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MKB Constructors v. American Zurich Insurance Co.

United States District Court, W.D. Washington

January 27, 2015

MKB CONSTRUCTORS, Plaintiff,
v.
AMERICAN ZURICH INSURANCE COMPANY, Defendant

For MKB Constructors, a Washington joint venture, Plaintiff: A Richard Dykstra, LEAD ATTORNEY, Peter J Mullenix, FRIEDMAN RUBIN (SEATTLE), SEATTLE, WA; Kenneth R Friedman, FRIEDMAN RUBIN (BREMERTON), BREMERTON, WA.

For American Zurich Insurance Company, an Illinois corporation, Defendant: Elaine Videa, Jonathan R. Gross, LEAD ATTORNEYS, PRO HAC VICE, MOUND COTTON WOLLAN & GREENGRASS, EMERYVILLE, CA; Jose Dino Vasquez, KARR TUTTLE CAMPBELL, SEATTLE, WA.

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR PREJUDGMENT INTEREST, NONTAXABLE LITIGATION COSTS, AND ATTORNEY'S FEES

JAMES L. ROBART, United States District Judge.

I. INTRODUCTION

Before the court is Plaintiff MKB Constructors' (" MKB" ) motion for prejudgment interest, nontaxable costs, and attorney's fees. (Mot. (Dkt. # 156).) MKB filed its present motion following a jury trial and verdict in its favor and against Defendant American Zurich Insurance Company (" American Zurich" ). ( See Jury Verdict (Dkt. # 151).) The court has reviewed MKB's motion and reply memorandum, American Zurich's responsive memorandum, and all other materials filed both in support of and opposition to MKB's motion. Being fully advised, the court GRANTS in part and DENIES in part MKB's motion as more fully described below.

II. BACKGROUND

The court conducted a jury trial from October 20, 2014, to October 24, 2014, on MKB's claims against American Zurich for breach of contract, violation of the Insurance Fair Conduct Act (" IFCA" ), RCW 48.30.015, and breach of the covenant of good faith and fair dealing. ( See Dkt. ## 142, 146-47, 149.) On October 24, 2014, the jury awarded MKB a total of $2,357,906.71 in damages ( see Judg. (Dkt. # 153)), which is comprised of (1) $1,083,424.24 for American Zurich's breach of contract, (2) $274,482.47 for American Zurich's violation of IFCA, (3) $862,000.00 in enhanced damages under the same statute, and (4) $138,000.00 for American Zurich's failure to act in good faith ( see generally Jury Verdict (Dkt. # 151)).

MKB now asks the court to increase the judgment by $233,889.69 for prejudgment interest and $160,580.50 for actual litigation costs. (Mot. at 2.) In addition, MKB asks the court to award its reasonable attorney's fees. ( Id.) MKB asks the court to do so by increasing the amount of the jury's overall verdict by one-third to offset the amount that MKB is contractually obligated to its attorneys under a contingent fee arrangement that MKB negotiated partway through the litigation after initially agreeing to pay its attorney's fees on an hourly basis. ( Id.) Alternatively, MKB asks the court to award $445,713.80 in attorney's fees based on an unenhanced " lodestar" figure. ( Id.)

American Zurich implicitly acknowledges that MKB is entitled to awards of prejudgment interest, litigation costs, and attorney's fees following MKB's receipt of the favorable jury verdict detailed above. ( See Resp. (Dkt. # 167) at 1-2 (asking the court to deny MKB's motion in part by reducing the amount of interest, fees, and costs awarded).) American Zurich, however, argues that MKB is entitled to a lower rate of prejudgment interest ( id. at 2-4), and that the court should disallow certain categories of litigation costs ( id. at 4-5). American Zurich also argues that the court should award attorney's fees based on the lodestar method and not based on a percentage of the verdict. (Resp. at 6-7.) Finally, American Zurich argues that MKB overstated its claim for fees because it did not segregate successful and unsuccessful activities, that MKB's fee documentation is inadequate in a number of respects, and that its request is excessive for various reasons. ( Id. at 7-11.) The court now considers MKB's motion and American Zurich's various objections.

III. ANALYSIS

A. Prejudgment Interest

" In diversity actions brought in federal court a prevailing plaintiff is entitled to pre-judgment interest at state law rates . . . ." Onink v. Cardelucci, 285 F.3d 1231, 1235 (9th Cir. 2002); Northrop Corp. v. Triad Int'l Mktg., S.A., 842 F.2d 1154, 1155 (9th Cir. 1988) (" The recognized general rule is that state law determines the rate of prejudgment interest in diversity actions. . . . The general rule has been followed in this circuit." ) (citations omitted). Under Washington law, " [a] party is entitled to prejudgment interest where the amount due is 'liquidated.'" Unigard Ins. Co. v. Mutual of Enumclaw Ins. Co., 160 Wn.App. 912, 250 P.3d 121, 128 (Wash. Ct.App. 2011) (citing Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 15 P.3d 115, 132 (Wash. 2000)).

MKB asserts that two components of the judgment are liquidated: (1) the $1,083,424.24 that the jury awarded in contract damages, and (2) $233,659.00 of the jury's $274,482.47 award for " actual damages" under IFCA. ( See Mot. at 3.) The $233,659.00 figure is based on certain invoices for legal fees from Carney Badley Spellman that MKB incurred after American Zurich denied its insurance claim. ( Id.) American Zurich does not dispute that these components of the judgment are liquidated sums. ( See generally Resp.)

The parties agree that the court determines the rate of prejudgment interest by looking to RCW 4.56.110. ( See Mot. at 3 (" The rate of prejudgment interest is determined in Washington by reference to RCW 4.56.110." ) (italics in original); Resp. at 2 (" RCW 4.56.110 provides the various pre-judgment interest rates depending on the type of claim." )); see also Unigard Ins. Co., 250 P.3d at 129. The parties also agree that where a judgment is " mixed," containing both tort and contract claims, the court should apply only one interest rate. ( See Mot. at 3-4; Resp. at 2); see also Unigard Ins. Co., 250 P.3d at 129. Finally, the parties agree that in determining which rate to apply the court should look to the various components of the judgment and determine whether the judgment is primarily based in tort or in contract. ( See Mot. at 4; Resp. at 2); Unigard Ins. Co., 250 P.3d at 129.

Beyond agreement on the foregoing three basic precepts, however, the parties' analysis diverges, and they ultimately disagree on how the court should arrive at the correct interest rate to apply. MKB concludes that the court should apply the twelve percent rate applicable to contract disputes[1] (Mot. at 4), while American Zurich concludes that the generally lower rate applicable to torts is appropriate, which is two percentage points above the prime interest rate[2] (Resp. at 3).

MKB argues that in " determining what the judgment is primarily based on" and which uniform interest rate to apply, the court should not look to the judgment as a whole, but rather only to those component parts of the judgment that are liquidated. ( See Mot. at 4 (citing Unigard Ins. Co., 250 P.3d at 129).) MKB cites no case authority in which a court has expressly adopted this view. ( See generally id.) Nevertheless, MKB concludes that the judgment is primarily based on contract claims and not tort claims because its award of $1,083,424.24 in liquidated damages for American Zurich's breach of the insurance contract is greater than its award of $233,659.00 in liquidated IFCA damages, which MKB acknowledges " would, standing alone, have the tort rate." ( Id.) Thus, MKB concludes that the court should apply the interest rate applicable to contracts rather than the lower rate applicable to torts. ( Id.)

Although the court acknowledges that there is some superficial appeal to MKB's approach, the court is not convinced that it is consistent with Washington law. American Zurich argues that, in determining the applicable interest rate under RCW 4.56.110, the court must consider the nature of the judgment as a whole and not just the liquidated components thereof. Although the court's research did not reveal any cases with the precise facts at issue here, the court concludes, as described below, that Washington case law is more supportive of American Zurich's position.

Unigard Insurance Company involved an insurance coverage and bad faith dispute over environmental cleanup costs following the release of hazardous substances. 250 P.3d at 124-25. In that case, the trial court applied a twelve percent prejudgment interest rate based on RCW 4.56.110(4) to the liquidated portion of the judgment consisting of past economic damages. See 250 P.3d at 126. The defendant insurer argued that the court should have applied the rate applicable to judgments based primarily on tort claims. Id. The plaintiff, however, defended the court's application of the twelve percent interest rate " arguing that the judgment sounded primarily in contract." Id. Relying on Woo v. Fireman's Fund Ins. Co., 150 Wn.App. 158, 208 P.3d 557 (Wash. Ct.App. 2009),[3] the Unigard court rejected the plaintiff's position. Unigard Ins. Co., 250 P.3d at 129-30. The court reasoned that a suit between an insurer and its insured stemming from a breach of the policy does not necessarily sound in contract, and instead, the court should determine the primary basis of the judgment by examining " the nature of the various claims and damages," " taking account of all aspects of the relationships between insurer and insured." Id. at 129 (citing Woo, 208 P.3d at 562-63). In Unigard, the court held that because the tort remedy of coverage by estoppel precluded litigation of a coverage (or contract-based) defense, " the bad faith aspects of [the plaintiff's] case dominated the contract aspect and drove the result." Id. at 130. Thus, the court held that the interest rate applicable to torts should apply. Id. In reaching this result, the court considered the entire judgment and not just those portions to which it applied prejudgment interest. See id. at 128-30.

Because the court in Unigard Insurance Company considered the nature of the entire judgment in rendering its decision concerning the proper prejudgment interest rate to apply, despite the fact that the prejudgment interest rate would apply to only a portion of the judgment, this court will too. As American Zurich points out, the breach of contract award was for $1,083,424.24, while the tort claims based on bad faith and IFCA[4] totaled $1,274,482.47. ( See Jury Verdict.) Thus, considering all the component parts of the judgment, and taking into account all aspects of the relationship between MKB and American Zurich, the court concludes that the judgment is primarily based in tort. Accordingly, the interest rate found in RCW 4.56.110(3)(b) for " judgments founded on the tortious conduct of . . . entities," which is two percentage points above the prime rate, is applicable here. The court, therefore grants MKB's motion for prejudgment interest, but at the rate found in RCW 4.56.110(3)(b) for judgments based primarily on torts, rather than the rate found in RCW 4.56.110(4).

MKB also asks the court to award prejudgment interest on the breach of contract invoices beginning in April 2013, which is the month following American Zurich's denial of MKB's insurance claim. (Mot. at 4.) Similarly, MKB asks the court to award prejudgment interest on the Carney Badley Spellman invoices beginning in November 2013, which is the month following settlement of the arbitration between MKB and the Lower Yukon School District (" LYSD" ). ( Id. at 5.) American Zurich objects to these dates as contrary to Washington law. (Resp. at 3-4.) The parties agree that under Washington law prejudgment interest should run from the date each particular invoice was paid. (Mot. at 4 (citing Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 15 P.3d 115, 133 (Wash. 2000) (" The date those invoices were paid established the proper time interest began to run." )); Resp. at 3-4 (also citing Weyerhaeuser ).) MKB asserts, however, that " the sheer volume of independent invoices would make such a calculation an unreasonable burden on the court and the parties," and thus the court should simply employ a short-cut and award prejudgment interest from two dates cited above. (Mot. at 4.) American Zurich counters that " ...


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