Indoor Billboard Northwest, Inc. et al v. M2 Systems Corporation

Filing 46

Opinion and Order: The Court DENIES without prejudice Defendant's Petition 32 for Attorneys' fees and Bill of Costs 33 . Signed on 06/18/2013 by Judge Anna J. Brown. See attached 16 page Opinion and Order for full text. (bb)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

INDOOR BILLBOARD NORTHWEST
INC.; CATHERINE E. COX;
DANIEL D. GESTWICK IRA R/O;
PAIGE C. GIST; BERNICE GOLDIN
IRA by ROCHELLE GOLDIN and
STEVE GOLDIN for BERNICE
GOLDIN ESTATE; DONALD J.
HANDAL REVOCABLE TRUST U/O;
DONALD J. HANDAL IRA R/O;
MARGOT S. HANDAL TR U/A;
EDWARD J. HARTNETT; GEOFFREY
M. HOLMES; GEOFFREY W.
HOLMES; LEE M. and BECKY
HOLZMAN; MARITAL TRUST U/W
WILLIAM KATZ; PEGGY W.
KAUFMANN IRA; RICHARD J.
KAUFMANN DECEDENT'S TRUST;
KAY M. KAZMAIER; STANLEY A.
STAR; JAMES SHU LEVITZ; ALAN
and NADINE WOLFF; and MICHAEL
WOLFF,
Plaintiffs,
v.
M2 SYSTEMS CORPORATION,
Defendant.

1 - OPINION AND ORDER

3:12-CV-01338-BR
OPINION AND ORDER

ARDEN E. SHENKER
Shenker & Bonaparte LLP
1500 S.W. First Avenue
Suite 765
Portland, OR 97201
[phone]
Attorneys for Plaintiffs
TIMOTHY W. SNIDER
Stoel Rives LLP
900 S.W. Fifth Avenue
Suite 2600
Portland, OR 97204
[phone]
Attorneys for Defendant
BROWN, Judge.
This matter comes before the Court on Defendant's Petition
(#32) for Attorneys’ Fees and Bill of Costs (#33).
For the reasons that follow, the Court DENIES Defendant's
Petition for Attorneys Fees and Bill of Costs.

BACKGROUND
On July 25, 2006, Defendant M2 Systems Corporation entered
into a Promissory Note with Matthew Szulik,1 a Connecticut
resident, in which M2 Systems "promise[d] to pay [Szulik] . . .
on April 24, 2007, or sooner as otherwise provided herein (the
Maturity Date), the principal amount of Two Million Fifty
Thousand ($2,050,000) Dollars" plus interest.

1

Szulik is not a party to this action.

2 - OPINION AND ORDER

Compl., Ex. A at

1.

Also on July 25, 2006, Defendant and Szulik entered into a

Security Agreement relating to the Promissory Note setting out
Szulik's "rights, remedies, and benefits."

On that same day

Defendant and Szulik, among others, entered into an Escrow
Agreement related to the Promissory Note and Security Agreement.
In their Complaint Plaintiffs allege the Promissory Note
"was assigned on February 24, 2009, to a holder in due course2
and assigned by such holder in due course to the plaintiffs on
February 24, 2009, April 1, 2009, and November 6, 2009, as
holders in due course."
On July 24, 2012, Plaintiffs filed an action against
Defendant in this Court alleging a claim for breach of the
Promissory Note.
On September 21, 2012, Defendant filed a Motion to Dismiss
for Lack of Jurisdiction and Venue or, Alternatively, Motion to
Transfer Venue and a Motion to Dismiss for Failure to State a
Claim Upon Which Relief Can Be Granted.
Plaintiffs filed Responses to both Motions on October 26,
2012.

On November 13, 2012, Defendant filed its Replies.
On January 16, 2013, the Court entered an Order directing

Plaintiffs to "provide a record that specifies with particularity
the citizenship of each Plaintiff."

2

Plaintiffs do not identify in their Complaint who the
holder in due course was in the February 24, 2009, transfer.
3 - OPINION AND ORDER

On January 21, 2013, Plaintiffs filed the Declaration of
Amanda Soden in response to the Court's January 16, 2013, Order.
On January 29, 2013, the Court entered an Order noting
Soden's Declaration did not set out sufficient information for
the Court to determine each Plaintiff's citizenship.

The Court,

therefore, directed Plaintiffs to provide the Court with
information as to the domicile and citizenship of each Plaintiff.
On January 31, 2013, Plaintiffs filed a Supplemental
Declaration of Amanda Soden in which Soden testified
[e]ach of the natural plaintiffs is a domiciliary
of the place of that person's residence as set
forth in paragraphs 2 and 3 of my said
declaration. Each of the accounts, trusts and
estates is permanently present in the states
specified in paragraph 3 of my said declaration.
Suppl. Decl. of Amanda Soden at ¶ 2.
On February 6, 2013, the Court entered an Opinion and Order
granting Defendant's Motion to Dismiss for lack of jurisdiction.
Also on February 6, 2013, the Court entered a Judgment dismissing
without prejudice this matter for lack of jurisdiction.
On February 27, 2013, Defendant filed a Petition for
Attorneys' Fees and a Bill of Costs.

The Court took those

matters under advisement on April 18, 2013.

DISCUSSION
I.

Attorneys' Fees
“Under the ‘American rule,’ litigants ordinarily are

4 - OPINION AND ORDER

required to bear the expenses of their litigation unless a
statute or private agreement provides otherwise.”

Grove v. Wells

Fargo Fin. Cal., Inc., 606 F.3d 577, 579 (9th Cir. 2010)
(quotation omitted).

Defendant seeks attorneys' fees on the

grounds that the Promissory Note contains an attorney-fee
provision and Defendant was the prevailing party in this matter
with respect to the issue of jurisdiction.

Plaintiffs contend

the Court lacks jurisdiction to grant Defendant's Petition, the
Note does not provide for recovery of attorneys' fees under the
circumstances of this case, Oregon Revised Statute § 20.096 does
not apply, and Defendant is not a prevailing party.

Plaintiffs,

therefore, assert Defendant is not entitled to attorneys' fees.
A.

Jurisdiction
Plaintiffs contend this Court lacks jurisdiction to

enter an award of attorneys' fees because the Court concluded it
lacks personal jurisdiction to adjudicate Plaintiffs' claims
against Defendant.

The Ninth Circuit, however, has made clear

that "'an award of attorney's fees is a collateral matter over
which a court normally retains jurisdiction even after being
divested of jurisdiction on the merits.'"

Desert Sch. Fed. Cred.

Union v. Johnson, 473 F. App'x 804, 804 (9th Cir. 2012)(quoting
Moore v. Permanente Med. Group, Inc., 981 F.2d 443, 445 (9th Cir.
1992)).

The Court, therefore, is not divested of jurisdiction to

award attorneys' fees even though it has concluded it lacks
5 - OPINION AND ORDER

jurisdiction to adjudicate the merits of Plaintiffs' claims.
B.

Choice of Law
The Security Agreement provides in pertinent part:
Debtor shall be liable to Secured Party for any
and all sums, costs and expenses which Secured
Party may pay or incur pursuant to the provisions
of this Agreement or in defending, protecting and
enforcing the security interest granted herein in
enforcing payment of the Obligations or otherwise
in connection with the provisions hereof.

Compl., Ex. B at ¶ 5.
The Promissory Note provides in pertinent part:
Upon the occurrence of an Event of Default
specified in Paragraph 7(a) above, all Obligations
then remaining unpaid hereunder shall immediately
become due and payable in full . . . together with
all reasonable costs and expenses of the
collection and enforcement of this Note, including
reasonable attorney's fees and expenses.
Compl., Ex. A at ¶ 7(b).
provision:

The Note also contains a choice-of-law

"This Note shall be construed and enforced in

accordance with . . . the laws of the State of Connecticut
applicable to contracts made and to be performed entirely within
such State."

Compl., Ex. A at ¶ 11(c).

Defendant contends a choice-of-law issue arises as to
whether it is entitled to a reciprocal right to attorneys' fees
under the Note because even though Connecticut law provides for
reciprocal attorneys' fees only in consumer contracts, Oregon law
precludes enforcement of contractual choice-of-law provisions
that "[c]ontravene an established fundamental policy embodied in

6 - OPINION AND ORDER

the law that would otherwise govern the issue in dispute."
Rev. Stat. § 15.355(1)(c).

Or.

Oregon law, unlike Connecticut law,

provides for reciprocal attorneys' fees:
In any action or suit in which a claim is made
based on a contract that specifically provides
that attorney fees and costs incurred to enforce
the provisions of the contract shall be awarded to
one of the parties, the party that prevails on the
claim shall be entitled to reasonable attorney
fees in addition to costs and disbursements,
without regard to whether the prevailing party is
the party specified in the contract and without
regard to whether the prevailing party is a party
to the contract.
Or. Rev. Stat. § 20.096(1).

The Oregon Court of Appeals has held

that reciprocal attorneys' fees as provided for under § 20.096
are a fundamental policy of Oregon, and "the legislature made the
policy choice that making the right to recover prevailing party
attorney fees under contracts containing attorney-fee provisions
reciprocal would trump the parties' freedom to contract."
Capital One Bank v. Fort, 242 Or. App. 166, 172 (2011).

Under

Oregon law, therefore, the nonreciprocal attorneys' fee provision
in the Note would be unenforceable.

Accordingly, the Court

concludes there is a conflict between Oregon and Connecticut law
as to the availability of reciprocal attorneys' fees for
Defendant under the Note.
"When sitting in diversity, [federal courts] apply the
choice-of-law rules of the forum state."
673 F.3d 1155, 1161 (9th Cir. 2012).

7 - OPINION AND ORDER

Coneff v. AT & T Corp.,

Under Oregon choice-of-law

rules the Court must determine as a threshold issue whether there
is a material difference between Oregon law and the law of the
other forum.
475 (2001).

Waller v. Auto-Owners Ins. Co., 174 Or. App. 471,
If there is a material difference, the Court must

determine whether both states have substantial interests in
having their laws applied.

Pulido v. United States Parcel Serv.

Gen. Servs. Co., 31 F. Supp. 2d 809, 813 (D. Or. 1998)(citing
Dabbs v. Silver Eagle Mfg. Co., 98 Or. App. 581, 583-84 (1989)).
Finally, if "both states have substantial interests, the Oregon
Supreme Court has adopted the 'most significant relationship'
approach of the Restatement (Second) Conflict of Laws."
(citation omitted).

Id.

See also Portland Trailer & Equip., Inc. v.

A-1 Freeman Moving & Storage, Inc., 182 Or. App. 347, 358 (2002)
("Oregon has adopted the choice of law . . . 'most significant
relationship' test.").
Defendant has identified a material difference between
the law of Oregon and Connecticut as to the availability of
reciprocal attorneys' fees.

The Court, therefore, must determine

whether both states have substantial interests in having their
law applied and which state has the most significant relationship
to the issue of attorneys' fees.

Plaintiffs assert Connecticut

has a substantial interest in having its law governing
nonreciprocal attorneys' fees applied because the original payee
on the Note was a resident of Connecticut.

8 - OPINION AND ORDER

As Defendant points

out, however, the original payee is not a party to this action,
and, according to the allegations in Plaintiffs' Complaint, the
original payee is no longer a party to the Note.

In addition,

the Note does not require any performance in Connecticut, it is
not secured by any property in Connecticut, and the current
holders and maker of the Note are not residents of Connecticut.
On the other hand, Plaintiffs filed the action in Oregon, certain
Plaintiffs are Oregon residents, and Defendant was forced to
defend itself in this action in Oregon.

In addition, Oregon

courts have made clear that the reciprocal attorneys' fee policy
in § 20.096 was intended to benefit litigants by "overrid[ing]
the tactical advantage enjoyed by the parties favored by . . .
one-sided attorney-fee provisions."

King v. Neverstill

Enterprises, LLC, 240 Or. App. 727, 732 (2011).
On this record the Court concludes Oregon has a
substantial interest in having its law apply to the issue of
reciprocity of attorneys' fees and Connecticut does not.

In

addition, the Court concludes Oregon has the most significant
relationship as to the issue of reciprocity of attorneys' fees.
Accordingly, the Court concludes Oregon law applies to the issue
of attorneys' fees, and, therefore, reciprocal attorneys' fees
are an available remedy if Defendant is a prevailing party in
this matter.

9 - OPINION AND ORDER

C.

Defendant is not a prevailing party
As noted, § 20.096(1) provides in pertinent part:
In any action . . . in which a claim is made based
on a contract that specifically provides [for
attorneys' fees] the party that prevails on the
claim shall be entitled to reasonable attorney
fees in addition to costs and disbursements.

Accordingly, if Defendant is a prevailing party under the Note,
the Court must award reasonable attorneys' fees and costs to
Defendant.
Defendant contends it is a prevailing party because it
achieved success in its effort to dismiss this matter for lack of
personal jurisdiction.

Plaintiffs contend Defendant is not a

prevailing party because it did not obtain a final judgment
against Plaintiffs on the merits of Plaintiffs' claims.
Under Oregon law, the principles of contract
interpretation are as follows:
[The Court's] objective is to ascertain the
intention of the parties "based on the terms and
conditions of the [contract]." Id. at 469, 836
P.2d 703. [The Court] begin[s] with the wording
of the [contract], applying any definitions that
are supplied by the [contract] itself and
otherwise presuming that words have their plain,
ordinary meanings. Id. at 469-70, 836 P.2d 703.
If, from that vantage point, [the Court] find[s]
only one plausible interpretation of the disputed
terms, [the Court's] analysis goes no further.
Id. If [the Court] find[s] that the disputed
terms are susceptible to more than one plausible
interpretation, however, [the Court] examine[s]
those terms in the broader context of the policy
as a whole. Hoffman, 313 Or. at 470, 836 P.2d
703. If [the Court's] consideration of the
policy's broader context fails to resolve the
10 - OPINION AND ORDER

ambiguity, then [the Court] will construe the
policy against the drafter. . . . Id. at 470-71,
836 P.2d 703. In all events, interpretation of [a
contract] is a question of law that is confined to
the four corners of the [contract] without regard
to extrinsic evidence. Andres v. American
Standard Ins. Co., 205 Or. App. 419, 424, 134 P.3d
1061 (2006).
Tualatin Valley Housing Partners v. Truck Ins. Exch., 208 Or.
App. 155, 159-60 (2006)(quoting Hoffman Constr. Co. v. Fred S.
James & Co., 313 Or. 464, 469-70 (1992)).
Neither Oregon Revised Statute § 20.096 nor the
Promissory Note defines what is required to be considered a
prevailing party under the Note.

Accordingly, the Court must

presume the phrase has its ordinary, plain meaning.
Plaintiffs rely on Cascade General, Inc. v. Powerhouse
Diesel Services, Inc., to support their assertion that Defendant
is not a prevailing party for purposes of § 20.096(1) because
Defendant did not obtain a final judgment on the merits in this
action.

No. 05-1334-HU, 2007 WL 3520469 (D. Or. Nov. 9, 2007).

That case, however, applied the pre-2001 version of Oregon
Revised Statute § 20.096, which defined prevailing party for
purposes of that provision as "the party in whose favor final
judgment or decree is rendered."
(1999)(emphasis added).

Or. Rev. Stat. § 20.096(5)

In 2001 the Oregon Legislature redefined

a prevailing party as one who "receives a favorable judgment
. . . on the claim."

Or. Rev. Stat. § 20.077(2)(emphasis added).

Plaintiffs also rely on Advance Financial Resources, Inc. v.
11 - OPINION AND ORDER

Cottage Health System, Inc., to support their assertion.
08–1084–KI, 2009 WL 2871139 (D. Or. Sept. 1, 2009).

No. CV

In that

case, however, the court applied California law to determine
whether the defendant was a prevailing party.

California law

does not define a prevailing party with respect to entry of a
judgment.

Instead a prevailing party under California law is one

"who recovered greater relief in the action on the contract."
Id., at *19 (citing Cal. Civ. Code § 1717(b)(1)).

These cases,

therefore, are not helpful to the issue at hand.
Defendants concede Oregon courts have not addressed
whether a dismissal for lack of personal jurisdiction establishes
the defendant is a prevailing party under § 20.096(1).

According

to Defendant, however, such a conclusion would be consistent with
cases in which Oregon courts have concluded an order terminating
an action on procedural grounds constitutes a favorable judgment.
Defendant relies on Kaib's Roving R.Ph. Agency, Inc. v.
Employment Department to support its assertion.
(2005).

338 Or. 433

In Kaib the Oregon Court of Appeals vacated an order of

the Oregon Employment Department in which it had decided to
assess unemployment taxes on the plaintiff.

Id. at 438.

The

Oregon Court of Appeals remanded the matter to the Employment
Department for a new hearing in accordance with Employment
Department procedures.

The plaintiff moved for attorneys' fees

and costs pursuant to Oregon Revised Statute § 183.497(1), which

12 - OPINION AND ORDER

provides for attorneys' fees and costs when "the court finds in
favor of the [plaintiff]."

The Court of Appeals denied the

plaintiff's request for attorneys' fees.

On review the Oregon

Supreme Court rejected the defendant's argument that the
plaintiff was not entitled to attorneys' fees because even though
the Court of Appeals technically found in the plaintiff's favor,
the court's decision "did not resolve the ultimate issues in the
case in [the plaintiff's] favor."

Id. at 442.

In particular,

Defendant relies on the following statement of the Oregon Supreme
Court:

"No wording in ORS 183.497 suggests that the legislature

intended to limit attorney fee awards to judicial review of the
merits of a claim. . . .

A decision of the court may be 'in

favor of' a party, even if it addresses only procedural matters."
Id. at 443 (emphasis in original).

In reaching that conclusion,

however, the court specifically distinguished "in favor of" from
"prevailing party":
The [defendant] asserts, based on its review of
the legislative history, that a finding “in favor
of” a party is equivalent to a finding that a
party is a “prevailing party.” It also cites
several cases supporting the proposition that only
a party who obtains substantive relief on the
claims asserted is a “prevailing party” for
purposes of an award of attorney fees and costs.
That argument is misplaced. ORS 183.497 does not
use the phrase “prevailing party,” but another
part of ORS chapter 183 does. ORS 183.485(1)
requires a court having judicial review of
contested cases to direct its decision, including
its judgment, to the agency that issued the order
being reviewed, and permits the court to “direct
that its judgment be delivered to the circuit
13 - OPINION AND ORDER

court for any county designated by the prevailing
party for entry in the court's register.”
Clearly, the legislature knew how to refer to a
“prevailing party” when that was what it intended.
The fact that the legislature chose instead to
refer in ORS 183.497(1) to a finding “in favor of”
a party suggests that it intended something
different.
Id.
Oregon Revised Statute § 20.077 specifically provides
circumstances under which a party is considered a prevailing
party.

Thus, even though § 20.077 uses the term "favorable

judgment," the holding of Kaib does not shed light on the
definition of a prevailing party under § 20.077(2).
In summary, neither party has provided the Court with
any case that addresses whether a party may be a prevailing party
for purposes of § 20.077 when it has obtained a judgment
dismissing a matter without prejudice for lack of personal
jurisdiction rather than on the merits of the plaintiff's claims.
Accordingly, the Court analogizes to the use of prevailing-party
language in other contexts.

In the context of awarding

attorneys' fees to prevailing parties under 42 U.S.C. § 1988, the
United States Supreme Court has held "prevailing party" is a
legal term of art generally defined as "a party in whose favor a
judgment is rendered, regardless of the amount of damages
awarded."

Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't of

Health & Human Res., 532 U.S. 598, 603 (2001)(quotation omitted).
A party need not prevail on all issues, but it must succeed on a
14 - OPINION AND ORDER

significant issue that is fundamental to the case and establish
its entitlement to relief on the merits of its claims.

Id.

When

it rejected the "catalyst theory" of prevailing party in
Buckhannon, the Supreme Court explained:
Even under a limited form of the “catalyst
theory,” a plaintiff could recover attorney's fees
if it established that the “complaint had
sufficient merit to withstand a motion to dismiss
for lack of jurisdiction or failure to state a
claim on which relief may be granted.” Brief for
United States as Amicus Curiae 27. This is not
the type of legal merit that our prior decisions,
based upon plain language and congressional
intent, have found necessary. Indeed, we held in
Hewitt that an interlocutory ruling that reverses
a dismissal for failure to state a claim “is not
the stuff of which legal victories are made.” 482
U.S., at 760, 107 S. Ct. 2672. See also Hanrahan,
supra, at 754, 100 S. Ct. 1987.
Id. at 605.
Here Defendant succeeded with respect to its Motion to
Dismiss; i.e., the Court dismissed this matter for lack of
personal jurisdiction.

Defendant, however, did not succeed on a

significant issue that is fundamental to the case and establish
its entitlement to relief on the merits of Plaintiffs' claims.
On this record the Court concludes Defendant is not a
prevailing party within the meaning of that term.

Accordingly,

the Court denies Defendant's Petition for Attorneys' Fees.

The

Court, however, denies Defendant's Petition without prejudice on
the ground that Defendant may reraise its request for attorneys'
fees before another court if it achieves success on the merits of

15 - OPINION AND ORDER

Plaintiffs' claims in a court that has jurisdiction.
II.

Costs
Absent a showing of circumstances not relevant here, an

award of costs is governed by federal law.

See Champion Produce,

Inc. v. Ruby Robinson Co., Inc., 342 F.3d 1016, 1022 (9th Cir.
2003).

Costs generally are awarded to the prevailing party in a

civil action as a matter of course unless the court directs
otherwise.

Fed. R. Civ. P. 54(d).

Because the Court has

concluded Defendant is not a prevailing party, the Court denies
Defendant's request for an award of costs without prejudice for
the reasons stated above.

CONCLUSION
For these reasons, the Court DENIES without prejudice
Defendant's Petition (#32) for Attorneys’ Fees and Bill of Costs
(#33).
IT IS SO ORDERED.
DATED this 18th day of June, 2013.
/s/ Anna J. Brown
ANNA J. BROWN
United States District Judge

16 - OPINION AND ORDER