Wednesday, September 06, 2006

First Circuit Holds Single Defendant Liable for All Fees and Costs After Other Fifteen Defendants Settle

Per EnergyNorth Natural Gas, Inc. v. Century Indem. Co., 452 F.3d 44 (1st Cir. Jun. 28, 2006):

Century's argument begins with a valid point about the duty to "segregate" costs and fees. . . .

But Century ignores the exception to this rule: the duty to segregate fees does not apply to costs and fees spent in connection with efforts so interrelated to all of the settling and non-settling parties that segregation would be impossible. . . .

In other words, under this exception, if the outcome of a sixteen-defendant case depends on the resolution of certain common issues, and those common issues require certain common costs (which will have to be incurred whether there is one defendant or sixteen), the successful plaintiff may, if the district court deems it reasonable, recover all of those common costs, even if fifteen of the sixteen defendants settle before trial. See Diamond v. John Martin Co., 753 F.2d 1465, 1467 (9th Cir.1985) (applying California law) ("[J]oinder should not dilute the right to attorneys' fees.").

Century urges that it is "grossly unfair" for it to bear the entire cost of EnergyNorth's efforts. We disagree. Century does not suggest that EnergyNorth's claims against Century could have been litigated for a penny less than the district court's award, even if Century had been the only defendant in the case all along. Indeed, Century stipulated that the submitted fees represented a reasonable expenditure for the litigated issues, an admission both that the costs and fees for which EnergyNorth sought reimbursement fell into the exception to the duty to segregate described in Stewart and Reynolds Metals, and that the costs were far from "grossly unfair." Century's fairness argument is further undermined by the district court's clear warning that Century risked a high liability in fees and costs if it chose to go to trial despite the agreement by the other defendants to settle. Indeed, the court warned that such liability might far exceed the amount EnergyNorth had demanded to settle the case. Of course, Century was entitled to demand a trial; but it had to accept the consequences of its choice.


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