Rohrer Corporation v. Dane Elec Corp. USA

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0568n.06
No. 11-3742
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ROHRER CORPORATION,
Plaintiff-Appellee,
v.
DANE ELEC CORP. USA,
Defendant-Appellant.
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ON APPEAL FROM THE
UNITED STATES DISTRICT
C O U R T F O R T H E
NORTHERN DISTRICT OF
OHIO
Before: MARTIN, GILMAN, and WHITE, Circuit Judges.
HELENE N. WHITE, Circuit Judge. Defendant-Appellant Dane Elec Corp. USA
(“Dane Elec”) appeals the district court’s grant of attorney’s fees to Plaintiff-Appellee Rohrer
Corporation (“Rohrer”). Because the district court properly determined that Ohio law authorizes an
award of attorney’s fees under the circumstances, we affirm.
I.
The background facts are not relevant to the present appeal and will be discussed briefly only
to provide context. Dane Elec entered into an agreement with Rohrer to purchase plastic shell
products and submitted several purchase orders for those products. At some point, Dane Elec
noticed that the price on the invoices for its orders was higher than the price quoted by Rohrer.
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Rohrer informed Dane Elec that it had made a mistake in its earlier price quote and could not honor
that price, but would reduce the billing price. However, Dane Elec refused to pay more than the
original quoted price. In January 2010, the presidents of Rohrer and Dane Elec met and orally
reached an agreement on the outstanding pricing issues. The terms of the oral agreement were
subsequently disputed by the parties and Rohrer filed suit alleging, inter alia, breach of the
settlement agreement.
Prior to trial, both parties submitted proposed jury instructions. One of Rohrer’s proposed
instructions read, “If you find in Rohrer’s favor on its claim for breach of settlement agreement, you
may award Rohrer its attorneys’ fees in bringing this action against Dane, in an amount to be
determined later by the Court.” The district court invited Dane Elec to brief the issue whether
Rohrer was entitled to attorney’s fees if it prevailed at trial. Dane Elec filed its brief and Rohrer filed
a response. After the first day of trial, the court allowed Dane Elec to submit additional briefing on
the attorney’s fees issue to address a case raised by Rohrer in its response, Shanker v. Columbus
Warehouse Ltd., No. 99AP-772, 2000 WL 726786 (Ohio Ct. App. June 6, 2000), which Dane Elec
submitted. The court subsequently discussed the jury instructions with counsel, and Dane Elec
proposed that if the court were to instruct that attorney’s fees could be awarded to Rohrer, a
reciprocal instruction would be warranted authorizing attorney’s fees to Dane Elec if it prevails. The
court instructed Dane Elec to submit additional briefing to demonstrate its entitlement to attorney’s
fees, which Dane Elec did not submit. The record does not show that Dane Elec further objected to
the attorney’s fees instruction. After a five-day trial, the jury returned a verdict in Rohrer’s favor on
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all claims and found Rohrer entitled to attorney’s fees on its claim for breach of the settlement
agreement. The court entered judgment accordingly.
Dane Elec now appeals only that portion of the judgment awarding attorney’s fees to Rohrer
on its breach-of-settlement claim.
II.
This appeal involves one issue—whether the prevailing party on a claim for breach of a pre-
litigation settlement agreement is entitled to attorney’s fees under Ohio law. Both parties agree that
Ohio law governs the instant matter. The primary point of contention is the applicability of Shanker
to the present case.1
In Shanker, the plaintiffs sued the defendant corporation after it defaulted on a promissory
note to repay a loan issued by the plaintiffs. During the litigation, the parties reached an oral
settlement agreement, which the magistrate judge outlined on the record in open court. After the
parties began to reduce that agreement to writing, a dispute ensued over a term not previously
discussed by the parties or by the magistrate in the settlement colloquy. The plaintiffs sought to have
the additional term included in the written agreement; the defendant refused and filed suit to enforce
When construing Ohio law, we must apply it according to controlling decisions of the1
Supreme Court of Ohio. Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th Cir. 1999).
Because the Supreme Court of Ohio has not addressed this issue, we may look to “the decisional law
of the state’s lower courts, other federal courts construing state law, restatements of law, law review
commentaries, and other jurisdictions on the ‘majority’ rule” to ascertain how it would decide the
issue. Id. (citing Grantham & Mann v. Am. Safety Prods., 831 F.2d 596, 608 (6th Cir. 1987)).
Although decisions of Ohio’s appellate courts do not bind this court, we should not disregard them
unless “convinced by other persuasive data that [the Supreme Court of Ohio] would decide
otherwise.” Id. (citing Commissioner v. Estate of Bosch, 387 U.S. 456, 465 (1967)).
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the oral settlement agreement. The trial court ruled in favor of the defendant, and the Ohio Court
of Appeals affirmed. Additional litigation became necessary when the defendant refused to make2
the required payment under the settlement agreement. The plaintiffs filed suit alleging breach of the
settlement agreement and the defendant counterclaimed that the plaintiffs had breached the
settlement agreement by continuing to litigate the matter. The trial court found that both parties had
breached the settlement agreement, but that neither breach was material. In addition, the court found
the defendant entitled to attorney’s fees for the litigation expenses incurred in its original suit to
enforce the oral settlement agreement.
Both parties appealed, with the plaintiffs claiming error in the award of attorney’s fees to the
defendant. Although the appellate court acknowledged that Ohio follows the “American Rule,”
whereby each party is required to pay its own attorney’s fees in most circumstances, the court also
noted three exceptions where attorney’s fees can be awarded: 1) when a statute creates a duty to pay
fees; 2) when the losing party has acted in bad faith; and 3) when the parties contract to shift fees.
Shanker, 2000 WL 726786, at *4. The appellate court then distinguished attorney’s fees that are
“costs of litigation” from attorney’s fees that are compensatory damages flowing from the breach of
the settlement agreement. The court determined that although the former are covered by the
American Rule, the latter are not. Id. Because the defendant incurred attorney’s fees as a result of
the plaintiffs’ breach of the settlement agreement, the court held that the American Rule did not
apply:
This dispute was resolved in a separate litigation between the parties, Shanker v. Columbus2
Warehouse Ltd., No. 96APE09-1269, 1997 WL 142723 (Ohio Ct. App. Mar. 31, 1997)
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When a party breaches a settlement agreement to end litigation and the breach causes
a party to incur attorney fees in continuing litigation, those fees are recoverable as
compensatory damages in a breach of settlement claim.
Id. at *5.
Dane Elec contends that the Shanker court’s use of the phrase “settlement agreement to end
litigation” renders that decision inapplicable when the parties enter into a settlement agreement prior
to litigation, as in this case. In support, Dane Elec relies on DeHoff v. Veterinary Hospital
Operations of Central Ohio, Inc., where the Ohio Court of Appeals reiterated that “Shanker is
limited to circumstances involving settlement agreements entered to end litigation.” No. 02AP-454,
2003 WL 21470388, at *22 (Ohio Ct. App. June 26, 2003). The plaintiff in DeHoff commenced
litigation to dissolve two corporations in which he was a one-half owner. After the court ordered
a judicial dissolution of the corporations, the plaintiff began a new corporation and submitted an
offer to the Board of Directors of one of the dissolved corporations to purchase equipment in
exchange for the assumption of certain liabilities held by the corporation. The plaintiff then met with
the defendant, the other half-owner of the dissolved corporations, in their capacities as Board
members, to consider the plaintiff’s offer and to discuss other matters relating to the dissolution. The
plaintiff alleged that an oral agreement was reached between the two owners regarding the equipment
at that time. Although the plaintiff’s attorney sent a proposed written agreement to the defendant,
it was not signed by either party. Over a year later, the plaintiff filed suit against the defendant for
breach of the oral agreement. The trial court found that the parties had entered into an agreement,
the defendant had breached the agreement, and, in reliance on Shanker, that the plaintiff was entitled
to attorney’s fees. On appeal, the defendant argued that the court erred by awarding attorney’s fees
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because the case did not involve a settlement agreement designed to end the underlying dissolution
nor a motion to enforce a settlement agreement, and the Ohio Court of Appeals agreed. Id. at *22.
DeHoff is readily distinguishable from the instant matter because there was no settlement
agreement involved, only a contract to purchase equipment. In contrast, Tejada-Hercules v. State
Automobile Insurance Company, No. 08AP-150, 2008 WL 4416534 (Ohio Ct. App. Sep. 30, 2008),
a case cited by Rohrer and not addressed by Dane Elec, is directly on point. In Tejada-Hercules, the
plaintiffs were injured in a car accident and a driver insured by State Automobile Insurance
Company (“State Auto”) was at fault. After the plaintiffs’ insurer paid their medical bills, they
agreed to settle with the driver. Under that agreement, State Auto was supposed to deliver two
checks, one made out to the plaintiffs and another jointly made out to the plaintiffs and their insurer.
State Auto delivered the first check to the plaintiffs but made out the second check only to the
plaintiffs’ insurer. The plaintiffs then brought claims against State Auto for, inter alia, breach of the
settlement agreement. The court awarded summary judgment to the plaintiffs on that claim. Despite
finding that the plaintiffs had not suffered any actual damages as a result of the breach, the court
determined that Shanker entitled the plaintiffs to their attorney’s fees incurred in bringing the action.
On appeal, the Ohio Court of Appeals affirmed the award of attorney’s fees and specifically rejected
the defendant’s argument that Shanker applies only to settlement agreements to end litigation, rather
than those reached prior to litigation, as contrary to Ohio law favoring settlement. Id. at *5. The
court also explicitly distinguished DeHoff because the purchase agreement at issue in that case was
unrelated to the initial matter before the court, namely the judicial dissolution of two corporations,
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and the agreement would not have prevented future litigation between the parties over the dissolution
issue. Id.
Likewise, in Raymond K. Schaefer, Inc. v. Pytlik, No. OT-09-026, 2010 WL 3820552 (Ohio
Ct. App. Sep. 30, 2010), the parties entered into a settlement agreement following voluntary pre-
litigation mediation regarding money owed under a construction agreement. The plaintiff filed suit
for breach of the settlement agreement after the defendants refused to comply with the settlement
terms. The court granted summary judgment to the plaintiff and awarded attorney’s fees. Those fees
were affirmed on appeal because they were compensatory damages “incurred as a direct result of
[defendants’] breach of the settlement agreement.” Id. at *6.
Dane Elec alternatively argues that Shanker actually followed the American Rule and,
although the court did not state so explicitly, its rationale for awarding attorney’s fees to the
defendant was the plaintiffs’ bad faith in continuing to litigate the matter. Dane Elec contends that
Shanker does not apply because Rohrer has failed to establish bad faith. However, this argument is
wholly contradicted by the Shanker decision. The Shanker court found the American Rule
inapplicable because the defendant sought the attorney’s fees as part of its compensatory damages
resulting from the plaintiffs’ breach of the settlement agreement, rather than as costs of the litigation.
2000 WL 726786, at *5. In addition, the court agreed with the plaintiffs that if the defendant was
entitled to attorney’s fees because of their breach, the plaintiffs were likewise entitled to attorney’s
fees due to the defendant’s breach. Id. at *6. The Shanker court did not find that either party had
acted in bad faith.
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In sum, Ohio law allows a court to award attorney’s fees as compensatory damages when a
party’s breach of a settlement agreement makes litigation necessary, even where none of the
exceptions to the American Rule have been shown. Accordingly, the district court did not abuse its
discretion by allowing the jury to consider whether to award Rohrer the attorney’s fees it incurred
in bringing a claim for breach of a settlement agreement against Dane Elec.
III.
For the foregoing reasons, we affirm the judgment of the district court.
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