Catalina Yachts v. Pierce

105 P.3d 125, 2005 Alas. LEXIS 4, 2005 WL 78516

• Court: Alaska Supreme Court
• Decided: January 14, 2005
• Docket: S-10720
• Status: Published

Opinions

OPINION

FABE, Chief Justice.

I. INTRODUCTION

■ Jim and Karen Pierce rejected an offer of judgment made by Catalina Yachts under Alaska Civil Rule 68 in a breach of warranty case. The .superior court denied Catalina’s later motion for attorney’s fees and costs under Alaska Civil Rule 68, holding that the rule did not apply and was preempted by the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act. Because we conclude that Alaska Civil Rule 68 applies, we reverse and remand.

II. FACTS AND PROCEEDINGS

The underlying facts of this case are set out in Pierce v. Catalina Yachts, a breach of contract and warranty case that came before us in 2000.¹ In summary, Jim and Karen Pierce purchased a new fiberglass sailboat from Catalina Yachts in 1992. Under the warranty, Catalina was responsible for repairing any blisters in the gel coat of the boat that occurred within a year of the boat being placed in the water. The Pierces claimed that their boat’s hull developed blisters and that Catalina was responsible for repairing the hull under the warranty. The Pierces were unable to convince Catalina that the gel coat needed to be replaced.² They filed suit, bringing claims under the federal Magnuson-Moss Warranty Federal Trade Commission Improvement Act³ and under Alaska law.

Before trial, in January 1996, the Pierces rejected a $38,000 offer of judgment from Catalina, made under Alaska Civil Rule 68.⁴ Following trial, the jury awarded the Pierces $12,445 as the reasonable cost of repair.⁵ The superior court then calculated the value of the Pierces’ judgment using the formula we laid out in Farnsworth v. Steiner.⁶ Mag-nuson-Moss provides for awards of attorney’s fees and costs for prevailing consumers like the Pierces;⁷ the superior court calculated the Pierces’ fees and costs under the federal law through the date of the offer ($22,236). It then added that figure to the jury award ($12,445) and pre-judgment interest ($1,964), for a total judgment of $36,645, less than Catalina’s offer. Under Rule 68, the Pierces were therefore barred from receiving post-offer fees and costs and Catalina was entitled to an award of post-offer fees and costs as well a reduced pre-judgment interest rate.⁸ The court awarded the Pierces $35,721 as their judgment as recalculated under Rule 68, awarded Catalina $35,211 in post-offer fees and costs, and offset the two amounts to reach a net award of $510 for the Pierces. Because we held on appeal that the Pierces were entitled to recover consequential damages on remand, we did not address the fee awards, apart from concluding that Magnuson-Moss entitled the Pierces to an award of attorney’s fees.⁹ Following trial on remand, the jury determined that the Pierces suffered no consequential damages, and Superior Court Judge Larry C. Zervos agreed that the Pierces’ damages claim was “frivolous.”

Catalina moved for attorney’s fees and costs under Alaska Civil Rule 68. The court looked first to Magnuson-Moss, which states:

If a consumer finally prevails in any action brought under ... this subsection, he may be allowed by the court to recover as part of the judgment a sum equal to the aggregate amount of cost and expenses (including attorneys’ fees based on actual time expended) determined by the court to have been reasonably incurred by the plaintiff for or in connection with the commencement and prosecution of such action.... ] [¹⁰]

The court determined that Catalina, as a manufacturer and not a “consumer,” was not entitled to attorney’s fees and costs. The court also declared that the underlying policy goals of Magnuson-Moss do not support allowing defendants to recover attorney’s fees because allowing a fee award to a manufacturer “would run counter” to the Act’s purpose of encouraging consumers to pursue legal action to protect their rights under a warranty. The court therefore refused to award Catalina post-offer fees.

The court awarded the Pierces fees and costs of $20,000. When added to interest ($10,460.76) and the jury’s original award ($12,445), this resulted in a total judgment of $42,905.76.¹¹

Catalina filed a motion for reconsideration, arguing that it was seeking fees not under Magnuson-Moss but under Alaska Civil Rules 68 and 82, that the language of Rule 68 is mandatory, and that Rule 68 and Magnu-son-Moss are not incompatible. The superi- or court denied Catalina’s motion, concluding that “the federal statute, federal preemption and the reasoning of the majority of courts faced with this issue leave no room to award fees to Catalina.”

Catalina appeals the superior court’s decision.

III. DISCUSSION

A. Standard of Review

Whether Rule 68 applies in a given case is a question of law.¹² Whether a federal statute preempts a state court rule is also a question of law.¹³ We review questions of law de novo, “adopting the rule of law most persuasive in light of precedent, reason, and policy.” ¹⁴

B. Rule 68 Applies in This Case.

Catalina moved for attorney’s fees and costs under Alaska Rule of Civil Procedure 68(b) (applicable to cases filed before August 7, 1997), which provided in relevant part:

If the judgment finally rendered by the court is not more favorable to the offeree than the offer, the prejudgment interest accrued up to the date judgment is entered shall be adjusted as follows: (1) if the offeree is the party making the claim, the interest rate will be reduced by the amount specified in AS 09.30.065 and the offeree must pay the costs and attorney’s fees incurred after the making of the offer (as would be calculated under Civil Rules 79 and 82 if the offeror were the prevailing party). The offeree may not be awarded costs or attorney’s fees incurred after the making of the offer.

Catalina would not be eligible for fees under Alaska Civil Rule 82, which gives way to a “specific statutory scheme for attorney’s fees” like that in Magnuson-Moss.¹⁵ Rule 68’s reference to Rule 82, however, does not prevent a fee award. Rule 68 refers to Rule 82 only for the purpose of calculating the amount of the award. The operative language of Rule 68 is mandatory, providing that “the offeree must pay the costs and attorney’s fees incurred after the making of the offer.” It does not condition this requirement on the offeree’s qualification for an award under any other rule.

The superior court found that the attorney’s fee provisions of Magnuson-Moss conflict with Rule 68. Under the court’s reasoning, the Supremacy Clause of the federal constitution¹⁶ thus required that Magnu-son-Moss preempt Rule 68, leaving the court with authority to award fees only to the Pierces, not to Catalina. “Federal law preempts [a] state [court rule] if Congress expressly or implicitly declares the state [rule] preempted or if the state [rule] conflicts with the federal law to the extent that (a) it is impossible to comply simultaneously with both or (b) the state [rule] obstructs the execution of the purpose of the federal [law].”¹⁷ Magnuson-Moss contains no express preemption of state court rules governing attorney’s fee awards.¹⁸ We therefore turn to the question whether it conflicts with Alaska Civil Rule 68.

1. There is no direct conflict between Rule 68 and Magnuson-Moss.

Magnuson-Moss authorizes awards of attorney’s fees only to prevailing “consumers.”¹⁹ In a warranty action, the consumer will generally, if not always, be, the plaintiff; the attorney’s fee provision does not mention prevailing defendants or parties who do not prevail at trial. Civil Rule 68, on the other hand, allows attorney’s fees to defendants who do not prevail at trial. Two provisions are in direct conflict when they cannot both be followed — when complying with one necessarily means violating the other.²⁰ If Mag-nuson-Moss, by authorizing awards only to consumers, bars fee awards to defendants, then Rule 68 cannot be followed without violating the federal law. But the Act’s failure to authorize awards to defendants is not the same as a bar on such awards when they are allowed by another authority. This silence distinguishes Magnuson-Moss from other federal laws that place limits on the circumstances in which defendants can receive fee awards and that therefore may conflict with state fee provisions. For example, in State v. Golden’s Concrete Co., the Colorado Supreme Court found a conflict between a state law mandating fee awards to defendants when the case against them is dismissed before trial and 42 U.S.C. § 1988, which allows fee awards to defendants “only when the plaintiffs suit ‘was vexatious, frivolous, or was brought to harass or embarrass the defendant.’ ”²¹ Magnuson-Moss does not authorize awards to defendants, but neither does it limit them as § 1988 does.

A state court rule is presumed valid in the face of a potentially conflicting federal law.²² In light of this principle, we do not read Magnuson-Moss’s silence as a bar on awards to defendants. Therefore, it is possible to follow both the state rule and the federal act without violating either. A court could, as the superior court did after the first trial, award the prevailing plaintiff full fees and costs, then offset that award against the defendant’s post-offer fees and costs while also giving the defendant the other benefit of Rule 68, a reduced pre-judgment interest rate. There is no direct conflict between Magnuson-Moss and Rule 68.

2. Rule 68 does not obstruct achievement of the purpose of Magnuson-Moss.

The harder question is whether following Rule 68 would obstruct the execution of the federal policy embodied in the Magnuson-Moss attorney’s fee provisions. The federal policy is to encourage consumers with meritorious claims to bring them, even when a plaintiffs recovery would not cover the attorney’s fees incurred.²³ Under Rule 68, those plaintiffs may end up obliged to pay part of their adversaries’ fees if they turn down an offer of judgment. If this possibility is sufficient to discourage plaintiffs from bringing suits, then following Rule 68 would obstruct achievement of the purposes of Magnuson-Moss.

The United States Supreme Court’s decision in Marek v. Chesny²⁴ makes clear that this conflict does not exist. When a plaintiff rejects an offer of judgment larger than her eventual trial recovery, the federal version of Rule 68 allows post-offer costs to the defendant and bars the plaintiff from recovering such costs.²⁵ In Marek, the Supreme Court had to decide whether a plaintiff who was barred by the federal Rule 68 from recovering post-offer costs could still receive the full attorney’s fees he was allowed under 42 U.S.C § 1988, the fee provision of the substantive statute underlying the suit.²⁶ It therefore had to determine whether the rule’s term “costs” encompassed attorney’s fees. The Court determined that as long as the substantive statute underlying the suit includes attorney’s fees in its definition of costs, then the federal Rule 68 does as well.²⁷ The plaintiff was thus denied fees that he would have recovered under § 1988.

The Supreme Court then faced the question whether its reading of the rule to include attorney’s fees in some circumstances would “frustrate Congress’[s] objective ... of ensuring that civil rights plaintiffs obtain effective access to the judicial process” through § 1988, which allows attorney’s fees to prevailing civil rights plaintiffs.²⁸ The question in Marek is closely analogous to the question at the heart of our preemption analysis in the present case. The Marek Court asked whether federal Rule 68, by cutting back on plaintiffs’ fee awards, undermines and conflicts with § 1988, which allows full fees. We ask whether Alaska’s Rule 68, by forcing a prevailing plaintiff to pay a defendant’s post-offer fees, undermines Magnuson-Moss, which allows fees only to plaintiffs.

The Supreme Court in Marek concluded that there is no conflict between federal Rule 68 and § 1988: “[W]e are not persuaded that shifting the postoffer costs to [the plaintiff! in these circumstances would in any sense thwart its intent under § 1988.... Section 1988 encourages plaintiffs to bring meritorious civil rights suits; Rule 68 simply encourages settlements. There is nothing incompatible in these two objectives.”²⁹

Following the Supreme Court’s reasoning, we hold that there is no conflict between Alaska Civil Rule 68 and Magnuson-Moss. Forcing plaintiffs to bear their own costs, as in Marek, and requiring them to pay the other party’s fees, as in the case before us, have the same general effect — reducing the benefit that the underlying statute would give the plaintiffs. This reduction could conflict with the underlying statute’s goal in the following scenario: Injured persons might be encouraged to bring a claim by the prospect of a fee award provided by the underlying statute. But they might then consider that if they reject an offer, go to trial, and win less than the offer, Rule 68 will reduce their award. The attorney’s fee provision that had encouraged them to file suit looks somewhat less appealing. This might convince them not to bring their meritorious claim, defeating the purpose of the fee provision.

This response seems unlikely, however. Marek holds that leaving plaintiffs responsible for their own costs does not reduce their incentive to bring suit to the extent that it defeats the fee provision’s purpose and creates a conflict. And there is no suggestion that requiring prevailing plaintiffs to pay the defendant’s post-offer, non-fee costs undermines Magnuson-Moss. Requiring the plaintiff to pay the defendant’s post-offer fees is not so much more onerous that it should be treated differently. While it does reduce the incentive provided by Magnuson-Moss, applying Rule 68 does not go so far as to defeat its purposes. The two provisions are not in conflict.

Our decision in Turner v. Alaska Communications Systems Long Distance, Inc.30 is not to the contrary. In Turner, we held that absent class members with relatively small claims who remain passive throughout the litigation are not liable for their adversary’s attorney’s fees under Alaska Rule of Civil Procedure 82 if the class loses. We reasoned that the threat of such liability would discourage absent class members from pursuing the action and lead them to opt out, leaving them without a remedy.³¹ In light of Turner’s concerns, we must be careful about allowing fee-shifting provisions to undercut provisions meant to encourage plaintiffs to bring meritorious claims. But while we held in Turner that absent class members are not liable for attorney’s fees if the class loses, we clarified that our decision did not prevent the award of attorney’s fees against the named class representatives: “[0]ur ruling does not eliminate Rule 82 attorney’s fees in class actions; it simply limits Rule 82’s possible reach to named parties, meaning that a [defendant] who has been forced to litigate in order to secure his or her rights will be reimbursed in part for litigation expenses.”³² Thus, the dissent’s pronounced reliance on Turner to resolve the question in this case is misplaced.

Rule 68 therefore applies in this ease. The superior court calculated the amount of the Pierces’ judgment following the first trial, first for the purpose of comparing it to Catalina’s offer and then under Rule 68 in order to determine the final amount they were owed. At the second trial, the jury awarded no new damages, so its basic award was not increased. And because the Pierces were thus not prevailing parties, they can get no further fees or costs under Magnuson-Moss. Assuming that the superior court’s calculations were correct at the outset, Catalina’s offer is still larger than the Pierces’ award and the superior court’s calculation of the value of the Pierces’ award under the Rule 68 formula remains accurate. The superior court must still determine the fees and costs incurred by Catalina since the original calculation following the first trial and then recalculate the offset between the parties’ awards.

IV. CONCLUSION

For the foregoing reasons, we REVERSE the superior court’s decision not to apply Alaska Civil Rule 68 and the judgment that followed, and REMAND for proceedings consistent with this opinion.

CARPENETI, Justice, not participating.

BRYNER, Justice, dissenting.

1 . 2 P.3d 618, 620 (Alaska 2000).

2 . id.

3 . 15 U.S.C. § 2312 (1998).

4 . Pierce, 2 P.3d at 625.

5 . Id. at 620.

6 . 601 P.2d 266. 269-70 n. 4 (Alaska 1979).

7 . 15 U.S.C. § 2310(d)(2) (1998).

8 . See Alaska R. Civ. P. 68 (applicable to cases filed before August 7, 1997).

9 . Pierce, 2 P.3d at 625-27.

¹⁰

11 . Because the superior court determined that Rule 68 did not apply, it did not use the Farns-worth formula for comparing the offer and the Pierces' judgment.

12 . Van Deusen v. Seavey, 53 P.3d 596, 603 (Alaska 2002).

13 . Tlingit-Haida Reg’l Elec. Auth. v. State, 15 P.3d 754, 761 (Alaska 2001); Andrews v. Alaska Operating Eng'rs-Employers Training Trust Fund, 871 P.2d 1142, 1143-44 (Alaska 1994).

14 . Kodiak Island Borough v. Roe, 63 P.3d 1009, 1012 n. 6 (Alaska 2003) (citing Guin v. Ha, 591 P.2d 1281, 1284 n. 6 (Alaska 1979)).

15 . Enders v. Parker, 66 P.3d 11, 17 (Alaska 2003) ("Rule 82 provides for an award of attorney’s fees to the prevailing party '[e]xcept as otherwise provided by law.' ") (quoting Alaska R. Civ. P. 82(a)).

16 . U.S. Const, art. VI.

17 . Interior Reg’l Hous. Auth. v. James, 989 P.2d 145, 149 (Alaska 1999) (quotation marks omitted).

18 . Magnuson-Moss's guidance on its effect on other laws is contained in 15 U.S.C. § 2311, whose only preemptive provision overrides certain state warranty laws. 15 U.S.C. § 2311(c).

¹⁹

20 . Webster v. Bechtel, Inc., 621 P.2d 890, 901 (Alaska 1980).

21 . 962 P.2d 919, 926 (Colo.1998) (quoting Hensley v. Eckerhart, 461 U.S. 424, 429 n. 2, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)) (emphasis added); see also Garan, Inc. v. M/V Aivik, 907 F.Supp. 397, 399 (S.D.Fla.1995) (finding conflict between federal maritime law and state offer of judgment statute because under federal maritime law “absent specific federal statutory authorization for an award of attorneys' fees, the prevailing party is generally not entitled to those fees”). But see Moran v. City of Lakeland, 694 So.2d 886, 887 (Fla.Dist.App.1997) (finding conflict between state offer of judgment statute and federal law where federal statute authorized fee awards for defendants in actions brought in bad faith without expressly limiting them to such actions).

22 . See Johnson v. Fankell, 520 U.S. 911, 918, 117 S.Ct. 1800, 138 L.Ed.2d 108 (1997).

23 . See State Farm Fire & Cas. Co. v. Miller Elec. Co., 231 Ill.App.3d 355, 172 Ill.Dec. 890, 596 N.E.2d 169, 171 (1992); Ventura v. Ford Motor Corp., 180 N.J.Super. 45, 433 A.2d 801, 812 (1981).

24 . 473 U.S. 1, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985).

25 . Fed.R.Civ.P. 68.

26 . 473 U.S. at 3-4, 105 S.Ct. 3012.

27 . Id. at 9, 105 S.Ct. 3012. Federal courts, perhaps responding to concerns that "defendants ... found to have violated plaintiff’s rights” would get fees from non-frivolous plaintiffs, 12 Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure § 3006.2, at 131-32 (2d ed.1997), interpret Ma-rek to include fees in post-offer cost awards only for defendants who would qualify for fees under the suit's substantive statute. See, e.g., Crossman v. Marcoccio, 806 F.2d 329, 333-34 (1st Cir.1986). This process of looking to the underlying statute to determine whether costs include attorney’s fees is irrelevant in the present case. Alaska’s Rule 68 explicitly includes the award of attorney's fees among the consequences of rejecting an offer that is greater than the award obtained at trial. There is therefore no need to look to the underlying statute to determine the definition of costs as there was in Marek. We look to the underlying statute only to determine whether it conflicts with Rule 68.

28 . Marek, 473 U.S. at 10, 105 S.Ct. 3012 (internal quotation marks and citations omitted).

29 . Id. at 10-11, 105 S.Ct. 3012 (emphasis added); see also Clayton v. Bryan, 753 So.2d 632, 634-36 (Fla.Dist.App.2000) (Harris, J., dissenting) ("[Tjhere is nothing in the federal [Fair Debt Collection Protection Act], nor is there a reason within the policy behind the federal act, that would preclude a state from requiring that all parties in litigation ... realistically evaluate their case ... and to accept a settlement offer commensurate with their claim.”).

30 . 78 P.3d 264 (Alaska 2003).

31 . Id. at 268.

32 . Id. at 269.