Americom also argues that certain words in the guaranty establish a basis for holding Nafinsa liable for the attorneys' fees and expenses incurred by both Americom and PacifiCorp. The guaranty provides that it "shall inure to the benefit of and be enforceable by Lessor and its assigns, including any assignee of Lessor's rights to any Rent." (Ault Aff. Ex. 5.) Because the obligations guaranteed are those created by the lease, the guaranty cannot expand the lessee's obligations, but rather must be interpreted by reference to the lease.
Americom further argues that it is entitled to reimbursement for attorneys' fees and expenses under the guaranty because in the guaranty Nafinsa waived the right to maintain any defenses. (Def's Reply Mem. at 9.) The guaranty provides that it "will apply immediately in case of non-payment on the due date by Lessee of whatever sum is then due and payable by it, . . . without the benefit of any defenses which Guarantor hereby renounces." Under the terms of the guaranty, Nafinsa is liable only for the rent which the lessee is obligated to pay under the lease. Therefore, Americom is entitled to reimbursement from Nafinsa only if it was entitled to receive rent under the lease during the period in which the fees and expenses were incurred. This provision does not relieve Americom of the burden of proving its entitlement to Supplemental Rent during the assignment period.
Finally, the conduct of the parties subsequent to assignment of the lease supports the conclusion that Nafinsa is not liable for the attorneys' fees incurred by both Americom and PacifiCorp. Unlike Supplemental Rent, which was incurred but not paid during the term of the assignment, Basic Rent was both incurred and paid only to PacifiCorp during this period. PacifiCorp was the sole, and, as both parties agree, the only proper recipient of these rent payments. Americom offers no logical basis for concluding that in spite of the nearly identical language used in the Supplemental and Basic Rent provisions, Americom and PacifiCorp were both entitled to receive Supplemental Rent, but only PacifiCorp was entitled to receive Basic Rent during the period in which the lease was assigned to PacifiCorp.
Because the lease does not entitle Americom to reimbursement of its attorneys' fees and expenses incurred during the lease assignment period, it is unnecessary to address Nafinsa's contention that in a stipulation submitted to the Mexican Bankruptcy Court, Americom relinquished whatever right it had to attorneys' fees and expenses under the lease.
2. Attorneys' Fees Incurred by PacifiCorp
I turn then to Americom's claim for reimbursement of its payments of PacifiCorp's fees and expenses incurred during the term of the assignment. PacifiCorp is not a party to this action. Both sides concede that under the terms of the lease PacifiCorp was entitled to attorneys' fees and expenses. But Nafinsa contends that Americom is not entitled to recover its payment of PacifiCorp's attorneys' fees and expenses. First, Nafinsa argues that Americom has failed to show a basis in law for asserting PacifiCorp's contractual rights. Secondly, Nafinsa argues that PacifiCorp waived its contractual right to reimbursement.
Americom contends that it is entitled to assert the contractual rights of PacifiCorp because under California law, a surety who satisfies the obligation of a principal is entitled to reimbursement from the principal. Cal. Civ. Code §§ 2847, 2848. Nafinsa responds that the California statutes do not support Americom's argument because Americom is not a surety. Even if Americom is not a surety, however, the equitable doctrine of subrogation provides a basis for Americom to assert PacifiCorp's contractual right to reimbursement for the attorneys' fees and expenses incurred by PacifiCorp and paid by Americom. The right of subrogation may arise "where property of one person is used in discharging an obligation owed by another . . . under such circumstances that the other would be unjustly enriched by the retention of the benefit thus conferred . . ." Restatement of Restitution § 162 (1937), accord 4 Pomeroy's Equity Jurisprudence § 1419 (5th ed 1941). California courts have stated that the doctrine of subrogation is available where a party who is not a volunteer pays a debt which in equity and good conscience should have been paid by another. Mid-States Insurance Co. v. American Fidelity & Casualty Co., 234 F.2d 721, 730 (9th Cir. 1956); Stein v. Simpson, 37 Cal. 2d 79, 230 P.2d 816 (1951). The person who actually paid the debt, the subrogee, steps into the shoes of the person paid and acquires his rights against the person whose debt was discharged. Salzman v. Holiday Inns, Inc. 48 A.D.2d 258, 369 N.Y.S.2d 238, 243 (4th Dep't 1975), modified on other grounds, 40 N.Y.2d 919, 389 N.Y.S.2d 576, 358 N.E.2d 268 (1976). While subrogation is not a matter of strict right, it is a highly favored remedy which is broadly applied. In re Leonhauser's Will, 183 Misc. 863, 51 N.Y.S.2d 335 (1944). And subrogation is not confined to cases of suretyship, but is applied when it will achieve equitable results. In re Lawyers Title & Guaranty Co, 183 Misc. 294, 50 N.Y.S.2d 257 (1944), aff'd 268 A.D. 975, 52 N.Y.S.2d 573 (1944), aff'd 294 N.Y. 718, 61 N.E.2d 453 (1945). Nafinsa concedes that PacifiCorp has a contractual right to reimbursement for attorneys' fees and expenses incurred. Americom, as subrogee, may collect from Nafinsa the attorneys' fees and expenses owed PacifiCorp.
Finally, Nafinsa argues that Americom cannot recover its payment of PacifiCorp's attorneys' fees and expenses because PacifiCorp released its claims for attorneys' fees and expenses in both the "Stipulation of Withdrawal in the Mexican Separation Proceedings" ("Stipulation") and in a letter in which PacifiCorp agreed to withdraw all pending litigation in the United States Bankruptcy Court ("Release Letter").
In the Stipulation, both Americom and PacifiCorp agreed that:
each of the parties shall pay the disbursements and legal expenses that may have been caused by the Action to Terminate the Agreement and the Separation of Goods which was filed by [Americom and PacifiCorp], and that said legal entities, each one, shall bear the damages and consequential damages that said action may have caused.
(Ault Aff. Ex. 16 p. 2.)
The Release Letter provides that:
PacifiCorp further agrees that upon the transfer of title to the Equipment and receipt of the Mortgagee Payment as such terms are defined in the Agreement, PacifiCorp shall withdraw all pending litigation in the U.S. Bankruptcy Court with prejudice and with each party bearing its own costs in connection therewith.
(Ault Aff. Ex. 15 Ex. C-2.)
The applicable law for the interpretation of both documents is that of Mexico. The Stipulation was submitted to the Mexican Bankruptcy Court on March 16, 1989 to discontinue the Mexican proceeding previously commenced by Americom. Americom was required to deliver the Release Letter to Banobras pursuant to the Settlement Agreement. The Settlement Agreement contains an explicit choice-of-law clause specifying that "this Agreement shall be governed by, and construed in accordance with, the substantive and procedural laws of Mexico, excluding its choice of law principles." ( Ault Aff. Ex. 15 P 17.2.) New York courts enforce contractual choice of law provisions provided the law chosen bears a reasonable relationship to the agreement. Fleischmann Distilling Corp. v. Distillers Co., 395 F. Supp. 221, 229 (S.D.N.Y. 1975) (citations omitted). Contract negotiations took place in Mexico, and the agreement had to be approved by the Mexican Bankruptcy Court. Thus, the reasonable relationship requirement is met.
Americom has submitted the opinion of its former Mexican counsel that the Stipulation relates only to the Mexican proceeding. This opinion is supported by the clear language of the agreement. PacifiCorp's commitment to pay its own disbursements and legal expenses refers exclusively to that proceeding. Nafinsa offers no basis for interpreting consequential damages arising from the Mexican proceeding to encompass the attorneys' fees and expenses incurred in an entirely separate proceeding in the United States. Thus, in the Stipulation, PacifiCorp waived only those attorneys' fees and expenses incurred in connection with the Mexican proceeding.
In contrast to the waiver contained in the Stipulation, PacifiCorp's Release Letter specifically refers to "costs" incurred in connection with the United States bankruptcy proceeding. Neither Americom nor Nafinsa has provided any authority for interpreting "costs" under Mexican law. In such a situation, the Restatement (Second) of Conflict of Laws calls for the application of the law of the forum: "Where either no information, or else insufficient information, has been obtained about the foreign law, the forum will usually decide the case in accordance with its own local law except when to do so would not meet the needs of the case or would not be in the interest of justice." Restatement (Second) of Conflicts of Laws § 136 cmt h at 378-79 (1971), cited with approval in Scientific Holding Co. v. Plessey Inc., 510 F.2d 15, 23 n. 5 (2d Cir. 1974). Accordingly, "costs" will be interpreted under New York law.
Under New York law, the term "costs" does not include attorneys' fees. Royal Discount Corp. v. Luxor Motor Sales Corp., 9 Misc. 2d 307, 308, 170 N.Y.S.2d 382, 383 (1957) ("The terms 'costs' and 'expenses' as employed in the assignment agreement do not include attorney's fees, and attorney's fees are not recoverable in the absence of express language in the contract or statute"); Atlas Realty, Inc. v. Ostrofsky, 56 Misc. 2d 787, 788, 289 N.Y.S.2d 784, 786 (1967) (citations omitted) (Contract providing for the return of the down payment and "the net costs of examining the title" does not provide for the recovery of attorneys' fees when the seller is unable to convey title). Under federal law as well, the term "costs" does not include attorneys' fees. 28 U.S.C. § 1920 (1991); Lichtenstein v. Lichtenstein, 481 F.2d 682, 684 (3d Cir. 1973) (citations omitted), cert denied, 414 U.S. 1144, 94 S. Ct. 895, 39 L. Ed. 2d 98 (1974) ("Attorney's fees are not ordinarily taxable as costs and are awarded only in extraordinary cases."). Since the term "costs" does not include attorneys' fees, PacifiCorp did not waive its right to reimbursement for attorneys' fees and expenses by agreeing to bear its own "costs" in connection with the United States bankruptcy proceeding.
For the foregoing reasons, Americom's motion for summary judgment is granted with respect to the attorneys' fees and expenses of PacifiCorp in the United States bankruptcy proceeding which were paid by Americom, and is denied with respect to Americom's own attorneys' fees and expenses incurred during the lease assignment period. Nafinsa's cross-motion is granted to the extent that Nafinsa is declared not liable for attorneys' fees and expenses incurred by Americom during the lease assignment period, and is denied with respect to PacifiCorp's attorneys' fees and expenses in the United States bankruptcy proceeding.
Settle order on two-days' notice.
Dated: New York, New York
October 14, 1992
MIRIAM GOLDMAN CEDARBAUM
United States District Judge
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