When Reasonable Attorneys' Fees Are an Element of Damages, Defendant Has a Seventh Amendment Right to a Jury Trial to Quantify Them, Unless Summary Judgment Is Appropriate
From J.R. Simplot Co. v. Chevron Pipeline Co., 2009 U.S. App. LEXIS 8398 (10th Cir. April 23, 2009):
J.R. Simplot Company… sued Chevron Pipeline Company… for failure to defend and indemnify Simplot pursuant to two sales agreements. Chevron denied its liability and asserted counterclaims. The district court granted summary judgment in favor of Simplot, determining Chevron breached its duty to defend. As damages, the court awarded Simplot the attorneys' fees and costs it had incurred in defending the underlying litigation. ***
The third issue before us, one of first impression in this circuit, is whether Chevron has a Seventh Amendment right to a jury trial to determine the amount of costs and attorneys' fees Simplot incurred in defending itself in the Ashley Creek litigation, as damages for Chevron's breach of contract. The district court held that the amount of attorneys' fee is an issue for the court rather than for a jury. This is a question of law we review de novo. Mile High Indus. v. Cohen, 222 F.3d 845, 855 (10th Cir. 2000). Federal law determines the right to a jury trial in federal court, even in cases in which jurisdiction rests upon diversity of citizenship. Simler v. Conner, 372 U.S. 221, 222 (1963) (per curiam).
The right to a jury trial as declared by the Seventh Amendment is preserved inviolate. See Fed. R. Civ. P. 38(a). The Seventh Amendment protects this right "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars." U.S. CONST. amend. XII. The Supreme Court has held that "the phrase 'Suits at common law' refers to 'suits in which legal rights [are] to be ascertained and determined, in contradistinction to those where equitable rights alone [are] recognized, and equitable remedies [are] administered.'" Teamsters, Local No. 391 v. Terry, 494 U.S. 558, 564 (1990) (emphasis and alterations in original). The nature of the issues presented and the remedies sought determines whether an action qualifies as "legal." Id. at 565. The general rule is that monetary relief is legal. City of Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687, 710 (1999). An ordinary breach of contract claim is no different. [Citations omitted.][Footnote 10] As later intimated by the Court, Simler stands for the principle that "[t]he Seventh Amendment question depends on the nature of the issue to be tried rather than the character of the overall action." Ross, 396 U.S. at 538 (citing Simler). The actual language in Simler supports this interpretation. Simler concluded, "The fact that the action is in form a declaratory judgment case should not obscure the essentially legal nature of the action. The questions involved [i.e., contractual enforceability] are traditional common-law issues which can be and should have been submitted to a jury . . . ." 372 U.S. at 223.
The Supreme Court has not specifically addressed a case where previously incurred attorneys' fees are sought as the measure of compensatory damages in a breach of contract suit. Unlike cases in which attorneys' fees are allowable to the prevailing party, here Simplot's attorneys' fees and costs are themselves part of the merits of their contact claim. See N. Am. Specialty Ins. Co. v. Correctional Med. Servs. Inc., 527 F.3d 1033, 1038-39 (10th Cir. 2008) (in jurisdictional decision, holding that attorneys' fees and costs awarded as compensatory damages to insured are inseparable from merits of insured's breach of contract claim; distinguishing statutory prevailing party attorneys' fees, which are collateral to the merits). Simplot does not seek the fees "as an element of 'costs' awarded to the prevailing party," Budinich v. Becton Dickinson & Co., 486 U.S. 196, 200 (1988), which "raises legal issues collateral to and separate from the decision on the merits." Id. (quotation marks and citations omitted). Rather, Simplot seeks the fees as the measure of damages resulting from Chevron's breach, "as an element of damages under a contract." 10 J. MOORE, Moore's Federal Practice § 54.171[a] (3d ed. 2008) (noting such fees may present "jury triable issues").
Rule 54 of the Federal Rules of Civil Procedure recognizes this distinction. See Fed. R. Civ. P. 54(d)(2)(A) ("A claim for attorney's fees and related nontaxable expenses must be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages." (emphasis added)). The advisory committee's note to the 1993 Amendments of Rule 54(d)(2) explains further:
This new paragraph establishes a procedure for presenting claims for attorneys' fees, whether or not denominated as "costs." It applies also to requests for reimbursement of expenses, not taxable as costs, when recoverable under governing law incident to the award of fees. Cf. West Virginia Univ. Hosp. v. Casey, 499 U.S. 83 (1991), holding, prior to the Civil Rights Act of 1991, that expert witness fees were not recoverable under 42 U.S.C. § 1988. As noted in subparagraph (A), it does not, however, apply to fees recoverable as an element of damages, as when sought under the terms of a contract; such damages typically are to be claimed in a pleading and may involve issues to be resolved by a jury.
This action is, at bottom, a legal action for compensatory damages resulting from a breach of contract. That the measure of damages happens to be attorneys' fees does not in and of itself change the nature of Simplot's claim.
This case is like an insurance case where the insurer has breached its duty to defend a lawsuit against the insured by a third party and the insured sues the insurer for payment of the costs of its defense, particularly attorneys' fees. See, e.g., A. Kush & Assoc., Ltd. v. American States Ins. Co., 927 F.2d 929, 932-34 (7th Cir. 1991) (issue of reasonable attorneys' fees as damages for failure to defend sent to the jury). In sum, we hold that Chevron has a Seventh Amendment right to a jury trial on the amount of attorneys' fees due Simplot as damages for Chevron's breach of its duty to defend Simplot in the Ashley Creek litigation.
Nevertheless, it was not per se error for the district court to deny a jury trial on the requested attorneys' fees and costs. Chevron concedes that the district court "effectively granted summary judgment on the amount of damages." …. The law is well-settled that summary judgment does not violate the Seventh Amendment. See Fidelity & Deposit— Co. v. United States, 187 U.S. 315, 319-21 (1902). The district court could grant summary judgment sua sponte on any and all aspects of Simplot's claim, including damages, if there were no genuine issues of material fact, see Fed. R. Civ. P. 56(d), and Chevron had notice of its duty to proffer all evidence, see Jones v. Salt Lake County, 503 F.3d 1147, 1152 (10th Cir. 2007). ***
We conclude the district court's decision suffers from a fatal flaw that requires us to reverse: the court did not apply the correct standard in granting summary judgment.