In this week's Alabama Law Weekly Update we review two opinions from the United States Court of Appeals for the Eleventh Circuit. The first case concerns the permissibility of certain fees charged by a title agency under RESPA. The second case, which is a case of first impression in the Eleventh Circuit, addresses the scope of liability for attorney's fees awardable for the improper filing of a petition for involuntary bankruptcy.
Patricia Clements v. LSI Title Agency, et al, 2015 WL 857964 (11th Cir. March 2, 2015).
In this case, the Eleventh Circuit considered whether certain loan processing fees violated the the Real Estate Settlement Procedures Act (“RESPA”). The plaintiff in Clements had refinanced her first lien home loan and filed suit to challenge certain fees charged to her by the title company that processed the loan, LSI Title Agency. The plaintiff challenged the fees on two grounds: (1) that the title agency charged fees that were illegal under Georgia state law, and (2) that the title agency charged fees for services that were not actually performed.
The plaintiff challenged the legality of the fees on the grounds that, while Georgia law required all loan closing services be performed by a licensed attorney, LSI Title Agency actually used non-attorney personnel to prepare certain documents. The plaintiff further challenged the payment of a recordation fee, which exceeded the municipal filing fee for recording mortgages by $125.00, as an impermissible markup. Both were alleged to be violations of 12 U.S.C. § 2607(b), providing that fees may be charged only “for services actually performed.”
The district court dismissed the plaintiff's complaint for failure to state a claim. In Clements, the Eleventh Circuit affirmed that dismissal. First, the court rejected the argument that a fee was per se impermissible under § 2607(b) simply because it may have been illegal under state law. To the contrary, the court found the fact that “Georgia law made it illegal for LSI to provide settlement services does not mean that the services” were not “actually performed” for purposes of RESPA, because even though such fees may be subject to challenge under state law, “as a factual matter [the fee] was not in exchange for nothing.” 2015 WL 857964, *4.
The Eleventh Circuit also dismissed the plaintiff's claim concerning the recordation fee “markup.” Notably, this holding contradicts dicta from the Eleventh Circuit's opinion in Sosa v. Chase Manhattan Mortgage Corporation, 348 F.3d 979, 981-83 (11th Cir. 2003). The court acknowledged this contradiction, but expressly found that such dicta cannot be squared with the Supreme Court's decision in Freeman v. Quicken Loans, Inc., — U.S. —, 132 S.Ct. 2034, 182 L.Ed.2d 955 (2012), nor could the Sosa dicta be reconciled with the decisions of a majority of other circuits, which have found that RESPA unambiguously permits markups like the one challenged by the plaintiff in Clements.
Accordingly, the Eleventh Circuit found that the plaintiff in Clements had failed to state a claim under RESPA and affirmed the district court's order dismissing her claims.
In re Maury Rosenberg, 2015 WL 845578 (11th Cir. Feb. 27, 2015).
In Rosenberg, the Eleventh Circuit addressed what fees may be payable under 11 U.S.C. § 303(i)(1), which was an issue of first impression in that Circuit.
This case arose on a petition for involuntary bankruptcy against the appellee, Maury Rosenberg. Rosenberg had guaranteed a loan to his business from a series of related entities (the “DVI Entities”) which, at the time of the bankruptcy petition, had gone out of business and whose servicing duties had been taken over by Lyon Financial Services. A dispute arose in state court concerning a default under the loan and the extent of Rosenberg's liability. Lyon Financial, the entity prosecuting the state court action, filed a petition for involuntary bankruptcy pursuant to 11 U.S.C. § 303, but did so in the name of the DVI Entities and not in its own name. The bankruptcy court would find that Lyon Financial, in its capacity as successor servicer and agent for the new note holder, was the real party in interest and would dismiss the involuntary petition as not having been filed in the name of the real party in interest.
Per § 303(i), attorney's fees may be awarded when a party successfully obtains dismissal of an involuntary petition. Moreover, compensatory and punitive damages may be awarded if such petition is found to have been filed in bad faith. Pursuant to that statute, Rosenberg initiated an action in bankruptcy court for attorney's fees and for bad faith damages. The bad faith claim was eventually transferred to the district court.
Rosenberg succeeded in both actions. The substantive findings – that attorney's fees were awardable under § 303(i), and that the petition was filed in bad faith – were not in dispute before the Eleventh Circuit in this proceeding. Instead, the discrete issues before the Eleventh Circuit were the measure of attorney's fees that were awardable and whom should be liable therefore. Particularly, the appellant, Lyon Financial, challenged the attorney's fees against it on two grounds: (1) that the attorney's fee award impermissibly included fees for prosecuting the bad faith claim and fees for defending an appeal of the dismissal (in addition to fees for obtaining dismissal of the bankruptcy petition), and (2) that Lyon Financial was not the petitioner and so should not be held liable for such fees.
The Eleventh Circuit affirmed the fee award (though partially vacating the award for prematurity). The court found that fees awardable under § 303(i) were not limited merely to attorney's fees incurred in obtaining the dismissal of the petition and that, consequently, appellate fees and fees for prosecuting the bad faith claim were both properly awardable.
In discussing the recovery of appellate fees, the Eleventh Circuit noted that its decision contradicted the only other appellate decision to address the issue, which was the Ninth Circuit in Higgins v. Vortex Fishing Systems, Incorporated, 379 F.3d 701 (9th Cir. 2004). The court rested its decision on the distinction between fee-shifting statutes and punitive statutes, finding that § 303(i)(1) was of the former variety. The Eleventh Circuit further found that attorney's fees for prosecuting the bad faith claim were awardable; however, the court vacated and remanded the award of attorney's fees for the bad faith claim on the ground that such fees could not be awarded until after the bad faith claim had been reduced to judgment, which had not occurred at the time the attorney's fee award had been initially entered.
Finally, the court found that Lyon Financial was the appropriate party to hold liable for the fees in question. The record on appeal demonstrated that it was an employee of Lyon Financial that filed the petition in the names of the DVI entities. Further, Lyon Financial had sued Rosenberg in state court. On the other hand, the DVI Entities had been administratively dissolved at the time the bankruptcy petition was filed. In light of those considerations, the court found Lyon Financial had made itself the petitioning creditor, even though it had not proceeded in its own name, and accordingly affirmed the award of attorney's fees against Lyon Financial.