Schreck v. Black River Brewing Co., No. 643-10-07 Wrcv (Eaton, J., Aug. 10, 2010)

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
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                                                  STATE OF VERMONT

SUPERIOR COURT                                                                             CIVIL DIVISION
Windsor Unit                                                                               Dockets No. 643-10-07 Wrcv
                                                                                                   and 580-8-08 Wrcv

Thomas Schreck and Gaspare Buscaglia
      Plaintiffs

v.

Black River Brewing Company, Stephen Shaw,
and Martin Nitka, Esq.
       Defendants

                                    ENTRY ORDER ON ATTORNEY’S FEES

        As this case has developed, it has become clear that plaintiffs are seeking an award of
attorneys’ fees under the common-law doctrine that provides that “where the wrongful act of
another has involved another in litigation with a third person or has made it necessary for that
other person to incur expenses to protect his interest, litigation expenses, including attorneys’
fees, are recoverable.” Albright v. Fish, 138 Vt. 585, 591 (1980); see also Wyatt v. Palmer,
165 Vt. 600, 602 (1996) (mem.); Welch v. LaGue, 141 Vt. 644, 647 (1982).

         At the outset, it is important to emphasize that this common-law doctrine makes
attorney’s fees recoverable as damages, rather than as costs of action. Hence, there is a
distinction between the so-called Albright claim and the more familiar situations where a
party prevails on the merits at trial and then seeks an award of attorneys’ fees and costs on
the basis of a contractual provision, e.g., Murphy v. Stowe Club Highlands, 171 Vt. 144, 162
(2000), or because they were the substantially prevailing party in a construction dispute, e.g.,
Fletcher Hill, Inc. v. Crosbie, 2005 VT 1, 178 Vt. 77, or because they prevailed on a claim
for consumer fraud, e.g., L’Esperance v. Benware, 2003 VT 43, ¶ 20, 175 Vt. 292. In those
cases, the prevailing litigant usually files a post-trial motion under Rule 54 seeking an award
of reasonable attorneys’ fees, and the court decides the reasonable amount of fees to award
by reference to the lodestar analysis. Murphy, 171 Vt. at 162; see also Huard v. Henry, 2010
VT 43, ¶¶ 11–17 (mem.) (explaining lodestar calculation).

        In the latter context (Rule 54 awards of attorneys’ fees as a cost of action), the rule is
that the party seeking the award of fees bears the burden of providing evidence of the
reasonableness of those fees, and it has been held that “the record is often best served on the
issue of reasonableness by the receipt of expert testimony from independent counsel.”
Parker, Lamb & Ankuda, P.C. v. Krupinsky, 146 Vt. 304, 309 (1985). For this reason, it is
not enough for a plaintiff to establish the reasonableness of her fees merely by submitting a
bill from her attorney. See Bruntaeger v. Zeller, 147 Vt. 247, 254–55 (1986) (expressly
holding that such evidence is not sufficient to support a finding of reasonableness). Instead,
there must be “expert testimony from independent counsel” to establish the reasonableness of
the fees requested. Id.
        Plaintiffs’ contention here has been that awards of attorneys’ fees as damages under
the so-called Albright line of cases do not carry the same evidentiary requirements as awards
of attorneys’ fees as costs of action under Rule 54. Plaintiffs point to language in Albright
referencing a “long line of cases” which hold that a party may recover “for the damage he has
sustained” as a result of the wrongful act of another, “including such costs and expenses as he
has fairly and in good faith incurred in attempting to maintain and defend his title.” 138 Vt.
at 588. The argument is that the applicable standard is whether the claimed attorneys’ fees
were expended “fairly and in good faith” as opposed to whether the fees are reasonable, that
the “fair” and “good faith” standard is somehow different from reasonableness, and that no
expert testimony is required to establish whether the fees are fair.

        Plaintiffs have supported this argument by reference to a federal district court case
from California. The court was not able to find the case electronically but will accept
counsel’s representation that the district court there held that expert testimony was not
required to support an award of attorneys’ fees as damages under the wrongful-act-of-another
doctrine. The court similarly accepts counsel’s representation that part of the district court’s
reasoning was that it was unable to find any authority on point.

         This court’s research suggests that there is actually quite a bit of authority on the
common-law doctrine exemplified by Albright. See, e.g., C.T. Drechsler, Annotation, Right
to Recover as Damages Attorneys’ Fees Incurred in Earlier Litigation With a Third Person
Because of Involvement Therein Through A Tortious Act of Present Adversary, 45 A.L.R.2d
1183 (1956 & Cum. Supp. 2010). Since it derives from common law, it appears to be known
in different states by different names, such as equitable indemnity, the wrongful-act doctrine,
the wrongful-act-of-another doctrine, or the collateral-litigation exception to the American
Rule. However named, it is stated in the Restatement (Second) of Torts § 914, as follows:

                        (1) The damages in a tort action do not ordinarily
               include compensation for attorney fees or other expenses of
               the litigation.

                        (2) One who through the tort of another has been
               required to act in the protection of his interests by bringing or
               defending an action against a third person is entitled to
               recover reasonable compensation for loss of time, attorney
               fees and other expenditures thereby suffered or incurred in the
               earlier action.

        In other words, the concept of “reasonableness” as it pertains to awards of damages
under the tort (including awards of attorney fees as damages) is actually built into the
Restatement definition of the tort. This is made clear by the comments, which explain that
the plaintiff can recover under § 914(2) for “all the reasonable expenses of the defense”
made necessary by the wrongful act of the defendant. (Emphasis added). Cases from other
states seem to take the same position: the attorneys’ fees must be reasonable in order to be
recoverable. See Hitachi Credit America Corp. v. Signet Bank, 166 F.3d 614 (4th Cir. 1999)
(explaining that under Virginia law, where a defendant’s wrongdoing has forced the plaintiff
to maintain or defend a suit with a third person, “the plaintiff may recover the counsel fees
and court costs incurred by him in that suit, provided those expenditures are reasonable in
amount and reasonably incurred”) (citation omitted); Robbins v. McGrath, 955 So.2d 633,


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634 (Fla. Ct. App. 2007) (explaining that “reasonable attorney’s fees upon appropriate proof”
may be recovered as damages under the wrongful-act doctrine).

         It is against this backdrop that the court interprets the recent Vermont discussion of
the doctrine in Wyatt v. Palmer, 165 Vt. 600, 602 (1996) (mem.). In that entry order, the
Vermont Supreme Court described Albright as standing for the position that “reasonable
litigation expenses [are] recoverable where [the] wrongful act of one party has involved
another in litigation with [a] third person.” 165 Vt. 600, 602 (1996) (mem.) (emphasis
added). Given the foregoing discussion, the court does not perceive there to be a difference
between the “fair” and “good faith” standard mentioned by Albright and the notion of
“reasonableness” described not only in Wyatt, but also in the Restatement and the cases from
other states. They are two ways of describing the same idea.

        If reasonableness is an element of the claim for damages, the question then becomes
whether expert testimony is required in order to establish the reasonableness of the claimed
fees. There are at least two cases from other states directly on point. In the earlier of the two
rulings, the Texas Court of Appeals held that “[a]s in the traditional recovery of attorneys’
fees, the plaintiff may recover as damages only those attorneys’ fees that are reasonable and
necessary,” and that it was not sufficient for plaintiff to meet her burden of proof by offering
only her own testimony that her attorneys’ services were reasonable and necessary. Instead,
expert testimony was required. Lesikar v. Rappeport, 33 S.W.3d 282, 306 (Tex. Ct. App.
2000). As the court explained:

                         Jenny has cited no authority as to why we should not
                apply in this case the established rules of law pertaining to the
                reasonableness of attorneys’ fees, and we perceive no reason
                not to, simply because the attorneys’ fees here have been
                awarded as actual damages. Thus, in cases where attorneys’
                fees incurred in the present litigation are sought, while an
                attorney’s testimony as to the reasonableness of fees is not
                conclusive proof of that issue, such testimony is generally
                required. Generally, the issue of reasonableness and necessity
                of attorneys’ fees requires expert testimony; an attorney
                testifies as to reasonableness, and the testifying attorney must
                be designated as an expert before he testifies.

                        We conclude that the attorneys’ bills, in the absence
                of expert testimony as to the reasonableness and necessity of
                the fees, is insufficient evidence that the fees were reasonable
                and necessary. We therefore reform the judgment to delete
                Jenny’s recovery of $12,000.00 for costs incurred in
                correcting the wrongful conduct.

Id. at 308.

        To the same effect is a recent opinion from the Washington Court of Appeals that
expressly holds that when attorneys’ fees are sought as damages, the matter is for the jury to
decide, and the jury may be aided in its consideration of the issue by the use of expert
testimony, since “[t]he party seeking recovery of attorney fees as damages bears the burden


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of presenting evidence as to the reasonableness of the amount of fees claimed.” Jacob’s
Meadow Owners Ass’n v. Plateau 44 II, LLC, 162 P.3d 1153, 1164 (Wash. Ct. App. 2007).
The Washington Court of Appeals went on to explain that “[t]hose factors bearing upon the
reasonableness of attorney fees awardable as costs also bear upon the reasonableness of
attorney fees recoverable as damages.” Id.

        In other words, Lesikar and Jacob’s Meadow both take the position that plaintiffs
seeking attorneys’ fees must prove the reasonableness of those fees by expert testimony
regardless of whether they are seeking the fees as an element of damages (to be submitted to
the jury) or as a cost of action (to be submitted to the court by post-trial motion). Or, put in
more general terms, the relevant principle established by these two cases is that the same
substantive burden of proof applies regardless of whether the plaintiff is seeking attorneys
fees as an element of damages or as a cost of action.

        Applying that principle here leads to the conclusion that plaintiffs bear the burden of
proving the reasonableness of their requested attorney fees by expert testimony from
independent counsel. It is insufficient as a matter of law to accept plaintiffs’ testimony as to
the amounts paid without supporting evidence establishing the reasonableness of those
amounts. Bruntaeger v. Zeller, 147 Vt. 247, 254–55 (1986); Parker, Lamb & Ankuda, P.C.
v. Krupinsky, 146 Vt. 304, 309 (1985). As a result, plaintiffs’ testimony as to amounts paid
will be excluded as irrelevant unless and until there is an offer of proof as to how plaintiffs
plan to establish the reasonableness of those amounts consistent with Bruntaeger and
Krupinsky. (Similarly, in the event that plaintiffs do adduce evidence sufficient to submit the
issue to the jury, the jury will be instructed that it must determine the reasonableness of the
fees by applying the lodestar analysis described in Huard and the many other attorney-fee
cases).

         Finally, plaintiffs have suggested that a different standard might apply to the claim
asserted against defendants Black River Brewing Company and Stephen Shaw for breach of
the covenant of title. The court has not yet had an opportunity to fully explore this argument
(or defendants’ arguments regarding whether plaintiffs have even stated a claim for breach of
the covenant of title), but based on the foregoing discussion, the court does not perceive why
plaintiffs would not be required to prove the reasonableness of the attorneys’ fees claimed as
damages. It makes sense to follow the general rule here: attorneys’ fees must be reasonable
in order to be awarded as damages. If plaintiffs have any contrary law to support their
arguments on this point, they are requested to bring it forward.

       SO ORDERED

       Dated at Woodstock, Vermont this 10th day of August, 2010.


                                               _________________________________
                                               Harold E. Eaton, Jr.
                                               Superior Court Judge




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