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KEMPNER MOBILE ELECTRONICS v. SOUTHWESTERN BELL MOBILE SYS.

November 15, 2004.

KEMPNER MOBILE ELECTRONICS, INC., Plaintiff,
v.
SOUTHWESTERN BELL MOBILE SYS., LLC, d/b/a CINGULAR WIRELESS, Defendant.



The opinion of the court was delivered by: SIDNEY SCHENKIER, Magistrate Judge

MEMORANDUM OPINION AND ORDER

This hard-fought litigation has spawned a preliminary injunction hearing, two trials, three extensive memorandum opinions,*fn1 and cross-appeals from the final judgments entered in the case. These opinions lay out the details of the parties' underlying disputes and the claims they have raised; we will repeat those details here only insofar as necessary to understanding and resolving the current dispute that once again brings the matter before the Court.

Kempner Mobile Electronics, Inc. ("Kempner") and Southwestern Bell Mobile Systems, LLC, d/b/a Cingular Wireless ("Cingular"), have jointly filed a request for the Court to interpret the attorneys' fee provisions contained in the parties' Agency Agreement ("Agreement") for purposes of helping them resolve their post-trial fee disputes. The Court granted that request on October 1, 2004; the parties briefed the issues; and the Court held oral argument on the matter on October 27, 2004. After reviewing the relevant contractual provisions and the parties' arguments concerning the interpretation of them, the Court finds as follows.

  I.

  By its express terms, the Agreement at issue is governed by Illinois law (Kempner's Mem. Ex. A, ¶ 24), a point which the parties do not dispute. Therefore, the contract interpretation issues that the parties raise require the Court to apply the following well-established principles of Illinois law.

  The interpretation of a contract is a question of law. A court cannot give the contract a construction that would render any phrase or term superfluous or meaningless; we must give it some reasonable meaning. Gray v. Nat'l Restoration Systems, Inc., ___ N.E.2d ___, No. 1-01-4062, 2004 WL 834724, *20 (Ill.App. 1st Dist. Apr. 16, 2004). "[C]ontractual provisions for attorney fees must be strictly construed and the court must determine the intention of the parties with respect to the payment of fees." Grossinger Motorcorp. Inc. v. American National Bank & Trust Co., 607 N.E.2d 1337, 1348 (Ill.App. 1st Dist. 1993) (citing Helland v. Helland, 573 N.E.2d 357 (Ill.App. 2d Dist. 1991)).

  II.

  We begin our analysis with a recitation of the contractual fee provisions at issue, which are set forth at paragraphs 24 and 35 of the Agreement. Paragraph 24 provides in relevant part:
24. GOVERNING LAW
* * *
If any suit or action shall be brought to enforce or declare any of the terms of this Agreement, to terminate this Agreement or to recover any damages sustained as a result of a default in the performance of any obligations under this Agreement, or a breach of any of the representations and warranties herein contained or otherwise pursuant to this Agreement, then except as otherwise provided in Paragraph 35, the party not prevailing in such suit or action shall be liable to the prevailing party for the prevailing party's costs and expenses, including, without limitation, court costs and reasonable attorneys' and expert witnesses' fees (including, without limitation, the value of time spent by in-house personnel), the amount of which shall be fixed by the court and shall be made a part of any judgment rendered. The parties agree that any such suit or action must be brought, if at all, within one (1) year after the underlying cause of action accrues.
(Kempner's Mem. Ex. A, ¶ 24) (emphasis added). Paragraph 35 provides in relevant part:
35. DISPUTE RESOLUTION AND MEDIATION
For all disputes relating to this Agreement except those relating to Paragraph 20, Covenants Not to Compete, prior to instituting litigation in connection with this Agreement in any forum, including but not limited to, state, federal, or regulatory proceedings, each party agrees to the following procedures:
(a) The aggrieved party shall give detailed written notice to the other party of its specific complaint, including the amount of actual damages and expenses, including attorney's fees, claimed by the aggrieved party. The aggrieved party shall include copies of all documents that support its claims. Within thirty (30) days after receipt of the notice, the party receiving the notice shall tender to the aggrieved party a written offer of settlement. Any offer of settlement not accepted within thirty (30) days of receipt by the aggrieved party shall be deemed to have been rejected.
(b) In the event of litigation, a settlement offer made pursuant to Paragraph 35(a) above, if rejected by the aggrieved party, may be filed with the court together with an affidavit certifying its rejection. If the court finds that the amount tendered in the settlement offer is greater than or equal to the actual damages found by the trier of fact, the aggrieved party shall incur the costs of its own attorney's fees and shall reimburse the other party for its reasonable attorney's fees incurred. If recovery is more [than] the amount tendered in the settlement offer, then the accused party will reimburse the aggrieved party for its reasonable attorneys' fees.
(d) If the parties are unable to settle their disputes through the above procedure, the parties agree to submit their dispute to mediation as described in this paragraph within 90 days after rejection of the settlement offer. Compliance with these procedures on dispute resolution and mediation shall be a condition precedent to instituting any judicial, quasi-judicial and/or regulatory proceeding.
. . . .
(Id., at ¶ 35).

  There is no dispute that Paragraph 24 provides for fees to be awarded to prevailing parties on claims that arise directly under the Agreement: for example, claims for breach of the Agreement. However, Paragraph 35 uses a different measuring stick for deciding when to shift attorneys' fees. It is not enough that a party prevail. Rather, a party must obtain a recovery that exceeds what was offered in settlement under Paragraph 35(a); if a party obtains a recovery that is less than or equal to what was offered in settlement under Paragraph 35(a), then the party who "prevailed" on the judgment nonetheless must pay the "losing" side's fees.*fn2

  These differences in Paragraphs 24 and 35 raise a threshold question: when does each respective fee-shifting provision apply? By their terms, each provision covers certain types of claims that are not within the scope of the other. Paragraph 35 does not cover disputes involving Paragraph 20 of the Agreement, which sets forth various covenants not to compete, whereas Paragraph 24 extends to any suit to enforce, declare or recover damages for a default or breach of any obligation under the Agreement — which includes obligations under Paragraph 20. On the other hand, Paragraph 24 does not extend to tort claims (as the parties agree), whereas Paragraph 35 permits fee shifting for tort claims or statutory claims (if the requirements of Paragraph 35(a) and (b) are met) that are "disputes relating to this Agreement."*fn3

  But, what about breach of contract claims that might fall under either Paragraph 24 or 35? That is where the phrase in Paragraph 24, stating that a prevailing party shall recover fees "except as otherwise provided in Paragraph 35," comes into play. The fee shifting provision in Paragraph 35(b) is not mandatory: that is, a party who "may" invoke Paragraph 35(a), but it is not required to do so. That is the common-sense meaning we draw from the fact that Paragraph 35(b) uses the permissive word "may" rather than the mandatory word "shall" — in contrast to (1) Paragraph 35(a), which uses the word "shall" in describing the pre-suit notice and settlement offer that must be given as a precondition to recovery of fees under Paragraph 35(a), and (2) Paragraph 35(d), which uses the word "shall" in describing recourse to the mediation process that is a precondition to suit. As we read the Agreement, what that means is that a party who is entitled to invoke Paragraph 35(b), and who successfully does so, cannot then recover fees under Paragraph 24. This interpretation gives meaning to both Paragraphs 24 and 35, and to the caveat in Paragraph 24 that fees are awarded to a prevailing party "except as otherwise provided in Paragraph 35."*fn4

  III.

  With this basic interpretation of Paragraphs 24 and 35 in mind, we now address the parties' threshold dispute about their application here. In doing so, we begin by setting forth below, in table form, the outcome of the respective claims asserted by each side in the case:
Kempner's Amended Complaint
Count I Declaratory Judgment Claim Voluntarily Dismissed (contract-based)
Count II Injunction Claim Voluntarily Dismissed (contract-based)
Count III Contract Claim Summary Judgment for Cingular
Count IV Contract Claim Summary Judgment for Cingular
Count V Contract Claim Jury Verdict for Kempner — ($550.00 stipulated award)
Count VI Contract Claim Jury Verdict for Kempner — ($4,413.21 stipulated award)
Count VII Common Law Fraud Claim Jury Verdict for Kempner — ($1.00)
Count VIII Statutory Fraud Claim Summary Judgment for Cingular
Count IX Franchise Act Claim Summary Judgment for Cingular
Count X Tortious Interference Claim Jury Verdict for Kempner — ($21,125.00 stipulated award) Cingular's Counterclaim
Count I Contract Claim Jury Verdict for Kempner
Count II Contract Claim Stipulated Judgment for Cingular ($94,235.38)
Count III Abuse of Process Claim Dismissed on Kempner's Motion
  The net result of the litigation was that Kempner was required to pay Cingular $68,146.17 (the difference between the $94,235.38 awarded to Cingular on the one contract counterclaim on which it prevailed, and the $26,089.21 awarded to Kempner on all claims on which it prevailed). Based on that net result, Kempner seeks recovery of fees under Paragraph 35(b), on the argument that that outcome of the litigation on the claims and counterclaims was more favorable — or, more accurately, less ...

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