Opinion
A22-0083
08-12-2022
Thomas M. Fafinski, Appellant, v. Jaren Johnson, Respondent.
Dakota County District Court File No. 19HA-CV-14-4686
Considered and decided by Smith, Tracy M., Presiding Judge; Connolly, Judge; and Larkin, Judge.
ORDER OPINION
Tracy M. Smith Judge
BASED ON THE FILE, RECORD, AND PROCEEDINGS, AND BECAUSE:
1. Appellant Thomas Fafinski challenges the district court's denial of his motion to amend the judgment that he obtained in this action by adding attorney fees that he incurred when he pursued a separate, later action. He argues that he is entitled to attorney fees from respondent Jaren Johnson based on either the third-party-litigation exception to the "American rule" regarding attorney fees or the district court's inherent authority to impose sanctions.
2. A full recitation of the facts may be found in our previous opinions on this and related litigation. See Fafinski v. Johnson, No. A15-2041, 2016 WL 4263082 (Minn.App. Aug. 15, 2016) (Fafinski I), rev. denied (Minn. Oct. 26, 2016); Fafinski v. Johnson, No. A20-1275, 2021 WL 1846579 (Minn.App. May 10, 2021) (Fafinski II), rev. denied (Minn. Aug. 10, 2021).
3. Relevant here, Fafinski has brought three actions to recover unpaid wages following the sale of his law practice to Johnson. Fafinski II, 2021 WL 1846579, at *1. In the first action, Fafinski obtained a judgment against Johnson for unpaid wages and for attorney fees; attorney fees were permitted under the parties' asset purchase agreement. Fafinski I, 2016 WL 4263082, at *3. In this, the second action, Fafinksi obtained a judgment against Johnson for fraudulent transfers and for attorney fees; the district court awarded attorney fees pursuant to its inherent authority as a sanction for Johnson's bad faith and vexatious litigation. In the third action, Fafinski sued Johnson's father, alleging that Johnson and the law firm had fraudulently transferred assets to Johnson's father to avoid paying the previous judgments. Fafinski II, 2021 WL 1846579, at *1. Following a bench trial, the district court entered a judgment against Johnson's father and in favor of Fafinski in the amount of $93,345.46. Id. The district court denied Fafinski's motion for attorney fees against Johnson's father. We affirmed the judgment on appeal. Id.
4. Fafinski then moved to add costs and to amend the judgment in this action, the second action, which was against Johnson, to include the attorney fees incurred by Fafinski in bringing the third action, his suit against Johnson's father. Following a hearing, the district court denied the motion, concluding that there was no basis under Minnesota law to award those attorney fees against Johnson in this second action. Fafinski appeals.
5. Generally, a party to litigation cannot shift its attorney fees to the opposing party absent "specific contract or statutory authorization." Kallok v. Medtronic, Inc., 573 N.W.2d 356, 363 (Minn. 1998). This principle is known as the "American rule." Id.
6. Minnesota courts recognize certain exceptions to the American rule, including the third-party-litigation exception. This exception allows a party to recover reasonably incurred attorney fees and expenses from the opposing party "where the natural and proximate consequence of a person's tortious act projects another into litigation with a third person." Prior Lake State Bank v. Groth, 108 N.W.2d 619, 622 (Minn. 1961).
7. Whether this exception applies here is a question of law subject to de novo review. See In re Collier, 726 N.W.2d 799, 803 (Minn. 2007) ("When the material facts are not in dispute, we review the lower court's application of the law de novo.").
8. We conclude that Fafinski's request for attorney fees under the third-party litigation exception fails for two reasons-both of them procedural.
9. First, Fafinski brought his request for attorney fees pursuant to Minn. Stat. § 549.09, subd. 4 (2020). This statute allows a judgment creditor to submit an affidavit specifying the "taxable disbursements paid or incurred by the judgment creditor, or the judgment creditor's attorney, after the entry of judgment" and directs the court administrator to include those increased disbursements in any execution issued. Fafinski argues that this statute also allows the district court to amend the judgment to add the attorney fees that he incurred in the third suit. But section 549.09, subdivision 4, contemplates the addition of routine disbursements incurred by a judgment creditor while recovering a judgment-disbursements that can be assessed by the court administrator and included in an execution. Fafinski has cited no authority for the proposition that he can use this statute to amend the judgment to add attorney fees that he incurred in a separate, later action against another defendant.
10. Second, and somewhat relatedly, Fafinski has provided no authority for the proposition that a district court may award attorney fees against a tortfeasor under the third-party litigation exception when the tortfeasor has not had the opportunity to defend against the claim. The principle underlying the third-party-litigation exception is that a person injured by the tortious conduct of another is entitled to recover all damages caused by the tort. Prior Lake State Bank, 108 N.W.2d at 622. This principle extends to the recovery of attorney fees that are incurred when a tortfeasor's act "projects another into litigation with a third person." Id. The test for awarding fees is whether the third-party litigation was the "natural and proximate consequence of the defendant's tortious action" and whether the injured party conducted the litigation "in good faith with reasonable ground for believing" it would be successful. Id. at 623.
11. In other cases applying the third-party litigation exception, the party seeking attorney fees has brought the claim for fees directly against the tortfeasor. See, e.g., id. at 620-21; First Fiduciary Corp. v. Blanco, 276 N.W.2d 30, 32 (Minn. 1979). When sued directly for attorney fees, the tortfeasor has the opportunity to defend against the claim and to argue that the test for applying the third-party-litigation exception has not been met. Fafinski did not seek attorney fees by bringing a claim against Johnson; rather, Fafinski sought by motion to have the fees added to a previous judgment as disbursements. But he has presented to us no case in which a party has sought attorney fees in this way. We conclude that the district court did not err by denying Fafinski's motion in the second action for attorney fees incurred in the third action under the third-party-litigation exception.
12. Fafinski also argues that the district court should have awarded fees based on its inherent power to sanction parties for acting in bad faith. We "will not reverse the district court's decision on attorney fees absent an abuse of discretion." Carlson v. SALA Architects, Inc., 732 N.W.2d 324, 331 (Minn.App. 2007), rev. denied (Minn. Aug. 21, 2007). The district court abuses its discretion if "its findings are unsupported by the record or if it misapplies the law." Pechovnik v. Pechovnik, 765 N.W.2d 94, 98 (Minn.App. 2009) (quotation omitted).
13. Fafinski is correct that district courts have "inherent judicial authority" to address party misconduct through sanctions. Patton v. Newmar Corp., 538 N.W.2d 116, 118-19 (Minn. 1995). These sanctions may include attorney fees when a party "acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Peterson v. 2004 Ford Crown Victoria, 792 N.W.2d 454, 462 (Minn.App. 2010) (quotation omitted). To award attorney fees as a sanction for misconduct, the district court must identify the bad-faith basis for the award on the record. Id.
14. Fafinski points to no sanctionable conduct by Johnson in this action-the second action-that justifies sanctioning Johnson by awarding Fafinski attorney fees incurred in the third action against Fafinski's father. Thus, the district court did not abuse its discretion by denying Fafinski's request for attorney fees. Fafinski was already awarded fees for Johnson's sanctionable conduct in the second action. The district court did not abuse its discretion by refusing to increase that sanction with the award of attorney fees incurred in the third action.
IT IS HEREBY ORDERED:
1. The district court's order is affirmed.
2. Pursuant to Minn. R. Civ. App. P. 136.01, subd. 1(c), this order opinion is nonprecedential, except as law of the case, res judicata, or collateral estoppel.
BY THE COURT