Mooring Capital Fund, LLC v. Knight ( 2010 )

FILED
United States Court of Appeals
Tenth Circuit
July 22, 2010
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
FOR THE TENTH CIRCUIT
MOORING CAPITAL FUND, LLC;
MOORING FINANCIAL
CORPORATION,
Plaintiff-Counter- Nos. 09-6075 & 09-6141
Defendants-Appellees, (D.C. No. 5:06-cv-00006-HE)
(W.D. Okla.)
v.
JUDY KNIGHT; PHOENIX
CENTRAL INC., an Oklahoma
corporation,
Defendant-Counter-
Claimants-Appellants.
ORDER AND JUDGMENT *
Before HARTZ, McKAY, and ANDERSON, Circuit Judges.
The commencement of a foreclosure action by Mooring Capital Fund, LLC
(Capital) against borrower Phoenix Central Inc. (Phoenix) prompted Phoenix to
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
bring tort and contract counterclaims against Capital. In addition, Phoenix’s
president and sole shareholder, Judy Knight, pursued similar claims in her
individual capacity against both Capital and its servicing agent, Mooring
Financial Corporation (Financial). The foreclosure action settled, leaving only
Phoenix’s counterclaims and Ms. Knight’s claims.
At the close of evidence at trial, the district court granted judgment as a
matter of law to Capital and Financial on Ms. Knight’s claims because she was
unable to show that she individually had suffered any damages that were separate
from Phoenix’s alleged damages. As for Phoenix’s counterclaims, the jury found
for Phoenix on one counterclaim and for Capital and Financial on the others. The
district court then granted in part both parties’ motions for attorney fees, ordering
Capital to pay fees to Phoenix and ordering Ms. Knight to pay fees to Capital and
Financial. In appeal No. 09-6075, Phoenix (through counsel) appeals the jury
verdict and Ms. Knight (proceeding pro se) appeals the grant of judgment as a
matter of law. In appeal No. 09-6141, Phoenix appeals the fee award of $49,000
(much less than the $224,392.17 it had requested) and Ms. Knight appeals the fee
award against her.
Exercising jurisdiction under 28 U.S.C. § 1291, we hold that the district
court did not err in its pretrial and trial rulings, and therefore we affirm the
judgments underlying appeal No. 09-6075. We also affirm both attorney-fee
awards in appeal No. 09-6141.
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I. BACKGROUND
In 1992 Phoenix and Ms. Knight executed a promissory note secured by a
mortgage on a shopping center owned by Phoenix (the Shopping Center). In 1993
that note was replaced by an amended note (the Note), and eventually the holder
of the Note transferred it to Capital. In 2004 Ms. Knight and Phoenix planned to
refinance the Shopping Center and use the proceeds of the refinancing to repair
and sell one or more vacant rental houses and to develop a separate 40-acre parcel
of land (the 40-Acre Parcel) into a residential subdivision. To accomplish the
refinancing, they needed to pay off the Note; but Capital could not or would not
provide an accurate payoff amount.
After Phoenix and Ms. Knight stopped making payments on the Note in
February 2005, Capital initiated a state-court action against Phoenix to recover on
the Note and to foreclose on the Shopping Center. Citing diversity jurisdiction,
Phoenix removed the action to federal court. Phoenix also brought several
counterclaims seeking damages for not being able to accomplish the refinancing
and therefore not being able to develop the 40-Acre Parcel. In its third amended
answer and counterclaim Phoenix alleged that Capital breached the Note’s
implied covenant of good faith and fair dealing and was liable for negligence,
tortious interference with prospective business relations, and tortious breach of
contract. The district court granted partial summary judgment in favor of Capital
with respect to liability (but not damages) on its claims. Initially, it also granted
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Capital summary judgment on all of Phoenix’s counterclaims, except the
counterclaim for breach of the implied covenant of good faith and fair dealing;
but in March 2008 the court vacated that order because Capital had turned over
additional discovery containing facts favorable to Phoenix.
In the meantime, Ms. Knight and another of her companies, Mini Malls of
America, filed a separate state-court action against Capital and Financial. Capital
and Financial removed the action to federal court, and the court consolidated that
action with the foreclosure proceeding. The district court dismissed the
state-complaint claims because Ms. Knight and Mini Malls had not “state[d] a
basis for recovery separate and apart from whatever harm Phoenix may have
suffered,” but allowed them leave to amend. No. 09-6075, Aplt. App. Vol. II at
437. They filed an amended complaint, which the court dismissed. The court
held that Mini Malls had shown only an attenuated relationship with Capital that
was insufficient to create any legal duty owed by Capital. The court also held
that Ms. Knight, as a party to the Note, may have claims against Capital that
paralleled Phoenix’s counterclaims, but the allegations in the amended complaint
did not adequately plead tort liability under applicable Oklahoma law. The court
allowed Ms. Knight leave to amend her complaint once again to set forth claims
paralleling Phoenix’s claims. Ms. Knight’s second amended complaint set forth
claims of breach of the implied covenant of good faith and fair dealing,
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negligence, tortious breach of contract, and tortious interference with present and
prospective business relations. The court allowed these claims to proceed.
In November 2008 Phoenix and Ms. Knight satisfied the Note, so the
foreclosure action was dismissed. Before trial on Phoenix’s counterclaims and
Ms. Knight’s claims, the district court made several evidentiary rulings relevant
to this appeal No. 09-6075. First, the district court limited the testimony of
Phoenix’s expert economist, Dr. James Horrell, under the principles expressed in
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and Kumho
Tire Co. Ltd. v. Carmichael, 526 U.S. 137, 147-49 (1999). Second, the court
barred Ms. Knight from testifying about lost profits from the failure to develop
the 40-Acre Parcel and the rental houses. Third, the court indicated that it would
be inclined to prohibit lay witnesses from giving opinion testimony about
“expert” matters such as projecting development costs or the process of platting a
subdivision, although they could testify to historical facts concerning the 40-Acre
Parcel. Fourth, the court excluded from evidence a 2004 appraisal of the
Shopping Center prepared for another lender. Fifth, the court prohibited
introduction of any evidence of damages to Mini Malls. Finally, the court held
that Phoenix and Ms. Knight could not claim as damages the bulk of the attorney
fees that they had incurred during the dispute.
At the jury-instruction conference, Ms. Knight’s counsel stated that in light
of the district court’s evidentiary rulings concerning the 40-Acre Parcel and the
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rental houses, Ms. Knight had to concede that she would not be able to establish
her own individual damages, as distinguished from Phoenix’s corporate damages.
Accordingly, the district court granted judgment as a matter of law to Capital and
Financial on her claims, leaving only Phoenix’s counterclaims for the jury. The
court instructed the jury on breach of the implied covenant of good faith and fair
dealing, tortious breach of contract based on gross recklessness/wanton
negligence, tortious interference with business relationships, and tortious
interference with prospective economic advantage. It rejected, however,
Phoenix’s request to instruct the jury on a claim of gross negligence. The jury
found in favor of Phoenix on its contract counterclaim and in favor of Capital on
the three tort counterclaims; and it awarded $8,980 in damages to Phoenix.
Both sides sought attorney fees. Capital and Financial requested a fee
award of $306,644.34 against Ms. Knight (but not against Phoenix); and Phoenix
requested an award of $224,392.17 against Capital and Financial. Without
holding a hearing on the fee motions, the district court applied Okla. Stat. tit. 12,
§ 936 and granted both motions in part. It ordered Capital to pay Phoenix’s fees
in the amount of $49,000 and Ms. Knight to pay Capital’s and Financial’s fees in
the amount of $88,000. Phoenix and Ms. Knight appeal both the judgments on
the merits and the fee awards.
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II. ANALYSIS
A. Appeal No. 09-6075
This appeal concerns the merits dispositions of Phoenix’s counterclaims
and Ms. Knight’s claims.
1. Phoenix’s Arguments
Phoenix primarily takes issue with the district court’s evidentiary rulings,
but it also contends that the district court should have instructed the jury on gross
negligence.
a. Exclusion of Evidence Regarding 40-Acre Parcel
Several of Phoenix’s arguments concern the district court’s exclusion of
evidence regarding the 40-Acre Parcel. Phoenix contests the exclusion of
Dr. Horrell’s testimony on the financial consequences of the failure to develop the
parcel; the exclusion of other testimony on the damages from the failure to
develop the parcel; and the exclusion of certain opinion testimony from lay
witnesses regarding the development of the parcel.
The court provided two reasons for excluding evidence of damages from
failure to develop the 40-Acre Parcel and the rental houses. To begin with, it said
(a) that such damages could not be recovered under the contract claim because
there was no evidence that such damages were within the contemplation of the
parties at the time the Note was made and (b) that such damages could not be
recovered under the tort claims because there was no evidence that they were
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foreseeable at the time of the alleged torts. Second, it said that there was no
admissible evidence of any lost profits from the parcel and the rental houses
because (1) the parties could not call lay witnesses to testify about expert topics
such as the platting process and development costs, and (2) Ms. Knight had not
been named as an expert witness and she did not have the business experience to
testify about the development process.
Phoenix disputes the court’s evaluation of Ms. Knight’s qualifications to
testify about the 40-Acre Parcel. Its opening brief, however, fails to address the
court’s other reason for excluding her damages testimony—that the damages she
sought to recover were not within the parties’ contemplation at the time of
contracting or foreseeable at the time of the alleged torts. Arguments not raised
in the opening brief are waived. See City of Colo. Springs v. Solis, 589 F.3d
1121, 1135 n.5 (10th Cir. 2009). Phoenix, then, has waived any challenge to the
court’s first rationale for barring Ms. Knight’s testimony about the 40-Acre
Parcel. For the same reason, we will not reverse the district court’s decisions to
bar other testimony (by Dr. Horrell and the lay witnesses) concerning the 40-Acre
Parcel and the rental houses.
b. Exclusion of Dr. Horrell’s Shopping Center
Testimony
Phoenix designated Dr. Horrell to testify not only about the 40-Acre Parcel
but also about excess expenses that Phoenix had incurred and the lost rental
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income from the Shopping Center due to the inability to refinance. But the
district court limited his testimony on these other matters to mathematical
calculations.
With regard to the Shopping Center, the court noted that Dr. Horrell relied
on the 2004 appraisal of the Shopping Center in proposing to testify “that the
shopping center would have generated net revenues equal to that projected in the
2004 appraisal.” No. 09-6075, Aplt. App. Vol. I at 166. Although the court
acknowledged that an expert could rely on the opinions of another expert, it stated
that “Dr. Horrell’s references to the 2004 report do not suggest that he made any
systematic effort to evaluate the methods employed in the appraisal or to evaluate
its applicability to the present circumstances.” Id. at 169. “There is no indication
that he has any particular background in real estate leasing operations or that he
undertook any investigation to independently determine what the leasing activity
for a shopping center of this sort in this location would have generated.” Id. at
170. Accordingly, the court held that “any opinion testimony as to what lease
revenues from the shopping center would have been in various circumstances, or
as to the reasonableness of the 2004 report’s assumptions, must be excluded.” Id.
As for the alleged excess expenses, the court noted that “the listing of
‘excess expenses’ incurred by defendants is based entirely on information
defendants provided to Dr. Horrell.” Id. at 164. The court was concerned that
Dr. Horrell would testify “that defendants’ estimates of future real estate sales
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activity or of ‘excess’ expenses or the like are reasonable.” Id. at 166. “It is
clear,” said the court, “that Dr. Horrell has neither undertaken any systematic
investigation or independent analysis of the reasonableness of what defendants
claim as their excess expenses nor has a basis for assessing the reasonableness of
defendants’ projections . . . .” Id. at 171 (footnote omitted). The court
concluded: “His relatively limited efforts at verifying whether Ms. Knight has
some document or basis for the estimates she makes fall far short of providing a
basis for [him] to opine that the estimates or projections are reasonable. He
therefore cannot take Ms. Knight’s estimates and present them in such a way as to
make them sound like they are his.” Id.
Phoenix contends that Dr. Horrell was qualified to offer the opinions that
he submitted; that he was entitled to make assumptions, provided those
assumptions could be proved at trial; and that he had tested his information
against the actual facts as they became known. Because Phoenix does not claim
that “the district court failed to employ the proper legal framework required by
Daubert, we consider only whether the district court abused its discretion in
actually applying this framework to the testimony at hand.” United States v.
Rodriguez-Felix, 450 F.3d 1117, 1125 (10th Cir. 2006). “We will not . . . disturb
a district court’s ruling absent our conviction that it is arbitrary, capricious,
whimsical, manifestly unreasonable, or clearly erroneous.” Bitler v. A.O. Smith
Corp., 400 F.3d 1227, 1232 (10th Cir. 2004).
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The district court did not abuse its discretion in limiting Dr. Horrell’s
testimony. Fed. R. Evid. 702 requires an expert’s testimony to be “based upon
sufficient facts or data” and to be “the product of reliable principles and methods”
which have been “applied . . . reliably to the facts of the case.” “Under Daubert,
any step that renders the analysis unreliable renders the expert’s testimony
inadmissible. This is true whether the step completely changes a reliable
methodology or merely misapplies that methodology.” Mitchell v. Gencorp Inc.,
165 F.3d 778, 782 (10th Cir. 1999) (ellipsis and internal quotation marks
omitted). “[N]othing in either Daubert or the Federal Rules of Evidence requires
a district court to admit opinion evidence that is connected to existing data only
by the ipse dixit of the expert. A court may conclude that there is simply too
great an analytical gap between the data and the opinion proffered.” General
Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).
The district court offered cogent rationales supported by the record for
limiting Dr. Horrell to presenting numerical calculations regarding damages.
Dr. Horrell’s years of experience and other qualifications do not overcome the
district court’s concern about lack of independent investigation in this case. See
United States v. Nacchio, 555 F.3d 1234, 1258 (10th Cir.) (en banc), cert. denied,
130 S. Ct. 54 (2009) (“Although [the expert] generally has been permitted to
testify in the past, and a district court might well respect his credentials, the court
had an obligation to assess the methodology that [the expert] had employed in the
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case at hand.”). Regarding the appraisal, Dr. Horrell admitted in his deposition
that he had not examined the validity of the appraiser’s assumptions. An expert is
not entitled to testify to opinions that rely on the opinion of another expert,
simply because the other is an expert. See TK-7 Corp. v. Estate of Barbouti,
993 F.2d 722, 732 (10th Cir. 1993) (expert who adopted the projections of
another expert did not reasonably rely on those projections when “he knew little
or nothing at all about” the other expert and the record did not reveal what efforts
the expert independently made to corroborate the projections). And as to the
calculations of expenses, the district court did not abuse its discretion in
disallowing testimony that would simply adopt and confirm what Ms. Knight had
said. Cf. Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1080 n.4
(10th Cir. 2006) (it was not “‘manifestly unreasonable’ for the district court to
conclude that [the expert’s] opinions lacked foundation because they were based
on ‘the self-serving statement[s] of an interested party’”).
c. Exclusion of Ms. Knight’s Testimony About
Shopping-Center Appraisal
The district court barred Ms. Knight from testifying about the 2004
appraisal. First, the district court believed that Ms. Knight’s testimony would be
essentially about someone else’s expert opinion rather than testimony based on
her own experience. Second, the district court indicated that the appraisal would
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be hearsay that did not fall under the business-record exception of Fed. R. Evid.
803(6).
In its opening brief Phoenix argues that the appraisal qualified as a business
record, but does not address the district court’s first ground for barring the
appraisal report. Thus, as with its other challenge to limitations on Ms. Knight’s
testimony, it has waived any argument regarding that first ground, so we need not
address its arguments with regard to the second.
d. Exclusion of Attorney Fees as Consequential
Damages
Phoenix challenges the district court’s ruling that it could not claim as
damages the bulk of its attorney fees. Relying on Phillips v. Snug Harbor Water
and Gas Co., 596 P.2d 1273, 1276 (Okla. App. 1979), the district court held that
Oklahoma law allows recovery of prelitigation attorney fees, but that fees
incurred during the litigation were properly considered items of costs rather than
damages. Phoenix argues that it is entitled to recover as damages all the attorney
fees incurred in attempting to resolve the issue of a correct payoff balance, which
was not determined until August 2007, well after the lawsuit was underway.
In a diversity case, we apply the substantive law of the forum state, in this
case Oklahoma. See Hjelle v. Mid-State Consultants, Inc., 394 F.3d 873, 877
(10th Cir. 2005). We review the district court’s interpretation of Oklahoma law
de novo. See id.
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Phoenix finds some support in Phillips. In that opinion the Oklahoma
Court of Appeals held that a plaintiff’s damages included lost time and expense
caused by the defendant’s actions, 596 P.2d at 1276; and among the expenses
supporting the award, the court included the hiring of an attorney “to invoke the
aid of the corporation commission.” Id. But Phillips notwithstanding, “[t]here
appears to be no all-encompassing Oklahoma rule that attorney fees are or are not
‘compensatory damages.’” Employers Reins. Corp. v. Mid-Continent Cas. Co.,
358 F.3d 757, 767 (10th Cir. 2004). For example, the Oklahoma Court of
Appeals wrote after Phillips, “Damages at common law have never included
interest, fees and costs. Moreover, there was no right to attorney’s fees at
common law, so any award thereof must be of statutory origin.” Allison v. City of
El Reno, 894 P.2d 1133, 1137 (Okla. App. 1994). And in Barnes v. Oklahoma
Farm Bureau Mutual Insurance Co., 11 P.3d 162, 181 (Okla. 2000), the state’s
highest court provided the following list of situations in which attorney fees may
be awarded, absent a statutory or contractual provision, as an item of damages in
a contract or tort suit: (1) when an attorney sues the client to recover fees,
(2) when an insurer wrongfully refused to defend a prior lawsuit, or (3) when the
defendant’s actions “involved the plaintiff in litigation with others, or have placed
him in such relation with others as to make it necessary for him to incur attorney
fees to protect his interests.” This list does not include the circumstances of this
case. Therefore, we conclude that the district court did not err in barring Phoenix
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from seeking, as an element of damages, an award of the attorney fees it incurred
during the litigation. 1
e. Jury Instruction on Gross Negligence Based on
Reckless Disregard
The district court instructed the jury on tortious breach of contract based on
“gross recklessness or wanton negligence.” No. 09-6075, Aplt. App. Vol. I at 46.
Phoenix contends that the jury also should have been allowed to impose liability
under what it terms the lesser “reckless disregard” standard. We review the
refusal to give a jury instruction for abuse of discretion, see Telecor Commun.,
Inc. v. Sw. Bell Tel. Co., 305 F.3d 1124, 1141 (10th Cir. 2002); but our review is
de novo to the extent that we must interpret the substantive law of Oklahoma, see
Hjelle, 394 F.3d at 877. 2
1
Phoenix also asserts that Capital acted in bad faith during the litigation,
prolonging the suit and causing Phoenix to incur useless fees. We do not consider
this contention because Phoenix has failed to supply any record cites to show
where it made such an argument in the district court in connection with the
damages issues. See Fed. R. App. P. 28(a)(9)(A); 10th Cir. R. 28.2(C)(2).
“Arguments inadequately briefed in the opening brief are waived,” Adler v.
Wal-Mart Stores, Inc., 144 F.3d 664, 679 (10th Cir. 1998), and arguments not
raised before the district court are waived on appeal, see Rosewood Servs., Inc. v.
Sunflower Diversified Servs., Inc., 413 F.3d 1163, 1167 (10th Cir. 2005).
2
The record is not clear whether Phoenix preserved this issue. Although
Phoenix requested a gross-negligence instruction, it also seemed to accede to the
court’s desire to simplify the tort theories. Compare No. 09-6075, Aplt. App.
Vol. III at 651-54 (arguing for a gross-negligence instruction), with id. at 654
(“So in terms of the simplicity of the instructions, if that’s what the Court’s
leaning is to simplify the tort theories into one, I would not have any basic
disagreement with that approach.”). But because ultimately Phoenix rested on its
(continued...)
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In the commercial-lending context, Oklahoma does not recognize a tort
claim for any conduct less culpable than gross recklessness or wanton negligence.
In Rodgers v. Tecumseh Bank, 756 P.2d 1223, 1227 (Okla. 1988), the court said:
“To impose tort liability on a bank for every breach of contract would only serve
to chill commercial transactions. This is not to say that under every fact situation
arising from a breach of contract that recovery may never lie. Gross recklessness
or wanton negligence on behalf of a party to a contract may call for an application
of the theory of tortious breach of contract.” See Beshara v. S. Nat’l Bank,
928 P.2d 280, 288 (Okla. 1996) (recognizing the Rodgers standard and allowing
plaintiff to proceed with allegations that the bank’s action in withholding his
funds were “intentional, malicious, and in reckless and wanton disregard”); First
Nat’l Bank & Trust Co. of Vinita v. Kissee, 859 P.2d 502, 509 (Okla. 1993)
(reaffirming Rodgers). It is not clear to us how “reckless disregard” differs from
“gross recklessness.” But whatever the difference, if any, we see no abuse of
discretion in the district court’s adoption of the gross-recklessness-or-wanton-
negligence formulation expressed in the leading Oklahoma Supreme Court
decision on the matter. We affirm the denial of an additional instruction on
reckless disregard.
2
(...continued)
desire for the instruction, see id. at 654 (indicating a possible miscommunication
of counsel’s position); id. at 663 (reiterating need for gross-negligence argument),
and because we reject Phoenix’s position even under the more favorable standard
of review, we need not resolve whether the issue was preserved.
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2. Ms. Knight’s Arguments
Ms. Knight, proceeding pro se, has filed a separate brief. We decline to
consider her arguments regarding Phoenix’s issues, because she is not a lawyer
and thus cannot represent Phoenix in court. See Tal v. Hogan, 453 F.3d 1244,
1254 & n.8 (10th Cir. 2006) (collecting cases). For that reason, as well as Mini
Malls’ failure to appeal, we also decline to consider her argument that the district
court erred in dismissing Mini Malls’ claims. Further, to the extent that she
adopts Phoenix’s arguments regarding the limitations on testimony by Dr. Horrell
and herself, the discussion above applies equally here. We now proceed to
analyze her remaining issues. 3
a. Negligence Claims
Ms. Knight argues that the district court should have allowed her to
proceed with claims of negligence, negligent nondisclosure, and negligent
misrepresentation. The district court dismissed these claims on the ground that
Oklahoma requires more than mere negligence to impose tort liability on a
commercial lender. As discussed above, this appears to be a correct reading of
Oklahoma law. See Rodgers, 756 P.2d at 1227; see also Beshara, 928 P.2d at
288; First Nat’l Bank & Trust Co. of Vinita, 859 P.2d at 509.
3
Ms. Knight’s opening brief argues that the district court erred in granting
summary judgment to Capital and Financial. We cannot determine the purpose of
the argument. The district court later vacated that summary judgment and let the
claims proceed to trial; and the court’s reasoning in initially granting the
summary judgment was irrelevant to its disposition of Ms. Knight’s own claims.
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b. Dismissal of Other Claims
Ms. Knight argues that the district court should have allowed her to pursue
claims of negligence per se, usury, conversion, fraud, unjust enrichment, and
violation of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692p
(FDCPA). 4 These claims fall into two categories: (1) claims that were asserted
initially, but were dismissed with leave to amend and not reasserted (or at least
not timely reasserted); and (2) claims that apparently never were asserted (or at
least never asserted properly).
Claims that were asserted, but dismissed and not reasserted. Ms. Knight’s
state complaint asserted claims for conversion and deceit. The district court
dismissed this complaint in its entirety because it failed to show how
Ms. Knight’s damages were different from Phoenix’s; but the court granted
Ms. Knight leave to file an amended complaint. The court did not indicate that
any particular claim was ineligible for repleading. Yet neither the amended
complaint nor the second amended complaint reasserted claims for conversion or
deceit.
4
In her summary of argument Ms. Knight also mentions the dismissal of her
claim for intentional infliction of emotional distress, which the district court
dismissed on the merits. But because her brief does not develop the issue beyond
this cursory identification, we consider it waived. See Adler v. Wal-Mart Stores,
Inc., 144 F.3d 664, 679 (10th Cir.1998) (“Arguments inadequately briefed in the
opening brief are waived.”).
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An amended complaint supersedes a prior complaint “and renders it of no
legal effect.” Davis v. TXO Prod. Corp., 929 F.2d 1515, 1517 (10th Cir. 1991)
(internal quotation marks omitted). When a claim has been dismissed on the
merits, a party may file an amended complaint omitting that claim without
waiving an appellate challenge to the dismissal. See id. at 1517-18. But the
district court’s order in this case did not “conclusively rule[]” on the conversion
or deceit claims. Id. at 1518. The court simply noted that Ms. Knight had to
plead individual damages if she wished to assert individual claims. All the claims
in the original complaint were dismissed for the same reason; nothing in the
district court’s order suggested that the additional allegations needed to state one
of the claims properly would not also cure the defect in the other claims. Hence,
there was no compulsion from the court to abandon any particular claim. Yet
rather than repleading the conversion and deceit claims, as allowed by the district
court, Ms. Knight filed a second amended complaint that did not include them.
The omission resulted in abandoning these claims.
Ms. Knight did include conversion as a legal issue in the amended final
pretrial report. The district court anticipated adopting the pretrial report as the
pretrial order, and the inclusion of a claim in the pretrial order can supersede the
pleadings, see Weyerhaeuser Co. v. Brantley, 510 F.3d 1256, 1267 (10th Cir.
2007). For two reasons, however, we do not consider the pretrial report to have
amended the pleadings in this case. First, the district court specifically ruled that
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it would not allow the pretrial report or order to revive or expand the claims at
issue beyond the already asserted claims of breach of contract, bad faith breach of
contract, and tortious interference. Second, Ms. Knight does not appear either to
argue that the pretrial order actually amended the pleadings, or to explain why the
district court should have allowed an eve-of-trial amendment to the pleadings.
Claims that never were asserted. Finally, it does not appear that
Ms. Knight ever properly tried to assert claims for negligence per se, usury,
unjust enrichment, or violation of the FDCPA. None of these claims was included
in the removed state complaint, the amended complaint, or the second amended
complaint. Negligence per se and unjust enrichment were raised in the amended
final pretrial report, but as we have just discussed, the district court ruled that the
pretrial order could not revive or expand the claims at issue, and Ms. Knight does
not appear to challenge the refusal to allow an eve-of-trial amendment. Thus,
there was no reason for the district court to instruct the jury on those claims.
c. Individual Damages
Ms. Knight argues that the district court erred in barring evidence of her
individual damages—namely, lost profits from the inability to sell the rental
houses and the failure to develop the 40-Acre Parcel. The evidence excluded was
lay-witness opinion testimony regarding such matters as the platting and
subdivision process for the 40-Acre development and Ms. Knight’s own opinion
testimony about damages suffered from the delay in the development caused by
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Capital and Financial. As with expert testimony, the exclusion of lay-witness
testimony is reviewed for abuse of discretion. See Zokari v. Gates, 561 F.3d
1076, 1088 (10th Cir. 2009).
The district court did not abuse its discretion in excluding this evidence.
The subject matter of the proffered testimony was not what the witnesses had
personally observed but opinion testimony regarding possible future occurrences.
The court reasonably decided that such opinions could be provided only by
qualified experts. Yet the witnesses had not been listed as expert witnesses. As
for Ms. Knight, it is true that business owners may be qualified to testify about
lost profits when (1) “the owners had sufficient personal knowledge of their
respective businesses and of the factors on which they relied to estimate lost
profits” or (2) “the owners offered valuations based on straightforward, common
sense calculations.” LifeWise Master Funding v. Telebank, 374 F.3d 917, 929-30
(10th Cir. 2004) (collecting cases). But as the district court noted, Ms. Knight
had no experience in land development and had never conducted a business with
respect to the vacant houses. Notwithstanding the research that she had
conducted to prepare for the development, the court could rationally decide that
she did not have sufficient knowledge of these businesses to qualify for the
business-owner exception. Cf. Malloy v. Monahan, 73 F.3d 1012, 1016-17
(10th Cir. 1996) (allowing business owner’s testimony when he had “substantial
experience in the purchase, rehabilitation, and sale of distressed properties”).
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And her plans and projections went beyond straightforward common-sense
calculations.
Because of the exclusion of this evidence, the district court properly
dismissed Ms. Knight’s claims. One necessary element of each claim was lost
profits. We recognize that “[t]he general rule under Oklahoma law allows for the
recovery of anticipated lost profits if the loss is capable of reasonably accurate
measurement or estimate.” Specialty Beverages, L.L.C. v. Pabst Brewing Co.,
537 F.3d 1165, 1178 (10th Cir. 2008) (emphasis and internal quotation marks
omitted). But the district court did not abuse its discretion in holding that, on the
admissible evidence before it, any lost profits from the sale of the rental houses
and the development of the 40-Acre Parcel were not capable of reasonably
accurate measurement or estimate.
For these reasons, we affirm the judgment underlying appeal No. 09-6075.
B. Appeal No. 09-6141
This appeal concerns the district court’s orders that Capital pay Phoenix
$49,000 in attorney fees, and that Ms. Knight pay Capital and Financial $88,000
in attorney fees. “In diversity cases, attorney fees are a substantive matter
controlled by state law.” Combs v. Shelter Mut. Ins. Co., 551 F.3d 991, 1001
(10th Cir. 2008). “Oklahoma strictly adheres to the American rule concerning
attorney’s fees,” which generally requires that fees be authorized by a statute or a
contract. Id. (internal quotation marks omitted); see Barnes, 11 P.3d at 178-79.
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The parties and the district court relied on Okla. Stat. tit. 12, § 936 to support
both awards. 5 “We review the legal principles underlying an award de novo,” but
the reasonableness and amount of a fee award for abuse of discretion. Combs,
551 F.3d at 1001.
1. Award to Phoenix
Phoenix appeals the fee award of only $49,000 on its claim for an award of
$224,392.17 in attorney fees. It argues that the district court erred in not holding
a hearing on its fee motion, by misapplying Oklahoma law regarding the
5
Before the district court, Capital and Financial sought fees under both
§ 936 and the terms of the Note. The district court awarded fees only under
§ 936, however, and Capital and Financial do not renew on appeal their argument
that the Note entitled them to a fee award against Ms. Knight. Thus, this
argument is waived. See City of Colo. Springs v. Solis, 589 F.3d 1121, 1135 n.5
(10th Cir. 2009) (arguments not made in the opening brief are waived).
It is not clear that Oklahoma would hold that a claim for breach of the
implied covenant of good faith and fair dealing is a claim encompassed by § 936.
See, e.g., Specialty Beverages, 537 F.3d at 1184 (“[W]e have previously decided
that the Oklahoma Supreme Court narrowly interprets all provisions of § 936.”);
Sooner Builders & Invs., Inc. v. Nolan Hatcher Constr. Servs., L.L.C., 164 P.3d
1063, 1069 (Okla. 2007) (“Section 936 applies to a party who is successful on a
contract claim as specified therein . . . .” (emphasis added)); Borst v. Bright Mort.
Co., 824 P.2d 1102, 1104 (Okla. 1991) (§ 936 does not apply when the prevailing
party sought to cancel a note, not to collect on it). But as with the Note
argument, the parties have not argued on appeal that this claim is not among the
fee-bearing claims listed in § 936. And they did not raise such an argument
before the district court. Thus, any such argument also is waived. See City of
Colo. Springs, 589 F.3d at 1135 n.5; Rosewood Servs., Inc. v. Sunflower
Diversified Servs., Inc., 413 F.3d 1163, 1167 (10th Cir. 2005) (arguments not
raised before the district court are waived on appeal).
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calculation of fee awards, and by failing to make factual findings conforming to
the evidence.
Phoenix argues that Oklahoma requires an evidentiary hearing before
awarding attorney fees. We are not persuaded. Although the general practice
may be to hold a hearing, a federal district court is not always required to hold a
hearing to establish an adequate record on a fee request under Oklahoma law. See
Gamble, Simmons & Co. v. Kerr-McGee Corp., 175 F.3d 762, 773-74 (10th Cir.
1999). We review the decision not to hold a hearing for abuse of discretion. See
Robinson v. City of Edmond, 160 F.3d 1275, 1286 (10th Cir. 1998). As in
Robinson—also an appeal arising from a federal district court in
Oklahoma—Phoenix has “been unable to point to any indication in the record that
[it] requested a hearing.” Id. “Ordinarily, a district court does not abuse its
discretion in deciding not to hold an evidentiary hearing when no such request is
ever made.” Id. 6
Phoenix next argues that the district court incorrectly performed the
two-part analysis of State ex. rel. Burk v. City of Oklahoma City, 598 P.2d 659
(Okla. 1979), for awarding attorney fees. It contends that the court failed to
identify the hourly rate or the number of hours to set the lodestar fee amount, see
6
It appears that the first—and only—request for a hearing appeared in a pro
se motion for reconsideration filed by Ms. Knight. As stated above, as a
nonattorney, Ms. Knight could not represent Phoenix in this litigation. See Tal v.
Hogan, 453 F.3d 1244, 1254 & n.8 (10th Cir. 2006) (collecting cases).
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id. at 660–61, and failed to apply all the Burk factors for adjusting the lodestar,
see id. at 661. Phoenix also claims that the court erred in its assessment of the
evidence.
Phoenix’s characterization of the district court’s decision is inaccurate.
Phoenix set its lodestar at $224,392.17. The court accepted this calculation and
proceeded to adjust that figure in light of the Burk factors to arrive at a
reasonable fee. See Burk, 598 P.2d at 661. The court observed that both parties’
fees were unreasonable, due to multiple sets of counsel and the ineffective use of
attorneys; that both parties contributed to the excessive fees; and that Phoenix’s
counsel spent some time on Phoenix’s tort claims and Ms. Knight’s
counterclaims, which were unsuccessful. It also placed particular importance on
the amount in controversy and the amount of recovery, only $8,980. The court
properly considered these latter factors to be significant, as Oklahoma requires
that an attorney fee be “reasonable in light of the amount sued for and recovered.”
Sw. Bell Tel. Co. v. Parker Pest Control, Inc., 737 P.2d 1186, 1188 (Okla. 1987);
see also id. at 1190. In these circumstances, we are not persuaded that the district
court abused its discretion in determining that $49,000 was a reasonable fee. We
therefore affirm the fee award to Phoenix.
2. Award to Capital and Financial
In appealing the fee award of $88,000 to Capital and Financial, Ms. Knight
argues that the district court erred in giving no weight to her pro se response; that
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the court erred in awarding fees to Capital and Financial based on her contract
claim even though she was similarly situated to Phoenix, which was successful on
its contract claim; that the award was excessive; and that Capital and Financial do
not deserve an award of fees because of their bad faith and misconduct. (To the
extent that Ms. Knight also adopts arguments made by Phoenix, they fail for the
reasons discussed above.)
The district court declined to consider Ms. Knight’s pro se response to
Capital and Financial’s attorney-fee motion. We acknowledge that three days
before Ms. Knight filed her pro se response, she filed notice that she wished to
proceed pro se. Still, the district court did not commit reversible error in giving
no weight to the response. The response was not restricted to Ms. Knight’s
position, but purportedly also was submitted on behalf of Phoenix, an entity
which Ms. Knight could not represent in court. In addition, it was somewhat
duplicative of the response filed by counsel. On appeal Ms. Knight has not
identified any argument in her pro se response that would have changed the result.
Ms. Knight also asserts that she prevailed in substance, and complains that
Capital and Financial should not be able to recover fees on the contract claim
because she and Phoenix (which was successful on its contract claim) were
similarly situated. But legally she did not prevail, and she and Phoenix were not
similarly situated. Damages are an essential element of a claim for breach of
contract. See Digital Design Group, Inc. v. Info. Builders, Inc., 24 P.3d 834, 843
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(Okla. 2001). Phoenix had evidence of damages and proved a portion of its
claimed damages to the jury’s satisfaction. In contrast, as discussed in
No. 09-6075, Ms. Knight did not have any admissible evidence of individual
damages. Thus, Phoenix was successful with its claim, whereas judgment was
entered in favor of Capital and Financial on her claim.
Ms. Knight also argues that the amount of the award was excessive because
the district court gave too much weight to Capital and Financial’s evidence, did
not properly weigh that Capital and Financial created the situation that led to
increased fees, failed to consider that Ms. Knight did not enter the case until
January 2008, and failed to consider that Capital and Financial would have borne
the same expenses if Phoenix had been the only party. We see no abuse of
discretion in the court’s award. The court noted that both sides bore some
responsibility for “a small to medium sized problem blossoming out of control.”
No. 09-6141, Aplt. App. Vol. II at 472. The court recognized that Capital and
Financial improperly sought fees for time periods before Ms. Knight became a
party. It thoughtfully reviewed the case, taking into account “the time spent on
Ms. Knight’s claims versus those involving Phoenix, the apportionment necessary
to reflect time attributable to only the contract-based claim asserted by
Ms. Knight against Mooring, and all surrounding circumstances” in arriving at its
fee award. Id. at 476. Although Ms. Knight claims the district court erroneously
believed that she and Phoenix “persistently” refused “to ever offer their
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suggestion as to what the appropriate payoff balance was,” id. at 475, we will not
reweigh the evidence. There is record support for the district court’s view.
Finally, Ms. Knight contends that Capital and Financial are not entitled to
an award of attorney fees because of their bad faith. “To strictly apply the
American Rule in this case would be to do a great injustice to Knight and reward
Mooring for its oppressive acts.” Knight Aplt. Br. at 29. But the district court
declined to find that Capital and Financial acted in bad faith. Further, the district
court assessed blame for the protracted litigation on all parties, not just Capital
and Financial. These determinations exhibit no abuse of discretion.
III. CONCLUSION
In appeal No. 09-6075, we GRANT the motion of Mooring Capital Fund,
LLC, and Mooring Financial Corporation to file a surreply, DIRECT that the
tendered surreply be filed, and AFFIRM the judgment of the district court.
In appeal No. 09-6141, we AFFIRM the judgment of the district court.
Entered for the Court
Harris L Hartz
Circuit Judge
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