D. Bruce McMahan v. William A. Toto

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
___________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 00-10323 NOV 6 2002
___________________________ THOMAS K. KAHN
CLERK
D.C. Docket No. 96-08294-CV-DMM
D. BRUCE MCMAHAN,
NEMESIS VERITAS, f.k.a.,
Mcmahan & Company,
Plaintiffs-Appellants,
versus
WILLIAM A. TOTO,
Defendant-Appellee.
__________________________________________________________________
___________________________
No. 00-14728
___________________________
D.C. Docket No. 96-08294 CV-DMM
D. BRUCE MCMAHAN,
NEMESIS VERITAS,
f.k.a. Mcmahan & Company,
Plaintiffs-Appellants-
Cross-Appellees,
versus
WILLIAM A. TOTO,
Defendant-Appellee-
Cross-Appellant.
____________________________
Appeals from the United States District Court
for the Southern District of Florida
____________________________
(November 6, 2002)
ON PETITION FOR REHEARING
Before CARNES and MARCUS, Circuit Judges, and HAND*, District Judge.
CARNES, Circuit Judge:
Recent events in this case illustrate that “when we write to a state law issue,
we write in faint and disappearing ink.” Sultenfuss v. Snow, 35 F.3d 1494, 1504
(11th Cir. 1994) (en banc) (Carnes, J., dissenting). The disappearing ink here is
that which we used in our previous opinion in this case to express our holding
about whether the Florida Supreme Court would apply its offer of judgment
statute, Fla. Stat. § 768.79, in a case tried in Florida but for which the substantive
*
Honorable William B. Hand, U.S. District Judge for the Southern District of
Alabama, sitting by designation.
2
law of another state governed. There were no Florida decisions on point, and we
made an Erie guess that the Florida Supreme Court would not apply the statute in
those circumstances. As a result, we reversed the part of the district court’s
judgment awarding attorney’s fees under the statute. McMahan v. Toto, 256 F.3d
1120, 1130-35 (11th Cir. 2001).
I. THE APPLICABILITY OF THE OFFER OF JUDGMENT STATUTE
Our earlier opinion was barely in the hardback books when the Fourth
District Court of Appeal in Florida issued a decision disagreeing with our estimate
of Florida law. See BDO Seidman, LLP v. British Car Auctions, Inc., 802 So. 2d
366 (Fla. 4th DCA 2001), review denied, (Fla. Sept. 24, 2002) (No. SC02-96). If
the BDO Seidman decision had been around when we issued our first decision in
this case, we would have followed it. We would have been compelled to do so
because the rule is that, absent a decision from the state supreme court on an issue
of state law, we are bound to follow decisions of the state’s intermediate appellate
courts unless there is some persuasive indication that the highest court of the state
would decide the issue differently. See Galindo v. ARI Mut. Ins. Co., 203 F.3d
771, 775 (11th Cir. 2000); Trumpet Vine Invs., N.V. v. Union Capital Partners I,
Inc., 92 F.3d 1110, 1120 (11th Cir. 1996); Williams v. Singletary, 78 F.3d 1510,
1515 (11th Cir. 1996). That rule is, if anything, particularly appropriate in Florida,
3
where the state’s highest court has held that “[t]he decisions of the district courts of
appeal represent the law of Florida unless and until they are overruled by [the
Florida Supreme Court].” Pardo v. State, 596 So. 2d 665, 666 (Fla. 1992) (quoting
Stanfill v. State, 384 So. 2d 141, 143 (Fla. 1980)).
There is no persuasive indication that the Florida Supreme Court would not
follow the Fourth District Court of Appeal’s BDO Seidman decision on whether its
offer of judgment statute, Fla. Stat. § 768.79, applies when the case is governed by
the substantive law of another state. The fact that we decided the issue differently
is not a persuasive indication that the Florida Supreme Court would agree with us
and not with one of its own intermediate appellate courts, which presumably
knows more about Florida law than we do. Nor is the fact that one of the three
judges dissented on this point in BDO Seidman, 802 So. 2d at 374 (Polen, C.J.,
dissenting), a persuasive indication that the Florida Supreme Court would decide
the issue differently. Two is a majority of three, and a majority of participating
judges controls a court’s decision. See Fla. R. Jud. Admin. 2.040(a)(1) (2002)
(“Three judges shall constitute a panel for and shall consider each case, and the
concurrence of a majority of the panel shall be necessary to a decision.”). The
holding in BDO Seidman is and will remain Florida law until such time, if any, as
4
the Florida Supreme Court has the inclination and opportunity to rule to the
contrary.
Of course, at the time we issued our decision in this case we did not have the
benefit of the BDO Seidman decision, which was released on the very day we
denied the petition for rehearing and suggestion for rehearing en banc in this case.
In a diversity case, however, we are bound to follow any changes in a state’s
decisional law that occur during the case. See Huddleston v. Dwyer, 322 U.S. 232,
236, 64 S. Ct. 1015, 1018 (1944); see also Technical Coating Applicators, Inc. v.
United States Fid. & Guar. Co., 157 F.3d 843, 845 (11th Cir. 1998) (“Intervening
state decisions must be given full effect as if the decisions existed during the
pendency of the case in district court.”). We still have the authority, power, and
duty to modify our decision to comport with the latest word from the Florida courts
even though we have already denied rehearing, because we have not yet issued the
mandate returning the case to the district court. The case is still before us and we
can correct our missed guess about Florida law.
In light of the BDO Seidman decision, we rescind Part II.D of our prior
decision, 256 F.3d at 1130, and in its place we hold that Florida’s offer of
judgment statute, Fla. Stat. § 768.79, is applicable to cases, like this one, that are
5
tried in the State of Florida even though the substantive law that governs the case is
that of another state.1
We turn now to the contentions raised by MBM and McMahan in this appeal
that we did not reach in our previous opinion because of our no longer viable
holding that Fla. Stat. § 768.79 was inapplicable in this case. Many of these born-
again contentions are not sufficiently viable to warrant discussion because they
either are so clearly without merit, or they are without merit and are of
insufficiently general application, to warrant discussion in a published opinion.
Those not mentioned are summarily rejected.
Some of the contentions we did not reach in our earlier opinion do warrant
discussion, and some even have merit. For reasons we will discuss, we are going
to remand this case for further proceedings relating to the amount of attorney’s fees
that should be awarded. Accordingly, we also rescind Part III(3) of our prior
1
MBM and McMahan contend we should not reconsider our prior decision
because Toto’s motion to do so is untimely under 11th Circuit Rules 35-2 and 40-3.
Although both rules provide that petitions for rehearing “must be filed within 21
days of entry of judgment” (R. 35-2 addresses petitions for en banc rehearings; R.
40-3 addresses panel rehearings), they also state that counsel can “request
extensions of time . . . for the most compelling reasons.” We conclude the
issuance of BDO Seidman by the Fourth District Court of Appeal of Florida is a
“most compelling reason,” given that it is directly on point with this case, is
controlling, and is directly contrary to our previous decision in this case. Therefore,
Toto’s motion is not time-barred.
6
decision, 256 F.3d at 1135, and replace it with the conclusion at the end of this
opinion.
II. THE DETERMINATION OF ENTITLEMENT
A. WHETHER THE OFFER WAS FACIALLY VALID
MBM and McMahan contend the district court erred by awarding Toto any
attorney’s fees and costs because his offer was facially defective in several ways.
Toto’s offer of judgment provided as follows:
Defendant, WILLIAM A. TOTO, hereby offers pursuant to Fla. Stat.
§ 45.061 to settle this case for the amount of $100.00 (One Hundred Dollars)
upon a stipulation for dismissal, or, alternatively, pursuant to Fla. Stat.
§ 768.79, at Plaintiff’s election, to allow judgment to be taken against him in
the total sum of $100.00 (One Hundred Dollars), in full and final resolution
of all claims made in this action.
We review de novo a district court’s interpretation of a state law. Fioretti v. Mass.
Gen. Life Ins. Co., 53 F.3d 1228, 1234 (11th Cir. 1995).
First, MBM and McMahan contend the offer was invalid because it failed to
state whether it included their claims for attorney’s fees and costs and Toto’s own
claims for costs in his answer.
Florida Rule of Civil Procedure 1.442 governs settlements and provides that
a settlement proposal must “state the total amount of the proposal . . . [and] state
whether the proposal includes attorney’s fees.” Fla. R. Civ. P. 1.442(c)(2)(D) and
7
(F). That rule applies to offers made pursuant to § 768.79. See United Servs.
Auto. Ass’n v. Behar, 752 So. 2d 663 (Fla. 2d DCA 2000). Where an offer
explicitly excludes attorney’s fees, it is invalid because the total amount of the
proposal is not stated. See State Farm Life Ins. Co. v. Bass, 605 So. 2d 908, 910
(Fla. 3d DCA 1992) (holding offer of judgment stating that attorney’s fees and
costs were to be determined at a later date did not satisfy Rule 1.442). But where
an offer does not explicitly exclude attorney’s fees, they are assumed to be
included. See Unicare Health Facilities, Inc. v. Mort, 553 So. 2d 159, 161 (Fla.
1989) (stating that “[t]here is an organic right of parties to contract a settlement,
which by definition concludes all claims unless the contract of settlement specifies
otherwise”); George v. Northcraft, 476 So. 2d 758, 759 (Fla. 5th DCA 1985) (“We
think the right to an award of attorney’s fees . . . is encompassed in an offer of
judgment . . . which fails to mention them specifically or reserve a right to seek
them later.”).
Toto’s offer did not specifically exclude attorney’s fees. Further, it stated
that it would be “in full and final resolution of all claims made in this action”
(emphasis added), and that language is broad enough to cover both MBM and
McMahan’s claims for costs and attorney’s fees, and Toto’s own claims for costs.
See Liberty Mut. Fire Ins. Co. v. Ramos, 565 So. 2d 798, 800 (Fla. 4th DCA 1990)
8
(where offer did not specifically mention attorney’s fees, holding that “when
Ramos made the offer of settlement . . . the amount of money demanded
necessarily included attorney’s fees. If it were otherwise, the claims would not be
terminated, the disputes would not be at an end, and the judicial process would be
needed to intervene to resolve the disputed amount of attorney’s fees.”).
Therefore, the offer of judgment was not invalid for failure to cover costs and
attorney’s fees.
Second, MBM and McMahan contend that Toto’s offer was invalid because
it failed to state with particularity the amount, if any, applicable to the claim for
punitive damages. Both § 768.79 and Rule 1.442 provide that an offer must state
with particularity the amount, if any, offered to settle a claim for punitive damages.
Fla. Stat. § 768.79(2)(c); Fla. R. Civ. P. 1.442(c)(2)(E). Toto’s offer did not
specifically mention punitive damages, but it did state that, if accepted, it would be
“in full and final resolution of all claims made in this action.”
Florida courts have not addressed whether an offer that does not specifically
address punitive damages can be valid under § 768.79 and Rule 1.442, but their
approach to the attorney’s fees requirement of Rule 1.442 is instructive. Rule
1.442(c)(2)(F) does say that offers should state whether they include attorney’s
fees, yet Florida courts have held those fees are included in offers where they are
9
not mentioned as long as they are not specifically excluded. See Unicare Health
Facilities, 553 So. 2d at 161; Northcraft, 476 So. 2d at 759.
Extending that logic to the context of the punitive damages requirements of
§ 768.79(2)(c) and Rule 1.442(c)(2)(E) – and there is no apparent reason we
should not – we conclude that Toto’s offer satisfied those requirements because it
did not explicitly exclude punitive damages from its coverage. If simple omission
were not enough, the “final resolution” language of the offer is. The offer was not
invalid under § 768.79 and Rule 1.442.
B. WHETHER THE OFFER WAS MADE IN BAD FAITH
If an offer satisfies the requirements of § 768.79(1)-(6), as this one did,
“[t]he sole basis on which a court can disallow an entitlement to an award of fees is
if it determines that [the] offer was not made in good faith.” Levine v. Harris, 791
So. 2d 1175, 1177 (Fla. 4th DCA 2001); see also § 768.79(7)(a) (“If a party is
entitled to costs and fees pursuant to the provisions of this section, the court may,
in its discretion, determine that an offer was not made in good faith. In such case,
the court may disallow an award of costs and attorney’s fees.”). The district court
found that Toto’s offer was made in good faith because “an appellate court of New
York had . . . held that the Releasors had not breached their contracts,” which
means Toto “was reasonable in concluding that Plaintiffs could not make out their
10
remaining claim of tortious interference, breach of contract being an essential
element of that claim.”
MBM and McMahan contend Toto’s offer was made in bad faith because, at
the time Toto made his offer, he had no reasonable basis for making it. At that
time, although the New York court had entered its decision in McMahan & Co. v.
Bass, 250 A.D.2d 460 (N.Y. App. Div. 1998), the district court had since denied
Toto’s motion for summary judgment on the tortious interference claim based on
the Bass decision. That means, according to MBM and McMahan, “the validity of
appellants’ claim had been confirmed by the trial court, Toto was facing millions
of dollars of potential liability and appellants had incurred thousands of dollars in
legal fees incurred during three years of litigation” so “the $100 Offer could not
be bona fide.”
We review only for clear error the district court’s finding that Toto acted in
good faith, Turner v. Orr, 759 F.2d 817, 821 (11th Cir. 1985), and “[t]he burden is
upon the offeree to prove that the offeror acted without good faith,” Levine, 791
So. 2d at 1178 (citing Schmidt v. Fortner, 629 So. 2d 1036, 1041 n.6 (Fla. 4th DCA
1993), approved by TGI Friday’s, Inc. v. Dvorak, 663 So. 2d 606, 613 (Fla. 1995)).
Here, the offerees did not come close to carrying their burden of proof in the
11
district court, and they are even further from convincing us that the district court
clearly erred in deciding this issue against them.
Toto offered $100.00, a nominal amount. Although “nominal offers are
suspect where they are not based on any assessment of liability and damages,” Fox
v. McCaw Cellular Communications of Fla., Inc., 745 So. 2d 330, 332 (Fla. 4th
DCA 1998), they can be valid if the offerors have “a reasonable basis at the time of
the offer to conclude that their exposure was nominal.” Id. at 333. The good faith
requirement of § 768.79(7)(a) does not “demand that an offeror necessarily
possess, at the time he makes an offer or demand under the statute, the kind or
quantum of evidence needed to support a judgment. The obligation of good faith
merely insists that the offeror have some reasonable foundation on which to base
an offer.” Schmidt, 629 So. 2d at 1039.
The argument of MBM and McMahon that Toto lacked any reasonable basis
for believing that he would prevail against them ignores the inconvenient fact that
he did prevail against them. To accept in the same case in which a party did
prevail the notion that there was no reasonable basis for that party prevailing would
require self-contradiction on a scale that we are unwilling to consider. It is MBM
and McMahon’s argument that is illogical, and thus unreasonable.
12
III. THE DETERMINATION OF AMOUNT
We review only for abuse of discretion the amount of attorney’s fees
awarded by the district court. See Farley v. Nationwide Mut. Ins. Co., 197 F.3d
1322, 1340 (11th Cir. 1999). The district court awarded Toto $260,034.29 in
attorney’s fees and costs. MBM and McMahan challenge that award on several
grounds, only some of which merit discussion here.
A. WHETHER THE REQUESTED AMOUNT WAS INFLATED
MBM and McMahan contend that Toto’s calculations of the amount of
attorney’s fees to which he was entitled was inflated by more than $70,000. They
assert that on March 6, 2000, Toto’s counsel discounted all of his attorney’s fees to
$136,103.54. They claim Toto’s fee application sought that amount plus
$51,394.76 in subsequent invoices, and that those figures totaled $187,498.30, not
the $260,447.72 requested by Toto.
Toto disagrees with MBM and McMahan about the March 6, 2000 discount
and, therefore, about the total amount sought. According to Toto, as of March 6,
2000, he had paid $71,730 in attorney’s fees and had an outstanding balance of
$151,226.16. He asserts that only the outstanding balance was discounted by ten
percent (from $151,226.16 to $136,103.54), and that the $71,730 he had already
paid was not affected by that discount. He says that for services up to March 6,
13
2000, he sought in his fee application $71,730 plus $136,103.54, which totals
$207,833.54. Additionally, he sought $51,394.76 in subsequent invoices for fees
incurred thereafter.
Our review of the Verified Bill of Fees and Costs shows that, as of March 6,
2000, Toto had been billed for attorney’s fees and costs in the amount of
$222,956.16 ($1,125.00 for May 1999; $1,941.04 for June 1999; $74,682.71 for
July, August, September, and October 1999; and $145,207.41 for November and
December 1999). The Verified Bill states that “[o]n March 6, 2000 . . . [Toto’s
attorney] agreed . . . to discount the then outstanding balance of $151,226.16 by ten
percent to $136,103.54.” (emphasis added). The term “outstanding balance”
refers to the amount unpaid as of that date, see Black’s Law Dictionary 1129 (7th
ed. 1999); it does not refer to fees already paid. Therefore, any fees that were
already paid were not affected by the ten-percent discount. Although the Verified
Bill did not explicitly state that Toto had already paid $71,730, the implication was
clear, because the $222,956.16 of attorney’s fees and costs would reduce to an
unpaid balance of $151,226.16 only if Toto had paid the difference of $71,730.
Toto did not give up his claim to the full amount of the $71,730 he had already
paid.
14
Adding the $71,730 that Toto had already paid to the $136,103.54 that
resulted from the ten percent discount of the unpaid balance, and then adding to
that sum the $48,282.26 of attorney’s fees and costs from January, February, and
March 2000, and the $3,112.50 anticipated for April 2000, the total comes to
$259,228.30. Because the district court had already awarded taxable costs of
$4,799.33 pursuant to 28 U.S.C. § 1920, that amount is subtracted from
$259,228.30, and the balance is $254,428.97.
In the verified bill, Toto sought $260,447.72. That figure is erroneous
according to our calculations, because it is $6,018.75 more than the $254,428.97 to
which Toto was entitled. (There is no reason to think that the error is anything
other than a mathematical one.) We will remand to the district court for it to
reduce the amount of attorney’s fees awarded Toto by $ 6,018.75.
B. WHETHER THE AWARD EXCEEDED THE REQUEST
MBM and McMahan contend the district court’s award of any attorney’s
fees beyond the $152,268.71 incurred as of December 21, 1999 was in error
because Toto’s counsel voluntarily limited the fee application to those incurred by
that date. Toto’s attorney’s affidavit, submitted as part of the fee application,
stated that he “cut off the claimed time immediately following the entry of the
15
summary judgment [on December 21, 1999], even though the client has incurred
fees to pursue the issue of entitlement to fees which is fairly recoverable.”
That language could be plausibly interpreted in two ways. It could be
construed to mean that any fees incurred from December 21, 1999 to any time in
the future were “cut off,” in the way MBM and McMahan insist. Or it could be
read to mean that Toto was not going to seek fees incurred from December 21,
1999, to the date the affidavit was executed, January 20, 2000. Toto claims he
initially decided to forego fees incurred during that period “in order to simplify the
fee application – and in the hope that making such allowance would obviate a fight
on reasonableness – which obviously has not happened.” As a result of the dispute
over fees, Toto now wants to recover fees incurred during that period and
afterwards.
Although the district court did not explicitly address this issue, it is clear
from its order that the court read the fee application as not limiting the recovery of
attorney’s fees to those incurred before December 21, 1999, because the amount
awarded was $260,034.29, well in excess of the $152,268.71 incurred as of that
date. Given the ambiguity of the attorney’s fee affidavit, the district court did not
abuse its discretion in allowing Toto to recover attorney’s fees incurred after
January 20, 2000. But the attorney’s affidavit clearly excluded any fees incurred
16
from December 21, 1999 to January 20, 2000, and Toto never amended his
application to seek those fees. Therefore, fees from that period should not have
been awarded, and we remand to the district court to determine that amount and
subtract it from the attorney’s fees award.
C. WHETHER FEES FOR LITIGATING FEES WERE PROPER
Determining that time spent calculating the amount of attorney’s fees due
was not recoverable, the district court lowered Toto’s fees request by $905, which
is the amount of attorney’s fees billed for “preparing the fees application.” MBM
and McMahan contend the district court did not go far enough. They say that it
should also have excluded any fees for litigating the issue of how much fees were
due, which they calculate would have reduced the award by another $51,973.75.
The Florida Supreme Court has held that, while attorney’s fees incurred for
litigating the issue of entitlement to attorney’s fees are recoverable, fees incurred
for litigating the amount of attorney’s fees are not. State Farm Fire & Cas. Co. v.
Palma, 629 So. 2d 830, 833 (Fla. 1993). In the context of a contingency fee
agreement, the Palma court explained that the work involved in litigating the
amount of attorney’s fees “inures solely to the attorney’s benefit and cannot be
considered services rendered in procuring full payment of the judgment.” Id. It
noted the contrary federal court practice of allowing recovery of attorney’s fees for
17
litigating both entitlement and amount issues, and it distinguished that practice
based on different statutory purposes. The purpose underlying most federal
statutory fee authorizations, the Court explained, is “to encourage attorneys to
represent indigent clients,” and allowing recovery for fees from litigating the
amount of fees comports with that purpose. Id. In contrast, the Florida statute
involved in that case has a different purpose – “to discourage the contesting of
valid claims . . . and to reimburse successful insureds for their attorney’s fees,”
which led the Florida Supreme Court to the conclusion that the statute’s purpose
would not be furthered by permitting the award of attorney’s fees incurred in
litigating the amount of them due. Id. (internal quotation marks and citation
omitted).
In this case we deal with attorney’s fees awarded pursuant to § 768.79, the
purpose of which is “to ‘terminate all claims, end disputes, and obviate the need for
further intervention of the judicial process’ by encouraging parties to exercise their
‘organic right . . . to contract a settlement, which by definition concludes all claims
unless the contract of settlement specifies otherwise.’” MGR Equip. Corp. v.
Wilson Ice Enters., Inc., 731 So. 2d 1262, 1264 (Fla. 1999) (quoting Unicare
Health Facilities, Inc. v. Mort, 553 So. 2d 159, 161 (Fla. 1989)). That purpose
does not include encouraging the representation of indigents and does not support
18
an award of attorney’s fees incurred litigating the amount of those fees. See also
Diaz v. Santa Fe Healthcare, Inc., 642 So. 2d 765, 766 (Fla. 1st DCA 1994)
(holding that where at least one of the purposes of a statute awarding attorney’s
fees “is to encourage attorneys to represent indigent persons . . . the trial court has
discretion . . . to make a fee award . . . which encompasses the time spent
establishing the amount of the fee”).
Toto attempts to distinguish Palma by noting that it concerned a contingency
fee agreement, whereas “[t]his is an hourly fee case [and Toto’s attorneys] will get
paid . . . regardless of any fee recovery.” We are unpersuaded by that argument,
because the Florida Supreme Court has explained that whether attorney’s fees
should be awarded for litigating the amount of fees due depends on the purpose of
the statute under which the fees are sought; it does not depend on the method of
calculating them. Palma, 629 So. 2d at 833.
The district court should have decreased Toto’s attorney’s fee award by the
amount spent litigating the amount of attorney’s fees to which he was entitled.
MBM and McMahan claim that amount is $51,973.75, but they do not tell us how
they arrived at that figure. On remand the district court should determine the
amount of attorney’s fees incurred by Toto in litigating the amount of attorney’s
fees, and subtract that amount from the fees to be awarded to him.
19
IV . CONCLUSION
We RESCIND Part II.D and Part III(3) of our prior decision, 256 F.3d at
1130-35, and replace them with the relevant parts of this opinion.
We REMAND this case to the district court for further proceedings in which
it should: 1) decrease the attorney’s fees award by $6,018.75 (Part III.A, supra);
2) determine the amount of attorney’s fees incurred from December 21, 1999 to
January 20, 2000, and subtract that amount from the attorney’s fees award (Part
III.B, supra); 3) determine the amount of attorney’s fees incurred by Toto in
litigating the amount of attorney’s fees, and subtract that amount from the
attorney’s fees award (Part III.C, supra);
We AFFIRM all other aspects of the district court’s orders and judgment.
20