Court Opinion

ID: 801498
Source: CourtListenerOpinion
Date Created: 2012-06-04 14:25:05+00
Date Added: 2024-06-11T18:00:00.451229
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 12a0568n.06
                                                                                           FILED
                                           No. 11-3742
                                                                                      Jun 04, 2012
                          UNITED STATES COURT OF APPEALS                        LEONARD GREEN, Clerk
                               FOR THE SIXTH CIRCUIT

                                                         )
ROHRER CORPORATION,                                      )
                                                         )
       Plaintiff-Appellee,                               )        ON APPEAL FROM THE
                                                         )        UNITED STATES DISTRICT
                                                         )        COURT     FOR     THE
       v.
                                                         )        NORTHERN DISTRICT OF
                                                         )        OHIO
DANE ELEC CORP. USA,                                     )
                                                         )
       Defendant-Appellant.                              )

Before: MARTIN, GILMAN, and WHITE, Circuit Judges.

       HELENE N. WHITE, Circuit Judge. Defendant-Appellant Dane Elec Corp. USA

(“Dane Elec”) appeals the district court’s grant of attorney’s fees to Plaintiff-Appellee Rohrer

Corporation (“Rohrer”). Because the district court properly determined that Ohio law authorizes an

award of attorney’s fees under the circumstances, we affirm.

                                                 I.

       The background facts are not relevant to the present appeal and will be discussed briefly only

to provide context. Dane Elec entered into an agreement with Rohrer to purchase plastic shell

products and submitted several purchase orders for those products. At some point, Dane Elec

noticed that the price on the invoices for its orders was higher than the price quoted by Rohrer.

                                                 1
Rohrer informed Dane Elec that it had made a mistake in its earlier price quote and could not honor

that price, but would reduce the billing price. However, Dane Elec refused to pay more than the

original quoted price. In January 2010, the presidents of Rohrer and Dane Elec met and orally

reached an agreement on the outstanding pricing issues. The terms of the oral agreement were

subsequently disputed by the parties and Rohrer filed suit alleging, inter alia, breach of the

settlement agreement.

        Prior to trial, both parties submitted proposed jury instructions. One of Rohrer’s proposed

instructions read, “If you find in Rohrer’s favor on its claim for breach of settlement agreement, you

may award Rohrer its attorneys’ fees in bringing this action against Dane, in an amount to be

determined later by the Court.” The district court invited Dane Elec to brief the issue whether

Rohrer was entitled to attorney’s fees if it prevailed at trial. Dane Elec filed its brief and Rohrer filed

a response. After the first day of trial, the court allowed Dane Elec to submit additional briefing on

the attorney’s fees issue to address a case raised by Rohrer in its response, Shanker v. Columbus

Warehouse Ltd., No. 99AP-772, 2000 WL 726786 (Ohio Ct. App. June 6, 2000), which Dane Elec

submitted. The court subsequently discussed the jury instructions with counsel, and Dane Elec

proposed that if the court were to instruct that attorney’s fees could be awarded to Rohrer, a

reciprocal instruction would be warranted authorizing attorney’s fees to Dane Elec if it prevails. The

court instructed Dane Elec to submit additional briefing to demonstrate its entitlement to attorney’s

fees, which Dane Elec did not submit. The record does not show that Dane Elec further objected to

the attorney’s fees instruction. After a five-day trial, the jury returned a verdict in Rohrer’s favor on

                                                    2
all claims and found Rohrer entitled to attorney’s fees on its claim for breach of the settlement

agreement. The court entered judgment accordingly.

        Dane Elec now appeals only that portion of the judgment awarding attorney’s fees to Rohrer

on its breach-of-settlement claim.

                                                  II.

        This appeal involves one issue—whether the prevailing party on a claim for breach of a pre-

litigation settlement agreement is entitled to attorney’s fees under Ohio law. Both parties agree that

Ohio law governs the instant matter. The primary point of contention is the applicability of Shanker

to the present case.1

        In Shanker, the plaintiffs sued the defendant corporation after it defaulted on a promissory

note to repay a loan issued by the plaintiffs. During the litigation, the parties reached an oral

settlement agreement, which the magistrate judge outlined on the record in open court. After the

parties began to reduce that agreement to writing, a dispute ensued over a term not previously

discussed by the parties or by the magistrate in the settlement colloquy. The plaintiffs sought to have

the additional term included in the written agreement; the defendant refused and filed suit to enforce

       1
         When construing Ohio law, we must apply it according to controlling decisions of the
Supreme Court of Ohio. Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th Cir. 1999).
Because the Supreme Court of Ohio has not addressed this issue, we may look to “the decisional law
of the state’s lower courts, other federal courts construing state law, restatements of law, law review
commentaries, and other jurisdictions on the ‘majority’ rule” to ascertain how it would decide the
issue. Id. (citing Grantham & Mann v. Am. Safety Prods., 831 F.2d 596, 608 (6th Cir. 1987)).
Although decisions of Ohio’s appellate courts do not bind this court, we should not disregard them
unless “convinced by other persuasive data that [the Supreme Court of Ohio] would decide
otherwise.” Id. (citing Commissioner v. Estate of Bosch, 387 U.S. 456, 465 (1967)).

                                                  3
the oral settlement agreement. The trial court ruled in favor of the defendant, and the Ohio Court

of Appeals affirmed.2 Additional litigation became necessary when the defendant refused to make

the required payment under the settlement agreement. The plaintiffs filed suit alleging breach of the

settlement agreement and the defendant counterclaimed that the plaintiffs had breached the

settlement agreement by continuing to litigate the matter. The trial court found that both parties had

breached the settlement agreement, but that neither breach was material. In addition, the court found

the defendant entitled to attorney’s fees for the litigation expenses incurred in its original suit to

enforce the oral settlement agreement.

         Both parties appealed, with the plaintiffs claiming error in the award of attorney’s fees to the

defendant. Although the appellate court acknowledged that Ohio follows the “American Rule,”

whereby each party is required to pay its own attorney’s fees in most circumstances, the court also

noted three exceptions where attorney’s fees can be awarded: 1) when a statute creates a duty to pay

fees; 2) when the losing party has acted in bad faith; and 3) when the parties contract to shift fees.

Shanker, 2000 WL 726786, at *4. The appellate court then distinguished attorney’s fees that are

“costs of litigation” from attorney’s fees that are compensatory damages flowing from the breach of

the settlement agreement. The court determined that although the former are covered by the

American Rule, the latter are not. Id. Because the defendant incurred attorney’s fees as a result of

the plaintiffs’ breach of the settlement agreement, the court held that the American Rule did not

apply:

         2
      This dispute was resolved in a separate litigation between the parties, Shanker v. Columbus
Warehouse Ltd., No. 96APE09-1269, 1997 WL 142723 (Ohio Ct. App. Mar. 31, 1997)

                                                    4
        When a party breaches a settlement agreement to end litigation and the breach causes
        a party to incur attorney fees in continuing litigation, those fees are recoverable as
        compensatory damages in a breach of settlement claim.

Id. at *5.

        Dane Elec contends that the Shanker court’s use of the phrase “settlement agreement to end

litigation” renders that decision inapplicable when the parties enter into a settlement agreement prior

to litigation, as in this case. In support, Dane Elec relies on DeHoff v. Veterinary Hospital

Operations of Central Ohio, Inc., where the Ohio Court of Appeals reiterated that “Shanker is

limited to circumstances involving settlement agreements entered to end litigation.” No. 02AP-454,

2003 WL 21470388, at *22 (Ohio Ct. App. June 26, 2003). The plaintiff in DeHoff commenced

litigation to dissolve two corporations in which he was a one-half owner. After the court ordered

a judicial dissolution of the corporations, the plaintiff began a new corporation and submitted an

offer to the Board of Directors of one of the dissolved corporations to purchase equipment in

exchange for the assumption of certain liabilities held by the corporation. The plaintiff then met with

the defendant, the other half-owner of the dissolved corporations, in their capacities as Board

members, to consider the plaintiff’s offer and to discuss other matters relating to the dissolution. The

plaintiff alleged that an oral agreement was reached between the two owners regarding the equipment

at that time. Although the plaintiff’s attorney sent a proposed written agreement to the defendant,

it was not signed by either party. Over a year later, the plaintiff filed suit against the defendant for

breach of the oral agreement. The trial court found that the parties had entered into an agreement,

the defendant had breached the agreement, and, in reliance on Shanker, that the plaintiff was entitled

to attorney’s fees. On appeal, the defendant argued that the court erred by awarding attorney’s fees

                                                   5
because the case did not involve a settlement agreement designed to end the underlying dissolution

nor a motion to enforce a settlement agreement, and the Ohio Court of Appeals agreed. Id. at *22.

        DeHoff is readily distinguishable from the instant matter because there was no settlement

agreement involved, only a contract to purchase equipment. In contrast, Tejada-Hercules v. State

Automobile Insurance Company, No. 08AP-150, 2008 WL 4416534 (Ohio Ct. App. Sep. 30, 2008),

a case cited by Rohrer and not addressed by Dane Elec, is directly on point. In Tejada-Hercules, the

plaintiffs were injured in a car accident and a driver insured by State Automobile Insurance

Company (“State Auto”) was at fault. After the plaintiffs’ insurer paid their medical bills, they

agreed to settle with the driver. Under that agreement, State Auto was supposed to deliver two

checks, one made out to the plaintiffs and another jointly made out to the plaintiffs and their insurer.

State Auto delivered the first check to the plaintiffs but made out the second check only to the

plaintiffs’ insurer. The plaintiffs then brought claims against State Auto for, inter alia, breach of the

settlement agreement. The court awarded summary judgment to the plaintiffs on that claim. Despite

finding that the plaintiffs had not suffered any actual damages as a result of the breach, the court

determined that Shanker entitled the plaintiffs to their attorney’s fees incurred in bringing the action.

On appeal, the Ohio Court of Appeals affirmed the award of attorney’s fees and specifically rejected

the defendant’s argument that Shanker applies only to settlement agreements to end litigation, rather

than those reached prior to litigation, as contrary to Ohio law favoring settlement. Id. at *5. The

court also explicitly distinguished DeHoff because the purchase agreement at issue in that case was

unrelated to the initial matter before the court, namely the judicial dissolution of two corporations,

                                                    6
and the agreement would not have prevented future litigation between the parties over the dissolution

issue. Id.

        Likewise, in Raymond K. Schaefer, Inc. v. Pytlik, No. OT-09-026, 2010 WL 3820552 (Ohio

Ct. App. Sep. 30, 2010), the parties entered into a settlement agreement following voluntary pre-

litigation mediation regarding money owed under a construction agreement. The plaintiff filed suit

for breach of the settlement agreement after the defendants refused to comply with the settlement

terms. The court granted summary judgment to the plaintiff and awarded attorney’s fees. Those fees

were affirmed on appeal because they were compensatory damages “incurred as a direct result of

[defendants’] breach of the settlement agreement.” Id. at *6.

        Dane Elec alternatively argues that Shanker actually followed the American Rule and,

although the court did not state so explicitly, its rationale for awarding attorney’s fees to the

defendant was the plaintiffs’ bad faith in continuing to litigate the matter. Dane Elec contends that

Shanker does not apply because Rohrer has failed to establish bad faith. However, this argument is

wholly contradicted by the Shanker decision. The Shanker court found the American Rule

inapplicable because the defendant sought the attorney’s fees as part of its compensatory damages

resulting from the plaintiffs’ breach of the settlement agreement, rather than as costs of the litigation.

2000 WL 726786, at *5. In addition, the court agreed with the plaintiffs that if the defendant was

entitled to attorney’s fees because of their breach, the plaintiffs were likewise entitled to attorney’s

fees due to the defendant’s breach. Id. at *6. The Shanker court did not find that either party had

acted in bad faith.

                                                    7
       In sum, Ohio law allows a court to award attorney’s fees as compensatory damages when a

party’s breach of a settlement agreement makes litigation necessary, even where none of the

exceptions to the American Rule have been shown. Accordingly, the district court did not abuse its

discretion by allowing the jury to consider whether to award Rohrer the attorney’s fees it incurred

in bringing a claim for breach of a settlement agreement against Dane Elec.

                                               III.

       For the foregoing reasons, we affirm the judgment of the district court.

                                                8