Care Realty v. Lakeview, et al. 10-CV-095-SM 2/5/13 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Care Realty. LLC. and THCI Company, LLC, Plaintiffs
v. Case No. lO-cv-95-SM Opinion No. 2013 DNH 016 Lakeview Neurorehabilitation Center, Inc.; Lakeview Neurorehab Center Midwest. Inc.; and Lakeview Management, Inc. Defendants
O R D E R
This protracted commercial litigation has nearly reached an
end. The parties ask the court to resolve one last, lingering
dispute. Invoking the provisions of New Hampshire common law,
defendants assert that they are entitled to an award of
reasonable attorney's fees and expert witness fees - sums they
estimate at approximately $240,000 and $32,000, respectively.
Not surprisingly, plaintiffs object. Vigorously.
For the reasons discussed, defendants' motion for attorney's
fees is denied. Brief Background
Defendants (collectively "Lakeview") operate
neurorehabilitation facilities in New Hampshire and Wisconsin.
They lease the subject properties from plaintiffs (collectively,
"THCI"). The parties have been litigating this commercial
landlord-tenant dispute since 2007 and the relevant facts are
detailed in several orders previously issued by the court. For
the most part, they need not be recounted.
It is sufficient to note that the parties' disputes have
given rise to two cases in this court. In the first, the court
held that, due to its inequitable conduct, THCI was estopped from
asserting that Lakeview's breach of payment terms precluded its
exercise of an option to extend those leases. Lakeview Mgmt.,
Inc. v. Care Realty. LLC. 2009 WL 903818 (D.N.H. March 30, 2009)
("Lakeview I"). The court observed, however, that, "There is
enough rascality here on each side to preclude finding that
either side was imposed upon unduly." Jd. at *22. Consequently,
the court held that neither party was entitled to prevail on its
claims under New Hampshire's Consumer Protection Act. Lakeview
then sought an award of attorney's fees on grounds that THCI had
acted in bad faith. That motion was denied.
2 Shortly thereafter, THCI filed a second suit, claiming
Lakeview was still not paying the proper rent under the leases
and invoking an appraisal process (detailed in Section 1.4 of the
leases) as a means to determine Lakeview's monthly rent
obligations. Again, however, the court ruled in favor of
Lakeview, concluding that, when presented with the opportunity to
avail itself of the available appraisal process, THCI elected not
to pursue it - an election that, due to time constraints imposed
by the leases, could not be revisited. Care Realty, LLC v.
Lakeview Neurorehabilitation Center, Inc., 2012 WL 1067629
(D.N.H. March 29, 2012) ("Lakeview II"). Lakeview again seeks an
award of attorney's fees.
Governing Law
The well-established "American Rule" on fee-shifting
provides that, ordinarily, attorney's fees are not recoverable by
a prevailing party unless specifically authorized by statute or
contract. Mullane v. Chambers. 333 F.3d 322, 337 (1st Cir.
2003). See also Alveska Pipeline Serv. v. Wilderness Soc'v, 421
U.S. 240, 247 (1975); Van Per Stok v. Van Voorhees, 151 N.H. 679,
684 (2005). The New Hampshire Supreme Court has, however,
recognized limited exceptions to that rule. Under New Hampshire
common law, courts possess the inherent authority to award
attorney's fees to a prevailing party when:
3 an individual is forced to seek judicial assistance to secure a clearly defined and established right if bad faith can be established; where litigation is instituted or unnecessarily prolonged through a party's oppressive, vexatious, arbitrary, capricious or bad faith conduct; as compensation for those who are forced to litigate in order to enjoy what a court has already decreed; and for those who are forced to litigate against an opponent whose position is patently unreasonable.
Clipper Affiliates v. Checovich, 138 N.H. 271, 278 (1994)
(citations and internal punctuation omitted). The decision to
award or decline to award fees under that judicial exception is
highly discretionary and afforded "tremendous deference."
Grenier v. Barclay Square Commer. Condo. Owners' Ass'n, 150 N.H.
Ill, 116 (2003) .
Here, Lakeview says it is entitled to an award of attorney's
fees on grounds that THCI advanced a "meritless" claim and
adopted a litigation position that was "patently unreasonable."
See Defendants' Motion for Attorney's Fees (document 67) at 2.
See also Defendants' Reply Memorandum (document no. 75) at 2-3.
In support of its claim, Lakeview asserts assert that, " [h]aving
acted in bad faith in 2007 with respect to Lakeview's option
exercise and request for appraisal, and having been called out
with respect to this conduct in Lakeview I, THCI brazenly filed
the instant litigation demanding the same appraisal process it
spurned in 2007." Defendants' Reply Memorandum at 3. Moreover,
4 says Lakeview, the court itself recognized that THCI's invocation
of the appraisal process was "meritless."
Lakeview conflates two distinct concepts: "meritlessness"
and "bad faith." The mere fact that a claim lacks merit does not
compel the conclusion that it was advanced in bad faith. Nor
does it compel the conclusion that it was "patently
unreasonable." See, e.g.. DeLauro v. Porto (In re Porto). 645
F.3d 1294, 1305 (11th Cir. 2011) ("equat[ing] lack of merit with
bad faith, [is] a fallacy that would lead to the conclusion that
every losing party had litigated in bad faith."); Managed Care
Solutions, Inc. v. Essent Healthcare, Inc., 2011 WL 4433570, 4
(S.D.Fla. 2011) ("That the Court denied the motion or even that
the motion lacked merit is not the same as finding that [the
movant's] conduct in filing the motion objectively rises to bad
faith."); Grenier, 150 N.H. at 118 ("The fact that [plaintiff's]
position was unsuccessful does not alone warrant an award of
fees."). See generally Christiansburg Garment Co. v. EEOC, 434
U.S. 412, 421-422 (1978) .
As Lakeview points out, the court did, in fact, conclude
that THCI's invocation of the appraisal process was "meritless" -
that is to say, it lacked merit. Lakeview II, at *4. The court
did not, however, conclude that THCI's claim was "frivolous" or
5 "patently unreasonable," nor did it find that THCI acted in bad
faith. And, importantly, Lakeview has failed to demonstrate that
THCI's conduct was so egregious or so without legal or factual
basis that an award of fees would be justified or appropriate
under New Hampshire common law.
Lakeview's claim for fees does not fit within the limited
exception to New Hampshire's general rule that parties to
litigation bear their own legal fees. As the court pointed out
in Lakeview II, THCI brought this suit "to resolve an issue left
unaddressed in earlier litigation between the parties." .Id. at
*1. That is, once the court held that Lakeview had validly
exercised its renewal option, whether THCI could invoke the
appraisal process contemplated by the leases in order to
determine the appropriate rent going forward.
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Care Realty v. Lakeview, et al. 10-CV-095-SM 2/5/13 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Care Realty. LLC. and THCI Company, LLC, Plaintiffs
v. Case No. lO-cv-95-SM Opinion No. 2013 DNH 016 Lakeview Neurorehabilitation Center, Inc.; Lakeview Neurorehab Center Midwest. Inc.; and Lakeview Management, Inc. Defendants
O R D E R
This protracted commercial litigation has nearly reached an
end. The parties ask the court to resolve one last, lingering
dispute. Invoking the provisions of New Hampshire common law,
defendants assert that they are entitled to an award of
reasonable attorney's fees and expert witness fees - sums they
estimate at approximately $240,000 and $32,000, respectively.
Not surprisingly, plaintiffs object. Vigorously.
For the reasons discussed, defendants' motion for attorney's
fees is denied. Brief Background
Defendants (collectively "Lakeview") operate
neurorehabilitation facilities in New Hampshire and Wisconsin.
They lease the subject properties from plaintiffs (collectively,
"THCI"). The parties have been litigating this commercial
landlord-tenant dispute since 2007 and the relevant facts are
detailed in several orders previously issued by the court. For
the most part, they need not be recounted.
It is sufficient to note that the parties' disputes have
given rise to two cases in this court. In the first, the court
held that, due to its inequitable conduct, THCI was estopped from
asserting that Lakeview's breach of payment terms precluded its
exercise of an option to extend those leases. Lakeview Mgmt.,
Inc. v. Care Realty. LLC. 2009 WL 903818 (D.N.H. March 30, 2009)
("Lakeview I"). The court observed, however, that, "There is
enough rascality here on each side to preclude finding that
either side was imposed upon unduly." Jd. at *22. Consequently,
the court held that neither party was entitled to prevail on its
claims under New Hampshire's Consumer Protection Act. Lakeview
then sought an award of attorney's fees on grounds that THCI had
acted in bad faith. That motion was denied.
2 Shortly thereafter, THCI filed a second suit, claiming
Lakeview was still not paying the proper rent under the leases
and invoking an appraisal process (detailed in Section 1.4 of the
leases) as a means to determine Lakeview's monthly rent
obligations. Again, however, the court ruled in favor of
Lakeview, concluding that, when presented with the opportunity to
avail itself of the available appraisal process, THCI elected not
to pursue it - an election that, due to time constraints imposed
by the leases, could not be revisited. Care Realty, LLC v.
Lakeview Neurorehabilitation Center, Inc., 2012 WL 1067629
(D.N.H. March 29, 2012) ("Lakeview II"). Lakeview again seeks an
award of attorney's fees.
Governing Law
The well-established "American Rule" on fee-shifting
provides that, ordinarily, attorney's fees are not recoverable by
a prevailing party unless specifically authorized by statute or
contract. Mullane v. Chambers. 333 F.3d 322, 337 (1st Cir.
2003). See also Alveska Pipeline Serv. v. Wilderness Soc'v, 421
U.S. 240, 247 (1975); Van Per Stok v. Van Voorhees, 151 N.H. 679,
684 (2005). The New Hampshire Supreme Court has, however,
recognized limited exceptions to that rule. Under New Hampshire
common law, courts possess the inherent authority to award
attorney's fees to a prevailing party when:
3 an individual is forced to seek judicial assistance to secure a clearly defined and established right if bad faith can be established; where litigation is instituted or unnecessarily prolonged through a party's oppressive, vexatious, arbitrary, capricious or bad faith conduct; as compensation for those who are forced to litigate in order to enjoy what a court has already decreed; and for those who are forced to litigate against an opponent whose position is patently unreasonable.
Clipper Affiliates v. Checovich, 138 N.H. 271, 278 (1994)
(citations and internal punctuation omitted). The decision to
award or decline to award fees under that judicial exception is
highly discretionary and afforded "tremendous deference."
Grenier v. Barclay Square Commer. Condo. Owners' Ass'n, 150 N.H.
Ill, 116 (2003) .
Here, Lakeview says it is entitled to an award of attorney's
fees on grounds that THCI advanced a "meritless" claim and
adopted a litigation position that was "patently unreasonable."
See Defendants' Motion for Attorney's Fees (document 67) at 2.
See also Defendants' Reply Memorandum (document no. 75) at 2-3.
In support of its claim, Lakeview asserts assert that, " [h]aving
acted in bad faith in 2007 with respect to Lakeview's option
exercise and request for appraisal, and having been called out
with respect to this conduct in Lakeview I, THCI brazenly filed
the instant litigation demanding the same appraisal process it
spurned in 2007." Defendants' Reply Memorandum at 3. Moreover,
4 says Lakeview, the court itself recognized that THCI's invocation
of the appraisal process was "meritless."
Lakeview conflates two distinct concepts: "meritlessness"
and "bad faith." The mere fact that a claim lacks merit does not
compel the conclusion that it was advanced in bad faith. Nor
does it compel the conclusion that it was "patently
unreasonable." See, e.g.. DeLauro v. Porto (In re Porto). 645
F.3d 1294, 1305 (11th Cir. 2011) ("equat[ing] lack of merit with
bad faith, [is] a fallacy that would lead to the conclusion that
every losing party had litigated in bad faith."); Managed Care
Solutions, Inc. v. Essent Healthcare, Inc., 2011 WL 4433570, 4
(S.D.Fla. 2011) ("That the Court denied the motion or even that
the motion lacked merit is not the same as finding that [the
movant's] conduct in filing the motion objectively rises to bad
faith."); Grenier, 150 N.H. at 118 ("The fact that [plaintiff's]
position was unsuccessful does not alone warrant an award of
fees."). See generally Christiansburg Garment Co. v. EEOC, 434
U.S. 412, 421-422 (1978) .
As Lakeview points out, the court did, in fact, conclude
that THCI's invocation of the appraisal process was "meritless" -
that is to say, it lacked merit. Lakeview II, at *4. The court
did not, however, conclude that THCI's claim was "frivolous" or
5 "patently unreasonable," nor did it find that THCI acted in bad
faith. And, importantly, Lakeview has failed to demonstrate that
THCI's conduct was so egregious or so without legal or factual
basis that an award of fees would be justified or appropriate
under New Hampshire common law.
Lakeview's claim for fees does not fit within the limited
exception to New Hampshire's general rule that parties to
litigation bear their own legal fees. As the court pointed out
in Lakeview II, THCI brought this suit "to resolve an issue left
unaddressed in earlier litigation between the parties." .Id. at
*1. That is, once the court held that Lakeview had validly
exercised its renewal option, whether THCI could invoke the
appraisal process contemplated by the leases in order to
determine the appropriate rent going forward. THCI plausibly
asserted that, because it invoked the appraisal process within
days of the court's ruling validating Lakeview's otherwise
doubtful exercise of its option to extend the Lease, the
invocation was timely and the appraisal process was required to
set the applicable rent. Lakeview, on the other hand, argued
that THCI had waived that contractual right long ago.
Lakeview's position prevailed, and the court held that once
THCI decided not to invoke the appraisal process in (or
6 reasonably near) March of 2007 (when Lakeview exercised its
option to renew), and later declined Lakeview's own request to
follow that procedure, THCI could not revisit that decision.
THCI's position was not persuasive, but, on this record, the
court cannot conclude that it was frivolous, patently
unreasonable, or pursued in bad faith. And, absent such conduct,
Lakeview cannot recover attorney's fees or expert witness fees.
Conclusion
As the court of appeals has noted, courts must be cautious
when deviating from the American Rule and exercising their
discretion to award attorney's fees when not otherwise authorized
by statute or contract. See Dubois v. U.S. Dept, of Agriculture,
270 F.3d 77, 80 (1st Cir. 2001) ("Because of its potency,
however, a court's inherent power to shift attorney's fees should
be used sparingly and reserved for egregious circumstances.
Thus, the power to sanction must be used with great
circumspection and restraint, employed only in compelling
situations.") (citations and internal punctuation omitted). This
case, between sophisticated commercial entities, does not present
those rare, egregious or compelling circumstances warranting the
exercise of such discretion. While THCI's claim to have timely
invoked the leases' appraisal process lacked merit, it was not
7 patently unreasonable nor has Lakeview shown that it was pursued
in bad faith.
Defendants' motion for an award of attorney's fees (document
no. £7) is denied.
SO ORDERED.
even J / MeAul iffe nited States District Judge
February 5, 2013
cc: Daniel E. Will, Esq. Jonathan M. Shirley, Esq. Leigh S. Willey, Esq. Ovide M. Lamontagne, Esq. Christopher H. M. Carter, Esq. Daniel M. Deschenes, Esq.