Opinion ID: 150340
Heading Depth: 2
Heading Rank: 3

Heading: Attorney's Fee Award Under Section 13-17-102 of the Colorado Revised Statutes

Text: Alternatively, the district court granted attorney's fees to Mr. Engida on the basis of section 13-17-102 of the Colorado Revised Statutes, which reads in part: (2) ... in any civil action of any nature commenced or appealed in any court of record in this state, the court shall award, by way of judgment or separate order, reasonable attorney fees against any attorney or party who has brought or defended a civil action, either in whole or in part, that the court determines lacked substantial justification. .... (4) The court shall assess attorney fees if, upon the motion of any party or the court itself, it finds that an attorney or party brought or defended an action, or any part thereof, that lacked substantial justification or that the action, or any part thereof, was interposed for delay or harassment or if it finds that an attorney or party unnecessarily expanded the proceeding by other improper conduct ... As used in this article, lacked substantial justification means substantially frivolous, substantially groundless, or substantially vexatious. Colo.Rev.Stat. § 13-17-102(2), (4). [7] While section 13-17-102 clearly may apply to claims brought in the District of Colorado, see Harrison v. Luse, 760 F.Supp. 1394, 1400 (D.Colo.), aff'd, 951 F.2d 1259, 1991 WL 270031 (10th Cir. 1991), Lorillard argues that because it voluntarily dismissed the case, the district court lacked jurisdiction to award the attorney's fees under section 13-17-102. Contrary to Lorillard's argument, the district court need not have subject matter jurisdiction to award attorney's fees pursuant to section 13-17-102. See Consumer Crusade, Inc., 197 P.3d at 288-89 (discussing Willy v. Coastal Corp., 503 U.S. 131, 137-38, 112 S.Ct. 1076, 117 L.Ed.2d 280 (1992)); cf. Sequa Corp. v. Cooper, 245 F.3d 1036, 1037 (8th Cir.2001) ([A] voluntary dismissal without prejudice under Rule 41(a)(1)(i) does not deprive a District Court of its authority to award costs.). A similar issue has been considered by the Colorado Court of Appeals regarding section 13-17-102. In Consumer Crusade, Inc., that court held that the trial court did not lack jurisdiction to enter an award of attorney's fees under section 13-17-102. In so holding, the court relied on the U.S. Supreme Court's holding in Willy v. Coastal Corp. See id. at 288-89. In Willy, the Supreme Court held that the federal district court had jurisdiction to impose Rule 11 sanctions even though it was later found to lack subject matter jurisdiction because the complaint removed to federal court raised no claims arising under federal law. Willy, 503 U.S. at 137-38, 112 S.Ct. 1076 (A final determination of lack of subject-matter jurisdiction of a case in a federal court, of course, precludes further adjudication of it. But such a determination does not automatically wipe out all proceedings had in the district court at a time when the district court operated under the misapprehension that it had jurisdiction.). Based on its reading of Willy, the Colorado Court of Appeals analogized Rule 11 sanctions to attorney's fees awarded under section 13-17-102. The court explained that [b]ecause section 13-17-102 sanctions are analogous to Rule 11 sanctions, we conclude that, like Rule 11 sanctions, section 13-17-102 sanctions may be imposed despite a court's lack of subject matter jurisdiction to adjudicate the underlying merits of the action. Id. at 289. We adopt that reasoning here in addressing as a matter of federal law this jurisdictional question. Although Lorillard had voluntarily dismissed its case, the district court still had jurisdiction to consider collateral issues including an award of counsel fees. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 395, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990) (holding that nothing in the language of Rule 41(a)(1)(i), Rule 11, or other statute or Federal Rule terminates a district court's authority to impose sanctions after such a dismissal). It is well established that a federal court may consider collateral issues after an action is no longer pending, including an award of attorney's fees. Id. Having established that the district court had jurisdiction to issue the award, we nevertheless conclude that the district court abused its discretion in awarding attorney's fees to Mr. Engida under Colorado law. More specifically, we conclude that there is no rational basis in the record for the district court's fee award and, consequently, the court committed a clear error of judgment in granting Mr. Engida's motion for fees. See Davis, 302 F.3d at 1111; Fed. Deposit Ins. Corp., 865 F.2d at 1160 n. 1. Under section 13-17-102, the district court may award... reasonable attorney fees against any attorney or party who has brought ... a civil action ... that the court determines lacked substantial justification. Colo.Rev. Stat. § 13-17-102(2). An award of appellate attorney fees pursuant to section 13-17-102(4) is appropriate only if the appeal itself lacks substantial justification. Padilla v. Ghuman, 183 P.3d 653, 665 (Colo. Ct.App.2007) (emphasis added) (citing Colo.Rev.Stat. § 13-17-102(4)); accord Front Range Home Enhancements, Inc. v. Stowell, 172 P.3d 973, 976-77 (Colo.Ct.App. 2007). An action lacks substantial justification if it is substantially frivolous, substantially groundless, or substantially vexatious. Colo.Rev.Stat. § 13-17-102(4). An appeal lacks substantial justification and is substantially frivolous under § 13-17-102(4) when the appellant's briefs fail to set forth ... a coherent assertion of error, supported by legal authority. Giguere v. SJS Family Enters., Ltd., 155 P.3d 462, 474 (Colo.Ct.App.2006); see also Ritchey v. McCreath (In re Estate of McCreath), ___ P.3d ___, ___, 2009 WL 4981894, at -11 (Colo.Ct.App.2009). A vexatious claim or defense is one brought or maintained in bad faith. Bad faith may include conduct that is arbitrary, vexatious, abusive, or stubbornly litigious, and may also include conduct aimed at unwarranted delay or disrespectful of truth and accuracy. Zivian v. Brooke-Hitching, 28 P.3d 970, 974 (Colo.Ct.App.2001) (emphasis added); accord Stowell, 172 P.3d at 976. Further, a claim lacks substantial justification if it lacks supporting evidence or the party pursing the claim cannot make a rational argument in its support based on the evidence or governing law. See Consumer Crusade, Inc., 197 P.3d at 291 (holding that if a party persists in pursuing a claim, despite knowing that it lacks admissible evidence to support that claim, the claim may properly be characterized as substantially groundless, and the party's conduct, as substantially vexatious (citation omitted)); Zivian, 28 P.3d at 974 (rejecting a request for appellate attorney's fees under section 13-17-102(4), noting that [a] claim is frivolous if the proponent has no rational argument to support it based on the evidence or the law and that [a] claim is groundless if there is no credible evidence to support the allegations in the complaint). In support of its fee award, the district court explained that even if attorney fees were not appropriate under the Lanham Act, [Mr. Engida] would still be entitled to attorney fees under Colorado law. Aplt. App. at 407. The district court stressed that it viewed Lorillard's repeated appeals of the denial of the preliminary injunction as unnecessary and vexatious. Id. Thus, Lorillard's decision to appeal the denial of the preliminary injunction to the Tenth Circuit and then to seek certiorari relief from the United States Supreme Court, in the district court's view, justified the fee award. Id. In that vein, Mr. Engida argues vigorously on appeal that Lorillard's repeated appeals served no legitimate purpose, were maintained to annoy and harass Mr. Engida, and were the epitome of `stubbornly litigious.' Aplee. Br. at 49. Based upon our review of the record, however, we conclude that nothing supports the district court's adverse findings concerning Lorillard's conduct. A brief review of salient aspects of this litigation's procedural time-line lends support to this point because it reveals no unwarranted delay. On February 9, 2006, Lorillard filed its initial complaint in this case along with a motion for a TRO. The district court granted Lorillard's motion the next day, February 10. In a hearing on February 24, 2006, the district court dissolved the TRO and denied Lorillard's request for a preliminary injunction. Less than thirty days later, on March 23, 2006, Lorillard timely filed its notice of appeal as to the district court's denial of a preliminary injunction. On June 22, 2006, Lorillard filed a motion to stay the proceedings in the district court or for a scheduling conference, and on June 26, 2006, filed a motion for default judgment because Mr. Engida still had not filed an answer to Lorillard's initial complaint. On July 13, 2006, the district court granted the motion to stay the proceedings, denied the motion for default, and vacated its show-cause order. On January 8, 2007, this court issued its order and judgment affirming the district court's ruling, concluding that the court did not abuse its discretion in denying Lorillard's request for a preliminary injunction. We denied Lorillard's petition for rehearing on January 25 and issued the mandate in this matter on February 2, 2007. On February 6, 2007, Mr. Engida filed a motion with the district court for a hearing/conference regarding a scheduling conference, and on March 20, 2007, Lorillard filed its first unopposed motion to continue the status/scheduling conference. The next day, the district court granted Lorillard's unopposed motion and rescheduled the hearing to May 4, 2007. On April 17, 2007, Lorillard filed its second unopposed motion to stay the proceedings, and the next day, the district court granted this motion to continue, thereby vacating the May 4 status hearing and staying the proceedings. Less than ten days later, on April 25, 2007, Lorillard filed its petition for certiorari with the U.S. Supreme Court. The Supreme Court denied that petition two months later, on June 25, 2007. Neither party moved the district court to lift the stay or to enter a scheduling order. Then, approximately four months later, on November 1, 2007, Lorillard filed its notice of dismissal without prejudice. At this point, there still was no scheduling order in placewhich would have imposed deadlines and moved the litigation alongand Mr. Engida had yet to file an answer. Notwithstanding Mr. Engida's stubbornly litigious characterization of Lorillard's conduct, this time-line of events does not support his argument that Lorillard engaged in abusive litigation tactics; indeed, it speaks to the contrary. Most notably, Lorillard's two motions to reschedule status conferences after the Tenth Circuit denied relief on appeal were unopposed, and Mr. Engida never sought to get the litigation back on track after the denial of the petition for certiorari, as there is no indication in the record that anything further happened in the district court during the intervening period until Lorillard's notice of dismissal. Consequently, Lorillard could hardly be said to have engaged in dilatory litigation conduct to the prejudice of Mr. Engida when the litigation was stayed, there were no court-imposed deadlines requiring Lorillard to do anything, and Mr. Engida never voiced any objections to this state of affairs in the form of a motion to vacate the stay. Nor did he take the opportunity to file an answer. In other words, nothing in this sequence of events indicates Lorillard engaged in conduct aimed at causing unwarranted delay. Zivian, 28 P.3d at 974. Lorillard merely sought to stay the underlying proceedings during the pendency of its appellate matters and Mr. Engida did not oppose Lorillard's efforts. This course of conduct invariably reduced the expenditure of resources by Mr. Engida (who was not even obliged to file an answer) and by the district court itself. And, once the appellate proceedings were concluded, given the absence of a scheduling order in the district court imposing deadlines or any objection to the pace of proceedings by Mr. Engida, Lorillard reasonably cannot be said to have dragged its feet to the prejudice of Mr. Engida. [8] In addition to the procedural sequence of events, it is patent that the substance of the appeals are germane to the question of whether the appeals were interposed for an improper purpose, like harassment or delay. Indeed, the district court's conclusion that Lorillard's appeals were unnecessary, Aplt.App. at 407, underscores this point. Yet, the substance of Lorillard's appellate matters could not reasonably be viewed as frivolous or groundless, as defined by the Colorado courts, as they advanced arguments that were well-reasoned and supported by relevant case law. See Ehrlich v. Anita Flowers (In re Estate of Hope ), 223 P.3d 119, 123 (Colo.Ct.App. 2007) (Although claimant was unsuccessful on appeal, we do not consider her arguments to be so lacking in factual or legal justification as to warrant an award of fees under ... § 13-17-102.); Giguere, 155 P.3d at 474 (Plaintiffs' unanimity argument is a matter of first impression in Colorado. They relied on authority from other jurisdictions supporting their position. Thus, we cannot say their appeal of this issue is frivolous.); Zivian, 28 P.3d at 975 ([W]hile plaintiff's evidence did not persuade us that the trial court erred in its determination of the issues, he made a rational argument on appeal. Therefore, neither sanctions nor attorney fees are justified.); cf. Castillo v. Koppes-Conway, 148 P.3d 289, 292 (Colo.Ct.App.2006) (We hold that an appeal `lacks substantial justification' and is `substantially frivolous' under § 13-17-102(4) when the appellant's briefs fail to set forth ... a coherent assertion of error, supported by legal authority.). Lorillard's positions on appeal were more than adequately supported by legal and factual authority. For example, it relied on decisions from eight separate circuits rejecting the district court's bases for denying preliminary injunctive relief and holding that the damage inflicted on a trademark owner from infringement is by its very nature irreparable. See Aplt.App. at 154-62; 222-25; 259-63. And Lorillard's appeals were not disrespectful of truth and accuracy. Zivian, 28 P.3d at 974. In sum, Lorillard's appellate proceedings could not reasonably have been viewed under Colorado law as frivolous or groundless. Thus, the substance of the filings would not lend support to the district court's conclusion that they were unnecessary and vexatious (e.g., asserted for illegitimate, non-merits-based reasons, like harassment). [9] Accordingly, the district court abused its discretion in awarding attorney's fees to Mr. Engida under Colorado law. As the Colorado Court of Appeals explained in Castillo, [w]e are `mindful of the possibility that awarding damages and costs could have an undue chilling effect on the behavior of later litigants.' 148 P.3d at 292 (quoting Finch v. Hughes Aircraft Co., 926 F.2d 1574, 1578 (Fed.Cir.1991)). Colorado courts rightly hesitate to grant fee awards where an appeal is not so futile, irrational, or unjustified as to warrant a clear finding that [the] appeal was frivolous. Wood Bros. Homes, Inc. v. Howard, 862 P.2d 925, 934 (Colo.1993). The appeals at issue do not meet that standard and do not justify an award of fees.