Court Opinion

ID: 4281168
Source: CourtListenerOpinion
Date Created: 2018-06-05 12:07:05.808568+00
Date Added: 2024-06-11T14:34:43.006831
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                    No. COA17-562

                                  Filed: 5 June 2018

Wake County, No. 15 CVS 17040

WFC LYNNWOOD I LLC and WFC LYNNWOOD II LLC, Delaware Limited
Liability Companies, Plaintiffs

             v.

LEE OF RALEIGH, INC., CHARLES L. PARK and SUN OK HELLNER, Defendants

      Appeal by defendants from orders entered 27 January 2017 and 24 March 2017

by Judge R. Allen Baddour, Jr. in Wake County Superior Court. Heard in the Court

of Appeals 13 December 2017.

      Smith Moore Leatherwood LLP, by Eric A. Snider and Elizabeth Brooks
      Scherer, for plaintiff-appellees.

      Harris & Hilton, P.A., by Nelson G. Harris, for defendant-appellants.

      CALABRIA, Judge.

      Where defendants failed to meet their burden when challenging a liquidated

damages clause, the trial court did not err in awarding liquidated damages on

summary judgment. Where a commercial lease with a reciprocal attorneys’ fees

provision was executed after the effective date of N.C. Gen. Stat. § 6-21.6, the trial

court did not err in awarding attorneys’ fees pursuant to that statute.           Where

guarantors signed a guaranty explicitly noting their liability for outstanding

attorneys’ fees, the trial court did not err in holding them jointly and severally liable
                      WFC LYNNWOOD I V. LEE OF RALEIGH, INC.

                                   Opinion of the Court

for attorneys’ fees. Where there was insufficient evidence to support the trial court’s

finding that the rates charged by plaintiffs’ attorneys were comparable to “the

customary fee for like work,” we remand for further findings. We affirm in part,

vacate in part and remand in part for further findings on the amount of attorneys’

fees.

                        I. Factual and Procedural Background

        WFC Lynnwood I LLC and WFC Lynnwood II LLC (“plaintiffs”) are Delaware

corporations which own the Lynnwood Collection Shopping Center (“Lynnwood

Collection”) in Wake County. On 26 October 2011, Lee of Raleigh, Inc. (“Lee”),

through its president, Sun Ok Hellner (“Hellner”), executed a lease, agreeing to lease

space in Lynnwood Collection from plaintiffs. The lease contemplated a 64-month

term, to run until 30 September 2017, and as part of the agreement, Lee agreed to

conduct business continuously during the term of the lease. The lease also contained

a reciprocal attorneys’ fees provision for the recovery of fees resulting from litigation.

As part of the lease, Hellner and Charles L. Park (“Park”) executed a guaranty to the

lease, personally guaranteeing Lee’s obligations. On 2 November 2015, Lee informed

plaintiffs that it would cease operating business on 6 November 2015, and would

surrender possession of the premises on 7 November 2015. Lee did so.

        On 29 December 2015, plaintiffs filed a complaint against Lee, Hellner, and

Park (collectively, “defendants”), alleging that Lee’s abandonment of the premises

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                      WFC LYNNWOOD I V. LEE OF RALEIGH, INC.

                                   Opinion of the Court

constituted a default under the lease, and that plaintiffs were entitled to liquidated

damages resulting from Lee’s failure to remain in operation for the duration of the

lease. Plaintiffs’ complaint included claims for breach of contract by Lee as tenant,

and breach of contract by Hellner and Park as guarantors.

       On 16 February 2016, defendants filed an answer and motion to dismiss.

Defendants alleged that the liquidated damages contemplated in the lease were void,

that plaintiffs failed to mitigate damages, that plaintiffs lacked certificates of

authority to transact business in North Carolina, and that plaintiffs’ claims were

barred by estoppel.     Defendants further moved to dismiss plaintiffs’ complaint

pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure, alleging

that “Plaintiffs have failed to state claims upon which relief can be granted[.]”

       On 7 October 2016, plaintiffs moved for summary judgment. On 27 January

2017, the trial court entered an order granting summary judgment in favor of

plaintiffs.   This order awarded plaintiffs $43,253.16, plus interest; liquidated

damages of $37,685.98, plus interest; and attorneys’ fees, to be subsequently

determined.

       On 3 February 2017, plaintiffs filed a motion for attorneys’ fees, noting that

the trial court had already held that fees should be awarded, and thus that the issue

before the court was “not whether attorneys’ fees and costs should be awarded to

[plaintiffs]; rather, the issue is the amount of reasonable attorneys’ fees and costs[.]”

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                     WFC LYNNWOOD I V. LEE OF RALEIGH, INC.

                                   Opinion of the Court

On 24 March 2017, the trial court entered an order on attorneys’ fees. The trial court

recognized that the lease agreement included a reciprocal agreement for the payment

of attorneys’ fees, and that the guaranty agreement signed by Hellner and Park

included a provision for the payment of attorneys’ fees. The trial court considered the

affidavit of plaintiffs’ counsel, along with the range of hourly rates of attorneys in

Wake County and the amount of work required by the case, and found that “the costs

incurred by Plaintiffs were reasonable and necessary to enforce the Lease and

Guaranty.”   The trial court therefore awarded attorneys’ fees in the amount of

$41,807.50 for costs incurred through 31 January 2017, and an additional $2,929.35

for costs incurred subsequently.

      From the order granting summary judgment in favor of plaintiffs, and the

order awarding attorneys’ fees, defendants appeal.

                               II. Summary Judgment

      In their first argument, defendants contend that the trial court erred in

granting summary judgment in favor of plaintiffs, specifically with respect to

liquidated damages. We disagree.

                               A. Standard of Review

      “Our standard of review of an appeal from summary judgment is de novo; such

judgment is appropriate only when the record shows that ‘there is no genuine issue

as to any material fact and that any party is entitled to a judgment as a matter of

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                                  Opinion of the Court

law.’ ” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting

Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)).

                                     B. Analysis

      In its order granting summary judgment in favor of plaintiffs, the trial court

awarded, inter alia, liquidated damages in the amount of $37,685.98, plus interest.

Defendants contend that this was error, because the provision of the lease

establishing liquidated damages was void.

      Section 20 of the lease, addressing hours and conduct of business, required

defendants to operate continuously during the term of the lease, and provided that:

             In the event of a Default by Tenant of any of the conditions
             in this Article 20, Landlord shall have, in addition to any
             and all remedies herein provided, the right at its option to
             collect not only the Minimum Rent, but Additional Rent at
             the rate of one three hundred and sixty fifth (1/365th) of
             the amount of the annual Minimum Rent for each day
             Tenant is in Default or Breach of the provisions of this
             Article. Landlord and Tenant specifically acknowledge
             that the Additional Rent remedy provided for in the
             immediately preceding sentence is a provision for
             liquidated damages and is not a penalty, that the damages
             which Landlord is likely to suffer should Tenant breach
             any of the conditions in this Article are impossible to
             calculate at the time this Lease is executed, and because of
             its indefiniteness or uncertainty, the amount stipulated is
             a reasonable estimate of the damages which would
             probably be caused by a Breach or is reasonably
             proportionate to the [damages] which would be caused by
             such Breach, and the parties have specifically negotiated
             this provision, without which Landlord would not have
             entered into this Lease.

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                                   Opinion of the Court

Defendants concede that they did not operate continuously for the term of the lease,

thus violating Section 20, and that, if the “Additional Rent” described above is not a

void provision, defendants would be liable for the amount described.          However,

defendants contend that this is a “double damage provision,” and thus void.

      “Liquidated damages are a sum which a party to a contract agrees to pay or a

deposit which he agrees to forfeit, if he breaks some promise, and which, having been

arrived at by a good-faith effort to estimate in advance the actual damage which

would probably ensue from the breach, are legally recoverable or retainable . . . if the

breach occurs.” Knutton v. Cofield, 273 N.C. 355, 361, 160 S.E.2d 29, 34 (1968)

(citation and quotation marks omitted). “A stipulated sum is for liquidated damages

only (1) where the damages which the parties reasonably anticipate are difficult to

ascertain because of their indefiniteness or uncertainty and (2) where the amount

stipulated is either a reasonable estimate of the damages which would probably be

caused by a breach or is reasonably proportionate to the damages which have actually

been caused by the breach.” E. Carolina Internal Med., P.A. v. Faidas, 149 N.C. App.
940, 945-46, 564 S.E.2d 53, 56 (citations and quotation marks omitted), aff’d per

curiam, 356 N.C. 607, 572 S.E.2d 780 (2002). The party seeking to invalidate a

liquidated damages clause bears the burden of proving the provision is invalid. Seven

Seventeen HB Charlotte Corp. v. Shrine Bowl of the Carolinas, Inc., 182 N.C. App.
128, 131-32, 641 S.E.2d 711, 713-14 (2007).

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                      WFC LYNNWOOD I V. LEE OF RALEIGH, INC.

                                   Opinion of the Court

      Defendants, challenging the liquidated damages provision, bear the burden of

showing that damages were not difficult to ascertain, that the amount stipulated was

not a reasonable estimate, or that the amount stipulated was not reasonably

proportionate to plaintiffs’ actual damages. Instead, defendants broadly describe the

liquidated damages clause as “a penalty.” Defendants contend that “if double rent as

provided for in Landlords’ form lease is a reasonable estimate of damages suffered

from (a) lost percentage rent and (b) other damages resulting from failure to

continuously operate; it cannot be, in a mathematical sense, a reasonable estimate of

simply (b) other damages resulting from failure to continuously operate.”

      Defendants’ argument concerning “lost percentage rent” refers to a secondary

argument.    Defendants contend that the sentence in Section 20 providing for

“Additional Rent” should have been removed from the final draft of the agreement.

Defendants cite a deposition which purports that the sentence was only in the

agreement as the result of an editing error. Per this deposition, the sentence was

only to remain there if percentage rent was paid under the lease. Because the lease

contained no percentage rent provision, the provision of Section 20 granting

“Additional Rent” should have been similarly stricken.

      Even assuming arguendo that defendants’ argument is true, and that the

sentence is the result of an editing error, that fact amounts to parol evidence. “[P]arol

evidence is not admissible to contradict the language of the contract.” Thompson v.

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                      WFC LYNNWOOD I V. LEE OF RALEIGH, INC.

                                   Opinion of the Court

First Citizens Bank & Tr. Co., 151 N.C. App. 704, 709, 567 S.E.2d 184, 189 (2002).

The language of Section 20 is plain and clear. Pursuant to that section, in the event

of breach by defendants, plaintiffs are entitled to “Additional Rent.” Defendants’

arguments as to how that section arrived in the final document are parol evidence,

and will not be considered to contradict the agreement.

      Defendants’ argument, then, is that the liquidated damages provision was

based on both actual damages and lost percentage rent, which shows that the

liquidated damages provision was not a reasonable estimate of actual damages.

However, because any arguments concerning percentage rent were parol evidence,

the trial court was not to consider them, nor will this Court. As such, defendants are

left with no argument as to whether the liquidated damages sought by plaintiffs were

not a reasonable estimate of damages, or reasonably proportionate to damages

suffered. We hold, therefore, that defendants did not meet their burden with respect

to the liquidated damages clause, and that the trial court did not err in enforcing it.

      As an aside, defendants suggest that this is a “double damage” provision, and

is therefore void as a penalty. Defendants cite to a New York decision in support of

their argument.     Our analysis above, however, addresses this point.         To wit:

Defendants bore the burden of challenging the liquidated damages provision, be it

“double damage” or otherwise, and have failed to meet that burden. This argument

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                      WFC LYNNWOOD I V. LEE OF RALEIGH, INC.

                                   Opinion of the Court

by defendants does not change our analysis, nor does it require additional

consideration.

                                  III. Attorneys’ Fees

      In their second argument, defendants contend that the trial court erred in

awarding attorneys’ fees pursuant to N.C. Gen. Stat. § 6-21.6.

                                A. Standard of Review

      “The decision whether to award attorney’s fees is within the sound discretion

of the trial court and will not be overturned absent an abuse of discretion.” Egelhof

v. Szulik, 193 N.C. App. 612, 620, 668 S.E.2d 367, 373 (2008). “An abuse of discretion

occurs when a decision is either manifestly unsupported by reason or so arbitrary

that it could not have been the result of a reasoned decision.” Id. at 620-21, 668 S.E.2d

at 373 (citations and quotation marks omitted).

                                 B. Recoverable Fees

      In its order awarding attorneys’ fees, the trial court held:

             The requirements of N.C. Gen. Stat. § 6-21.6 are satisfied
             to make the reciprocal attorneys’ fee provision in the Lease
             valid and enforceable, because: the Lease is a business
             contract; the parties executed the contract by hand; and the
             terms and conditions concerning a possible award of
             attorneys’ fees and legal expenses apply with equal force to
             Plaintiffs and Lee of Raleigh, Inc.

On appeal, defendants contend that the trial court erred in awarding attorneys’ fees

pursuant to that section. Defendants note that attorneys’ fees are generally not

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                                  Opinion of the Court

recoverable absent express statutory authority, and that the fees in the instant case

should have been enforced under N.C. Gen. Stat. § 6-21.2, not N.C. Gen. Stat. § 6-

21.6. We disagree.

      The statute upon which the trial court relied provides:

             Reciprocal attorneys’ fees provisions in business contracts
             are valid and enforceable for the recovery of reasonable
             attorneys’ fees and expenses only if all of the parties to the
             business contract sign by hand the business contract.

N.C. Gen. Stat. § 6-21.6(b) (2015). By contrast, the statute upon which defendants

rely provides:

             Obligations to pay attorneys’ fees upon any note,
             conditional sale contract or other evidence of indebtedness,
             in addition to the legal rate of interest or finance charges
             specified therein, shall be valid and enforceable, and
             collectible as part of such debt, if such note, contract or
             other evidence of indebtedness be collected by or through
             an attorney at law after maturity, subject to the following
             provisions:

             ...

             (2) If such note, conditional sale contract or other evidence
             of indebtedness provides for the payment of reasonable
             attorneys’ fees by the debtor, without specifying any
             specific percentage, such provision shall be construed to
             mean fifteen percent (15%) of the “outstanding balance”
             owing on said note, contract or other evidence of
             indebtedness.

N.C. Gen. Stat. § 6-21.2(2) (2015). Defendants contend that the lease agreement at

issue is not a “business contract,” but is rather “evidence of indebtedness,” and that

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                                   Opinion of the Court

the provisions of N.C. Gen. Stat. § 6-21.2 apply, rather than those of N.C. Gen. Stat.

§ 6-21.6. Defendants therefore contend that the amount of attorneys’ fees owed were

capped at 15% of the “outstanding balance” on the lease.

      Defendants concede that, pursuant to N.C. Gen. Stat. § 6-21.6, “under most

commercial leases entered today, a Landlord could choose to seek actual reasonable

attorneys’ fees under reciprocal attorneys’ fee provisions such as Section 31.6 of the

Lease, rather than seek a reasonable attorneys’ fee, under G.S. § 6-21.2, of 15% of the

outstanding balance.” Defendants contend, however, that N.C. Gen. Stat. § 6-21.6

was not effective when the lease was signed.

      N.C. Gen. Stat. § 6-21.6 became effective on 1 October 2011. In their brief,

defendants concede that Lee executed the lease on 3 October 2011, after the effective

date of the statute. The trial court likewise found that Hellner, as Lee’s president,

executed the lease on 3 October 2011, that Park and Hellner executed the guaranty

on 3 October 2011, and that Steven Fogel, a manager for plaintiffs, executed the lease

on 26 October 2011. It is therefore clear that the lease was executed after the effective

date of N.C. Gen. Stat. § 6-21.6, and that Lee, as signatory to the lease, was subject

to statutory attorneys’ fees as contemplated by N.C. Gen. Stat. § 6-21.6.

      Defendants further contend, however, that Hellner and Park, as guarantors,

should not be subject to the same attorneys’ fees, as the guaranty they signed lacked

a reciprocal attorneys’ fee provision. It is true that Park was not a party to the lease,

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                                   Opinion of the Court

and Hellner only signed the lease in her capacity as a representative of Lee. It is also

true that the guaranty, on its own, does not satisfy the requirements of N.C. Gen.

Stat. § 6-21.6. However, this Court has held that an unconditional guaranty of

charges provided for in a lease can subject a guarantor, despite not being a party to

the lease itself, to liability for attorneys’ fees. See RC Assocs. v. Regency Ventures,

Inc., 111 N.C. App. 367, 374, 432 S.E.2d 394, 398 (1993) (“[t]he language in the

guaranty contract is sufficient to put a guarantor on notice that he will be liable for

attorney’s fees if he fails to make the guaranteed payment before the creditor finds it

necessary to employ an attorney to collect the debt”); Devereux Props., Inc. v. BBM &

W, Inc., 114 N.C. App. 621, 625, 442 S.E.2d 555, 557 (1994) (holding that, where a

guaranty agreement covered “each and every obligation of Tenant under this Lease

Contract[,]” and the lease required payment of attorneys’ fees, the guarantors were

likewise responsible for attorneys’ fees).

      In the instant case, not only did the guaranty cover “each and every obligation”

under the lease generally, it specifically included “all damages including, without

limitation, all reasonable attorneys’ fees and disbursements incurred by Landlord or

caused by any such default and/or by the enforcement of the Guaranty.” Certainly,

if we have held that a general guaranty pertaining to “each and every obligation”

under the lease subjects the guarantor to liability for attorneys’ fees, one which

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                      WFC LYNNWOOD I V. LEE OF RALEIGH, INC.

                                   Opinion of the Court

explicitly cites attorneys’ fees must likewise subject the guarantor to liability for

attorneys’ fees.

      It is clear, therefore, that the agreement was executed after the effective date

of N.C. Gen. Stat. § 6-21.6, that Lee is liable for attorneys’ fees as outlined in that

statute and the reciprocal attorneys’ fees provision of the lease, and that Hellner and

Park, as guarantors pursuant to a guaranty that explicitly notes liability for

attorneys’ fees, are likewise jointly and severally liable with Lee for attorneys’ fees.

We hold that the trial court did not err in its award of attorneys’ fees.

                                  C. Amount of Fees

      Defendants also challenge the amount of attorneys’ fees awarded. Defendants

contend that the trial court’s findings of fact are “general and conclusory, and not

sufficient to enable the reviewing Court to determine whether or not the award of

attorney’s fees was reasonable.” We agree.

      “[I]n order for the appellate court to determine if the statutory award of

attorneys’ fees is reasonable the record must contain findings of fact as to the time

and labor expended, the skill required, the customary fee for like work, and the

experience or ability of the attorney.” Cotton v. Stanley, 94 N.C. App. 367, 369, 380
S.E.2d 419, 421 (1989). In its order awarding attorneys’ fees, the trial court found:

             12.    Counsel’s Affidavit outlines the rates and hours
             billed for each of the timekeepers at Plaintiffs’ counsel’s
             law firm, Smith Moore Leatherwood LLP, who worked on
             this lawsuit.

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                                   Opinion of the Court

             13.   Counsel’s Affidavit outlines the legal costs incurred
             by Plaintiffs through January 31, 2017, in connection with
             bringing and pursuing this lawsuit to enforce their rights
             under the Lease and Guaranty.

             14.    The Court is aware of the range of hourly rates
             charged by law firms in Wake County as well as in North
             Carolina for litigation of business contracts like this. The
             Court finds that the hourly rates billed to Plaintiffs as set
             forth in Counsel’s affidavit are fair and reasonable and
             conform to or are less than hourly rates charged in and
             around North Carolina and specifically in Wake County by
             firms and attorneys with comparable experience in matters
             of comparable complexity.

             15.     The pursuit of this matter by Plaintiffs reasonably
             required written discovery, depositions of four fact
             witnesses, and a Rule 30(b)(6) deposition, preparation for
             trial, and summary-judgment motions practice. The Court
             finds that the steps taken by Plaintiffs to enforce their
             Lease and Guaranty were reasonable and necessary, and
             that the time and labor expended by Plaintiffs’ counsel
             were reasonable.

             16.   The Court finds that the costs incurred by Plaintiffs
             were reasonable and necessary to enforce the Lease and
             Guaranty.

In short, the trial court found that (1) counsel’s rates were set forth in an affidavit;

(2) those rates were comparable and reasonable for the work done, the subject matter

of the case, and the experience of the attorneys, (3) the specific work done by counsel

was reasonable and necessary, and therefore (4) the costs incurred by plaintiffs were

reasonable and necessary.

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                                   Opinion of the Court

      Defendants contend that these findings were not supported by evidence in the

record, arguing that the affidavit itself is “too vague to provide sufficient competent

evidence to support the findings of fact in the Attorneys [sic] Fee Order[.]” The

affidavit in question was signed by the primary attorney in the case, and included

statements (1) that he was a Senior Associate with the firm, and had practiced law

since 2007 and in North Carolina since 2011; (2) that he billed at a rate of $260 per

hour in 2015 and 2016, and $285 per hour in 2017, as compared to his normal billing

rates of $260, $275, and $315 per hour in each of those respective years; (3) that

others worked on the case as well, and he included their billing rates. The attorney

also provided detailed tables of the names, hours worked, and dollars billed by

different attorneys, and the various expenses incurred throughout the proceedings,

to calculate his total amount.

      However, the affidavit offers no statement with respect to comparable rates in

this field of practice. Nor did counsel offer comparable rates at the hearing on

attorneys’ fees. It is therefore clear that there was insufficient evidence before the

trial court of “the customary fee for like work” for the trial court to make a finding on

that point, and to award attorneys’ fees accordingly.

      We hold that, with respect to the amount of attorneys’ fees awarded, the trial

court erred by making a finding with respect to “the customary fee for like work,”

absent evidence to support such a finding. We vacate the order with respect to the

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                                  Opinion of the Court

amount awarded, and remand that issue to the trial court. “On remand, the trial

court shall rely upon the existing record, but may in its sole discretion receive such

further evidence and further argument from the parties as it deems necessary and

appropriate to comply with the instant opinion.” Heath v. Heath, 132 N.C. App. 36,

38, 509 S.E.2d 804, 805 (1999).

      AFFIRMED IN PART, VACATED AND REMANDED IN PART.

      Judge TYSON concurs.

      Judge DAVIS concurs in part and dissents in part by a separate opinion.

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 No. COA17-562 – WFC Lynnwood I v. Lee of Raleigh, Inc.

      DAVIS, Judge, concurring in part and dissenting in part.

      I concur in the result reached by the majority in granting summary judgment

in favor of Plaintiffs.   I respectfully dissent, however, from the portion of the

majority’s opinion vacating the trial court’s award of attorneys’ fees.

      The majority holds that the trial court’s findings regarding the attorneys’ fees

award were unsupported by competent evidence because Plaintiffs’ affidavit in

support of their motion for fees did not expressly contain a statement with respect to

“comparable rates in the field of practice.” In my view, the trial court’s findings show

that it exercised its authority to take judicial notice of facts relevant to that issue,

which it was permitted to do. Finding of Fact No. 14 stated as follows:

                    14.    The Court is aware of the range of hourly
             rates charged by law firms in Wake County as well as in
             North Carolina for litigation of business contracts like this.
             The Court finds that the hourly rates billed to Plaintiffs as
             set forth in Counsel’s affidavit are fair and reasonable and
             conform to or are less than hourly rates charged in and
             around North Carolina and specifically in Wake County by
             firms and attorneys with comparable experience in matters
             of comparable complexity.

      This Court has previously upheld an award of attorneys’ fees pursuant to

which the trial court took judicial notice of customary hourly rates. In Simpson v.

Simpson, 209 N.C. App. 320, 703 S.E.2d 890 (2011), we held that “a district court,

considering a motion for attorneys’ fees . . . , is permitted, although not required, to

take judicial notice of the customary hourly rates of local attorneys performing the

same services and having the same experience.” Simpson, 209 N.C. App. at 328, 703
                     WFC LYNNWOOD I V. LEE OF RALEIGH, INC.

                     DAVIS, J., concurring in part and dissenting in part

S.E.2d at 895. Although Simpson involved the award of fees in connection with a

child custody modification issue, I am unable to discern any valid reason why a trial

court should not be permitted to similarly invoke the judicial notice doctrine in

connection with an award of attorneys’ fees under N.C. Gen. Stat. § 6-21.6.

      I believe the findings contained in the trial court’s order with regard to the

award of attorneys’ fees were sufficient to satisfy N.C. Gen. Stat. § 6-21.6.

Accordingly, I dissent.

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