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.