Finger Furniture v. Commonwealth Ins Co ( 2005 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT March 15, 2005
_____________________
Charles R. Fulbruge III
No. 04-20359 Clerk
_____________________
FINGER FURNITURE COMPANY INC.,
Plaintiff - Counter Defendant - Appellee,
versus
COMMONWEALTH INSURANCE COMPANY,
Defendant - Counter Claimant - Appellant.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________________________
Before REAVLEY, DeMOSS and PRADO, Circuit Judges.
PRADO, Circuit Judge.
This appeal arose from a dispute between an insurer,
appellant Commonwealth Insurance Company (Commonwealth), and its
insured, appellee Finger Furniture Company (Finger). Finger owns
seven furniture stores in Houston, Texas. Beginning on June 8,
2001 and continuing into June 9, 2001, the heavy rains of
Tropical Storm Allison hit the Houston area and caused severe
flooding. Because of the flooding, Finger’s employees could not
access the Finger store that housed the company’s central
computer system. As a result, Finger could not operate any of
its Houston stores on Saturday, June 9, 2001, and no sales were
made on that date. All of Finger’s stores opened at various
times on Sunday, June 10, 2001. The following weekend, June 16-
1
17, 2001, sales soared after Finger slashed its prices and
customers purchased furniture at discounted prices.
After the flooding, Finger filed a claim for sales lost on
June 9-10, 2001 under the business-interruption provision of its
insurance contract with Commonwealth. Commonwealth denied the
claim. After an unsuccessful mediation effort, Commonwealth
initiated a declaratory judgment action against Finger.
Commonwealth and Finger stipulated that Finger incurred a gross-
earnings loss of $325,402.86 on June 9-10, 2001.1 Finger filed
its answer and counterclaimed seeking $342,029.32 in stipulated
losses. This figure was based on the $325,402.86 in lost sales
plus $16,626.46 for expenses incurred to determine its claim
under the policy.
Both parties moved for summary judgment. The magistrate
judge recommended that the district court enter summary judgment
in favor of Finger for $342,029.32. The district court adopted
the magistrate judge’s recommendation and entered judgment in
favor of Finger. Finger then asked for attorney’s fees. The
magistrate judge recommended that the district court grant
Finger’s request, with some exceptions. The district court
entered an award of $79,201.00 for attorney’s fees. Commonwealth
appealed.
Whether Summary Judgment Was Proper
1
This figure is based on Finger’s sales experience on June
10-11, 2000, the same weekend as the flood during the prior year.
2
The first issue in this appeal is how to calculate a loss
under the business-interruption provision of Finger’s policy with
Commonwealth. Commonwealth contends the district court should
have offset Finger’s losses on June 9-10, 2001 with Finger’s
post-storm profits on June 16-17, 2001. Finger, however,
contends that the policy language does not allow Commonwealth to
consider Finger’s post-storm profits in determining Finger’s
business-interruption losses. According to Finger, Commonwealth
seeks to expand the policy language to avoid paying Finger’s
losses on June 9-10, 2001.
This court reviews the “legal determinations in a district
court’s decision to grant summary judgment de novo, applying the
same standards as the district court to determine whether summary
judgment was appropriate.”2 Summary judgment is proper where,
after viewing the evidence in the light most favorable to the
nonmovant, the record indicates that no genuine issue of material
fact exists.3 Interpretation of a contract is a purely legal
matter; and therefore, this court reviews the district court’s
construction of Finger’s policy de novo.4 Because this is a
2
Gonzalez v. Denning, 394 F.3d 388, 391 (5th Cir. 2004)
(citations omitted).
3
Id.
4
See Sentry Ins. v. R.J. Weber Co., 2 F.3d 554, 556 (5th
Cir. 1993) (explaining that the reach of an insurance contract is
a matter of law reviewed de novo).
3
diversity case, this court must apply Texas contract law to
interpret the policy.5 In Texas, if a policy is worded so that
it can be given only one reasonable construction, the court must
enforce the policy as written.6 Here, the business-interruption
provision has only one reasonable interpretation.
The business-interruption provision provides in relevant
part:
[Commonwealth] shall be liable for the ACTUAL LOSS
SUSTAINED by insured resulting directly from such
interruption of business, but not exceeding the
reduction in gross earnings less charges and expenses
which do not necessarily continue during the
interruption of business.
***
In determining the amount of gross earnings covered
hereunder for the purposes of ascertaining the amount
of loss sustained, due consideration shall be given to
the experience of the business before the date of the
damage or destruction and to the probable experience
thereafter had no loss occurred.
Commonwealth claims that Finger did not sustain an actual loss
under this provision because Finger made up the sales that it did
not make on June 9-10, 2001 on June 16-17, 2001. This position,
however, ignores the policy’s instructions about how to calculate
a business-interruption loss.
The policy language indicates that a business-interruption
5
See Ideal Mut. Ins. Co. v. Last Days Evangelical Ass'n, 783
F.2d 1234, 1240 (5th Cir. 1986) (stating that a federal court
must apply the substantive law of the forum state in a diversity
action).
6
See Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938
(Tex. 1984).
4
loss will be based on historical sales figures. Specifically,
the policy states that “due consideration shall be given to the
experience of the business before the date of the damage or
destruction and to the probable experience thereafter had no loss
occurred.” Historical sales figures reflect a business’s
experience before the date of the damage or destruction and
predict a company’s probable experience had the loss not
occurred. The strongest and most reliable evidence of what a
business would have done had the catastrophe not occurred is what
it had been doing in the period just before the interruption.
Commonwealth complains that this interpretation does not
account for Finger’s profits on June 16-17, 2001, but the
business-loss provision says nothing about taking into account
actual post-damage sales to determine what the insured would have
experienced had the storm not occurred. The contract language
does not suggest that the insurer can look prospectively to what
occurred after the loss to determine whether its insured incurred
a business-interruption loss.7 Instead, the policy requires due
consideration of the business’s experience before the date of the
loss and the business’s probable experience had the loss not
occurred. Finger’s historical sales figures reflect that
consideration.
The parties do not dispute that Finger would have earned
7
Whether Finger mitigated its damages is not an issue in
this appeal.
5
$325,402.86 on June 9-10, 2001 if it had been able to open its
stores. No evidence indicates that any of the sales expected for
June 9-10, 2001 were made up on June 16-17, 2001. In addition,
no evidence indicates that Finger would have cut its prices for
June 16-17, 2001 had the loss not occurred. The district court
did not err in calculating Finger’s loss.
Attorney’s Fees
The other issue in this appeal is the district court’s award
of attorney’s fees under the Texas Civil Practice and Remedies
Code. Commonwealth claims that the award is excessive because it
includes 60.9 hours of prelawsuit legal work, Finger’s attorneys
billed almost twice as much as Commonwealth’s attorneys, and
Finger’s counsel did not use attorneys assigned to its insurance
division. In response, Finger argues that the Texas Civil
Practice and Remedies Code does not specify a starting point for
attorney’s fees and dismisses Commonwealth’s arguments about
excessiveness as irrelevant.
This court reviews Commonwealth’s argument about the
availability of prelawsuit attorney’s fees de novo8 and the
amount of the award for an abuse of discretion.9 Section 38.001
8
See Brown v. Fullenweider, 135 S.W.3d 340, 346 (Tex.
App.—Texarkana 2004, pet. denied) (explaining that whether
attorney's fees are available under a particular statute is a
question of law that is reviewed de novo).
9
See Coffel v. Stryker Corp., 284 F.3d 625, 640 (5th Cir.
2002) (stating that the court of appeals reviews the district
6
of the Texas Civil Practice and Remedies Code provides for the
recovery of attorney's fees for claims on a written contract.10
To be awarded attorney's fees, an insured must “(1) prevail on a
cause of action for which attorney's fees are recoverable, and
(2) recover damages.”11 Section 38.001 does not specify when a
party may begin to calculate its attorney’s fees.12
Commonwealth insists that Finger is not entitled to any of
the fees Finger incurred before the lawsuit, but the case law it
relies on does not suggest that Finger is precluded from
recovering at least some of its prelawsuit fees.13 If a party is
not entitled to attorney’s fees until a complaint is filed, a
court’s award of attorney’s fees for an abuse of discretion).
10
TEX. CIV. PRAC. &. REM. CODE ANN. § 38.001 (Vernon 1997).
11
Brown, 135 S.W.3d at 346-47.
12
See TEX. CIV. PRAC. &. REM. CODE ANN. § 38.001 (Vernon 1997).
13
See Life Partners, Inc. v. Life Ins. Co. of N. Am., 203
F.3d 324, 326 (5th Cir. 1999) (determining that the plaintiff was
not entitled to attorney’s fees prior to amending his complaint
to state a cause of action under ERISA because the original
complaint failed to state a claim for which relief could be
granted); Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 12
(Tex. 1991) (finding that attorney’s fees were capable of
segregation between nonsettling title insurer and settling
vendor, and remanding for segregation in order for purchaser to
recover attorney fees from title insurer); Hagedorn v. Tisdale,
73 S.W.3d 341, 354 (Tex. App.—Amarillo 2002, no pet.) (concluding
that the evidence supporting an award of attorney’s fees was
legally and factually sufficient even though the time spent on
the case was not broken down by person); Walton v. Canon, Short &
Gaston, 23 S.W.3d 143, 153 (Tex. App.—El Paso 2000, no pet.)
(considering the sufficiency of the evidence supporting the trial
court's findings of fact regarding attorney’s fees).
7
plaintiff would never be entitled to fees incurred in researching
and drafting a complaint.14 Here, the magistrate judge
recognized that it was improper for Finger to recover attorney’s
fees associated with the prelawsuit appraisal and claim process
and the prelawsuit mediation attempt. Although the magistrate
judge did not explain why Finger should not recover those fees,
the insurance policy provides that an appraiser will set the
amount of loss where the parties cannot agree. Commonwealth
should be not required to pay for Finger’s attorney’s fees for
the appraisal process because the parties contracted for that
possibility. The policy also requires Finger to “assist in
effecting settlements.” Because the policy requires this
cooperation, Commonwealth should not bear Finger’s expenses for
attorney’s fees associated with a prelawsuit mediation attempt.
The district court, however, did not include these costs in the
award. The district court properly considered the extent to
which Finger was entitled to prelawsuit fees.
As for excessiveness, Commonwealth’s arguments fail. This
court has set out a nonexhaustive list of factors for considering
the reasonableness of attorney’s fees,15 but this court has not
14
See Walton, 23 S.W.3d at 153 (upholding an award of
attorney’s fees that included time spent drafting a complaint).
15
See Mid-Continent Cas. Co. v. Chevron Pipe Line Co., 205
F.3d 222, 231 (5th Cir. 2000) (referring to the following as
well-known factors: “(1) time and labor required; (2) novelty and
difficulty of the issues; (3) required skill; (4) whether other
employment is precluded; (5) the customary fee; (6) whether the
8
indicated that the amount of opposing counsel’s fees or a law
firm’s use of particular lawyers are considerations. Instead,
the court has explained that the fact that the district court’s
award exceeds the amount billed by the other party “is not
determinative.”16 The court, however, has considered the time
and labor required to litigate a dispute, as well as the novelty
and the difficulty of the disputed issues.17 Here, Finger was
required to litigate an issue that a court has never squarely
addressed. On its face, an award of $79,201 does not appear
unreasonable to litigate an issue of first impression. The
district court did not abuse its discretion by entering its
award.
Conclusion
Finger is entitled to judgment in the amount of its
stipulated loss, and the district court did not err in awarding
attorney’s fees. Consequently, the court affirms the district
court’s judgment.
AFFIRMED.
fee is fixed or contingent; (7) time limitations; (8) the amount
involved and the results obtained; (9) the attorneys' experience,
reputation and ability; (10) the ‘undesirability’ of the case;
(11) the nature and length of the professional relationship with
the client; and (12) awards in similar cases”).
16
See Brantley v. Surles, 804 F.2d 321, 327 (5th Cir. 1986).
17
See Mid-Continent Cas. Co., 205 F.3d at 231.
9