Care Realty v. Lakeview, et al. 10-CV-095-SM 2/5/13 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Care Realty. LLC. and THCI Company, LLC, Plaintiffs

v. Case No. lO-cv-95-SM Opinion No.

Lakeview Neurorehabilitation Center, Inc.; Lakeview Neurorehab Center Midwest. Inc.; and Lakeview Management, Inc. Defendants

O R D E R

This protracted commercial litigation has nearly reached an

end. The parties ask the court to resolve one last, lingering

dispute. Invoking the provisions of New Hampshire common law,

defendants assert that they are entitled to an award of

reasonable attorney's fees and expert witness fees - sums they

estimate at approximately $240,000 and $32,000, respectively.

Not surprisingly, plaintiffs object. Vigorously.

For the reasons discussed, defendants' motion for attorney's

fees is denied. Brief Background

Defendants (collectively "Lakeview") operate

neurorehabilitation facilities in New Hampshire and Wisconsin.

They lease the subject properties from plaintiffs (collectively,

"THCI"). The parties have been litigating this commercial

landlord-tenant dispute since 2007 and the relevant facts are

detailed in several orders previously issued by the court. For

the most part, they need not be recounted.

It is sufficient to note that the parties' disputes have

given rise to two cases in this court. In the first, the court

held that, due to its inequitable conduct, THCI was estopped from

asserting that Lakeview's breach of payment terms precluded its

exercise of an option to extend those leases. Lakeview Mgmt.,

Inc. v. Care Realty. LLC.

(D.N.H. March 30, 2009)

("Lakeview I"). The court observed, however, that, "There is

enough rascality here on each side to preclude finding that

either side was imposed upon unduly." Jd. at *22. Consequently,

the court held that neither party was entitled to prevail on its

claims under New Hampshire's Consumer Protection Act. Lakeview

then sought an award of attorney's fees on grounds that THCI had

acted in bad faith. That motion was denied.

2 Shortly thereafter, THCI filed a second suit, claiming

Lakeview was still not paying the proper rent under the leases

and invoking an appraisal process (detailed in Section 1.4 of the

leases) as a means to determine Lakeview's monthly rent

obligations. Again, however, the court ruled in favor of

Lakeview, concluding that, when presented with the opportunity to

avail itself of the available appraisal process, THCI elected not

to pursue it - an election that, due to time constraints imposed

by the leases, could not be revisited. Care Realty, LLC v.

Lakeview Neurorehabilitation Center, Inc.,

(D.N.H. March 29, 2012) ("Lakeview II"). Lakeview again seeks an

award of attorney's fees.

Governing Law

The well-established "American Rule" on fee-shifting

provides that, ordinarily, attorney's fees are not recoverable by

a prevailing party unless specifically authorized by statute or

contract. Mullane v. Chambers.

(1st Cir.

2003). See also Alveska Pipeline Serv. v. Wilderness Soc'v,

(1975); Van Per Stok v. Van Voorhees,

(2005). The New Hampshire Supreme Court has, however,

recognized limited exceptions to that rule. Under New Hampshire

common law, courts possess the inherent authority to award

attorney's fees to a prevailing party when:

3 an individual is forced to seek judicial assistance to secure a clearly defined and established right if bad faith can be established; where litigation is instituted or unnecessarily prolonged through a party's oppressive, vexatious, arbitrary, capricious or bad faith conduct; as compensation for those who are forced to litigate in order to enjoy what a court has already decreed; and for those who are forced to litigate against an opponent whose position is patently unreasonable.

Clipper Affiliates v. Checovich,

(1994)

(citations and internal punctuation omitted). The decision to

award or decline to award fees under that judicial exception is

highly discretionary and afforded "tremendous deference."

Grenier v. Barclay Square Commer. Condo. Owners' Ass'n, 150 N.H.

Ill, 116 (2003) .

Here, Lakeview says it is entitled to an award of attorney's

fees on grounds that THCI advanced a "meritless" claim and

adopted a litigation position that was "patently unreasonable."

See Defendants' Motion for Attorney's Fees (document 67) at 2.

See also Defendants' Reply Memorandum (document no. 75) at 2-3.

In support of its claim, Lakeview asserts assert that, " [h]aving

acted in bad faith in 2007 with respect to Lakeview's option

exercise and request for appraisal, and having been called out

with respect to this conduct in Lakeview I, THCI brazenly filed

the instant litigation demanding the same appraisal process it

spurned in 2007." Defendants' Reply Memorandum at 3. Moreover,

4 says Lakeview, the court itself recognized that THCI's invocation

of the appraisal process was "meritless."

Lakeview conflates two distinct concepts: "meritlessness"

and "bad faith." The mere fact that a claim lacks merit does not

compel the conclusion that it was advanced in bad faith. Nor

does it compel the conclusion that it was "patently

unreasonable." See, e.g.. DeLauro v. Porto (In re Porto).

(11th Cir. 2011) ("equat[ing] lack of merit with

bad faith, [is] a fallacy that would lead to the conclusion that

every losing party had litigated in bad faith."); Managed Care

Solutions, Inc. v. Essent Healthcare, Inc.,

, 4

(S.D.Fla. 2011) ("That the Court denied the motion or even that

the motion lacked merit is not the same as finding that [the

movant's] conduct in filing the motion objectively rises to bad

faith."); Grenier, 150 N.H. at 118 ("The fact that [plaintiff's]

position was unsuccessful does not alone warrant an award of

fees."). See generally Christiansburg Garment Co. v. EEOC,

(1978) .

As Lakeview points out, the court did, in fact, conclude

that THCI's invocation of the appraisal process was "meritless" -

that is to say, it lacked merit. Lakeview II, at *4. The court

did not, however, conclude that THCI's claim was "frivolous" or

5 "patently unreasonable," nor did it find that THCI acted in bad

faith. And, importantly, Lakeview has failed to demonstrate that

THCI's conduct was so egregious or so without legal or factual

basis that an award of fees would be justified or appropriate

under New Hampshire common law.

Lakeview's claim for fees does not fit within the limited

exception to New Hampshire's general rule that parties to

litigation bear their own legal fees. As the court pointed out

in Lakeview II, THCI brought this suit "to resolve an issue left

unaddressed in earlier litigation between the parties." .Id. at

*1. That is, once the court held that Lakeview had validly

exercised its renewal option, whether THCI could invoke the

appraisal process contemplated by the leases in order to

determine the appropriate rent going forward. THCI plausibly

asserted that, because it invoked the appraisal process within

days of the court's ruling validating Lakeview's otherwise

doubtful exercise of its option to extend the Lease, the

invocation was timely and the appraisal process was required to

set the applicable rent. Lakeview, on the other hand, argued

that THCI had waived that contractual right long ago.

Lakeview's position prevailed, and the court held that once

THCI decided not to invoke the appraisal process in (or

6 reasonably near) March of 2007 (when Lakeview exercised its

option to renew), and later declined Lakeview's own request to

follow that procedure, THCI could not revisit that decision.

THCI's position was not persuasive, but, on this record, the

court cannot conclude that it was frivolous, patently

unreasonable, or pursued in bad faith. And, absent such conduct,

Lakeview cannot recover attorney's fees or expert witness fees.

Conclusion

As the court of appeals has noted, courts must be cautious

when deviating from the American Rule and exercising their

discretion to award attorney's fees when not otherwise authorized

by statute or contract. See Dubois v. U.S. Dept, of Agriculture,

(1st Cir. 2001) ("Because of its potency,

however, a court's inherent power to shift attorney's fees should

be used sparingly and reserved for egregious circumstances.

Thus, the power to sanction must be used with great

circumspection and restraint, employed only in compelling

situations.") (citations and internal punctuation omitted). This

case, between sophisticated commercial entities, does not present

those rare, egregious or compelling circumstances warranting the

exercise of such discretion. While THCI's claim to have timely

invoked the leases' appraisal process lacked merit, it was not

7 patently unreasonable nor has Lakeview shown that it was pursued

in bad faith.

Defendants' motion for an award of attorney's fees (document

no. £7) is denied.

SO ORDERED.

even J / MeAul iffe nited States District Judge

February 5, 2013

cc: Daniel E. Will, Esq. Jonathan M. Shirley, Esq. Leigh S. Willey, Esq. Ovide M. Lamontagne, Esq. Christopher H. M. Carter, Esq. Daniel M. Deschenes, Esq.

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