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Windel v. Carnahan

Supreme Court of Alaska

September 23, 2016

KEVEN WINDEL and MARLENE WINDEL, Appellants,
v.
THOMAS CARNAHAN, Appellee.

         Appeal from the Superior Court No. 3PA-05-01317 CI of the State of Alaska, Third Judicial District, Palmer, Vanessa White, Judge.

          Kenneth P. Jacobus, P.C., Anchorage, for Appellants.

          Chris D. Gronning, Bankston Gronning O'Hara, P.C., Anchorage, for Appellee.

          Before: Stowers, Chief Justice, Winfree, Maassen, and Bolger, Justices. [Fabe, Justice, not participating.]

          OPINION

          MAASSEN, Justice.

         I. INTRODUCTION

         This case has returned to us for review of the superior court's decision of attorney's fees issues following our remand in Windel v. Mat-Su Title Insurance Agency, Inc. (Windel I).[1] The underlying lawsuit involved the validity of an easement that Thomas Carnahan claimed extended over property belonging to Keven and Marlene Windel, as well as Carnahan's responsibility for damage allegedly caused by improvements within that easement. The substantive issues were resolved in Carnahan's favor in Windel I, but we remanded the case to the superior court for its reconsideration of attorney's fees issues. On remand, the superior court awarded attorney's fees to Carnahan under Alaska Civil Rule 68, finding that, when the case was viewed in its entirety, he had prevailed and had done better than his offer of judgment.

         The Windels again appeal. They argue that the superior court erred in its analysis of Rule 68, failed to decide whether Carnahan's offer of judgment was valid, and erred in disregarding objections to specific billing entries in Carnahan's claim for fees. We conclude that the superior court did not err in its Rule 68 analysis or in its attorney's fees award, and we therefore affirm the judgment of the superior court.

         II. FACTS AND PROCEEDINGS

         A. First Appeal And Our Decision In Windel I

         On their first appeal in 2011, the Windels challenged the superior court's rulings that Carnahan's claimed easement across their property was valid, that Carnahan was not responsible for the easement's continued maintenance, and that Carnahan was entitled to an award of attorney's fees under Rule 68.[2] In Windel I we affirmed the superior court's ruling that the easement was valid[3] and held that the superior court did not err in declining to hold Carnahan responsible for the easement's future maintenance and improvements.[4] But we remanded the case to the superior court for reconsideration of attorney's fees.[5]

         On appeal the Windels had made alternative arguments about attorney's fees, involving both Rule 68 and Rule 82. The Rule 68 arguments stemmed from an offer of judgment Carnahan made in 2006, a year after the Windels filed suit. The offer of judgment had four essential terms: (1) a declaratory judgment that Carnahan's claimed easement was valid; (2) payment to the Windels of $ 10, 000 in trespass damages; (3) an award of attorney's fees and costs to the Windels; and (4) dismissal of Carnahan's counterclaims.[6] The Windels did not accept the offer.[7]

         The Windels' first Rule 68 argument on appeal was based on a partial settlement agreement reached in early 2009, after the superior court had ruled on summary judgment that Carnahan's claimed easement was valid. Under the settlement agreement the parties dismissed their remaining damages claims against each other except with regard to the Windels' recently raised nuisance abatement claim, which alleged they were damaged when work within the easement exacerbated ponding on their property.[8] For the nuisance abatement claim, the parties agreed to hire an independent engineer to evaluate its basis and recommend a resolution; if either party declined to accept the engineer's recommendation they would submit the claim to the judge for decision.[9] The Windels argued in the first appeal that this partial settlement agreement resolved all claims for attorney's fees incurred up to early 2009, when they asserted their nuisance abatement claim.

         The Windels' second Rule 68 argument was that if the partial settlement agreement did not resolve the attorney's fees issues, it was error for the superior court to decide that Carnahan beat his offer of judgment.[10]

         The Windels' Rule 82 arguments addressed the superior court's decision that the case could be divided into two segments for purposes of attorney's fees: the first "concerning the validity of the easements and associated damages issues, and the second solely regarding the nuisance claim."[11] The superior court decided that Carnahan was the prevailing party in the first segment because he beat his offer of judgment but that neither party prevailed in the second segment.[12] The Windels argued that for Rule 82 purposes the case should be considered not as separate segments but as a whole, and that under such an analysis neither party prevailed because one main issue, the validity of the easement, was resolved in Carnahan's favor and the other main issue, nuisance, was resolved in the Windels' favor.[13] Alternatively, the Windels maintained that under a bifurcated analysis they should have been considered the prevailing parties because the case's first segment settled (and Carnahan was therefore entitled to no fees for it) and they prevailed in the second part, which involved only their nuisance claim.[14]

         In Windel I "we first reject[ed] the Windels' argument that the 2009 settlement agreement resolved attorney's fees for the litigation up to the point of the settlement."[15] Noting that an amendment to the settlement agreement stated that "[t]he final judgment will be subject to motions for costs and attorney 'sfees, and to appeal"[16]we determined that the agreement "clearly reflect[ed] that the parties expected and left open questions of which party would be entitled to recover costs and attorney's fees for both the litigation up to the settlement agreement and the anticipated future litigation over the equitable nuisance abatement claim."[17] We therefore concluded that the settlement agreement did not preclude Carnahan from recovering attorney's fees for the entire litigation.[18]

         We then considered whether the superior court had correctly determined that Carnahan beat his offer of judgment as to the first part of the litigation. We remanded the Rule 68 issue to the superior court, concluding that "on the record before us it [was] impossible to determine whether (1) it was permissible to limit the application of Rule 68 to a bifurcated portion of the superior court proceedings, and (2) Carnahan 'beat' his offer of judgment."[19] Noting that the purpose of Rule 68 is "to encourage settlements and avoid prolonged litigation, "[20] we held that "an offer of judgment must encompass every claim in the litigation."[21] We observed that Carnahan had "attempted to comply" with the requirement that "an offer of judgment [must] include all claims between the parties and be capable of completely resolving the case by way of a final judgment if accepted"[22] by including language in his offer that "seem[ed] broad enough to include not only Carnahan's post-offer assertion of a counterclaim for easement-interference damages, but also the Windels' post-offer assertion of nuisance damages and equitable abatement relief."[23] We concluded that the superior court's decision to bifurcate the litigation for attorney's fees purposes was "unexplained and appear[ed] contrary to our stated interpretation of Rule 68."[24]

         We observed that because of the "open bifurcation question, " we were unable to determine whether Carnahan had beat his offer of judgment.[25] If the offer of judgment properly applied to the entire litigation, then the superior court's comparison of the offer to the litigation only up to the time of the partial settlement would have been error.[26] We also noted that if on remand the superior court considered the entire litigation for purposes of the comparison, it should consider efforts Carnahan made voluntarily in 2007 to abate potential damage to the Windels' property as well as "the additional court-ordered nuisance remediation" that resulted from the superior court's later decision of the Windels' nuisance abatement claim.[27]

         Finally, we addressed the issue of Rule 82 fees in case the superior court found on remand that Carnahan was not entitled to fees under Rule 68.[28] We noted that there was "considerable tension" in the superior court's treatment of the attorney's fees issues when it first considered the litigation as a whole - determining that Carnahan prevailed on the "main issue" of the validity of the easement-but then decided that the case could be bifurcated and treated as two segments.[29] We pointed out that the bifurcation "suggests the [superior] court then considered the litigation to include two main issues": the validity of the easement and the Windels' nuisance abatement claim.[30]We also observed that "[t]here should be little dispute" that Carnahan prevailed on the issue of the easement's validity; we suggested, however, that "if, as it seems, the superior court considered the equitable nuisance abatement claim as another main issue, ... it may be difficult to sustain a determination that neither party prevailed on this issue" in light of Carnahan's 2007 voluntary remediation work and the additional remediation ordered by the court, both of which would seem to work in the Windels' favor.[31]

         We concluded that "the complex competing concerns and interests in determining the prevailing party or parties" warranted remand to the superior court. We asked the superior court to "render sufficient findings of fact and conclusions of law [on remand] in the event further appellate review prove[d] necessary."[32]

         B. Superior Court Proceedings After Remand

         On remand, in a lengthy written order issued in August 2014, the superior court interpreted our decision in Windel 1"to hold that it had erred in considering the case as two segments subject to separate analyses. The superior court instead considered the litigation as a whole and ruled in favor of Carnahan, concluding that under Rule 68 Carnahan "fared better at the end of [the] litigation than in his January 2006 Offer of Judgment."

         As we had directed, the superior court took into account the voluntary and court-ordered remediation costs in determining how well Carnahan fared. But the superior court disagreed with our description of one of the relevant facts. In Windel I we stated that Carnahan had voluntarily constructed the 2007 culvert.[33] But on remand the superior court found that "[u]pon careful review of the record, it appears that [Carnahan] did not build the 2007 culvert." Because "the building of the 2007 culvert was not a voluntary remediation effort attributable to [Carnahan], " the superior court determined that Carnahan only had to spend $4, 000 - the amount of the additional court-ordered remediation.

         The superior court then conducted a point-by-point comparison of the offer of judgment and the entire litigation. The court ruled that Carnahan prevailed on the first term of his 2006 offer of judgment, which would have declared that the easement was valid, because the court granted him summary judgment on that issue. The court next determined that Carnahan prevailed on the third term of his offer, which would have provided for judgment in the Windels' favor for attorney's fees and costs, on grounds that the Windels "were not prevailing parties as to any important aspect of the case and were not entitled to seek attorney's fees or costs." With respect to the fourth term of Carnahan's offer, the court found that Carnahan "agreed to withdraw his counterclaims as part of the [partial settlement agreement], just as he had offered in his 2006 offer of judgment, " presumably meaning that the court found this point to be a wash: Carnahan did no better or worse than his offer. And finally, with respect to the nuisance claim that the settlement agreement had reserved for further negotiation or decision, the superior court found that Carnahan prevailed because the $4, 000 he had to spend in additional remediation was sufficiently less than the $10, 000 he offered to pay the Windels in his offer of judgment.

         Finding that Carnahan beat his offer of judgment when considering the litigation in its entirety, the superior court concluded that he was eligible for Rule 68 fees and directed him to recalculate his fee request. Carnahan immediately complied. The Windels eventually filed an untimely "Opposition to Carnahan's Claimed Attorney's Fees, " arguing (1) that he was not entitled to attorney's fees under Rule 68; (2) that Rule 82 applied instead and resulted in a lower award; (3) that certain billing entries should be disallowed as unrelated to the litigation; and (4) that Carnahan's claimed costs should also be reduced.

         In November 2014 the superior court awarded fees pursuant to Rule 68 in the amount of $119, 989.50, at the same time granting the Windels' two outstanding motions for extensions of time to oppose the award. The court did not address the issues raised in the Windels' opposition except to note that their "objections to other minor fees were expressly waived on appeal and by plaintiffs' failure timely to object prior to the court awarding fees to Carnahan in 2010."

         C. Issues Presented In This Appeal

         The Windels raise these issues on appeal: (1) When the litigation is properly analyzed, did Carnahan do better than his offer of judgment so as to be entitled to an award of attorney's fees under Rule 68? (2) Did the superior court err by failing to decide questions we noted but did not decide in Windel I: (a) whether Carnahan's offer of judgment was void to begin with because it was made to the Windels jointly and unapportioned, and (b) whether an offeror may tender an offer of judgment and then later assert additional claims that change the litigation such that it may be unfair to base an attorney's fees award on the original offer? Finally, (3) did the superior court err when it declined to exclude certain specific billing entries from its attorney's fees calculation?

         III. STANDARDS OF REVIEW

         "We exercise our independent judgment in reviewing the superior court's interpretation of Rule 68, as well as in calculating a judgment's value to determine whether it exceeded an offer of judgment."[34] A court's factual findings, including whether waiver occurred, are reviewed for clear error.[35]

         IV. DISCUSSION

         A. The Superior Court Did Not Err In Its Award Of Attorney's Fees To Carnahan Under Civil Rule 68.

         The Windels contend that the superior court erred in its August 2014 award of Rule 68 attorney's fees by failing to properly follow our decision in Windel I.[36] Specifically, they argue that the superior court, in comparing the 2006 offer of judgment with the results of the litigation, erred by: (1) failing to consider the cost of the 2007 culvert as a monetary payment by Carnahan to the Windels, to be set off against the $10, 000 he offered to pay in the offer of judgment; (2) holding that the cost of the additional court-ordered remediation was only $4, 000; and (3) failing to put a monetary value on the interference-with-access claim that Carnahan gave up in the partial settlement. We conclude, however, that the superior court did not err in its Rule 68 analysis.

         1. The superior court properly considered the 2007 culvert.

         We assumed in Windel I that Carnahan had constructed the 2007 culvert.[37]Based on that assumption, we noted that in the past we have "rejected the argument that voluntary payments and partial settlements must be ignored when comparing a final judgment to a previous offer of judgment"; we therefore held that the cost of constructing the 2007 culvert should factor into the superior court's analysis on remand as an offset to Carnahan's offer of judgment.[38] The Windels argue that the superior court on remand failed to take the 2007 remediation into account, but the record shows otherwise. The court found as a factual matter that Carnahan did not build the 2007 culvert and therefore the construction "was not a voluntary remediation effort ...


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