Limbright et al v. Hofmeister et al

Filing 247

OPINION AND ORDER: (1) pltfs' 229 MOTION to award atty fees & nontaxable expenses is GRANTED IN PART; (2) award of fees does not apply to Hofmeister Children personally; (3) pltf to submit detailed records of fees & expenses claiming in order that Court can determine reasonableness OOB 4/5/2012; (4) dft may file obj to amounts OOB 4/12/2012 at which time matter will be submitted to Court. Signed by Judge Karl S. Forester on 03/22/2012.(RJD)cc: COR Modified on 3/22/2012 (RJD).

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON

CIVIL ACTION NO. 5:09-cv-107-KSF
JAMES H. LIMBRIGHT, et al.

vs.

PLAINTIFFS

OPINION AND ORDER

GEORGE HOFMEISTER, et al.

DEFENDANTS
*******

This matter is before the Court on Plaintiff’s motion to modify or amend the Court’s
November 14, 2011 judgment to award attorney fees and related nontaxable expenses. [DE 229].
For the reasons discussed below, the motion will be granted in part.
I.

BACKGROUND
On November 14, 2011, this Court granted Plaintiffs’ motion for summary judgment in part,

but summarily denied their motion for attorney fees, based on the absence of any fee-shifting
statute. Limbright v. Hofmeister, 2011 WL 5523713 at *11 (E.D. Ky. Nov. 14, 2011). Recently, the
Court was reminded that in 2002 it awarded attorney fees based on the Hofmeisters’ personal
guaranties for the debt owed to the Limbrights. Those guaranties provided in part:
Guarantor acknowledges [his/her] obligation to pay the reasonable costs and out-ofpocket expenses of Holder [Limbrights] including, without limitation, reasonable
attorneys’ fees, in connection with the collection of the amounts owing under this
Guaranty.
Case No. 5:01-cv-92-KSF, Complaint, Exs. A, B. The Guaranty further provides that it guarantees
“punctual payment,” that it is “unconditional,” and that it is a “continuing guarantee and shall
continue in full force and effect, notwithstanding ... any other action or omission by the holder of
this Note.” Id. This Court said in its March 29, 2002 Judgment that it would award attorneys fees
and, in fact, did so on May 24, 2002. [DE 229, Ex. 2, p. 24].1 That award of fees also stated: “This

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Docket entry numbers reference pleadings in this case unless otherwise designated.

Court shall retain jurisdiction of this matter for the sole purpose of entertaining Plaintiffs’ Petition
for Subsequent or Additional Attorney Fees, Costs and Interest.” [DE 229-3, p. 2]. Plaintiffs
recently filed a motion in that case for additional attorney fees, along with the affidavits of counsel.
[Case 01-92, DE 160]. In the present case, Plaintiffs also seek their attorneys fees under Michigan
law and various equitable theories including fraud and exceptional circumstances.
Defendants object to the motion for fees in the earlier case, in part, “because their fees do
not represent collection on the guaranties; instead they represent collection on the judgment.”
[Case 01-92, DE. 161]. “By filing suit on the guaranties and taking a judgment plaintiffs exchanged
their guaranties for a judgment.” Defendants also argue that the Court has already denied a fee
award, and that there is no jurisdiction under the original case because the case is closed. They
argue the November 14, 2011 denial of fees is “res judicata” and “the law of the case.” Relying on
Michigan law, Defendants contend that fees cannot be awarded unless authorized by statute or by
court rule. They claim Rule 54 precludes a fee award unless authorized by a federal statute, rule
or court order.

Finally, Defendants argue there is no basis to award fees against the

supplementary trusts or children because they were not parties to the guarantees. Id.
In the present case, Defendants’ response argues the absence of a fee-shifting statute and
the absence of any finding that Defendants “proceeded in ‘bad faith, vexatiously, wantonly, or for
oppressive reasons,’” in addition to the above arguments. [DE 231]. Defendants also attempt to
distinguish Plaintiffs’ authorities on fraud and argue that the exception cited by Plaintiffs would
swallow the American Rule.
II.

ANALYSIS
Defendants reliance on MCL § 600.2405 regarding taxable costs and its limitation to

“attorney fees authorized by statute or by court rule” is misplaced. It ignores relevant Michigan
authority distinguishing that statute and upholding awards of attorney fees under a contract. In

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Central Transport, Inc. v. Fruehauf Corp., 139 Mich. App. 536, 362 N.W.2d 823 (1984), the court
said:
Contractual provisions for payment of reasonable attorney fees are judicially
enforceable. Attorney fees awarded under contractual provisions are considered
damages, not costs.
Id. at 829, citations omitted. See also Fleet Business Credit v. Krapohl ford Lincoln Mercury Co.,
274 Mich. App. 584, 735 N.W.2d 644, 648 (2007) (Attorney fees awarded under contractual
provisions are considered damages, not costs); Wilson Leasing Co. v. Seaway Pharmacal Corp,
53 Mich. App. 359, 220 N.W.2d 83, 87 (1974) (“[T]he amount of the attorneys’ fees is an element
of the principal debt; the fees are not ‘costs’ within the meaning of statutes which authorize or limit
the taxation of costs.”).
In Michigan National Leasing Corporation v. Cardillo, 103 Mich. App. 427, 302 N.W.2d 888
(1981), an equipment lease agreement provided that in the event of default:
Lessor, shall, nevertheless, have a right to recover from Lessee * * * reasonable
expenses including reasonable attorneys’ fees, which Lessor shall have sustained
by reason of the breach of any covenant or covenants of this Lease.
Id. at 892. The court noted that similar language was contained in the personal guaranty executed
by the corporate owners and held that the trial court erred by denying attorney fees. See also
Roberts v. Saffell, 2011 WL 2557495 at *2 (Mich. Ct. App. June 28, 2011) (“Here, the plain
language of the contract provision mandates the award of attorney fees to the prevailing party in
an action ‘arising out’ of the agreement.”); Smoot v. Fox, 353 F.2d 830, 832 (6th Cir. 1965)
(“Attorney’s fees are also allowable where they are ... provided for by agreement between the
parties.”).
In the present case, the Hofmeisters agreed to pay “reasonable attorneys’ fees in
connection with the collection of the amounts owing under this Guaranty.” “Clear, unambiguous,
and definite contract language must be enforced as written and courts may not write a different
contract for the parties....” Wausau Underwriters Ins. Co. v. Ajax Paving Industries, Inc., 256 Mich.

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App. 646, 671 N.W.2d 539, 543 (2003). Accordingly, the Limbrights are entitled to reasonable
attorney fees.
Defendants contend that “[b]y filing suit on the guaranties and taking a judgment, plaintiffs
had exchanged their guaranties for a judgment.” [DE 231, p. 4, emphasis in original]. They follow
this with the argument that no fees are owed because: “None of these attorneys were collecting
on guaranties. They were collecting a judgment.” Id. Under Defendants’ theory, a guaranty is only
a guaranty if it is voluntarily paid. If the guarantor decides not to pay it and there is litigation
resulting in a judgment, the promise to pay attorney fees becomes worthless. That makes
absolutely no sense. Defendants have not cited any authority to support their interpretation of a
guaranty, and the Court has found none.
The plain language of the guaranties executed by the Hofmeisters provides that reasonable
attorneys’ fees are to be paid and that the guaranties are “unconditional” and “shall continue in full
force and effect, notwithstanding ... any other action or omission by the holder of this Note.” There
is no exception for the necessity of litigation. To the contrary, the need for litigation increases the
likelihood that attorney fees would be warranted. Courts are not free to rewrite the contract agreed
upon by the parties. If the fees are reasonable and incurred “in connection with the collection of
the amounts owing under this Guaranty,” they are to be paid by the Hofmeisters. The language
used by the parties, “in connection with the collection of the amounts owing” is broad and must be
enforced as written.
Defendants’ arguments regarding “res judicata” and “law of the case” are equally without
merit. If a prior decision of a trial court were res judicata, then Fed. R. Civ. P. 59(e) would be
superfluous. Instead, Rule 59(e) specifically allows a trial court to alter or amend its judgment. The
law of the case doctrine has no application here, either. “[T]he ‘law of the case’ doctrine is ‘limited
to those questions necessarily decided in the earlier appeal.’” University Hospitals of Cleveland v.
Emerson Electric Co., 202 F.3d 839, 848, n.6 (6th Cir. 2000).

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The reasonableness of any fees claimed must be determined, however. The burden is on
the party claiming fees to provide the court with the detail to prove the reasonableness of the
requested fees. Smith v. Khouri, 481 Mich. 519, 751 N.W.2d 472, 478 (2008). If necessary, the
details may be filed under seal pursuant to this Opinion and Order, but must be provided to
opposing counsel for purposes of making objections.
Because the Hofmeister Children were not parties to the guaranties and were not held to
be alter egos of the Hofmeisters, the Children are not personally liable for fees and expenses. The
Court previously determined that the Florida condo was a fraudulent transfer to the Children,
making it subject to any award. Limbright v. Hofmeister, 2011 WL 5523713 at *9 (E.D. Ky. Nov.
14, 2011).
Even if attorney fees were not authorized under the guaranties, the Court agrees with
Plaintiffs that there are equitable grounds to support an award of reasonable fees in this case. “In
our opinion the allowance of such items [attorney fees] is within the discretion of the District court
in equity cases where exceptional circumstances call for their allowance in order to do justice
between the parties.” Smoot v. Fox, 353 F.2d 830 (6th Cir. 1965). Michigan law allows recovery
of attorney fees “in limited situations where a party has incurred legal expenses as a result of
another party’s fraudulent or unlawful conduct.” Brooks v. Rose, 191 Mich. App. 565, 478 N.W.2d
731, 736 (1991). See also Ypsilanti Charter Tp. v. Kircher, 281 Mich. App. 251, 761 N.W.2d 761,
781 (2008) (same).
Defendants seek to distinguish many of Plaintiffs’ authorities by arguing there was no
“fraud” claim in the present case. While not traditional claims of fraud, the very essence of
Plaintiffs’ claims of fraudulent transfer and alter ego was the Hofmeisters’ actual intent to defraud
creditors. Corporate or trust identities will generally be respected and “will be pierced only to
prevent fraud or injustice.” Bodenhamer Bldg. Corp. v. Architectural Research Corp., 873 F.2d
109, 111 (6th Cir. 1989). “Fraud or other attempts to evade the law justify invoking equity’s power

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to look through and behind the legal entity of corporate existence.” Id. This Court held that the
various trusts were merely the alter egos of George and Kay Hofmeister. Limbright v. Hofmeister,
2011 WL 5523713 at *3-*8 (E.D. Ky. Nov. 14, 2011). The Hofmeisters claimed to be transferring
assets to irrevocable trusts for the benefit of their children, but they continued to control and use
these assets to finance their lavish lifestyle. Id. Additionally, this Court held that “the Plaintiffs met
their burden of showing that the transfers from the Hofmeisters to the HFT, to the Children, and
to the CTs were with actual intent to defraud creditors.” Id. at *10.
The transfers of assets began soon after the Limbrights first filed suit. “The Florida condo
was transferred to HFT a month later, and the transfer of AHD began two months before the
Limbrights obtained their Kentucky Judgment in March 2002.” Id. at *7. After the Limbrights sued
the Hofmeisters and the HFT and vigorously litigated to recover on the Kentucky Judgment, the
parties mediated and reached a settlement on December 14, 2006. The settlement agreement was
not signed and effective, however, until January 7, 2007. Meanwhile, On December 20, 2006, the
condo was transferred from HFT to the Children. On December 31, 2006, AHD, AMI and Guide
Point Systems were transferred from HFT to the Children. After these transfers HFT was insolvent
and unable to pay any of the amount due under the settlement agreement. Id. The result was that
the Limbrights again had to file a lawsuit, broaden the named defendants to include the Children
and their trusts, and assert alter ego claims. For ten years, the Limbrights have been trying to
collect the funds due to them from the sale of their business to one of the Hofmeister corporations.
The corporation filed bankruptcy shortly after the sale, and the Limbrights have been pursuing the
guaranties signed by George and Kay Hofmeister ever since. The necessity of such extended
litigation to collect a debt presents exceptional circumstances. The Hofmeisters shuffled and hid
their assets at every turn and continued to drag out these proceedings. The collection of a
judgment is hollow when the debtor has forced the creditor to incur enormous attorney fees and

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costs. In order to do justice between the parties, the Court will exercise its discretion to award the
Limbrights reasonable attorney fees.
III.

CONCLUSION
IT IS ORDERED that:
A.

Plaintiffs’ motion to award attorney fees and nontaxable expenses [DE 229] is
GRANTED IN PART;

B.

The award of fees does not apply to the Hofmeister Children personally;

C.

Plaintiffs are to submit, under seal if necessary, on or before April 5, 2012 detailed
records of the fees and expenses they are claiming in order that the Court can
determine the reasonableness thereof; and

D.

Defendants may file any objections to the amounts claimed on or before April 12,
2012 at which time the matter will be submitted to the Court.

This March 22, 2012

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