United States District Court, D. Colorado
MICHAEL WALTERS and LISA WALTERS, a married couple, Plaintiffs,
TOWNSEND FARMS, INC., an Oregon corporation doing business in Colorado; PURELY POMEGRANATE, INC., a California corporation; FALLON TRADING CO., INC., a Pennsylvania corporation doing business in Colorado; UNITED JUICE CORP., a New Jersey corporation doing business in Colorado; and DOES 5-100, inclusive, Defendants.
RECOMMENDATION REGARDING DEFENDANT PURELY POMEGRANATE'S MOTION FOR FEES AND COSTS
CRAIG B. SHAFFER, Magistrate Judge.
This motion comes before the court on Defendant Purely Pomegranate Inc.'s (Purely Pomegranate) Motion for Fees and Costs (doc #72). The motion seeks attorneys fees and costs for Purely Pomegranate's defense of claims brought by Plaintiffs Michael and Lisa Walters ("Plaintiffs" or "the Walters") arising from a Hepatitis A outbreak in Colorado. On August 6, 2014, the district court referred the pending motion to this Magistrate Judge. I have reviewed the instant motion and briefs (and attachments), the entire case file, and the applicable law, and am sufficiently advised in the premises.
STATEMENT OF THE CASE
In their original Complaint (doc. #6) filed on June 20, 2013 in the District Court for Arapahoe County, Colorado, Plaintiffs alleged that Michael Walters contracted Hepatitis A by consuming Townsend Farms Organic Antioxidant Blend, a frozen berry and pomegranate seed mix sold by Defendant Townsend Farm, an Oregon corporation. Defendant Purely Pomegranate, a California corporation, manufactures, distributes, and sells pomegranate products. Purely Pomegranate shipped Turkish pomegranate seeds to Townsend Farms for its antioxidant blend. From April 29, 2013 to September 23, 2013, a Hepatitis A outbreak infected 162 people in ten western states, including Colorado. The Centers for Disease Control and Prevention determined that the pomegranate seeds in the Townsend Farms Organic Antioxidant Blend caused the outbreak. Claiming that Michael Walters contracted Hepatitis A in conjunction with this outbreak, Plaintiffs brought suit against Townsend Farms, Purely Pomegranate and others, asserting claims for strict liability, negligence, negligence per se and breach of warranties. The instant lawsuit is one of at least sixteen cases filed in the wake of this Hepatitis A outbreak (doc. #3).
After the Walters initiated this action, Purely Pomegranate removed the case to federal court on October 4, 2013 (doc. #1) on the basis of diversity jurisdiction under 28 U.S.C. § 1332(a). On January 13, 2014, Purely Pomegranate moved to dismiss (doc. #37) for lack of personal jurisdiction, arguing that it does not have sufficient contacts with Colorado and did not purposefully direct its activities towards Colorado and its residents. Plaintiffs' Response in Opposition (doc. #51), filed on March 7, 2014,  invoked Colorado's long arm statute, C.R.S. § 13-1-124, which allows personal jurisdiction where tortious misconduct in another state causes injury within Colorado. In its July 2, 2014 Reply in Support of Motion to Dismiss (doc. #63), Purely Pomegranate referenced a related case, Faber v. Townsend Farms, No. 13-cv-02423-RBJ, 2014 WL 2892249 (D. Colo. June 26, 2014), which involved the same defendants and legal claims arising from the 2013 Hepatitis A outbreak. Id. at *1-2. The district court in Faber granted Defendant Purely Pomegranate's motion to dismiss after finding that company's connection with Colorado was too tenuous to support either general or specific jurisdiction under Colorado's long arm statute and federal due process standards.
On July 22, 2014, I held a hearing on Purely Pomegranate's motion to dismiss in this action. At that hearing (doc. #66), Plaintiffs' counsel explained that his clients were asserting specific jurisdiction under the Colorado long-arm statute. In response, this court noted the United States Supreme Court's recent decision in Walden v. Fiore, ___ U.S. ___, 134 S.Ct. 1115, 1121 (2014), which held that to satisfy the due process clause, defendants must have a "substantial connection with the forum state" through "contacts the defendant himself creates with the forum State." After further colloquy with the court, Plaintiff's counsel indicated that the Walters would be voluntarily dismissing this case and pursuing their claims in California.
On July 24, 2014, I issued a Recommendation (doc. #68) that Purely Pomegranate be dismissed from this action without prejudice for lack of personal jurisdiction after concluding that Plaintiffs had not come forward with sufficient facts to demonstrate that Defendant had sufficient minimum contacts with Colorado to satisfy the due process standard. On July 25, 2014, the parties filed, pursuant to Fed.R.Civ.P. 41(a)(1)(A)(ii),  a Stipulated Dismissal Without Prejudice of All Claims (doc. #70) asserted in this case. That filing specifically acknowledged that "Defendant Purely Pomegranate may file a motion for costs and fees for the Court's consideration in accordance with the Federal Rules of Civil Procedure." With the instant Motion for Fees and Costs, Purely Pomegranate requests $36, 379 in attorneys fees and $630.30 in costs.
In moving to recover attorney fees incurred in this action, Purely Pomegranate invokes both Fed.R.Civ.P. 41(d) and C.R.S. § 13-17-201. The Walters argue, in response, that their voluntary dismissal of the claims against Purely Pomegranate "was not pursuant to Rule 12, and only the refiling of this case in Colorado with a finding that it was vexatious would arguably subject the Plaintiffs to a Rule 41(d) fee and cost obligation." To the contrary, Defendant contends
This is exactly the type of case where an award of attorneys' fees and costs is appropriate and justified given Plaintiffs' counsels' gamesmanship which resulted in [Defendant] unnecessarily incurring substantial fees and costs in relation to the retention of Colorado counsel and seeking dismissal of this improperly filed action. Only after Purely Pomegranate's California counsel incurred the cost of defending this action, filing the Rule 12(b)(2) motion, preparing for oral argument, and traveling to Colorado and arguing the motion, did Plaintiffs' counsel inform Purely Pomegranate that he would voluntarily dismiss the action pursuant to Rule 41 after oral argument when the Court informed the parties that it would recommend Purely Pomegranate's motion be granted.
"Under the American Rule, absent a statute or enforceable contract, a prevailing litigant is ordinarily not entitled to collect reasonable attorney fees from the loser." Aguinaga v. United Food and Commercial Workers International Union, 993 F.2d 1480, 1481 (10th Cir. 1993) (citing Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247 (1975)). However, the Tenth Circuit has held that in an action predicated on diversity jurisdiction, attorney fees statutes are considered substantive, rather than procedural, law. Jones v. Denver Post Corp., 203 F.3d 748, 757 (10th Cir. 2000). See also Zerr v. Johnson, 120 F.3d 272, at *2 n.4 (10th Cir. July 29, 1997) (Table) (holding that C.R.S. § 13-17-201 "is equally applicable where a federal diversity tort claim brought pursuant to Colorado law is dismissed pursuant to Fed.R.Civ.P. 12(b)"); Jones v. Haga, No. 05-cv-02268-PSF-CBS, 2007 WL 433126, at *1 (D. Colo. Feb. 2, 2007) (applying C.R.S. § 13-17-201 after noting that state attorneys' fees statutes are substantive law for diversity purposes). Thus, initially I look to Colorado law, and more specifically C.R.S. § 13-17-201, in resolving Purely Pomegranate's request for attorney fees. A. C.R.S. §§ 13-17-201 and 13-16-113(2)
Colorado Revised Statute § 13-17-201, and its companion provision § 13-16-113(2),  mandate the award of attorney fees and costs where a tort action is dismissed "prior to trial under rule 12(b) of the Colorado rules of civil procedure." Crandall v. City of Denver, 238 P.3d 659, 662-63 (Colo. 2010) (declining to reduce an attorney fee award simply because certain of the attorneys' work might be useful in companion litigation). Cf. Kreft v. Adolph Coors Co., 170 P.3d 854, 859 (Colo.App. 2007) (holding that "[a]n award of attorney fees is mandatory when a trial court dismisses a tort action under C.R.C.P. 12(b)."). As the Colorado Supreme Court acknowledged in Crandall, 238 P.3d at 663, §§ 13-17-201 and 13-16-113(2) contain "no language that suggest anything other than a mandatory award" and leave "nothing to the discretion of the trial court except to determine what is a reasonable fee." That statutory interpretation is consistent with the Colorado legislature's intent to "discourage the unnecessary litigation of tort claims." Jaffe v. City and Cnty. of Denver, 15 P.3d 806, 813 (Colo.App. 2000).
However, because these statutory provisions stand in derogation of the American Rule, they must be strictly construed. See Sotelo v. Hutchens Trucking Co., 166 P.3d 285, 287 (Colo.App. 2007) (citing City of Wheat Ridge v. Cerveny, 913 P.2d 1110, 1114 (Colo. 1996) (in light of the American Rule, a fee-shifting provision will not be construed as mandatory unless its directive is specific and clear)). In addressing the scope of § 13-17-201, the Colorado Supreme Court has explained that lower courts should "employ the traditional rules of statutory construction in order to ascertain and give effect to the intent of the General Assembly." Crandall, 238 P.3d at 662 (in construing the express statutory language at issue, the court should "giv[e] words and phrases their commonly accepted and understood meaning").
Following that mandate, I find that Defendant Purely Pomegranate cannot successfully invoke § 13-17-201 or § 13-16-113(2) under the particular facts in this case. It cannot be fairly disputed that the claims against Purely Pomegranate in this case were dismissed without prejudice pursuant to Rule 41(a)(1)(A)(ii), not Rule 12(b)(2). That fact alone defeats Defendant's reliance on Colorado's fee and cost-shifting statutes. I acknowledge that my Recommendation of July 24, 2014 concluded that the Walters had failed to come forward with sufficient facts to establish personal jurisdiction over Purely Pomegranate in this forum. However, 28 U.S.C. § 636(b)(1)(A) and (c) precludes a magistrate judge from deciding a motion to involuntarily dismiss an action except upon the consent of the parties. Therefore, my Recommendation had no dispositive effect as of July 25, 2014, when the parties stipulated to the dismissal of the entire action pursuant to Rule 41(a)(1)(A)(ii). If Purely Pomegranate wished to pursue cost-shifting under § 13-17-201 and § 13-16-113(2), it should have refused the stipulation offered by ...