Air Turbine Technology, Inc. v. Quarles & Brady, LLC, Quarles & Brady, LLP and Richard Horn

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA

FOURTH DISTRICT

AIR TURBINE TECHNOLOGY, INC.,

Appellant,

v.

QUARLES & BRADY, LLC, QUARLES & BRADY, LLP,

and RICHARD HORN,

Appellees.

No. 4D14-110

[June 3, 2015]

Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm

Beach County; Lucy Chernow Brown, Judge; L.T. Case No.

502011CA005972XXXXMB-AH.

Adam S. Hall and Colleen L. Smeryage of Hall, Lamb and Hall, P.A.,

Miami, and June G. Hoffman of Fowler White Burnett PA, Fort Lauderdale,

for appellant.

David P. Ackerman and Lanelle K. Meidan of Ackerman, Link & Sartory,

P.A., West Palm Beach, for appellees.

GROSS, J.

This is an appeal from a summary judgment for the defendant in a legal

malpractice action that centered on an attorney’s advice about his client’s

contractual exposure to the opposing party’s attorney’s fees under Florida

law. Because the advice was in accord with the weight of Florida law, we

hold there was no malpractice at all. To the extent that any of the

challenged conduct could be seen as fairly debatable, the attorney’s advice

was protected by judgmental immunity. We therefore affirm the summary

final judgment.

Underlying Case

Air Turbine Technology, Inc. is a Florida corporation that invents and

manufactures power tools. In 1992, Air Turbine entered into an agreement

(“Private Brand Agreement”) with Atlas Copco Tools AB, which granted

Atlas Copco a license to sell one of Air Turbine’s tools throughout the

world, except for the United States and Canada. In return, Atlas Copco

agreed not to disclose the technology covered by Air Turbine’s patents.

Air Turbine terminated the Private Brand Agreement in 1993, ending

the companies’ relationship. In 1999, Atlas Copco entered into an

agreement with another company to sell the tool under Atlas Copco’s

name. Air Turbine became aware of this product and believed it to be

similar to the tool that was the subject of its Private Brand Agreement with

Atlas Copco.

In 2001, Air Turbine hired Quarles & Brady and firm partner Richard

Horn to initiate litigation against Atlas Copco. Simon Shane, chairman

and corporate representative for Air Turbine, represented to Quarles &

Brady that potential damages could exceed $20 million. Quarles & Brady

took the matter on a contingency fee basis. Shane signed an engagement

letter which contained this paragraph:

Either at the commencement or during the course of our

representation, we may express opinions or beliefs concerning

the litigation or various courses of action and the results that

might be anticipated. Any such statement made by any

partner or employee of our firm is intended to be an expression

of opinion only, based on information available to us at the

time, and should not be construed by you as a promise or

guarantee.

At the outset of litigation, Shane also provided Horn with a report from

another law firm opining that Atlas Copco was infringing on Air Turbine’s

patent.

Quarles & Brady filed suit against Atlas Copco in the United States

District Court for the Southern District of Florida. The complaint asserted

six counts: patent infringement, violation of the Lanham Act, 15 U.S.C. §

1125(a), breach of contract, fraud, breach of confidential relationship, and

common law unfair competition. The complaint sought over $50 million

in damages, including punitive damages. The complaint also contained a

claim for attorney’s fees.

The “legal costs” provision of the Private Brand Agreement

The Private Brand Agreement contained the following provision:

In the event of dispute, the Party prevailing in any legal action

arising out of this Agreement shall be entitled to receive its

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legal costs and expenses in bringing any such action and

enforcing any judgment, from the non-prevailing Party.

Shane was involved in negotiating the Private Brand Agreement with Atlas

Copco. He requested the inclusion of the above language in the Private

Brand Agreement to make sure that “we could recover our legal costs and

expenses.” However, Shane relied on Horn’s advice that Air Turbine was

not “exposed at all to legal fees” as a result of the federal court action.

Shane was concerned that exposure to prevailing party attorney’s fees in

the event of a loss would be “far too much” for a small company like Air

Turbine.

Shane expected Atlas Copco would vigorously defend the lawsuit and

knew it was a possibility that Atlas Copco would make a claim for its legal

fees. However, Shane said that Air Turbine would not “have entered into

this litigation if we were exposed to legal fees.” He asked Horn if legal fees

was “an exposure we should worry about” and Horn told him, “No, you’re

not exposed to legal fees.”

The rejected settlement offer

In 2002, Air Turbine rejected a $500,000 settlement offer from Atlas

Copco. Horn advised Shane that the offer was a “very positive indication”

that the offer would increase after discovery. In considering the offer,

Shane heavily relied on Horn’s reassurance that Air Turbine’s exposure to

Atlas Copco’s attorney’s fees “wasn’t a risk.”

The Federal court trial on patent infringement and breach

of confidential relationship

The federal district court granted summary judgment in Atlas Copco’s

favor on a majority of Air Turbine’s claims, leaving only two claims for trial:

(1) patent infringement for acts after suit was filed, and (2) breach of a

confidential relationship. The pretrial stipulation noted Air Turbine’s

belief, consistent with Horn’s advice, that attorney’s fees were “not at

issue” in the case. After a jury returned a verdict in favor of Atlas Copco

on both claims, district court judge Kenneth Marra entered final judgment

for Atlas Copco.

Air Turbine appeals judgment; Atlas Copco moves for

recovery of attorney’s fees

Atlas Copco moved for recovery of $4.7 million in attorney’s fees and

approximately $850,000 in costs on three grounds: (1) paragraph 17 of the

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Private Brand Agreement; (2) Florida’s offer of judgment statute; and (3)

the federal Lanham Act’s prevailing party attorney’s fee provision. Air

Turbine appealed the judgment. The district court stayed Atlas Copco’s

motion for attorney’s fees pending the outcome of the appeal. In 2005, the

judgment was affirmed.

On remand, Atlas Copco renewed its motion for attorney’s fees. Judge

Marra denied Atlas Copco’s request for fees, awarding only legal costs and

expenses. The court held that under Florida law, the phrase “legal costs

and expenses” in the Private Brand Agreement did not include attorney’s

fees. Judge Marra also rejected the fee request based on both the offer of

judgment statute and the Lanham Act.

Atlas Copco appeals denial of attorney’s fees

Atlas Copco appealed the denial of attorney’s fees to the United States

Court of Appeals for the Federal Circuit. In a 2-1 decision, that court

reversed the denial of fees based on paragraph 17 of the Private Brand

Agreement, holding that

[a]lthough the disputed language could be subject to two

interpretations, the most natural reading of paragraph 17 in

light of the evidence of record is one that clearly expresses a

mutual intent to provide for attorney’s fees. The district

court’s implication and [Atlas Copco’s] argument that

attorney’s fees can only be provided in contract by use of the

exact words “attorney’s fees,” is not supported by Florida law.

Air Turbine Tech., Inc. v. Atlas Copco AB, 336 Fed. Appx. 986, 989 (Fed.

Cir. 2009). The majority wrote that “extending ‘legal costs and expenses’

to attorney’s fees is not an unnatural reading of the plain language of the

contract.” Id. The dissent pointed out that the case involved a question

under Florida state law, “how to interpret the Florida cases addressing the

question of what it takes to constitute an enforceable attorney fee

provision.” Id. at 990 (Plager, J., dissenting). The dissent wrote that

[t]he Florida cases, as the majority grudgingly admits, are

strict with regard to what qualifies. . . . The trial court

concluded that the particular language in our case fails to

meet the standard required by the Florida courts. Even if

there were any real question about whether the trial court is

correct—and in my view there is not—I would feel it

appropriate to defer to the district judge’s reasoned

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explanation of what his state’s law requires, and why the facts

in this case do not meet that standard.

Picking at and distinguishing away cases on the basis of

their different facts, without respecting their basic policy

point, is not my view of how this case should have been

decided.

Id.

On remand, Judge Marra entered a partial attorney’s fees and costs

award in the amount of $1,009,185.10 pursuant to the Private Brand

Agreement. Horn did not hire an attorney’s fee expert to oppose the fee

motion. Air Turbine paid the attorney’s fees and costs award.

Legal Malpractice Claim

In 2011, Air Turbine filed suit against Quarles & Brady and Horn for

legal malpractice. Central to the main claims was Horn’s “repeated advice

that Air Turbine was not at risk of exposure to Atlas Copco’s attorney’s

fees.” It was this advice that primarily influenced Air Turbine’s rejection

of the $500,000 settlement offer. Air Turbine also asserted that it was

malpractice to fail to hire an attorney’s fee expert for the fees hearing before

Judge Marra. The trial court granted a partial summary judgment on a

portion of the case based on the statute of limitations1 and another partial

summary judgment based on judgmental immunity that resolved the

remainder of the case. The trial judge, Judge Lucy Brown, commented

that there was no showing that a fee expert would have made any

difference in the outcome of the case.

Horn’s advice that there would be no exposure to attorney’s

fees followed the weight of Florida law

Preliminarily, it appears to us that no malpractice occurred. Under the

great weight of Florida law, a contract that provides for recovery of only

legal “costs” and “expenses” does not allow for recovery of attorney’s fees.

Because Florida is “settled” in the favor of Horn’s advice, his advice was

obviously the result of a proper exercise of skill and professional judgment,

so he cannot have been negligent for providing it.

1Because we hold that there was no malpractice or that judgmental immunity

applies, we do not address the statute of limitations issue.

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Florida disfavors the award of prevailing party attorney’s fees in civil

cases. The state “follows the ‘American Rule’ that attorney’s fees may only

be awarded by a court pursuant to an entitling statute or an agreement of

the parties.” Dade Cnty. v. Peña, 664 So. 2d 959, 960 (Fla. 1995); see also

R.J. Reynolds Tobacco v. Ward, 141 So. 3d 236, 238 n.5 (Fla. 1st DCA

2014) (discussing the “American Rule” in place in Florida). Fee shifting

statutes and contractual provisions are contrary to the “American Rule.”

As a result, statutes awarding attorney’s fees must be strictly construed.

See, e.g., Dade Cnty., 664 So. 2d at 960. Similarly, “‘contractual

provisions concerning attorney’s fees must also be strictly construed.’”

Miller v. Miller, 107 So. 3d 430, 432 (Fla. 4th DCA 2012) (quoting Wendel

v. Wendel, 852 So. 2d 277, 282 (Fla. 2d DCA 2003)); Williams v. Williams,

892 So. 2d 1154, 1155 (Fla. 3d DCA 2005); Venetian Cove Club, Inc. v.

Venetian Bay Developers, Inc., 411 So. 2d 1323, 1324 (Fla. 2d DCA 1982).

Strict construction of the “legal costs and expenses” provision in the

Private Brand Agreement precludes any award of attorney’s fees “because

fees are not even mentioned in the paragraph.” Wendel, 852 So. 2d at 282.

Under Florida law, “[t]he term ‘costs’ is not generally construed to

include attorney’s fees absent an express contractual provision that

defines expenses to include fees.” Commercial Serv. of Perry, Inc. v.

Campbell, 861 So. 2d 1258, 1260 (Fla. 4th DCA 2003) (citing Rose Printing

Co. v. Wilson, 602 So. 2d 600, 603 (Fla. 1st DCA 1992)); Attorney’s Title

Ins. Fund, Inc. v. Landa-Posada, 984 So. 2d 641, 643 (Fla. 3d DCA 2008)

(“Costs recovered by a litigant do not include attorney’s fees.”); Price v.

Tyler, 890 So. 2d 246, 253 (Fla. 2004) (construing the term “costs” in

section 57.041, Florida Statutes (2001), as not including attorney’s fees);

Zosman v. Schiffer/Taxis, Inc., 697 So. 2d 1018, 1019 (Fla. 3d DCA 1997).

Similarly, “expenses” is a vague monetary term similar to “costs”; a policy

of strict construction precludes the term “expenses” from being stretched

to include attorney’s fees. See Wendel, 852 So. 2d at 282 (“[L]ike the term

‘costs,’ the term ‘expenses’ is not generally construed to include attorney’s

fees absent an express contractual provision that defines expenses to

include fees.”).

Based on the above case law, Horn’s advice to Air Turbine was dead-on

under Florida law. The advice therefore breached no standard of care and

cannot amount to malpractice as a matter of law. A well-reasoned lawyer

would not entertain a reasonable doubt that the advice was correct at the

time the advice was given. We agree with Judge Marra’s analysis and that

of the dissent in the Federal Circuit. The majority’s approach in Air

Turbine did not follow Florida law. See Air Turbine Tech., 336 Fed. Appx.

at 988-90. That the unexpected litigation result occurred in the Federal

Circuit is not enough to impose liability as a result of the earlier advice.

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Florida authority supported Horn’s legal advice that Air Turbine did not

face a significant risk of exposure to attorney’s fees.

Judgmental Immunity in Florida

Because the parties have argued this as a case of judgmental immunity,

we address that issue.

It is well-settled in Florida “that an attorney may be held liable for

damages incurred by a client based on the attorney’s failure to act with a

reasonable degree of care, skill, and dispatch.” Crosby v. Jones, 705 So.

2d 1356, 1358 (Fla. 1998) (citations omitted). However, an attorney does

not act “as an insurer of the outcome of a case.” Id. Accordingly, “[g]ood

faith tactical decisions or decisions made on a fairly debatable point of law

are generally not actionable under the rule of judgmental immunity.” Id.

(citation omitted). This rule “is premised on the understanding that an

attorney, who acts in good faith and makes a diligent inquiry into an area

of law, should not be held liable for providing advice or taking action in an

unsettled area of law.” Id.

In order for an attorney to prevail on a claim of judgmental immunity,

“the attorney must show that (1) the legal authority supporting the

asserted cause of action was ‘fairly debatable’ or ‘unsettled,’ and (2) that

she or he acted in good faith and made a diligent inquiry into the unsettled

area of law.” Haisfield v. Fleming, Haile & Shaw, P.A., 819 So. 2d 182, 185

(Fla. 4th DCA 2002) (citing Crosby, 705 So. 2d at 1358). An issue of law

is unsettled if it “is one that has not yet been determined by the state’s

court of last resort and on which reasonable doubt may be entertained by

well-reasoned lawyers.” Id. (citing Hodges v. Carter, 80 S.E.2d 144, 146

(N.C. 1954)). The determination of whether “legal authority is ‘unsettled’

is a question of law, not an issue of fact.” Id. at 185. As Air Turbine

argues, judgmental immunity is a flexible doctrine that protects attorneys

who act in good faith from claims brought solely with the clarity of

hindsight.

If Horn’s advice on fee exposure was fairly debatable, then

judgmental immunity applies

If the absence of a Florida Supreme Court case construing a “legal costs

and expenses” clause identical to the one in this case, or if the Federal

Circuit’s approach to “legal costs and expenses” is enough to render Horn’s

advice on fee exposure “fairly debatable,” then judgmental immunity

applies. A legal malpractice action should not succeed when “the attorney

erred because an issue of law was unsettled or [fairly] debatable. The

perfect vision and wisdom of hindsight is an unreliable test for determining

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the past existence of legal malpractice.” R. Mallen, Recognizing and

Defining Legal Malpractice, 30 S.C.L. Rev. 203, 210 (1979); see also

Hanson v. Fowler, White, Burnett, P.A., 117 So. 3d 1127, 1133 (Fla. 3d DCA

2012) (finding that judgmental immunity did not apply but lawyer was

nonetheless entitled to judgment in his favor where party “lost in federal

court on remand not because of any tactical decisions on his lawyer’s part,

but because the District Court inexplicably refused to rely upon a prior

ruling on an issue that had been raised by the parties, tried by consent at

a bench trial, and left untouched by the appellate court”).

Under the second prong of judgmental immunity, Horn had to establish

he gave advice in good faith and made a diligent inquiry into Air Turbine’s

potential exposure to Atlas Copco’s attorney’s fees. Air Turbine does not

allege that Horn acted in bad faith, but argues Horn did not research or

look into the issue until after litigation had ended.

An attorney need not perform research on every issue during the course

of litigation, but rather can rely on his honest belief and experience.

An attorney who acts in good faith and in honest belief that

his advice and acts are well-founded and in the best interest

of his client is not answerable for a mere error in judgment or

for a mistake in a point of law which has not been settled by

the court of last resort in his state and on which reasonable

doubt may be entertained by well-informed lawyers. . . .

Proto v. Graham, 788 So. 2d 393, 395 (Fla. 5th DCA 2001) (quoting

Kaufman v. Stephen Cahen, P.A., 507 So. 2d 1152, 1153 (Fla. 3d DCA

1987)). As set forth above, in Florida the contractual terms “costs” and

“expenses” do not include attorney’s fees unless the contract specifically

defines them to include attorney’s fees. Any experienced Florida

commercial lawyer worth his salt would know this state of the law without

extensive research or memoranda. Horn was not required to research an

area of law with which he was familiar. In any event, an associate at

Quarles & Brady confirmed Horn’s belief with legal research after litigation

had commenced. The associate concluded that “[a]ttorneys’ fees are not

specifically defined as an item of ‘legal costs and expenses’ under

Paragraph 17 of the Private Brand Agreement. As such, Defendant’s

argument that ‘legal costs and expenses’ includes attorneys’ fees is without

support and will likely be rejected by the Court as [contrary] to Florida

law.” Horn reasonably believed there was no exposure to attorney’s fees

and subsequent research confirmed his belief.

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Judgmental Immunity where Horn did not retain attorney’s fee expert

Air Turbine also asserts the trial court erred in granting Horn

judgmental immunity based on his decision to not hire a fee expert to

oppose Atlas Copco’s motion for attorney’s fees.

“Good faith tactical decisions . . . are generally not actionable under the

rule of judgmental immunity.” Crosby, 705 So. 2d at 1358. “Attorneys

cannot be placed in the position of having to accept direction from clients

on intricate interpretations of the correct or current state of the law.” Id.

at 1359.

In Florida state courts, “‘where a party seeks to have the opposing party

in a lawsuit pay for attorney’s fees incurred . . . independent expert

testimony is required.’” Robin Roshkind, P.A. v. Machiela, 45 So. 3d 480,

481 (Fla. 4th DCA 2010) (quoting Sea World of Fla., Inc. v. Ace Am. Ins.

Cos., Inc., 28 So. 3d 158, 160 (Fla. 5th DCA 2010)). However, in federal

court, the judge can determine the reasonableness of attorney’s fees and

an independent expert is not required. See Centennial Bank v. Falke, No.

5:12-cv-114-RS-EMT, 2013 WL4052452, at * 3 (N.D. Fla. Aug. 12, 2013);

Reis v. Thierry’s Inc., No. 08-20992, 2010 WL 1249076, *1-2 (S.D. Fla. Mar.

25, 2010). This district has questioned the wisdom of the Florida practice

of requiring independent experts instead of adopting the Federal approach:

[W]e note as our profession matures and evolves, as it has over

the past forty years, and continues to do so, our trial judges

have become highly experienced in all aspects of litigation,

often with knowledge equal to, or in some cases far superior

to, that of those attorneys who are called upon to provide

expert testimony as a “fees witness.” . . . At the most basic

level, we fail to see what, if any, “guidance” these “fees experts”

actually provide to the well-versed trial judges of this state,

who ultimately have the responsibility to determine, in their

relatively unfettered discretion, whether the hours sought are

reasonable . . . .

Island Hoppers, Ltd. v. Keith, 820 So. 2d 967, 972 (Fla. 4th DCA 2002),

disapproved of on other grounds by Sarkis v. Allstate Ins. Co., 863 So. 2d

210 (Fla. 2003). We have recognized that an experienced civil judge has

heard enough attorney’s fee “testimony to qualify as an expert on the

reasonable value of legal fees” in his or her community. Id. at 977 (Gross,

J., concurring); see also Robert J. Hauser, et al., Is Expert Testimony Really

Needed in Attorneys’ Fees Litigation?, 77 Fla. B.J. 38 (Jan. 2003).

Horn made the tactical decision not to hire an expert witness on the

issue of reasonableness of attorney’s fees, taking into consideration that

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(1) federal law did not require an independent expert; (2) federal judges

have considerable discretion in making a fee award; (3) Judge Marra had

served for years as a judge in Florida and “would be familiar with local

rates and practices”; (4) Judge Marra was familiar with the underlying

litigation, having presided over it through trial; and (5) hiring a fee expert

would have been expensive for Air Turbine. The wisdom of Horn’s decision

was borne out by the ultimate fee award, which was just 21 percent of

what Atlas Copco sought in fees.

The decision not to call a fee expert in federal court was the essence of

a good faith tactical decision that is protected by judgmental immunity.

We therefore affirm the summary final judgment.

WARNER and CONNER, JJ., concur.

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Not final until disposition of timely filed motion for rehearing.

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