South Indiana Propane Gas, Inc. v. John Caffrey and Leola Caffrey

FILED
Jul 15 2016, 9:53 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEES
Steven E. Ripstra Lincoln A. Baker
Ripstra Law Office Lincoln A. Baker, PC
Jasper, Indiana Petersburg, Indiana
IN THE
COURT OF APPEALS OF INDIANA
South Indiana Propane Gas, July 15, 2016
Inc., Court of Appeals Case No.
Appellant-Defendant, 19A05-1506-SC-716
Appeal from the Dubois Superior
v. Court
The Honorable Mark R.
John Caffrey and Leola Caffrey, McConnell, Judge
Appellees-Plaintiffs. Trial Court Cause No.
19D01-1502-SC-263
Pyle, Judge.
Statement of the Case
[1] Appellant/Defendant, South Indiana Propane Gas, Inc. (“SIPG”) appeals the
trial court’s order requiring it to pay a portion of the attorney fees of
Appellees/Plaintiffs, John Caffrey (“John”) and Leola Caffrey (“Leola”)
(collectively, “the Caffreys”) on their breach of contract claim. The trial court
held that the Caffreys could recover their attorney fees because SIPG’s defense
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to its breach of contract was unreasonable, groundless, or in bad faith. On
appeal, SIPG argues that its defense was not unreasonable, groundless, or in
bad faith because: (1) the issue of whether it was required to pay attorney fees
was worthy of litigation; and (2) it performed under the contract within thirty
days of learning of its failure to perform. Because we are not persuaded that
SIPG’s defense was not unreasonable, groundless, or in bad faith, we affirm.
[2] We affirm.
Issue
Whether the trial court erred in allowing the Caffreys to recover a
portion of their attorney fees on their breach of contract claim.
Facts
[3] In July 2013, the Caffreys and SIPG executed a propane gas agreement (“the
Agreement”) in which the Caffreys agreed to fulfill all of their propane gas
requirements between October 1, 2013 and March 31, 2014 through SIPG. In
exchange, SIPG agreed to supply the Caffreys with 300 gallons of propane gas
at a fixed price of $1.289 per gallon during that time period, with any remaining
gallons that the Caffreys required to be charged at the contemporaneous market
rate for propane gas. The Agreement further provided that the Caffreys
“agree[d] to pay all costs incurred by [SIPG] if it [had to] enforce any of the
terms of [the] Agreement, including but not limited to, reasonable attorneys
fees. . . .” (Plaintiffs’ Ex. A). The Agreement did not contain a similar
provision granting the Caffreys the right to recover attorney fees in the event
that they had to enforce the Agreement.
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[4] On or about the same day that the Caffreys and SIPG executed the Agreement,
the Caffreys prepaid the 300 gallons they were allowed to buy at a fixed rate,
which totaled $414.09. The following winter, there was a national shortage of
propane gas due to severe winter weather, and the national market price of the
gas rose by almost two dollars per gallon more than the Caffreys had paid for
their 300 gallons. During the third weekend of January 2014, John called SIPG
and requested a delivery of the gas for which they had prepaid. The agent he
talked to told him that the price of propane had reached $3.12 per gallon and
that the company did not know what it was “going to do” with its prepaid
contracts. (Tr. 10). The agent said that she would call John back, but she never
did. Leola tried to call the agent back at one point and left a message, but she
did not receive a response, either. Neither of the Caffreys received any written
notifications from SIPG that the company was suspending its deliveries of
propane.
[5] A month later, after the Caffreys still had not heard back from SIPG, they faxed
a complaint concerning SIPG’s actions to the Indiana Attorney General’s
Office (“the AG”). The AG also received complaints from other customers and
sent SIPG a civil investigative demand (“CID”) requesting information
concerning the corporation’s failure to distribute propane to its prepaid
customers.1 The CID informed SIPG that the AG had received complaints
1
The General Assembly has given the AG authority to issue CIDs to investigate violations of specified laws.
Nu-Sash of Indianapolis, Inc. v. Carter, 887 N.E.2d 92, 95 (Ind. 2008). Through a CID, the AG may request
“production of documents for inspection, copying or reproduction; answers under oath to written
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from its customers, but it did not identify the customers who had complained or
inform SIPG how many customers had complained. Nevertheless, Eric Gibson
(“Gibson”), SIPG’s general counsel, later acknowledged that he knew “there
[were] enough [complaints] that it generated the CID.” (Tr. 69).
[6] Over the next few months, the Caffreys stayed in contact with the AG to
inquire about the AG’s progress in its investigation of SIPG. Under the CID’s
terms, SIPG had thirty days to provide the information that the AG had
requested, but it asked for and received an extension of that deadline because
the information the AG had requested was “quite voluminous.” (Tr. 59).
However, SIPG eventually filed its response, and some of SIPG’s officials met
with the AG in person. Subsequently, on December 23, 2014, the AG closed its
investigation and advised the Caffreys that it would not pursue any further
action against SIPG.
[7] As a result, in February of 2015, the Caffreys hired an attorney to help them
recover the money that they had prepaid to SIPG. On February 4, 2015, the
Caffreys’ attorney sent SIPG a letter stating that it “appear[ed]” that SIPG had
breached the Agreement. (Defendant’s Ex. 4). He further stated in the letter
that:
The amount sought now is Four Hundred Fourteen and 09/100
Dollars ($414.09), plus attorney’s fees in the amount of Two
Hundred Seventy Dollars ($270) at this time and additional fees
interrogatories; or appearance and testimony under oath before the Attorney General or his representative”
in order to determine whether a violation of a specified law has occurred. Id.Court of Appeals of Indiana | Opinion 19A05-1506-SC-716 | July 15, 2016 Page 4 of 12
if Court action should become necessary, and any other costs of
collection.
Unless you, within thirty (30) days after receipt of this Notice,
dispute the validity of what you owe to the Caffreys, or any
portion thereof, we will assume that the amount is valid.
Litigation may be commenced at any time, notwithstanding this
letter.
(Defendant’s Ex. 4). SIPG’s address was not listed on the Agreement, and the
Caffreys’ attorney accidentally sent the letter to SIPG’s “physical address”
rather than its “mailing address.”2 (Tr. 81). As a result, the letter was returned,
and SIPG did not respond within thirty days.
[8] However, on February 26, 2015, before the thirty days the Caffreys had allowed
in their letter had elapsed, they filed a complaint against SIPG in small claims
court. In the complaint, they requested damages for the breach of contract,
including: “[j]udgment against [SIPG] in the amount of $414.09 plus interest
from July 31, 2013 at the rate of 8% per annum, plus attorney fees of $540.00,
and costs of [the] proceeding of $81.00 plus 8% per annum interest from [the]
date of judgment.” (Defendant’s Ex. 5).
[9] Thereafter, on March 2, 2015, the Caffreys’ attorney re-sent his returned
February letter to SIPG at its correct mailing address. After receiving
notification of the complaint and the letter, SIPG’s general counsel, Gibson,
responded to the letter on March 9, 2015. In this response, Gibson notified the
2
The meaning of the phrase “physical address” is not clear from the record.
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Caffreys’ attorney that SIPG had “rolled forward” its prepaid contracts such
that the customers who had not received their prepaid gas could receive it at
their former agreement rates until March 31, 2016. (Defendant’s Ex. 6).
According to Gibson, all that the Caffreys needed to do to receive their gallons
was to “contact the office and place an order.” (Defendant’s Ex. 6). This was
the first time the Caffreys had heard that they could still place orders at the
price to which they had agreed in the Agreement.
[10] Also in his response, Gibson explained that the Caffreys had requested their
delivery during a time when SIPG had needed to suspend deliveries of pre-
purchased propane due to the national propane shortage. He claimed that this
suspension had been consistent with paragraph five of the Agreement, which
specified that SIPG could suspend deliveries if its product was not available.3
In light of that provision, Gibson denied that SIPG had breached the
Agreement and stated that SIPG would not pay for the Caffreys’ attorney fees
or court costs. Nevertheless, SIPG fulfilled its obligations under the Agreement
in April 2015 when it delivered the Caffreys’ propane without advanced
notification, and even though the Caffreys had not yet requested it.
3
Specifically, the Agreement provided that: “should corporation be prevented from fulfilling its obligations
under this agreement by fire, riot, war, act of God, failure of transportation facilities, supply or pipeline
allocation, delays at terminal loading facilities, inability to receive from its suppliers or carriers the propane
secured pursuant to this agreement for customer, or any cause beyond reasonable control of corporation, then
corporation’s obligations thereunder shall be suspended while such condition exists. . . . (Plaintiffs’ Ex. A).
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[11] On May 13, 2015, the small claims court held a trial on the Caffreys’ complaint.
Because SIPG had by then performed under the Agreement, the Caffreys
sought only a recovery of their attorney fees at trial. Towards that end, they
testified to the steps they had taken to contact SIPG and introduced, without
objection, records of their attorney’s invoices. Gibson testified that SIPG’s
suspension of natural gas deliveries had lasted for a two-week period in late
January and early February 2014. He admitted that, to his knowledge, no one
in the company had given the Caffreys notice of the suspension of deliveries.
However, he claimed that SIPG had not known that the Caffreys had an issue
with their contract before it had received their complaint.
[12] At the conclusion of the trial, the small claims court took the matter under
advisement. On May 20, 2015, it issued an order awarding the Caffreys
attorney fees in the amount of $756.00. The court reasoned that SIPG “had
clear liability under the facts of the case and thus any response to the claim
other than an admission of liability was an unreasonable, or groundless[,]
defense litigated in bad faith.” (App. 5). It concluded that SIPG had “settled”
in its March 2015 letter by agreeing to perform the contract under its original
terms. (App. 6). The trial court estimated that the Caffreys should have
received this letter by March 12, 2015. (App. 6). As a result, the trial court
determined that an award of the attorney fees the Caffreys had accrued up to
March 12, 2015 when SIPG “settled”—which amounted to $756.00—was
reasonable. SIPG now appeals.
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Decision
[13] On appeal, SIPG argues that the trial court erred when it allowed the Caffreys
to recover a portion of their attorney fees. As stated above, the trial court
awarded the attorney fees based on its conclusion that SIPG’s defense to its
liability was unreasonable, groundless, or in bad faith. SIPG challenges this
conclusion by asserting that: (1) its defense that it was not required to pay the
Caffreys’ attorney fees under the Agreement was worthy of litigation; and (2) it
did not act with “obdurate, vindictive[,] or untruthful behavior” because it
delivered the propane “[w]ithin [thirty] days of learning about the problem.”
(SIPG’s Br. 12).
[14] First, we must note that our review of an award of attorney fees generally
involves three steps: (1) a review of the findings of fact under the clearly
erroneous standard, (2) a review of the legal conclusions de novo, and (3) a
review of the trial court’s award under an abuse of discretion standard. Gillock
v. City of New Castle, 999 N.E.2d 1043, 1045 (Ind. Ct. App. 2013). Where, as
here, the trial court did not enter findings of fact, the first step is unnecessary.
Id. at 1046. As for step two, “‘we look to the basis of the prevailing party’s
[attorney fee request] and view the court’s order as an implicit legal conclusion
consistent with the main thrust of the [request]—that the claim or defense at
issue was frivolous, unreasonable, groundless, or litigated in bad faith.’” Id.
(quoting R.L. Turner Corp. v. Town of Brownsburg, 963 N.E.2d 453, 461 (Ind.
2012)).
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[15] Indiana follows the “American Rule,” whereby parties are required to pay their
own attorney fees absent an agreement between the parties, statutory authority,
or other rule to the contrary. Smyth v. Hester, 901 N.E.2d 25, 32 (Ind. Ct. App.
2009), reh’g denied, trans. denied. The parties here acknowledge that, although
the Agreement authorized SIPG to recover attorney fees in the event it had to
enforce the contract, the Agreement did not likewise authorize the Caffreys to
recover attorney fees. However, the trial court awarded the Caffreys attorney
fees under INDIANA CODE § 34-52-1-1, which allows “‘the award of attorney
fees for litigating in bad faith or for pursuing frivolous, unreasonable, or
groundless claims.’” Id. (quoting Davidson v. Boone Cnty., 745 N.E.2d 895, 899
(Ind. Ct. App. 2001)). Specifically, the statute provides that:
In any civil action, the court may award attorney’s fees as part of
the cost to the prevailing party, if the court finds that either party:
(1) brought the action or defense on a claim or defense that is
frivolous, unreasonable, or groundless;
(2) continued to litigate the action or defense after the party’s
claim or defense clearly became frivolous, unreasonable or
groundless; or
(3) litigated the action in bad faith.
I.C. § 34-52-1-1(b).
[16] A claim or defense is unreasonable under INDIANA CODE § 34-52-1-1 if, based
on the totality of the circumstances, including the law and facts known at the
time of filing, no reasonable attorney would consider that the claim or defense
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was worthy of litigation or justified. Smyth, 901 N.E.2d at 33. A claim or
defense is groundless if no facts exist that support the legal claim relied on and
presented by the party. Id. However, a claim or defense is not groundless
merely because the party loses on the merits. Id. As for determining whether a
litigant has litigated in bad faith,
“[T]he absence of good faith is bad faith, but bad faith is not
simply bad judgment or negligence. Rather, it implies the
conscious doing of a wrong because of dishonest purpose or
moral obliquity. It is different from the negative idea of
negligence in that it contemplates a state of mind affirmatively
operating with furtive design or ill will.”
Watson v. Thibodeau, 559 N.E.2d 1205, 1211 (Ind. Ct. App. 1990) (quoting
Young v. Williamson, 497 N.E.2d 612, 617 (Ind. Ct. App. 1986), reh’g denied,
trans. denied).
[17] Turning to SIPG’s first argument, that the issue of whether it was liable for
attorney fees was worthy of litigation, we note that the trial court did not order
SIPG to pay the attorney fees the Caffreys accrued litigating the issue of
attorney fees. Instead, the trial court allowed the Caffreys to recover the
portion of attorney fees they had accrued up until the point when SIPG
“settled” the issue of liability by agreeing to perform under the Agreement.
Accordingly, it is clear that the trial court’s award was based on SIPG’s
continued unreasonable, groundless, and/or bad faith defense that it was not
liable under the contract due to the national propane shortage, not its defense
that it was not liable for attorney fees under the Agreement.
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[18] Next, SIPG argues that its defense that it could not perform was not
unreasonable, groundless, or in bad faith because it performed under the
Agreement within thirty days of learning in March 2015 that the Caffreys had
not received the prepaid propane they had requested. However, we find this
argument disingenuous. The Caffreys initially requested delivery of their
prepaid propane during the third week of January 2014, and SIPG failed to
deliver the propane at that time based on its defense that the national propane
shortage excused its lack of performance. SIPG learned—or should have
learned—at that time that it had failed to send the Caffreys their prepaid
propane. Subsequently, Leola again called SIPG but did not receive a response.
The AG also sent SIPG a CID, which placed SIPG on notice that multiple
customers had not received their prepaid propane as requested and had
complained to the AG. Still, SIPG did not attempt to identify which of its
customers had requested but not received their prepaid propane; nor did SIPG
attempt to fulfill its prepaid contracts.
[19] In total, SIPG did not perform under the Agreement for fourteen months.
During this time, it never made any attempt to notify the Caffreys that the
national propane shortage—which had suspended SIPG’s services for only two
weeks in January and February 2014—was over and that SIPG was again able
to perform under its prepaid contracts. SIPG’s failure to perform or to notify
the Caffreys that it was able to perform under the Agreement had the effect of
perpetuating its defense that it was excused from performance by the propane
shortage. Moreover, we note that while SIPG may or may not have been
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excused from performance under the Agreement initially due to the national
propane shortage, paragraph five of the Agreement only allows suspended
performance “while such condition exists. . . .” (Plaintiff’s Ex. A). Over twelve
months passed after the propane shortage ended before SIPG fulfilled its
responsibilities under the Agreement. We are not convinced that this delay and
SIPG’s continuance of its defense that it was excused from performance for
such an extended period was not unreasonable, groundless, or in bad faith.
Accordingly, we conclude that the trial court did not err in awarding the
Caffreys a portion of their attorney fees.
[20] Affirmed.
Baker, J., and Bradford, J., concur.
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