Friday, September 20, 2013

SD Ohio reversed by CAFC in fee- shifting issue in Buckhorn v. Orbis

Buckhorn v. Orbis

Defendant ORBIS Corporation (“ORBIS”) appeals the decision of the United States District Court for the South- ern District of Ohio denying its motion for fees, costs, reasonable attorney fees, and expenses. In denying the motion, the district court found that a settlement and license agreement’s fee provision did not apply when Plaintiffs allegedly had “no knowledge of the [settlement and license agreement] at the time the litigation was initiated.” Further, the district court stated that it would be unconscionable to require Plaintiffs to pay fees and costs under that settlement and license agreement.
On appeal, ORBIS challenges the district court’s rul- ings regarding the applicability and unconscionability of the fee-shifting provision in the settlement and license agreement. For the reasons below, we reverse the district court’s denial, and remand for further proceedings.

Of California law:

“Except as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties.” CAL. CIV. PROC. CODE § 1021 (West 2013). Under California law, a contract may be the basis for an award of fees to a prevailing party for a tort related to a contract when the type of claim is within the scope of the provision. Gil v. Monsano, 121 Cal. App. 4th 739, 743 (Cal. Ct. App. 2004). Here, the fee provision entitled the prevailing party to an award of fees and costs “[i]n any litigation based on a controversy or dispute arising out of or in connection with this Agreement or its interpretation.” J.A. at A951.
To determine whether a contract permits the award of fees, we review its terms in view of California principles of contract interpretation. Under California statutory rules of contract interpretation, “[a] contract must be so inter- preted as to give effect to the mutual intention of the parties as it existed at the time of contracting.” CAL. CIV. CODE § 1636 (West 2013). For contracts reduced to writ- ing, “the intention of the parties is to be ascertained from the writing alone.” Id. § 1639. Further, “[t]he language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” Id. § 1638. In addition, “[t]he words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage.” Id. § 1644.

Of the district court:

The district court erred by denying ORBIS’s motion for fees and costs based solely on the fact that the Buckhorn plaintiff was unaware of the Ropak-Xytec Agreement when it instituted the infringement action against ORBIS and OMH. (...)

The “clear and explicit” language of the fee provision does not require knowledge of either the Agreement or the scope of rights thereunder at the time the litigation was initiated. See CAL. CIV. CODE § 1638.

As to unconscionable :

Under California law, an unconscionable contract or- dinarily involves both a procedural and a substantive element: (1) oppression or surprise due to unequal bar- gaining power, and (2) overly harsh or one-sided results. Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 689–90 (Cal. 2000). Determining unconsciona- bility requires the application of a “sliding scale” between procedural and substantive unconscionability. Id. at 690. Further, “[i]f the court as a matter of law finds the con- tract or any clause of the contract to have been uncon- scionable at the time it was made the court may refuse to enforce the contract.” CAL. CIV. CODE § 1670.5(a) (empha- sis added); see also Am. Software, 46 Cal. App. 4th at 1391 (“[t]he critical juncture for determining whether a con- tract is unconscionable is the moment when it is entered into by both parties-not whether it is unconscionable in light of subsequent events”). (...)

The district court erred by basing its finding of unconscionability on events taking place after Ropak and Xytec entered into their agreement rather than at the time they entered it. (...)
An analysis of events surrounding the time the par- ties entered into the contract shows that the fee provision was not unconscionable; indeed, Schoeller does not seri- ously contend that it was. In assessing the procedural element, we find no oppression or surprise due to unequal bargaining power. See Armendariz, 6 P.3d at 690. “‘Op- pression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’” A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 486 (Ct. App. 1982) (citations omit- ted). “‘Surprise’ involves the extent to which the suppos- edly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms.” Id. The Ropak-Xytec Agreement involved negotiations between sophisticated business parties that worked out a six-page settlement and license agreement involving multiple patents, royalty payments over a million dollars to Schoeller’s predecessor-in- interest, and a reciprocal fee provision to resolve future disputes. As such, we determine that the procedural inquiry provides little support for a finding of unconscion- ability.

The bottom line

While dilatory conduct on the part of ORBIS during discovery may impact the reasonableness of the fee award, any discovery delays by ORBIS do not make its request to enforce its contractual right to fees “uncon- scionable.” On remand, the district court may factor the conduct of ORBIS and OMH into its analysis of the rea- sonableness of any fee award; it may not, however, refuse to make an award given the unambiguous terms of the contract.


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