Court Opinion

ID: 178764
Source: CourtListenerOpinion
Date Created: 2010-11-04 17:02:41+00
Date Added: 2024-06-11T17:25:45.981375
License: Public Domain

FILED
                                                          United States Court of Appeals
                                                                  Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                               November 4, 2010
                            FOR THE TENTH CIRCUIT             Elisabeth A. Shumaker
                                                                  Clerk of Court

    NORTH AMERICAN SPECIALTY
    INSURANCE COMPANY,

                Plaintiff-Appellee,
                                                       No. 10-7010
    v.                                        (D.C. No. 6:06-CV-00215-JHP)
                                                       (E.D. Okla.)
    BRITT PAULK INSURANCE
    AGENCY INCORPORATED, a
    foreign corporation,

                Defendant-Third-
                Party-Plaintiff-
                Appellant,

    and

    ARGENIA, INC., a foreign
    corporation,

                Defendant-Third-
                Party-Plaintiff,

    v.

    REBSAMEN INSURANCE, INC.,
    d/b/a Crockett Adjustment, a foreign
    corporation.

                Third-Party-Defendant.

                            ORDER AND JUDGMENT *

*
     After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
                                                                     (continued...)
Before TACHA, LUCERO, and MURPHY, Circuit Judges.

         Britt Paulk Insurance Agency appeals the district court’s award of

attorney’s fees in favor of North American Specialty Insurance Company (NAS).

Because neither the applicable Oklahoma statute nor the parties’ agreement

allows NAS to recover the fees it incurred when it sued Britt Paulk to enforce the

agreement’s indemnity provision, we REVERSE the judgment of the district

court.

                                           I.

         The facts of the parties’ underlying dispute are more fully described in our

decision regarding the merits of NAS’s claims against Britt Paulk. See N. Am.

Specialty Ins. Co. v. Britt Paulk Ins. Agency, Inc., 579 F.3d 1106, 1109-10

(10th Cir. 2009) (NAS I). Britt Paulk is NAS’s general agent pursuant to a

General Agency Agreement. Certain insureds contacted Britt Paulk about a

possible claim, but Britt Paulk failed to notify NAS that the insureds remained

interested in making a claim against their NAS policy. See id. at 1109. NAS

*
 (...continued)
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

                                           -2-
ended up settling (for $1.2 million) a bad-faith lawsuit brought by the insureds.

See id. NAS then sued Britt Paulk to recover the monies it paid the insureds,

asserting theories of breach of contract, negligence, and contractual

indemnification. See id. NAS ultimately prevailed in the litigation. See id. at

1110, 1113.

      The district court awarded NAS its attorney’s fees as part of the judgment

against Britt Paulk. But because the district court had not yet determined the

amount of fees to be awarded when we decided NAS I, we lacked jurisdiction to

consider that decision. See id. at 1108 n.2. At the conclusion of NAS I, we

remanded to the district court NAS’s motion for attorney’s fees incurred on

appeal. Ultimately the district court ordered payment to NAS of a total of

$272,758 in attorney’s fees for both the district-court action and NAS I.

Britt Paulk now appeals the fee award.

                                          II.

      “In diversity cases, attorney fees are a substantive matter controlled by

state law.” Combs v. Shelter Mut. Ins. Co., 551 F.3d 991, 1001 (10th Cir. 2008).

“Oklahoma strictly adheres to the American rule concerning fees,” which

generally requires that fees be authorized by a statute or a contract. Id. (quotation

omitted); see also Barnes v. Okla. Farm Bureau Mutual Ins. Co., 11 P.3d 162,

178-79 (Okla. 2000). “We review the legal principles underlying an award de

                                         -3-
novo,” but the reasonableness and amount of a fee award for abuse of discretion.

Combs, 551 F.3d at 1001.

      The district court identified both a statutory and a contractual basis for

awarding fees to NAS. The relevant statute is Okla. Stat. tit. 12, § 936, and the

relevant contractual provision is Section XXI.A of the General Agency

Agreement. We address each of these in turn.

                                             A.

      Okla. Stat. tit. 12, § 936 provides:

      In any civil action to recover for labor or services rendered, or on an
      open account, a statement of account, account stated, note, bill,
      negotiable instrument, or contract relating to the purchase or sale of
      goods, wares, or merchandise, unless otherwise provided by law or
      the contract which is the subject of the action, the prevailing party
      shall be allowed a reasonable attorney fee to be set by the court, to
      be taxed and collected as costs.

The parties agree that the only potentially relevant portion of § 936 is the

first-described action, “to recover for labor or services rendered.” Britt Paulk

contends that NAS’s suit merely “relates to” a services agreement, but does not

seek to recover for services rendered. Thus, it asserts, the “labor or services”

clause does not permit a fee award. NAS counters that it was forced to pay the

settlement as a direct result of Britt Paulk’s performance of services under the

General Agency Agreement, and therefore it is entitled to fees under § 936. Our

task is to apply the most recent on-point decisions of the Oklahoma Supreme

Court, or, lacking those, to predict how the Oklahoma Supreme Court would

                                             -4-
apply Oklahoma law. See Specialty Beverages, L.L.C. v. Pabst Brewing Co.,

537 F.3d 1165, 1173-74 (10th Cir. 2008).

      Oklahoma strictly construes § 936. See Eagle Bluff, L.L.C. v. Taylor,

237 P.3d 173, 180 (Okla. 2010); see also Specialty Beverages, L.L.C., 537 F.3d at

1184 (“[W]e have previously decided that the Oklahoma Supreme Court narrowly

interprets all provisions of § 936.”). The Oklahoma Supreme Court has limited

the “labor or services” clause of § 936 to “actions brought to recover for labor

and services rendered.” Kay v. Venezuelan Sun Oil Co., 806 P.2d 648, 650

(Okla. 1991). It has “specifically rejected an interpretation of § 936 which would

authorize the courts to award attorney fees to the prevailing party in an action

alleging injury that was merely related to a contract for labor and services.” Id.

      Relying on Kay, this court has concluded that “§ 936 applies only to

‘actions for the collection of monetary consideration promised as payment for the

receipt of property, labor or services.’” Specialty Beverages, L.L.C., 537 F.3d at

1183 (quoting Kay, 806 P.2d at 651 n.12). “Consistent with this narrow

interpretation, the Oklahoma Supreme Court has held that actions for breach of

contract for the performance of labor and services do not fit within § 936’s

narrow confines.” Id.; see also LPCX Corp. v. Faulkner, 818 P.2d 431, 443

(Okla. 1991) (holding that prevailing party was not entitled to fees under § 936

where it sought damages because the “services were not accomplished and did

not accrue in accordance with the provisions of the contract” (emphasis omitted));

                                         -5-
Hamilton v. Mueller, 876 P.2d 309, 311 (Okla. App. 1994) (“[T]his lawsuit arose

because the agreed services were not performed. The underlying basis of this

lawsuit, which alleges numerous causes of action, is ‘related to’ a contract for

labor or services. It is not an action to recover for labor or services rendered.”).

It is clear that NAS’s suit was for Britt Paulk’s breach of a contract for the

performance of labor or services, not an attempt to recover sums promised as

payment for labor or services rendered. Accordingly, we cannot rely on § 936 to

affirm the fee award.

                                          B.

      The district court also cited the parties’ General Agency Agreement.

Section XXI.A of that agreement provides:

      [Britt Paulk] agrees to indemnify and save [NAS] and its officers,
      directors, and employees harmless from any damage and against any
      liability for loss, cost, expenses, fines, penalties, including punitive
      or exemplary damages, and all cost of defense: (i) resulting from
      any act, error, or omission, whether intentional or unintentional, by
      [Britt Paulk] and its officers, directors, employees, and its
      sub-producers, related to or which arose out of the business covered
      by this Agreement; or (ii) resulting from any obligation, act, or
      transaction created or performed by [Britt Paulk] in violation of, in
      excess of, or in contravention of the power and authority of [Britt
      Paulk] set forth in this Agreement.

Aplt. App. at 112. Britt Paulk contends that the district court erred when it

construed this indemnity provision to extend to the fees that NAS incurred in this

enforcement action, because at most under the “cost of defense” provision

Britt Paulk would have been liable for the fees that NAS incurred defending itself

                                          -6-
against the claims by its insureds. 1 NAS responds that the plain terms of this

indemnification provision obligate Britt Paulk to indemnify NAS for any damage,

costs, and expenses incurred by NAS, and that this broad language should include

the monies NAS spent in establishing its right to indemnity.

      In Oklahoma, an indemnitee ordinarily may not recover the fees it incurs in

bringing an action to enforce an indemnity provision. “As a general rule, an

indemnitee is entitled to recover as part of his damages, reasonable attorney’s

fees. The allowance of attorney’s fees is limited to the defense of the claim

indemnified against and does not extend to services rendered in establishing the

right of indemnity.” United Gen. Ins. Co. v. Crane Carrier Co., 695 P.2d 1334,

1339 (Okla. 1984). Thus, under Oklahoma law, “an indemnitee cannot recover

attorney fees in a suit to enforce the indemnity contract in the absence of an

express contract for such indemnification.” Id.; see also Cockings v. Austin,

898 P.2d 136, 141 (Okla. 1995) (holding that the trial court erred in granting

attorney’s fees incurred in establishing a right to indemnity). The next question,

then, is whether the Oklahoma Supreme Court would determine that the

provisions of Section XXI.A qualify as “an express contract for . . .

indemnification” of the fees NAS has incurred in bringing this action.

1
      We understand that the district court did not allow NAS to recover the fees
incurred in the action with the insureds under the “cost of defense” provision
because NAS did not give Britt Paulk proper notice of the action. That decision
was not appealed.

                                         -7-
      We conclude that Oklahoma would not consider this section as an express

contract supporting an award of fees in these circumstances. Oklahoma’s cardinal

rule when interpreting an indemnity clause, as with all contractual provisions, is

“to ascertain the intention of the parties and to give effect to that intention if it

may be done consistently with legal principles.” Luke v. Am. Sur. Co. of N.Y.,

114 P.2d 950, 951-52 (Okla. 1941). As NAS points out, the terms of this

provision are very broad. But “[r]egardless of how broad the terms of a contract

may be, its terms extend only to those things concerning which it appears the

parties intended to contract.” K & K Food Servs., Inc. v. S & H, Inc., 3 P.3d 705,

708 (Okla. 2000) (citing Okla. Stat., tit. 15, § 164). And because the terms of

Section XXI.A are so broad and general, it is difficult to conclude that they

expressly contemplate an attorney’s fee award for enforcing the General Agency

Agreement. See Nova Research, Inc. v. Penske Truck Leasing Co., 952 A.2d 275,

285 (Md. 2008) (“If we were to imply a fee-shifting provision for first party

actions, even where the contract does not permit one expressly, the exception

would swallow the rule, and the presumption of the American rule disallowing

recovery of attorney’s fees would, in effect, be gutted.”).

      The section explicitly refers to attorney’s fees only by requiring

indemnification of “all cost of defense.” Aplt. App. at 112. This provision is

consistent with Oklahoma’s general rule that an indemnitee may recover the fees

incurred in defending itself against the claim for which it is indemnified. See

                                           -8-
United Gen. Ins. Co., 695 P.2d at 1339; Okla. Stat., tit. 15, § 427(3). But it does

not extend to awarding fees for bringing an enforcement action; NAS did not

defend this action, but rather brought it as the plaintiff. See McKissick v. Yuen,

618 F.3d 1177, 1191 (10th Cir. 2010) (“The plain language of the Agreement

makes no mention of costs associated with prosecuting claims, only defending

them.”). In light of United General’s distinction between costs of enforcement

and costs of defense, the failure of Okla. Stat., tit. 15, § 427(3) to address fees

incurred in enforcement actions while directing that an indemnity agreement

generally be construed to allow an award of costs of defense, and the plain

language of Section XXI.A, it is not inconceivable that Britt Paulk agreed to pay

NAS’s fees for defending itself against indemnified claims without also agreeing

to pay fees for enforcing the General Agency Agreement.

      NAS directs our attention to Kelly-Springfield Tire Co. v. Mobil Oil Corp.,

551 P.2d 671 (Okla. App. 1975), in which the Oklahoma Court of Appeals

affirmed an enforcement-related fee award. But in light of United General and

Cockings, both more recent decisions of Oklahoma’s highest court,

Kelly-Springfield is not persuasive. See Grynberg v. Total, S.A., 538 F.3d 1336,

1354 (10th Cir. 2008) (“[W]e are not bound by decisions of state intermediate

appellate courts when we apply state law in a diversity case.”).

                                           -9-
      In sum, we cannot conclude that the General Agency Agreement provides

an adequate basis for awarding the fees NAS incurred in bringing the enforcement

action.

                                        III.

      Neither Okla. Stat., tit. 12, § 936 nor the parties’ General Agency

Agreement provides for NAS to recover the fees it incurred in establishing its

right to indemnity. The judgment of the district court is REVERSED, and this

matter is REMANDED to the district court for further proceedings consistent with

this decision. Appellant’s motion for leave to file a supplemental appendix is

GRANTED.

                                                    Entered for the Court

                                                    Michael R. Murphy
                                                    Circuit Judge

                                        -10-