PHILADELPHIA – A panel of appellate judges has ruled to vacate a trial court’s decision with respect to the determination of appropriate attorney’s fees in a contract action, and remand the litigation to its trial court for a “reasonable” fee examination.
On Dec. 28, judges Michael A. Chagares, Joseph A. Greenaway Jr. and L. Felipe Restrepo ruled to vacate the judgment of the U.S. District Court for the Middle District of Pennsylvania, which had stipulated attorney’s fees in excess of $87,000 were to be paid by defendants Valley Open MRI and Diagnostic Center, Inc., Juan D. Gaia M.D. and I&G Realty Company, to plaintiff Toshiba America Medical Systems, Inc.
On Dec. 16, 2010, Toshiba leased to VOMRI a Vantage Titan Open MRI System and related accessories for five years at a monthly rate of $18,109.28. According to the lease agreement, a “failure to make any Lease Payment, or any other payment…within 10 days constituted a default.” At the time of default, VOMRI would be liable to Toshiba for the entire remaining balance, plus interest, late charges, “reasonable attorney’s fees,” and costs.
The lease between the parties became official on March 6, 2011, but less than two years later, VOMRI stopped making payments, leading Toshiba to sue for breach of contract on July 23, 2014. The following year, on Sept. 18, 2015, Toshiba filed a motion for summary judgment, accompanied by a statement from its Director of Financial Programs, Trish Malone, which outlined damages and attorneys’ fees.
In the statement, Malone described the remaining balance and interest under the contract; as for the attorneys’ fees, Malone said “as of Sept. 11, 2015, Toshiba’s attorneys’ fees were $87,604.64.” However, the statement did not specify the number of hours the attorneys had expended, the rates charged, or any other billing details to support the demanded fees.
VOMRI filed its brief in opposition to Toshiba’s motion for summary judgment and did not respond to or contest Toshiba’s statement of facts, only disputing the amount it should owe to Toshiba, and requested a hearing to address that issue. Toshiba responded that a hearing on damages was unnecessary because its statement of facts listing damages and attorneys’ fees was uncontested.
The District Court concurred with Toshiba and denied VOMRI’s request for a hearing, on the grounds that VOMRI’s failure to produce any evidence to dispute the amount made a hearing unnecessary – and further ruled “the Malone declaration could be relied upon because of her personal knowledge of Toshiba’s records, and awarded all damages and attorneys’ fees listed in the declaration.” The defendants’ appeal followed.
“Pennsylvania’s general rule imposes a duty to mitigate damages on the non-breaching party, but also that a non-breaching party’s duty to mitigate is limited when ‘it is equally reasonable to expect the breaching party to minimize damages and the breaching party has equal knowledge of the consequences of nonperformance,” Restrepo said.
VOMRI raised two issues on appeal, in whether the District Court erred in finding that Toshiba did not have a duty to mitigate its damages; and whether the District Court erred in failing to analyze the reasonableness of Toshiba’s claimed attorneys’ fees when the lease allowed for an award of “reasonable attorneys’ fees.”
Restrepo explained when a contract allows for recovery of “reasonable” attorneys’ fees, the reasonableness of the claimed fees is “within the sound discretion of the trial court”, and that Pennsylvania courts have found an abuse of discretion occurs when the trial court “fails to provide an “an explanation…of the basis for the award.”
Restrepo said, “VOMRI argues that the District Court abused its discretion in failing to consider the reasonableness of the fees awarded to Toshiba. We agree. The lease unambiguously states that VOMRI ‘shall also be liable for and shall pay to Lessor…Lessor’s reasonable attorneys’ fees.”
“The District Court relied solely on Malone’s declaration as competent evidence of the claimed attorneys’ fees, without inquiring into reasonableness of the claimed amount. The District Court noted Malone’s position as financial Director of Toshiba and her ‘personal knowledge…of the damages due under the Lease Agreement,’ but undertook no analysis of the amount and character of the services performed, the difficulty of the problems involved, the amount of money or value of property in question, the hours expended by the attorneys, or the rates charged to Toshiba for the work. This was insufficient,” Restrepo added.
Restrepo explained to support the award, Toshiba “bore the burden of producing evidence as to the reasonableness of the fees” and a simple declaration of that amount doesn’t justify the award – in addition to VOMRI not waiving its right to contest the reasonableness of the same award, because it called for a hearing to contest the amount.
“Accordingly, we will vacate the portion of the judgment that awards attorneys’ fees, and remand the case to the District Court for a proper examination of the reasonableness of these fees,” Restrepo said. “On remand, the District Court should look to factors examined by Pennsylvania courts in assessing reasonableness of fees, including the amount and character of the services performed, the difficulty of the problems involved, and the amount of money or the value of property in question.”
The plaintiff is represented by Kenneth L. Racowski of Buchanan Ingersoll & Rooney, in Philadelphia.
The defendants are represented by Steven P. Roth, James W. Barr and John T. Zelinka of Rosenn Jenkins & Greenwald, in Wilkes-Barre.
U.S. Court of Appeals for the Third Circuit case 15-4005
U.S. District Court for the Middle District of Pennsylvania case 3:14-cv-01419
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com