Knutsen v. Dion, No. 342-52-10 Wncv (Teachout, J., June 25, 2015)

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STATE OF VERMONT

SUPERIOR COURT CIVIL DIVISION

Washington Unit Docket No. 342-52-10 Wncv

JANET KNUTSEN

Plaintiff

v.

DAVID M. DION et al.

Defendants

DECISION

Pending Motions

In the Court’s February 26, 2015 decision, the remaining claims in this case were 

identified as follows: “(1) Ms. Knutsen’s claim that Mr. Dion is liable for misrepresentations 

regarding the likelihood of flooding; (2) . . . Mr. Dion’s right to indemnity from the Sweetsers; 

and (3) Mr. Dion’s right to attorney fees and other litigation expenses from Ms. Knutsen.” The 

claim for attorney fees is predicated on an asserted contract right in paragraph 20 of the Purchase 

and Sales Contract (P&S) and the bad faith exception to the American Rule.

Following the Court’s ruling, Ms. Knutsen filed two motions labeled as a motion to 

dismiss and a motion in limine. The court understands Ms. Knutsen, by these motions, to be 

seeking to voluntarily dismiss her remaining claim against Mr. Dion, which moots Mr. Dion’s 

claim for indemnity against the Sweetsers. Ms. Knutsen also seeks a ruling on Mr. Dion’s claim 

for attorney fees. In response, Mr. Dion insists that he is entitled to proceed to a jury on his 

claim for attorney fees.

The function of a jury is to resolve disputes of fact. Juries do not decide issues as a 

matter of law or resolve equitable matters. Mr. Dion has not identified any dispute of fact 

necessitating a jury trial. The interpretation of an unambiguous contract presents a legal issue. 

Entitlement to attorney fees under the bad faith exception to the American Rule presents an 

equitable issue. This case (not to mention the previous case between these parties) has been 

pending for over five years. In the interest of judicial economy, the Court will address Mr. 

Dion’s claim for attorney fees now.

The contract right

The contract relates to the sale of a home by the Sellers to the Purchaser. There are no 

other parties to the contract. The disputed right to attorney fees appears in paragraph 20, which

reads as follows:

Default: If Purchaser fails to close as provided herein, or is otherwise in default, 

Seller may terminate this Contract by written notice to Purchaser and retain all 
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Contract Deposits as liquidated damages, or may pursue all legal and equitable 

remedies provided by law. If Seller does not notify Purchaser of Sellers’s election 

of remedies within thirty (30) calendar following notice of Purchaser’s default, 

Seller’s sole remedy shall be retention of all Contract Deposits as liquidated 

damages. Because of the nature and subject matter of this Contract, damages 

arising from Purchaser’s default may be difficult to calculate with precision. The 

amount of the Contract Deposits reflect, in part, a reasonable estimate of Seller’s 

damages for Purchaser’s default. The provision hereof granting Seller the 

election to retain the Contract Deposits as agreed-upon liquidated damages is 

intended solely to compensate Seller for Purchaser’s default. It is not intended to 

be a penalty for Purchaser’s breach nor is it an incentive for Purchaser to perform 

the obligations of this Contract. If Seller fails to close, or is otherwise in default, 

Purchaser may terminate this Contract by written notice to Seller and shall receive 

back all Contract Deposits and may pursue Purchaser’s rights to all legal and 

equitable remedies provided by law. In the event legal action is instituted arising 

out of a breach of this Contract, the substantially prevailing party shall be 

entitled to reasonable attorney’s fees and court costs.

P&S ¶ 20 (emphasis added). Mr. Dion is not a party to this contract. He was neither a seller nor 

a buyer. The only way that the fee provision in paragraph 20 could extend to him is if he is an 

intended beneficiary of that portion of paragraph 20.

The Restatement describes an intended beneficiary as follows:

(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a 

promise is an intended beneficiary if recognition of a right to performance in the 

beneficiary is appropriate to effectuate the intention of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee 

to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the 

beneficiary the benefit of the promised performance.

Restatement (Second) of Contracts § 302(1); see also Herbert v. Pico Ski Area Management Co., 

180 Vt. 141, 150 (2006) (applying § 302).

Nothing in the P&S implies that the Purchaser and the Sellers intended to make Mr. Dion 

a beneficiary of the fee provision in paragraph 20. They clearly intended to make him a 

beneficiary of the limitation of liability provision in paragraph 13. That paragraph includes this: 

“Seller and Purchaser each agree that there is valid and sufficient consideration for this 

limitation of liability and that the real estate brokers are the intended third-party beneficiaries of 

this provision.” This language plainly makes Mr. Dion a beneficiary of paragraph 13, not 

paragraph 20 or the contract as a whole. There simply is no applicable right to attorney fees in 

the contract.
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The bad faith exception to the American Rule

Absent a contract right, parties typically are responsible for their own attorney fees under 

the American Rule. The equitable exceptions to the American Rule are reserved for exceptional 

cases. See Cameron v. Burke, 153 Vt. 565, 576 (1990) (“Exceptional cases include instances 

where a litigant acts ‘in bad faith’ or ‘vexatiously’ and where a litigant’s conduct is 

‘unreasonably obdurate or obstinate.’” (citation omitted)).

Mr. Dion clearly feels that Ms. Knutsen’s claims against him were unwarranted and 

litigated with too much zeal. He no doubt shares that sense of affront with a great many others 

who find themselves in court defending claims that eventually are withdrawn or proven

meritless. However, the law makes room for marginal claims. See, e.g., LeClair v. Reed ex rel. 

Reed, 2007 VT 89, ¶ 6, 182 Vt. 594 (noting that claims that are novel or extreme should not, for 

those reasons, be dismissed). It gives plaintiffs room to frame their claims and explore them on 

the evidence turned up in discovery. See Colby v. Umbrella, 2008 VT 20, ¶ 6, 184 Vt. 1 (noting 

the “generous standard governing Rule 15(a) motions to amend”); Alger v. Dep’t of Labor & 

Indus., 2006 VT 115, ¶ 12, 181 Vt. 309 (noting that novel or extreme cases “should be explored 

in the light of facts as developed by the evidence). It demands that lawyers represent their clients 

with zeal. See Rules of Professional Conduct 3.1 cmt. [1] (“The advocate has a duty to use legal 

procedure for the fullest benefit of the client’s cause, but also a duty not to abuse legal 

procedure.”).

After five years of litigation, it is clear that this case does not include the sort of 

circumstances that would warrant an equitable exception to the American Rule. Ms. Knutsen’s 

claims may have been novel or extreme, but they were not overtly frivolous. Her counsel’s 

tactics may have been aggressive, but they were not in any apparent way vexatious, abusive, or 

obdurate. As one court said, “No one likes to be sued. Parties sometimes even settle lawsuits 

that they consider to be extortion. But that does not make the filing of a complaint in such an 

action extortionate.” Park South Associates v. Fishbein, 626 F. Supp. 1108, 1114 (S.D.N.Y. 

1986). The Court denies Mr. Dion’s claim for attorney fees.

ORDER

For the foregoing reasons, Ms. Knutsen’s motions are granted. Her remaining claim is 

withdrawn; Mr. Dion’s claim for indemnity against the Sweetsers is moot; and Mr. Dion’s claim 

for attorney fees is dismissed.

Dated at Montpelier, Vermont this ____ day of June 2015.

_____________________________

Mary Miles Teachout

Superior Judge