Federal Deposit Insurance v. Bender

                  United States Court of Appeals

               FOR THE DISTRICT OF COLUMBIA CIRCUIT

        Argued April 28, 1999      Decided July 16, 1999 

                           No. 98-5458

             Federal Deposit Insurance Corporation, 
             as Receiver for Madison National Bank, 
                             Appellee

                                v.

                    Morton A. Bender, et al., 
                       Appellees/Appellants

                Van Dorn Retail Management, Inc., 
                            Appellant

                        Consolidated with 
                           No. 98-5459

          Appeals from the United States District Court 
                  for the District of Columbia 
                         (No. 93cv00864)

                            ---------

     Nelson Deckelbaum, with whom Stephen W. Nichols was 
on the briefs, argued the cause for Morton A. Bender, et al., 
appellants in No. 98-5459.

     Francis P. Dicello, with whom Robert M. Marino was on 
the brief, argued the cause for Van Dorn Retail Management, 
Inc., appellant in No. 98-5458.

     Mary R. Bohan, Trial Attorney, U.S. Department of Jus-
tice, with whom David W. Ogden, Acting Assistant Attorney 
General, Wilma A. Lewis, United States Attorney, J. Christo-
pher Kohn, Director, and Ruth A. Harvey, Attorney, U.S. 
Department of Justice, and J. Scott Watson, Counsel, Federal 
Deposit Insurance Corporation, were on the brief, argued the 
cause for appellee FDIC. 

     Before Edwards, Chief Judge, Garland, Circuit Judge, and 
Buckley, Senior Circuit Judge.

     Opinion for the court filed by Senior Judge Buckley.

     Buckley, Senior Judge:  Appellants are Morton A. Bender, 
his children, the personal representatives of the estate of a 
deceased child, and N Street Follies Limited Partnership 
(collectively, "Benders") and Van Dorn Retail Management, 
Inc. ("Van Dorn Retail").  They appeal the district court's 
award of attorneys' fees to the Federal Deposit Insurance 
Corporation ("FDIC"), in its capacity as receiver for Madison 
National Bank, for legal services rendered in enforcing loan 
and guaranty agreements entered into between the bank and 
appellants.  The Benders also appeal the district court's 
denial of their motion for sanctions against the FDIC for its 
actions during the litigation.

     We reverse the award of attorneys' fees incurred in unsuc-
cessfully defending a prior award of fees, remand the remain-
der of the award for further action consistent with this 
opinion, and remand the denial of sanctions so that the 
district judge may explain his decision in light of what 
appears to be a legitimate question as to whether certain of 
the FDIC's actions may have been taken in bad faith.

                          I. Background

     Appellants challenge the reasonableness of the attorneys' 
fees awarded by the district court, and the Benders ask us to 
rule that the court abused its discretion when it denied the 
Benders' request that the FDIC be sanctioned.  In the 
interest of clarity, we will limit our review of this case's 
complex factual and procedural history to those facts that 
bear on each of these issues.  A more detailed account of the 
background facts can be found in our opinion in FDIC v. 
Bender, 127 F.3d 58, 61-62 (D.C. Cir. 1997) ("Bender I"), 
which decided a prior appeal in this case.

A.   The Attorneys' Fees

     Appellants executed, guarantied, and delivered various 
promissory notes to Madison National Bank, some of which 
provided for payment, in the event of default, of "late 
charges" and attorneys' fees in the amount of 15 percent of 
the outstanding balance of principal and interest.  Shortly 
after the last note was executed, Madison was declared 
insolvent;  and the FDIC was appointed as its receiver pursu-
ant to 12 U.S.C. s 1819.  As such, the FDIC succeeded to all 
of Madison's rights under the promissory notes.  When ap-
pellants defaulted on their obligations to Madison, the FDIC 
brought suit in district court to recover the full amount 
claimed to be due including, where applicable, the 15 percent 
attorneys' fees.

     The FDIC moved for summary judgment on the notes.  
Appellants opposed the motion arguing, among other things, 
that the 15 percent attorneys' fees requested in the motion 
were unreasonable because the amount sought bore no rela-
tionship to the value of the legal services actually rendered.  
On October 27, 1994, the district court granted the FDIC's 
motion.  Thereafter, the Benders filed a motion for reconsid-
eration and, on April 17, 1996, the district court granted their 
motion and required the FDIC to address the reasonableness 
of the 15 percent provision.  Because Van Dorn Retail did not 
file a timely motion for reconsideration, it remained liable for 
the 15 percent attorneys' fees the court had previously award-
ed the FDIC.  The record before us does not indicate wheth-

er the agency ever complied with the court's request for a 
defense of the 15 percent fee.  That request, however, was 
mooted by our decision in Bender I, which we describe below.

     In the meantime, the FDIC had amended its complaint to 
include, among others, a new count asserting a claim against 
Morton Bender as guarantor of a note signed by Van Dorn 
Retail that contained the 15 percent attorneys' fees provision.  
The FDIC moved for summary judgment on the amended 
complaint, and the Benders filed an opposition to the motion.  
On February 28, 1996, the district court granted the motion 
in its entirety, ruling that the Benders' opposition had been 
untimely.

     Appellants filed appeals challenging the district court's 
grant of summary judgment against Van Dorn Retail as 
obligor on certain of the notes and against Mr. Bender as 
guarantor of one of the loans to Van Dorn Retail.  See 
Bender I, 127 F.3d at 61.  On appeal, they argued that the 
provisions requiring payment of 15 percent attorneys' fees 
were contrary to District of Columbia law, which governed 
the enforcement of the notes.  Id. at 63.  We agreed;  and on 
September 23, 1997, we reversed the district court's grant of 
summary judgment in favor of the FDIC with respect to the 
attorneys' fees owed by Van Dorn Retail and remanded the 
case with instructions to award the agency reasonable attor-
neys' fees "not to exceed the 15-percent limit in the notes."  
Id. at 67.  We also vacated the grant of summary judgment 
against Mr. Bender and instructed the court on remand to 
reconsider its 15 percent award against Mr. Bender as guar-
antor of the Van Dorn Retail note even though he had failed 
to file a timely opposition to the FDIC's motion for summary 
judgment.  In doing so, we noted the anomaly of enforcing 
against a guarantor a greater liability than could lawfully be 
imposed on the obligor.  Id. at 68.

     The FDIC thereupon filed a "Motion to Determine Reason-
able Attorney Fees," as well as a memorandum and declara-
tions supporting a claim for $112,307.  Over appellants' objec-
tions, many of which are reiterated in this appeal, the district 
court awarded the requested amount as reasonable.  It did so 

based on its findings that the hours devoted to the case by 
the FDIC's Justice Department attorneys were reasonably 
expended, that the FDIC's summaries of the attorneys' time 
records provided an adequate basis on which the court could 
make an award, that the fee charged for the FDIC's in-house 
counsel was appropriate, and that appellants' "assertion of 
broad and unsupported challenges to the FDIC's proof of 
time expended--unaccompanied by any request to view de-
tailed time records--must be rejected...."  FDIC v. Bender, 
No. 93-0864 (D.D.C. Aug. 27, 1998) (emphasis added).

B.   The Requested Sanctions

     The district court's order of February 28, 1996, concluded 
with the statement that "[f]inal judgment having now been 
entered by separate order as to [all counts of both the 
original and amended complaints], ... this case shall be 
terminated on the dockets of this court."  The Benders 
responded with a "motion for expedited clarification" in which 
they reminded the court that, because it had failed to resolve 
a cross-claim against them, its judgment was not yet final.  
In an order issued on April 17, 1996, the court acknowledged 
its error and amended its February 28 order to reflect the 
fact that "the case is not terminated in light of the outstand-
ing cross-claim...."

     The FDIC, however, had already begun its efforts to 
enforce the earlier order.  It served post-judgment interroga-
tories and document requests on appellants and issued sub-
poenas to their accounting firms.  It also filed the Febru- 
ary 28, 1996, order in the land records of the District of 
Columbia, thereby imposing a lien against all real property 
owned by appellants in the District of Columbia.  The FDIC 
later refused to remove the lien despite the fact that, by then, 
according to Mr. Bender, the principal and interest due on all 
the notes had been fully paid and he had posted a supersede-
as bond of $987,125 to cover in full all other claims remaining 
in dispute.  The FDIC also applied a portion of the $1,896,987 
payment made by the Benders in March 1995 against its 
claim for late charges on various notes despite the Benders' 
explicit instruction that the payment was to be applied to 

satisfy in full the principal and interest due on the specified 
notes and guaranties.

     The Benders filed a motion requesting the imposition of 
sanctions against the FDIC on the grounds that, by prema-
turely pursuing its post-judgment remedies and ignoring the 
instructions accompanying the March 1995 payment, the 
agency had exhibited bad faith and unnecessarily increased 
the cost of the litigation.  The court denied the motion 
without explanation on August 27, 1998, the same day that it 
approved the award of $112,307 in attorneys' fees.

     Appellants appeal the award of attorneys' fees, and the 
Benders also appeal the denial of their motion for sanctions.

                          II. Discussion

A.   The Fee Award

     Appellants raise a number of objections to the fee award.  
We consider each in turn.

     1.   Documentation in Support of the Fee Award
          
     Appellants contend that, contrary to the district court's 
finding, they had specifically requested permission to review 
the FDIC's time records;  therefore, the district court abused 
its discretion in awarding attorneys' fees to the FDIC not-
withstanding its failure to produce the records for their 
inspection.  In response, the FDIC cites our statement in 
Bender I that it is within the discretion of the trial judge to 
decide "what sort of proof, if any, is needed to determine 
what a reasonable fee would be," 127 F.3d at 64, and argues 
that the court therefore acted within its discretion in accept-
ing the summaries of time records from the FDIC.

     The law of this circuit is clear:  the party challenging a fee 
award is entitled, upon request, to review the contemporane-
ous time records of the party seeking to recover attorneys' 
fees.  See Ideal Electronic Sec. Co. v. International Fidelity 
Ins. Co., 129 F.3d 143, 151 (D.C. Cir. 1997) ("Ideal is entitled 
to discover the information it requires to appraise the reason-
ableness of the amount of fees requested by IFIC ... so that 

it may present to the court any legitimate challenges to 
IFIC's claim.");  see also National Ass'n of Concerned Veter-
ans v. Secretary of Defense, 675 F.2d 1319, 1329 (D.C. Cir. 
1982) ("[T]he opponent is entitled to the information it re-
quires to appraise the reasonableness of the fee requested 
and in order that it may present any legitimate challenges to 
the application to the District Court.").

     Contrary to the FDIC's suggestion, this principle is not 
inconsistent with our statement in Bender I, which applies in 
situations where a party has not sought contemporaneous 
time records in challenging a fee request.  In such cases, the 
district court may rely upon whatever evidence it considers 
sufficient to establish the reasonableness of fees.  See Bender 
I, 127 F.3d at 64.  In this case, although the district court 
mistakenly found that appellants had not requested the 
FDIC's time records, the Benders in fact had done so in their 
response to the FDIC's Motion to Determine Reasonable 
Attorney Fees.  Accordingly, we vacate the award of attor-
neys' fees and direct the district court to order the FDIC to 
produce its contemporaneous time records for appellants' 
inspection.

     2.   Fees for Work by In-House Counsel
          
     The materials submitted by the FDIC in support of its 
request for attorneys' fees included the sum of $10,000 for the 
estimated time spent on the case by the FDIC's in-house 
counsel.  Appellants oppose the inclusion of this sum on two 
grounds, both of them valid.  First, the time the counsel 
devoted to the case is insufficiently documented;  and second, 
it is not possible to determine, from the FDIC's submissions, 
how much of the time in-house counsel did devote was in a 
capacity other than that of a mere liaison between the agency 
and the Justice Department attorneys who represented it in 
this case, a function for which the recovery of fees is not 
permitted.  See Milgard Tempering, Inc. v. Selas Corp. of 
America, 761 F.2d 553, 558 (9th Cir. 1985) ("Of course, if in-
house counsel are not actively participating (e.g., acting only 
as liaison), fees should not be awarded.");  Burger King Corp. 
v. Mason, 710 F.2d 1480, 1499 (11th Cir. 1983) (same).

     The district court provided no reason for its inclusion of the 
$10,000 in the fee award other than that "it appear[ed] that 
fees for FDIC's in-house counsel are appropriate in this 
case."  FDIC v. Bender, No. 93-0864 (D.D.C. Aug. 27, 1998).  
This explanation is inadequate.  If, on remand, the court is to 
award any amount for the in-house counsel's work, it must 
determine whether she contributed anything of substantive 
value to the litigation;  and if she did, the court must then 
determine the approximate amount of time she devoted to 
that work as well as the hourly rate to be charged for it.

     3.   Fees for Unsuccessful Defense on Appeal in Bender I
          
     The district court's fee award included $21,500 for legal 
services incurred by the FDIC in its unsuccessful defense of 
the 15 percent attorney's fee provision in Bender I.  Appel-
lants argue that the court erred in including this amount 
because the FDIC is not entitled to reimbursement for fees 
incurred litigating an issue upon which it did not prevail.  In 
response, the FDIC asserts that the Bender I appeal involved 
issues in addition to the validity of the 15 percent provision.  
It also maintains that, because it was the prevailing party in 
the litigation taken as a whole, the award properly included 
fees incurred in connection with the earlier appeal.

     In disposing of the first argument, we need go no further 
than quote from the FDIC's final brief in Bender I:  "The 
only issues on appeal are the contractual fifteen percent 
attorney fees awarded against [Van Dorn Retail and the 
Benders]."  The accuracy of this statement is borne out by 
the fact that the FDIC's entitlement to 15 percent fees is the 
only issue we addressed in our Bender I opinion.

     Appellants prevail on the second argument as well.  In 
Singer v. Shannon & Luchs Co., 779 F.2d 69 (D.C. Cir. 1985), 
we noted that "a court may grant a fee award when specially 
authorized by contract or statute," id. at 70, but cautioned 
that "[w]here the merit or necessity of the creditor's claim or 
defense is successfully challenged, courts may decline to 
enforce attorney's fee provisions," id. at 71 (internal quotation 
marks and citation omitted).  See also Hensley v. Eckerhart, 
461 U.S. 424, 440 (1983) ("Where [a party] has failed to 

prevail on a claim that is distinct in all respects from his 
successful claims, the hours spent on the unsuccessful claim 
should be excluded in considering the amount of a reasonable 
fee.");  Anthony v. Sullivan, 982 F.2d 586, 589 (D.C. Cir. 
1993) ("[N]o fee may be granted for work done on claims on 
which the party did not prevail, unless the unsuccessful 
claims were submitted as alternative grounds for a successful 
outcome that the plaintiff did actually achieve.") (emphasis in 
original).  Although Hensley and Anthony dealt with statuto-
ry fee award provisions, we see no reason (absent contractual 
language to the contrary) why the same commonsense stan-
dard should not apply to fees awarded by agreement of the 
parties.

     Accordingly, we reverse the district court's award of the 
$21,500 attributable to the Bender I litigation.

     4.   Allocation of Fees
          
     Finally, appellants maintain that the district court erred in 
failing to allocate its award of attorneys' fees among the four 
notes that are the subject of this appeal, each of which has its 
own obligors and guarantors.  The FDIC responds that 
appellants waived their right to complain about the court's 
failure to apportion the fees because they never asked it to do 
so.

     If this were the sole issue raised in this proceeding, we 
might not return the matter for further consideration.  But 
as the district court will have to address a number of other 
issues on remand, we will add this one to the list.  We are 
persuaded that appellants did not knowingly waive their 
challenge to the district court's failure to apportion the fees;  
and because different parties are liable on the four notes, the 
interest of fairness would be advanced by an apportionment.  
Therefore, if appellants raise this issue on remand, we direct 
the district court to allocate the fees.

B.   The Denial of Sanctions

     The Benders complain that the FDIC acted in bad faith 
(1) by crediting their March 1995 payment in a way contrary 
to their explicit instructions, (2) by attempting to enforce the 

district court's judgments before they were final, and (3) by 
filing and then refusing to remove a lien against the appel-
lants' real property despite the fact that they had paid the 
principal and interest due on all the notes and that 
Mr. Bender had posted a supersedeas bond sufficient to 
ensure payment of any amount that might remain owing to 
the FDIC.  Given the nature of this conduct, the Benders 
maintain, the district court's unexplained denial of sanctions 
was an abuse of discretion.

     The FDIC argues that the district court properly denied 
the Benders' motion.  It maintains that because, prior to the 
tender of the March 1995 payment, it informed the Benders 
that it would credit the payment in accordance with the terms 
of the underlying note, it cannot be said that it acted in bad 
faith when it proceeded to do so.  The FDIC also asserts that 
it did not engage in premature collection activity because it 
justifiably relied on the district court's statement, in its 
February 28, 1996 order, that the judgments on the complaint 
and the amended complaint were both final.  The FDIC 
failed, however, to offer any justification for its refusal to 
remove the lien on appellants' property after the notes had 
been satisfied and the supersedeas bond covering any remain-
ing liability had been posted.  When asked about the lien at 
oral argument, counsel for the FDIC asserted that the agency 
had the right to pursue "redundant remedies."  Counsel 
admitted, however, that the FDIC had used the lien for 
leverage in settlement discussions.

     Whatever the merits of their first two allegations, we are 
satisfied that appellants raise a legitimate question as to 
whether the imposition of, and refusal to release, an appar-
ently unnecessary lien constitutes bad faith.  See Chambers v. 
Nasco, 501 U.S. 32, 45-46 (1991) (holding that a court may 
exercise its inherent power to impose a sanction when a party 
has "acted in bad faith, vexatiously, wantonly, or for oppres-
sive reasons.") (citation and internal quotation marks omit-
ted).  The district court's decision not to impose sanctions 
may be correct, but under the circumstances it requires an 
explanation.  We therefore remand this issue as well.

                         III. Conclusion

     For the foregoing reasons, we reverse the district court's 
award of attorneys' fees to the extent that it compensates the 
FDIC for fees incurred unsuccessfully defending the 15 per-
cent fee provision;  and we remand the remainder of the 
award for further findings consistent with this opinion.  We 
also remand the district court's denial of sanctions so that the 
court may explain its decision in light of the fact that the 
Benders have raised a legitimate question as to whether the 
FDIC acted in bad faith.

                                                It is so ordered.