Court Opinion

ID: 37740
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:57:43+00
Date Added: 2024-06-11T14:56:54.112500
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT                 March 15, 2005
                       _____________________
                                                         Charles R. Fulbruge III
                             No. 04-20359                        Clerk
                        _____________________

                   FINGER FURNITURE COMPANY INC.,

             Plaintiff - Counter Defendant - Appellee,

                               versus

                   COMMONWEALTH INSURANCE COMPANY,

            Defendant - Counter Claimant - Appellant.
_________________________________________________________________

           Appeal from the United States District Court
                for the Southern District of Texas
_________________________________________________________________

Before REAVLEY, DeMOSS and PRADO, Circuit Judges.

PRADO, Circuit Judge.

     This appeal arose from a dispute between an insurer,

appellant Commonwealth Insurance Company (Commonwealth), and its

insured, appellee Finger Furniture Company (Finger).     Finger owns

seven furniture stores in Houston, Texas.   Beginning on June 8,

2001 and continuing into June 9, 2001, the heavy rains of

Tropical Storm Allison hit the Houston area and caused severe

flooding.   Because of the flooding, Finger’s employees could not

access the Finger store that housed the company’s central

computer system.   As a result, Finger could not operate any of

its Houston stores on Saturday, June 9, 2001, and no sales were

made on that date.   All of Finger’s stores opened at various

times on Sunday, June 10, 2001.   The following weekend, June 16-

                                  1
17, 2001, sales soared after Finger slashed its prices and

customers purchased furniture at discounted prices.

     After the flooding, Finger filed a claim for sales lost on

June 9-10, 2001 under the business-interruption provision of its

insurance contract with Commonwealth.    Commonwealth denied the

claim.    After an unsuccessful mediation effort, Commonwealth

initiated a declaratory judgment action against Finger.

Commonwealth and Finger stipulated that Finger incurred a gross-

earnings loss of $325,402.86 on June 9-10, 2001.1      Finger filed

its answer and counterclaimed seeking $342,029.32 in stipulated

losses.    This figure was based on the $325,402.86 in lost sales

plus $16,626.46 for expenses incurred to determine its claim

under the policy.

     Both parties moved for summary judgment.    The magistrate

judge recommended that the district court enter summary judgment

in favor of Finger for $342,029.32.    The district court adopted

the magistrate judge’s recommendation and entered judgment in

favor of Finger.    Finger then asked for attorney’s fees.    The

magistrate judge recommended that the district court grant

Finger’s request, with some exceptions.    The district court

entered an award of $79,201.00 for attorney’s fees.      Commonwealth

appealed.

                 Whether Summary Judgment Was Proper

     1
      This figure is based on Finger’s sales experience on June
10-11, 2000, the same weekend as the flood during the prior year.

                                  2
     The first issue in this appeal is how to calculate a loss

under the business-interruption provision of Finger’s policy with

Commonwealth.   Commonwealth contends the district court should

have offset Finger’s losses on June 9-10, 2001 with Finger’s

post-storm profits on June 16-17, 2001.     Finger, however,

contends that the policy language does not allow Commonwealth to

consider Finger’s post-storm profits in determining Finger’s

business-interruption losses.   According to Finger, Commonwealth

seeks to expand the policy language to avoid paying Finger’s

losses on June 9-10, 2001.

     This court reviews the “legal determinations in a district

court’s decision to grant summary judgment de novo, applying the

same standards as the district court to determine whether summary

judgment was appropriate.”2   Summary judgment is proper where,

after viewing the evidence in the light most favorable to the

nonmovant, the record indicates that no genuine issue of material

fact exists.3   Interpretation of a contract is a purely legal

matter; and therefore, this court reviews the district court’s

construction of Finger’s policy de novo.4    Because this is a

     2
      Gonzalez v. Denning, 394 F.3d 388, 391 (5th Cir. 2004)
(citations omitted).
     3
      Id.
     4
      See Sentry Ins. v. R.J. Weber Co., 2 F.3d 554, 556 (5th
Cir. 1993) (explaining that the reach of an insurance contract is
a matter of law reviewed de novo).

                                 3
diversity case, this court must apply Texas contract law to

interpret the policy.5   In Texas, if a policy is worded so that

it can be given only one reasonable construction, the court must

enforce the policy as written.6   Here, the business-interruption

provision has only one reasonable interpretation.

     The business-interruption provision provides in relevant

part:

     [Commonwealth] shall be liable for the ACTUAL LOSS
     SUSTAINED by insured resulting directly from such
     interruption of business, but not exceeding the
     reduction in gross earnings less charges and expenses
     which do not necessarily continue during the
     interruption of business.
     ***
     In determining the amount of gross earnings covered
     hereunder for the purposes of ascertaining the amount
     of loss sustained, due consideration shall be given to
     the experience of the business before the date of the
     damage or destruction and to the probable experience
     thereafter had no loss occurred.

Commonwealth claims that Finger did not sustain an actual loss

under this provision because Finger made up the sales that it did

not make on June 9-10, 2001 on June 16-17, 2001.    This position,

however, ignores the policy’s instructions about how to calculate

a business-interruption loss.

     The policy language indicates that a business-interruption

     5
      See Ideal Mut. Ins. Co. v. Last Days Evangelical Ass'n, 783
F.2d 1234, 1240 (5th Cir. 1986) (stating that a federal court
must apply the substantive law of the forum state in a diversity
action).
     6
      See Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938
(Tex. 1984).

                                  4
loss will be based on historical sales figures.    Specifically,

the policy states that “due consideration shall be given to the

experience of the business before the date of the damage or

destruction and to the probable experience thereafter had no loss

occurred.”    Historical sales figures reflect a business’s

experience before the date of the damage or destruction and

predict a company’s probable experience had the loss not

occurred.    The strongest and most reliable evidence of what a

business would have done had the catastrophe not occurred is what

it had been doing in the period just before the interruption.

     Commonwealth complains that this interpretation does not

account for Finger’s profits on June 16-17, 2001, but the

business-loss provision says nothing about taking into account

actual post-damage sales to determine what the insured would have

experienced had the storm not occurred.    The contract language

does not suggest that the insurer can look prospectively to what

occurred after the loss to determine whether its insured incurred

a business-interruption loss.7   Instead, the policy requires due

consideration of the business’s experience before the date of the

loss and the business’s probable experience had the loss not

occurred.    Finger’s historical sales figures reflect that

consideration.

     The parties do not dispute that Finger would have earned

     7
      Whether Finger mitigated its damages is not an issue in
this appeal.

                                  5
$325,402.86 on June 9-10, 2001 if it had been able to open its

stores.    No evidence indicates that any of the sales expected for

June 9-10, 2001 were made up on June 16-17, 2001.    In addition,

no evidence indicates that Finger would have cut its prices for

June 16-17, 2001 had the loss not occurred.    The district court

did not err in calculating Finger’s loss.

                           Attorney’s Fees

     The other issue in this appeal is the district court’s award

of attorney’s fees under the Texas Civil Practice and Remedies

Code.    Commonwealth claims that the award is excessive because it

includes 60.9 hours of prelawsuit legal work, Finger’s attorneys

billed almost twice as much as Commonwealth’s attorneys, and

Finger’s counsel did not use attorneys assigned to its insurance

division.    In response, Finger argues that the Texas Civil

Practice and Remedies Code does not specify a starting point for

attorney’s fees and dismisses Commonwealth’s arguments about

excessiveness as irrelevant.

     This court reviews Commonwealth’s argument about the

availability of prelawsuit attorney’s fees de novo8 and the

amount of the award for an abuse of discretion.9    Section 38.001

     8
      See Brown v. Fullenweider, 135 S.W.3d 340, 346 (Tex.
App.—Texarkana 2004, pet. denied) (explaining that whether
attorney's fees are available under a particular statute is a
question of law that is reviewed de novo).
     9
      See Coffel v. Stryker Corp., 284 F.3d 625, 640 (5th Cir.
2002) (stating that the court of appeals reviews the district

                                  6
of the Texas Civil Practice and Remedies Code provides for the

recovery of attorney's fees for claims on a written contract.10

To be awarded attorney's fees, an insured must “(1) prevail on a

cause of action for which attorney's fees are recoverable, and

(2) recover damages.”11      Section 38.001 does not specify when a

party may begin to calculate its attorney’s fees.12

     Commonwealth insists that Finger is not entitled to any of

the fees Finger incurred before the lawsuit, but the case law it

relies on does not suggest that Finger is precluded from

recovering at least some of its prelawsuit fees.13        If a party is

not entitled to attorney’s fees until a complaint is filed, a

court’s award of attorney’s fees for an abuse of discretion).
     10
          TEX. CIV. PRAC. &. REM. CODE ANN. § 38.001 (Vernon 1997).
     11
          Brown, 135 S.W.3d at 346-47.
     12
          See TEX. CIV. PRAC. &. REM. CODE ANN. § 38.001 (Vernon 1997).
     13
      See Life Partners, Inc. v. Life Ins. Co. of N. Am., 203
F.3d 324, 326 (5th Cir. 1999) (determining that the plaintiff was
not entitled to attorney’s fees prior to amending his complaint
to state a cause of action under ERISA because the original
complaint failed to state a claim for which relief could be
granted); Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 12
(Tex. 1991) (finding that attorney’s fees were capable of
segregation between nonsettling title insurer and settling
vendor, and remanding for segregation in order for purchaser to
recover attorney fees from title insurer); Hagedorn v. Tisdale,
73 S.W.3d 341, 354 (Tex. App.—Amarillo 2002, no pet.) (concluding
that the evidence supporting an award of attorney’s fees was
legally and factually sufficient even though the time spent on
the case was not broken down by person); Walton v. Canon, Short &
Gaston, 23 S.W.3d 143, 153 (Tex. App.—El Paso 2000, no pet.)
(considering the sufficiency of the evidence supporting the trial
court's findings of fact regarding attorney’s fees).

                                     7
plaintiff would never be entitled to fees incurred in researching

and drafting a complaint.14   Here, the magistrate judge

recognized that it was improper for Finger to recover attorney’s

fees associated with the prelawsuit appraisal and claim process

and the prelawsuit mediation attempt.    Although the magistrate

judge did not explain why Finger should not recover those fees,

the insurance policy provides that an appraiser will set the

amount of loss where the parties cannot agree.    Commonwealth

should be not required to pay for Finger’s attorney’s fees for

the appraisal process because the parties contracted for that

possibility.    The policy also requires Finger to “assist in

effecting settlements.”    Because the policy requires this

cooperation, Commonwealth should not bear Finger’s expenses for

attorney’s fees associated with a prelawsuit mediation attempt.

The district court, however, did not include these costs in the

award.    The district court properly considered the extent to

which Finger was entitled to prelawsuit fees.

     As for excessiveness, Commonwealth’s arguments fail.     This

court has set out a nonexhaustive list of factors for considering

the reasonableness of attorney’s fees,15 but this court has not

     14
      See Walton, 23 S.W.3d at 153 (upholding an award of
attorney’s fees that included time spent drafting a complaint).
     15
      See Mid-Continent Cas. Co. v. Chevron Pipe Line Co., 205
F.3d 222, 231 (5th Cir. 2000) (referring to the following as
well-known factors: “(1) time and labor required; (2) novelty and
difficulty of the issues; (3) required skill; (4) whether other
employment is precluded; (5) the customary fee; (6) whether the

                                  8
indicated that the amount of opposing counsel’s fees or a law

firm’s use of particular lawyers are considerations.     Instead,

the court has explained that the fact that the district court’s

award exceeds the amount billed by the other party “is not

determinative.”16     The court, however, has considered the time

and labor required to litigate a dispute, as well as the novelty

and the difficulty of the disputed issues.17     Here, Finger was

required to litigate an issue that a court has never squarely

addressed.     On its face, an award of $79,201 does not appear

unreasonable to litigate an issue of first impression.     The

district court did not abuse its discretion by entering its

award.

                               Conclusion

     Finger is entitled to judgment in the amount of its

stipulated loss, and the district court did not err in awarding

attorney’s fees.     Consequently, the court affirms the district

court’s judgment.

AFFIRMED.

fee is fixed or contingent; (7) time limitations; (8) the amount
involved and the results obtained; (9) the attorneys' experience,
reputation and ability; (10) the ‘undesirability’ of the case;
(11) the nature and length of the professional relationship with
the client; and (12) awards in similar cases”).
     16
          See Brantley v. Surles, 804 F.2d 321, 327 (5th Cir. 1986).
     17
          See Mid-Continent Cas. Co., 205 F.3d at 231.

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