Court Opinion

ID: 4016132
Source: CourtListenerOpinion
Date Created: 2016-07-15 16:04:33.680052+00
Date Added: 2024-06-11T14:31:09.870659
License: Public Domain

FILED
                                                                        Jul 15 2016, 9:53 am

                                                                            CLERK
                                                                        Indiana Supreme Court
                                                                           Court of Appeals
                                                                             and Tax Court

      ATTORNEY FOR APPELLANT                                      ATTORNEY FOR APPELLEES
      Steven E. Ripstra                                           Lincoln A. Baker
      Ripstra Law Office                                          Lincoln A. Baker, PC
      Jasper, Indiana                                             Petersburg, Indiana

                                                   IN THE
          COURT OF APPEALS OF INDIANA

      South Indiana Propane Gas,                                  July 15, 2016
      Inc.,                                                       Court of Appeals Case No.
      Appellant-Defendant,                                        19A05-1506-SC-716
                                                                  Appeal from the Dubois Superior
              v.                                                  Court
                                                                  The Honorable Mark R.
      John Caffrey and Leola Caffrey,                             McConnell, Judge
      Appellees-Plaintiffs.                                       Trial Court Cause No.
                                                                  19D01-1502-SC-263

      Pyle, Judge.

                                         Statement of the Case
[1]   Appellant/Defendant, South Indiana Propane Gas, Inc. (“SIPG”) appeals the

      trial court’s order requiring it to pay a portion of the attorney fees of

      Appellees/Plaintiffs, John Caffrey (“John”) and Leola Caffrey (“Leola”)

      (collectively, “the Caffreys”) on their breach of contract claim. The trial court

      held that the Caffreys could recover their attorney fees because SIPG’s defense
      Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016                   Page 1 of 12
      to its breach of contract was unreasonable, groundless, or in bad faith. On

      appeal, SIPG argues that its defense was not unreasonable, groundless, or in

      bad faith because: (1) the issue of whether it was required to pay attorney fees

      was worthy of litigation; and (2) it performed under the contract within thirty

      days of learning of its failure to perform. Because we are not persuaded that

      SIPG’s defense was not unreasonable, groundless, or in bad faith, we affirm.

[2]   We affirm.

                                                       Issue
              Whether the trial court erred in allowing the Caffreys to recover a
              portion of their attorney fees on their breach of contract claim.

                                                       Facts
[3]   In July 2013, the Caffreys and SIPG executed a propane gas agreement (“the

      Agreement”) in which the Caffreys agreed to fulfill all of their propane gas

      requirements between October 1, 2013 and March 31, 2014 through SIPG. In

      exchange, SIPG agreed to supply the Caffreys with 300 gallons of propane gas

      at a fixed price of $1.289 per gallon during that time period, with any remaining

      gallons that the Caffreys required to be charged at the contemporaneous market

      rate for propane gas. The Agreement further provided that the Caffreys

      “agree[d] to pay all costs incurred by [SIPG] if it [had to] enforce any of the

      terms of [the] Agreement, including but not limited to, reasonable attorneys

      fees. . . .” (Plaintiffs’ Ex. A). The Agreement did not contain a similar

      provision granting the Caffreys the right to recover attorney fees in the event

      that they had to enforce the Agreement.

      Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016     Page 2 of 12
[4]   On or about the same day that the Caffreys and SIPG executed the Agreement,

      the Caffreys prepaid the 300 gallons they were allowed to buy at a fixed rate,

      which totaled $414.09. The following winter, there was a national shortage of

      propane gas due to severe winter weather, and the national market price of the

      gas rose by almost two dollars per gallon more than the Caffreys had paid for

      their 300 gallons. During the third weekend of January 2014, John called SIPG

      and requested a delivery of the gas for which they had prepaid. The agent he

      talked to told him that the price of propane had reached $3.12 per gallon and

      that the company did not know what it was “going to do” with its prepaid

      contracts. (Tr. 10). The agent said that she would call John back, but she never

      did. Leola tried to call the agent back at one point and left a message, but she

      did not receive a response, either. Neither of the Caffreys received any written

      notifications from SIPG that the company was suspending its deliveries of

      propane.

[5]   A month later, after the Caffreys still had not heard back from SIPG, they faxed

      a complaint concerning SIPG’s actions to the Indiana Attorney General’s

      Office (“the AG”). The AG also received complaints from other customers and

      sent SIPG a civil investigative demand (“CID”) requesting information

      concerning the corporation’s failure to distribute propane to its prepaid

      customers.1 The CID informed SIPG that the AG had received complaints

      1
       The General Assembly has given the AG authority to issue CIDs to investigate violations of specified laws.
      Nu-Sash of Indianapolis, Inc. v. Carter, 887 N.E.2d 92, 95 (Ind. 2008). Through a CID, the AG may request
      “production of documents for inspection, copying or reproduction; answers under oath to written

      Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016                        Page 3 of 12
      from its customers, but it did not identify the customers who had complained or

      inform SIPG how many customers had complained. Nevertheless, Eric Gibson

      (“Gibson”), SIPG’s general counsel, later acknowledged that he knew “there

      [were] enough [complaints] that it generated the CID.” (Tr. 69).

[6]   Over the next few months, the Caffreys stayed in contact with the AG to

      inquire about the AG’s progress in its investigation of SIPG. Under the CID’s

      terms, SIPG had thirty days to provide the information that the AG had

      requested, but it asked for and received an extension of that deadline because

      the information the AG had requested was “quite voluminous.” (Tr. 59).

      However, SIPG eventually filed its response, and some of SIPG’s officials met

      with the AG in person. Subsequently, on December 23, 2014, the AG closed its

      investigation and advised the Caffreys that it would not pursue any further

      action against SIPG.

[7]   As a result, in February of 2015, the Caffreys hired an attorney to help them

      recover the money that they had prepaid to SIPG. On February 4, 2015, the

      Caffreys’ attorney sent SIPG a letter stating that it “appear[ed]” that SIPG had

      breached the Agreement. (Defendant’s Ex. 4). He further stated in the letter

      that:

              The amount sought now is Four Hundred Fourteen and 09/100
              Dollars ($414.09), plus attorney’s fees in the amount of Two
              Hundred Seventy Dollars ($270) at this time and additional fees

      interrogatories; or appearance and testimony under oath before the Attorney General or his representative”
      in order to determine whether a violation of a specified law has occurred. Id.

      Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016                         Page 4 of 12
                 if Court action should become necessary, and any other costs of
                 collection.

                 Unless you, within thirty (30) days after receipt of this Notice,
                 dispute the validity of what you owe to the Caffreys, or any
                 portion thereof, we will assume that the amount is valid.
                 Litigation may be commenced at any time, notwithstanding this
                 letter.

      (Defendant’s Ex. 4). SIPG’s address was not listed on the Agreement, and the

      Caffreys’ attorney accidentally sent the letter to SIPG’s “physical address”

      rather than its “mailing address.”2 (Tr. 81). As a result, the letter was returned,

      and SIPG did not respond within thirty days.

[8]   However, on February 26, 2015, before the thirty days the Caffreys had allowed

      in their letter had elapsed, they filed a complaint against SIPG in small claims

      court. In the complaint, they requested damages for the breach of contract,

      including: “[j]udgment against [SIPG] in the amount of $414.09 plus interest

      from July 31, 2013 at the rate of 8% per annum, plus attorney fees of $540.00,

      and costs of [the] proceeding of $81.00 plus 8% per annum interest from [the]

      date of judgment.” (Defendant’s Ex. 5).

[9]   Thereafter, on March 2, 2015, the Caffreys’ attorney re-sent his returned

      February letter to SIPG at its correct mailing address. After receiving

      notification of the complaint and the letter, SIPG’s general counsel, Gibson,

      responded to the letter on March 9, 2015. In this response, Gibson notified the

      2
          The meaning of the phrase “physical address” is not clear from the record.

      Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016          Page 5 of 12
       Caffreys’ attorney that SIPG had “rolled forward” its prepaid contracts such

       that the customers who had not received their prepaid gas could receive it at

       their former agreement rates until March 31, 2016. (Defendant’s Ex. 6).

       According to Gibson, all that the Caffreys needed to do to receive their gallons

       was to “contact the office and place an order.” (Defendant’s Ex. 6). This was

       the first time the Caffreys had heard that they could still place orders at the

       price to which they had agreed in the Agreement.

[10]   Also in his response, Gibson explained that the Caffreys had requested their

       delivery during a time when SIPG had needed to suspend deliveries of pre-

       purchased propane due to the national propane shortage. He claimed that this

       suspension had been consistent with paragraph five of the Agreement, which

       specified that SIPG could suspend deliveries if its product was not available.3

       In light of that provision, Gibson denied that SIPG had breached the

       Agreement and stated that SIPG would not pay for the Caffreys’ attorney fees

       or court costs. Nevertheless, SIPG fulfilled its obligations under the Agreement

       in April 2015 when it delivered the Caffreys’ propane without advanced

       notification, and even though the Caffreys had not yet requested it.

       3
         Specifically, the Agreement provided that: “should corporation be prevented from fulfilling its obligations
       under this agreement by fire, riot, war, act of God, failure of transportation facilities, supply or pipeline
       allocation, delays at terminal loading facilities, inability to receive from its suppliers or carriers the propane
       secured pursuant to this agreement for customer, or any cause beyond reasonable control of corporation, then
       corporation’s obligations thereunder shall be suspended while such condition exists. . . . (Plaintiffs’ Ex. A).

       Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016                              Page 6 of 12
[11]   On May 13, 2015, the small claims court held a trial on the Caffreys’ complaint.

       Because SIPG had by then performed under the Agreement, the Caffreys

       sought only a recovery of their attorney fees at trial. Towards that end, they

       testified to the steps they had taken to contact SIPG and introduced, without

       objection, records of their attorney’s invoices. Gibson testified that SIPG’s

       suspension of natural gas deliveries had lasted for a two-week period in late

       January and early February 2014. He admitted that, to his knowledge, no one

       in the company had given the Caffreys notice of the suspension of deliveries.

       However, he claimed that SIPG had not known that the Caffreys had an issue

       with their contract before it had received their complaint.

[12]   At the conclusion of the trial, the small claims court took the matter under

       advisement. On May 20, 2015, it issued an order awarding the Caffreys

       attorney fees in the amount of $756.00. The court reasoned that SIPG “had

       clear liability under the facts of the case and thus any response to the claim

       other than an admission of liability was an unreasonable, or groundless[,]

       defense litigated in bad faith.” (App. 5). It concluded that SIPG had “settled”

       in its March 2015 letter by agreeing to perform the contract under its original

       terms. (App. 6). The trial court estimated that the Caffreys should have

       received this letter by March 12, 2015. (App. 6). As a result, the trial court

       determined that an award of the attorney fees the Caffreys had accrued up to

       March 12, 2015 when SIPG “settled”—which amounted to $756.00—was

       reasonable. SIPG now appeals.

       Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016   Page 7 of 12
                                                     Decision
[13]   On appeal, SIPG argues that the trial court erred when it allowed the Caffreys

       to recover a portion of their attorney fees. As stated above, the trial court

       awarded the attorney fees based on its conclusion that SIPG’s defense to its

       liability was unreasonable, groundless, or in bad faith. SIPG challenges this

       conclusion by asserting that: (1) its defense that it was not required to pay the

       Caffreys’ attorney fees under the Agreement was worthy of litigation; and (2) it

       did not act with “obdurate, vindictive[,] or untruthful behavior” because it

       delivered the propane “[w]ithin [thirty] days of learning about the problem.”

       (SIPG’s Br. 12).

[14]   First, we must note that our review of an award of attorney fees generally

       involves three steps: (1) a review of the findings of fact under the clearly

       erroneous standard, (2) a review of the legal conclusions de novo, and (3) a

       review of the trial court’s award under an abuse of discretion standard. Gillock

       v. City of New Castle, 999 N.E.2d 1043, 1045 (Ind. Ct. App. 2013). Where, as

       here, the trial court did not enter findings of fact, the first step is unnecessary.

       Id. at 1046. As for step two, “‘we look to the basis of the prevailing party’s

       [attorney fee request] and view the court’s order as an implicit legal conclusion

       consistent with the main thrust of the [request]—that the claim or defense at

       issue was frivolous, unreasonable, groundless, or litigated in bad faith.’” Id.

       (quoting R.L. Turner Corp. v. Town of Brownsburg, 963 N.E.2d 453, 461 (Ind.

       2012)).

       Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016      Page 8 of 12
[15]   Indiana follows the “American Rule,” whereby parties are required to pay their

       own attorney fees absent an agreement between the parties, statutory authority,

       or other rule to the contrary. Smyth v. Hester, 901 N.E.2d 25, 32 (Ind. Ct. App.

       2009), reh’g denied, trans. denied. The parties here acknowledge that, although

       the Agreement authorized SIPG to recover attorney fees in the event it had to

       enforce the contract, the Agreement did not likewise authorize the Caffreys to

       recover attorney fees. However, the trial court awarded the Caffreys attorney

       fees under INDIANA CODE § 34-52-1-1, which allows “‘the award of attorney

       fees for litigating in bad faith or for pursuing frivolous, unreasonable, or

       groundless claims.’” Id. (quoting Davidson v. Boone Cnty., 745 N.E.2d 895, 899

       (Ind. Ct. App. 2001)). Specifically, the statute provides that:

               In any civil action, the court may award attorney’s fees as part of
               the cost to the prevailing party, if the court finds that either party:

                    (1) brought the action or defense on a claim or defense that is
                    frivolous, unreasonable, or groundless;

                    (2) continued to litigate the action or defense after the party’s
                    claim or defense clearly became frivolous, unreasonable or
                    groundless; or

                    (3) litigated the action in bad faith.

       I.C. § 34-52-1-1(b).

[16]   A claim or defense is unreasonable under INDIANA CODE § 34-52-1-1 if, based

       on the totality of the circumstances, including the law and facts known at the

       time of filing, no reasonable attorney would consider that the claim or defense

       Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016          Page 9 of 12
       was worthy of litigation or justified. Smyth, 901 N.E.2d at 33. A claim or

       defense is groundless if no facts exist that support the legal claim relied on and

       presented by the party. Id. However, a claim or defense is not groundless

       merely because the party loses on the merits. Id. As for determining whether a

       litigant has litigated in bad faith,

               “[T]he absence of good faith is bad faith, but bad faith is not
               simply bad judgment or negligence. Rather, it implies the
               conscious doing of a wrong because of dishonest purpose or
               moral obliquity. It is different from the negative idea of
               negligence in that it contemplates a state of mind affirmatively
               operating with furtive design or ill will.”

       Watson v. Thibodeau, 559 N.E.2d 1205, 1211 (Ind. Ct. App. 1990) (quoting

       Young v. Williamson, 497 N.E.2d 612, 617 (Ind. Ct. App. 1986), reh’g denied,

       trans. denied).

[17]   Turning to SIPG’s first argument, that the issue of whether it was liable for

       attorney fees was worthy of litigation, we note that the trial court did not order

       SIPG to pay the attorney fees the Caffreys accrued litigating the issue of

       attorney fees. Instead, the trial court allowed the Caffreys to recover the

       portion of attorney fees they had accrued up until the point when SIPG

       “settled” the issue of liability by agreeing to perform under the Agreement.

       Accordingly, it is clear that the trial court’s award was based on SIPG’s

       continued unreasonable, groundless, and/or bad faith defense that it was not

       liable under the contract due to the national propane shortage, not its defense

       that it was not liable for attorney fees under the Agreement.

       Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016    Page 10 of 12
[18]   Next, SIPG argues that its defense that it could not perform was not

       unreasonable, groundless, or in bad faith because it performed under the

       Agreement within thirty days of learning in March 2015 that the Caffreys had

       not received the prepaid propane they had requested. However, we find this

       argument disingenuous. The Caffreys initially requested delivery of their

       prepaid propane during the third week of January 2014, and SIPG failed to

       deliver the propane at that time based on its defense that the national propane

       shortage excused its lack of performance. SIPG learned—or should have

       learned—at that time that it had failed to send the Caffreys their prepaid

       propane. Subsequently, Leola again called SIPG but did not receive a response.

       The AG also sent SIPG a CID, which placed SIPG on notice that multiple

       customers had not received their prepaid propane as requested and had

       complained to the AG. Still, SIPG did not attempt to identify which of its

       customers had requested but not received their prepaid propane; nor did SIPG

       attempt to fulfill its prepaid contracts.

[19]   In total, SIPG did not perform under the Agreement for fourteen months.

       During this time, it never made any attempt to notify the Caffreys that the

       national propane shortage—which had suspended SIPG’s services for only two

       weeks in January and February 2014—was over and that SIPG was again able

       to perform under its prepaid contracts. SIPG’s failure to perform or to notify

       the Caffreys that it was able to perform under the Agreement had the effect of

       perpetuating its defense that it was excused from performance by the propane

       shortage. Moreover, we note that while SIPG may or may not have been

       Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016   Page 11 of 12
       excused from performance under the Agreement initially due to the national

       propane shortage, paragraph five of the Agreement only allows suspended

       performance “while such condition exists. . . .” (Plaintiff’s Ex. A). Over twelve

       months passed after the propane shortage ended before SIPG fulfilled its

       responsibilities under the Agreement. We are not convinced that this delay and

       SIPG’s continuance of its defense that it was excused from performance for

       such an extended period was not unreasonable, groundless, or in bad faith.

       Accordingly, we conclude that the trial court did not err in awarding the

       Caffreys a portion of their attorney fees.

[20]   Affirmed.

       Baker, J., and Bradford, J., concur.

       Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016   Page 12 of 12