Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—2nd Cir.: Acceptance of settlement offer did not extinguish CUTPA claim for attorney fees, (Mar 8, 2016)

By Michael Menzhuber, J.D., LL.M.

The denial of attorney fees under the Connecticut Unfair Trade Practices Act (CUTPA) to a patent holder who accepted a manufacturer’s/distributor’s Rule 68 offer to settle claims arising from the parties’ agreement, was vacated by the U.S. Court of Appeals in New York City. However, the district court’s decision to award costs was affirmed (Steiner v. Lewmar, Inc., March 7, 2016, Chin, D.).

Donald J. Steiner and Dax Labs, LLC (collectively, “Steiner”) entered into an agreement that gave Lewmar Inc. and Lewmar Ltd. the exclusive right to manufacture and sell Steiner’s patented sailboat winch handle. A provision of the agreement was that, in the event of a dispute, the prevailing party would be able to recover its reasonable expenses, costs, and attorneys’ fees.

After a dispute arose concerning Lewmar’s performance of the agreement, Steiner filed suit, alleging a breach of contract and a CUTPA violation. Steiner later filed a motion for a prejudgment remedy that claimed actual damages between $478,318 and $634,678 and projected attorneys’ fees of $350,000. Lewmar made an offer of judgment, pursuant to Federal Rule of Civil Procedure 68, of $175,000 to dismiss all claims made under the agreement, which Steiner accepted. The offer did not mention attorney fees or costs.

After the district court entered a final judgment in Steiner’s favor, Steiner filed a motion for attorney fees and costs, as well as interest, under the prevailing party clause of the agreement and pursuant to § 42-110g(d) of CUTPA. The district court denied attorney fees but awarded costs. Both parties appealed.

Attorney fees under the agreement. The court agreed with the district court that Steiner’s acceptance of the offer fully resolved the claim for attorney fees under the agreement because the offer provided for dismissal of all claims that could have been made under the agreement. In addition, because Steiner had made its claim for attorney fees at the time of Lewmar’s offer, it was unlikely that the parties intended to resolve the case for $175,000 while leaving open the significant possibility of litigation over a much larger award for attorney fees.

Attorney fees under CUTPA. Steiner’s claim for attorney fees under CUTA arguably did not fall within the language of Lewmar’s offer, the court found. It noted that: (1) other courts have held that statutory attorney fees claims are not unambiguously encompassed in a Rule 68 offer when the offer refers to substantive claims but does not explicitly refer to attorneys’ fees; and (2) all ambiguities in a Rule 68 offer are resolved against the offeror, as Rule 68 offerees are at risk for costs if the offer is refused and the ultimate award is less favorable than the offer.

The court held that Lewmar’s offer did not unambiguously encompass claims for attorney fees under CUTPA. Therefore, it determined that Steiner was not precluded from seeking attorney fees under CUTPA. However, the determination of whether attorney fees are appropriate under CUTPA lies within the discretion of the trial court, absent the ruling having been made on untenable grounds.

Based on the language of the district court, the court was unsure whether attorney fees had been denied under CUTPA because judgment had been entered pursuant to Rule 68 or whether the district court concluded that an award of attorney fees was not warranted. Consequently, the court remanded the case to the district court to clarify whether it considered the claim for attorney fees under CUTPA on the merits.

The case is No. 14-4002-cv.

Attorneys: Scott R. Lucas (Lucas Bagnell Varga LLC) for Donald J. Steiner and Dax Labs, LLC. Gene S. Winter (St. Onge Steward Johnston & Reens LLC) for Lewmar, Inc. and Lewmar, Ltd.

Companies: Dax Labs, LLC; Lewmar, Inc.; Lewmar, Ltd.

Cases: StateUnfairTradePractices ConnecticutNews NewYorkNews VermontNews