Southern Wine and Spirits, etc v. Mountain Valley Spring Company

United States Court of Appeals
For the Eighth Circuit
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No. 12-1857
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Southern Wine and Spirits of Nevada, A Division of Southern Wine and Spirits of
America, Inc.
lllllllllllllllllllll Plaintiff - Appellant
v.
Mountain Valley Spring Company, LLC
lllllllllllllllllllll Defendant - Appellee
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No. 12-1915
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Southern Wine and Spirits of Nevada, A Division of Southern Wine and Spirits of
America, Inc.
lllllllllllllllllllll Plaintiff - Appellee
v.
Mountain Valley Spring Company, LLC
lllllllllllllllllllll Defendant - Appellant
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Appeal from United States District Court
for the Western District of Arkansas - Hot Springs
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Submitted: January 17, 2013
Filed: April 5, 2013
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Before WOLLMAN, GRUENDER, and SHEPHERD, Circuit Judges.
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GRUENDER, Circuit Judge.
In a contract dispute between Mountain Valley Spring Company (“Mountain
Valley”), a producer of bottled water products, and Southern Wine and Spirits of
Nevada (“Southern”), a regional beverage distributor, Southern obtained a judgment
of $819,000 against Mountain Valley for breach of contract and breach of an implied
covenant of good faith and fair dealing, plus an additional $42,000 for account stated.
Simultaneously, Mountain Valley obtained a judgment of $183,000 against Southern
on its counterclaim for breach of an implied covenant of good faith and fair dealing.
For the background and merits of the dispute, see our prior decision, Southern Wine
& Spirits of Nevada v. Mountain Valley Spring Co., 646 F.3d 526 (8th Cir. 2011).
Southern then sought to recover $2.7 million it expended in attorney’s fees and
costs for the litigation. Mountain Valley argued that no attorney’s fees and costs
should be awarded, but it protectively sought to recover its own $1.3 million
expended on attorney’s fees and costs in the event that fees were awarded to
Southern. The district court1 declined to award attorney’s fees to either party, finding
that there was no “prevailing party” because both parties won “sizable jury awards
by prevailing on significant issues.” Southern appeals the denial of its attorney’s
fees, and Mountain Valley also protectively appeals the denial of its fees. We review
1
The Honorable Jimm Larry Hendren, United States District Judge for the
Western District of Arkansas.
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the district court’s decision not to award attorney’s fees for an abuse of discretion.
See Angelo Iafrate Constr., LLC v. Potashnick Constr., Inc., 370 F.3d 715, 722 (8th
Cir. 2004).
Southern argues that attorney’s fees are available under Nevada contract law
or, alternatively, under Arkansas statutory law. First, section 10.7 of the parties’
contract states, “If either party shall commence a lawsuit to enforce the terms of this
Agreement or to collect any sums owing hereunder, the parties hereto agree that the
nonprevailing party shall pay to the prevailing party its reasonable costs and
reasonable attorneys’ fees.” The parties agree that Nevada law controls the
interpretation of this provision. Under Nevada law, a contractual provision for the
recovery of attorney’s fees will be enforced according to its terms. See, e.g., Rowland
v. Lepire, 662 P.2d 1332, 1336-37 (Nev. 1983) (per curiam) (vacating an award of
attorney’s fees to a plaintiff because the parties’ contract stated that attorney’s fees
would be available to the defendants, rather than to either party). “[I]f no ambiguity
exists, the words of the contract must be taken in their usual and ordinary
signification.” Dickenson v. Nev. Dep’t of Wildlife, 877 P.2d 1059, 1061 (Nev. 1994)
(per curiam).
Southern contends that, because the contract provides attorney’s fees to the
party that prevails in “a lawsuit to enforce the terms of this Agreement” (emphasis
added) and Mountain Valley’s cause of action was for breach of an implied covenant
of good faith and fair dealing, rather than an express term of the contract, Mountain
Valley’s counterclaim was outside the scope of section 10.7. In Southern’s view,
because Southern prevailed on its claim for breach of an express term of the contract,
Southern is the only “prevailing party” for purposes of section 10.7 and must be
entitled to recover its fees.
Contrary to Southern’s view, we agree with the district court that Mountain
Valley’s claim for breach of the implied covenant was a lawsuit to enforce a “term”
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of the contract for purposes of section 10.7. Under Nevada law, “[e]very contract
imposes upon each party a duty of good faith and fair dealing in its performance and
its enforcement,” A.C. Shaw Constr., Inc. v. Washoe Cnty., 784 P.2d 9, 9 (Nev. 1989)
(per curiam) (quoting Restatement (Second) of Contracts § 205 (1981)), and an award
of damages for its breach is a contractual remedy, Frantz v. Johnson, 999 P.2d 351,
358 n.4 (Nev. 2000) (per curiam).2 A duty imposed by a contract, the breach of which
makes available to the other party a contractual remedy, fits the usual and ordinary
signification of a contractual “term” as stated in section 10.7. See Dickenson, 877
P.2d at 1061. The implied covenant does not lose its nature as a “term” merely
because it was implied, rather than express. See Black’s Law Dictionary 1510 (8th
ed. 2004) (defining “implied term” as “[a] provision not expressly agreed to by the
parties but instead read into the contract by a court as being implicit”).
Southern counters that a claim for breach of the implied covenant of good faith
and fair dealing is a separate and independent cause of action from a claim for breach
of contract. See Morris v. Bank of Am. Nev., 886 P.2d 454, 457 n.2 (Nev. 1994)
(holding that a failure to plead a cause of action for breach of contract did not
foreclose a cause of action for breach of the implied covenant because “the implied
covenant of good faith is an obligation independent of the consensual contractual
covenants”); see also Hilton Hotels, 808 P.2d at 923 (discussing breach of the implied
covenant of good faith and fair dealing as a cause of action to be pled separately from
breach of an express term of a contract). However, the rationale for requiring a
breach of the implied covenant to be pled separately is simply “to put the [defendant]
on notice of a claim upon which relief can be granted.” Morris, 886 P.2d at 457
(holding that a claim is stated where the plaintiff’s “pleadings identify the contract
which is the basis for [the] implied covenant claim . . .[,] the [defendant’s] conduct
2
Nevada law also recognizes a separate tort action for breach of the covenant
of good faith, which “requires a special element of reliance or fiduciary duty.” Hilton
Hotels Corp. v. Butch Lewis Prods., Inc., 808 P.2d 919, 923 (Nev. 1991). That cause
of action is not at issue in this case.
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which he claims to constitute the breach of the covenant . . .[, and] that the . . . breach
of the implied covenant of good faith and fair dealing caused him damage”). The
separate pleading requirement for notice purposes is simply irrelevant to whether the
implied covenant is a “term” of the contract. As a result, we conclude that the district
court did not err in considering Mountain Valley’s counterclaim for breach of the
implied covenant of good faith and fair dealing in its evaluation of whether there was
a “prevailing party” for purposes of section 10.7.
Southern also argues that, even if Mountain Valley’s victory on its
counterclaim is properly included in the analysis, the district court nevertheless
abused its discretion by failing to find that Southern was the prevailing party under
Nevada law. While Southern prevailed on three of the four claims litigated and
obtained a monetary award more than four times larger than that obtained by
Mountain Valley, Nevada law does not require one party to be designated as
“prevailing” after both parties are found to have been at fault. See, e.g., Glenbrook
Homeowners Ass’n v. Glenbrook Co., 901 P.2d 132, 141 (Nev. 1995) (per curiam)
(affirming a trial court’s refusal to designate a prevailing party for purposes of
attorney’s fees where “[e]ach party won on some issues and lost on others”). The
district court was within its discretion to find that neither party qualified as the
prevailing party under Nevada law.
Southern next contends that attorney’s fees are available under Arkansas
statutory law. “In any civil action to recover . . . for . . . breach of contract, unless
otherwise provided by law or the contract which is the subject matter of the action,
the prevailing party may be allowed a reasonable attorney’s fee . . . .” Ark. Code
Ann. § 16-22-308.3 The Arkansas Supreme Court applies Arkansas statutory law to
3
While the district court held that section 16-22-308 does not apply where the
parties’ agreement provides separately for fees, we believe that the better
interpretation is that the statute applies unless the parties’ agreement establishes a
conflicting rule for the award of attorney’s fees. See, e.g., Ark. Indus. Dev. Comm’n
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questions of attorney’s fees “even where the law of another State governs substantive
issues, including the interpretation of [a] . . . contract.” Ferrell v. W. Bend Mut. Ins.
Co., 393 F.3d 786, 796-97 (8th Cir. 2005). Under section 16-22-308, “no award of
fees is mandatory, and the trial court, presumably better acquainted with the
circumstances of the proceedings, has discretion whether to award fees and in what
amount.” Angelo Iafrate Constr., 370 F.3d at 723. Thus, even a clearly prevailing
party is not automatically entitled to fees under the statute. See id. (affirming a denial
of attorney’s fees where a defendant “merely asserted that it is entitled to attorneys’
fees because it prevailed and because it believed that Iafrate should never have
brought the lawsuit, an opinion held by most prevailing parties”). Here, where the
district court declined to find even that Southern was a prevailing party, Southern
asserts no facts to support its contention that it merited an award of attorney’s fees
under section 16-22-308 despite its own breaching conduct. See, e.g., Walton Gen.
Contractors, Inc./Malco Steel, Inc. v. Chicago Forming, Inc., 111 F.3d 1376, 1384
(8th Cir. 1997) (applying Missouri law) (affirming a district court’s decision not to
“enforce an attorneys’ fee clause in the contract both parties saw fit to breach”).
Because we affirm the denial of attorney’s fees to Southern, we need not
discuss Mountain Valley’s protective claim for its own attorney’s fees. For the
foregoing reasons, we affirm the denial of attorney’s fees and costs to both parties.
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v. FABCO of Ashdown, Inc., 847 S.W.2d 13, 16 (Ark. 1993) (awarding attorney’s fees
under § 16-22-308 even where the parties’ agreement also expressly provided for
reasonable attorney’s fees).
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