Opinion ID: 457688
Heading Depth: 2
Heading Rank: 4

Heading: Fees Attributable to the Declaratory Judgment Action

Text: 27 At the outset of the trial the district court ruled that Continental was responsible not only for the reasonable cost of defending Robertson in the two liability suits but also for the cost of defending Robertson in the declaratory judgment action. Thereafter, although considerable evidence as to the cost of the declaratory judgment action was admitted, the court ultimately limited Continental's efforts to establish a precise figure. Continental made timely objections to these rulings and on appeal argues two points: first, that the fees incurred in defending the declaratory judgment were not, as a matter of law, recoverable from Continental; and second, that because no sum certain was established for these fees, a new trial must be ordered for a completely new determination of what fees were reasonably incurred in the two liability actions alone. 28 We turn first to the question of the recoverability of these fees. Both parties agree that Massachusetts law governs. They also agree that Continental, although adjudged to lack legal excuse for denying coverage of the John Hancock and Mama Leone claims, did not act in bad faith or vexatiously. Where they disagree is over Liberty's claim, and the district court's implicit conclusion, that the attorney's fees incurred in defending the declaratory judgment action were equivalent to damages caused by Continental's breach of contract and that as such they are recoverable. 29 There are substantial arguments to be made on both sides of this issue. On the one hand, it can be argued that the insurer should not be allowed lightly to force the insured to undergo substantial expense to prove that it had bought what it thought it had bought, i.e., the privilege of being defended by the insurer. Suits by the insurer challenging coverage are not to be encouraged. And the insurer, presumably being the expert in matters of coverage, should bear the risk of an unsuccessful challenge to coverage. 30 On the other hand, it can at least equally well be argued that unfairness can be controlled by confining the insured's recovery to cases involving bad faith or vexatious litigation. In addition, the principle that a party should not be unduly deterred from seeking court resolution of a genuine coverage dispute counsels caution in the judicial inauguration of a rule allowing recovery in these circumstances. It must not be forgotten that the general American Rule is not to award attorney's fees to the prevailing party. See, e.g., Bournewood Hospital, Inc. v. Massachusetts Commission Against Discrimination, 371 Mass. 303, 308, 358 N.E.2d 235, 238 (1976). 31 Absent a dominance of policy or logic favoring one side or the other, we conclude that we must follow the rather clearly negative signals of the Massachusetts Supreme Judicial Court, which has taken a restrictive view of allowing attorney's fees, both in general terms, id. at 310-13, 358 N.E.2d at 239-41, and specifically with regard to declaratory judgment actions, see, e.g., Fuss v. Fuss, 372 Mass. 64, 70-72, 368 N.E.2d 271, 274-76 (1977). The case principally relied on by Liberty for the proposition that counsel fees may be considered an element of damages caused by a party's wrongful conduct, Wheeler v. Hanson, 161 Mass. 370, 376, 37 N.E. 382 (1894), is critically distinguishable from this case. The plaintiff in Wheeler brought and proved a claim of malicious prosecution, an element clearly lacking here. In addition, the Massachusetts Supreme Judicial Court has since commented that Wheeler was an exceptional case and that more recently the court has taken  'a restrictive view of the right of a successful litigant to recover counsel fees from one who has wronged him.'  Bournewood Hospital, 371 Mass. at 312-13, 358 N.E.2d at 240-41 (quoting Harrison v. Textron, Inc., 367 Mass. 540, 554, 328 N.E.2d 838, 846 (1975), and citing among other cases Wachusett Regional School District Committee v. Erickson, 354 Mass. 768, 238 N.E.2d 369 (1968), in which attorney's fees were refused in a declaratory judgment context). We therefore hold that the district court erred in ruling that Liberty was entitled to recover the reasonable attorney's fees attributable to defending the declaratory judgment action. 10 32 This holding necessarily brings us face to face with the question of whether the services performed on and fees paid for the defense of the declaratory judgment action were sufficiently established in the record to obviate the need to retry the entire case. Looking to the record, we find that the following evidence was admitted. Between April of 1976, when the declaratory judgment action was commenced, and the beginning of 1983, Goodwin, Procter & Hoar did not keep time records that precisely segregated the time spent on that action from the time spent on the two liability suits. Prior to methodically reconstructing such records, Attorneys Ware and Feeherry of Goodwin, Procter & Hoar roughly estimated that between $150,000 and $155,000 was spent on the declaratory judgment action. Subsequently, a nonlawyer assistant was asked to generate some hard information by looking ... at the diaries and printouts. As the result of this effort, Goodwin, Procter & Hoar notified Liberty in January of 1983 that the best estimate of the declaratory judgment fees incurred between 1976 and 1982 was $81,766. Additional fees incurred in 1983, which were calculated from separately recorded time sheets, were $34,389.12, making the total amount of fees for the declaratory judgment $116,155.12. More than a year later, in an answer to an interrogatory, Liberty stated that it was then informed by the law firm of Goodwin, Procter & Hoar that $146,757.67 is attributed to the Continental Declaratory Judgment Action. Still two weeks later, on June 13, 1984, Liberty amended its answer by indicating that it had been informed by ... Goodwin, Procter & Hoar that $116,155.12 was the proper amount. 33 As this summary of the evidence reveals, although counsel for Continental was precluded by the district court from continuing to probe into the methods and assumptions leading to the best estimate of $116,155, the maximum and minimum figures were clearly put into evidence. We conclude, therefore, that the record provides a sufficient basis for conditioning the holding of a new trial on Liberty's declining to remit a portion of the total amount awarded by the jury. The pertinent application of the general practice of remittitur has been well stated: 34 Remittitur is not only used by the trial courts, but also by the appellate courts in two general areas, one particularly applicable to the function of the appellate court, the other quite similar to its use by the district courts. In the first area, where reversible error is found in the proceedings below, such as erroneous admission of evidence or erroneous instructions, and the effect of the error can be reasonably approximated to a definite portion of the amount of the verdict, the appellate court may condition its affirmance on the plaintiff remitting that amount of the verdict which is apparently traceable to the error below. Even when the effect of the error cannot be allocated to a distinct portion of the verdict, remittitur may still be used if the maximum effect of the error can be established. In this way, the defendant cannot complain as the maximum effect of the error is avoided; and the plaintiff has his choice of electing to remit or to suffer a new trial. 6A J. Moore, J. Lucas, & G. Grotheer, Moore's Federal Practice p 59.08, at 59-208-210 (footnotes omitted) (emphasis added). 35 These principles have been applied in a number of cases, 11 including Kropp v. Ziebarth, 601 F.2d 1348, 1354-55 (8th Cir.1979); Durant v. Surety Homes Corp., 582 F.2d 1081, 1086-87 (7th Cir.1978); cf. Arnold v. Eastern Air Lines, Inc., 681 F.2d 186, 206 (4th Cir.1982) (court recognized remittitur to be appropriate where the amount of the award traceable to [an] error ... can be capped by a maximum figure through resort to the trial record, but the court could not establish such a figure from the record at hand). 36 In this case, we are faced with a range of figures, from the so called best estimate of $116,155 to the rough estimate of $150,000 to $155,000. It seems to us exceedingly improbable that, on retrial, a figure in excess of $155,000 would be proven as attributable to time spent on the declaratory judgment action. The 1983 figure of $34,389.12 is quite reliable because it is derived from separately kept time records. If that figure is subtracted from the greatest estimate of $155,000, we obtain a figure of $120,610.88 for the years 1976 through 1982, when the time entries for the three suits were undifferentiated. This figure, in turn, is almost 50% greater than the best estimate of $81,766 for that period. 37 In addition, we note that the figure of $155,000 makes sense when compared to the $184,351.63 that Continental paid its counsel for prosecuting the declaratory judgment action. Continental admitted during trial that it was at all times represented by the senior partner of Burns and Levinson, while most of Robertson's and Liberty's representation was performed by a young lawyer at Goodwin, Procter & Hoar. Under these circumstances, one would expect Liberty's attorney's fees to be significantly less than Continental's. 38 With these considerations in mind, we conclude that remittitur is appropriate and order that there be a retrial of the case only if Liberty chooses not to remit the sum of $155,000. It may very well be that Liberty will prefer a retrial, either because it believes it can prove that the declaratory judgment fees are much lower or because it thinks retrial of the whole case will result in a substantially higher award. The Seventh Amendment accords the plaintiff the privilege of making such a choice, but if it opts instead to remit $155,000 (plus any interest thereon) from the general verdict of $1.29 million, we do not see how Continental could be prejudiced. 39