Search Publications:
Maryland's Intermediate Appellate Court Weighs in on Contractual Attorneys' Fees Provisions in Loan Docs
November 3, 2011
By: Matthew T. Vocci
This alert reviews a recent opinion of the Court of Special Appeals authored by Judge Eyler in SunTrust Bank v. Goldman [PDF]. The Court of Special Appeals affirmed the Circuit Court for Baltimore County's decision to grant SunTrust attorneys' fees in the amount actually incurred (~$3,000) but not the 15% of the amount due (~$60,000) that SunTrust requested pursuant to the terms of the loan documents. The Circuit Court made this decision in the context of SunTrust's motion to revise a default judgment entered against borrowers. The initial default judgment did not include any attorneys' fees as the Circuit Court specifically deferred ruling on the claim for attorneys' fees.
The provision in the credit agreement that SunTrust relied upon stated that the borrower would pay costs of collection, "including court costs and fifteen percent (15%) of the principal plus accrued interest as attorneys' fees or reasonable attorneys' fees as allowed by law." SunTrust took exception to the Circuit Court's decision because it only allowed for collection costs incurred up to the date of the decision. Any claim for attorneys' fees expended on future collection activities would be cut off by the entry of the final judgment. Indeed, in response to SunTrust's argument that a claim for attorneys' fees is merged into a final judgment, the opinion contains a lengthy discussion of the merger doctrine. The bank's proposed solution to the merger issue was for it to receive the 15% attorneys' fees award at the time of the judgment with a promise to credit the judgment debtor, if the bank incurred less than the awarded fees during its collection activities. The Court was not persuaded by the bank's argument and noted that attorneys' fee provisions are "in the nature of indemnity agreements."
Maryland law limits the amount of contractual attorneys fees to actual fees incurred, regardless of whether the contract provides for a greater amount. The contract may provide that the amount of fees is determined by a percentage or some other method, but to comply with the indemnification requirement, the amount of fees paid pursuant to the agreement between the claimant and its attorneys must equal or exceed the amount provided for in the contract. In addition, ... the amount must be reasonable.
Slip Op. at 6-7.
Application of SunTrust v. Goldman to Confessed Judgments
While the opinion does not directly related to confessed judgments and the entry of attorneys' fees awards in that context, the Court of Special Appeals distinguished and minimized the import of the 1976 Court of Appeals decision in Webster v. People's Loan, 160 Md. 57 (1976), which related to attorneys' fees awards in confessed judgments. Webster allowed for the entry of attorneys' fees in the amount recited in the loan documents at the time of the judgment by confession and provided that plaintiffs should credit debtors for amounts not actually paid to attorneys.
If the plaintiff pays less for the services of his attorney than the amount stipulated, or allowed by the court where the amount is not specified in the instrument, then it is his duty to remit or credit the difference; if he pays more than the fees entered, then he is out the excess... After an entry of satisfaction, the defendant may obtain relief by an accounting.
160 Md. at 63. However, Judge Eyler for the Court of Special Appeals pointed out that the Webster decision was written in a time when confessed judgments were entered by the clerk of the court without judicial oversight "based entirely on the terms of the underlying note." Now, Maryland Rule 2-611 "requires judicial review of confessed judgments at the outset, and accordingly, the reviewing court can make a preliminary determination as to the availability and reasonableness of attorneys' fess to be entered as part of the confessed judgment." Slip Op. at 8 (emphasis added).
Circuit Court judges could read this portion of the opinion as allowing closer scrutiny to attorneys' fees requested as part of a Complaint for Confessed Judgment.
Drafting of Attorneys' Fees Provisions
The Court did note that a "possible method of avoiding the merger bar [i.e.- the attorneys' fee provision being merged into the judgment] is for the parties to clearly state their intent in the contract that the fee provision shall not merge into the judgment." For this proposition, the Court cited to Johnston v. Johnston, 297 Md. 48 (1982), in which the Court of Appeals determined the effect of a non-merger clause in a separation agreement and found that parties' mutual intent for the separation agreement not to merge into the divorce decree was controlling. Further, the Court of Special Appeals noted that it had decided in an earlier case that "under some circumstances, the parties to a contract may be able to expressly agree that a provision for shifting post judgment collection fees survives a final judgment on the underlying contract, but such agreements will be strictly construed." Slip Op. at 16. Of course, the Court pointed out that the attorneys' fee language used in the instant loan agreement was not sufficiently clear to exempt it from the merger doctrine. Indeed, the language in the loan document did not mention the word "merger."
Summary
The upshot of the Goldman decision is that the Circuit Court may deny applications for attorneys' fees that have yet to be incurred and are based on language in loan documents authorizing attorneys' fees in an amount equal to 15% of the amount due and owing. Further, the Circuit Court may more closely scrutinize the reasonableness of such attorneys' fee requests in the context of its initial review of confessed judgments. [As an aside, it would be interesting to know how often attorneys' fees of 15% are actually collected in confessed judgment matters.] Finally, if you are drafting an attorneys' fee provision, it may be worthwhile to add clear language to the effect that the parties' mutual intent is that any claim for post-judgment attorneys' fees will not merge into any judgment upon default.
