 

OCT 2 31991 

ROBERT L. HOECKER 

Clerk 

No. 91-1049 

(D.C. No. 90-N-1163) 

(D. Colo.) 

Before McKAY, Chief Judge, EBEL, Circuit Judge, and SAFFELS,** 

District Judge. 

**Honorable Dale E. Saffels, Senior District Judge, United States 

District Court for the District of Kansas, sitting by designation. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The case is therefore ordered 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppal. 10th Cir. R. 

36.3. 

Appellate Case: 91-1049 Document: 010110092125 Date Filed: 10/23/1991 Page: 1 
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submitted without oral argument. 

Plaintiffs, former officers and/or directors of American 

Federal Savings and Loan Association of Colorado (AmFed), who are 

insured under a directors and officers liability insurance policy 

issued by defendant, Columbia Casualty Company, brought this 

declaratory judgment action, with jurisdiction premised on 

diversity of citizenship, seeking a ruling that defendant was 

required to pay the costs and attorney's fees of plaintiffs as 

those costs and attorney's fees came due in pending lawsuits. The 

district court, applying Colorado law, concluded that defendant 

had a duty to pay such costs and fees. The district court further 

held that plaintiffs were entitled to the attorney's fees and 

costs incurred in bringing this action. Defendant appeals only 

that aspect of the district court's judgment which awarded 

attorney's fees and costs for this action. For the reasons set 

forth below, we reverse and remand. 

Plaintiffs premised their request for 

costs incurred during the pendency 

attorney's 

of this 

fees and 

action on 

Fed. R. Civ. P. 11 and case law. The district court, in awarding 

attorney's fees and costs, did not pass on defendant's alleged 

violations of Rule 11 but, instead, concluded that plaintiffs were 

entitled to attorney's fees and costs under Colorado law in light 

of the holdings in Allstate Insurance Co. v. Robins, 597 P.2d 1052 

(Colo. App. 1979) and Hedgecock v. Stewart Title Guaranty Co., 676 

P.2d 1208 (Colo. App. 1983). According to the district court, 

Allstate and Hedgecock indicate that Colorado requires an insurer 

like defendant, who guesses wrong as to its duty and forces a 

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declaratory judgment proceeding, to bear the expenses of such 

litigation so that the very purpose of an insurance contract is 

not frustrated. 

In our view, while the district court's decision is sensitive 

to plaintiffs' predicament, it is not supported by Colorado law. 

Under Colorado law, attorney's fees and costs are generally not 

recoverable by a prevailing party in litigation in the absence of 

a statute, court rule, or contract to the contrary. See Bunnett 

v. Smallwood, 793 P.2d 157, 160 (Colo. 1990)(discussing so-called 

"American Rule"). 

exceptions to this 

To the extent Allstate and Hedgecock may create 

controlling rule, those exceptions do not 

extend to the circumstances of this case. 

In Allstate, the Colorado Court of Appeals held that recovery 

of attorney's fees incurred by an insured in defense of a 

declaratory judgment action brought by the insurer was appropriate 

under a policy provision that provided for payment to the insured 

of "reasonable expenses incurred at the [insurer's] 

request." Allstate, 597 P.2d at 1053. The holding in Allstate 

stands only for the proposition that attorney's fees may be 

recovered as provided under the express terms of a contract. 

Allstate is distinguishable from this case since there is no 

express language in the policy issued by defendant which could be 

interpreted, however expansively, to permit plaintiffs to recover 

their fees incurred during the pendency of this action. 

Hedgecock involved a claim for breach of contract based on a 

title insurer's refusal to perform its contractual duty to render 

the insured's title marketable. Hedgecock, 676 P.2d at 1209. The 

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.. 

Colorado Court of Appeals, citing Allstate, held that attorney's 

fees were recoverable as consequential damages for breach of the 

contract in order to restore the insured to the position she would 

have occupied if the title insurer had honored its contract of 

insurance in the first place. Id. at 1211. This case, however, 

is a declaratory judgment action and not an action for breach of 

contract. Hedgecock does not show any intention on the part of 

Colorado to make attorney's fees generally available in an action, 

such as this one, which is brought to declare the contractual 

rights of parties to an insurance policy. 

On appeal, plaintiffs have not constrained their arguments to 

the applicability of Hedgecock and Allstate. Instead, plaintiffs 

have also raised two alternative grounds to support the district 

court's award of attorney's fees and costs. First, plaintiffs 

contend that the subject of this declaratory judgment action is 

attorney's fees. Therefore, according to plaintiffs, this case 

falls within an exception recognized by the Colorado Supreme Court 

to the general rule against recovery of attorney's fees which 

permits such recovery when attorney's fees are the "subject" of 

the action. See Bunnett, 793 P.2d at 161. As we read this 

exception, however, it is simply a reformulation of the rule in 

Hedgecock and permits recovery of attorney's fees incurred in 

prosecuting an action only if those fees are sought as 

consequential damages arising from a claim pursued in the action. 

See Bunnett, 793 P.2d at 161 ("[W]e agree that there is an 

exception to the American rule when the attorney's fees (i.e., 

those sought) are the subject of the lawsuit.")(emphasis added). 

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Thus, for example, recovery of attorney's fees is not warranted 

under this exception for successful defense of an action on the 

ground that it is barred by a release; attorney's fees, however, 

may be recovered for prevailing on a counterclaim which alleged 

breach of the release and sought attorney's fees as consequential 

damages for that breach. Id. at 160-61 (citing Anchor Motor 

Freight, Inc. v. International Bhd. of Teamsters, Chauffeurs, 

Warehousemen & Helpers of Am., Local Union No. 377, 700 F.2d 1067, 

1072 (6th Cir.), cert. denied, 464 U.S. 819 (1983), which 

permitted recovery of attorney's fees and costs as a measure of 

the actual damages arising from a defendant's counterclaim 

charging breach of a covenant not to sue contained in a collective 

bargaining agreement). Here, the attorney's fees and costs 

incurred by plaintiffs in prosecuting their declaratory judgment 

action are not sought as the consequential damages of a claim they 

pursued in this action. Thus, plaintiffs are not entitled to 

attorney's fees and costs under this exception. 

Next, plaintiffs contend that this case falls within another 

exception recognized by the Colorado Supreme Court to the general 

rule against recovery of attorney's fees. This exception permits 

an award of attorney's fees to make a party whole in an action for 

breach of trust or breach of fiduciary duty. See Buder v. 

Sartore, 774 P.2d 1383, 1390-91 (Colo. 1989). However, because 

this is a declaratory judgment action and not an action for breach 

of trust or fiduciary duty, this exception, like the rule in 

Hedgecock, is not applicable to this case. 

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t 

Accordingly, the judgment of the district court awarding 

plaintiffs' attorney's fees and costs incurred in the prosecution 

of this action based on Colorado law is REVERSED. As for 

plaintiffs' request for attorney's fees pursuant to Rule 11, 

defendant suggests, without opposition by plaintiffs, that we 

remand this case for the limited purpose of determining whether 

defendant violated Rule 11. The district court is in the best 

position to determine whether any violation of Rule 11 occurred. 

Cooter & Gell v. Hartmarx Corp., __ U.S. __ , 110 s. Ct. 2447, 

2460 (1990)(whether a litigant's position is factually well 

grounded and legally tenable for Rule 11 purposes is a "fact 

specific" determination 

positioned" to make). 

which district court is "better 

Therefore, this case is REMANDED for the 

limited purpose of determining the propriety of any Rule 11 

sanction. 

Entered for the Court 

Monroe G. McKay 

Circuit Judge 

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