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Heartland Materials, Inc. v. Warren Paving, Inc.

United States District Court, W.D. Kentucky, Paducah

April 11, 2019

HEARTLAND MATERIALS, INC., et al. PLAINTIFFS
v.
WARREN PAVING, INC., et al. DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          Thomas B. Russell, Senior Judge United States District Court

         This matter is before the Court upon a motion by Plaintiffs Heartland Materials, Inc., William R. Frazer, LLC, and Southern Aggregate Distributors, Inc., [DN 101], for Attorney Fees, Expenses, and Costs. Plaintiffs also filed a Brief Regarding Interest that is incorporated into Plaintiffs' motion. [DN 99]. Defendants, Warren Paving, Inc. and Slats Lucas, LLC have filed their response, [DN 105], and Plaintiffs' have replied. [DN 106]. Fully briefed, this matter is ripe for review, and for the following reasons is GRANTED in part and DENIED in part.

         BACKGROUND

         This action arises out of a contract between Heartland Materials, Inc. (“Heartland”) and Warren Paving, Inc. (“Warren Paving”). Heartland and Warren Paving executed a contract for the assignment of an option to purchase real property with retained royalties (“The Assignment Contract”). [DN 1 at 5; see DN 40-1 at 2; DN 1-5]. The property at issue (“the Property”) consisted of “approximately 339 acres of land on two contiguous tracts located in Livingston County, Kentucky.” [DN 1 at 4]. The Assignment Contract assigned Heartland's option to purchase the property to Warren Paving. [DN 1 at 5-6]. As part of the Assignment Contract, Warren Paving agreed to pay royalties to Heartland on limestone mined from the Property. Id.

         Each party eventually sold or assigned portions of their interests to other parties. To reflect the resulting changes in royalty obligations, the parties executed an Amendment to Contract for the Assignment of an Option to Purchase Real Property with Retained Royalties (the “Amended Assignment Contract”). After paying royalties pursuant to the Amended Assignment Contract for about ten years, Warren Paving and Slats Lucas, LLC (“Slats Lucas”) brought suit (the “Prior Litigation”) against Heartland, William R. Frazer, LLC (“WRF”), and Southern Aggregate Distributors, Inc. (“Southern Aggregate”). See Warren Paving, Inc. v. Heartland Materials, Inc., No. 5:14-CV-149-TBR, 2015 U.S. Dist. LEXIS 6456, 2015 WL 269204 (W.D. Ky. Jan. 21, 2015).

         In the Prior Litigation, Warren Paving and Slats Lucas sought, in part, “(1) a declaratory judgment stating that the assignment contract was void because Heartland did not hold a license to practice real estate brokerage in Kentucky; [and] (2) rescission of the assignment contract based on mistake of fact. . . .” Warren Paving, Inc. v. Heartland Materials, Inc., No. 15-6052, 2016 U.S. App. LEXIS 24301, *1-2 (6th Cir. July 6, 2016). This Court dismissed all of Warren Paving and Slats Lucas's claims in the Prior Litigation. Warren Paving, 2015 U.S. Dist. LEXIS 6456. On July 6, 2016, the Sixth Circuit Court of Appeals affirmed the dismissal. Warren Paving, No. 15-6052, 2016 U.S. App. LEXIS 24301 (6th Cir. July 6, 2016).

         After the Sixth Circuit Court of Appeals affirmed this Courts dismissal of the Prior Litigation, Warren Paving and Slats Lucas (collectively “Defendants”) ceased making royalty payments to Heartland, WRF, and Southern Aggregate (collectively “Plaintiffs”). Plaintiffs then brought suit (the “Current Litigation”) against Defendants for breach of contract and a declaration of their right to receive royalties under the Amended Assignment Contract. [DN 1 at 12-15]. More specifically, Plaintiffs alleged that (1) Defendants breached the contract by failing to pay the appropriate royalty amount because the tonnage of limestone produced from the Property had not been measured in compliance with the terms of the agreement, and (2) Defendants breached the contract by failing to tender royalty payments after entry of the Sixth Circuit's order on July 6, 2016.

         In the Current Litigation, this Court granted summary judgment to Plaintiffs on their breach of contract claim with regard to the lack of royalty payments since June 2016. The Court also held that “Warren Paving and Slats Lucas are contractually obligated to pay royalties for all limestone mined and shipped or loaded for transport from the Property pursuant to the terms of the Amended Assignment Contract and the royalty obligation enumerated therein.” [DN 67 at 28]. This Court did not grant summary judgment on Plaintiffs' claim that Defendants breached the contract by underpaying royalties prior to June 2016. [Id. at 26]. After this Court granted partial summary judgment, Plaintiffs filed a motion to dismiss their remaining claim for underpayment of royalties. [DN 75]. This Court granted Plaintiffs' motion to dismiss. [DN 84].[1]

         Plaintiffs have filed three motions seeking compensatory damages, costs, and attorney's fees. [DN 69; DN 77; DN 101]. Defendants have responded to each of Plaintiffs' motions. [DN 88; DN 105]. On January 18, 2019, the parties filed a Stipulation whereby they agree that:

Under the terms of the July 31, 2009 [Amendment to Contract] the Plaintiffs collectively would be entitled to compensatory damage for the limestone mined and shipped or loaded for transport from the Property during the months of June 2016 through November 2018 in the amount of one million six hundred seventy-one thousand two hundred fifty-eight dollars and sixty-four cents (“$1, 671, 258.64) (the “Stipulated Compensatory Damages”) with said sum to be allocated as follows:
- WRF $835, 629.32
- Southern Aggregate $835, 629.32

[DN 96].

         The Court held two telephonic conferences during which the parties discussed the issues of attorney's fees and interest rates. Following these conferences, the Court entered an order dismissing without prejudice Plaintiffs' First and Second Motions for Damages, Costs, Expenses, and Attorney's Fees. [DN 100]. The order instructed that “Plaintiffs shall file their third motion for damages, costs, expenses, and attorney's fees by February 19, 2019.” [Id.]. Now before the Court are Plaintiffs' Third motion for Attorney's Fees, Expenses, and Costs [DN 101] and Plaintiffs' Brief Regarding Interest [DN 99]. Defendants have responded to both documents [DN 105] and Plaintiffs have filed their reply [DN 106].

         Plaintiffs' claim for attorney's fees and costs is based in contract. The Amended Assignment Contract contains the following provision (“Paragraph 10”):

In the event of a breach of any term hereof by a party hereto, then each other affected party shall have all rights and remedies hereunder, and at law or in equity including, without limitations, the right of specific performance and the recovery of damages, reasonable legal fees, reasonable appellate legal fees and costs incurred by the non-defaulting part[y] [sic] in pursuing any remedy available to it.

[DN 101 at 2; DN 105 at 3].

         Plaintiffs claim they are entitled to $704, 045.44[2] in attorney's fees, $2, 300.00 in expenses, and $662.79 in costs. [DN 101-13]. Plaintiffs and their attorney (“Mr. Arnett”) entered into a hybrid fee agreement whereby Plaintiffs agreed to pay Mr. Arnett a reduced fee of $200.00 per hour for legal services performed and agreed that: “Attorney is assigned a thirty percent (30%) contingency fee upon all recoveries, however denominated. . . whether obtained by settlement or by judgment or otherwise and whether denominated actual damages, costs, attorneys' fees, punitive damages or other recover, and in whatever form they may take.” [DN 101-6]. Before entering into the hybrid fee agreement with Mr. Arnett, Plaintiffs were represented by Wyatt, Tarrant & Combs, LLP (“Wyatt”). [See DN 101-3]. Plaintiffs seek to recover from Defendants all fees arising from Wyatt's legal representation including fees incurred during the Prior Litigation. Plaintiffs also seek to recover $2, 300.00 that was paid to Mark G. Enderle, CPA/CFF (“Enderle”), and $622.79 for unspecified costs. Finally, Plaintiffs argue that pre-judgment interest in this case should be assessed at the rate of 8% per annum. Defendants argue that the Plaintiffs are requesting unreasonable attorney's fees, that Plaintiffs are not entitled to attorney's fees and expenses that were incurred during the Prior Litigation, and that the $622.79 in unspecified costs are unrecoverable.

         DISCUSSION

         I. Attorney's Fees.

         Pursuant to the Amended Assignment Contract, the parties agree that any breaching party shall pay the non-breaching party “damages, reasonable legal fees, reasonable appellate legal fees and costs incurred by the non-defaulting part[y] in pursuing any remedy available to it.” [DN 101 at 2]. Plaintiffs argue that “[a]s the [Amended Assignment Contract] provides for recovery of reasonable attorney fees from the non-defaulting party, and the Defendants having been found to have defaulted, the Plaintiffs are entitled to an award of reasonable attorney fees and costs” for the Current and Prior Litigations. [DN 101-1 at 3]. Defendants do not dispute that a breaching party must pay reasonable attorney's fees, expenses, and costs under the Amended Assignment Contract. Defendants argue, however, that Plaintiffs are requesting an unreasonable amount of attorney's fees and that Plaintiffs are not entitled to legal fees from the Prior Litigation.

         Plaintiffs' claims for legal fees, expenses, and costs arise from Paragraph 10 of the Amended Assignment Contract. Paragraph 10 provides:

In the event of a breach of any term hereof by a party hereto, then each other affected party shall have all rights and remedies hereunder, and at law or in equity including, without limitations, the right of specific performance and the recovery of damages, reasonable legal fees, reasonable appellate legal fees and costs incurred by the non-defaulting part[y] [sic] in pursuing any remedy available to it.

[DN 101 at 2] (emphasis added). Paragraph 10 is only triggered if a party breaches the contract.

         Defendants argue that they did not breach the contract until they stopped making royalty payments after the Sixth Circuit Court of Appeals affirmed the dismissal of the Prior Litigation on July 6, 2016 and therefore are not obligated to pay legal fees, costs, or expenses to Plaintiffs arising from the Prior Litigation. Plaintiffs apparently do not disagree that Defendants first breached the contract when they ceased making royalty payments in July 2016 because they do not address Defendants' argument in their reply. In fact, Plaintiffs base their argument for legal fees on the “Defendants' decision to cease making royalty payments pursuant to the Assignment Contract almost immediately following the Sixth Circuit's” affirmance of this Court's dismissal of the Prior Litigation. [DN 101-1 at 4] (citation omitted). Because neither party ...


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