LNV Corporation v. Harrison Family Business, LLC et al
Filing
91
MEMORANDUM OPINION. Signed by Judge Ellen L. Hollander on 11/23/2015. (nd2s, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
LNV CORP.,
Plaintiff,
v.
Civil Action No.: ELH-14-03778
HARRISON FAMILY BUSINESS,
LLC, et al.
Defendants.
MEMORANDUM OPINION
On December 3, 2014, LNV Corporation (“LNV”), successor in interest to the Bank of
Eastern Shore (“BOES”), filed suit against Harrison Family Business, LLC (“HFB”), alleging
that HFB defaulted on a commercial loan for $2,600,000 (“Term Loan”) that HFB had obtained
from BOES in February 2010.1
ECF 1, Complaint.
LNV also named as defendants the
guarantors of the loan: Harrison’s Country Inn and Sport Fishing Center, Inc. (“HCI”); Levin F.
Harrison, IV (“Harrison IV” or “Mr. Harrison”); Leslie A. Harrison; the Estate of Levin F.
Harrison, III (“Harrison III”); and the Estate of Roberta L. Harrison (“Roberta Harrison”). Id. at
1. Harrison III and Roberta Harrison are the deceased parents of Harrison IV. Leslie Harrison is
the wife of Harrison IV.
In a First Amended Complaint filed on January 8, 2015 (ECF 17, Amended Complaint),
plaintiff further alleged that HFB defaulted on a second commercial loan, in the amount of
1
LNV is incorporated in Nevada and has its principal place of business in Texas. ECF
17 at 2 ¶ 1, Amended Complaint. Jurisdiction is founded on diversity of citizenship. See 28
U.S.C. § 1332.
$100,000 (“Revolving Loan”), which HFB had obtained from BOES in February 2010. ECF 17
at 5 ¶ 22. As to this claim, LNV also sued the same guarantors. In support of its allegations,
LNV appended numerous exhibits to its Amended Complaint. ECF 17-1 to ECF 17-17.
The Amended Complaint contains six counts.2
In Count I, LNV seeks confessed
judgment against HFB under the terms of the Term Loan Note. ECF 17 ¶¶ 44-50. In Count II,
LNV seeks confessed judgment against HFB under the terms of the Revolving Loan Note. Id.
¶¶ 51-57. Count III contains a breach of contract claim against the guarantors with respect to the
Term Note. Id. ¶¶ 58-64. In Count IV, LNV alleges breach of contract against the guarantors as
to the Revolving Note. Id. ¶¶ 65-71.
Count V sought the appointment of a Receiver, and Count VI sought injunctive relief.
See id. ¶¶ 72-89. In connection with Counts V and VI, LNV also filed a motion for appointment
of a receiver and for injunctive relief. See ECF 3. As a result, the Court held an evidentiary
hearing on September 3, 2015. ECF 62; ECF 63. The motion was addressed in a Memorandum
(ECF 67) and Order (ECF 68) issued September 18, 2015.
On September 28, 2015, as to Count I and Count II, LNV filed a Request for Entry of
Confessed Judgment against HFB. ECF 70. By Order of October 22, 2015, I allowed HFB to
respond to LNV’s Request for Entry of Confessed Judgment and permitted LNV to reply. ECF
83. HFB responded on October 26, 2015. ECF 85, “Opposition.” LNV replied (ECF 86,
“Reply”), and submitted three exhibits. ECF 86-1 to ECF 86-3.
2
Because the Amended Complaint is the operative complaint, I shall refer only to the
claims asserted in that pleading. However, some of the same claims were contained in the initial
Complaint.
2
LNV’s Request for Entry of Confessed Judgment has been fully briefed, and no hearing
is necessary to resolve it. See Local Rule 105.6. For the reasons that follow, I will grant, in part,
LNV’s Request for Entry of Confessed Judgment.
I. Factual Background3
Since 1898, the Harrisons have operated hospitality, dining, and fishing businesses in
Tilghman, Maryland. See ECF 8-2 ¶ 3, Declaration of Levin F. Harrison, IV (“Decl. of Harrison
IV”). During the early 1930s, Levin F. Harrison, Jr. purchased the property and the building that
the Harrison family continues to operate as Harrison’s Country Inn (the “Inn”). Id. ¶ 10.
Harrison III and his wife, Roberta Harrison, inherited the Inn during the late 1970s. Today, the
Inn includes more than forty rooms for overnight guests, a restaurant and bar that can
accommodate about one hundred patrons, a small gift shop, and a marina with slips from which
customers can charter fishing cruises.
During early 2003, the Harrisons created HFB “to own, operate and manage real estate,”
which included the Inn and two other parcels.4 Id. ¶ 5; see ECF 17-2 at 17-18, Deed of Trust for
the Term Loan, Exhibit A; ECF 17-7 at 18-19, Deed of Trust for the Revolving Loan, Exhibit A.
According to Mr. Harrison’s testimony at the motions hearing, the Harrison family created HFB
3
In the factual summary, I rely on my notes of testimony adduced at the evidentiary
hearing held on September 3, 2015, in connection with LNV’s motion to appoint a receiver. See
ECF 3. Unfortunately, I do not have a transcript of the proceedings and therefore I cannot
provide citations. In addition, I have drawn on and incorporate herein the factual summary set
forth in my Memorandum Opinion of September 18, 2015 (ECF 67) and my Memorandum
Opinion of October 1, 2015 (ECF 72), addressing, respectively, LNV’s motion for appointment
of a receiver (ECF 3) and LNV’s motion to strike affirmative defenses (ECF 41).
4
The properties are located at 21544 Chesapeake House Drive, Tilghman, Maryland
21671; 21415 Main Street, Tilghman, Maryland 21671; and Lot 1, 0.878 Acres, E/S Main Street,
Tilghman, Maryland 21671. ECF 17-2 at 17-18, Deed of Trust for the Term Loan, Exhibit A.
3
on the advice of an accountant so that the properties could be used as collateral to obtain
financing from BOES. See ECF 8-2 at 2 ¶ 8, Decl. Harrison IV.
Prior to February 2010, the Harrison family owed about $2,500,000, inclusive of personal
and business debt. During the Fall of 2009, Harrison III, Roberta Harrison, and Harrison IV
entered into discussions with BOES to consolidate and refinance their existing loans and to
borrow an additional $200,000. See id. ¶ 9.
On February 16, 2010, BOES extended two commercial loans to HFB. As noted, the first
is the Term Loan for $2,600,000. See ECF 17-1, Term Loan Note. The second is the Revolving
Loan for $100,000. ECF 17-6, Revolving Loan Note. Each loan is secured by a Deed of Trust.
ECF 17-2, Deed of Trust for the Term Loan; ECF 17-7, Deed of Trust for the Revolving Loan.
Harrison III, Roberta Harrison, and Harrison IV signed the notes for both loans as
members of HFB.5 ECF 17-1 at 5, Term Loan Note; ECF 17-6 at 7, Revolving Loan Note.
Harrison III, Roberta Harrison, Harrison IV, Leslie Harrison, and HCI executed guaranty
agreements for each loan. ECF 17-4 at 4, Guaranty for Term Loan (signed individually by
Harrison III, Roberta Harrison, Harrison IV, and Leslie Harrison); ECF 17-5 at 4, Guaranty for
Term Loan (on behalf of HCI, signed by Harrison IV, Harrison III, and Roberta Harrison as
HCI’s officers); ECF 17-8 at 4, Guaranty for Revolving Loan (signed individually by Harrison
III, Roberta Harrison, Harrison IV, and Leslie Harrison); ECF 17-9 at 4, Guaranty for Revolving
Loan (on behalf of HCI, signed by Harrison IV, Harrison III, and Roberta Harrison as HCI’s
officers). Harrison III and Harrison IV also provided BOES with a Preferred Ship Mortgage as
5
Harrison IV concedes that he was not, in fact, a member of HFB when he signed the
loan documents as a purported member. ECF 8-2 ¶¶ 7-8, Decl. of Harrison IV. He explains that
he “was mistaken in [his] good faith belief” that he had received a membership interest in HFB
before signing the loan documents. Id. ¶ 8.
4
to the vessel “Captain Buddy.” ECF 17-11 at 8, Preferred Ship Mortgage. According to LNV,
“Harrison IV was approximately 51 years of age at the time he executed the Loans on behalf of”
HFB. ECF 17-17 at 5 ¶ 15, Decl. of Robert Bowen, Portfolio Manager for CLMG Corporation,
LNV’s loan servicer, dated January 8, 2015; ECF 86 at 2 ¶ 4, Reply.
Defense counsel
maintained at the hearing in September 2015 that BOES induced the Harrisons to take out the
loans.
On April 27, 2012, the Maryland Commissioner of Financial Regulation closed BOES
(ECF 17 at 8 ¶ 33, Amended Complaint) and the Federal Deposit Insurance Corporation
(“FDIC”) was appointed as BOES’s Receiver. Id. On August 20, 2014, the FDIC, as BOES’s
Receiver, assigned to LNV the deeds of trust that HFB had executed to secure its loans from
BOES. ECF 17-13, Assignment of Deed of Trust; ECF 17-14, Assignment of Deed of Trust.
LNV recorded the assignments in the land records of Talbot County, Maryland. ECF 17-13 at 7,
Assignment of Deed of Trust; ECF 17-14 at 7, Assignment of Deed of Trust.
In 2013, HFB began to miss payments due on the loans. ECF 17 at 9 ¶ 37, Amended
Complaint; ECF 32 at 7 ¶ 37, Answer to Amended Complaint. On November 13, 2014, LNV, as
BOES’s successor in interest, demanded that HFB and the loans’ guarantors bring the notes
current. ECF 17-15, Letter from LNV’s Counsel to Defendants dated Nov. 13, 2014; ECF 1716, Letter from LNV’s Counsel to Defendants dated Nov. 13, 2014.
At the hearing on
September 3, 2015, Mr. Harrison conceded that HFB has not made payments on either loan in
over a year. When HFB failed to do so, LNV filed suit.
As noted, in Counts I and II, LNV seeks confessed judgments as to both loans, pursuant
to the terms of each note.
5
In relevant part, the Term Loan Note provides, ECF 17-1 at 3-4:
7.02. Confessed Judgment -- Any attorney at law may appear in any court
of record in the State of Maryland or in the United States, after demand on this
Note, and waive the issuing of service of process and confess a judgment against
the Marker in favor of the Holder, for the amount then appearing due hereunder,
together with costs of suit, interest, and 15 % attorney’s fees, and thereupon
release all errors and waive all rights of appeal.
The Revolving Loan Note provides, in pertinent part, ECF 17-6 at 6:
14. CONFESSED JUDGMENT
Each Obligor who signs this Note as Maker, endorser, or Guarantor,
hereby authorizes and empowers any attorney of record of any court within the
United States to appear for such Obligor in any court, waiving any objection to
venue, in one or more proceedings, or before any clerk thereof, and confess
judgment against each such Obligor, WITHOUT PRIOR NOTICE, OR
OPPORTUNITY FOR HEARING, in favor of Lender for the amount then due
and payable and otherwise matured as provided in this Note, with interest accrued
thereon, and an attorney’s fee of 15%, hereby waiving and releasing, to the extent
permitted by law, all errors and rights of redemption, appeal, stay of execution,
inquisition and extension upon any levy on real estate, or personal property to
which each such Obligor may otherwise be entitled under the law of the United
States now in force or which hereafter may be executed. However, this authority
to confess judgment shall not in any circumstances extend to, or be be [sic]
construed to extend to, and no judgment confessed shall create or be construed to
create a lien on any real property or any divisible portion thereof which is used or
expected to be used as the dwelling or principal residence of such Obligor. The
Lender reserves the right to seek a judicial lien against such real property used as
a dwelling or principal residence through a judgment not obtained by confession.
III. Discussion
In its two-page Opposition, HFB makes three principal arguments in response to LNV’s
Request for Entry of Confessed Judgment. First, HFB argues: “A judgment by confession is a
product of State law and has no counterpart in the Federal rules.” ECF 85 at 1 ¶ 1, Opposition.
HFB maintains: “Maryland Rule 2-611 governs confessed judgments and, therefore, is dispostive
[sic] of Plaintiff’s request.” Id. HFB contends that LNV’s request for entry of confessed
6
judgments is improper as LNV has not complied with the formalities of Maryland Rule 2-611.
See id. at 1-2 ¶¶ 3-4.
In particular, HFB argues that LNV has not submitted an affidavit using the form
affidavit as provided in Maryland Rule 2-611. See id. However, HFB does not explain why this
Court would rely on a Maryland procedural rule, rather than a federal procedural rule. In any
event, HFB has not contested the authenticity of the copies of the Term Loan Note (ECF 17-1) or
the Revolving Loan Note (ECF 17-6), which LNV has submitted. Nor has it identified any
specific deficiencies in the form of the declarations provided by LNV.
Second, HFB contends that LNV has miscalculated the amounts due on the loans. See id.
at 2 ¶ 5. It points to a relatively small discrepancy between the sums previously requested by
LNV and those requested currently. See id. It appears that the discrepancies are the result of
interest that continues to accrue.
Finally, HFB argues that, pursuant to Maryland state law, LNV’s request for “attorney’s
fees in the amount of fifteen percent (15%) of the unpaid principle [sic] of the Term Note and
Revolving Loan Note” is inappropriate, as “a creditor may collect its actual and reasonable
attorney’s fees, and not merely request a percentage of fees based exclusively upon the language
in the agreement.” Id. at 2 ¶ 6.6
6
HFB also contends: “There is no legal basis for the court to enter judgment by
confession because the loan documents authorize an attorney and not the Court to confess
judgment. (ECF 17-1 at § 7.02 and ECF 17-6 at § 14.)” ECF 85 at 2 ¶ 7. According to LNV:
“The Term Note and the Revolving Loan Note do not require a separate attorney to enter an
appearance for Defendant, but, in order to negate any argument on this issue and to minimize any
continued delay in having confessed judgment entered, the aforementioned entry of appearance
is being filed.” ECF 86 at 5 n.3. LNV also submits that such an appearance is “not required by
Local Rule 108 . . . .” ECF 86 at 5 n.3.
7
LNV counters: “Local Rule 108 sets forth the requirements and procedures for obtaining
a judgment by confession in this Court.” ECF 86 at 1 ¶ 1, Reply. And, it argues that it has
satisfied the requirements of Local Rule 108. Id. at 2-3, ¶¶ 4-7. LNV also states: “When
Plaintiff again requested the entry of confessed judgment on September 28, 2015 (ECF No. 70),
it simply updated the interest and late fees that had accrued since January 2015.” ECF 86 at 4,
¶ 9. Finally, LNV clarifies that “Plaintiff is only seeking an award of the attorneys’ fees and
costs incurred to date.” Id.
A. Confessed Judgment
Under Maryland law,7 a confessed judgment is a “device designed to facilitate collection
of a debt.” Schlossberg v. Citizens Bank, 341 Md. 650, 655, 672 A.2d 625, 627 (1996). A
confession of judgment clause, occasionally described more archaically as a “cognovit,” is a
In any event, on November 2, 2015, J. David Folds, Esquire, of Baker, Donelson,
Bearman, Caldwell & Berkowitz, P.C., entered his appearance as attorney-in-fact for HFB and
consented to the entry of the confessed judgments. See ECF 87, Entry of Appearance and
Consent to Judgment.
7
The parties have not addressed choice of law issues, although HFB cites to Maryland
law. Section 7.01 of the Term Loan Note states, ECF 17-1 at 3: “This Note shall be governed by
and construed according to the laws of the State of Maryland, without regard to principles of
conflict of laws.” The Revolving Loan Note does not have a comparable clause. However, both
the Term Loan Note (ECF 17-1 at 4 § 7.03) and the Revolving Loan Note (ECF 17-6 at 6 § 15)
state that each loan “is a ‘commercial loan’ as defined in the Commercial Law Article of the
Annotated Code of Maryland.”
Maryland applies the law of the State in which the contract was formed (“lex loci
contractus”), unless the parties to the contract agreed to be bound by the law of another State.
See, e.g., Am. Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md. 560, 573, 659 A.2d 1295, 1301
(1995). All of the parties were based in Maryland. The Term Loan Note indicates that it was
executed in Maryland. ECF 17-1 at 4. The Revolving Loan Note appears to have been executed
in Maryland. ECF 17-6 at 2 (indicating “Dorchester County, Maryland” at the beginning of the
note). For these reasons, and because neither side suggests otherwise, I shall apply Maryland
law.
8
provision that is sometimes included in a debt instrument, by which the debtor “agree[s] to the
entry of judgment against [the debtor] without the benefit of a trial in the event of default on the
debt instrument.” Id.; see BLACK’S LAW DICTIONARY 296, 339 (9th ed. 2009) (definitions of
“cognovit” and “confession of judgment”).
Maryland courts have recognized that, in some circumstances, “a confessed judgment
note serves a salutary purpose.” Nils, LLC v. Antezana, 171 Md. App. 717, 726, 912 A.2d 45, 50
(2006), cert. denied, 397 Md. 397, 918 A.2d 469 (2007).
“When unchallenged or not
successfully challenged,” a confessed judgment “permits the holder to by-pass the trouble, the
time, the expense, and the uncertainty of a trial.” Id. Nevertheless, “‘[j]udgments by confession
are not favored in Maryland, because Maryland courts have long recognized that the practice of
including in a promissory note a provision authorizing confession of judgment lends itself far too
readily to fraud and abuse.’” Gambo v. Bank of Md., 102 Md. App. 166, 185, 648 A.2d 1105,
1114 (1994) (citation omitted). Therefore, the Maryland Court of Appeals “has made clear that
judgments by confession are to be ‘freely stricken out on motion to let in defenses.’”
Schlossberg, 341 Md. at 655, 672 A.2d at 627 (citation and some internal quotation marks
omitted).
The disfavored status of confessed judgments is also made plain by the many
provisions of Maryland law that prohibit the use of confessed judgment clauses in a wide variety
of contractual contexts. See Sager v. Housing Com’n of Anne Arundel County, 855 F. Supp. 2d
524, 554 (D. Md. 2012).
District of Maryland Local Rule 108.1 governs the entry of judgment by confession in
this Court. Hunt v. Kadlick, 972 F. Supp. 2d 772, 774 (D. Md. 2013); Understein v. McKiver,
DKC-14-1452, 2014 WL 7048969, at *5 (D. Md. Dec. 11, 2014); Sager, 855 F. Supp. 2d at 553
9
n.37 (“The current provisions applicable in Maryland state courts under the Maryland Rules are
analogous to this Court’s procedures with respect to confessed judgments. See Local Rule
108.1.”).
Local Rule 108(1)(a) provides:
A complaint requesting the entry of judgment by confession shall be filed
by the plaintiff accompanied by the written instrument authorizing the confession
of judgment and entitling the plaintiff to a claim for liquidated damages and
supported by an affidavit made by the plaintiff or someone on that party’s behalf
stating the specific circumstances of the defendant’s execution of said instrument
and including, where known, the age and education of the defendant, and further
including the amount due thereunder, and the post office address (including street
address if needed to effect mail delivery) of the defendant.
Local Rule 108(1)(b) states:
Upon review of the aforesaid documents, the Court may direct the entry of
judgment upon a finding that the aforesaid documents prima facie establish (1) a
voluntary, knowing, and intelligent waiver by the defendant of the right to notice
and a prejudgment hearing on the merits of the claim of the plaintiff for liquidated
damages and (2) a meritorious claim of the plaintiff for liquidated damages
against the defendant.
LNV’s submissions satisfy Local Rule 108(1)(a). As discussed, the Term Loan Note and
the Revolving Loan Note each contain provisions that call for entry of a confessed judgment in
the event of default. ECF 17-1 at 3-4 § 7.02, Term Loan Note; ECF 17-6 at 6 § 14, Revolving
Loan Note. HFB’s default is undisputed. LNV also appended to its Amended Complaint a
Declaration of Robert Bowen, a Portfolio Manager for CLMG Corporation, LNV’s loan servicer,
dated January 8, 2015. ECF 17-17. Mr. Bowen’s affidavit specifies: (1) the circumstances under
which HFB executed the loan documents, id. at 3, ¶¶ 5-7; (2) that “Harrison IV was
approximately 51 years of age at the time he executed the Loans on behalf of” HFB, id. at 5 ¶ 15;
10
(3) the amounts due under each loan agreement, id. at 4 ¶¶ 11-12; and (4) HFB’s post office
address, id. at 4 ¶ 13.
In addition, LNV appended to its Reply a Revised Declaration by Mr. Bowen, dated
November 2, 2015. ECF 86-1. Mr. Bowen’s Revised Declaration provides substantially the
same information as found in his earlier declaration (ECF 17-17), but updates the amounts due
on both loans to reflect interest due through November 1, 2015. ECF 86-1 at 4 ¶¶ 11-12. Unlike
Mr. Bowen’s original Declaration of January 8, 2015, which sought attorney’s fees in the amount
of “15% of the total unpaid principal” for each loan, pursuant to the terms of the notes, (ECF 1717 ¶¶ 11-12), Mr. Bowen’s Revised Declaration of November 2, 2015, seeks actual attorney’s
fees and costs, which are less than 15% of the unpaid principal. See ECF 86-1 ¶¶ 11-12.
LNV’s submissions also satisfy Local Rule 108(1)(b). The record establishes that HFB’s
members voluntarily, knowingly, and intelligently waived the right of notice and a prejudgment
hearing on the merits. As LNV notes: “Although courts do not usually have the benefit of any
response from the defendant prior to considering the entry of judgment by confession, in this
case the Defendant already has conceded the authenticity of the loan documents.” ECF 86 at 3
¶ 6, Reply; see, e.g., ECF 32 at 3 ¶ 13, 4-5 ¶ 22, Answer to Amended Complaint (conceding the
authenticity of the Term Loan Note and Revolving Loan Note).
Notwithstanding defense
counsel’s contention at the hearing on September 3, 2015, to the effect that BOES induced the
Harrisons to take out the loans, the record suggests that the Harrisons were informed participants
in a sophisticated commercial transaction. As noted, Mr. Harrison testified at the hearing that the
Harrisons already owed about $2,500,000 when they entered into the loan agreements at issue
here. Moreover, the record shows that the Harrisons created HFB on the advice of an accountant
11
and transferred real property to HFB for the purpose of taking out loans, including, ultimately,
the Term Loan and the Revolving Loan.
LNV has established meritorious confessed judgment claims against HFB. As noted,
HFB acknowledges that it is in default. See ECF 32 at 7 ¶ 37, Answer to Amended Complaint
(“Defendants admit that Borrower has failed to make 15 consecutive scheduled payments on the
Term Note, and 16 consecutive scheduled payments on the Revolving Loan Note . . . .”).
Moreover, at the motions hearing, Mr. Harrison conceded that HFB has not made payments on
either loan in over a year. LNV has satisfied Local Rule 108(1)(b), and entry of confessed
judgments against HFB is appropriate.
B. Damages
Pursuant to the confessed judgment provisions of the Term Loan Note (ECF 17-1 at 3-4
§ 7.02) and Revolving Loan Note (ECF 17-6 at 6 § 14), LNV requests the following damages,
ECF 86-1 at 4, ¶¶ 11-12, Bowen Rev. Decl.:
Through and including November 1, 2015, the total due and owing under
the Term Note was $2,927,360.43, consisting of $2,493,453.39 in unpaid
principal, $245,916.84 in unpaid and accrued interest, $16,957.41 in unpaid late
fees, $165,353.02 in attorneys’ fees and costs (as reflected in the Declarations of
John McJunkin [(ECF 86-2)] and Stephen B. Jackson [(ECF 86-3)] filed
concurrently herewith),[] plus the negative escrow balance of $5,679.77 (for flood
insurance paid for by the lender on behalf of the Borrower), with interest accruing
at the per diem rate of $311.68 starting on November 2, 2015.
Through and including November 1, 2015, Borrower owed a total of
$114,797.24 under the Revolving Loan Note, consisting of $97,492.01 in unpaid
principal, $10,480.39 in unpaid and accrued interest, $203.84 in unpaid late fees,
$6,621.00 in attorneys’ fees and costs (as reflected in the Declarations of John
McJunkin [(ECF 86-2)] and Stephen B. Jackson [(ECF 86-3)] filed concurrently
herewith), with interest accruing at the per diem rate of $12.19 starting on
November 2, 2015.
12
Mr. Bowen states in his Revised Declaration, ECF 86-1 at 4 n.1: “For purposes of
allocation between the Term Note and the Revolving Loan Note, the legal fees and costs were
split in proportion to the amounts of the respective loans. Using that approach yields attorneys’
fees and costs of $165,353.02 for the Term Note and of $6,621.00 for the Revolving Loan Note.”
With its Reply (ECF 86), LNV submitted two declarations from LNV’s attorneys,
describing legal services rendered and corresponding fees. See ECF 86-2, Decl. of John G.
McJunkin, Esquire, dated Nov. 2, 2015; ECF 86-3, Decl. of Stephen B. Jackson, Esquire, dated
Nov. 1, 2015.
John McJunkin, Esquire, a shareholder of Baker Donelson Bearman Caldwell &
Berkowitz, PC (“Baker Donelson”), described his own work and that of others at Baker
Donelson on behalf of LNV. ECF 86-2 ¶ 2. According to Mr. McJunkin, he and three other
attorneys at Baker Donelson, whose billing rates range from $325 per hour to $495 per hour,
spent “[a]pproximately 387 hours of professional time” on this matter through November 1,
2015. Id. ¶ 4. Mr. McJunkin stated, in part, id. ¶ 5:
In connection with this matter, Baker Donelson attorneys have: reviewed the
relevant Loan Documents; assisted LNV in analyzing and assessing possible
recovery and liquidation scenarios with respect to the collateral for the loans at
issue; drafted and coordinated service of Complaint; drafted an Amended
Complaint; prepared pleadings, motions, declarations and other documents for
filing with this Court; conducted legal research; developed case strategy;
coordinated with real estate foreclosure counsel; worked on ship mortgage arrest
and foreclosure under the applicable maritime rules and laws; prepared for and
attended mediation (including review and assessment of financial information
provided by the Defendants); prepared and filed claims in the decedent estate
cases of the late Mr. and Mrs. Levin Harrison III; engaged in multiple settlement
discussions with Defendants’ counsel outside the mediation context; and prepared
for (including issuance of subpoenas and review of financial information from the
Defendants) and attended a full day hearing on LNV’s motion for the appointment
of a receiver and its motion to strike Defendants’ affirmative defenses . . . .
13
Mr. McJunkin further “submits that the attorneys’ fees actually incurred of $160,482.00,
plus costs and expenses in the amount of $5,773.51, for a total of $166,255.51 through
November 1, 2015 are reasonable.” Id. ¶ 7.
The Declaration of Stephen Jackson, Esquire (ECF 86-3) details the legal services that he
performed on LNV’s behalf. Mr. Jackson, a shareholder of Heise Jorgensen & Stefanelli P.A.,
serves as counsel for LNV in its foreclosure action against HFB in the Circuit Court for Talbot
County, Maryland.8
Id. ¶ 2.
According to Mr. Jackson: “Approximately 15 hours of
professional time have been spent on this file through November 1, 2015.” Id. ¶ 4. Mr. Jackson
stated: “In connection with this matter, I have: reviewed the relevant loan documents; reviewed
and obtained updated title searches; and prepared all relevant documents, pleadings and
notifications as required by law in order to pursue foreclosure.” Id. ¶ 5. Mr. Jackson “submits
that the attorneys’ fees actually incurred of $4,575.00, plus costs and expenses in the amount of
$1,143.51 for a total of $5,718.51 through November 1, 2015 are reasonable.” Id. ¶ 7.
As noted, the confessed judgment provisions of both the Term Loan Note, ECF 17-1 at 34 § 7.02, and the Revolving Loan Note, ECF 17-6 at 6 § 14, allow for a sum of attorneys’ fees
amounting to fifteen percent of the unpaid principal. And, HFB concedes that authenticity of the
loan documents. ECF 32 at 3 ¶ 13, 4-5 ¶ 22, Answer to Amended Complaint. HFB’s sole
objection to LNV’s request for attorneys’ fees is that, under Maryland law, “a creditor may
collect its actual and reasonable attorney’s fees, and not merely request a percentage of fees
based exclusively upon the language in the agreement.” ECF 85 ¶ 6, Opposition (citing Suntrust
Bank v. Goldman, 201 Md. App. 390, 29 A.3d 724 (2011)).
8
LNV began foreclosure proceedings in Maryland state court in August 2015. ECF 58-1,
Notice of Intent to Foreclose dated August 12, 2015.
14
“Contract provisions providing for awards of attorney’s fees to the prevailing party in
litigation under the contract generally are valid and enforceable in Maryland.” Myers v.
Kayhoe, 391 Md. 188, 207, 892 A.2d 520, 532 (2006). “It is a fundamental principle of contract
law that it is ‘improper for the court to rewrite the terms of a contract, or draw a new contract for
the parties, when the terms thereof are clear and unambiguous, simply to avoid
hardships.’” Calomiris v. Woods, 353 Md. 425, 445, 727 A.2d 358, 368 (1999) (quoting
Canaras v. Lift Truck Servs., 272 Md. 337, 350, 322 A.2d 866, 873 (1974)); see Loudin Ins.
Agency, Inc. v. Aetna Cas. & Sur. Co., 966 F.2d 1443, 1992 WL 145269, at *5 (4th Cir.
1992) (per curiam) (“[A] court will not rewrite the parties’ contract simply because one party is
no longer satisfied with the bargain he struck.”).
In a diversity action such as this, a party’s right to recover attorney’s fees is ordinarily
governed by state law. See Ranger Constr. Co. v. Prince William Cnty. Sch. Bd., 605 F.2d 1298,
1301 (4th Cir.1979); Rohn Prods. Int’l, LC v. Sofitel Capital Corp., Civ. No. WDQ–06–504,
2010 WL 3943747, at *4 n. 13 (D. Md. Oct. 7, 2010); Glassman Constr. Co. v. Md. City Plaza,
Inc., 371 F. Supp. 1154, 1162 (D. Md.1974). “‘[I]n an ordinary diversity case where the state law
does not run counter to a valid federal statute or rule of court, . . . state law denying the right to
attorney’s fees or giving a right thereto, which reflects a substantial policy of the state, should be
followed.’” Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 259 n. 31
(1975) (quoting 6 J. Moore, Federal Practice § 54.77(2), at 1712–1713 (2d ed. 1974)).
In general, Maryland follows the “American Rule,” under which “a prevailing party is
not awarded attorney’s fees ‘unless (1) the parties to a contract have an agreement to that effect,
(2) there is a statute that allows the imposition of such fees, (3) the wrongful conduct of a
15
defendant forces a plaintiff into litigation with a third party, or (4) a plaintiff is forced to defend
against a malicious prosecution.’” Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md.
435, 445, 952 A.2d 275, 281 (2008) (quoting Thomas v. Gladstone, 386 Md. 693, 699, 874 A.2d
434, 437 (2005)).
However, “Maryland law limits the amount of contractual attorneys[‘] fees to actual fees
incurred, regardless of whether the contract provides for a greater amount.” SunTrust Bank, 201
Md. App. at 398, 29 A.3d at 728. Moreover, “[e]ven in the absence of a contract term limiting
recovery to reasonable fees, trial courts are required to read such a term into the contract and
examine the prevailing party’s fee request for reasonableness.” Myers, 391 Md. at 207, 892 A.2d
at 532; see also Atl. Contracting & Material Co. v. Ulico Cas. Co., 380 Md. 285, 316, 844 A.2d
460, 478 (2004); SunTrust, 201 Md.App. at 401, 29 A.3d at 730. Thus, “courts must routinely
undertake an inquiry into the reasonableness of any proposed fee before settling on an award.”
Monmouth Meadows Homeowners Ass’n, Inc. v. Hamilton, 416 Md. 325, 333, 7 A.3d 1, 5
(2010). The “reasonableness of attorney’s fees is a factual determination within the sound
discretion of the court.” Myers, 391 Md. at 207, 892 A.2d at 532.
“‘The burden is on the party seeking recovery to provide the evidence necessary for the
fact finder to evaluate the reasonableness of the fees.’” Ulico, 380 Md. at 316, 844 A.2d at
478 (citation omitted).
Therefore, the party seeking a fee award must provide “‘detailed
records’” that specify “‘the services performed, by whom they were performed, the time
expended thereon, and the hourly rates charged.’” Rauch v. McCall, 134 Md.App. 624, 639, 761
A.2d 76, 84 (2000) (citation omitted), cert. denied, 362 Md. 625, 766 A.2d 148 (2001).
“‘[W]ithout such records, the reasonableness, vel non, of the fees can be determined only by
16
conjecture or opinion of the attorney seeking the fees and would therefore not be supported by
competent evidence.’” Id. at 639, 761 A.2d at 85 (citation omitted).
Maryland courts ordinarily utilize the “lodestar” approach when determining attorneys’
fees under fee-shifting statutes. Friolo v. Frankel, 373 Md. 501, 504–05, 819 A.2d 354, 356
(2003) (“Friolo I”).9
However, the Maryland Court of Appeals has held that the lodestar
approach is “an inappropriate mechanism for calculating fee awards” under contractual feeshifting provisions in “disputes between private parties over breaches of contract.” Monmouth
Meadows, 416 Md. at 336, 7 A.3d at 7. This is because a “contractual fee-shifting provision is
designed by the parties, not by the legislature. . . . Thus, it usually serves no larger public
purpose than the interests of the parties.”
Congressional Hotel Corp. v. Mervis Diamond
Corp., 200 Md.App. 489, 505, 28 A.3d 75, 84 (2011).
Appendix B of the Local Rules of this Court specifies that the rules and guidelines in
Appendix B “do not apply to cases in which statutes or contracts authorize fees based on a fixed
percentage. . . .” See Appendix B, n.1. In Maryland, in regard to an award based on a contract, a
court “should use the factors set forth in Rule 1.5 [of the Maryland Rules of Professional
9
The Friolo litigation has spawned numerous reported opinions of the Maryland
appellate courts concerning the award of attorneys’ fees. See Frankel v. Friolo, 170 Md. App.
441, 907 A.2d 363 (2006) (“Friolo II”) (holding that, when applying the lodestar approach, a
court must provide a “clear explanation of the factors employed”), aff’d,403 Md. 443, 942 A.2d
1242 (2008) (“Friolo III”) (holding that an award of attorneys’ fees under a fee shifting statute
should include “appellate fees ... incurred in successfully challenging . . . the attorneys’ fee
awarded”); Friolo v. Frankel, 438 Md. 304, 91 A.3d 1156 (2014) (“Friolo IV”) (reiterating the
loadstar approach and concluding that a plaintiff’s continued litigation in lieu of settlement does
not preclude attorneys’ fees and that appellate attorneys’ fees are available pursuant to an appeal
concerning attorneys’ fees).
17
Conduct (“MRPC”)10] as the foundation for analysis of what constitutes a reasonable fee when
the court awards fees based on a contract entered by the parties authorizing an award of fees.”
Monmouth Meadows, 416 Md. at 336–37, 7 A.3d at 8. Nevertheless, cases decided under the
lodestar approach can “provide helpful guidance” in contractual fee-shifting cases,
Congressional Hotel, 200 Md.App. at 505, 28 A.3d at 85, because “there is likely to be some
overlap between the Rule 1.5 factors and the mitigating factors typically considered in a lodestar
analysis.” Monmouth Meadows, 416 Md. at 337, 7 A.3d at 8.
MRPC 1.5(a) enumerates eight non-exclusive “factors to be considered in determining
the reasonableness of a fee”:11
(1) the time and labor required, the novelty and difficulty of the questions
involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular
employment will preclude other employment of the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
10
MRPC 1.5(a) is a standard of professional ethics, generally applicable to all attorneyclient relationships, which mandates that an attorney “shall not make an agreement for, charge,
or collect an unreasonable fee or an unreasonable amount for expenses.”
11
A list of factors similar to those in MRPC 1.5 was enunciated, for use in a lodestar
analysis, in the seminal case of Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th
Cir.1974). The so-called ”Johnson factors” have been adopted for use in lodestar cases by the
Fourth Circuit, see Barber v. Kimbrell’s, Inc., 577 F.2d 216, 226 n. 28 (4th Cir. 1978), and in
Maryland. See Friolo I, 373 Md. at 522 n. 2, 819 A. 2d at 366 n .2.
18
(7) the experience, reputation, and ability of the lawyer or lawyers performing the
services; and
(8) whether the fee is fixed or contingent.
“In order to apply Rule 1.5 to a fee award, a court does not need to evaluate each factor
separately.” SunTrust, 201 Md. A pp. at 401, 29 A.3d at 730; see Monmouth Meadows, 416 Md.
at 337 n.11, 7 A.3d at 8 n.11. Indeed, a court need not “make explicit findings with respect
to Rule 1.5” at all, or even “mention Rule 1.5 as long as it utilizes the rule as its guiding principle
in determining reasonableness.” Monmouth Meadows, 416 Md. at 340 n. 13, 7 A.3d at 10 n.13.
Moreover, when conducting an MRPC 1.5 analysis, a court “should consider the amount
of the fee award in relation to the principal amount in litigation, and this may result in a
downward adjustment. Although fee awards may approach or even exceed the amount at issue,
the relative size of the award is something to be evaluated.” Id. at 337, 7 A.3d at 8. And, a “trial
court also may consider, in its discretion, any other factor reasonably related to a fair award of
attorneys’ fees.” Id. at 337–38, 7 A.3d at 8.
As discussed, LNV seeks $165,353.02 in attorneys’ fees and costs pursuant to the Term
Loan (ECF 86-1 at 4 ¶ 11, Bowen Rev. Decl.) and $6,621.00 in attorneys’ fees and costs
pursuant to the Revolving Loan. Id. ¶ 12. LNV has also submitted declarations from two of its
attorneys, which provide some of the information relevant to the Court’s analysis of the
reasonableness of the fees that LNV seeks. See ECF 86-2, McJunkin Decl.; ECF 86-3, Jackson
Decl. But, the submissions provide insufficient information for the Court to render a decision
about the reasonableness of the legal fees that LNV requests.
19
For example, LNV’s submissions do not address most of the factors enumerated in
MRPC 1.5. In addition, LNV’s attorneys have not specified by whom the various services were
performed, the time expended thereon, and the hourly rates charged. Rauch, 134 Md. App. at
639, 761 A.2d at 84.
In addition, Mr. McJunkin’s Declaration provides a total number of hours that he and
three other Baker Donelson attorneys billed to this matter. ECF 86-2 ¶ 4. Given that LNV was
represented by two attorneys at the September 3, 2015 evidentiary hearing, it appears that at least
some of the billable hours listed in Mr. McJunkin’s Declaration reflect work performed by more
than one attorney, without an explanation as to the need for multiple attorneys in a case that is
not particularly complicated. Appendix B: Rules and Guidelines for Determining Attorneys’
Fees in Certain Cases of this Court’s Local Rules provides that, as a general rule, only one
attorney for each party will be compensated for attending depositions and hearings, and that fees
covering the attendance of multiple attorneys at trial should be evaluated “depend[ing] upon the
complexity of the case and the role that each lawyer is playing.” See App. B, Guideline 2.b-d.
Despite note 1 in Appendix B, the Court is unaware of any reason to disregard the rational of
Guideline 2.b-d.
Accordingly, with respect to the Term Loan Note, LNV is entitled to confessed judgment
against HFB in the amount of $2,762,007.41, consisting of $2,493,453.39 in unpaid principal,
$245,916.84 in unpaid and accrued interest, $16,957.41 in unpaid late fees, and $5,679.77 in a
negative escrow balance, with interest accruing at the rate of $311.68 per diem after November
1, 2015.
20
With respect to the Revolving Loan Note, LNV is entitled to confessed judgment against
HFB in the amount of $108,176.24, consisting of $97,492.01 in unpaid principal, $10,480.39 in
unpaid and accrued interest, and $203.84 in unpaid late fees, with interest accruing at the rate of
$12.19 per diem after November 1, 2015.
Pursuant to Local Rule 109.2(a), LNV may file a Motion Requesting Attorneys’ Fees,
within twenty-one days of the entry of judgment. HFB may respond within twenty-one days of
service of LNV’s Motion.
Conclusion
For the foregoing reasons, I will grant, in part, LNV’s Request for Entry of Confessed
Judgment, and deny it, in part, and without prejudice. A separate Order follows, consistent with
this Memorandum.
Date: November 23, 2015
/s/
Ellen Lipton Hollander
United States District Judge
21
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