Schmidt Construction Co. v. Becker-Johnson Corp.

Citations: 817 P.2d 625; 15 Brief Times Rptr. 1149; 1991 Colo. App. LEXIS 239; 1991 WL 155920Docket: 90CA1277

Court: Colorado Court of Appeals; August 15, 1991; Colorado; State Appellate Court

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In Schmidt Construction Company v. Becker-Johnson Corporation, the Colorado Court of Appeals affirmed a trial court's order that assessed attorney fees, costs, and damages against Schmidt and its attorney, Samuel F. Schoninger. The dispute involved responsibility for water development fees related to a construction project, where Becker-Johnson served as the architectural engineer. The construction contract included an arbitration clause requiring disputes to be resolved by Becker-Johnson initially, with arbitration available if either party was dissatisfied. Instead of pursuing arbitration, Schmidt filed a district court complaint alleging contract modification by Current, Inc. and negligence by Becker-Johnson. The trial court granted Current's motion to dismiss and compel arbitration.

Subsequently, Becker-Johnson filed motions to dismiss based on the arbitration clause and a failure to comply with a legal requirement. Schmidt filed a motion to dismiss without prejudice and argued that Becker-Johnson's motions were moot but did not address their merits. The trial court dismissed Schmidt's complaint with prejudice and allowed Becker-Johnson to seek costs and fees. Schmidt failed to respond adequately, and Becker-Johnson successfully argued for damages, stating Schmidt's complaint was groundless and frivolous. The court directed the parties to negotiate amounts for costs and fees, indicating it would determine reasonable figures if they could not agree. Schmidt requested a hearing on the fee's reasonableness, with the court warning that he would be liable for Becker-Johnson's costs incurred from that hearing.

The court awarded Becker-Johnson attorney fees, litigation expenses, and an amount equivalent to the increase in professional liability insurance premiums incurred due to Schmidt's lawsuit. It also included fees related to the attorney fee hearing. Schmidt argued that the appeal is moot due to satisfaction of the judgment; however, the court found this argument unpersuasive, as Schmidt reserved the right to appeal upon payment, leading to the conclusion that the defendant is equitably estopped from claiming mootness.

Schmidt contended the trial court erred in imposing sanctions, but the court held that the action lacked substantial justification, as defined by Colorado law. The court identified several reasons for this conclusion: failure to meet certification requirements, the existence of an arbitration clause in the contract, and the absence of evidence supporting Schmidt's negligence claim against Becker-Johnson. The trial court's discretion in awarding fees and sanctions was deemed appropriate, as Schmidt did not adequately justify its actions or provide evidence to support its claim at any stage.

Additionally, Schmidt claimed the trial court erred by not holding a hearing before imposing sanctions. The court clarified that a hearing is required only if a party requests it in a timely manner, which did not occur in this case. As the record supported the trial court's decisions, including its findings on Schmidt's failure to substantiate its claims, the appellate court declined to disturb the original ruling.

Schmidt's request for a hearing after the trial court's ruling was deemed untimely since he did not seek it within the three-month period allowed before the ruling. The court held that it was not obligated to initiate a hearing on its own. Additionally, Schmidt contested the trial court's inclusion of the increase in Becker-Johnson's professional liability premium as damages, arguing that sanctions should be limited to attorney fees and litigation expenses. The court disagreed, stating that under C.R.C.P. 11, the court has discretion to impose 'appropriate sanctions' which can include reasonable expenses related to pleadings, not limited to attorney fees. Federal interpretations of a similar rule support this broader interpretation. Evidence indicated that the premium increase was a direct result of Schmidt's actions against Becker-Johnson, and thus the trial court did not abuse its discretion in awarding these damages. Schmidt's other arguments were found to lack merit. Becker-Johnson sought sanctions against Schmidt for the appeal; however, the court declined to impose them, noting that Schmidt presented a tenable legal principle. The judgment was affirmed.