Ensource Investments LLC v. Willis

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 ENSOURCE INVESTMENTS, LLC, a Case No.: 3:17-cv-00079-H-LL Delaware limited liability company, 12 ORDER DENYING DEFENDANT Plaintiff, 13 WILLIS GROUP, LLC’S MOTION v. FOR ATTORNEY’S FEES 14 MARK A. WILLIS, et al., 15 [Doc. No. 168.] Defendants. 16 17 18 On January 2, 2020, Defendant Willis Group, LLC (“Defendant”) filed a motion for 19 attorney’s fees. (Doc. No. 168.) On January 17, 2020, Plaintiff Ensource Investments, 20 LLC (“Plaintiff”) filed a response in opposition to Defendant’s motion (Doc. No. 174), and 21 Defendant filed a reply on January 27, 2020. (Doc. No. 183.) For the reasons below, the 22 Court denies Defendant’s motion for attorney’s fees. 23 Background 24 This case arises out of Plaintiff EnSource Investment, LLC’s purchase of securities 25 in a start-up company, the Hopewell – Pilot Project, LLC (“Hopewell”). On March 28, 26 2016, Hopewell was formed to use title searching technology to identify unleased lands in 27 Texas containing oil and gas interests, purchase those leases, and use or flip those leases 28 1 for a profit. (Doc. Nos. 136-2, Willis Decl. ¶¶ 2, 4; 136-5, Ex. T.) As part of its business 2 activities, Hopewell contracted with several other entities to carry out its goals, including 3 the Willis Group, LLC (“Willis Group”), a company that provided staffing services. (Doc. 4 No. 136-2, Willis Decl. ¶ 3.) 5 On January 13, 2017, Plaintiff filed a complaint in this Court alleging that 6 Defendants involved in Hopewell, including the Willis Group, defrauded Plaintiff. (Doc. 7 No. 1.) On December 27, 2018, Plaintiff filed an amended complaint, claiming that 8 Defendants defrauded Plaintiff in violation of the Securities Exchange Act, 15 U.S.C. 9 § 78j, and California’s unfair competition law, California Business & Professions Code 10 § 17200. (Doc. No. 93.) Plaintiff also alleged that Defendants committed common law 11 conversion and intentional misrepresentation. (Id.) 12 On December 6, 2019, the Court issued an order granting summary judgment in 13 favor of Defendants Beyond Review, LLC, Image Engine, LLC, and Willis Group, LLC 14 on all of Plaintiff’s claims. (Doc. No. 159 at 25–26.) 15 Defendant Willis Group now seeks an award of attorney’s fees under the terms of 16 the company agreement that Defendant signed with Plaintiff. (Doc. No. 168.) When 17 Plaintiff agreed to invest in Hopewell, Plaintiff and Defendant both signed a company 18 agreement, which contains the following indemnification provision: 19 Section 13.10 Indemnification. To the fullest extent permitted by law, each Member shall indemnify the Company, and each other Member and hold them 20 harmless from and against all losses, costs, liabilities, damages, and expenses 21 (including, without limitation, costs of suit and attorney’s fees) they may incur on account of any breach by that Member of this Agreement or on account of 22 any business activities conducted by that Member or its affiliates prior to the 23 Effective Date of this Agreement.

24 (Doc. No. 168-3, Ex. A at 28.) Defendant argues that this provision requires Plaintiff to 25 indemnify Defendant for the costs of attorney’s fees. (Doc. No. 168-1 at 5–7.) 26 / / / 27 / / / 28 1 Discussion 2 Under the “American Rule,” “‘[e]ach litigant pays his own attorney’s fees, win or 3 lose, unless a statute or contract provides otherwise.’” Baker Botts L.L.P. v. ASARCO 4 LLC, 135 S. Ct. 2158, 2164 (2015); see Hensley v. Eckerhart, 461 U.S. 424, 429 (1983); 5 see also Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247 (1975) 6 (“In the United States, the prevailing litigant is ordinarily not entitled to collect a reasonable 7 attorneys’ fee from the loser.”). Here, Defendant argues that the indemnification provision 8 in the Hopewell company agreement requires Plaintiff to indemnify Defendant for the costs 9 of attorney’s fees for this litigation. (Doc. No. 168-1 at 5–7.) Defendant is incorrect. The 10 indemnity provision does not apply in this case because Texas law generally prevents 11 indemnity agreements from applying to claims between the parties to the indemnity 12 agreement. 13 In Texas,1 the “general rule [is] that indemnity agreements do not generally apply to 14 claims between the parties to the agreement.” Claybar v. Samson Expl., LLC, No. 09-16- 15 00435-CV, 2018 WL 651258, at *3 (Tex. App. Feb. 1, 2018), review denied (Mar. 1, 2019); 16 Nat’l City Mortg. Co. v. Adams, 310 S.W.3d 139, 144 (Tex. App. 2010); Wallerstein v. 17 Spirt, 8 S.W.3d 774, 780 (Tex. App. 1999).2 For example, in National City Mortgage 18 Company v. Adams, the Texas Court of Appeals stated, “because both NCM and Carolyn 19 are parties to the indemnity agreement, the agreement, as a matter of law, does not obligate 20 Carolyn to pay NCM its attorneys’ fees incurred in defending itself against Carolyn’s 21 claims and in prosecuting its counterclaim against Carolyn.” 310 S.W.3d at 144. 22 23 24 1 The agreement contains a choice of law provision specifying that the agreement shall be read under Texas law (Doc. No. 168-1, Ex. A at 25), and this Court has already determined that Texas law governs 25 the state-law claims at issue in this case. (Doc. Nos. 15 at 8–10; 159 at 26 n.8.)

26 2 A federal court applying Texas law “look[s] first to the decisions of the Texas Supreme Court.” Ironshore Europe DAC v. Schiff Hardin, L.L.P., 912 F.3d 759, 764 (5th Cir. 2019) (internal citations 27 omitted). Where “the Texas Supreme Court has not ruled on an issue,” a federal court should “treat state 28 intermediate courts’ decisions as the strongest indicator of what a state supreme court would do, absent a 1 The parties to an indemnity agreement can overcome the general rule barring the 2 indemnification of claims between the parties to the agreement, but they can do so only by 3 including “specific language” to that effect. Claybar, 2018 WL 651258, at *3 (citing 4 Ganske v. Spence, 129 S.W.3d 701, 708 (Tex. App. 2004)). In Claybar v. Samson 5 Exploration, LLC, Claybar entered into a construction agreement with Samson, which 6 included the following indemnity provision: 7 [Samson] shall indemnify [Claybar] against any claims, damages, demands, liabilities, and costs (including reasonable attorneys’ fees) to the extent arising 8 from or related to the negligence or misconduct of [Samson] or its employees, 9 agents, contractors, or invitees in the course of their exercise of rights granted by this instrument, but not to the extent caused by [Claybar], or its employees, 10 agents, contractors, or invitees. 11 2018 WL 651258, at *3. Claybar subsequently sued Samson for damage to Claybar’s 12 property, and Claybar argued that the indemnity provision required Samson to indemnify 13 Claybar for the costs of Claybar’s suit against Samson. Id. at *2. Though the indemnity 14 provision broadly covered “any claims . . . and costs . . . arising from or related to the 15 negligence or misconduct of [Samson],” and Claybar sued Samson due to Samson’s alleged 16 misconduct, the Texas Court of Appeals held that the provision’s language was not 17 sufficiently specific to “show that the parties intended for Samson to indemnify Claybar 18 for attorney’s fees and costs in pursuing claims against Samson . . . .” Id. at *3. In other 19 words, “[i]f Samson and Claybar had intended to include claims between them, they would 20 have had to specifically add such language to the Agreement.” Id. Thus, even where an 21 indemnity provision offers language broad enough to sweep in the suit at issue, such 22 language is insufficient to indemnify costs of litigation for a suit brought by one party to 23 the agreement against another. To indemnify the costs of claims between the parties to the 24 agreement, the indemnity provision must state that it specifically covers those types of 25 claims. Id.; see also Nat’l City Mortg. Co., 310 S.W.3d at 144 (indemnity provision where 26 plaintiff agreed to indemnify defendant “from any and all actions, claims, demands, 27 damages, costs, expenses, and other liabilities, including without limitation attorney’s fees” 28 1 || did not apply to costs of lawsuit brought by plaintiff against defendant, since both were 2 || “parties to the indemnity agreement’’). 3 The indemnity provision at issue here does not contain specific language stating that 4 || the parties would indemnify each other from claims brought by one party to the agreement 5 ||against another. The Hopewell company agreement states that each Member’ who signed 6 ||the agreement shall indemnify each other Member “from and against all losses .. . 7 || G@ncluding, without limitation, costs of suit and attorney’s fees) they may incur on account 8 ||of any breach by that Member of this Agreement or on account of any business activities 9 || conducted by that Member or its affiliates prior to the Effective Date of this Agreement.” 10 ||(Doc. No. 170-1 at 36.) This language is similar to that of the indemnity provision in 11 ||Claybar, indemnifying parties for a broad range of claims arising out of “any business 12 || activities,” but it fails to specify that the provision indemnifies each Member for the costs 13 |/of suits brought by one Member to the Agreement against another. Thus, like Claybar, the 14 ||indemnity provision here does not provide sufficiently specific language to cover the costs 15 legal claims brought by Plaintiff against Defendant. Consequently, the indemnity 16 || provision does not provide grounds to award Defendant attorney’s fees. 17 Conclusion 18 For the reasons above, the Court denies Defendant’s motion for attorney’s fees. 19 IT IS SO ORDERED. 20 || DATED: February 19, 2020 | | | ul | | | 1 MARILYN L. HUFF, Distri ge 22 UNITED STATES DISTRICT COURT 23 74 3 The Hopewell company agreement defines “Member” as any person or entity executing the company agreement. (Doc. No. 168-1, Ex. A at 3.) 4 If anything, the fact that Members of the Hopewell company agreement are mutually indemnifying 26 || each other suggests that the indemnity provision was not meant to apply to claims between the Members 77 of the agreement. If it did, the provision would produce the odd outcome where both parties would have to indemnify each other in the event that one sues another, canceling out the effect of the indemnity 28 provision.