DMS Contracting, Inc. v. Peabody Energy Corporation
Filing
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MEMORANDUM AND ORDER OF REMAND: IT IS HEREBY ORDERED that the Order and Judgment Granting Reorganized Debtors' Motion for Attorneys' Fees and Expenses (Bk. 16-42529 ECF Nos. 3668 and 3669 ) is REVERSED and the action is REMANDED to the United States Bankruptcy Court for the Eastern District of Missouri for further proceedings consistent with this Memorandum and Order. Signed by District Judge Ronnie L. White on 3/26/2019. (CLO)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
In Re:
PEABODY ENERGY CORPORATION, et al.,
Reorganized Debtors,
DMS CONTRACTING, INC.,
Creditor-Appellant,
v.
PEABODY ENERGY CORPORATION, et al.,
Reorganized Debtors-Appellees.
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Bankruptcy Case No. 16-42529-399
U.S. District Court
Case No. 4:18CV306 RLW
MEMORANDUM AND ORDER OF REMAND
This matter is before the Court on Creditor-Appellant DMS Contracting, Inc.'s Appeal
from the bankruptcy court's Order Granting Reorganized Debtors-Appellees Peabody Energy
Corporation, et al.'s Motion for Attorneys' Fees and Expenses and the bankruptcy court's entry
of Judgment awarding such fees and expenses against DMS Contracting, Inc. ("DMS") (ECF
No. 14).
Background 1
In April, 2015, Creditor-Appellant DMS entered into an Agreement Between Owner and
Design-Builder ("Contract") with Peabody Gateway North Mining, LLC ("Gateway"). Gateway
operates an underground mine in Coulterville, Illinois. As the coal is mined, it is loaded onto a
conveyer, which takes the coal to a preparation plant where the coal is washed to remove noncoal refuse. Gateway disposes of the fine and course refuse in large cells created by building
1
The facts are taken from the underlying bankruptcy proceedings, Case No. 16-42529,
specifically the Memorandum Opinion Regarding the DMS Claim (Bk. 16-42529 ECF No.
3500), and the parties' briefs filed in the present appeal (ECF Nos. 14, 17, 18).
earthen embankments that cordon off an area. In 2015, Gateway sought bids to expand the
existing refuse disposal site and selected DMS to build a new refuse disposal cell ("Cell 5").
The Contract dated April 23, 2015 provided that DMS would be compensated on a unit of work
basis and not on a time and material basis, as well as the amount of compensation not to exceed
$5.986 million. Under the Contract, DMS also agreed to fully complete the work by October 15,
2015. Any claims for adjustments to the sum and time under the Contract could only be made in
limited circumstances. In early 2016, Gateway became concerned about delays in the Cell 5
project, which DMS attributed to some risks out of DMS's control which created increases in
time and costs, for which DMS sought additional compensation. DMS completed Cell 5 in July
2016.
On April 13, 2016, Peabody Gateway North Mining, LLC and Peabody Energy
Corporation (collectively "Peabody") filed Voluntary Petitions for Bankruptcy under Chapter 11
of the United States Bankruptcy Code and the cases were procedurally consolidated. On August
19, 2016, DMS filed an administrative claim against Peabody for services performed after the
Petition date allegedly due to unforeseen conditions at the construction site. The bankruptcy
court disallowed DMS's claim on May 18, 2017, after which DMS filed a motion for rehearing.
The bankruptcy court granted the motion for rehearing, but on October 12, 2017, the bankruptcy
court held that DMS waived its claim under the terms of the Contract and thus DMS's claim was
disallowed.
On November 16, 2017, 35 days after the bankruptcy court's order, Peabody filed a
Motion for Attorneys' Fees and Expenses ("motion for fees") seeking an award of its attorneys'
fees and expenses incurred in defending the DMS Claim pursuant to the terms of the Contract.
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Section 13 .6.12 of the Contract provides:
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Following a hearing on the motion for fees, the bankruptcy court entered an Order and Judgment
granting the motion and awarding attorneys' fees and expenses to Peabody and against DMS in
the amount of $433,102.78. (Bk. 16-42529 ECF Nos. 3668 and 3669) On January 12, 2018,
DMS filed an appeal from the Order and Judgment in the United States District Court for the
Eastern District of Missouri. The parties also requested oral argument, which the Court finds is
not warranted in this matter.
Standard of Review
The Court has jurisdiction over this bankruptcy appeal pursuant to 28 U.S.C. ยง 158(a)(l).
On appeal, "the district court reviews the bankruptcy court's legal conclusions de novo and its
findings of fact for clear error." In re Tasic, No. 4:13CV00474 ERW, 2013 WL 2425130, at *4
(E.D. Mo. June 4, 2013) (citing In re O'Brien, 351F.3d832, 836 (8th Cir. 2003)). "Under this
standard, [the court's] review focuses upon whether there was a failure to apply the proper legal
standard or whether the findings of fact are clearly erroneous." In re Carter, 502 B.R. 333, 335
(B.A.P. 8th Cir. 2013) (citation omitted). De novo review of a bankruptcy court's legal
conclusions also applies to the interpretation of state law. In re Dittmaier, 806 F.3d 987, 989
(8th Cir. 2015) (citation omitted).
Further, the Court reviews issues committed to the bankruptcy court's discretion for an
abuse of that discretion. In re Tasic, 2013 WL 2425130, at *4. (citing In re Zahn, 526 F.3d
Should Owner [Peabody] be required to institute any arbitration, lawsuit
proceeding, or action to enforce any of its rights set forth in the Contract
Documents, then Owner shall be entitled to reimbursement from Design-Builder
[DMS] for all reasonable attorneys' fees and costs incurred in such arbitration,
lawsuit, proceeding or action. In the event Design-Builder institutes any
proceeding or action against Owner and in the further event Owner prevails in
such arbitration, lawsuit, proceeding or action, Design-Builder shall pay Owner
the amount of Owner's reasonable attorneys' fees and expenses incurred in such
action or proceeding.
(Brief of Reorganized Debtors if 11, ECF No. 17)
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1140, 1142 (8th Cir. 2008)). "An abuse of discretion occurs when the bankruptcy court fails to
apply the proper legal standard or bases its order on findings of fact that are clearly erroneous."
Id. (citation omitted).
Discussion
Creditor-Appellant DMS raises five points on appeal: 1) the bankruptcy court erred in
finding Peabody's motion for fees timely and unbarred despite Peabody's failure to comply with
the 14-day requirement of Fed. R. Civ. P. 54; 2) the bankruptcy court erred in finding Peabody's
motion for fees timely and unbarred under Missouri state law despite Peabody's failure to plead
or request fees during the DMS claim proceedings; 3) the bankruptcy court erred in determining
that Peabody was not required to assume or reject the executory contract to preserve recovery of
a benefit thereunder; 4) the bankruptcy court erred in determining that the fee provision in the
contract was enforceable against DMS post-confirmation despite its rejection; and 5) the
bankruptcy court abused its discretion in determining that Peabody's fees were reasonable
despite Peabody's failure to itemize the time entries to reflect work exclusively pertaining to the
DMS claim. Upon careful consideration of the briefs and the relevant documents from the
bankruptcy proceedings, the Court will reverse the bankruptcy court's Order and Judgment and
remand the case for further proceedings.
DMS asserts that the bankruptcy court clearly erred in finding Peabody's motion for fees
timely because Peabody failed to file the motion within 14 days as required by Rule 54 of the
Federal Rules of Civil Procedure. Rule 54 provides, "[a] claim for attorney's fees and related
nontaxable expenses must be made by motion unless substantive law requires those fees to be
proved at trial as an element of damages." Fed. R. Civ. P. 54(d)(2)(A). Further, "the motion
must be filed no later than 14 days after the entry of judgment" unless otherwise provided by
statute or court order. Fed. R. Civ. P. 54(d)(2)(B)(i).
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DMS contends that Peabody's motion was filed more than 14 days after the bankruptcy
court's final order on DMS's claim and was therefore untimely under Rule 54. Peabody, on the
other hand, asserts that Missouri substantive law applies, which treats attorneys' fees sought
pursuant to a contract as an element of damages. Thus, Peabody argues that Rule 54' s time
limits do not apply, and the motion for fees was timely. DMS responds that the exception to
Rule 54 does not apply here because Peabody's fees were incurred during the litigation of DMS'
claim and not prior to initiating the contested hearing. In addition, even if Rule 54' s exception
did apply, Peabody failed to petition for its fees in accordance with the requirements of
applicable substantive law.
During the hearing on Peabody's motion for attorneys' fees, the bankruptcy court stated
that it was not convinced that Rule 54' s 14-day requirement applied and instead adopted the case
authority cited in Peabody's reply brief to its motion for fees, document number 3651. (Bk. 1642529 ECF No. 3666 pp. 31-33) The bankruptcy court thus held that Rule 54 did not apply and
granted Peabody's motion for fees. (Id.)
Peabody argued in the bankruptcy court, as it does in the present appeal, that Missouri
substantive law treats attorneys' fees in contract disputes as an element of damages to be proven
at trial, thus the time limits set forth in Rule 54 do not apply. In support of this contention,
Peabody cites Missouri law, which provides, "[a]ttorney fees are recoverable in two situations:
when a statute specifically authorizes recovery and when the contract provides for attorney fees."
Lucas Stucco & EIFS Design, LLC v. Landau, 324 S.W.3d 444, 445 (Mo. 2010). Further, in
Missouri "it is established that attorney fees are special damages that must be pleaded
specifically." Scheck Indus. Corp. v. Tarlton Corp., 435 S.W.3d 705, 732 (Mo. Ct. App. 2014)
(citation omitted). Thus, in order to award attorneys' fees in contract cases in Missouri, the
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movant must specifically plead entitlement to attorneys' fees to place the opposing party on
notice. Id. at 732-33.
The Court holds that the bankruptcy court's legal conclusion that Peabody is exempt
from Rule 54 and the motion for fees was timely under Missouri substantive law requires a
finding that Peabody sufficiently pleaded entitlement to attorneys' fees in the underlying
bankruptcy proceedings. Here, the bankruptcy court made no such factual finding in its oral
recitation finding that Rule 54 did not apply and adopting the case authority cited by Peabody.
Further, while conceding that Missouri substantive law requires that attorneys' fees be pleaded
specifically, Peabody does not assert in either the bankruptcy proceedings or this appeal that it
fully complied with Missouri law. Indeed, Peabody cites authority for the proposition that an
award of attorneys' fees must be vacated where not specifically pleaded. See Conley v.
Rauschenbach, 863 S.W.2d 617, 620-21 (Mo. Ct. App. 1993) (vacating an award of attorneys'
fees where sellers in a real estate contract failed to specifically seek attorney fees in their answer,
counterclaim, or prayers for relief).
Applying the proper standard of review in this case, 3 the Court is unable to determine
whether the bankruptcy court's finding of timeliness and award of attorneys' fees was proper
under Missouri law because there is no factual finding as to whether Peabody pleaded special
damages to review for clear error. The Eighth Circuit Court of Appeals has held that in
bankruptcy appeals:
the district court may not make its own independent factual findings. If the
bankruptcy court's factual findings are silent or ambiguous as to an outcome
determinative factual question, the district court may not engage in its own
factfinding but, instead, must remand the case to the bankruptcy court for the
necessary factual determination.
The Court notes that Peabody erroneously applies an abuse of discretion standard in reviewing
the bankruptcy court's findings of fact and conclusions oflaw. (ECF No. 17 'il'il 29-31)
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Wegner v. Grunewaldt, 821 F .2d 1317, 1320 (8th Cir. 1987). Here, the bankruptcy court's
findings are silent as to whether Peabody's specifically requested attorneys' fees in a pleading.
This requirement is set forth in both Missouri substantive law and in the advisory notes of
54(d)(2)(A), upon which the bankruptcy court relies. 4 Absent more detailed findings of fact and
conclusions of law, the Court cannot be expected to adequately review the proceedings below.
However, Peabody argues that DMS waived the argument that Peabody failed to
specifically request attorneys' fees in Peabody's pleadings by not raising it before the bankruptcy
court. The record belies this claim. During the hearing on Peabody's motion for fees, counsel
for DMS argued that Peabody was required to plead and prove its entitlement to attorneys' fees
before the bankruptcy court entered final judgment, or Peabody was required to request fees
within 14 days under Rule 54. (Bk. 16-42529 ECF No. 3666 pp. 15-16) Further, the Court finds
that Peabody's argument that it could not include a request for attorneys' fees in the contested
matter and that 35 days is a reasonable time, is not properly before this Court. 5 As stated above,
the bankruptcy court did not address whether Peabody specifically pleaded its request for
attorneys' fees in the bankruptcy proceedings. Whether Peabody could or could not have
sufficiently provided notice to DMS during the bankruptcy proceedings is a question for the
bankruptcy court to determine on remand.
4
The 1993 advisory notes for Rule 54( d) provide that the 14-day time limit for requesting
attorneys' fees does not "apply to fees recoverable as an element of damages, as when sought
under the terms of a contract; such damages typically are to be claimed in a pleading and may
involve issues to be resolved by a jury." Fed. R. Civ. P. 54(d)(2)(A).
5
Peabody relies on Medtronic, Inc. v. Mirowski Family Ventures, LLC, 682 F. App'x 921, 927
(Fed. Cir. 2017) for the proposition that it properly requested attorneys' fees within a reasonable
time after learning it was the prevailing party. Unlike the present case, however, the Medtronic
court determined that Rule 54(d)(2) did not apply to the claim for attorney fees because the fees
were pled and proven at trial as an element of damages and thus the claim was timely. Id at 925,
927 (finding that plaintiff notified the parties of its intent to seek attorney fees during a status
report to the district court).
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Thus, the Court holds that this case must be remanded to the bankruptcy court for
development of the court's findings of fact and conclusions of law in support of the Order and
Judgment awarding attorneys' fees and expenses to Peabody. In re WEB2B Payment Sols., Inc.,
No. 0:12-CV-02327 SRN, 2013 WL 2383599, at *2 (D. Minn. May 30, 2013). In light of the
Court's remand, the Court need not address DMS's other arguments supporting the claim that the
bankruptcy court erred in awarding attorneys' fees and expenses to Peabody. The Court notes,
however, that should the bankruptcy court determine on remand that the motion for fees is timely
and Peabody is entitled to fees, the bankruptcy court may want to revisit whether the
$433,102.78 awarded to Peabody for attorneys' fees and expenses is reasonable and relates
solely to the DMS claim. See In re Clark, 223 F.3d 859, 863 (8th Cir. 2000) (stating that the
bankruptcy court has a duty to examine attorney fees for reasonableness)."
According! y,
IT IS HEREBY ORDERED that the Order and Judgment Granting Reorganized
Debtors' Motion for Attorneys' Fees and Expenses (Bk. 16-42529 ECF Nos. 3668 and 3669) is
REVERSED and the action is REMANDED to the United States Bankruptcy Court for the
Eastern District of Missouri for further proceedings consistent with this Memorandum and
Order.
Dated this 26th day of March, 2019.
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