15. BUNNETT v. SMALLWOOD Supreme Court of Colorado, En Banc 793 P.2d 157 (1990)
Facts
William E. Bunnett and Donald E. Smallwood formed a corporation. Soon Smallwood resigned from the position and started his own business. Bunnett brought a suit that Smallwood had obtained certain raw materials by misrepresentation that he was still an officer of their company. After failure of a couple of negotiations they informally met and Smallwood orally promised Bunnett that he wanted to end all of the "hassle" in exchange for giving his stock to Bunnett (October 1984 release). Bunnett dropped the previous lawsuit but instituted two new suits. Smallwood asserted that Bunnett was collaterally stopped from contesting the exclusivity of the October 1984 release, and he should be entitled to recover his attorney fees and costs. The court of appeals held for the Smallwood.
Issue
May the losing party who instituted suits despite an agreement not to sue pay prevailing party’s attorney fees and costs when there is no regarding statute and the nature and scope of the agreement is ambiguous about the recovery of the costs?
Rules
Neves v. Potter
A release is the relinquishment of a vested right or claim to the person against whom the claim is enforceable.
Alyeska Pipeline Serv. Co. v. Wilderness Soc'y (1975)
In the absence of a statute or private contract to the contrary, attorney fees and costs generally are not recoverable by the prevailing party in a breach of contract case.
section 13-17-101, 6A C.R.S. (1987)
Attorney fees may be recovered at the discretion of the trial court if it is determined that the bringing or defense of an action has been substantially frivolous, substantially groundless, or substantially vexatious.
Artvale, Inc. v. Rugby Fabrics Corp.
Alternatively, the courts which adhere to the American rule will award attorney fees only if the suit is brought in obvious breach of a release or is brought in bad faith which is one of the established exceptions to the American rule.
Application
Smallwood contended that since he received a release from liability for any claims of any kind against him, this suit is frivolous, he should be entitled for attorney fees and costs. Bunnett, on the other hand, claimed that Smallwood received a release from liability for the August 1984 claim, but not for any other claims. The court first confirmed that the jury rightly found that the agreement between the parties constituted a release of all claims. (Neves v. Potter) So Smallwood is the prevailing party in the following two new suits based on the release. Next, there is a well-established American rule that in the absence of a statute or private contract to the contrary, attorney fees and costs generally are not recoverable by the winning party. (Alyeska Pipeline Serv. Co. v. Wilderness Soc'y) Here, no statute exists. The oral agreement between the parties is too ambiguous to hold the attorney fees and costs are recoverable by the prevailing party. In addition, under section 13-17-101, 6A C.R.S., if the litigation is frivolous or groundless, the award of attorney fees and costs will be granted to protect the prevailing party's interest. However, here, it would be unfair to losing party to burden attorney fees when the nature and scope of the agreement itself is ambiguous in the absence of the exact provision. Along with the fact that both parties were experienced businessmen who would have included the costs provision if they wanted to and Bunnett did not act in bad faith to institute these suits (Artvale, Inc. v. Rugby Fabrics Corp.), it would be erroneous to award attorney fees to Smallwood.
Holding
No, the losing party may not pay for the attorney fees and costs.
Conclusion
Reversed.
Feedback and notes
The core of the case suggests that in general, the prevailing party may recover attorney fees and costs only if there is a statute or private contract (American rule). -> no existing statute or contract provision then no award-> Yet if the suit is frivolous or substantially groundless or instituted in bad faith, (e.g. to merely harass, to buy time) then as an exception, the costs are awarded. In the present case, there was no provision of awarding attorney fees. The word “hassle” was too ambiguous and the parties had different understanding of it. Bunnett did not institute the following two suits in bad faith and the suits were not groundless. Further, the court weighed the fact that the two are experienced businessmen who well understood the importance of reducing in contract. So no exception to the American rule is applied. Also, it was emphasized that statute always comes first then case law or private contract. if a case law or private contract involves context that is in contrast to the statute, it will be invalid.