Violetta v. Steven Brothers Sports Management, LLC et al

Filing 48

MEMORANDUM AND ORDER granting 30 Motion. Plaintiff's claim for attorney fees against SBSM is dismissed. Signed by Chief Judge J. Thomas Marten on 3/31/2017. (sz)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
STEVEN M. VIOLETTA,
Plaintiff,
v.

Case No. 6:16-cv-01193-JTM

STEVEN BROTHERS SPORTS
MANAGEMENT, LLC;
BRANDON STEVEN; and
RODNEY STEVEN,
Defendants.

MEMORANDUM AND ORDER
In August 2015, Steven Brothers Sports Management, LLC (“SBSM”), and Steven
Violetta entered into an employment contract pursuant to which Violetta agreed to be
the chief executive officer of three hockey franchises. About seven months later,
defendants terminated Violetta’s employment. Violetta filed this action claiming
defendants breached the contract and violated the Kansas Wage Payment Act, COBRA
and ERISA.1 Defendants deny the claims and assert counterclaims for breach of contract
and unjust enrichment.
Plaintiff alleges that Texas law governs his breach of contract claim and that he is
entitled to attorney’s fees under Texas law if he prevails on the claim. Dkt. 1 at 9. The
matter is now before the court on a motion by SBSM to dismiss plaintiff’s claim for
attorney fees.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), 29 U.S.C. § 1161 et seq., and the
Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq.
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The court first rejects plaintiff’s argument that the motion is premature. The
motion is apparently based on Rule 12(b)(6).2 Although such a motion must ordinarily
be filed before a responsive pleading is filed (which defendants did not do), it may be
asserted under Rule 12(c) after the pleadings are closed. See Fed. R. Civ. P. 12(h)(2)(B).
The pleadings are closed once those pleadings contemplated by Rule 7 have been filed,
as they have here. See Maniaci v. Georgetown Univ., 510 F.Supp.2d 50, 60 (D.D.C. 2007).
Accordingly, the court treats the motion as one for judgment on the pleadings under
Rule 12(c). See Razzaq v. Corrections Corp. of America, 2012 WL 966077, *1 (D. Kan. Mar.
21, 2012).
The court reviews Rule 12(c) motions under the same standard as Rule 12(b)(6)
motions. Id. Under that standard, the court examines the complaint to see if it contains
enough allegations “to state a claim that is plausible on its face.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007). In doing so, the court accepts all well-pleaded factual
allegations as true and draws all reasonable inferences in the plaintiff’s favor.
The parties’ employment contract provides that it “shall be governed by and
construed in accordance with the laws of the State of Texas without reference to its
principles of conflicts of law.” Dkt. 10 at 4. Both parties agree that, pursuant to this
provision, the substantive law of Texas governs the breach of contract claim. See
Radiologix, Inc. v. Radiology and Nuclear Med., LLC, 2017 WL 880420, *4 (D. Kan. Mar. 6,
2017) (citing Brenner v. Oppenheimer & Co., Inc., 273 Kan. 525, 540, 44 P.3d 364, 375 (2002)

The motion does not specify which subsection of Rule 12 it is brought under, but it essentially argues
that the allegations fail to state a claim upon which attorney fees can be awarded. Dkt. 30.
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(Kansas courts generally apply the law chosen by the parties to control their agreement
provided the result is not contrary to public policy)). Texas law provides in part that “a
person may recover reasonable attorney’s fees from an individual or corporation, in
addition to the amount of a valid claim and costs, if the claim is for … an oral or written
contract.” Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (West). SBSM’s motion for
judgment argues that this provision does not apply because it is procedural rather than
substantive, and further argues that it does not allow recovery of an attorney’s fee from
an LLC. Plaintiff challenges both points.
The court agrees with plaintiff that § 38.001(8) is part of the substantive Texas
law that governs plaintiff’s claim. Although the Restatement (Second) of Conflict of Laws3
has more or less abandoned the “procedural” versus “substantive” terminology, the
factors it provides indicate that Texas rather than Kansas law should control the
question of attorney fees. Under the Restatement view, a court in this situation typically
applies its own local rules “prescribing how litigation shall be conducted,” but
otherwise applies the local law of the designated state to resolve other issues in the case.
As noted in Atchison Casting Corp. v. Dofasco, Inc., 1995 WL 655183, *7-9 (D. Kan. Oct. 24,
1995), relevant factors to consider include whether the parties likely gave thought to the
issue in entering the transaction; whether the issue will affect the ultimate result in the
case; whether precedents have classified the issue as procedural or substantive for
choice-of-law purposes; and whether applying the rules of another state would impose
The Kansas Supreme Court has cited both the First and Second Restatements on Conflict of Laws. The
court cites the Second Restatement here, although the result would be the same under the First
Restatement. See Restatement (First) of Conflict of Laws § 584.
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an undue burden. Id. (citing Restatement (Second) of Conflict of Laws § 122, comment a).
These factors tend to favor application of Texas law. Among other things, the court
finds that a loser-pays rule in a contract action is more properly considered remedial
than procedural in nature; that application of § 38.001 is consistent with the parties’
stated expectation of having Texas law govern the contract; that the weight of authority
in both Kansas and Texas considers a provision of this type to be substantive for choiceof-law purposes; and that application of § 38.001 poses no undue burden. Cf. Boyd Rosen
& Assoc., Inc. v. Kan. Mun. Gas Agency, 174 F.3d 1115, 1127 (10th Cir. 1999) (loser-pays
attorney fees, as opposed to an assessment for bad-faith litigation, may be viewed as
substantive for choice-of-law purposes; where the parties’ contract said Kansas law
would govern, “their expectation would have been that Kansas law would govern the
recovery of attorney’s fees”); Atchison Casting Corp. v. Dofasco, Inc., 1995 WL 655183, *7-9
(D. Kan. Oct. 24, 1995) (under Kansas conflict rules, right to attorney fees in contract
dispute was substantive and was controlled by parties’ choice-of-law provision);
Restatement (Second) of Conflict of Laws § 187(1) (“The law of the state chosen by the
parties to govern their contractual rights and duties will be applied if the particular
issue is one which the parties could have resolved by an explicit provision in their
agreement directed to that issue”); Playboy Enterp., Inc. v. Sanchez-Campuzano, 561
F.App’x 306, 309 (5th Cir. 2013) (“It is undisputed that § 38.001 is substantive”); Liberty
Mut. Ins. Co. v. Senior Care, Inc., 2013 WL 12091103, *4 (W.D. Tex. Nov. 6, 2013) (Texas
substantive law provides for attorney’s fee on breach of contract claim).

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But the court cannot agree with plaintiff that § 38.001(8) permits an award of
attorney’s fees against a limited liability company (LLC) such as SBSM. Where the
Texas Supreme Court has not weighed in on an issue – and it has not in this instance the court must predict how that court would rule. It does so by considering all available
resources, including decisions by Texas and federal courts, any other relevant decisions,
and the general weight and trend of authority. Cornhusker Cas. Co. v. Skaj, 786 F.3d 842,
852 (10th Cir. 2015). The statute at issue allows a person to recover an attorney’s fee
“from an individual or corporation.” Texas state and federal courts “have narrowly
construed this provision to limit recovery of attorney’s fees to individuals and
corporations but not other legal entities, such as limited liability companies or
partnerships.” J.D. Fields & Co., Inc. v. North Am. Fabricators, LLC, 2016 WL 7912455, *14
(S.D. Tex. Nov. 7, 2016). The only courts to have squarely considered whether the
provision allows an award of attorney’s fees against an LLC or similar entity have
concluded that it does not. See Alta Mesa Holding, L.P. v. Ives, 488 S.W.3d 438, 452-53
(Tex. App. – Houston 2016, pet. denied) (entities against whom attorney’s fees can be
recovered under this section do not include other legal entities such as LLCs). See also
Varel Int’l Indus., L.P. v. PetroDrillbits Int’l, Inc., 2016 WL 4535779, *7 (Tex. App. – Dallas
Aug. 30, 2016) (“Under the plain language of section 38.001, a trial court cannot order
limited liability partnerships (L.L.P.), limited liability companies (L.L.C.), or limited
partnerships (L.P.) to pay attorneys’ fees”); Choice! Power, L.P. v. Feeley, 501 S.W.3d 199,
214 (Tex. App. – Houston Aug. 4, 2016) (§ 38.001 does not permit recovery against a
limited partnership); Hoffman v. L&M Arts, 2015 WL 1000838, *7 (N.D. Tex. Mar. 6,
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2015), aff’d 838 F.3d 568 (5th Cir. 2016) (“The court concludes that the plain meaning of
the term ‘individual’ does not include business entities such as LLCs, and, accordingly,
makes an Erie prediction that the Supreme Court of Texas would not interpret the term
‘individual’ in § 38.001 to include an LLC.”).
Plaintiff cites a number of cases (Dkt. 42 at 12-13) where Texas courts have in fact
awarded attorney fees under § 38.001 to various entities, including LLCs. But in none of
those cases did a party object that the “individual or corporation” language precluded
an award of fees to an LLC. See Chaparral Energy, 2015 WL 12942050, at *5 (“Defendants
in the present case argue that Texas courts have often granted attorney's fees to LLCs
and cite several cases in the briefing to this effect. [cite omitted]. However, not in a
single case that Defendants cited was this issue actually addressed by the Court.”). As
indicated above, the courts that have addressed the issue have found that the statute
does not permit an award of attorney fees to an LLC. Given the significant weight of
authority indicated above – and the plain language of the statute - the court must
predict that the Texas Supreme Court would conclude that an LLC is not an “individual
or corporation” within the meaning of § 38.001.4
Aside from urging a contrary prediction, plaintiff argues that denying recovery
of attorney fees from an LLC while permitting recovery from an individual or
corporation would violate the Equal Protection Clause of the Fourteenth Amendment

4 The court notes that the Texas House of Representatives has apparently passed a bill that would change
the term “corporation” in § 38.001 to “organization,” with the latter term having the broad meaning
ascribed to it in the Texas Business Organization Code. See 2017 Texas House Bill No. 744, Texas EightyFifth Legislature. Under the current version of the bill, such a change would only apply to an action
commenced on or after the act takes effect.

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because there is no rational basis for such a distinction. Dkt. 42 at 17. Plaintiff cites no
authority for that argument and the court finds it unpersuasive. Under rational basis
review, a classification is upheld “if there is any reasonably conceivable state of facts
that could provide a rational basis for the classification.” Heller v. Doe by Doe, 509 U.S.
312, 319-20 (1993). It is conceivable that the Texas legislature exempted entities such as
LLCs from attorney fee liability because it believed doing so would foster small
business growth or was otherwise economically beneficial. Plaintiff has shown no
plausible basis for finding the statute unconstitutional.
Plaintiff also argues that granting the motion would be improper “as discovery
would be necessary to determine how SBSM has represented itself,” because SBSM may
have held itself out to be a corporation. Dkt. 42 at 18. Regardless of what discovery
might be appropriate, however, plaintiff fails to point to any allegation in the complaint
that could plausibly subject SBSM to liability for attorney fees under § 38.001.
Accordingly, SBSM is entitled to dismissal of the claim against it for attorney fees under
§ 38.001.
IT IS THEREFORE ORDERED this 31st day of March, 2017, that the motion for
partial dismissal by defendant Steven Brothers Sports Management, LLC (Dkt. 30) is
GRANTED. Plaintiff’s claim for attorney fees against SBSM is dismissed.

___s/ J. Thomas Marten________
J. THOMAS MARTEN, JUDGE

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