Opinion ID: 2595351
Heading Depth: 3
Heading Rank: 4

Heading: The Superior Court Erred in Awarding Enhanced Attorney's Fees to Iditarod.

Text: The court awarded Iditarod $18,170 in attorney's fees, an amount which represented an enhanced fee award of fifty percent of Iditarod's actual attorney's fees. The court enhanced the award because the Aldermans failed to present new evidence on the issue of rent, they rejected Iditarod's reasonable settlement offers, [34] and they presented a weak defense. The Aldermans argue that this was an abuse of discretion. Under Alaska Rule of Civil Procedure 82(b)(1), if an issue is contested and goes to trial, a prevailing plaintiff is entitled to recover as attorney's fees twenty percent of a judgment up to $25,000. The trial court has discretion to vary a fee award if it determines that variation is warranted because of, among other factors, the attorneys' efforts to minimize fees, [35] the reasonableness of claims and defenses pursued by each side, [36] vexatious or bad faith conduct, [37] and any other relevant equitable factors. [38] We reverse the award of attorney's fees because we find that the court erred in considering Iditarod's offers of judgment when awarding enhanced fees and because the findings that the Aldermans' claims were either unreasonable or brought in bad faith are not supported by the record.
The superior court awarded Iditarod enhanced attorney's fees in part based on its finding that Iditarod had attempted to minimize its attorney's fees through pre-trial offers of judgment. On October 17, 2002 Iditarod offered the Aldermans and Alaska Guestours $900 to settle the case. The settlement offer was not accepted, and Iditarod subsequently incurred at least $9,000 in attorney's fees. The settlement offer did not lead to an award of attorney's fees under Rule 68, because the court found that the parties did not set a deadline for initial disclosures, a finding that Iditarod does not challenge on appeal. Although the offers of judgment were reasonable attempts by Iditarod to minimize the attorney's fees of both parties, we have consistently held that it is error for a superior court to consider past settlement negotiations when awarding enhanced fees under Rule 82. [39] The only method by which fees may be enhanced for failure to accept an offer of judgment is found in Civil Rule 68. [40] If an offer of judgment fails due to a procedural defect, as is the case here, the superior court may not then penalize the offeree by awarding enhanced fees under Rule 82. [41] We reverse the award of enhanced fees because the award was at least partially based on Iditarod's offers of judgment under Rule 68. [42]
The superior court also awarded Iditarod enhanced attorney's fees because it felt that the Aldermans' defenses were weak. When a party has taken a legitimate position, it has not acted unreasonably for the purposes of Rule 82. [43] This case centered on the terms of an oral contract, about which neither party was able to produce definitive evidence. Caleb Alderman testified that the oral contract was for fifteen percent of sales generated at the Fourth Avenue Theatre and not fifteen percent of Alaska Guestours's gross receipts, although his testimony at the first trial had been inconsistent on this point. The prior testimony of Barbara Alderman, which was read into evidence, was somewhat less clear but tended to support the claim that the contract was for fifteen percent of sales made at the theater. Gottstein claimed that the contract was for fifteen percent of the gross receipts from the trolley tours. Considering the conflicting testimony presented at trial, we cannot say that the Aldermans' defense was unreasonable. The superior court's finding appears to be based on Judge Shortell's characterization of the Aldermans' claims and defenses during the 1999 trial, and does not support enhancement pursuant to Rule 82(b)(3)(F), which requires a finding that a party's defense was unreasonable.
Finally, the court stated that it awarded enhanced fees because the Aldermans appealed the 1999 judgment on the grounds that they were not given the opportunity to present new evidence but then failed to present any new evidence at the 2002 trial. This appears to be another way of saying that the Aldermans' appeal was brought in bad faith or that the Aldermans made misrepresentations to this court. In the first appeal, we held that the Aldermans were prejudiced when Judge Shortell allowed Iditarod to assert a cause of action for unpaid rent after the close of evidence. [44] The Aldermans argued that the late addition of this claim prevented them from presenting evidence concerning the terms of the parties' oral rent agreement. [45] At the second trial, the Aldermans submitted tax returns for Alaska Guestours for the years 1995-1997, as well as assorted receipts. The tax returns specified Alaska Guestours' gross receipts and rent expenditures for each year. Caleb Alderman testified that some of the rent expenses on Alaska Guestours' tax returns were related to the company trolley and van. He also testified that the parties' oral agreement specified that the Aldermans would pay Iditarod fifteen percent of ticket sales made at the theater and not, as Iditarod claimed, fifteen percent of all gross receipts generated from the trolley. Clearly the Aldermans presented some new evidence, both testimonial and documentary, at the 2002 trial. The superior court also stated that the Aldermans may have acted in bad faith due to evidence that they had delayed the case by attempting to evade process, an apparent reference to the Aldermans' attempt to avoid Iditarod's judgment in the 1999 action. But conduct undertaken in bad faith for the purposes of Rule 82 must relate to conduct during the litigation, and not to actions taken during the underlying transaction or other litigation between the parties. [46] It was thus inappropriate to consider the Aldermans' alleged attempts to avoid judgment in another cause of action. We conclude that the superior court erred in awarding Iditarod enhanced attorney's fees and remand this issue for imposition of Rule 82 attorney's fees without enhancement.