Court: District Court, S.D. Texas; June 28, 2017; Federal District Court
On October 11, 2016, the Court granted summary judgment in favor of Quicken Loans, Inc., following which Quicken filed a timely motion for attorney’s fees under Rule 54(d) on October 21, 2016. Plaintiffs Alexander Rodriguez and Rosalina-Milian responded, and Quicken replied. A Report and Recommendation issued by the United States Magistrate Judge on June 5, 2017, recommended denying the motion for attorney’s fees, which neither party objected to. Consequently, the Court exercised its discretion to deny Quicken’s request for fees on June 28, 2017.
The background of the case involves Plaintiffs taking a loan from Quicken in June 2013 to purchase a home in Conroe, Texas, signing a promissory note and a deed of trust. After falling behind on payments, Quicken scheduled a foreclosure sale for April 5, 2016, prompting Plaintiffs to file suit on April 1, 2016, in state court, alleging violations of the Real Estate Settlement Procedures Act (RESPA) and the Texas Property Code. An ex parte temporary restraining order was granted, halting the foreclosure. Quicken removed the case to federal court, leading to a motion to dismiss, which was converted to a summary judgment motion. The Court ultimately recommended summary judgment for Quicken, concluding that Plaintiffs did not submit a complete loss mitigation application in time and failed to demonstrate actual damages from Quicken's actions.
The Court recommended dismissing the Plaintiffs’ claim under the Texas Property Code, as Quicken provided notice of the foreclosure sale more than 21 days prior to the sale date, complying with statutory requirements. As the Plaintiffs’ claims lacked merit, their requests for declaratory and injunctive relief were also recommended for denial. Judge Atlas adopted this recommendation on October 11, 2016, resulting in a final judgment that dismissed the case with prejudice. Following the judgment, Quicken filed a bill of costs totaling $400 against the Plaintiffs and now seeks $18,912.45 in attorney’s fees and $740.88 in expenses related to courier services and travel costs, citing entitlement based on the promissory note and deed of trust.
Federal Rule of Civil Procedure 54(d)(2) establishes the procedural framework for recovering attorney’s fees and related expenses in federal court. A motion for such fees must be filed within 14 days of judgment unless the fees are an element of damages to be proved at trial. Fees recoverable as damages must be claimed in a pleading before final judgment. The substantive law governing the case determines whether the requested fees and expenses are recoverable. Even if procedural and substantive requirements are met, awarding attorney’s fees remains within the district court’s equitable discretion, and an award may be deemed an abuse of discretion if it is inequitable or unreasonable.
Applicable law for Quicken's requested attorney's fees arises from two claims: a federal RESPA claim and a state Texas Property Code claim. Federal law governs the attorney’s fees related to the RESPA claim, requiring its dismissal, while Texas law governs fees for the state claim, as established by the Erie doctrine. Both federal and Texas law generally do not permit the prevailing party to recover attorney's fees unless allowed by statute or contract. Although federal and Texas law may differ in their treatment of contractual attorney's fees, the court found no significant conflicts relevant to this case.
Quicken's claim for attorney's fees is based on specific provisions in the promissory note and deed of trust. Section 6 of the promissory note stipulates that in the event of default, the note holder may require immediate payment of the principal and interest, and it allows for reimbursement of costs and expenses incurred in enforcing the note, including attorney's fees. The court must determine whether this provision grants Quicken a substantive right to recover fees in the current case.
The key question is whether Quicken incurred fees and expenses "in enforcing" the promissory note under §6 of the relevant contract. Promissory notes and deeds of trust are identified as separate legal instruments, each with distinct obligations and remedies. Texas law differentiates between "enforcing a promissory note," which requires a lender to initiate a personal judicial action against the borrower, and "enforcing a deed of trust," which allows for foreclosure under the power of sale without judicial oversight. The Fifth Circuit has emphasized that foreclosure serves to enforce the deed of trust rather than the note itself. Technical terms in this context must be interpreted according to their legal meanings, which informs the interpretation of §6.
The Court determined that Quicken did not "enforce" the promissory note as it did not initiate any personal action or counterclaim against the plaintiffs regarding the note. Instead, Quicken only defended against the plaintiffs' claims, which did not threaten its rights under the note. The plaintiffs’ assertions focused on Quicken's right to foreclose, which is derived from the deed of trust, not the promissory note.
Quicken's right to foreclose on the property is outlined in the Deed of Trust, specifically §22. Plaintiffs sought a declaration that Quicken lacked the power of sale for the April 5, 2016 foreclosure due to improper notice. They requested an injunction preventing Quicken from: (a) taking possession of the property, (b) proceeding with the foreclosure or sale, (c) attempting to collect on the mortgage, and (d) charging attorney’s fees related to this action. The term "Mortgage" was defined to refer to the deed of trust, not the promissory note. If the Plaintiffs had succeeded, Quicken would be barred from the foreclosure sale but could still seek a personal judgment against them under the note, although collection might be limited due to the Plaintiffs’ financial situation. The deed of trust serves as a protective instrument that provides additional safeguards beyond the note. Quicken's attorney fees and expenses were not incurred in enforcing the note, and thus the note does not justify their fee request. The court does not consider the issue of whether fees under §6 must be proven as damages at trial or obtained through a Rule 54(d)(2) motion.
Quicken also claims entitlement to attorney's fees under §9 of the deed of trust, which allows for reasonable fees to protect the lender's interest in the property if the borrower fails to comply with the covenants or if a legal proceeding affects the lender's rights. Any amounts disbursed by Quicken under this section would become additional debt secured by the deed of trust, accruing interest at the note rate upon disbursement.
Plaintiffs contend that Quicken is ineligible to recover fees and expenses under the deed of trust, as it failed to file a counterclaim for these before final judgment. They further assert that res judicata precludes Quicken’s post-judgment fee request. The Court expresses skepticism regarding Quicken's ability to claim attorney’s fees and expenses through the current motion, noting that both federal and Texas law likely require such claims to be pled and proven before final judgment. However, the Court does not definitively resolve this issue. Even assuming Quicken could recover fees post-judgment under §9 of the deed of trust, equitable considerations suggest that its motion should be denied.
The Plaintiffs' claims are based on the Real Estate Settlement Procedures Act (RESPA) and the Texas Property Code, specifically under §2605 of RESPA and relevant regulations. Under §2605(f)(3), only a "borrower" who successfully brings an action under this section may recover attorney's fees and costs; a prevailing lender-defendant, such as Quicken, is not entitled to such fees. Although Quicken seeks contractual attorney’s fees related to the deed of trust, its inability to recover statutory fees is a significant equitable factor against granting its request.
This reasoning is supported by the case of Baehr v. Creig Northrop Team, P.C., where the court dismissed a defendant's counterclaim for contractual attorney’s fees in a RESPA violation case, referencing the statutory fee provision under §2607(d)(5). The Baehr court, following a precedent set by the Supreme Court in Christiansburg Garment Co. v. EEOC, indicated that statutory fees are primarily available to prevailing plaintiffs unless the plaintiffs’ actions are deemed frivolous or unreasonable. Thus, since no such allegations were made against the Baehr plaintiffs, the defendants were denied statutory attorney's fees.
The court determined that enforcing a contractual attorneys’ fees provision against plaintiffs pursuing a good faith RESPA action would be incongruous. Citing the Supreme Court’s rationale in Baehr, it emphasized that RESPA strongly opposes allowing Quicken to recover such fees. Unlike §2607(d)(5), which permits a prevailing lender to recover fees in certain cases, §2605(f)(3) only allows prevailing borrowers to recover fees, reflecting Congress's intention to encourage aggrieved individuals to pursue claims without the fear of incurring the lender's attorney’s fees. This concern extends to copyright claims, where fear of potential fees could deter valid litigation. The court argued that awarding fees to Quicken would be even more inappropriate than in Baehr due to the presence of both state and federal claims, but state law does not influence federal court equity powers. The plaintiffs’ Texas Property Code claim and RESPA claim were closely related, both stemming from Quicken’s foreclosure actions. Awarding fees could chill RESPA litigants’ willingness to pursue claims, a scenario the court seeks to avoid. The court referenced cases that highlight the chilling effect of fee awards on civil rights litigants, reinforcing the public policy goal of encouraging claims without the threat of significant financial repercussions.
Courts have discretion to deny contractual attorney's fees based on equitable considerations. In *Cruz v. Wachovia Mortgage*, the court denied a bank’s request for attorney's fees from borrowers who unsuccessfully sued to prevent foreclosure and challenge alleged unfair practices regarding their mortgage. The court emphasized that it is not obligated to award fees under boilerplate clauses if doing so would be inequitable and unreasonable. The court held that granting the bank's request would be both inequitable and unreasonable. Similar reasoning was applied in other cases, noting that the financial status of parties and the nature of the contractual agreement can justify denying fees. In the current case, the court found that while it had the authority to award fees, it exercised discretion to deny them due to inequity, despite recognizing that the defendants were not entirely innocent. The court noted that plaintiffs did not act frivolously and had no real choice but to accept the standard terms of their loan, which were likened to an adhesion contract. Consequently, the court ruled that Quicken could not recover attorney's fees or expenses, rendering it unnecessary to evaluate the reasonableness of the requested fees or address arguments regarding taxable costs.
The Court recommends denying Quicken's motion for attorney's fees and expenses. Parties have fourteen days to file written objections, with failure to do so potentially limiting appellate review. The motion is under the referral of United States District Judge Nancy F. Atlas, concerning nondispositive and potentially dispositive motions. The recommendation is based on the 'American rule' regarding attorney’s fees and relevant federal common law. The Court clarifies that the nature of the claims does not invoke significant threats akin to bankruptcy or liens, as the action to compel lender compliance does not threaten the lender's priority or contractual rights. Under Texas law, attorney's fees can only be claimed as damages if the borrower defaulted, which is a condition for recovery. The analysis distinguishes this case from prior rulings, notably Richardson, because the claims were asserted pre-foreclosure, aligning with the stipulations of the relevant provision. The Court notes an obligation to consider equitable factors independently, despite the plaintiffs not raising them.
Failure to raise an issue for review generally results in a waiver, but this is not an absolute rule; review may occur if equities demand it. Specifically, recognized equities necessitate review in this case. A district court has determined that 12 U.S.C. § 2605(f)(3) allows for reasonable attorney's fees to the prevailing party. However, this interpretation—that a prevailing lender-defendant can obtain such fees—was disputed, as it overlooks the condition that only those who fail to comply with the section are liable for fees to the borrower. The court in Barrett relied on prior case law but did not equate § 2605(f)(3) with a "prevailing party" statute, merely noting that a "successful action" could involve nominal damages.
In Williams v. Wells Fargo Bank, the Fifth Circuit permitted the awarding of attorney’s fees to a lender-defendant without addressing equitable considerations relevant to the award. This decision is not binding precedent due to its unpublished status. Additionally, Quicken’s billing records indicate that attorney time was predominantly spent on the RESPA claim rather than the Texas Property Code claim, complicating the segregation of fees. The records show significant attorney time dedicated to tasks related to the RESPA claim, including federal removal based on the RESPA claim. Consequently, the difficulty of distinguishing recoverable fees from unrecoverable ones suggests that awarding fees related to the state-law claim would be inequitable, considering the text of § 2605(f) and the remedial intent of RESPA.
