Burr & Forman

02.7.2014   |   Blog Articles, Consumer Finance Litigation, Fifth Circuit, Mortgages

Fifth Circuit Holds Motions for Attorney’s Fees Provided by Contract are Permissible Under Federal Rules

In Richardson v. Wells Fargo, N.A., No. 13-10002 (5th Cir. 2014), the United States Court of Appeals for the Fifth Circuit held that motions for attorney’s fees provided by contract are permissible in accordance with Fed. R. Civ. P. 54(d)(2). This rule provides that “a claim for attorney’s fees and related nontaxable expenses must be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages.” Plaintiff Pamela Richardson obtained a loan from Wells Fargo to refinance the mortgage on her property. Plaintiff secured the debt with a deed of trust, but defaulted on her mortgage payments three years after the initial loan. Wells Fargo offered Plaintiff a “Special Forbearance Plan,” but Plaintiff again failed to comply with the terms and obligations of the plan. Wells Fargo sold the property at a foreclosure sale to Freddy Mac. Aggrieved, Plaintiff brought suit with claims related to Wells Fargo’s foreclosure and Freddie Mac’s attempts to evict her. After the district court dismissed all of Plaintiff’s claims on summary judgment, Wells Fargo moved for attorney’s fees pursuant to Rule 54(d)(2). Wells Fargo offered a standard provision form found in Plaintiff’s deed of trust as support of recovery of its legal fees incurred while defending Plaintiff’s claims. However, Plaintiff never objected to Wells Fargo’s use of Rule 54(d)(2) as a method to recover attorney’s fees. The district court ruled that Wells Fargo had a substantive right to attorney’s fees under the deed of trust, but held that Wells Fargo could not recover such fees under Rule 54(d)(2) because they were an element of damages. The 5th Circuit considered whether the Wells Fargo’s attorney’s fees under the agreement were damages under Texas law. The Court found in some cases attorney’s fees are compensation for an underlying harm and therefore recoverable as damages. The Court further opined that such fees are distinguishable from the collateral legal costs associated with collecting a debt or prosecuting or defending against a pending lawsuit. Rather than considering the fees an “independent ground of recovery,” the Court considered the fees collection costs or costs incurred to protect Wells Fargo’s interest in the property and rights under the security agreement. And in response to Plaintiff’s contention that Wells Fargo must prove its attorney’s fees as damages because they were authorized by contract, the Court contrarily stated that none of the presented authorities proved that Fed. R. Civ. P 54(d)(2) was “always off-limits to attorney’s fees provided by contract.” In sum, the Court found both the language of the contract and the nature of the claim dispositive factors in regard to whether the fees were an element of damages or collateral litigation costs. Accordingly, the Court reversed the district court’s order denying Wells Fargo’s motion for attorney’s fees and remanded the case for resolution of the motion on its merits. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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