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Beckwith Machinery Co. v. Travelers Indemnity Co.

argued: March 3, 1987.

BECKWITH MACHINERY COMPANY, APPELLEE
v.
TRAVELERS INDEMNITY COMPANY, APPELLANT



On Appeal from the United States District Court for the Western District of Pennsylvania.

Author: Garth

BEFORE: GIBBONS, Chief Judge and SEITZ and GARTH, Circuit Judges.

GARTH , Circuit Judge:

The procedural posture in which this case arises forces us to confront a heretofore undecided question of appellate jurisdiction for this circuit, namely, whether a district court's order awarding, but not yet quantifying, attorney's fees is a final order*fn1 from which an appeal may be taken when the fee award arises not as a collateral matter under a separate statutory provision, but instead results from the underlying cause of action (here a contract) which forms the basis of the dispute between the parties. Because we conclude that the attorney's fees in this case are an integral part of the contractual relief sought by Beckwith and such fees have yet to be determined, there is no final order. Thus, we will dismiss the appeal without reaching the merits of the dispute.*fn2

I.

The plaintiff-appellee, Beckwith Machinery Company (Beckwith) filed this diversity action against defendant-appellant Travelers Indemnity Company (Travelers) alleging a breach of an insurance contract when Travelers, the insurer, withdrew its defense of Beckwith in an underlying action.*fn3 The district court entered an order on July 11, 1986 granting Beckwith's motion for summary judgment and denying Travelers' motion for summary judgment. The district court entered a judgment on behalf of Beckwith in the amount of $100,000 plus interest from November 12, 1982 in order to reimburse Beckwith for its settlement payment made to Trumball Corporation in the underlying action. Additionally, the district court awarded Beckwith the attorney's fees and costs incurred in its defense of the underlying action. Finally, the district court ordered that Beckwith was entitled to attorney's fees and costs for the trial of the instant breach of contract action. The district court has not yet quantified either of these attorney's fee awards.

II.

The question of the finality of a district court's order disposing of the merits and ordering, but not quantifying, attorney's fees is one with which this court has wrestled for some time.*fn4 The question has been definitively settled with regard to cases involving unquantified attorney's fees when the award of fees is authorized by a separate statute as a collateral matter. For such cases, this court, resting on White v. New Hampshire Department of Employment Security, 455 U.S. 445, 71 L. Ed. 2d 325, 102 S. Ct. 1162 (1982), has adopted the rule that an order deciding the merits of a case is final and therefore appealable separate and apart from, as well as prior to, an order quantifying the attorney's fees awarded under the authority of a separate statute. Halderman v. Pennhurst State School & Hospital, 673 F.2d 628, 643-44 (3d Cir. 1982) (in banc) (sur petition for rehearing).

In White v. New Hampshire, the Supreme Court determined that a claim for attorney's fees under 42 U.S.C. § 1988 "raised legal issues collateral to the main cause of action," White, 445 U.S. at 451, and such a request was not a motion to alter or amend the judgment under Rule 59(e) of the Federal Rules of Civil Procedure. The Court maintained that "unlike other judicial relief, the attorney's fees allowed under § 1988 "is uniquely separable from the cause of action to be proved at trial." Id.

This court has never addressed the question of whether the White holding was intended to apply not only to cases in which the attorney's fee question arises as a collateral matter under a separate statutory provision, but also to cases in which the fee award arises as an integral part of the merits of the dispute. We note at the outset that there is a split among the circuits on this question.

III.

The Second Circuit has recognized the collateral/integral distinction and held that "where attorney's fees are a contractually stipulated element of damages, a judgment is not final until the fees have been determined." F.H. Krear & Co. v. Nineteen Named Trustees, 776 F.2d 1563, 1564 (2d Cir. 1985). White v. New Hampshire, supra, was considered "inapposite" because it concerned awards of attorney's fees pursuant to a separate statute rather than a contract. Id. (" White . . . does not lead us to abandon our clear rule that contractually stipulated awards must be determined before a judgment is final."); see also Lewis v. S.L. & E., Inc., 746 F.2d 141, 143 (2d Cir. 1984) (White distinguished; attorney's fees in shareholder derivative suit were "integral to a final judgment, not merely collateral to it); Johnson v. University of Bridgeport, 629 F.2d 828 (2d Cir. 1980); Union Tank Car Co. v. Isbrandtsen, 416 F.2d 96 (2d Cir. 1969); Aetna Casualty & Surety Co. v. Giesow, 412 F.2d 468 (2d Cir. 1969).

The Fifth Circuit has likewise recognized a distinction, and it has fashioned an approach that turns upon "the nature of the plaintiff's cause of action and the source of his entitlement to attorney's fees." Rodriguez v. Handy, 802 F.2d 817, 819 (5th Cir. 1986). A fuller articulation of the Fifth Circuit test for finality appears in Holmes v. J. Ray McDermott & Co., 682 F.2d 1143 (5th Cir. 1982), cert. denied, 459 U.S. 1107, 74 L. Ed. 2d 956, 103 S. Ct. 732 (1983):

When attorney's fees are similar to costs . . . or collateral to an action . . . a lack of determination as to the amount does not preclude the issuance of a final, appealable judgment on the merits. When, however, the attorney's fees are an integral part of the merits of the case and the scope of relief, they cannot be characterized as costs or as collateral and their determination is a part of any final, appealable judgment.

Holmes, 682 F.2d at 1146.

The Fifth Circuit has applied the Holmes test in later cases declaring that an appellate court does not have jurisdiction before attorney's fees have been quantified. Oxford Production Credit Ass'n v. Duckworth, 689 F.2d 587 (5th Cir. 1982) (under Mississippi law, attorney's fees provided for by the contract are integral to the merits and not collateral); Alcorn County v. V.F. Interstate Supplies, Inc., 731 F.2d 1160, 1165 (5th Cir. 1984) (attorney's fees in a RICO action are integral to the merits because the RICO statute "both creates the plaintiff's cause of action and provides for an award of damages"); Todd Shipyards Corp. v. Auto Transportation, S.A., 763 F.2d 745, 751 (5th Cir. 1985) (in an action for breach of implied warranties of workmanlike performance, "an award of attorney's fees cannot be regarded as collateral to the action but forms and integral part of the scope of relief"); Hooper v. FDIC, 785 F.2d 1228, 1232 (5th Cir. 1986) (under Texas law, motions for attorney's fees sought under a note or contract are an integral part of the merits; appeal dismissed for want of appellate jurisdiction); Bilmar Drilling, Inc. v. IFG Leasing Co., 795 F.2d 1194 (5th Cir. 1986), (under contract theory, attorney's fees and expenses are "not merely collateral to the merits," whereas motion under 28 U.S.C. § 2202 for attorney's fees and expenses is collateral).

The Eleventh Circuit has also adopted the Fifth Circuit approach. McQurter v. City of Atlanta, 724 F.2d 881, 882 (11th Cir. 1984); Certain British Underwriters at Lloyds of London, England v. Jet Charter Service, Inc., 739 F.2d 534, 535 (11th Cir. 1984); C.I.T. Corporation v. Nelson, 743 F.2d 774, 775 (11th Cir. 1984).*fn5

Similarly, the District of Columbia Circuit, in Shultz v. Crowley, 255 U.S. App. D.C. 422, 802 F.2d 498, 501-02 n.1 (D.C. Cir. 1984), recognized that some courts have drawn distinction between attorney's fees based on statutory and nonstatutory sources of authority. The court, however, declined to decide the issue and limited its ...


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