Court Opinion

ID: 165787
Source: CourtListenerOpinion
Date Created: 2010-08-14 09:00:01+00
Date Added: 2024-06-11T17:24:48.633537
License: Public Domain

F I L E D
                                                    United States Court of Appeals
                                                            Tenth Circuit
                UNITED STATES COURT OF APPEALS
                                                           APR 28 2005
                       FOR THE TENTH CIRCUIT
                                                       PATRICK FISHER
                                                                Clerk

QUAIL CREEK PETROLEUM
MANAGEMENT CORPORATION, a
corporation,

     Plaintiff-Counter-
     Defendant-Appellee,

v.                                          No. 03-6339
                                      (D.C. No. 02-CV-1532-L)
XL SPECIALTY INSURANCE                      (W.D. Okla.)
COMPANY, a corporation,

     Defendant-Counter-
     Claimant-Appellant.

QUAIL CREEK PETROLEUM
MANAGEMENT CORPORATION, a
corporation,

     Plaintiff-Counter-
     Defendant-Appellant/Cross-
     Appellee,

v.                                     Nos. 04-6126 & 04-6138
                                      (D.C. No. 02-CV-1532-L)
XL SPECIALTY INSURANCE                       (W.D. Okla.)
COMPANY, a corporation,

     Defendant-Counter-
     Claimant-Appellee/Cross-
     Appellant.
                           ORDER AND JUDGMENT            *

Before BRISCOE , ANDERSON , and MURPHY , Circuit Judges.

        After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The cases are

therefore ordered submitted without oral argument.

        In these consolidated appeals, XL Specialty Insurance Company appeals

from the district court’s award of breach-of-contract damages against it on

summary judgment and from the court’s award of attorney fees to plaintiff Quail

Creek Petroleum Management Corporation as the prevailing party. Quail Creek

cross-appeals from the district court’s award of attorney fees and prejudgment

interest, asserting that the court erred in determining the amount of its awards.

We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part and reverse in

part.

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

                                         -2-
                                  I. Standards of review

       We review de novo the district court’s grant of summary judgment on the

breach-of-contract claim, including the court’s interpretation of the insurance

policy at issue.     Old Republic Ins. Co. v. Durango Air Serv.    , 283 F.3d 1222, 1225

(10th Cir. 2002). “We review a district court’s decision on whether to award

attorney fees for abuse of discretion, but we review de novo the district court’s

application of the legal principles underlying that decision.”        Nat’l Ass’n of Prof’l

Baseball Leagues, Inc. v. Very Minor Leagues, Inc.        , 223 F.3d 1143, 1146 (10th

Cir. 2000). A district court abuses its discretion when it “fails to consider the

applicable legal standard or the facts upon which the exercise of its discretionary

judgment is based.”       Ohlander v. Larson , 114 F.3d 1531, 1537 (10th Cir. 1997).

                          II. Undisputed facts      and proceedings

       The relevant facts are as follows. XL insured Quail Creek’s airplane. The

insurance policy stated that XL would “pay for         any physical damage to   or loss of”

the airplane. Aplt. App. at 67 (emphasis added). “Physical damage” is defined as

“direct and accidental physical loss of or damage to the aircraft . . . but does not

include loss of use or any residual depreciation in value, if any, after repairs have

been made.”        Id. at 71. The policy contains an exclusion for “loss or damage

which is due and confined to wear and tear . . . unless any such loss or damage is

the direct result of other physical damage covered by this policy.”        Id. at 69.

                                              -3-
       [Quail Creek’s] airplane incurred physical damage within the
       meaning of the insurance contract when it was struck by lightning.
        ...
             After the lightning strike, the aircraft’s engines were repaired.
       In compliance with manufacturer and Federal Aviation
       Administration specifications, a number of engine parts were
       replaced even though they had not reached the end of their useful
       life.

Aplt. Br., Att. A at 2-3 (district court’s order granting summary judgment).

Quail Creek’s supervisory mechanic testified that certain undamaged components

that still had usable life “could not be [put back] in the engines due to the engine

manufacturer’s specifications for engine overhaul after lightning strike.” Aplt.

App. at 122. Quail Creek’s expert witness testified that it was “only because of

the [lightning strike] and only because of the regulations and rebuild manual and

the FAA regulations and the insurance policy requirement of airworthiness that

these parts had to be replaced.”   Id. at 111. Thus, Quail Creek established that it

suffered a loss of usable airplane parts due to the lightning strike. Nevertheless,

XL paid for only part of the engine repairs, refusing to pay for those engine

components that it contended were replaced, not because of the lightning strike,

but because of wear and tear. Quail Creek sued for breach of contract and for

bad- faith failure to pay the claim.

       The district court held that the “loss for wear and tear items is a direct

result of the lightning strike. The components would not have been replaced but

for the lightning strike and the consequent repair of the engines.” Aplt. Br. Att. A

                                           -4-
at 4. XL does not disagree with these findings. The court granted summary

judgment on the breach-of-contract claim and required XL to pay the full repair

bill. But the court granted summary judgment to Quail Creek in favor of XL on

the bad-faith claim. Quail Creek does not appeal from that ruling.

                III. Appeal No. 03-6339: breach-of-contract claim

       XL challenges the district court’s legal conclusion that XL breached its

insurance contract, contending that the district court erroneously interpreted the

“wear and tear” exclusion. We disagree. XL misapprehends the cause of the

“loss” in this case. Engine parts that may have still have been usable   but for the

lightning strike were not replaced “due and confined to wear and tear,” as the

exclusion clause provides; they were replaced because of an accident that caused

the loss of all the affected engine parts, whether they still were hypothetically

usable or not. The district court properly concluded that, due to the lightning

strike, the engines could not be properly restored to airworthiness under the

applicable regulations without complete part replacement. Therefore, the wear-

and-tear exclusion did not apply, and the general provisions requiring XL to pay

for any loss of Quail Creek’s airplane due to an accident controlled. The cases

XL cites are inapposite.

                                            -5-
                                    IV. Attorney fees

       The district court awarded attorney fees and prejudgment interest under

Okla. Stat. tit. 36, § 3629(B), and after considering the standards enunciated in

State ex rel. Burk v. City of Okla. City   , 598 P.2d 659, 661 (Okla. 1979). Aplt.

Br., Att. C at 2 (district court’s order of March 15, 2004). Section 3629(B)

provides,

       Upon a judgment rendered to either party, costs and attorney fees
       shall be allowable to the prevailing party. For purposes of this
       section, the prevailing party is the insurer in those cases where
       judgment does not exceed written offer of settlement. In all other
       judgments the insured shall be the prevailing party. If the insured is
       the prevailing party, the court in rendering judgment shall add
       interest on the verdict at the rate of fifteen percent (15%) per year
       from the date the loss was payable pursuant to the provisions of the
       contract to the date of the verdict.

Okla. Stat. tit. 36, § 3629(B).

       A. Appeal No. 04-6138

              1. XL argues that the district court erred in awarding attorney fees,

asserting that “Quail Creek is not the ‘Prevailing Party’,” Aplt. Br. at 21, while

not challenging the district court’s conclusion that Quail Creek “was the

prevailing party as to one cause of action (breach of contract),”   id. at 22. Without

citing any on-point authority for its claim, XL argues that, because Quail Creek

did not prevail on both of its causes of action, there was no “prevailing party” for

purposes of awarding attorney fees. We disagree.

                                             -6-
      When a judgment for an insured exceeds the insurer’s written offer of

settlement, section 3629(B) clearly provides that the insured is the “prevailing

party.” Quail Creek was the prevailing party in its breach-of-contract action

under the definition provided in the statute. The district court did not err in

concluding that Quail Creek had a statutory right to attorney fees.

      2. XL next contends that the district court’s fee determination was

“arbitrary” because “[t]he only evidence submitted by Quail Creek in support of

its Motion for Attorney Fees consisted of an affidavit summarily stating 194.4

hours were spent in prosecuting this action.” Aplt. Br. at 25, 26. Contrary to

counsel’s contention, the record clearly demonstrates that Quail Creek submitted a

second affidavit containing a detailed attorney time record, which the district

court considered in determining its attorney-fees award.    See Aplt. App. at 252-

59; Aplt. Br. Att. C at 3-4. XL’s contention that Quail Creek could not satisfy its

burden to present evidence supporting its motion for attorney fees by attaching

the second affidavit to its reply brief is without merit. XL cites a Seventh Circuit

case in which the court held that, if new evidence is presented in a reply to a

motion for summary judgment, the district court should not consider the new

evidence without giving the movant an opportunity to respond. Here, the motion

for attorney fees was not a motion for summary judgment, and XL does not claim

that the district court did not give it an opportunity to respond, nor does it suggest

                                           -7-
that the amount of attorney fees requested in the second affidavit was

unreasonable. We conclude that the district court did not err in considering Quail

Creek’s second affidavit in support of its motion for attorney fees.

      B. Appeal No. 04-6126

      We turn to Quail Creek’s cross-appeal regarding attorney fees, in which it

maintains that the district court abused its discretion in failing to award all of its

requested fees.

      1. Quail Creek contends that it met all the   Burk factors for

reasonableness 1, arguing that (1) the time and activities were contemporaneously

recorded, (2) the questions involved were novel and difficult, (3) XL always took

an opposing position on the interpretation of the insurance contract, (4) Quail

Creek prevailed on the maximum judgment available on the contract claim, and

1
       Burk involved application of the equitable fund doctrine, which is
employed to compensate attorneys for achieving a benefit for members of a class
who did not participate in the litigation. 598 P.2d at 660. The hourly rate times
the number of hours spent provides the “lodestar” of the fee determination, and
the court may increase fees in proportion to the unlikelihood of success as a
“bonus.” Id. at 661-62. The Burk court adopted a set of factors for courts to
consider in all cases in determining the reasonableness of attorney fees.     Id. at
661, 663. These factors include: time and labor required; the novelty and
difficulty of the questions; the skill requisite to perform the legal service
properly; the preclusion of other employment caused by accepting the case; the
customary fee; whether the fee is fixed or contingent; time limitations; the amount
involved and the results obtained; the experience, reputation, and ability of the
attorneys; the ‘undesirability’ of the case; the nature and length of the
professional relationship; and awards in similar cases.       Id. at 661-62.

                                           -8-
(5) Quail Creek’s counsel had thirty-two years of federal-court litigation

experience and (6) his hourly rate was his customary fee for federal litigation.

Counsel estimated that he spent only 5% of his time in pursuing the bad-faith

claim.

         The district court stated that it could not “determine from counsel’s time

records the amount of time that was expended on the bad faith claim,” but it

rejected counsel’s estimate. Aplt. Br. Att. C at 3. The district court noted that

the United States Supreme Court in     Hensley v. Eckerhart stated that “the most

critical factor” in determining attorney fees under 42 U.S.C. § 1988 is “the degree

of success obtained.”    Id. Stating that it had examined the fee request in light of

the standards enunciated in    Burk , the court found “that a 33 percent reduction of

the fee request is warranted to account for plaintiff’s failure to prevail on all

issues.” Id.

         Quail Creek argues that the court abused its discretion by arbitrarily

reducing its request for attorney fees by 33% to account for time expended on

Quail Creek’s unsuccessful bad-faith claim. We find merit in this contention.

First, we note that Quail Creek does not seek fees under § 1988 but rather under a

state statute that does not require a plaintiff to prevail on all issues. Further, even

if § 1988 cases did apply,    Hensley held that “attorney’s fees could not be awarded

for claims unrelated to those on which the party ultimately prevailed.”

                                            -9-
Pennsylvania v. Del. Valley Citizens’ Council for Clean Air       , 483 U.S. 711, 720

(1987) (emphasis added). And      Burk instructed trial judges to “set forth with

specificity the facts, and computation to support his award.” 598 P.2d at 663.

       As the prevailing party, Quail Creek was statutorily entitled to attorney fees

for all of the time reasonably spent on the breach-of-contract claim.      Cf. Del.

Valley Citizens’ Council , 483 U.S. at 726 (“the fee-shifting statutes guarantee

reasonable payment for the time and effort expended if the case is won”). Thus,

instead of speculating about a percentage of time that may have been spent on the

bad-faith claim, the court should have examined the time sheets to determine if

the amounts requested were reasonably related to the contract claim and should

have specifically noted which expenditures were unrelated to that claim. We note

that a bad-faith action is inextricably intertwined with a breach-of-contract claim;

indeed, the breach must be established as an essential element of the bad-faith

claim. See Christian v. Am. Home Assur. Co.       , 577 P.2d 899, 905 (Okla. 1977)

(noting that, to prevail on a bad-faith claim the insured must establish not only

that the insurer failed to timely pay a valid claim under the insurance contract, but

that it did so “unreasonably and in bad faith”).

       In Taylor v. State Farm Fire & Casualty Co.     , the Oklahoma Supreme Court

noted that a party seeking recovery “for an insured loss      has but a single cause of

action , although its claim may be advanced concurrently on       ex contractu and ex

                                           -10-
delicto theories.” 981 P.2d 1253, 1257-58 (Okla. 1999). It held that recovery of

attorney fees under section 3629(B) “embraces both contract and tort-related

theories of liability so long as the ‘core element’ of the damages     sought and

awarded is composed of the insured loss.”       Id. at 1256. In Taylor , the plaintiffs

prevailed on their bad-faith claim and the district court awarded $126,000 in costs

and fees on a showing of $39,000 in actual contract damages even though the

plaintiffs did not prevail on their breach-of-contract claim because it was time-

barred. See id. at 1256-57. Thus, under      Taylor , we conclude that only if a time

expenditure was necessary solely to establish the reasonableness of XL’s behavior

in refusing to pay the claim may it be disallowed, and that a district court has the

discretion to award attorney fees for all discovery conducted to determine the

reasonableness and good faith of an insurer who breaches its insurance contract.

We cannot ascertain from the district court’s decision which expenditures were

not allowed or why; therefore, the case must be remanded for the appropriate

specific findings required by   Burk .

       2. Quail Creek next contends that the district court also abused its

discretion in disallowing fees for time spent preparing motions that were

ultimately not filed and by reducing its hours spent on a second attorney-fee

request. We conclude that the disallowance and reduction of those fees does not

exceed “the bounds of permissible choice in the circumstances.”        McEwen v. City

                                            -11-
of Norman, 926 F.2d 1539, 1554 (10th Cir. 1991). We thus affirm the court’s

reductions.

       3. Finally, Quail Creek maintains that the district court erred in totally

disallowing reimbursement for travel time. The district court stated that “[i]t is

not reasonable to charge defendant for travel time,” Aplt. Br., Att. C at 3 (citing

Ramos v. Lamm , 713 F.2d 546, 559 (10th Cir. 1983),      overruled in part on other

grounds by Pennsylvania v. Del. Valley Citizens’ Council for Clean Air     , 483 U.S.

711, 725 (1987)). Quail Creek contends that the district court erroneously applied

Ramos , and should have instead applied Oklahoma case law affirming an award of

travel time. It argues that the travel time was necessitated for depositions and by

XL’s refusal to furnish its entire claims file.

       We conclude that the district court erred in disallowing travel expenses

under Ramos . Ramos , too, involved an award of attorney fees under § 1988, and

not under the state statute at issue. Further, in   Ramos we stated that

              [i]tems that are normally itemized and billed in addition to the
       hourly rate should be included in fee allowances in civil rights cases
       if reasonable in amount. However, because there is no need to
       employ counsel from outside the area in most cases, we do not think
       travel expenses for such counsel between their offices and the city in
       which the litigation is conducted should be reimbursed. Departure
       from this rule should be made in unusual cases only. Thus, the
       district court properly disallowed travel costs to and from Denver for
       counsel based in Washington, D.C. The district court properly
       allowed reimbursement for the expense of travel between Denver and
       the Canon City prison, given its finding that such costs would
       normally be billed to a private client.

                                             -12-
713 F.2d at 559. Later, in     Brown v. Gray, 227 F.3d 1278 (10th Cir. 2000), we

noted that

              [t]here are two separate sources of authority courts use to
       award out-of-pocket expenses to a prevailing party. Some expenses,
       such as travel, may be included in the concept of attorney’s fees as
       ‘incidental and necessary expenses incurred in furnishing effective
       and competent representation.’ 122 Cong. Rec. H12160 (daily ed.
       Oct. 1, 1976) (statement of Rep. Drinan). These expenses are thus
       authorized by section 1988.

Id. at 1297. The travel expenses claimed by Quail Creek were not associated

with travel from the attorney’s office to the city where litigation was to be

conducted; they were associated with conducting depositions in cities where the

defendant’s representatives were located. By imposing a blanket disallowance for

travel fees, the district court’s “refusal to award these expenses cannot be viewed

as an exercise of its discretion, but rather as the result of a legal error.”   Id. Thus,

remand is appropriate for a determination whether the travel expenses at issue

should be awarded as a necessary component of discovery on the breach-of-

contract claim under state law.      See Okla. Tpk. Auth. v. Little , 860 P.2d 226, 228

(Okla. 1993) (affirming district court’s award of reasonable attorney-travel

expenses under Burk ).

                                              -13-
                             V. Prejudgment interest

      In Appeal No. 04-6126, Quail Creek also appeals from the amount of the

award of prejudgment interest, maintaining that the court erred in computing

interest from the date XL was obliged under the insurance contract to pay its

claim instead of the date Quail Creek suffered the loss. Quail Creek contends that

the contract provision requiring XL “to pay for . . . loss of the aircraft” implies

that XL was obliged to pay from the date of loss. Aplee. Br. at 17. We conclude

that this issue is controlled by section 3629(B). Section 3629(B) provides that

prejudgment interest is payable “from the date the loss was payable pursuant to

the provisions of the contract to the date of the verdict.” Under the insurance

contract, “[p]ayment for loss may not be required . . . until . . . sixty (60) days

after proof of loss is filed.” Aplt. App. at 73 ¶ 11. The district court properly

determined the amount of prejudgment interest.

                                  VI. Conclusion

      We affirm the district court’s judgment awarding breach-of-contract

damages in Appeal No. 03-6339 and its judgment awarding prejudgment interest

in Appeal No. 04-6126. We affirm the district court’s ruling that attorney fees

should be awarded in Appeal No. 04-6138. In Appeal No. 04-6126, we reverse

and remand solely for a redetermination of the amount of attorney fees that should

                                         -14-
be awarded consistent with this order and judgment.

                                             Entered for the Court

                                             Mary Beck Briscoe
                                             Circuit Judge

                                      -15-