Brett Jefferson v. SBD LLC (2014)

MEMORANDUM OF DECISION re MOTIONS FOR ATTORNEYS FEES (# 132.00)

On December 16, 2013, this court issued two memoranda of decision, deciding the issues raised in the parties' motions seeking to vacate and confirm an arbitration award generally in favor of defendant.¹  Subsequently, defendant filed a motion for attorneys fees in each case, claiming entitlement to such an award based on legal expenses incurred in resisting plaintiffs' motion to vacate and obtaining the order of the court confirming the award.   Plaintiffs filed an objection to the motion, and requested argument.   The parties were heard on February 3, 2014.

The parties appear to be in agreement that the precise issue before the court is one of first impression.   Both sides argued, however, that the proper result is merely a natural extension of well-established principles.

Defendant's Position

In the underlying arbitration, defendant was awarded common-law punitive damages, consisting of 70% of the legal expenses incurred in the arbitration proceeding itself.   In Connecticut, common-law punitive damages are non-taxable costs of litigation, Ulbrich v. Groth, 310 Conn. 375, 447–48 (2013), of which the predominant component ordinarily is attorneys fees.

Defendant is not claiming an independent right to attorneys fees, such as by virtue of a statute authorizing such an award, nor based on any contractual right to such an award.   As a result, authorities cited by defendant, involving statutory or contractual rights to recover attorneys fees, are distinguishable/inapplicable—those cases involve application of an acknowledged right, whereas in the present situation, the question more fundamentally is the extent to which such a right exists.

Rather, defendant is claiming that the additional attorneys fees being sought are a necessary consequence or byproduct of the inclusion of attorneys fees in the punitive damages award.   Defendant claims that the closest case it could find was Harris v. Bradley Memorial Hospital, J.D. New Britain, No. HHB CV02 0516962, 2011 Ct.Sup. 5214 (No. HHB CV02 0516962 (February 17, 2011).²  The punitive damages aspect of the trial court award was never reviewed because the Supreme Court overturned the verdict for the plaintiff such that the award of punitive damages could not survive, 306 Conn. 304 (2012).

Relying on Harris, defendant's principal arguments focus on two interrelated points:  although tautologically speaking, the purpose of punitive damages nominally is punitive, the rationale for the award is generally deemed to be compensatory in nature, making a plaintiff whole notwithstanding the otherwise-applicable requirement that a plaintiff absorb the costs associated with the legal proceedings.   The Harris-based component is that notwithstanding the established principle that the attorneys fees component of punitive damages is not susceptible to adjustment based on legal costs incurred on appeal, it is proper to include all attorneys fees necessary to get to a judgment, at least initially, even if the initial determination occurs after an appeal.   In Harris, the “detour” was based on an initial refusal by the trial court to award punitive damages such that the appellate legal fees were allowed by the trial court on remand as a necessary expense in obtaining a judgment;  here, the claim is that an unconfirmed arbitration award is unenforceable such that confirmation of the award is likewise necessary to obtain a judgment.

Plaintiffs' Position

Plaintiffs' position is that under the “American rule,” defendant is not entitled to attorneys fees, absent a contract or statute so providing.   Their position also is that punitive damages were determined by the arbitrator, and that to the extent that authority to make such a determination properly was assigned to the arbitrator, the court lacks authority to alter or adjust that determination.

Further, to the extent that the rule is clearly established that appellate review of a court's award of punitive damages cannot be the basis for a further increment to the punitive damages award, plaintiffs point out that an application to vacate is the equivalent of appellate review, albeit via a trial court rather than an appellate level court.   They also challenge/question the propriety of inclusion of legal expenses incurred in certain procedural disputes that occurred before the trial court, notably including a challenge to the court's authority to address the merits of plaintiffs' motion to vacate, premised on the contention that it procedurally was improper to have filed that motion in SBD v. Jefferson, once that case effectively had concluded (gone to judgment) by virtue of the order directing the parties to arbitrate.

Discussion

Defendant contends that Harris requires only a minimal extension for it to be applicable to this case—the claim is that it stands for the proposition that a party is entitled to include in the attorneys fees component of punitive damages all legal costs incurred up to the point of the initial entry of judgment.   Again, Harris was a trial court decision and appellate review of other issues resulted in the entire case being reversed, thereby precluding any possible review of this issue.   The court recognizes that the analysis in Harris could be of assistance, to the extent that it represents an effort to grapple with issues related to those present here, but that leads to the obvious/threshold question:  are the issues in the two cases analogous, or are they too dissimilar for Harris to be of meaningful value here?

More narrowly, the question can be distilled to whether one views the Harris scenario as one focusing on the entry of judgment or as one focusing on the establishment of an actual amount to be awarded (what this court, during argument, loosely referred to as liquidation of the amount of fees to be awarded).

The court believes that the proper reference point is the determination of an amount to be awarded, and not the actual rendition of a judgment.

Superficially, use of entry of judgment as the proper benchmark does provide some level of clarity, particularly when compared to arbitration awards and other scenarios in which punitive damages might be established/awarded.   However, the court cannot help returning to the basic premise:  an award of punitive damages is not an award of attorneys fees, but rather an award that is measured (mostly) by attorneys fees.  Hylton v. Gunter, 142 Conn.App. 548 (2013);  cert. granted, 309 Conn. 908 (2013).   At some point, a factfinder is charged with the duty of measuring the award;  the factfinder utilizes the information available at that time (the legal costs incurred up to that point) and an award is made.   Under defendant's approach, subsequent developments in a variety of scenarios would result in that figure being revisited and recalculated.

If an attorney trial referee (see, Practice Book § 19–1 et seq.), in his/her report, recommends a specific amount of punitive damages, is a trial court allowed (if not required) to consider adding legal fees incurred with respect to the acceptance of the report by the court, as part of the process by which the court actually enters judgment?   In other words, would the trial court be allowed to, or even be expected to, increment the punitive damages recommended by the referee in order to reflect subsequent fees incurred?  (Note that there likely would be a factual finding as to the nontaxable costs incurred to that point;  see, Practice Book § 19–8(a);  any change ordered by the court would not be premised on the record before the referee.) ³  (Note that Plikus v. Plikus, 26 Conn.App. 174, 179–80 (1991) is a “near miss” on this hypothetical scenario—plaintiff had requested punitive damages but the referee had not determined that punitive damages were appropriate;  absent an award of punitive damages by the referee, the trial court, in entering judgment, could not award attorneys fees.)

If in a tort action where there is a claim of recklessness (or other aggravated misconduct) leading to an award of punitive damages by the jury, and attorneys fees were incurred on a contingency fee basis, must the court adjust the punitive damages downward to reflect a collateral source adjustment (or an applicable credit against the judgment arising from a prior settlement)?   While it is not uncommon in such situations to have the jury determine whether punitive damages are appropriate, with the court actually doing the calculation at a later time, a party has the right to have the jury itself make the determination of dollars to be awarded ⁴ —will the constitutional right to a jury determination give way, in essentially all cases having any such adjustment, to a virtually-mandatory determination that the jury award as to punitive damages is excessive (General Statutes § 52–216a)? ⁵  (The court recognizes that this could be perceived as a statutorily-mandated correction;  from that perspective, a modification might be justified/justifiable.)   If the situation involved an award of attorneys fees as such, the adjustment seemingly would be mandatory under General Statutes § 52–251c, but again, punitive damages are measured by attorneys fees, rather than actually being an award of attorneys fees.

Conversely, in a non-contingency fee situation, should (or must) the court adjust a determination of punitive damages upward to reflect the time incurred in addressing post-verdict motions such as a motion to set aside the verdict?

Indeed, in arbitration-confirmation situations, would there be an effectively-automatic right to additional attorneys fees whenever punitive damages are awarded, even absent a motion to vacate or modify, simply because the almost-ministerial act of obtaining judicial confirmation of an award necessarily will require some level of expenditure of time and/or money?

In O'Leary v. Industrial Park Corp., 211 Conn. 648 (1989), the Supreme Court rejected the claim that an award of punitive damages should be supplemented or updated based on post-judgment expenses, and in particular, attorneys fees incurred in connection with an appeal.   An examination of the actual details of the case indicate that the foregoing hypothetical scenarios can and do arise.   In O'Leary, the jury had made a determination of punitive damages as a part of its decision, and there were post-verdict motions including, perhaps ironically, a motion for attorneys fees (and interest) pursuant to the then-applicable offer of judgment procedure.   Presumably because the focus was on the broader and presumably far-more-substantial claim for appellate legal costs, little or no attention was paid to the costs associated with the post-verdict motions, but the case demonstrates that the hypothetical situations discussed above, can and do arise.

Despite defendant's arguments, the court believes that the best way to harmonize all of the competing interests and existing decisions (both appellate decisions and the Harris trial court decision) is to give a party seeking punitive damages the right to one determination by an appropriate factfinder, subject only to such corrections or adjustments as may be necessary to rectify errors in that process.  O'Leary is not determinative on this narrow issue, but at least suggests that once there is a determination of punitive damages, a separate authority for awarding any additional sum representing attorneys fees is required before there can be any supplemental award.

The specific facts of this case provide a number of examples of problems that would arise with the alternate approach proposed by defendant.   Those problems start with the very existence of an arbitration award—the parties had agreed to arbitration of their dispute and indeed, defendant compelled plaintiffs to proceed with arbitration rather than the litigation they had commenced.   In effect, defendant is now asking the court to supplement the award of the arbitrator.

That, in turn, raises an issue as to the nature of any award the court might issue.   Defendant has characterized what it is seeking as an award of attorneys fees:

SBD is entitled to the fees and costs incurred to confirm the award and defeat the application to vacate because it was awarded attorneys fees and costs by the Arbitrator (in the form of punitive damages) as a result of the Jeffersons' malicious conduct, and under Connecticut law, the Court is authorized to award the prevailing party the additional attorneys fees and costs incurred to confirm the award and obtain judgment in such situations.

There is no contractual or statutory right to attorneys fees in this case.   It may seem semantic if not pedantic, but the court does not agree that defendant “was awarded attorneys fees and costs by the Arbitrator (in the form of punitive damages)”—rather, defendant was awarded punitive damages that were measured in large part, by attorneys fees, Hylton, supra.

Therefore, notwithstanding defendant's nomenclature, defendant is asking the court to award additional punitive damages.   Plaintiffs have argued, not surprisingly, that in the circumstances of this case, an award of punitive damages can only come from the arbitrator.

Somewhat related is the legal “pigeonhole” into which any such award would be placed.   The arbitrator awarded punitive damages—whether the award being sought is characterized as a supplement to the punitive damages award or as true attorneys fees, what is the court's authority to do so?   This is not a situation where a statute or contract provides an independent (and continuing ) source of authority for attorneys fees, such that supplementation at later stages is a natural consequence, if not provided otherwise in the agreement between the parties (Total Recycling Services of Connecticut, Inc. et al. v. Connecticut Oil Recycling Services, LLC, 308 Conn. 312, 335–37 (2013)).   To the contrary, to the extent that O'Leary provides guidance, the decision indicates a need to point to specific authority for any supplementation of an attorneys fee component of punitive damages, 211 Conn. 651–52.

On a narrower level, the arbitrator awarded a fraction of the legal costs incurred by defendant as punitive damages (70%)—in turn, a lower percentage than had been requested (defendant had requested 80%).   Should (must?) the court, if it were to award supplemental legal costs as part of the punitive damages award, make a similar adjustment?   Should (or can) the court make a further adjustment to reflect the fact that a substantial portion of the dispute before the court related to the propriety of injunctive relief (raising, in turn, significant free-speech issues concerning restrictions on what plaintiffs could “publish” on a website) rather than the award of punitive damages?

This, in turn, leads to a different perspective, identified above:  the authority of the court.   In the context of arbitration, Chapter 909 of the General Statutes sets forth the limited role to be played by the court.   Sections 52–418 and 52–419 enumerate the circumstances in which the court can correct, modify, or vacate an arbitration award.   Nowhere in those statutes, and nowhere else in Chapter 909, is there authority for the court to change, supplement or augment an award otherwise than in compliance with §§ 52–418 and 52–419.   Defendant's motion does not come within the ambit of either statute, and in any event, the 30–day period for filing a motion under either statute has long since expired.   The court is being asked to modify the award, outside the time limits and terms ⁶ of General Statutes § 52–419.

Again, from the general perspective of authority to act at all, what would the basis for the claimed authority for the court to decide whether to allow 70%, or 100%, or some other equitably-determined percentage of the claimed attorneys fees, to be awarded?   Would the court be obligated to adhere, essentially in a ministerial sense, to the 70% determination of the arbitrator, based solely on the fact that the parties had agreed to arbitrate their dispute?   Would the court be authorized to exercise its own discretion, notwithstanding the existence of the agreement to arbitrate all disputes arising from the contract, substituting the court's discretion for that of an arbitrator?

In sum, then, the court believes that both the limited authority of the court with respect to arbitration, plus the reluctance of our Supreme Court to extend the right to punitive damages beyond the initial award (absent contractual or statutory authority to do so), preclude granting defendant's motion.

Conclusion

The court appreciates that the concept of common-law punitive damages is motivated, in large part, by compensation of a party for the litigation costs incurred in certain egregious circumstances ⁷ —various types of aggravated misconduct.   In essence, defendant's argument is that without a supplemental award, defendant is not being fully compensated for those litigation costs.   The reality is that the system inherently is imperfect in that regard.   O'Leary precludes recovery of appellate costs, even though appellate costs are just as much of an expense to a wronged person as are the original trial costs.  (As plaintiffs have observed, a motion to vacate is effectively a limited appellate review of arbitration proceedings.)   Even the costs awarded at the trial level may not fully compensate a party—because the award nominally is punitive damages rather than a reimbursement of attorneys fees per se, Hylton, supra, a prevailing party may have to pay a percentage of the punitive damages (in a contingency fee case) to his/her attorney, such that without an iterative process or properly-adjusted calculation, only a fraction of the litigation expenses actually are returned to the prevailing party for his/her own use.⁸

Although our Supreme Court has not addressed the issue directly, this court reads O'Leary as standing for the proposition that a party is entitled to one determination of punitive damages, without further iteration or supplementation—in the absence of a statutory or contractual right to attorneys fees.   Here, there is no such right to consideration of additional attorneys fees incurred after the initial determination of punitive damages.

For all these reasons, then, defendant's motion is denied.

POVODATOR, J.

FOOTNOTES

FN1. There is a related matter, SBD Kitchens, LLC v. Jefferson, FSTCV126014447S, and one decision was filed in each case.   The motion to confirm was filed by SBD Kitchens in the case in which it was the defendant (CV116011187).  Fortuitously if not ironically, the Jeffersons filed their motion to vacate in the matter in which they were the defendants (CV126014447).  In keeping with the nomenclature established in the earlier decisions, based in turn on the earlier-filed matter, SBD Kitchens will be referred to as the defendant and the Jeffersons will be referred to as the plaintiffs.Defendant has filed a similar motion for attorneys fees in each case, and substantially identical memoranda of decision will be filed in each matter.The modifier “generally” is used because the arbitrator rejected a breach-of-contract claim that had been asserted by defendant, but awarded damages and injunctive relief on other claims asserted by defendant..  FN1. There is a related matter, SBD Kitchens, LLC v. Jefferson, FSTCV126014447S, and one decision was filed in each case.   The motion to confirm was filed by SBD Kitchens in the case in which it was the defendant (CV116011187).  Fortuitously if not ironically, the Jeffersons filed their motion to vacate in the matter in which they were the defendants (CV126014447).  In keeping with the nomenclature established in the earlier decisions, based in turn on the earlier-filed matter, SBD Kitchens will be referred to as the defendant and the Jeffersons will be referred to as the plaintiffs.Defendant has filed a similar motion for attorneys fees in each case, and substantially identical memoranda of decision will be filed in each matter.The modifier “generally” is used because the arbitrator rejected a breach-of-contract claim that had been asserted by defendant, but awarded damages and injunctive relief on other claims asserted by defendant.

FN2. The case had been remanded to the trial court, 296 Conn. 315, 345–48 (2010), because, inter alia, the trial court initially had refused to award punitive damages..  FN2. The case had been remanded to the trial court, 296 Conn. 315, 345–48 (2010), because, inter alia, the trial court initially had refused to award punitive damages.

FN3. The court recognizes that the real-world impact could be minimized if the parties defer actual determination of the attorneys fee component of punitive damages until after acceptance of the report, as often is done in connection with statutory or contractual claims for attorneys fees in cases tried before an attorney trial referee..  FN3. The court recognizes that the real-world impact could be minimized if the parties defer actual determination of the attorneys fee component of punitive damages until after acceptance of the report, as often is done in connection with statutory or contractual claims for attorneys fees in cases tried before an attorney trial referee.

FN4. For example, in O'Leary v. Industrial Park Corp., 211 Conn. 648, 649 (1989), discussed below, the court's recitation of facts indicates that the jury was instructed that, in connection with the claim of fraud, it could include “an additional sum as exemplary damages.   The measure of these damages is a reasonable expense which the plaintiffs have incurred, including counsel fees in prosecuting this action ․” Later on the page (in the same paragraph), there is a recitation that “[t]he parties agree that as part of the damages awarded, the jury included attorneys fees to date.”.  FN4. For example, in O'Leary v. Industrial Park Corp., 211 Conn. 648, 649 (1989), discussed below, the court's recitation of facts indicates that the jury was instructed that, in connection with the claim of fraud, it could include “an additional sum as exemplary damages.   The measure of these damages is a reasonable expense which the plaintiffs have incurred, including counsel fees in prosecuting this action ․” Later on the page (in the same paragraph), there is a recitation that “[t]he parties agree that as part of the damages awarded, the jury included attorneys fees to date.”

FN5. “If the court at the conclusion of the trial concludes that the verdict is excessive as a matter of law, it shall order a remittitur and, upon failure of the party so ordered to remit the amount ordered by the court, it shall set aside the verdict and order a new trial.”.  FN5. “If the court at the conclusion of the trial concludes that the verdict is excessive as a matter of law, it shall order a remittitur and, upon failure of the party so ordered to remit the amount ordered by the court, it shall set aside the verdict and order a new trial.”

FN6. The court's authority under the statute is limited to addressing “any of the following defects:  (1) If there has been an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award;  (2) if the arbitrators have awarded upon a matter not submitted to them unless it is a matter not affecting the merits of the decision upon the matters submitted;  or (3) if the award is imperfect in matter of form not affecting the merits of the controversy.”   A supplemental award does not seem to fit into any of these categories..  FN6. The court's authority under the statute is limited to addressing “any of the following defects:  (1) If there has been an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award;  (2) if the arbitrators have awarded upon a matter not submitted to them unless it is a matter not affecting the merits of the decision upon the matters submitted;  or (3) if the award is imperfect in matter of form not affecting the merits of the controversy.”   A supplemental award does not seem to fit into any of these categories.

FN7. “In Waterbury Petroleum Products, Inc. v. Canaan Oil & Fuel Co., supra, we declined a similar invitation to stray from our well settled rule regarding the measurement of punitive damages.   We affirmed the continuing viability of a long line of cases holding that common law punitive damages serve primarily to compensate the plaintiff for his injuries and, thus, are properly limited to the plaintiff's litigation expenses less taxable costs.   We recognized, moreover, that our rule, when viewed in the light of the increasing costs of litigation, also serves to punish and deter wrongful conduct ․ We remain convinced that a rule limiting punitive damages awards to the expense of litigation less taxable costs ‘fulfills the salutary purpose of fully compensating a victim for the harm inflicted on him while avoiding the potential for injustice which may result from the exercise of unfettered discretion by a jury.’  “ Berry v. Loiseau, 223 Conn. 786, 827 (1992) (internal citations, omitted).   See, also, Ulbrich v. Groth, 310 Conn. 447–48.   But see, Bodner v. United Services Automobile Ass'n, 222 Conn. 480, 499–500 (1992).  “As USAA and the amicus curiae point out, the compensatory nature of common law punitive damages cannot overshadow the underlying fact that such attorneys fees are awarded only when punishment of the tortfeasor is warranted.   They remind us that, if compensation were the purpose, rather than the measure, of damages, attorneys fees would be awarded in all cases and not only in those involving wilful or reckless misconduct.”.  FN7. “In Waterbury Petroleum Products, Inc. v. Canaan Oil & Fuel Co., supra, we declined a similar invitation to stray from our well settled rule regarding the measurement of punitive damages.   We affirmed the continuing viability of a long line of cases holding that common law punitive damages serve primarily to compensate the plaintiff for his injuries and, thus, are properly limited to the plaintiff's litigation expenses less taxable costs.   We recognized, moreover, that our rule, when viewed in the light of the increasing costs of litigation, also serves to punish and deter wrongful conduct ․ We remain convinced that a rule limiting punitive damages awards to the expense of litigation less taxable costs ‘fulfills the salutary purpose of fully compensating a victim for the harm inflicted on him while avoiding the potential for injustice which may result from the exercise of unfettered discretion by a jury.’  “ Berry v. Loiseau, 223 Conn. 786, 827 (1992) (internal citations, omitted).   See, also, Ulbrich v. Groth, 310 Conn. 447–48.   But see, Bodner v. United Services Automobile Ass'n, 222 Conn. 480, 499–500 (1992).  “As USAA and the amicus curiae point out, the compensatory nature of common law punitive damages cannot overshadow the underlying fact that such attorneys fees are awarded only when punishment of the tortfeasor is warranted.   They remind us that, if compensation were the purpose, rather than the measure, of damages, attorneys fees would be awarded in all cases and not only in those involving wilful or reckless misconduct.”

FN8. Assume a $300 award in a case in which the plaintiff is awarded punitive damages, with a fee agreement entitling the attorney to one-third of plaintiff's gross recovery.   Initially, the attorney would be entitled to $100 which, ignoring other nontaxable costs, would be the amount of the award of punitive damages.   However, if the attorney were entitled to receive one-third of the gross recovery, he/she might be entitled to one-third of the punitive damages award, meaning that with respect to litigation costs, the client would only receive $67, net, against an actual fee expenditure of $100.   The plaintiff would need an additional $33 award of legal fees, in order to be made whole, except that again, one-third of that amount would go to the attorney.   Ultimately, in this scenario, in order for the plaintiff truly to be made whole with respect to attorneys fees, he/she would have to have punitive damages awarded in the amount of $150—which is 150% of the initially-determined non-taxable costs (alternatively, equal to 50% of the compensatory award).   In other words, full compensation would require an award of one-half of the compensatory damages, rather than the contractually-designated one-third.Indeed, in Gionfriddo v. Avis Rent A Car System, Inc., 192 Conn. 280 (1984), the Supreme Court ruled that, under the circumstances of that case, it had not been improper for the court to have allowed the jury to decide whether the attorneys fee component of common-law punitive damages should be measured by 1/3 or 1/2 of the compensatory damages award, 192 Conn. 294–96;  the jury decided to use 1/3.   Again, note that in the hypothetical immediately above, $100 represents 1/3 of the compensatory award and $150 represents 1/2 of the compensatory award..  FN8. Assume a $300 award in a case in which the plaintiff is awarded punitive damages, with a fee agreement entitling the attorney to one-third of plaintiff's gross recovery.   Initially, the attorney would be entitled to $100 which, ignoring other nontaxable costs, would be the amount of the award of punitive damages.   However, if the attorney were entitled to receive one-third of the gross recovery, he/she might be entitled to one-third of the punitive damages award, meaning that with respect to litigation costs, the client would only receive $67, net, against an actual fee expenditure of $100.   The plaintiff would need an additional $33 award of legal fees, in order to be made whole, except that again, one-third of that amount would go to the attorney.   Ultimately, in this scenario, in order for the plaintiff truly to be made whole with respect to attorneys fees, he/she would have to have punitive damages awarded in the amount of $150—which is 150% of the initially-determined non-taxable costs (alternatively, equal to 50% of the compensatory award).   In other words, full compensation would require an award of one-half of the compensatory damages, rather than the contractually-designated one-third.Indeed, in Gionfriddo v. Avis Rent A Car System, Inc., 192 Conn. 280 (1984), the Supreme Court ruled that, under the circumstances of that case, it had not been improper for the court to have allowed the jury to decide whether the attorneys fee component of common-law punitive damages should be measured by 1/3 or 1/2 of the compensatory damages award, 192 Conn. 294–96;  the jury decided to use 1/3.   Again, note that in the hypothetical immediately above, $100 represents 1/3 of the compensatory award and $150 represents 1/2 of the compensatory award.

Povodator, Kenneth B., J.