Court Opinion

ID: 184923
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:25:43+00
Date Added: 2024-06-11T17:26:11.929191
License: Public Domain

182 F.3d 1 (D.C. Cir. 1999)
Federal Deposit Insurance Corporation, as Receiver for Madison National Bank, Appelleev.Morton A. Bender, et al.,Appellees/AppellantsVan Dorn Retail Management, Inc.,Appellant
No. 98-5458 Consolidated with No. 98-5459
United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 28, 1999Decided July 16, 1999

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.
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:

1
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.

2
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.

I. Background

3
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

4
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. § 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.

5
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 whether 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.

6
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.

7
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.

8
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 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

9
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...."

10
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 supersede as 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 satisfy in full the principal and interest due on the specified  notes and guaranties.

11
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.

12
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

13
Appellants raise a number of objections to the fee award.We consider each in turn.

1.Documentation in Support of the Fee Award

14
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.

15
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 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.").

16
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

17
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).

18
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.

19
3.Fees for Unsuccessful Defense on Appeal in Bender I

20
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.

21
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.

22
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 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.

23
Accordingly, we reverse the district court's award of the  $21,500 attributable to the Bender I litigation.

4.Allocation of Fees

24
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.

25
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

26
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 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 supersede as 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.

27
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 supersede as 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.

28
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.

III. Conclusion

29
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.

30
It is so ordered.