Bad Settlement Decisions And Failure To Make Statutory Demand Result In Pyrrhic Victory

by Gary Beaver

In Brooks Millwork Co. v. Levine, the plaintiff won its breach of contract claim at trial but the jury awarded plaintiff only $25,575.61 -- over $10,000 less than defendants highest settlement offer. Both sides moved for attorney fees – plaintiff on the basis of contract under NCGS § 6-21.2 and defendant under NCGS § 44A-35, which allows a judge to award reasonable attorneys’ fee to the “prevailing party . . . upon a finding that there was an unreasonable refusal by the losing party to fully resolve the matter. . .” A prevailing party is a plaintiff who recovers more than 50% of the amount claimed or a defendant found liable for less than 50% of the amount claimed. Plaintiff had initially claimed over $98,000 but acknowledged partial satisfaction of its lien reducing the principal amount owed to $63,358.48.

The Court of Appeals held on June 15, 2010, that plaintiff was not entitled to contractual attorney fees because it had not complied with the mandatory provision in NCGS § 6-21.2(5) requiring it to give the defendant 5 days to pay the principal amount owed to avoid the attorney fees. Plaintiff never made that demand before filing the lawsuit. Very big “OOPS.” The court then granted attorney fees and costs to defendant as the prevailing party under § 44A-35. The trial court used the $98,000 figure rather than $63,358.48. [Note: the Court of Appeals did not give a satisfactory explanation of what claimed damages number it considered and noted that “excluding contractual attorneys’ fees – to which plaintiff is not entitled. . . – from plaintiff’s calculation, the final judgment totals less than half of plaintiff’s claimed amount.” So did the plaintiff claim attorney fees as part of the $98,000 or of the $63,358.48? Did the court then exclude those claimed fees? What number did the court use as the claimed amount? Inquiring minds want to know.] The attorney fees and costs awarded to defendant totaled about $21,000 which was only about $4600 less than the damages plaintiff won at trial. It got worse. Plaintiff’s counsel was also ordered to pay sanctions to defendant in the amount of twice the printing costs of the appeal for his many violations of the appellate rules. The court listed 7 specific violations – 6 of them involving the brief.

This is a reminder to counsel your clients to be reasonable in settlement discussions and not hold out for the homerun. There is not enough detail in the decision about the merits of the breach of contract claimed damages to know if that is what happened here but, regardless, rolling the dice with the jury obviously did not work out. Also, obey the appellate rules or bear the consequences; plaintiff’s counsel was lucky the appeal was not dismissed or the consequences could have been even worse for him.