In 1046 Munras Properties. L.P. v. Kabod Coffee, a division of the Colorado Court of Appeals addressed a question not previously resolved in a published Colorado decision: whether a prevailing party may use the attorney fees it incurred to secure and enforce the fee award itself (commonly called "fees on fees.") The division concluded that the contract at issue, read as a whole, entitled the prevailing landlord to seek fees on fees and the district court erred in denying them based on an overly narrow reading of the contract.
Statement of Facts
Kabod Coffee leased retail space in a shopping center owned by 1046 Munras Properties, L.P. and operated a coffee shop on the premises. The lease required the tenant to "continuously operate" on the premises during the lease term. A separate guaranty made the individual guarantor "absolutely, unconditionally and irrevocably" responsible for the tenant's performance of its lease obligations.
The landlord learned the tenant had closed the coffee shop and provided written notice asserting breach of the continuous-operations clause. The landlord filed suit asserting claims for possession and for damages against the tenant and guarantor. Following a forcible entry and detainer hearing, the district court found the tenant in default for failing to continuously operate and awarded possession to the landlord. The case proceeded on the damages claim. Following a bench trial, the court found for the landlord on its lease and guaranty claims, rejected a counterclaim, and entered judgment against the tenant and guarantor.
The landlord then moved for attorney fees and costs under contractual fee-shifting provisions. Before the fee hearing, the landlord supplemented its motion to add post-trial fees and costs, including amounts incurred to prepare and litigate the fee request itself, otherwise known as fees on fees.
The district court's first fee order reduced the initial fee request by 50% and then applied an additional 10% reduction for excessive or redundant work. In a second order, addressing the supplement, the court declined to award fees and some costs associated with the fee request, concluding the lease's "in connection with" language did not encompass "fees incurred to establish an award of attorney fees." The landlord appealed both orders.
The Fee-Shifting Provisions at Issue
Colorado adheres to the American rule, under which litigants ordinarily bear their own attorney fees. The rule yields, however, when contracting parties agree that a prevailing party may recover fees and costs through a fee-shifting clause. (S. Colo. Orthopaedic Clinic Sports Med. & Arthritis Surgeons, P.C. v. Weinstein, 2014 COA 171, 343 P.3d 1044, 1046-47).
In the case at hand, the lease contained two separate fee clauses. Article 20(B) entitled the landlord to reimbursement of "all reasonable attorney fees and expenses incurred… in connection with any default." Article 40(I) separately provided that if a party must commence "any action or proceeding to enforce or interpret the provisions" of the lease, the prevailing party "shall be awarded… all reasonable costs… including attorney fees, incurred… in connection with the … enforcement" of the guaranty.
These provisions framed two distinct appellate questions: (1) Whether the district court sufficiently supported its substantial reduction of the initial award as unreasonable and (2) Whether the district court correctly construed the contracts to deny fees on fees.
The District Court's 50% Reduction of Fees
Attorney-fee awards are reviewed for abuse of discretion, and a trial court abuses that discretion if its ruling is manifestly arbitrary, unreasonable, or unfair (Nesbitt v. Scott, 2019 COA 154, 457 P.3d 134 (Colo. App. 2019)). The Court of Appeals emphasized that determining reasonableness typically proceeds through a lodestar analysis (reasonable hours multiplied by reasonable rate) followed by an adjustment based on the factors listed in Rule 1.5(a).
The district court cut the landlord's initial request by 50% mindful of considerations such as tenant's post pandemic staffing challenges, timing of the lawsuit, the remaining lease term, and the court's view that the landlord had "multiple options" but chose eviction and future rent. Yet the Court of Appeals concluded the order did not contain findings detailed enough to show whether the reduction rested on a permissible assessment of billed work or an impermissible second-guessing of the landlord's choice to enforce contractual remedies.
The Court of Appeals noted that it is contrary to fundamental principles of contract law to require an aggrieved party to surrender contractual rights in the name of mitigation. Because the order did not tie the 50% reduction to specific entries, categories of work, or other concrete findings, the appellate court could not determine whether the reduction was supported by the evidence. Citing the requirement that findings be sufficient to allow "meaningful appellate review," it reversed the amount determination and remanded for additional findings.
The Lease, Read as a Whole, Permitted Recovery of "Fees on Fees"
The district court denied fees on fees by construing Article 20's "in connection with any default" language as not reaching fees incurred to establish a fee award. The Court of Appeals agreed with the landlord that this analysis was incomplete because it failed to consider Article 40(I), which broadly covers fees incurred in "any action or proceeding" to enforce or interpret the lease's provisions.
With no Colorado precedent directly on point, the court looked to out of state authorities addressing the issue of when contractual fees clauses cover fees on fees. It found a split among courts. In Krumme v. Westpoint Stevens Inc., 79 F.Supp.2d 297 (S.D.N.Y. 1999), the court found that "because the parties disputed the terms of the fee-shifting provision, the plaintiffs were entitled to recover legal costs in connection with the litigation of those issues to the extent that plaintiffs' fee requests included expenses incurred in litigating the terms of the attorney fee provisions."
In Chase v. Bearpaw Ranch Ass'n, 133 P.3d 190, 2006 MT 67, (Mont. 2006), the court found that "because the fee-shifting provision was a condition of the subject contract, litigation over the entitlement to fees under the contract is properly construed as an action for the enforcement of a condition contained in the contract."
Against that competing backdrop, the division emphasized the purpose of contractual fee shifting to make the nonbreaching party whole and deter breach (Walton v. Claybridge Homeowners Ass'n, 825 N.E.2d 818, 825 (Ind. Ct. App. 2005)). The court reasoned that a broad enforce-or-interpret clause would be "illusory" if it allowed recovery of fees incurred to litigate the underlying breach but not fees reasonably incurred to secure the contractually promised fee award.
Applying the lease language, the court concluded that the landlord's efforts to obtain and defend its contractual fee award fell within an action to "enforce or interpret" the lease provisions under Article 40(I). It therefore held the district court erred in denying fees on fees and in reducing associated costs on the ground they were tied to the fee request. Because the district court had not reached reasonableness as to the supplemental amounts, the court remanded for findings on the reasonableness of the claimed fees and related costs.
The Guaranty's Terms Supported Joint and Several Exposure for Fees and Costs
Although the district court did not analyze the guaranty's fee provisions, the Court of Appeals addressed them in explaining the scope of potential liability on remand. The guaranty imposed joint and several obligations and broadly covered enforcement-related expenses, while also making the guarantor "absolutely, unconditionally, and irrevocably" liable for the tenant's performance under the lease.
Relying on Colorado authority that a guarantor's liability is generally coextensive with the principal's, unless the parties agree otherwise, the division explained the landlord could look to the guarantor for all sums awarded against the tenant, including fees and costs. The division also cited persuasive authority supporting enforcement of "unconditional" guaranty language in the lease context (Whitestone Plaza, LLC v. Shen, 220 N.Y.S.3d 390, 392 (App. Div. 2024).
Appellate Attorney Fees
Finally, the division awarded the landlord reasonable appellate attorney fees and costs because the appeal was itself an action to enforce or interpret the lease's fee provisions and the landlord prevailed. It noted that Colorado appellate courts routinely award fees for successfully defending a fee award on appeal when authorized, to avoid undermining the make-whole purpose of fee shifting (Kennedy v. King Soopers, Inc., 148 P.3d 385, 390 (Colo. App. 2006)).
1046 Munras Properties clarifies that, where a contract contains broad prevailing-party language awarding fees and costs in "any action or proceeding" to enforce or interpret the contract, the prevailing party may seek recovery not only for litigating the underlying dispute but also for reasonable fees incurred to obtain and enforce the fee award itself. At the same time, the decision underscores that substantial reductions to requested fees must be supported by findings detailed enough to permit meaningful appellate review, particularly where the reduction might be read as penalizing a party's decision to pursue contractually available remedies.
The Court of Appeals affirmed the landlord's entitlement to fees and costs, reversed the amount determinations and the denial of fees on fees, and remanded for additional findings on reasonableness, including the reasonableness of the supplemental fee request and the landlord's appellate fees and costs.
This article originally appears on Wood Smith Henning & Berman LLP. www.wshblaw.com
About the Authors:
Tamara C. Jordan is a partner at Wood Smith Henning & Berman LLP. tjordan@wshblaw.com
Michael D. Simpson is a partner at Wood Smith Henning & Berman LLP. msimpson@wshblaw.com