Opinion ID: 1219144
Heading Depth: 1
Heading Rank: 6

Heading: Awards of Attorney Fees, Expenses, and Costs

Text: Having rejected AWDI's objections to the merits of the trial court's judgment, we now turn to AWDI's objection to the awards of attorney fees, expenses, and costs. A summary of the proceedings leading up to the awards is necessary to an understanding of AWDI's objections. On September 26, 1991, almost five years after AWDI filed its application and following extensive discovery conducted by both AWDI and the objectors, a pretrial conference was held in preparation for a trial scheduled to begin on October 15, 1991. Prior to the pretrial conference, AWDI's land grant claims had been dismissed by partial summary judgment. As a result, AWDI's alternative claims for nontributary and tributary water rights were the only remaining bases for its asserted right to withdraw 200,000 acre feet of water per year by its proposed wells. Near the conclusion of the pretrial conference and without prior notice to the objectors, AWDI moved to dismiss, without prejudice, its application for determination of tributary water rights, taking the position that as a result of the trial court's rulings in this action, and other circumstances, it no longer had a reasonable likelihood of prevailing on the claim. The objectors sought and were granted the opportunity to respond. In briefs, they took the position that if the court exercised its discretion to dismiss under C.R.C.P. 41(a)(2), the order of dismissal must be conditioned upon the award of all fees and expenses incurred by the objectors in defending against the tributary claim. The court held a nonevidentiary hearing and thereafter entered a written order dismissing the tributary claim without prejudice but requiring AWDI to pay to the objectors all of their attorneys' fees, expert witness fees and costs, and other fees and expenses related to the Tributary Claim. The court ordered that a hearing to determine the amounts to be awarded would be held immediately following the trial on the nontributary claim, at which time the court would consider the reasonableness of those fees and costs and the necessity of those expenditures. Following the trial and resulting dismissal of the nontributary claim, the objectors sought recovery of attorney fees, expenses, and costs pursuant to the order dismissing the tributary claim under C.R.C.P. 41(a)(2) and also sought costs under C.R.C.P. 54(d) incident to the judgment of dismissal of the nontributary claim. AWDI opposed the requested awards. The court then held a three day evidentiary hearing to determine the amounts to be awarded to the objectors. At the conclusion of the hearing the court made findings and entered a judgment for the objectors in amounts totaling $2,236,790.40 for attorney fees, expenses including expert witness fees, and costs incurred in defending against the tributary claim, as well as $473,091.31 for other costs incident to the litigation resulting in dismissal of the nontributary claim. [39] AWDI challenges the awards on several bases. First, it asserts that a court cannot condition voluntary dismissal of a claim on the payment of attorney fees, expenses, and costs under C.R.C.P. 41(a)(2), for to do so would violate section 13-17-102(5), 6A C.R.S. (1987), and C.R.C.P. 11. Second, AWDI argues that because of the unique nature of water adjudication and based upon Colorado Uniform Water Court Rule 5(b), Rule 41(a)(2) is not applicable to litigation concerning water rights. Third, AWDI contends that the awards were improper and excessive because the court employed an incorrect standard in evaluating the C.R.C.P. 41(a)(2) claims, and the evidence adduced in support of those claims was legally insufficient. Finally, AWDI challenges the amount of the costs awarded to the objectors under C.R.C.P. 54(d) as an abuse of discretion, lacking in sufficient evidentiary support, and not based on sufficient findings. The objectors assert that AWDI cannot contest the awards made under C.R.C.P. 41(a)(2) because they were ordered incident to the dismissal of the tributary claim, which AWDI requested. We first address this threshold issue and then consider AWDI's objections to the awards.
The objectors contend that having asked for and enjoyed the benefit of voluntary dismissal without prejudice, AWDI cannot now be heard to complain about the terms imposed as a condition of the dismissal by the court. The terms were imposed pursuant to C.R.C.P. 41(a)(2), which provides in relevant part: [Subject to an exception not applicable here], an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper.... Unless otherwise specified in the order, a dismissal under this subsection (2) is without prejudice. Fed.R.Civ.P. 41(a)(2) is virtually identical, so federal precedent will be helpful in resolving this issue. See United States v. Bell, 724 P.2d 631, 645 n. 18 (Colo.1986); Harding Glass Co., Inc. v. Jones, 640 P.2d 1123, 1125 n. 3 (Colo.1982); United Bank of Denver Nat'l Assoc. v. Shavlik, 189 Colo. 280, 282, 541 P.2d 317, 318 (1975). Generally, a plaintiff may not appeal from an order granting its request for voluntary dismissal. Jensen v. Matthews-Price, M.D., 845 P.2d 542, 543 (Colo.App.1992); accord Unioil, Inc. v. E.F. Hutton & Co., Inc., 809 F.2d 548, 555-56 (9th Cir.1986), cert. denied, 484 U.S. 822, 108 S.Ct. 83, 98 L.Ed.2d 45 (1987) & 484 U.S. 823, 108 S.Ct. 85, 98 L.Ed.2d 47 (1987); LeCompte v. Mr. Chip, Inc., 528 F.2d 601, 603 (5th Cir.1976); see also 9 Wright & Miller § 2376. This rule is premised on the rationale that such a dismissal cannot be characterized as an involuntary adverse judgment against the plaintiff. Jensen, 845 P.2d at 543; see also 5 James Wm. Moore et al., Moore's Federal Practice ¶ 41.05[3] (2d ed. 1993). As the United States Court of Appeals for the Fifth Circuit has noted, when such a dismissal is granted, the plaintiff has acquired that which he sought, the dismissal of his action and the right to bring a later suit on the same cause of action, without adjudication of the merits. The effect of this type of dismissal is to put the plaintiff in a legal position as if he had never brought the first suit. LeCompte, 528 F.2d at 603. In the present case, however, the dismissal was conditioned on terms imposed by the court under C.R.C.P. 41(a)(2) and to which AWDI never assented. The Colorado Court of Appeals has stated that rather than accept the terms and conditions of dismissal, if a trial court places `terms and conditions' upon a dismissal under C.R.C.P. 41(a)(2) which are unacceptable to plaintiff, plaintiff is entitled to elect to proceed with the litigation. Powers v. Professional Rodeo Cowboys, 832 P.2d 1099, 1104 (Colo.App.1992); accord, e.g., Marlow v. Winston & Strawn, 19 F.3d 300 (7th Cir.1994); Unioil, 809 F.2d at 554; see also 9 Wright & Miller § 2366. We have not previously been required to decide whether a plaintiff who disagrees with the legal or factual basis for terms or conditions imposed in an order dismissing a claim on the plaintiff's motion may choose not to proceed with litigation of the claim and yet preserve a right to challenge the terms and conditions on appeal. The federal circuits have not adopted a single consistent analytic approach in deciding whether a plaintiff can appeal conditions imposed upon it under Fed.R.Civ.Proc. 41(a)(2) pursuant to a voluntary dismissal without prejudice. Cauley v. Wilson, 754 F.2d 769, 770 (7th Cir.1985); see also discussion in Unioil, 809 F.2d at 555-56. Some cases have held that conditions imposed in voluntary dismissal orders can be challenged on appeal only if they amount to legal prejudice. Unioil, 809 F.2d at 555-56; LeCompte, 528 F.2d at 603. The condition of payment of the opposing party's costs and expenses has been stated to constitute prejudice in a practical sense but not legal prejudice. Unioil, 809 F.2d at 555-56; LeCompte, 528 F.2d at 603. The same court that decided LeCompte, however, has suggested that there will be cases in which the amount of money set as the price of a voluntary dismissal without prejudice is so clearly unreasonable as to amount to appealable `legal prejudice'.... We will examine each case to ensure that the terms and conditions accompanying the grant of a plaintiff's Rule 41(a)(2) motion are not so outrageous as to demand a full appellate review. Yoffe v. Keller Indus., Inc., 580 F.2d 126, 131 (5th Cir.1978), cert. denied, 440 U.S. 915, 99 S.Ct. 1231, 59 L.Ed.2d 464 (1979); see also Mortgage Guaranty Ins. Corp. v. Richard Carylon Co., 904 F.2d 298, 300-01 (5th Cir. 1990); Scholl v. Felmont Oil Corp., 327 F.2d 697, 700 (6th Cir.1964). This approach tends to intermingle the issue of entitlement to review and that of the reasonableness of the payment imposed. The Seventh Circuit Court of Appeals in Cauley adopted a more direct approach and permitted review of a condition to voluntary dismissal in order to assess abuse of discretion. The court explained: [A] plaintiff may understand that the dismissal without prejudice is conditioned on paying attorneys' fees yet disagree with the amount of fees awarded. Thus an order awarding attorneys' fees may qualify as an involuntary adverse judgment even though the plaintiff requested and received the Rule 41(a)(2) dismissal. Cauley, 754 F.2d at 771; see GAF Corp. v. Transamerica Ins. Co., 665 F.2d 364, 367-68 (D.C.Cir.1981). We adopt the approach in Cauley and also consider it appropriate to take cognizance of challenges to the legal propriety of imposing terms and conditions of dismissal, which we view as an assertion of legal prejudice. See Unioil, 809 F.2d at 555-56; LeCompte, 528 F.2d at 603. Of course, it must also be shown in order to challenge a term or condition of dismissal on appeal that the party seeking dismissal did not actually acquiesce in imposition of the condition. Mortgage Guaranty, 904 F.2d at 300. In the present case AWDI was aware that terms and conditions would be imposed incident to its voluntary dismissal. When the trial court orally granted AWDI's motion to dismiss on October 10, 1991, the court stated that the dismissal was subject to the condition that AWDI pay to the objectors all attorney fees and expert witness fees and other fees and expenses incurred by the objectors that are otherwise appropriate during the pendency of this litigation which relate to the tributary claim. AWDI then proceeded to trial on October 15, 1991, on the nontributary claim alone. Although aware of the terms and conditions imposed, AWDI never acquiesced to them. AWDI asserted in proceedings before the trial court that such terms and conditions were not legally permissible and has consistently maintained this position in the trial court and on appeal. The court in LeCompte determined that the plaintiff had not acquiesced to the conditions of dismissal where he not only objected to the inclusion of the defendant's proposed conditions in the dismissal order, but vigorously renewed his objections after the court issued its order, andfailing to obtain reliefthen brought an appeal. The fact that the plaintiff never sought to have the voluntary dismissal set aside was not considered dispositive. LeCompte, 528 F.2d at 604. We hold that a party such as AWDI that obtains a voluntary dismissal of its claims subject to terms and conditions to which it consistently maintains its objections may challenge those terms and conditions as legally impermissible or as an abuse of discretion on appellate review. We consider it especially appropriate to address the challenge to the amount of the fees and expenses imposed here, because the amount had not been quantified at the time AWDI decided to go forward with the nontributary claim alone.
AWDI asserts that a requirement for payment of attorney fees and expenses as a term or condition of an order granting voluntary dismissal of a claim cannot be imposed in the absence of evidence and findings satisfying the requirements of section 13-17-102(5), 6A C.R.S. (1987), and C.R.C.P. 11provisions which have no analogs in the federal statutes or rules. We disagree. As earlier noted, C.R.C.P. 41(a)(2) provides that, with exceptions not pertinent here, an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper. Section 13-17-102(5) provides: No attorney fees shall be assessed if, after filing suit, a voluntary dismissal is filed as to any claim or action within a reasonable time after the attorney or party filing the dismissal knew, or reasonably should have known, that he would not prevail on said claim or action.
Reasonable expenses, including a reasonable attorney's fee, shall not be assessed if, after filing, a voluntary dismissal or withdrawal is filed as to any claim, action or defense, within a reasonable time after the attorney or party filing the pleading knew, or reasonably should have known, that he would not prevail on said claim, action, or defense. AWDI argues that the trial court could not impose attorney fees as a term or condition of dismissal under C.R.C.P. 41(a)(2) in the absence of a finding that AWDI did not move to dismiss within a reasonable time after it knew or reasonably should have known that it would not prevail on its tributary claim, as required by section 13-17-102(5) and C.R.C.P. 11. AWDI asserts that both those provisions are applicable whenever payment of attorney fees is imposed upon a party incident to dismissal of a claim, including dismissals under C.R.C.P. 41(a)(2). Preliminarily, we note that AWDI offers no case support for its assertion that section 13-17-102(5) and Rule 11 apply to limit a trial court's discretion to impose terms and conditions on a grant of voluntary dismissal under Rule 41(a)(2). The limited number of Colorado cases that have interpreted the latter rule have never mentioned any limitation of that kind. See Tillery v. District Ct., 692 P.2d 1079, 1084 (Colo.1984) (trial court may award costs and fees to defendant as a term and condition of voluntary dismissal); Powers v. Professional Rodeo Cowboys, 832 P.2d 1099, 1102 (Colo.App.1992) (same). More importantly, the purpose of Rule 41 is different than the objectives of section 13-17-102(5) and Rule 11. The language of both section 13-17-102 and Rule 11 expresses an intention to sanction a party who has continued to pursue a claim after the party or its attorney knew or should have known that the party would not prevail, i.e., that the claim is not meritorious. [40] No such language is present within Rule 41(a)(2). [41] Rule 41(a)(2) is intended to give the plaintiff the right to dismiss a claim that may later become viable or may be asserted later in a different forum, provided the court can ensure the defendant will not be unfairly prejudiced. Tillery, 692 P.2d at 1084; accord McCall-Bey v. Franzen, 777 F.2d 1178, 1184 (7th Cir.1985) (terms and conditions imposed pursuant to Rule 41(a)(2) are the quid pro quo of allowing plaintiff to dismiss a potentially meritorious claim without being prevented by the doctrine of res judicata from bringing the same suit again); GAF Corp., 665 F.2d at 369 ([n]o matter how conscientious and diligent [plaintiff] may have been, [defendant] suffered some costs by defending this action... and [defendant] is entitled to such reimbursement of those costs as the court may order); LeCompte, 528 F.2d at 604 (Rule 41(a)(2) allows the plaintiff to withdraw his action from the court without prejudice to future litigation); 9 Wright & Miller § 2362. According to Tillery, a plaintiff's Rule 41(a)(2) motion to dismiss voluntarily without prejudice generally should be granted, Tillery, 692 P.2d at 1085, but the court must first determine that any harm to the defendant may be avoided by imposing terms and conditions of dismissal. Thus, a court's focus when determining appropriate terms and conditions under C.R.C.P. 41(a)(2) is necessarily on a remedy for the defendant, not punishment of the plaintiff. Rule 41(a)(2) provides a means for preserving a potentially meritorious claim for another day or another forum provided that conditions of dismissal can be devised to protect the defendants from prejudice. Section 13-17-102(5) and Rule 11, on the other hand, are intended to protect a plaintiff from imposition of attorney fees upon dismissal of an unmeritorious claim provided that the plaintiff seeks dismissal promptly after learning that the claim cannot prevail. Although AWDI asserts that allegedly erroneous pretrial rulings by the trial court destroyed the prospects for success in establishing the tributary claim, AWDI has never conceded or suggested that such a claim was not meritorious or that it will not reassert such a claim in the future. We therefore reject AWDI's argument that imposition of a requirement of payment of attorney fees as a condition of voluntary dismissal without prejudice of a claim under C.R.C.P. 41(a)(2) violates either section 13-17-102(5) or C.R.C.P. 11.