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Ozbakir v. Scotti

United States District Court, W.D. New York

November 28, 2012

Rosemarie OZBAKIR, et al., Plaintiffs,
v.
Daniel J. SCOTTI, Jr., et al., Defendants.

Page 189

Kimberly A. Steele, Oswego, NY, for Plaintiffs.

Jessica M. Baker, Hiscock & Barclay LLP, James E. Eagan, Christopher E. Wilkins, Feldman Kieffer, LLP, Brendan H. Little, Dennis C. Vacco,

Page 190

Kevin James Cross, Lippes Mathias Wexler Friedman LLP, Buffalo, NY, Paul L. Leclair, Leclair Korona Giordano Cole LLP, Alan J. Knauf, Amy L. Reichhart, Knauf Shaw LLP, Carolyn G. Nussbaum, Nixon Peabody LLP, Rochester, NY, David C. Scheper, Diann H. Kim, Katherine Farkas, Scheper Kim & Harris LLP, Los Angeles, CA, Jonathan D. Cogan, Michael Joseph Garofola, Kobre & Kim LLP, New York, NY, Daniel E. Jackson, Daniel Purcell, Keker & Van Nest, LLP, San Francisco, CA, for Defendants.

DECISION AND ORDER

DAVID G. LARIMER, District Judge.

This action was commenced in New York Supreme Court, Monroe County, by plaintiffs Rosemarie Ozbakir and Ali Demir, against sixteen defendants, alleging various claims arising out of the sale of certain commercial real property (" premises" or " property" ) in East Rochester, New York. The action was removed to this Court by one of the defendants, Sovereign JF, SPE Manager, Inc., on the basis of federal question jurisdiction under 28 U.S.C. § 1331, because plaintiffs had asserted a claim under the federal Racketeer Influenced and Corrupt Organizations Act (" RICO" ), 18 U.S.C. § 1961 et seq. The RICO claims, and the other state law claims, were generally based on plaintiffs' allegations that defendants engaged in a scheme to defraud plaintiffs in connection with the sale of the property to them.

On February 10, 2011, the Court issued a Decision and Order, familiarity with which is assumed, granting motions to dismiss by the defendants, and granting plaintiffs leave to file an amended complaint within thirty days. 764 F.Supp.2d 556. On March 9, 2011, however, plaintiffs' counsel informed the Court by letter that plaintiffs had elected not to file an amended complaint. Dkt. # 130. The Court therefore entered judgment in favor of defendants, and closed the case. Dkt. # 131.

Six of the defendants— Marcus & Millichap Real Estate Investment Brokerage Company (" M & M" ), Daniel J. Scotti, Jr., Glen Kunofsky, Andrew R. Dorf, Scott Dragos, and Chris Zorbas (" moving defendants" )— now move for an order awarding them attorney's fees, based on a fee-shifting provision in the purchase agreement for the property (" Purchase Agreement" ). That agreement provided, in part, that

[i]n any litigation, arbitration or other legal proceeding which may arise between any of the parties hereto, including Agent, the prevailing party shall be entitled to recover its costs, including costs of arbitration, and reasonable attorney's fees in addition to any other relief to which such party may be entitled.

Complaint ¶ 99 and Ex. Q ¶ 27.

While that provision might seem obviously to provide for an award of attorney's fees in this case, plaintiffs contend that things are not quite so simple. First, plaintiffs contend that the fee-shifting provision in the Purchase Agreement should not be read to provide for fees in a suit like this one, asserting claims for RICO violations, negligent misrepresentation, fraud, unjust enrichment, and other torts; rather, according to plaintiffs, the provision should be interpreted as limiting the availability of fees to actions based upon an alleged breach of the Purchase Agreement itself.[1]

Page 191

Plaintiffs argue that at the very least, the Court cannot find an " unmistakably clear" intention on the part of the parties that fees should be awarded in this action, and that therefore defendants' motion should be denied. See Hooper Assoc. v. AGS Computers, 74 N.Y.2d 487, 492, 549 N.Y.S.2d 365, 548 N.E.2d 903 (1989) (" Inasmuch as a promise by one party to a contract to indemnify the other for attorney's fees incurred in litigation between them is contrary to the well-understood rule that parties are responsible for their own attorney's fees, the court should not infer a party's intention to waive the benefit of the rule unless the intention to do so is unmistakably clear from the language of the promise" ); accord Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 177 (2d Cir.2005) (citing Hooper ).

Second, plaintiffs argue that even if the Court were to give effect to the fee-shifting provision, the Court should find that only defendant Scotti is entitled to its benefits. Plaintiffs note that the only parties to the Purchase Agreement were themselves and defendant Scotti; none of the other defendants are signatories to the agreement.

Finally, plaintiffs assert that fees should not be awarded here because in general, different standards apply to cases involving prevailing defendants than to those involving prevailing plaintiffs. Plaintiffs maintain that attorney's fees should generally not be awarded against losing plaintiffs unless the plaintiffs' claims were frivolous or groundless, or the plaintiffs continued to litigate their claims after it became clear that their claims were meritless.

DISCUSSION

I. Defendants' Entitlement to Fees

As explained by the Court of Appeals for the Second Circuit, in an action arising under state law, a federal court applies the law of the relevant state in determining whether to award attorney's fees. Mid-Hudson, 418 F.3d at 177. In the case at bar, jurisdiction was premised on the existence of a federal question, due to plaintiffs' assertion of a RICO claim, but plaintiffs' other claims were brought under New York law, and the Purchase Agreement was expressly governed by New York law. See Purchase Agreement ¶ 33.

In my prior decision, I found it unnecessary to address defendants' arguments concerning the merits of plaintiff's claims under state law. The Court stated that although defendants' various arguments as to why those claims should be dismissed " appear[ed] to have some merit, ... [a]ll the state law claims ultimately suffer[ed] from the same basic defect as the RICO claims, which [wa]s that the underlying factual allegations [we]re insufficient under federal pleading standards," specifically Rule 9(b). 764 F.Supp.2d at 575. Having dismissed plaintiffs' RICO claims without prejudice, the Court stated that " [p]laintiffs' claims under state law are therefore dismissed as well, again without prejudice to plaintiffs' filing of an amended complaint setting forth those claims in a manner that complies with the pleading requirements of the Federal Rules of Civil Procedure." Id. at 575-76. As stated, plaintiffs declined to do so.

As a threshold question, then, the Court must determine whether state or federal law controls the issue of defendants'

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entitlement to attorney's fees. The Second Circuit has stated that in a diversity action, " [s]tate law creates the substantive right to attorney's fees." Mid-Hudson, 418 F.3d at 177. While jurisdiction in this action was premised on the existence of a federal question rather than diversity of citizenship, see Notice of Removal (Dkt. # 1) ¶ 1, the same principle applies. See Equals Int'l., Ltd. v. Scenic Airlines, 35 Fed.Appx. 532, 534 (9th Cir.2002) (stating that " [f]ederal courts are required to apply state law in diversity actions with regard to the allowance or disallowance of attorney fees," and that " [a]lthough Equals originally brought this case as a federal question copyright case, not as a diversity action, the same Erie doctrine principles apply" ). In addition, " [a]lthough the RICO statute only permits prevailing plaintiffs to recover attorney's fees, prevailing defendants may also recover attorney's fees when specified in an agreement of the parties." Bonner v. Redwood Mortgage Corp., No. C 10-00479, 2010 WL 2528962, at *4 (N.D.Cal. June 18, 2010) (holding that since attorney's fee provisions of parties' contract were broad enough to cover actions under RICO, defendants, as prevailing parties, were entitled to attorney's fees on plaintiffs' civil RICO claim).

" [I]t is well settled in New York law that, ‘ [i]nasmuch as a promise by one party to a contract to indemnify the other for [attorney's] fees incurred in litigation between them is contrary to the well-understood rule that parties are responsible for their own [attorney's] fees, the court should not infer a party's intention to waive the benefit of the [American Rule] unless the intention to do so is unmistakably clear from the language of the promise.’ " U.S. Fidelity and Guar. Co. v. Braspetro Oil Services Co., 369 F.3d 34, 75 (2d Cir.2004) (quoting Hooper, 74 N.Y.2d at 492, 549 N.Y.S.2d 365, 548 N.E.2d 903). See also NetJets Aviation, Inc. v. LHC Communications, LLC, 537 F.3d 168, 175 (2d Cir.2008) (" Under New York law, a contract that provides for an award of reasonable attorneys' fees to the prevailing party in an action to enforce the contract is enforceable if the contractual language is sufficiently clear" ); Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 199 (2d Cir.2003) (" while parties may agree that attorneys' fees should be included as another form of damages, such contracts must be strictly construed to avoid inferring duties that the parties did not intend to create" ).

While fee-shifting agreements should not be lightly inferred, then, they will be enforced, as long as it was clearly the parties' intent to provide for fee awards under particular circumstances. Indeed, the Second Circuit has stated that " where a contract authorizes an award of attorneys' fees, such an award becomes the rule rather than the exception." McGuire v. Russell Miller, Inc., 1 F.3d 1306, 1313 (2d Cir.1993). See, e.g., Mid-Hudson, 418 F.3d at 179 (affirming district court's decision to award fees pursuant to parties' contract); Diamond D Enterprises USA, Inc. v. Steinsvaag, 979 F.2d 14, 18 (2d Cir.1992) (same).

In my view, the fee-shifting provision here plainly encompasses plaintiffs' claims in this case. Plaintiffs' assertion that the fee provision only applies to claims for breach of the Purchase Agreement lacks any support in the record. On its face, the provision is in no way limited to breach of contract claims; in fact, it is difficult to imagine how could have been any more broadly worded, inasmuch as it applies to " any litigation, arbitration or other legal proceeding which may arise

Page 193

between any of the parties hereto ...." [2] Clearly that language cannot reasonably be interpreted as limited to purely contractual claims. Had such been the parties' intent, it would have been a simple matter to include language to that effect in the agreement. They did not do so, and this provision must therefore be read as covering all claims arising out of the Purchase Agreement, regardless of whether the claims sound in contract or tort. See Diamond D, 979 F.2d at 18-19 (provision in franchise agreement providing for award of attorney's fees expended " to enforce any obligation" under the contract permitted award for fees incurred defending against counterclaims for fraudulent inducement and misrepresentation, since counterclaims, if successful, would have vitiated the contract); cf. Gallagher's NYC Steakhouse Franchising, Inc. v. N.Y. Steakhouse of Tampa, Inc., No. 11 Civ. 1456, 2011 WL 6935295, at *4 (S.D.N.Y. Dec. 29, 2011) (plain language of attorney's fee provision indicated that plaintiff was only entitled to fees ...


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