A party who shows a violation of N.C. Gen. Stat. § 75-1.1 can sometimes recover attorney fees under N.C. Gen. Stat. § 75-16.1(1). Section 75-16.1(1), however, imposes two substantive conditions on such a fee award:

  • The party charged with the 75-1.1 violation must have “willfully engaged” in the conduct that constituted the violation.
  • There must be “an unwarranted refusal” by the party charged with the violation “to fully resolve the matter.”

This post concerns the second of these conditions.

In an order issued last Thursday, June 4, Judge Max Cogburn of the U.S. District Court for the Western District of North Carolina concluded that a defendant did not seriously try to resolve a case—and was therefore subject to attorney fees under section 75-16.1(1)—even though the defendant had made a multi-million-dollar settlement offer.

What led to this result?

The Clark v. Toyota case

Judge Cogburn issued his order in Clark Material Handling Co. v. Toyota Material Handling U.S.A., Inc. The case arose from a failed business deal between the plaintiff (Clark) and a company called Southeast Industrial Equipment. Clark alleged that a competitor (Toyota) wrongfully interfered with Clark’s contract with Southeast and coerced Southeast to end its relationship with Clark.

Toyota moved for summary judgment, but Clark defeated the motion. Trial began on February 18, 2015. Nine days later, the jury found in Clark’s favor and awarded compensatory damages of just over three million dollars.

Judge Cogburn’s June 4 order addressed several post-trial issues, including whether the jury’s findings gave rise to a 75-1.1 violation and, if so, whether Clark should receive attorney fees under 75-16.1(1).

On the first question, Judge Cogburn concluded that Toyota had indeed committed a 75-1.1 violation. He wrote that section 75-1.1 draws a distinction between “mere aggressive (but lawful) competition” and coercive (and thus unfair) conduct. Judge Cogburn concluded that Toyota crossed that line. We’ll discuss these and other aspects of this case in future posts.

Having concluded that Toyota violated section 75-1.1, the court automatically trebled the three-million-dollar compensatory award in favor of Clark.

Timing Is Everything

Judge Cogburn then turned to attorney fees.

To litigate Clark’s request for fees under section 75-16.1, Clark and Toyota submitted declarations and affidavits from client representatives and counsel. Those materials showed that Toyota had made settlement offers of $800,000, $1.5 million, and, ultimately, $2 million. In a case with compensatory damages of three million dollars, these settlement offers do not look like an unwarranted refusal to settle.

Judge Cogburn, however, focused on the timing of Toyota’s offers.

The parties participated in mediation four months before trial. At that mediation, in response to Clark’s ten-million-dollar demand, Toyota made a nonmonetary offer: Toyota offered only to waive fees and costs if Toyota prevailed. Clark did not make a further counteroffer.

A key leverage shift, however, happened after the mediation: Clark defeated Toyota’s summary-judgment motion, and the case was set for a mid-February 2015 trial. The court’s pretrial order required the parties to discuss the possibility of settlement by February 3.

The parties’ counsel exchanged e-mails about settlement in late January. Those e-mails, however, did not state concrete numbers. Instead, the attorneys sparred over which party should make the next move. Toyota’s counsel suggested that Clark make a new demand. In response, Clark’s counsel wrote, “In view of Toyota’s lack of response during the mediation, we continue to believe it’s Toyota’s turn to make a meaningful offer.”

Toyota then offered to waive fees and costs—the same offer that Toyota made before the summary-judgment ruling.

That offer did not enjoy a positive review. Clark’s attorney wrote that Toyota’s offer was “insulting.” Toyota’s attorney disagreed: “No insult is warranted from a strong position in settlement. Plaintiff is the one seeking the money.” Toyota again sought a settlement demand from Clark.

Clark finally obliged: on January 28, it made a fifteen-million-dollar settlement demand.

That demand sat unanswered until February 12—just six days before trial. Toyota then made its first monetary offer: $800,000.

Clark did not make a counterdemand before trial. During the trial, though,Toyota bid against itself and hiked its offer to $1.5 million. Clark, however, continued to demand fifteen million dollars.

On February 27, the jury announced its three-million-dollar verdict. That verdict changed Clark’s settlement calculus; foreseeing treble damages, Clark lowered its demand to $8.5 million. Toyota then responded with a two-million-dollar offer. Clark never responded.

On these facts, Judge Cogburn concluded that Toyota had engaged in an unwarranted refusal to settle. He specifically noted that by the time that Toyota made a monetary offer on February 12, 2015, the parties had already spent significant time and resources on trial preparation. The case was well over two years old at that point.

Judge Cogburn also took issue with Toyota’s post-trial settlement offer. That offer, his order noted, was still less than Clark’s single damages.

In the wake of the court’s June 4 order, the ball is now in Clark’s court to submit additional materials, including affidavits and billing records, for Judge Cogburn to consider as he sets a fee award.

Lessons for 75-1.1 Litigants

The Clark case sends a powerful message to parties charged with a 75-1.1 violation: an “unwarranted refusal” to resolve a case can involve not only the magnitude of settlement offers, but also the timing of those offers.

The Clark case also shows that when a court decides a request for fees under section 75-16.1, the court will probably end up reviewing communications between the parties’ lawyers. The tone of those communications matters.

The accompanying message—regardless of the amount of an offer—might also matter. If a 75-1.1 defendant is going to stick to relatively small offers, even as trial approaches, those offers might best be accompanied by a thoughtful explanation. As Clark shows, the absence of such an explanation might have expensive consequences.