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Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 28, 1999 Decided July 16, 1999

No. 98-5458

Federal Deposit Insurance Corporation,

as Receiver for Madison National Bank,

Appellee

v.

Morton A. Bender, et al.,

Appellees/Appellants

Van Dorn Retail Management, Inc.,

Appellant

Consolidated with

No. 98-5459

Appeals from the United States District Court

for the District of Columbia

(No. 93cv00864)

---------

Nelson Deckelbaum, with whom Stephen W. Nichols was

on the briefs, argued the cause for Morton A. Bender, et al.,

appellants in No. 98-5459.

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Francis P. Dicello, with whom Robert M. Marino was on

the brief, argued the cause for Van Dorn Retail Management,

Inc., appellant in No. 98-5458.

Mary R. Bohan, Trial Attorney, U.S. Department of Justice, with whom David W. Ogden, Acting Assistant Attorney

General, Wilma A. Lewis, United States Attorney, J. Christopher Kohn, Director, and Ruth A. Harvey, Attorney, U.S.

Department of Justice, and J. Scott Watson, Counsel, Federal

Deposit Insurance Corporation, were on the brief, argued the

cause for appellee FDIC.

Before Edwards, Chief Judge, Garland, Circuit Judge, and

Buckley, Senior Circuit Judge.

Opinion for the court filed by Senior Judge Buckley.

Buckley, Senior Judge: Appellants are Morton A. Bender,

his children, the personal representatives of the estate of a

deceased child, and N Street Follies Limited Partnership

(collectively, "Benders") and Van Dorn Retail Management,

Inc. ("Van Dorn Retail"). They appeal the district court's

award of attorneys' fees to the Federal Deposit Insurance

Corporation ("FDIC"), in its capacity as receiver for Madison

National Bank, for legal services rendered in enforcing loan

and guaranty agreements entered into between the bank and

appellants. The Benders also appeal the district court's

denial of their motion for sanctions against the FDIC for its

actions during the litigation.

We reverse the award of attorneys' fees incurred in unsuccessfully defending a prior award of fees, remand the remainder of the award for further action consistent with this

opinion, and remand the denial of sanctions so that the

district judge may explain his decision in light of what

appears to be a legitimate question as to whether certain of

the FDIC's actions may have been taken in bad faith.

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I. Background

Appellants challenge the reasonableness of the attorneys'

fees awarded by the district court, and the Benders ask us to

rule that the court abused its discretion when it denied the

Benders' request that the FDIC be sanctioned. In the

interest of clarity, we will limit our review of this case's

complex factual and procedural history to those facts that

bear on each of these issues. A more detailed account of the

background facts can be found in our opinion in FDIC v.

Bender, 127 F.3d 58, 61-62 (D.C. Cir. 1997) ("Bender I"),

which decided a prior appeal in this case.

A. The Attorneys' Fees

Appellants executed, guarantied, and delivered various

promissory notes to Madison National Bank, some of which

provided for payment, in the event of default, of "late

charges" and attorneys' fees in the amount of 15 percent of

the outstanding balance of principal and interest. Shortly

after the last note was executed, Madison was declared

insolvent; and the FDIC was appointed as its receiver pursuant to 12 U.S.C. s 1819. As such, the FDIC succeeded to all

of Madison's rights under the promissory notes. When appellants defaulted on their obligations to Madison, the FDIC

brought suit in district court to recover the full amount

claimed to be due including, where applicable, the 15 percent

attorneys' fees.

The FDIC moved for summary judgment on the notes.

Appellants opposed the motion arguing, among other things,

that the 15 percent attorneys' fees requested in the motion

were unreasonable because the amount sought bore no relationship to the value of the legal services actually rendered.

On October 27, 1994, the district court granted the FDIC's

motion. Thereafter, the Benders filed a motion for reconsideration and, on April 17, 1996, the district court granted their

motion and required the FDIC to address the reasonableness

of the 15 percent provision. Because Van Dorn Retail did not

file a timely motion for reconsideration, it remained liable for

the 15 percent attorneys' fees the court had previously awarded the FDIC. The record before us does not indicate whethUSCA Case #98-5458 Document #449882 Filed: 07/16/1999 Page 3 of 11
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er the agency ever complied with the court's request for a

defense of the 15 percent fee. That request, however, was

mooted by our decision in Bender I, which we describe below.

In the meantime, the FDIC had amended its complaint to

include, among others, a new count asserting a claim against

Morton Bender as guarantor of a note signed by Van Dorn

Retail that contained the 15 percent attorneys' fees provision.

The FDIC moved for summary judgment on the amended

complaint, and the Benders filed an opposition to the motion.

On February 28, 1996, the district court granted the motion

in its entirety, ruling that the Benders' opposition had been

untimely.

Appellants filed appeals challenging the district court's

grant of summary judgment against Van Dorn Retail as

obligor on certain of the notes and against Mr. Bender as

guarantor of one of the loans to Van Dorn Retail. See

Bender I, 127 F.3d at 61. On appeal, they argued that the

provisions requiring payment of 15 percent attorneys' fees

were contrary to District of Columbia law, which governed

the enforcement of the notes. Id. at 63. We agreed; and on

September 23, 1997, we reversed the district court's grant of

summary judgment in favor of the FDIC with respect to the

attorneys' fees owed by Van Dorn Retail and remanded the

case with instructions to award the agency reasonable attorneys' fees "not to exceed the 15-percent limit in the notes."

Id. at 67. We also vacated the grant of summary judgment

against Mr. Bender and instructed the court on remand to

reconsider its 15 percent award against Mr. Bender as guarantor of the Van Dorn Retail note even though he had failed

to file a timely opposition to the FDIC's motion for summary

judgment. In doing so, we noted the anomaly of enforcing

against a guarantor a greater liability than could lawfully be

imposed on the obligor. Id. at 68.

The FDIC thereupon filed a "Motion to Determine Reasonable Attorney Fees," as well as a memorandum and declarations supporting a claim for $112,307. Over appellants' objections, many of which are reiterated in this appeal, the district

court awarded the requested amount as reasonable. It did so

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based on its findings that the hours devoted to the case by

the FDIC's Justice Department attorneys were reasonably

expended, that the FDIC's summaries of the attorneys' time

records provided an adequate basis on which the court could

make an award, that the fee charged for the FDIC's in-house

counsel was appropriate, and that appellants' "assertion of

broad and unsupported challenges to the FDIC's proof of

time expended--unaccompanied by any request to view detailed time records--must be rejected...." FDIC v. Bender,

No. 93-0864 (D.D.C. Aug. 27, 1998) (emphasis added).

B. The Requested Sanctions

The district court's order of February 28, 1996, concluded

with the statement that "[f]inal judgment having now been

entered by separate order as to [all counts of both the

original and amended complaints], ... this case shall be

terminated on the dockets of this court." The Benders

responded with a "motion for expedited clarification" in which

they reminded the court that, because it had failed to resolve

a cross-claim against them, its judgment was not yet final.

In an order issued on April 17, 1996, the court acknowledged

its error and amended its February 28 order to reflect the

fact that "the case is not terminated in light of the outstanding cross-claim...."

The FDIC, however, had already begun its efforts to

enforce the earlier order. It served post-judgment interrogatories and document requests on appellants and issued subpoenas to their accounting firms. It also filed the February 28, 1996, order in the land records of the District of

Columbia, thereby imposing a lien against all real property

owned by appellants in the District of Columbia. The FDIC

later refused to remove the lien despite the fact that, by then,

according to Mr. Bender, the principal and interest due on all

the notes had been fully paid and he had posted a supersedeas bond of $987,125 to cover in full all other claims remaining

in dispute. The FDIC also applied a portion of the $1,896,987

payment made by the Benders in March 1995 against its

claim for late charges on various notes despite the Benders'

explicit instruction that the payment was to be applied to

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satisfy in full the principal and interest due on the specified

notes and guaranties.

The Benders filed a motion requesting the imposition of

sanctions against the FDIC on the grounds that, by prematurely pursuing its post-judgment remedies and ignoring the

instructions accompanying the March 1995 payment, the

agency had exhibited bad faith and unnecessarily increased

the cost of the litigation. The court denied the motion

without explanation on August 27, 1998, the same day that it

approved the award of $112,307 in attorneys' fees.

Appellants appeal the award of attorneys' fees, and the

Benders also appeal the denial of their motion for sanctions.

II. Discussion

A. The Fee Award

Appellants raise a number of objections to the fee award.

We consider each in turn.

1. Documentation in Support of the Fee Award

Appellants contend that, contrary to the district court's

finding, they had specifically requested permission to review

the FDIC's time records; therefore, the district court abused

its discretion in awarding attorneys' fees to the FDIC notwithstanding its failure to produce the records for their

inspection. In response, the FDIC cites our statement in

Bender I that it is within the discretion of the trial judge to

decide "what sort of proof, if any, is needed to determine

what a reasonable fee would be," 127 F.3d at 64, and argues

that the court therefore acted within its discretion in accepting the summaries of time records from the FDIC.

The law of this circuit is clear: the party challenging a fee

award is entitled, upon request, to review the contemporaneous time records of the party seeking to recover attorneys'

fees. See Ideal Electronic Sec. Co. v. International Fidelity

Ins. Co., 129 F.3d 143, 151 (D.C. Cir. 1997) ("Ideal is entitled

to discover the information it requires to appraise the reasonableness of the amount of fees requested by IFIC ... so that

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it may present to the court any legitimate challenges to

IFIC's claim."); see also National Ass'n of Concerned Veterans v. Secretary of Defense, 675 F.2d 1319, 1329 (D.C. Cir.

1982) ("[T]he opponent is entitled to the information it requires to appraise the reasonableness of the fee requested

and in order that it may present any legitimate challenges to

the application to the District Court.").

Contrary to the FDIC's suggestion, this principle is not

inconsistent with our statement in Bender I, which applies in

situations where a party has not sought contemporaneous

time records in challenging a fee request. In such cases, the

district court may rely upon whatever evidence it considers

sufficient to establish the reasonableness of fees. See Bender

I, 127 F.3d at 64. In this case, although the district court

mistakenly found that appellants had not requested the

FDIC's time records, the Benders in fact had done so in their

response to the FDIC's Motion to Determine Reasonable

Attorney Fees. Accordingly, we vacate the award of attorneys' fees and direct the district court to order the FDIC to

produce its contemporaneous time records for appellants'

inspection.

2. Fees for Work by In-House Counsel

The materials submitted by the FDIC in support of its

request for attorneys' fees included the sum of $10,000 for the

estimated time spent on the case by the FDIC's in-house

counsel. Appellants oppose the inclusion of this sum on two

grounds, both of them valid. First, the time the counsel

devoted to the case is insufficiently documented; and second,

it is not possible to determine, from the FDIC's submissions,

how much of the time in-house counsel did devote was in a

capacity other than that of a mere liaison between the agency

and the Justice Department attorneys who represented it in

this case, a function for which the recovery of fees is not

permitted. See Milgard Tempering, Inc. v. Selas Corp. of

America, 761 F.2d 553, 558 (9th Cir. 1985) ("Of course, if inhouse counsel are not actively participating (e.g., acting only

as liaison), fees should not be awarded."); Burger King Corp.

v. Mason, 710 F.2d 1480, 1499 (11th Cir. 1983) (same).

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The district court provided no reason for its inclusion of the

$10,000 in the fee award other than that "it appear[ed] that

fees for FDIC's in-house counsel are appropriate in this

case." FDIC v. Bender, No. 93-0864 (D.D.C. Aug. 27, 1998).

This explanation is inadequate. If, on remand, the court is to

award any amount for the in-house counsel's work, it must

determine whether she contributed anything of substantive

value to the litigation; and if she did, the court must then

determine the approximate amount of time she devoted to

that work as well as the hourly rate to be charged for it.

3. Fees for Unsuccessful Defense on Appeal in Bender I

The district court's fee award included $21,500 for legal

services incurred by the FDIC in its unsuccessful defense of

the 15 percent attorney's fee provision in Bender I. Appellants argue that the court erred in including this amount

because the FDIC is not entitled to reimbursement for fees

incurred litigating an issue upon which it did not prevail. In

response, the FDIC asserts that the Bender I appeal involved

issues in addition to the validity of the 15 percent provision.

It also maintains that, because it was the prevailing party in

the litigation taken as a whole, the award properly included

fees incurred in connection with the earlier appeal.

In disposing of the first argument, we need go no further

than quote from the FDIC's final brief in Bender I: "The

only issues on appeal are the contractual fifteen percent

attorney fees awarded against [Van Dorn Retail and the

Benders]." The accuracy of this statement is borne out by

the fact that the FDIC's entitlement to 15 percent fees is the

only issue we addressed in our Bender I opinion.

Appellants prevail on the second argument as well. In

Singer v. Shannon & Luchs Co., 779 F.2d 69 (D.C. Cir. 1985),

we noted that "a court may grant a fee award when specially

authorized by contract or statute," id. at 70, but cautioned

that "[w]here the merit or necessity of the creditor's claim or

defense is successfully challenged, courts may decline to

enforce attorney's fee provisions," id. at 71 (internal quotation

marks and citation omitted). See also Hensley v. Eckerhart,

461 U.S. 424, 440 (1983) ("Where [a party] has failed to

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prevail on a claim that is distinct in all respects from his

successful claims, the hours spent on the unsuccessful claim

should be excluded in considering the amount of a reasonable

fee."); Anthony v. Sullivan, 982 F.2d 586, 589 (D.C. Cir.

1993) ("[N]o fee may be granted for work done on claims on

which the party did not prevail, unless the unsuccessful

claims were submitted as alternative grounds for a successful

outcome that the plaintiff did actually achieve.") (emphasis in

original). Although Hensley and Anthony dealt with statutory fee award provisions, we see no reason (absent contractual

language to the contrary) why the same commonsense standard should not apply to fees awarded by agreement of the

parties.

Accordingly, we reverse the district court's award of the

$21,500 attributable to the Bender I litigation.

4. Allocation of Fees

Finally, appellants maintain that the district court erred in

failing to allocate its award of attorneys' fees among the four

notes that are the subject of this appeal, each of which has its

own obligors and guarantors. The FDIC responds that

appellants waived their right to complain about the court's

failure to apportion the fees because they never asked it to do

so.

If this were the sole issue raised in this proceeding, we

might not return the matter for further consideration. But

as the district court will have to address a number of other

issues on remand, we will add this one to the list. We are

persuaded that appellants did not knowingly waive their

challenge to the district court's failure to apportion the fees;

and because different parties are liable on the four notes, the

interest of fairness would be advanced by an apportionment.

Therefore, if appellants raise this issue on remand, we direct

the district court to allocate the fees.

B. The Denial of Sanctions

The Benders complain that the FDIC acted in bad faith

(1) by crediting their March 1995 payment in a way contrary

to their explicit instructions, (2) by attempting to enforce the

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district court's judgments before they were final, and (3) by

filing and then refusing to remove a lien against the appellants' real property despite the fact that they had paid the

principal and interest due on all the notes and that

Mr. Bender had posted a supersedeas bond sufficient to

ensure payment of any amount that might remain owing to

the FDIC. Given the nature of this conduct, the Benders

maintain, the district court's unexplained denial of sanctions

was an abuse of discretion.

The FDIC argues that the district court properly denied

the Benders' motion. It maintains that because, prior to the

tender of the March 1995 payment, it informed the Benders

that it would credit the payment in accordance with the terms

of the underlying note, it cannot be said that it acted in bad

faith when it proceeded to do so. The FDIC also asserts that

it did not engage in premature collection activity because it

justifiably relied on the district court's statement, in its

February 28, 1996 order, that the judgments on the complaint

and the amended complaint were both final. The FDIC

failed, however, to offer any justification for its refusal to

remove the lien on appellants' property after the notes had

been satisfied and the supersedeas bond covering any remaining liability had been posted. When asked about the lien at

oral argument, counsel for the FDIC asserted that the agency

had the right to pursue "redundant remedies." Counsel

admitted, however, that the FDIC had used the lien for

leverage in settlement discussions.

Whatever the merits of their first two allegations, we are

satisfied that appellants raise a legitimate question as to

whether the imposition of, and refusal to release, an apparently unnecessary lien constitutes bad faith. See Chambers v.

Nasco, 501 U.S. 32, 45-46 (1991) (holding that a court may

exercise its inherent power to impose a sanction when a party

has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons.") (citation and internal quotation marks omitted). The district court's decision not to impose sanctions

may be correct, but under the circumstances it requires an

explanation. We therefore remand this issue as well.

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III. Conclusion

For the foregoing reasons, we reverse the district court's

award of attorneys' fees to the extent that it compensates the

FDIC for fees incurred unsuccessfully defending the 15 percent fee provision; and we remand the remainder of the

award for further findings consistent with this opinion. We

also remand the district court's denial of sanctions so that the

court may explain its decision in light of the fact that the

Benders have raised a legitimate question as to whether the

FDIC acted in bad faith.

It is so ordered.

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