U.S. Foodservice, Inc. v. Shamrock Foods Co. , 246 F. App'x 570 ( 2007 )

F IL E D
United States Court of Appeals
Tenth Circuit
U N IT E D ST A T E S C O U R T O F A PP E A L S
August 31, 2007
T E N T H C IR C U IT
Elisabeth A. Shumaker
Clerk of Court
U.S. FOODSERVICE, IN C.,
Plaintiff - Appellee, No. 05-1417
v. D. Colo.
SH A MR O CK FO O D S C OM PANY, (D.C. No. 04-CV-2426 RPM )
IN C.,
Defendant - Appellant.
O R D E R A N D JU D G M E N T *
Before L U C E R O , SE Y M O U R , and O ’B R IE N , Circuit Judges.
Shamrock Foods Company (Shamrock) appeals from the district court’s
denial of its application for costs and attorneys’ fees. W e exercise jurisdiction
under 28 U.S.C. § 1291 and affirm.
*
This order and judgment is not binding precedent except under the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.
I. Background
A. Protocol to Prevent Future Disputes
U.S. Foodservice (USF) distributes food and food-related products to
restaurants, schools and other facilities. Shamrock is also a foodservice
distributor and one of USF’s competitors. As a condition of their employment
and/or to partake in employee incentive programs, many USF and Shamrock sales
employees sign contracts in which they agree, inter alia, (1) not to solicit their
former employer’s customers for one year after their termination/resignation and
(2) not to use or disclose their former employer’s confidential information after
their termination/resignation.
In 2002, several lawsuits arose between USF and Shamrock concerning the
hiring of employees who had signed non-solicitation and non-disclosure
agreements with the other entity (their former employer). 1 In late September
2002, the parties settled the lawsuits. The settlement agreement contained a
“Protocol to Prevent Future Disputes” (Protocol) in which the parties agreed to
honor each other’s non-solicitation and non-disclosure agreements and established
procedures to prevent future disputes between them. (R. App. at 81.) One of the
procedures required:
1
Two of the cases arose in Arizona and one in California. Two of the
cases involved Alliant Foodservice, Inc., which USF later acquired.
-2-
On any occasion where the former employer informs the hiring party
that the former employer has information that causes it to believe that
a former employee employed by the hiring party is violating his/her
agreement with the former employer, the hiring party shall (I)
instruct the employee to comply with the contract, (ii) in good faith
conduct a prompt and thorough investigation of the allegation, and
(iii) advise the former employer of the results of its investigation and
the specific remedial steps if any, it has taken.
(Id. at 83.) The Protocol also contained a fee-shifting provision:
In the event that the hiring party’s investigation and remedial
measures do not cure the violation and the former employer
commences and prevails in a lawsuit to enforce its rights, the hiring
employer shall be liable to the former employer for the former
employer’s costs and expenses, including reasonable attorneys’ and
investigators’ fees, incurred in investigating and pursuing such
violation, together with damages and such other and further legal and
equitable relief as the Court may grant. Otherwise, the prevailing
part(ies) shall recover its costs and expenses, including reasonable
attorneys’ and investigator’s fees incurred in defending against the
claim(s) of violation, together with damages and such other and
further legal and equitable relief as the Court may grant.
(Id. at 85.)
B. Current Lawsuit
Prior to August 2004, Norman Joseph, Benjamin Ayotte and Greg M eiris
worked as territory managers for USF in its Colorado offices. As territory
managers, they were USF’s primary contact with its customers and had access to
USF’s confidential and proprietary information. In December 2003, Joseph,
Ayotte and M eiris entered into USF’s Points of Focus Program for fiscal year
-3-
2004. 2 As a condition of their participation in the program, they were required to
sign a “Non-Solicitation and Non-Disclosure A greement.” (R. App. at 46.) In
relevant part, this agreement prohibited Joseph, Ayotte and M eiris from (1)
soliciting any USF customer with which they had contact in the eighteen months
preceding their termination/resignation and (2) disclosing or using USF’s
confidential information. The non-solicitation of customers provision was
effective during their employment with USF and for one year after their
termination/resignation. The non-disclosure of confidential information
restriction did not have an expiration date. However, the agreement recognized
that certain states required such restrictions to be of finite duration and to the
extent these states’ laws applied, the restriction expired three years after
termination/resignation.
On August 6, 2004, Joseph resigned from USF and immediately began
working for Shamrock. On August 10, 2004, USF sent Joseph a letter reminding
him of his obligations under the non-solicitation and non-disclosure agreement.
Nevertheless, USF soon learned Joseph was soliciting USF customers, disclosing
USF’s confidential information and disparaging USF (which was also prohibited
2
USF’s Points of Focus Program is a rewards and incentive program for its
sales employees. Upon making certain sales, employees earn points which may
then be redeemed for valuable items including automobiles, boats, college tuition
and travel packages.
-4-
under the agreement). 3 On August 26, 2004, USF w rote Shamrock a letter
informing it of these violations. Shamrock’s counsel responded denying Joseph
was violating his agreement with USF and requesting USF provide evidence of
such violations. USF’s counsel replied, accusing Shamrock of violating the
Protocol due to its failure to conduct a good-faith investigation of its allegations.
On September 22, 2004, Ayotte and M eiris left USF and began working for
Shamrock. USF sent two consecutive letters reminding them of their obligations
under the non-solicitation and non-disclosure agreements. Thereafter, USF
learned A yotte and M eiris were soliciting USF customers. 4
3
In his November 18, 2004 affidavit, Tim Burns, USF’s District Sales
M anager, stated: “Joseph had been USF’s primary contact to at least thirty-tw o
customers during his last eighteen months of employment. Since Joseph’s
employment with Shamrock began, USF lost and continues to lose business and
goodwill on a w eekly basis from twenty of those customers.” (R. App. at 43.)
One of the customers Joseph serviced while employed by USF was a child
development center. The assistant director of the center issued an affidavit
stating Joseph attempted to solicit the center’s business for Shamrock one week
before he left USF and again after commencing employment with Shamrock. In
doing so, Joseph told the assistant director that Shamrock’s food quality was
better and its prices w ere lower than USF’s. H e also said USF was in “horrific
financial shape, near bankruptcy, and going under, but [] Shamrock was in solid
financial shape.” (R. App. at 96.)
4
W ith regard to M eiris and Ayotte, Burns’s affidavit states: “M eiris and
Ayotte had been USF’s primary contact to at least fifty-seven customers during
their last eighteen months of employment. Since their employment with
Shamrock began, USF lost and continues to lose business and goodwill on a
weekly basis from eleven of those customers.” (R. App. at 44.) USF also
submitted an e-mail sent from M eiris’ USF account to one of his USF customers
inviting it to a food show to “see what [Shamrock] has to offer.” (Id. at 66.) USF
also interprets this e-mail as an apparent attempt by M eiris to skirt his obligation
-5-
On N ovember 22, 2004, USF filed suit against Joseph, Ayotte and M eiris,
alleging they had breached their non-solicitation and non-disclosure agreements
(individual agreements) w ith USF. USF also named Shamrock as a defendant,
claiming it breached the Protocol. USF further alleged (1) tortious interference
with contractual relations and misappropriation of business value against all
defendants, (2) breach of fiduciary duty and loyalty against Joseph, Ayotte and
M eiris and (3) defamation against Joseph and Shamrock. The next day, USF filed
a motion for preliminary injunction to enjoin Joseph, Ayotte and M eiris from
violating the individual agreements and Shamrock from permitting and
encouraging these violations.
Thereafter, Shamrock, Joseph, Ayotte and M eiris (collectively Defendants)
filed a motion to dismiss USF’s breach of contract, tortious interference and
defamation claims, arguing the individual agreements were void under Colorado
law and Shamrock had not violated the Protocol. Four days later, USF filed a
motion to set a preliminary injunction hearing, informing the court the non-
solicitation provision of the individual agreements would expire in August and
September 2005. The next day, the court denied USF’s motion, determining
Defendants’ motion to dismiss raised legal issues which needed to be addressed
not to solicit his USF customers by trading this customer with Ayotte for one year
afer they both joined Shamrock.
-6-
before an evidentiary hearing on USF’s motion for preliminary injunction could
be set. On A pril 1, 2005, the court denied D efendants’ motion to dismiss,
concluding the issues raised could not be resolved at the dismissal stage.
The court held a scheduling conference on June 10, 2005. At the
conference, the parties and court discussed a choice-of-law dispute pertaining to
the individual agreements. 5 Because this issue had the potential to affect the
entire case, the court ordered further briefing. USF requested a preliminary
injunction hearing be scheduled for the end of July, early August 2005. The court
informed USF the earliest possible date would be the end of October 2005.
Thereafter, on June 24, 2005, Defendants filed an amended answer which
included a counterclaim by Shamrock against USF. Shamrock alleged USF w as
violating the Protocol by continuing to service customer accounts which had been
improperly solicited by USF A rizona employee David Barrie, a former Shamrock
employee, in violation of his non-solicitation and non-disclosure agreement with
Shamrock. Five days later, Defendants filed their brief concerning the choice of
5
The individual agreements contained a choice-of-law provision stating
M aryland law would govern their validity, interpretation and performance because
USF’s headquarters and principal place of business were in M aryland, a
substantial portion of USF’s business was based and directed from M aryland and
most purchasing of U SF’s products was coordinated in M aryland. Nevertheless,
Defendants argued the court should ignore the choice-of-law provision and apply
Colorado law because (1) M aryland had no substantial relationship to the parties
or transaction and (2) application of M aryland law would violate Colorado’s
public policy disfavoring non-competition agreements.
-7-
law issue. On July 14, 2005, USF filed a motion to dismiss Shamrock’s
counterclaim. USF responded to Defendants’ choice of law brief on July 19,
2004.
On July 22, 2005, before the court ruled on the choice of law issue and
USF’s motion to dismiss Shamrock’s counterclaim, USF filed an “Unopposed
M otion for Voluntary Dismissal W ithout Prejudice Pursuant to Fed. R. Civ. P.
41(a)(2).” 6 USF explained it was moving for voluntary dismissal without
prejudice of its complaint because (1) Defendants’ violations of the individual
agreements and Protocol had curtailed since the filing of the lawsuit and (2) the
Protocol and individual agreements would expire in August and September 2005,
before a preliminary injunction hearing could take place. Six days later, on July
6
Rule 41(a) provides in relevant part:
(a) Voluntary Dismissal: Effect Thereof.
(1) By Plaintiff; by Stipulation. [A]n action may be dismissed by the
plaintiff without order of court (i) by filing a notice of dismissal at
any time before service by the adverse party of an answer or of a
motion for summary judgment, whichever first occurs, or (ii) by
filing a stipulation of dismissal signed by all parties who have
appeared in the action. Unless otherwise stated in the notice of
dismissal or stipulation, the dismissal is without prejudice . . . .
(2) By Order of Court. Except as provided in paragraph (1) . . . , an
action shall not be dismissed at the plaintiff’s instance save upon
order of the court and upon such terms and conditions as the court
deems proper . . . . U nless otherw ise specified in the order, a
dismissal under this paragraph is without prejudice.
-8-
28, 2005, Shamrock filed a notification of its intent to file a voluntary dismissal
without prejudice of its counterclaim, which the court construed as a voluntary
dismissal of the counterclaim. The same day, the court dismissed USF’s
complaint and Shamrock’s counterclaim without prejudice.
Subsequently, Shamrock filed an application for costs and attorneys’ fees
under the Protocol’s fee-shifting provision. In essence, Shamrock asserted that
because it had been “totally vindicated” by USF’s voluntary dismissal, it was the
“prevailing part(ies)” under the Protocol. (App. at 287-88.) Shamrock sought
attorneys’ fees and costs totaling $40,034.00, for the representation of Shamrock,
Joseph, Ayotte and Meiris. The court denied Shamrock’s application, concluding
“[USF’s] voluntary dismissal without prejudice does not provide grounds for
determining that [Shamrock] is the prevailing party within the terms of the
[Protocol] . . . .” (R. App. at 314.)
II. Choice of Law
Unlike the individual agreements, the Protocol does not contain a choice-
of-law provision. Because we are sitting in diversity, we apply the substantive
law of the forum state including its choice of law rules. Elliot v. Turner Constr.
Co., 381 F.3d 995, 1001 (10th Cir. 2004). The forum state is Colorado. Colorado
has adopted the “most significant relationship” approach of the Restatement
(Second) of Conflict of Laws for resolving conflict of law questions in contract
-9-
cases. Wood Bros. Homes, Inc. v. Walker Adjustment Bureau, 601 P.2d 1369,
1372 (Colo. 1979). “This approach requires courts to apply the law of the state
which, with respect to the particular issue in dispute, has the most significant
relationship to the transaction and the parties.” Hoiles v. Alioto, 461 F.3d 1224,
1230 (10th Cir. 2006). To determine which state has the most significant
relationship, courts consider, inter alia, the needs of the interstate and
international systems, the relevant policies of the forum and other interested
states, the protection of justified expectations, and the basic policies underlying
the particular field of law. Restatement (Second) of Conflict of Law § 6. They
also consider the following contacts: (1) the place of contracting, (2) the place of
negotiation, (3) the place of performance, (4) the location of the contract’s subject
matter and (5) the parties’ domicil, residence, nationality, place of incorporation
and place of business. Id. § 188.
Applying this analysis, it is unclear where the Protocol was entered into or
negotiated. However, it was part of a settlement agreement resolving litigation in
Arizona and California and was to be performed in Arizona, California, Colorado
and New M exico. 7 The parties to the Protocol w ere USF, Shamrock and Alliant.
7
The Protocol states the parties “shall honor each other’s contracts [i.e.,
their non-solicitation and non-disclosure agreements] . . . in their New M exico,
Arizona, Colorado and California offices . . . .” (R . App. at 81-82 (emphasis
added)).
-10-
Although the record does not reveal Alliant’s principal place of business or state
of incorporation, USF is incorporated in Delaware with its principal place of
business in M aryland and Shamrock is incorporated in Colorado with its principal
place of business in Arizona. The Protocol’s subject matter involves methods to
prevent future disputes between the parties concerning the hiring of employees
who had signed non-solicitation and non-disclosure agreements with the other
entity. The current lawsuit arose out of alleged violations of those agreements by
persons living and working in Arizona (Barrie) and Colorado (Joseph, Ayotte and
M eiris) and alleged violations of the Protocol by USF and Shamrock in Arizona
and Colorado.
Shamrock cited mainly to Colorado law in its application for costs and fees
and both parties primarily rely on Colorado law on appeal. Therefore, we apply
Colorado law and decline to address whether application of Arizona law (or any
of the other relevant states’ laws) w ould result in a different outcome. Neustrom
v. Union Pac. R.R. Co., 156 F.3d 1057, 1062 (10th Cir. 1998) (“Because the
parties proceed on the assumption that Kansas substantive contract law applies,
we apply that law without further analysis.”).
III. Standard of Review
Because the interpretation of a contract is a question of law in Colorado,
Agritrack, Inc. v. DeJohn Housemoving, Inc., 25 P.3d 1187, 1192 (Colo. 2001),
-11-
our review is de novo. Kaw Nation v. Springer, 341 F.3d 1186, 1189 (10th Cir.
2003). Determination of which party succeeded or prevailed under a contractual
fee-shifting provision is within the trial court’s discretion and is reviewed for an
abuse of that discretion. Dennis I. Spencer Contractor, Inc. v. City of Aurora,
884 P.2d 326, 328 n.6 (Colo. 1994) (Spencer); Brock v. Weidner, 93 P.3d 576,
579 (C olo. Ct. App. 2004).
IV. Discussion
Shamrock argues the district court erred in denying its application for costs
and attorneys’ fees under the Protocol’s fee-shifting provision. Again, this
provision states:
In the event that the hiring party’s investigation and remedial
measures do not cure the violation and the former employer
commences and prevails in a lawsuit to enforce its rights, the hiring
employer shall be liable to the former employer for the former
employer’s costs and expenses, including reasonable attorneys’ and
investigators’ fees, incurred in investigating and pursuing such
violation, together with damages and such other and further legal and
equitable relief as the Court may grant. Otherwise, the prevailing
part(ies) shall recover its costs and expenses, including reasonable
attorneys’ and investigator’s fees incurred in defending against the
claim(s) of violation, together with damages and such other and
further legal and equitable relief as the Court may grant.
(R . App. at 85.)
Under the Protocol’s fee-shifting provision, Shamrock asserts if the former
employer does not prevail in its lawsuit, the defending parties are automatically
entitled to their costs and attorneys’ fees. Because U SF (the former employer)
-12-
failed to secure any relief before voluntarily dismissing its claims, Shamrock
asserts USF clearly did not prevail and it is automatically entitled to its costs and
fees. USF agrees the fee-shifting provision requires the hiring employer to pay
the former employer’s costs and attorneys’ fees if the former employer prevails in
a lawsuit to enforce its rights under the Protocol. However, it disagrees that if the
former employer does not prevail, the hiring employer is automatically entitled to
its fees. If that was so, USF claims the second sentence of the fee-shifting
provision would simply read: “Otherwise, the hiring employer shall recover its
costs and expenses.” (A ppellee’s Br. at 9 (quotations omitted).)
“The primary goal of contract interpretation is to determine and give effect
to the intent of the parties.” Ad Two, Inc. v. City & County of Denver ex rel.
M anager of Aviation, 9 P.3d 373, 376 (Colo. 2000). The parties’ intent is to be
determined primarily from the language of the contract itself, giving its terms
their plain and ordinary meaning. Id.; Allstate Ins. Co. v. Huizar, 52 P.3d 816,
819 (Colo. 2002). The meaning of a contract must be determined from the entire
instrument, not by viewing clauses or phrases in isolation. Allstate Ins. Co., 52
P.3d at 819. “A contract should be interpreted to harmonize and to give effect to
all its provisions, if possible.” Bedard v. M artin, 100 P.3d 584, 588 (Colo. Ct.
App. 2004).
As evidenced by the Protocol itself, the parties’ intent in entering into it
-13-
was to prevent future disputes between them concerning the hiring of employees
who had signed non-solicitation and non-disclosure agreements with the other
entity. 8 To this end, the Protocol establishes procedures to avoid such disputes.
One of those procedures requires the hiring employer to investigate and take
appropriate remedial measures if the former employer informs the hiring employer
it believes a former employee hired by the hiring employer is violating his non-
solicitation and non-disclosure agreement. The Protocol’s fee-shifting provision
anticipates that the hiring party’s investigation and remedial measures may not
cure the violation and the former employer may need to resort to litigation to
enforce its rights. In such circumstances, if the former employer prevails, the
hiring employer shall be liable for the former employer’s costs and expenses,
including its attorneys’ fees. The parties agree with this interpretation.
Turning to the second part of the fee-shifting provision, at first blush it
seems to require the former employer to pay the hiring employer its attorneys’
fees if the former employer does not prevail. This is because of the use of the
term “otherwise,” which in this context means “if not; else.” See
http://dictionary.oed.com. How ever, this interpretation, which Shamrock urges,
ignores the adjective “prevailing” preceding “part(ies).” Thus, the fee-shifting
8
In general, the purpose of contractual fee-shifting provisions is to
“encourage compliance with contracts and discourage unfounded lawsuits.”
Spencer, 884 P.2d at 337 (Rovira, J., dissenting).
-14-
provision does not automatically require an award of fees to the hiring employer
if the former employer does not prevail but rather requires the hiring employer to
be a prevailing party. Consequently, despite its prolixity, the Protocol’s fee-
shifting provision requires an award of fees to the prevailing party. 9
The question presented is whether Shamrock was the “prevailing part(ies).”
The Protocol does not define the term. Shamrock asserts it was the prevailing
party because it w as “completely vindicated” and “achieved complete success,”
i.e., it avoided imposition of injunctive relief, paid no damages, and made no
concessions or commitments. It also points to a number of cases holding a
9
Shamrock relies on American Insurance Co. v. El Paso Pipe & Supply
Co., 978 F.2d 1185 (10th Cir. 1992). There, the plaintiff/purchaser sought its
attorneys’ fees under the following fee-shifting provision: “In the event there
should be legal action in connection with this Purchase Order, then if the Seller is
not the prevailing party in such action, Seller agrees to pay the reasonable legal
fees and other costs incurred in such legal action by the Purchaser.” Id. at 1187(emphasis added). W e rejected the defendants/sellers’ argument that the
plaintiff/purchaser could not recover its fees under this provision because it was
not the prevailing party. Id. at 1192. W e concluded it was not the
plaintiff/purchaser’s status as a prevailing party which determined whether it was
entitled to fees but rather the defendants/sellers’. Id. This case is clearly
distinguishable. The Protocol’s fee-shifting provision, unlike the provision in
American Insurance, expressly requires the party seeking fees to have prevailed in
the lawsuit.
Shamrock also contends the reason for the shift in terms from “former
employer” and “hiring employer” in the first sentence of the Protocol’s fee-
shifting provision to “prevailing part(ies)” in the second sentence is obvious--
when the former employer sues under the Protocol, it will sue not only the hiring
employer but also its former employees hired by the hiring employer. This
argument merely explains the use of “part(ies)” rather than “party;” it does not
eliminate the use of the word “prevailing” before “part(ies).”
-15-
plaintiff’s voluntary dismissal without prejudice results in the defending party
being the “prevailing party” for purposes of awarding costs and attorneys’ fees
because the defending party faces the risk the plaintiff will refile, thereby
imposing duplicative expenses upon it. USF claims there was no prevailing party
because both sides voluntarily dismissed their claims.
In Spencer, the Colorado Supreme Court faced a similar dilemma (i.e.,
having to determine the definition of “prevailing party” in a contract not defining
it). There, the plaintiff sued the defendant for breach of their settlement
agreement. The jury found the defendant had breached the agreement but
awarded no damages. Thereafter, the plaintiff moved for attorneys’ fees under
the agreement, which awarded fees to the “prevailing party” but did not define the
term. The trial court denied the motion because the jury did not award damages
and the appellate court affirmed. The Colorado Supreme Court reversed. In
doing so, it defined “prevailing party” in a breach of contract case as “the party in
whose favor the decision or verdict on liability is rendered” regardless of whether
damages are awarded. 1 0 Spencer, 884 P.2d at 332. Because the jury had found in
favor of the plaintiff on liability, the court concluded the plaintiff was entitled to
10
The Colorado Supreme Court specifically rejected the standard used for
awarding fees in civil rights actions under 42 U.S.C. § 1988, which allows fees to
the party applying for such fees if that party was the “prevailing party,” i.e., it
succeeded upon a significant issue and achieved some of the benefits sought in
the lawsuit. Spencer, 884 P.2d at 329-30.
-16-
fees as the “prevailing party.” 1 1 Id.
Applying Spencer, neither U SF nor Shamrock was the prevailing party
because both voluntarily dismissed their claims against each other, i.e., no
decision or verdict on liability was rendered in either’s favor. 1 2 W hile we
recognize fee-shifting provisions “generally contemplate . . . that there will be
one winner and one loser regarding payment of fees,” “in a proper case, the trial
court may rule that neither party prevailed and award no fees.” Wheeler v. T.L.
Roofing, Inc., 74 P.3d 499, 503 (Colo. Ct. App. 2003). The Protocol’s fee-
shifting provision does not prohibit such result. Thus, applying the Spencer
definition, neither party prevailed and the district court properly denied
Shamrock’s application for costs and attorneys’ fees. 1 3
11
The Spencer definition is similar to that in Black’s Law Dictionary,
which defines “prevailing party” as “[a] party in whose favor a judgment is
rendered, regardless of the amount of damages awarded.” Black’s Law
Dictionary 1144 (7th ed. 1999).
12
Even though USF did not move for its attorneys’ fees, we address
whether it prevailed because if it did Shamrock would not be entitled to its fees
under the Protocol’s fee-shifting provision. Indeed, Shamrock’s arguments are
based on its belief that USF did not prevail.
13
In Wheeler, the trial court awarded fees to the defendant even though
both the plaintiff and the defendant were found to have breached the parties’
contract. The Colorado Court of Appeals affirmed, concluding “where both
parties have prevailed in part on the question of liability, the trial court is free to
determine which is prevailing for purposes of applying a fee-shifting agreement.”
74 P.3d at 504. Wheeler is inapplicable to this case. The fact both parties
voluntarily dismissed their claims against each other does not mean both parties
prevailed in part on the question of liability. No liability determination was made
-17-
Of course, Spencer’s definition of “prevailing party” could be interpreted
as applying only to cases (like Spencer) in which a determination of liability was
actually made. Indeed, the Protocol’s fee-shifting provision does not require such
a determination to be made in order to decide prevailing party status. Assuming
this is so, we are left to define the term where no liability determination has been
made, specifically, where the parties voluntarily dismiss their claims against each
other.
The closest case on point in Colorado is Brock. There, the Brocks filed suit
against the Weidners and the D iscovery Homeowners Association (DHA)
pertaining to the W eidners’ plans to build an addition to their home. The Brocks
alleged the proposed construction violated the subdivision’s restrictive covenants
and challenged DHA’s failure to prohibit the proposed construction. After the
district court denied (1) the Brocks’ motion for preliminary injunction (based on
its finding the W eidners had proceeded properly in seeking approval for the
project and DHA acted in good faith in allow ing them to proceed), (2) their jury
trial demand (because the action was equitable) and (3) their motion for partial
summary judgment (because factual disputes remained), the Brocks moved to
voluntarily dismiss their claims with prejudice. The trial court granted the motion
but denied the W eidners’ request for attorneys’ fees under a fee-shifting provision
in this case.
-18-
contained in the restrictive covenants which required fees to be awarded to the
“successful party.” 93 P.3d at 578. The court concluded the issues were “close
and difficult.” Id. (quotations omitted).
The Colorado Court of Appeals reversed, finding the trial court abused its
discretion in denying fees. Id. In doing so, it did not rely on Spencer’s definition
of “prevailing party” even though it cited to the case for the standard of review.
Id. at 579. Rather, it looked to determine whether the W eidners had achieved
“substantial success.” Id. It concluded:
Here, [the W eidners] achieved substantial success in the litigation.
Indeed, it is difficult to see how [they] could have been any more
successful than they were. [They] succeeded in precluding [the
Brocks] from obtaining a preliminary injunction to block
construction of the addition. [They] then succeeded in defending
against both [the Brocks’] motion for partial summary judgment and
[the] demand for a jury trial. [The Brocks’] motion to dismiss
acknowledged [the W eidners] success by indicating that further
litigation would be counterproductive and that “[t]he injunctive relief
sought . . . in this action is moot as the construction sought to be
enjoined . . . is now nearly complete. The action culminated in the
dismissal with prejudice of all claims against [the W eidners]. Such a
dismissal is considered an adjudication on the merits . . . .
[The W eidners] succeeded on every contested issue in the case and
the action ultimately was dismissed with prejudice. Therefore, [they]
were the successful parties in the proceeding.
Id.Applying Brock, neither U SF nor Shamrock was the prevailing party
because neither achieved “substantial success” (or, using the terms of the
-19-
Protocol, neither party “substantially prevailed”). Although (1) USF successfully
defended against D efendants’ motion to dismiss, (2) Shamrock’s counterclaim
against USF w as voluntarily dismissed, and (3) Defendants’ violations of the
Protocol and individual agreements were curtailed, USF failed to obtain a
preliminary injunction or any other finding on liability. 1 4 W e recognize the
reason USF did not obtain injunctive relief concerning Defendants’ violations of
the Protocol and the non-solicitation of customers provision in the individual
agreements was potentially due to the fact the district court could not conduct an
evidentiary hearing prior to these agreements expiring. Nevertheless, USF still
could have sought injunctive relief concerning Defendants’ violations of the non-
disclosure of confidential information restriction in the individual agreements
because that restriction did not expire until August/September 2007 (at the
earliest). 1 5 Additionally, the expiration of the Protocol and non-solicitation
14
Shamrock contends there is no evidence it curtailed any of its activities.
However, Shamrock never contested USF’s allegation in its motion for voluntary
dismissal that one of the reasons it was seeking dismissal was because it had
information that “Defendants [had] drastically modified their conduct and
curtailed their violative acts upon [USF] filing this litigation.” (R . App. at 278.)
15
USF claimed in its motion for voluntary dismissal of its complaint that
the Protocol and individual agreements would expire before a hearing could be
held on its motion for preliminary injunction. W e agree the Protocol would have
expired as it was signed in September 2002 and was effective for three years
(until September 2005). However, we disagree that the individual agreements
would have expired in toto. W hile the non-solicitation of customers provision
expired one year after an employee’s termination/resignation, the non-disclosure
of confidential information restriction expired, at the earliest, three years after an
-20-
provision, while foreclosing injunctive relief, would not have precluded USF from
pursuing and obtaining damages for breach of those provisions. Furthermore,
unlike in Brock, Shamrock’s voluntary dismissal of its counterclaim was without
prejudice, which is not an adjudication on the merits. M errill Lynch Bus. Fin.
Servs., Inc. v. Nudell, 363 F.3d 1072, 1074 (10th Cir. 2004) (citing Wistrand v.
Leach Realty Co., 364 P.2d 396, 397 (Colo. 1961)); Jenkins v. Estate of Thom as,
800 P.2d 1358, 1359-60 (Colo. Ct. App. 1990).
As to Shamrock, (1) its motion to dismiss was denied, (2) it only avoided
defending against USF’s request for a preliminary injunction because an
evidentiary hearing could not be held prior to the Protocol and the non-
solicitation provision in the individual agreements expiring, (3) it did not succeed
on its choice of law argument because the district court never ruled on the issue,
(4) it and the individual defendants curtailed their violations of the Protocol and
individual agreements and (5) although USF voluntarily dismissed its claims
against it, it did so without prejudice. W hile Shamrock asserts U SF dismissed its
claims to avoid an adverse ruling on the choice of law issue pertaining to the
employee’s termination/resignation. Because Joseph, Ayotte and M eiris resigned
in August/September 2004, only the non-solicitation of customers provision, not
the non-disclosure of confidential information restriction, would have expired
prior to a preliminary injunction hearing being held. Although USF did not make
this distinction in its motion for voluntary dismissal, it did so in its December 20,
2004 motion to set a preliminary injunction hearing.
-21-
individual agreements, which would allegedly have resulted in the invalidation of
USF’s non-solicitation and non-disclosure agreements in Colorado, there is
absolutely nothing in the record indicating the court was about to rule on the issue
or that such ruling would have been in Shamrock’s favor. M oreover, Shamrock
did not dispute USF’s assertion in its motion for voluntary dismissal that the
reasons for its voluntary dismissal were due to the fact Defendants’ violations of
the individual agreements and Protocol had curtailed and the Protocol and non-
solicitation of customers provision would expire before a preliminary injunction
hearing could be held. Thus, under Brock, neither party was the prevailing party
and the court did not err in denying Shamrock’s request for costs and fees.
Shamrock’s reliance on a number of federal and state court cases for the
proposition that a defendant is a prevailing party when a plaintiff voluntarily
dismisses its case is unavailing. The cases relied upon fall into two general
categories: (1) cases involving an award of attorneys’ fees as a condition of a
plaintiff’s voluntary dismissal of its claims under Rule 41 of the Federal Rules of
Civil Procedure and (2) cases involving an aw ard of attorneys’ fees under a
statute, rule or contract awarding costs and/or attorneys’ fees to the “prevailing
party.” U nder the first category, most courts will award fees if the voluntary
dismissal is without prejudice. AeroTech, Inc. v. Estes, 110 F.3d 1523, 1527-28
(10th Cir. 1997) (holding district court may aw ard fees as a condition of a party’s
-22-
voluntary dismissal without prejudice under Rule 41(a)(2) but not if the dismissal
is w ith prejudice unless exceptional circumstances are present); Berthold Types,
Ltd. v. Adobe Sys., Inc., 155 F. Supp. 2d 887, 891 (N.D. Ill. 2001) (denying aw ard
of attorneys’ fees to defendant after plaintiff’s voluntary dismissal with prejudice
under Rule 41(a)(2)). They reason:
The purpose of awarding fees for a voluntary dismissal under Rule
41(a)(2) is to compensate the defendant for the unnecessary and
potentially duplicative expenses of the litigation. Fees are usually
awarded for a dismissal without prejudice because the defendant may
be forced to defend the claim again. However, [f]ees are not
awarded when a plaintiff obtains a dismissal with prejudice because
the defendant cannot be made to defend again.
Berthold Types, Ltd., 155 F. Supp. 2d at 891 (citations and quotations omitted).
Because Shamrock did not seek its fees as a condition of U SF’s voluntary
dismissal under Rule 41(a)(2), but rather under a contractual fee-shifting
provision, the first category of cases is not controlling.
The second category of cases is more on point because they involve
statutes, rules or contracts utilizing the term “prevailing party,” the same
language used in the Protocol’s fee-shifting provision. In these cases, the courts
hold a party is a “prevailing party” when the claims against it are voluntarily
dismissed. See, e.g., Cantrell v. Int’l Bhd. of Elec. Workers, AFL-CIO, Local
2021, 69 F.3d 456, 458 (10th Cir. 1995) (en banc) (holding a defendant is a
“prevailing party” under Rule 54(d) of the Federal Rules of Civil Procedure when
-23-
a plaintiff voluntarily dismisses its complaint, whether that dismissal is with or
without prejudice); Franklin Fin. v. Resolution Trust Corp., 53 F.3d 268, 273 (9th
Cir. 1995) (applying Oregon law and holding a defendant is a “prevailing party”
under a contractual fee-shifting provision and an Oregon statute when a plaintiff
voluntarily dismisses its action under Rule 41(a)(1) of the Federal Rules of Civil
Procedure); Rushing v. Carribean Food Prods., 870 So.2d 953, 954-55 (Fla. D ist.
Ct. App. 2004) (finding defendant is the “prevailing party” under a contractual
fee-shifting provision when a plaintiff voluntarily dismisses its complaint
pursuant to state court rule). However, none of these cases apply Colorado law
and there is no indication Colorado would rule similarly. Indeed, in Spencer, the
Colorado Supreme Court expressly declined to apply the definition of “prevailing
party” for purposes of awarding fees under 42 U.S.C. § 1988 to a contractual fee-
shifting provision employing the same language. 884 P.2d at 329-30. M ore
importantly, none of the cases relied upon by Shamrock address the situation in
this case – where both parties voluntarily dismiss their claims against each
other. 1 6
Even assuming the above cases applied here, we conclude the court did not
16
Shamrock contends it never desired to be in litigation with USF and only
filed its counterclaim against USF as a defensive tactic. W hatever Shamrock’s
intentions may have been, the fact remains it filed a counterclaim against USF
and later voluntarily dismissed it.
-24-
err in denying Shamrock its costs and attorneys’ fees. Applying the general
proposition that a defendant is a prevailing party when a plaintiff voluntarily
dismisses its complaint, both USF and Shamrock would be considered the
prevailing party because both parties voluntarily dismissed their claims against
the other. However, the Protocol’s fee-shifting provision does not allow for such
result. Under its plain language, either the former employer, hiring employer or
neither is the prevailing party, not both parties. This is consistent with
contractual fee-shifting provisions in general. See Wheeler, 74 P.3d at 503(“[Contractual fee-shifting provisions are] not intended to result in each side
paying the other’s fees. Instead, these provisions generally contemplate that the
prevailing party will be entitled to recover its attorney fees and that there will be
one winner and one loser regarding payment of those fees.).
The district court did not err in denying Shamrock’s application for costs
and attorneys’ fees under the Protocol’s fee-shifting provision.
A F FIR M E D .
E N T ER E D FO R T H E C O U R T
T errence L. O ’B rien
Circuit Judge
-25-