Herkner v. Argo-Tech Corporation Costa Mesa

Filing 70

MEMORANDUM AND ORDER granting in part and denying in part 64 MOTION for Attorney Fees.(Signed by Judge Lee H Rosenthal) Parties notified.(ypippin, )

H e r k n e r v. Argo-Tech Corporation Costa Mesa

D o c . 70

IN THE UNITED STATES DISTRICT COURT F O R THE SOUTHERN DISTRICT OF TEXAS H O U S T O N DIVISION K E V IN L. HERKNER, P l a in tif f , V S. A R G O -T E C H CORPORATION C O S T A MESA, D e f e n d a n ts . § § § § § § § § § §

C IV IL ACTION NO. H-06-2491

M E M O R A N D U M AND ORDER K e v i n Herkner sued his former employer, Argo-Tech Corporation Costa Mesa (" A rg o - Tech"), asserting state-law claims for breach of contract, wrongful termination, f ra u d , and promissory estoppel arising out of Argo-Tech's insistence that Herkner move from T e x a s to California. This court granted Argo-Tech's summary judgment motion as to H erk n er's claims for wrongful termination, fraud, and promissory estoppel. Herkner's re m a in in g claim for wrongful denial of a severance payment was tried before a jury on F e b ru a ry 25­28, 2008. The jury found in Herkner's favor and awarded him $125,798.40 in dam ages. H e rk n e r now moves to recover his attorney's fees under Section 38.001 of the Texas C iv il Practice and Remedies Code. (Docket Entry No. 64). Herkner also seeks to recover h is costs and prejudgment interest. Argo-Tech has responded, (Docket Entry No. 65); H e rk n e r has replied, (Docket Entry No. 66); Argo-Tech has surreplied, (Docket Entry No.

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6 7 ); Herkner has responded to the surreply, (Docket Entry No. 68); and Argo-Tech has re p lie d to Herkner's response to the surreply, (Docket Entry No. 69). Based on a careful review of the motion, the responses and replies, the record, and the ap p lica b le law, this court grants in part and denies in part Herkner's motion for attorney's f e e s , costs, and prejudgment interest. The reasons for these rulings are set out below. I. A n a ly sis T h e primary issue is what law applies to the attorney's fee claim. Argo-Tech argues th a t Ohio law applies because the parties' severance agreement contains a choice-of-law p ro v isio n specifying Ohio law. The provision states: The validity, interpretation, construction, and performance of th is Agreement shall be governed by the laws of the State of O h io , without giving effect to the principles of conflict of laws o f such State. (D o c k e t Entry No. 65, Ex. 1-B at 4). Herkner argues that the choice-of-law provision limits th e applicability of Ohio law to the "validity, interpretation, construction, and performance" o f the severance agreement and "does not address remedies for nonperformance or the re c o v ery of attorney's fees." (Docket Entry No. 66 at 3). Herkner contends that Texas c h o ic e -o f -la w rules apply and that because Ohio has no substantial relationship to the parties o r the transaction, Texas law on awarding attorney's fees applies.1 Herkner argues that "[a]ny and all evidence and argument relating to the application of Ohio law regarding fees, costs, and interest should be excluded because these arguments were not raised at the appropriate time, and not disclosed in a timely fashion under the applicable rules." (Docket Entry No. 66 at 5). To support this argument, Herkner contends that Argo-Tech failed to disclose that it intended to present certain experts on whether Ohio law applies to this case and whether
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"The award of attorney's fees is governed by the law of the state whose substantive la w is applied to the underlying claims." Ingalls Shipbuilding v. Fed. Ins. Co., 410 F.3d 214, 2 3 0 (5th Cir. 2005) (quoting Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 614 (5th C ir. 2000)). As noted, the parties' Severance Agreement contains a choice-of-law provision s ta tin g that Ohio law will govern the validity, interpretation, construction, and performance o f the Agreement. The parties both referred to Ohio law in their proposed applicable p r o p o s itio n s of law in the joint pretrial order. If the choice-of-law provision in the parties' S e v e r a n c e Agreement is enforceable, Ohio law will govern the award of attorney's fees. W h e th e r Ohio or Texas law applies to this issue makes a difference. "The general rule in Ohio is that, absent a statutory provision allowing attorney fees as costs, the prevailing p arty is not entitled to an award of attorney fees unless the party against whom the fees are

attorney's fees should be awarded. Herkner also asserts that the joint pretrial order fails to mention the application of Ohio law in this case in certain key sections, such as Argo-Tech's proposed statement of the case and Argo-Tech's contentions. Herkner argues that Argo-Tech's failure "to disclose the alleged application of Ohio law to this litigation and its effect on the recovery of attorney's fees" has prejudiced him. (Docket Entry No. 68 at 2). Herkner's arguments are not persuasive. In its October 31, 2007 Memorandum and Order, this court noted that the parties' Severance Agreement contained a choice-of-law provision stating that Ohio law governed the agreement. (Docket Entry No. 37 at 5). This court further found that a fact issue as to the reasonableness of Argo-Tech's decision to require Herkner to relocate and noted that neither party had "identified how Ohio law differs from Texas law on the reasonableness of an employer's actions." (Id. at 29 n.2). In addition, Herkner referred to both Texas and Ohio law in his proposed applicable propositions of law in the joint pretrial order. (Docket Entry No. 45 at 7). The record shows that Herkner was aware of the choice-of-law provision in the Severance Agreement and had notice that Ohio law might apply to his claim for breach of the severance agreement. And the enforceability of a choice-of-law provision is a question of law for the court, not a question of fact. (Id. at 4).

taxed was found to have acted in bad faith." State ex rel. Chapnick v. E. Cleveland City Sch. D is t. Bd. of Educ., 755 N.E.2d 883, 885 (Ohio 2001) (internal punctuation omitted) (quoting S t a te ex rel. Kabatek v. Stackhouse, 451 N.E.2d 248, 249 (Ohio 1983)). Texas law allows a prevailing plaintiff to recover attorney's fees in a breach of contract action. TEX. CIV. P RAC. & REM. CODE § 38.001. A. T h e Enforceability of the Ohio Choice-of-Law Provision

In diversity cases, district courts apply the choice-of-law rules of the forum state. See K la x o n v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Int'l Interests, L.P. v. Hardy, 4 4 8 F.3d 303, 306 (5th Cir. 2006) (citing Mayo v. Hartford Life Ins. Co., 354 F.3d 400, 403 (5 th Cir. 2004)). The parties' Severance Agreement states that Ohio law will govern the v a lid ity, interpretation, construction, and performance of the Agreement. (Docket Entry No. 6 5 , Ex. 1-B at 4). Texas has adopted the RESTATEMENT (SECOND) OF CONFLICT OF LAWS to d e te rm in e the enforceability of contractual choice-of-law provisions. See DeSantis v. W a c k en h u t, 793 S.W.2d 670, 677­78 (Tex. 1990). Section 187 of the RESTATEMENT states: (1 ) The law of the state chosen by the parties to govern their c o n tra c t u a l rights and duties will be applied if the particular iss u e is one which the parties could have resolved by an explicit p ro v is io n in their agreement directed to that issue. (2 ) The law of the state chosen by the parties to govern their c o n tra c tu a l rights and duties will be applied, even if the p a rtic u la r issue is one which the parties could not have resolved b y an explicit provision in their agreement directed to that issue, u n le ss either

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no o th e r reasonable basis for the parties' choice, or (b ) application of the law of the chosen state w o u l d be contrary to a fundamental policy of a s ta te which has a materially greater interest than th e chosen state in the determination of the p a rtic u la r issue and which, under the rule of § 1 8 8 , would be the state of the applicable law in th e absence of an effective choice of law by the p a r tie s . ( 3 ) In the absence of a contrary indication of intention, the re f e re n c e is to the local law of the state of the chosen law. R ESTATEMENT § 187. Under section 187(2), the parties' contractual choice of Ohio law controls unless: 1) O h io has no substantial relationship to the parties or the transaction; or 2) another state has a materially greater interest than Ohio in the enforceability of the agreement, and that state's la w would apply "in the absence of an effective choice of law by the parties" under section 1 8 8 . Section 188 states: (1 ) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, w ith respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6. (2 ) In the absence of an effective choice of law by the parties (s e e § 187), the contacts to be taken into account in applying the p rin c ip l e s of § 6 to determine the law applicable to an issue in c lu d e : (a ) the place of contracting,

(b) the place of negotiation of the contract, (c ) the place of performance, (d ) the location of the subject matter of the c o n tra c t, and (e ) the domicil, residence, nationality, place of in c o r p o r a tio n and place of business of the parties. T h e se contacts are to be evaluated according to their relative im p o rta n c e with respect to the particular issue. ( 3 ) If the place of negotiating the contract and the place of p e rf o rm a n c e are in the same state, the local law of this state will u s u a lly be applied, except as otherwise provided in §§ 189-199 a n d 203. R ESTATEMENT § 188. The parties dispute whether Ohio has a substantial relationship with the parties or the tra n sa c tio n . Argo-Tech argues that Ohio has a substantial relationship to the parties and the tr a n s a c t io n because Argo-Tech's corporate headquarters is located in Ohio. Argo-Tech p o in ts out that its employee payroll operations that paid Herkner's salary are located in Ohio an d that key corporate officers who made decisions relevant to Herkner's employment are loca ted in Ohio. Herkner argues that under Jackson v. West Telemarketing Corp. Outbound, 2 4 5 F.3d 518, 523 (5th Cir. 2001), "[w]hen applying the substantial relationship test, it is not th e quantity of contacts, but the qualitative nature of those contracts that controls" and that " [ t]h e only states with truly substantial connections to the parties are Texas and California." (D o c k e t Entry No. 66 at 4). Herkner emphasizes that he was hired by and worked for Argo-

Tech in Texas and was required to relocate to California to work in Argo-Tech's Carter G ro u n d Fueling Division in California. Herkner points out that he "never visited or worked a t the corporate headquarters in Ohio." (Id. at 4). H e rk n e r's arguments and the record do not show that the parties' choice of Ohio law s h o u ld be disregarded because that state has no substantial relationship to the parties or the tra n s a c tio n and there is no other reasonable basis for the parties' choice. The record shows th a t Ohio, where Argo-Tech had its corporate headquarters, did have a substantial re la tio n s h ip to Argo-Tech and to its employment relationships, including with Herkner. The J a c ks o n case does not support Herkner's position. The Jackson court emphasized the quality ra th e r than the quantity of a state's contacts with the parties or transaction in performing the "m o st significant relationship" analysis under RESTATEMENT section 188, which applies in th e absence of the parties' effective choice of law. See Jackson, 245 F.3d at 523; accord D u n c a n v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex. 1984) ("[I]n all choice of law c a s e s , except those contract cases in which the parties have agreed to a valid choice of law c la u s e , the law of the state with the most significant relationship to the particular substantive is s u e will be applied to resolve that issue." (emphasis added)). In contrast, the choice-of-law a n a l ys i s under section 187(2) does not focus on whether the chosen state has the most s u b s ta n tia l relationship to the parties or the transaction in comparison to other states, but w h e th e r the chosen state has a substantial relationship. Texas courts have found that a state h a s a substantial relationship to the parties or transaction if the defendant is headquartered

in that state and acts relating to the transaction occurred in that state. See, e.g., DeSantis v. W a c k en h u t Corp., 793 S.W.2d 670, 678 (Tex. 1990) (finding that Florida had a "substantial relatio n sh ip " to the parties and transaction because the defendant's corporate offices were lo c a ted there and "some of the negotiations" between the parties occurred there); Direct C o lo r Servs., Inc. v. Eastman Kodak Co., 929 S.W.2d 558, 562 (Tex. App.--Tyler 1996, writ d e n ie d ) (finding that Massachusetts had "substantial relationship" with parties or transaction b e c au s e defendants were incorporated in Massachusetts and the computer graphics imaging syste m at issue had been designed in Massachusetts); Chase Manhattan Bank, N.A. v. G r ee n b riar N. Section II, 835 S.W.2d 720, 725 (Tex. App.--Houston [1st Dist.] 1992, no p e t.) (finding that New York had a "substantial relationship" with the parties or transaction b e c au s e New York was the location of the plaintiff's headquarters and principal place of b u s in e s s and several contracts relevant to the dispute were executed in New York). Ohio has a substantial relationship to the parties and the transaction. Argo-Tech is h e a d q u arte re d there and key decisions relating to Herkner's employment were made there. It is reasonable for a corporation to choose the law of the state in which it is headquartered. S e e Salazar v. Coastal Corp., 928 S.W.2d 162, 167 (Tex. App.--Houston [14th Dist.] 1996, n o pet.) ("The state where a company has its principal place of business has a reasonable re la tio n s h ip to the parties and transaction.") (citing Chase Manhattan Bank, 835 S.W.2d at 7 2 5 ; First Commerce Realty Investors v. K-F Land Co., 617 S.W.2d 806, Tex. Civ. A p p .-- H o u sto n [14th Dist.] 1981, writ ref'd n.r.e.)).

H e rk n e r contends that "it controverts public policy to deny Mr. Herkner his right to re c o v er attorney's fees for prosecuting his claims against Argo-Tech," but cites no source of s u c h a public policy to support this argument.2 (Docket Entry No. 66 at 7). The cases do not a rticu lat e such a policy. To the contrary, "Texas courts frequently deny attorney's fees if p ro h ib ite d by the state law designated by contractual choice-of-law provisions." Smith v. E M C Corp., 393 F.3d 590, 598 (5th Cir. 2004) (citing Rapp Collins Worldwide, Inc. v. Mohr, 9 8 2 S.W.2d 478, 487­88 (Tex. App.--Dallas 1998, no pet.); Bergstrom Air Force Base Fed. C r e d it Union v. Mellon Mortgage, Inc.­East, 674 S.W.2d 845, 850 (Tex. App.--Tyler 1984, w rit ref'd n.r.e)); accord Fairmont Supply Co. v. Hooks Indus., Inc., 177 S.W.3d 529, 537 n .7 (Tex. App.--Houston [1st Dist.] 2005, pet. denied) (noting that Texas case law "in which th e courts have acknowledged that parties are free to adopt a more liberal (or more strict) s ta n d a rd for recovery of attorney's fees in their contract than is statutorily provided" weighs ag ains t finding a fundamental public policy requiring the application of Texas law). B e c a u s e Ohio has a substantial relationship to the parties and the transaction, a re a so n a b le basis exists for the parties' choice of Ohio law, and the application of Ohio law w o u ld not contravene a fundamental public policy of Texas, Ohio law governs the award of a tto r n e y' s fees.

Although Herkner contends that both California and Texas have a substantial relationship to the parties and transaction, he argues that Texas law should apply to the award of attorney's fees. Herkner does not contend that California has a materially greater interest than Ohio in the award of attorney's fees or that applying Ohio law would contravene a fundamental California public policy.

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B.

A tto r n e y ' s Fees Under Ohio Law

" T h e general rule in Ohio is that, absent a statutory provision allowing attorney fees a s costs, the prevailing party is not entitled to an award of attorney fees unless the party a g a in s t whom the fees are taxed was found to have acted in bad faith." State ex rel. C h a p n ic k v. E. Cleveland City Sch. Dist. Bd. of Educ., 755 N.E.2d 883, 885 (Ohio 2001) (in te rn a l punctuation omitted) (quoting State ex rel. Kabatek v. Stackhouse, 451 N.E.2d 248, 2 4 9 (Ohio 1983)). Herkner does not identify a statutory provision allowing attorney's fees a s costs. Rather, he argues that this court may award attorney's fees because Argo-Tech a c te d in bad faith. Relying on the jury's determination that "Argo-Tech terminated [him] w ith o u t cause and failed and refused to deliver [his severance] payment to [him] within thirty ( 3 0 ) days following termination," Herkner contends that "the attorney's fees [that he seeks] in this case could have been avoided if Argo-Tech had acted in good faith and complied with the terms of the Change in Control Severance Agreement." (Docket Entry No. 66 at 10). H e r k n e r further asserts that Argo-Tech "acted in bad faith by using pretext to terminate [his] e m p lo ym e n t and then pretextually justif[ying] the termination." (Id. at 10). Herkner argues th a t Argo-Tech required him to relocate to California to obtain additional training on Carter G r o u n d Fuel products, but points out that Argo-Tech provided no such training program. A rg o - T e c h responds that Herkner's pretext argument is not supported by the record and p o in ts out that Herkner admitted he lacked sufficient knowledge of Carter Ground Fuel p r o d u c ts .

Under Ohio law, a losing party has acted in bad faith if the party has acted " v e x atio u s ly, wantonly, obdurately, or for oppressive reasons." Westfield Cos. v. O.K.L. Can L in e , 804 N.E.2d 45, 54­55 (Ohio Ct. App. 2003). Herkner's argument that Argo-Tech acted in bad faith because the jury determined that Argo-Tech terminated his employment without c a u se proves too much. Under such reasoning, every prevailing party in a wrongful d is c h a rg e suit would be able to show bad faith and recover attorney's fees under Ohio law. H e rk n e r has not shown that Argo-Tech acted vexatiously, wantonly, obdurately, or for o p p re ss iv e reasons when it asked Herkner to get training in Carter Ground Fuel Products and u ltim a te ly required him to relocate to California. B e c a u s e Herkner has not shown that a statutory provision allows the award of a tto rn e y's fees or that Argo-Tech acted in bad faith, he may not recover attorney's fees under O h io law. C. E x p e n s es

A rg o -T e c h argues that Herkner's request for $7,027.75 in expenses is "excessive and in c lu d e s $4,702.98 in `expenses' that are not taxable pursuant to Federal Rule 54(d), 28 U .S .C . § 1920, and Fifth Circuit and federal case law." (Docket Entry No. 65 at 21). Citing 2 8 U.S.C. § 1920, Argo-Tech argues that Herkner's expenses for postage, Westlaw research, m e ss e n g e r deliveries, parking, lawyer travel, and mediator fees are not recoverable. Herkner d o e s not respond to this argument.

Rule 54(d) (1) of the Federal Rules of Civil Procedure provides that costs--other than a tto rn e y's fees--should be allowed to the prevailing party." There is a strong presumption u n d er Rule 54(d)(1) that the prevailing party will be awarded costs. Cheatham v. Allstate In s . Co., 465 F.3d 578, 586 (5th Cir.2006). Title 28 U.S.C. § 1920 allows the following c a te g o r ie s of costs: (1 ) Fees of the clerk and marshal; (2 ) Fees of the court reporter for all or any part of the s te n o g ra p h ic transcript necessarily obtained for use in the case; ( 3 ) Fees and disbursements for printing and witnesses; (4 ) Fees for exemplification and copies of papers necessarily o b ta in e d for use in the case; (5 ) Docket fees under section 1923 of this title; (6 ) Compensation of court appointed experts, compensation of in te rp re te r s , and salaries, fees, expenses, and costs of special in te rp re ta tio n services under section 1828 of this title. 2 8 U.S.C. § 1920. Rule 54(d)(1) does not authorize a court to award costs not included in th e statute. Crawford Fitting Company v. J.T. Gibbons, Inc., 482 U.S. 437, 441­45 (1987) ("W e hold that absent explicit statutory or contractual authorization . . . federal courts are b o u n d by the limitations set out in 28 U.S.C. § 1821 and § 1920). T h e costs to which Argo-Tech objects are not listed in 28 U.S.C. § 1920 and courts h a v e generally declined to include such costs in taxable costs. See, e.g., Cook Children's M e d . Ctr. v. New England PPO Plan of Gen. Consol. Mgmt. Inc., 491 F.3d 266, 274 (5th

Cir. 2007) (finding that "mediation costs do not fall within any of the categories of expenses lis te d in [section 1920]"); Ducote Jax Holdings, L.L.C. v. Bank One Corp., No. 04-1943, 2 0 0 7 WL 4233683 (E.D. La. Nov. 28, 2007) (holding that "[m]iscellaneous expenses such a s postage, facsimiles, electronic legal research, travel expenses and attorney meals are not re c o v e ra b le under § 1920"); Javelin Invs., LLC v. McGinnis, No. H-05-3379, 2007 WL 1 0 0 3 8 5 6 , at *4 (S.D. Tex. Mar. 30, 2007) (noting that charges for Westlaw and Lexis c o m p u te r-a id e d research "arguably are recoverable as attorney's fees" but "are clearly not tax a b le costs under § 1920"); Noel Studio, Inc. v. Ewell, No. 4:06-CV-208, 2006 WL 3 3 1 7 0 9 5 , at *2 (E.D. Tex. Oct.30, 2006) (refusing to award postage costs); Williams v. T h r e s h o ld s , Inc., No. 02 C 9101, 2003 WL 22478784, at *2 (N.D. Ill. Oct.31, 2003) ("Under th e Judicial Conference guidelines, delivery costs are considered ordinary business expenses a n d are not chargeable in relation to obtaining transcripts." (internal quotations and citation o m itte d )); E.E.O.C. v. Allied Systems, Inc., No. 97-CV-1396, 1999 WL 395377, at *2 (N .D .N .Y . June 9, 1999) (declining to award delivery costs) (citing Mass. Fair Share v. Law E n fo r c e m e n t Assistance Admin., 776 F.2d 1066, 1069 (D.C. Cir.1985)). Argo-Tech asserts, and Herkner does not dispute, that Herkner's recoverable costs in c lu d e filing fees, deposition costs, and process service costs and total $2,324.77. Herkner m a y recover $2,324.77 in costs.

D.

P r e j u d g m e n t Interest

T h e parties' dispute over the applicable interest rate used to calculate prejudgment in te re st stems from their dispute over the applicable state law. "Issues regarding preju d g m e n t interest in a diversity case are governed by applicable state law." Hall v. White, G e tg e y , Meyer Co., LPA, 465 F.3d 587, 595 (5th Cir. 2006) (internal quotations omitted) (q u o tin g Canal Ins. Co. v. Gen. Ins. Co., 901 F.2d 45, 47 (5th Cir. 1990)). Ohio law on the p re ju d g m e n t interest rate governs. Under Ohio law, prejudgment interest is "determined pursuant to section 5703.47 of th e Revised Code." OHIO REV. CODE § 1343.03(A). Section 5703.47 states that the rate, d e te rm i n e d annually on October 15, will be the federal short-term rate set in July of the c u rre n t year, "rounded to the nearest whole number per cent, plus three per cent." OHIO REV. C ODE § 5703.47(B). Argo-Tech asserts, and Herkner does not dispute, that Ohio's

p re ju d g m e n t rate for the October 15, 2007 to October 14, 2008 fiscal year is eight percent. (D o c k e t Entry No. 65 at 24).3 Herkner is entitled to $17,756.59 in prejudgment interest.

See also Administrative Journal Entry, Richard A. Levin, Tax Commissioner, In the Matter of Determination of the Interest Rates Pursuant to R.C. 5703.47 (Oct. 15, 2007), available at http://tax.ohio.gov/divisions/ohio_individual/individual/documents/2008_Interest_Rate_Letter.pdf.

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II.

C o n c lu s io n H erk n er's motion for attorney's fees, costs, and prejudgment interest is granted in part

a n d denied in part. Herkner may not recover attorney's fees. Herkner may recover $2,324.77 in costs and $17,756.59 in prejudgment interest. S I G N E D on July 21, 2008, at Houston, Texas.

______________________________________ L e e H. Rosenthal United States District Judge