Knutsen v. Dion, No. 342-52-10 Wncv (Teachout, J., June 25, 2015)

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                                                      STATE OF VERMONT

SUPERIOR COURT                                                                                         CIVIL DIVISION
Washington Unit                                                                                        Docket No. 342-52-10 Wncv

JANET KNUTSEN
     Plaintiff

           v.

DAVID M. DION et al.
     Defendants

                                                              DECISION
                                                            Pending Motions

        In the Court’s February 26, 2015 decision, the remaining claims in this case were
identified as follows: “(1) Ms. Knutsen’s claim that Mr. Dion is liable for misrepresentations
regarding the likelihood of flooding; (2) . . . Mr. Dion’s right to indemnity from the Sweetsers;
and (3) Mr. Dion’s right to attorney fees and other litigation expenses from Ms. Knutsen.” The
claim for attorney fees is predicated on an asserted contract right in paragraph 20 of the Purchase
and Sales Contract (P&S) and the bad faith exception to the American Rule.

        Following the Court’s ruling, Ms. Knutsen filed two motions labeled as a motion to
dismiss and a motion in limine. The court understands Ms. Knutsen, by these motions, to be
seeking to voluntarily dismiss her remaining claim against Mr. Dion, which moots Mr. Dion’s
claim for indemnity against the Sweetsers. Ms. Knutsen also seeks a ruling on Mr. Dion’s claim
for attorney fees. In response, Mr. Dion insists that he is entitled to proceed to a jury on his
claim for attorney fees.

       The function of a jury is to resolve disputes of fact. Juries do not decide issues as a
matter of law or resolve equitable matters. Mr. Dion has not identified any dispute of fact
necessitating a jury trial. The interpretation of an unambiguous contract presents a legal issue.
Entitlement to attorney fees under the bad faith exception to the American Rule presents an
equitable issue. This case (not to mention the previous case between these parties) has been
pending for over five years. In the interest of judicial economy, the Court will address Mr.
Dion’s claim for attorney fees now.

           The contract right

        The contract relates to the sale of a home by the Sellers to the Purchaser. There are no
other parties to the contract. The disputed right to attorney fees appears in paragraph 20, which
reads as follows:

           Default: If Purchaser fails to close as provided herein, or is otherwise in default,
           Seller may terminate this Contract by written notice to Purchaser and retain all
       Contract Deposits as liquidated damages, or may pursue all legal and equitable
       remedies provided by law. If Seller does not notify Purchaser of Sellers’s election
       of remedies within thirty (30) calendar following notice of Purchaser’s default,
       Seller’s sole remedy shall be retention of all Contract Deposits as liquidated
       damages. Because of the nature and subject matter of this Contract, damages
       arising from Purchaser’s default may be difficult to calculate with precision. The
       amount of the Contract Deposits reflect, in part, a reasonable estimate of Seller’s
       damages for Purchaser’s default. The provision hereof granting Seller the
       election to retain the Contract Deposits as agreed-upon liquidated damages is
       intended solely to compensate Seller for Purchaser’s default. It is not intended to
       be a penalty for Purchaser’s breach nor is it an incentive for Purchaser to perform
       the obligations of this Contract. If Seller fails to close, or is otherwise in default,
       Purchaser may terminate this Contract by written notice to Seller and shall receive
       back all Contract Deposits and may pursue Purchaser’s rights to all legal and
       equitable remedies provided by law. In the event legal action is instituted arising
       out of a breach of this Contract, the substantially prevailing party shall be
       entitled to reasonable attorney’s fees and court costs.

P&S ¶ 20 (emphasis added). Mr. Dion is not a party to this contract. He was neither a seller nor
a buyer. The only way that the fee provision in paragraph 20 could extend to him is if he is an
intended beneficiary of that portion of paragraph 20.

       The Restatement describes an intended beneficiary as follows:

       (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a
       promise is an intended beneficiary if recognition of a right to performance in the
       beneficiary is appropriate to effectuate the intention of the parties and either
            (a) the performance of the promise will satisfy an obligation of the promisee
            to pay money to the beneficiary; or
            (b) the circumstances indicate that the promisee intends to give the
            beneficiary the benefit of the promised performance.

Restatement (Second) of Contracts § 302(1); see also Herbert v. Pico Ski Area Management Co.,
180 Vt. 141, 150 (2006) (applying § 302).

        Nothing in the P&S implies that the Purchaser and the Sellers intended to make Mr. Dion
a beneficiary of the fee provision in paragraph 20. They clearly intended to make him a
beneficiary of the limitation of liability provision in paragraph 13. That paragraph includes this:
“Seller and Purchaser each agree that there is valid and sufficient consideration for this
limitation of liability and that the real estate brokers are the intended third-party beneficiaries of
this provision.” This language plainly makes Mr. Dion a beneficiary of paragraph 13, not
paragraph 20 or the contract as a whole. There simply is no applicable right to attorney fees in
the contract.




                                                  2
       The bad faith exception to the American Rule

       Absent a contract right, parties typically are responsible for their own attorney fees under
the American Rule. The equitable exceptions to the American Rule are reserved for exceptional
cases. See Cameron v. Burke, 153 Vt. 565, 576 (1990) (“Exceptional cases include instances
where a litigant acts ‘in bad faith’ or ‘vexatiously’ and where a litigant’s conduct is
‘unreasonably obdurate or obstinate.’” (citation omitted)).

         Mr. Dion clearly feels that Ms. Knutsen’s claims against him were unwarranted and
litigated with too much zeal. He no doubt shares that sense of affront with a great many others
who find themselves in court defending claims that eventually are withdrawn or proven
meritless. However, the law makes room for marginal claims. See, e.g., LeClair v. Reed ex rel.
Reed, 2007 VT 89, ¶ 6, 182 Vt. 594 (noting that claims that are novel or extreme should not, for
those reasons, be dismissed). It gives plaintiffs room to frame their claims and explore them on
the evidence turned up in discovery. See Colby v. Umbrella, 2008 VT 20, ¶ 6, 184 Vt. 1 (noting
the “generous standard governing Rule 15(a) motions to amend”); Alger v. Dep’t of Labor &
Indus., 2006 VT 115, ¶ 12, 181 Vt. 309 (noting that novel or extreme cases “should be explored
in the light of facts as developed by the evidence). It demands that lawyers represent their clients
with zeal. See Rules of Professional Conduct 3.1 cmt. [1] (“The advocate has a duty to use legal
procedure for the fullest benefit of the client’s cause, but also a duty not to abuse legal
procedure.”).

        After five years of litigation, it is clear that this case does not include the sort of
circumstances that would warrant an equitable exception to the American Rule. Ms. Knutsen’s
claims may have been novel or extreme, but they were not overtly frivolous. Her counsel’s
tactics may have been aggressive, but they were not in any apparent way vexatious, abusive, or
obdurate. As one court said, “No one likes to be sued. Parties sometimes even settle lawsuits
that they consider to be extortion. But that does not make the filing of a complaint in such an
action extortionate.” Park South Associates v. Fishbein, 626 F. Supp. 1108, 1114 (S.D.N.Y.
1986). The Court denies Mr. Dion’s claim for attorney fees.


                                             ORDER

        For the foregoing reasons, Ms. Knutsen’s motions are granted. Her remaining claim is
withdrawn; Mr. Dion’s claim for indemnity against the Sweetsers is moot; and Mr. Dion’s claim
for attorney fees is dismissed.

       Dated at Montpelier, Vermont this ____ day of June 2015.


                                                     _____________________________
                                                     Mary Miles Teachout
                                                     Superior Judge




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