McCutcheon v. Amer Ser Co

Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit

3-20-2009

McCutcheon v. Amer Ser Co
Precedential or Non-Precedential: Precedential

Docket No. 07-3521

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________

Nos. 07-3521/07-3742
_____________

M. CLARK MCCUTCHEON,

Appellant No. 07-3521

v.

AMERICA’S SERVICING COMPANY;
FREMONT INVESTMENT & LOAN COMPANY;
UNITED HOME SAVINGS, LLC.
_____________

M. CLARK MCCUTCHEON

v.

AMERICA’S SERVICING COMPANY;
FREMONT INVESTMENT & LOAN COMPANY;
UNITED HOME SAVINGS, LLC.

Fremont Investment & Loan Company,
Appellant No. 07-3742

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 ___________

On Appeal from the District Court
for the Eastern District of Pennsylvania
(No. 06-cv-03121)
District Judge: Honorable John P. Fullam
___________

Argued January 7, 2009

Before: FUENTES, FISHER, and ALDISERT, Circuit Judges

(Opinion Filed: March 20, 2009 )

David A. Scholl, Esq. (Argued)
Regional Bankruptcy Center of Southeastern PA
6 St. Albans Avenue
Newtown Square, PA 19073

Attorney for Appellant

Sandhya M. Feltes, Esq. (Argued)
Kaplin, Stewart, Meloff, Reiter & Stein
910 Harvest Drive
P.O. Box 3037
Blue Bell, PA 19422

Attorney for Appellee Fremont Investment & Loan Co.

Ann E. Walters, Esq. (Argued)
Shimberg & Friel

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20 Brace Road
Suite 350
Cherry Hill, NJ 08034

Attorney for Appellee America’s Servicing Co.

OPINION OF THE COURT

FUENTES, Circuit Judge:
M. Clark McCutcheon obtained a variable-rate mortgage on
his home in December 2005. He challenged the validity of that
mortgage in July 2006, filing suit against the mortgage broker, the
mortgage lender, and the mortgage servicer. After a bench trial,
McCutcheon was awarded some of the relief he sought when the
District Court found that the mortgage lender, Fremont Investment
& Loan Company (“Fremont”), must pay him statutory damages
and attorneys’ fees because it had overcharged him for title
insurance in violation of the Truth in Lending Act (“TILA”), 15
U.S.C. § 1601 et seq. But McCutcheon believed he was entitled to
rescind the mortgage entirely. On appeal, his principal argument
is that Fremont’s charging error was large enough to allow him to
rescind the mortgage under TILA because the full title insurance
fee, not just the excess, should count as a charge levied in violation
of the statute. McCutcheon also disputes the District Court’s
judgment regarding the statutory tolerance applicable to the title
insurance overcharge and whether he received certain variable-rate

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disclosures required under TILA. For the reasons below, we will
affirm the District Court’s judgment in all respects.
I.
Appellant M. Clark McCutcheon is an elderly man who
lives on a retirement income of around $2600-$2900 per month. He
resides in a Philadelphia home with a mortgage that he has
refinanced several times since 1980. A broker that had been
involved in one of the prior refinancings, Defendant United Home
Savings, LLC (“United”) began soliciting McCutcheon to refinance
again in 2005. According to McCutcheon, he received paperwork
regarding the mortgage loan for the first and only time on the
evening of December 23, 2005, when an individual from the
broker’s office showed up at his home with papers to sign for the
loan. At trial, McCutcheon testified that he could not read the
paperwork at that time because he has glaucoma and the lighting
at his house was dim, but he signed the loan documents anyway.
McCutcheon finally looked over the paperwork several days
later, in early January 2006, and discovered it described a $405,000
variable-rate loan from Fremont, with an initial annual percentage
rate of 11.868% and monthly payments totaling approximately
$3500 to $4000. The documents contained a falsely inflated
statement of McCutcheon’s monthly income and disclosed a title
insurance fee of $2383.
McCutcheon made the first few payments on the mortgage
out of approximately $10,000 in cash he had received at settlement,
but was soon unable to continue making payments. On May 1,
2006, the loan was assigned by Fremont to America’s Servicing
Company (“ASC”). On May 26, 2006, McCutcheon’s attorney sent
a letter to ASC and Fremont attempting to rescind the loan. ASC

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did not respond directly to the May 26 letter; it simply sent
McCutcheon an “Act 91 letter” on July 3, 2006, pursuant to 35 Pa.
Stat. Ann. § 1680.403c,1 notifying him that it intended to initiate a
foreclosure action against him. ASC never actually initiated
foreclosure proceedings.
McCutcheon filed suit on July 17, 2006, in the Eastern
District of Pennsylvania, against Fremont, ASC, and United. His
complaint alleged that Fremont and ASC had violated the Truth in
Lending Act by overcharging for title insurance and failing to make
required variable-rate disclosures; that ASC had violated the Real
Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605,
by failing to respond to his rescission letter within 20 days of
receipt; and that United had violated the Pennsylvania Unfair Trade
Practices and Consumer Protection Law, 73 Pa. Stat. Ann. §§ 201-
1 et seq. McCutcheon sought both damages and rescission of the
mortgage. Fremont brought a cross-claim against United seeking
indemnification and contribution for any damages judgment, while
ASC brought similar cross-claims against both Fremont and
United.
The District Court held a bench trial at which McCutcheon
and a Fremont employee testified, with the latter claiming that
Fremont had mailed McCutcheon the necessary variable rate
documents on December 20, 2005, and offering certain business

1
Section 1680.403c mandates that at least thirty days before
a mortgagee forecloses on a mortgage, it must send the mortgagor
a letter providing notice of its intent to foreclose and outlining
possible methods to resolve the mortgage default. This is known
as an “Act 91 letter.”

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records in support. In a written order outlining its decision, the
District Court concluded that ASC had failed to respond to a
written request for rescission within 20 days in contravention of
RESPA, but that there had been no damages as a result. As to the
TILA claims, the District Court determined that the title insurance
charge of $2383 was overstated by $668 because Fremont should
have only charged McCutcheon the refinance insurance rate of
$1719. The District Court also found that McCutcheon had timely
received the required variable rate disclosures and simply failed to
read them.
Despite concluding that Fremont had violated TILA, the
District Court held that because the excess $668 fee did not exceed
TILA’s statutory tolerance for minor violations of one-half of one
percent of the loan amount (in this case, $2025), McCutcheon
could not rescind the mortgage. Therefore, it awarded McCutcheon
only statutory damages of $1000 and reasonable attorneys’ fees.
The District Court also held that ASC was not liable for any TILA
violations. Since it had not originated McCutcheon’s loan, ASC
could be held accountable only for statutory violations apparent on
the face of the loan documents, and the judge found no such
obvious violations. See 15 U.S.C. § 1641.
McCutcheon timely appealed the District Court’s judgment.
Meanwhile, he also requested attorneys’ fees of $14,851 from the
District Court, while Fremont argued that an award of $4234 was
appropriate. The District Court, without explanation, awarded
McCutcheon attorneys’ fees in the amount of $10,000. Fremont
cross-appeals that order.
II.
The District Court exercised its jurisdiction over this action

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under 28 U.S.C. § 1331. We have jurisdiction pursuant to 28
U.S.C. § 1291.2
On the appeal of a bench trial, we review a district court’s
findings of fact for clear error and its conclusions of law de novo.
Am. Soc’y for Testing & Materials v. Corrpro Cos., 478 F.3d 557,
566 (3d Cir. 2007). We review the District Court’s attorneys’ fees
determination for abuse of discretion. In re AT&T Corp., 455 F.3d
160, 163-64 (3d Cir. 2006).
III.
A.
McCutcheon challenges three aspects of the District Court’s
decision: the ruling that Fremont need only have disclosed the $668
title insurance overcharge as a finance charge under TILA, rather
than the whole title insurance fee; the determination that the
applicable TILA tolerance was $2025 rather than the $35 tolerance

2
The appeal originally had a jurisdictional defect; at the
time it was filed, a motion for default judgment against Defendant
United Home Savings, LLC was pending and thus the appeal was
not of a final decision as required for jurisdiction under 28 U.S.C.
§ 1291. However, on September 10, 2007, the District Court
entered default judgment against United on McCutcheon’s claims.
It is true that ASC and Fremont had also filed cross-claims against
United, but as they had been unable to effect service on United,
dismissal of those claims would have been mandatory. Therefore,
the case has been resolved as to all parties and the jurisdictional
defect has been cured. See Allegheny Gen. Hosp. v. Philip Morris,
Inc., 228 F.3d 429, 434 (3d Cir. 2000).

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triggered by the initiation of foreclosure; and the finding that
Fremont had properly given McCutcheon the required variable rate
disclosures.
1.
The Truth in Lending Act regulates the relationship between
lenders and consumers, including mortgagees and mortgagors, by
requiring certain disclosures regarding loan terms and
arrangements. Among other things, lenders must disclose the
applicable “finance charge” for a mortgage, defined as “the sum of
all charges . . . imposed directly or indirectly by the creditor as an
incident to the extension of credit,” such as interest, service
charges, borrower-paid broker fees, and so on. 15 U.S.C. §
1605(a); see also id. § 1632(a). If a mortgage lender does not
include such a charge in the finance charge, it has violated the Act.
However, TILA leaves some room for small errors; under the
statute’s “tolerances for accuracy” provision, 15 U.S.C. § 1605(f),
damages may be awarded for such a disclosure violation only if
“the amount disclosed as the finance charge . . . [varies] from the
actual finance charge by more than $100.” Id. § 1605(f)(1)(A). A
mortgagor may rescind in response to a disclosure error,
meanwhile, only if, among other things, the amount disclosed as
the finance charge varies from the actual finance charge “by more
than an amount equal to one-half of one percent of the total amount
of credit extended”—here, $2025.3 Id. §§ 1605(f)(2)(A), 1635(f),

3
A mortgagor always has the right to rescind under TILA
within three days of signing a loan, pursuant to 15 U.S.C. §
1635(a), but McCutcheon failed to do so. The rescission right at
issue here is that of rescinding within three years pursuant to §

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1649(a)(3); see also 12 C.F.R. § 226.23(g)(1) (reiterating tolerance
standard).
A fee for title insurance is generally exempted from
inclusion in the finance charge. 15 U.S.C. § 1605(e)(1). However,
title insurance is treated as a finance charge if is not “bona fide and
reasonable in amount.” 12 C.F.R. § 226.4(c)(7). McCutcheon
contends that Fremont deliberately padded the title insurance fee as
part of a larger pattern of overcharges, and thus the entire $2383
was not bona fide. He therefore suggests that the whole title
insurance fee, rather than just the overcharge of $668, should have
been counted toward the $2025 tolerance.
This is an impermissible reading of 12 C.F.R. § 226.4(c)(7).
First, such an application of that regulation would be inconsistent
with the language of § 1605(f), which bases the tolerance
calculation on whether “the amount disclosed as the finance charge
. . . does not vary from the actual finance charge by more than” the
specified amount. (Emphasis added.) In this case, had Fremont not
overcharged McCutcheon by $668, the proper “actual finance
charge” as calculated according to the provisions of TILA would
not have had to include the legitimate refinance insurance rate of
$1719. Section 1605(e) expressly provides that a fee for title
insurance “shall not be included in the computation of the finance
charge,” and the $1719 was a fee for title insurance that Fremont
did provide. 15 U.S.C. § 1605(e); cf. Guise v. BWM Mortgage,
LLC, 377 F.3d 795, 800 (7th Cir. 2004) (relying on plain language
reading of § 1605(e) to reject argument that entire title fee, rather
than overcharge, should have been disclosed as finance charge).

1635(f).

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 Moreover, counting an entire fee as a violation of TILA
when only part of the charge is not bona fide would lead to
absurdly inconsistent results. The remedies available to a plaintiff
would depend not on the size of an overcharge, but rather on the
size of the legitimate fee. For example, a $1 overcharge would
entitle a TILA plaintiff to rescission if it were part of a title
insurance fee like the one here, yet the same $1 overcharge would
not trigger any statutory remedy if it was part of a credit report fee
of $20.4
McCutcheon is correct in one respect: penalizing a TILA
violator only for overcharges does mean that a mortgage lender
could hypothetically engage in a pattern of imposing excess fees
without suffering any consequences as long as those fees remained
below the Act’s tolerance thresholds. As McCutcheon notes,
TILA’s legislative history contains at least one senator’s warning
that § 1605(f)’s limitation of statutory damages to errors over $100
“is intended to protect lenders from . . . small errors of judgment .
. . . It is obviously not intended to give lenders the right to pad fees
up to the tolerance limit of $100.” 141 Cong. Rec. S 14567 (daily
ed. Sept. 28, 1995) (statement of Sen. Sarbanes).
However, we have already clearly rejected the proposition
that Senator Sarbanes’s remark justifies applying § 1605(f)’s
tolerances differently where a mortgage lender is consistently and
in bad faith overcharging borrowers in amounts just under the
applicable tolerance level. In response to such an argument, this
Court stated in In re Sterten, 546 F.3d 278 (3d Cir. 2008):
[T]here is nothing to suggest that applying the
tolerances provision turns on the motives of the
creditor. The sole support Sterten provides for that

4
A credit report fee is among those items that are not
included in the finance charge for a mortgage loan. See 15 U.S.C.
§ 1605(e)(6); 12 C.F.R. § 226.4(c)(7)(iii).

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 proposition is one reference in case law to a statement
by then-Senator Paul Sarbanes . . . . But there is
nothing in the actual text of § 1605(f) to indicate that
courts have authority to condition application of the
provision on the reason for a particular disclosure
error. On the contrary, the provision clearly states that
“the disclosure of the finance charge . . . shall be
treated as being accurate for purposes of this
subchapter if the amount disclosed as the finance
charge [falls within the specified tolerances].”
Id. at 286.5 If anything, Senator Sarbanes’s statement shows that
Congress was conscious that the tolerances of § 1605(f) might
allow for certain improper behavior, yet deliberately chose not to
condition application of the tolerances provision on a lender’s
motive. Regardless, TILA’s plain language simply does not allow
us to address the problem of marked-up lending fees through
manipulation of the tolerances provision.
2.
McCutcheon alternatively argues that he should be able to
rescind under TILA because the tolerance in this case should have
been $35, which is the threshold for the availability of rescission
once foreclosure has been initiated on a mortgagor’s principal
residence. See 15 U.S.C. § 1635(i)(2). He asserts that ASC had
initiated foreclosure based on the fact that it sent him an “Act 91”
letter in July 2006, pursuant to 35 Pa. Stat. Ann. § 1680.403c .
However, § 1680.403c expressly differentiates the sending of an

5
Although dealing mainly with another issue, Sterten also
implicitly condoned a bankruptcy court’s decision to count only
the defendant mortgage lender’s $25 “mark up” of an appraisal
fee, rather than the entire appraisal fee, as a finance charge that
should have been disclosed under TILA. See 546 F.3d at 281 &
n.2.

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Act 91 letter from the actual initiation of foreclosure. See 35 Pa.
Stat. Ann. § 1680.403c(b)(2) (“The notice under paragraph (1)
[i.e., the Act 91 letter] must be sent by a mortgagee at least thirty
(30) days before the mortgagee . . . begins any legal action,
including foreclosure . . . .”) (emphasis added). In fact, the letter
is specifically intended to provide a mortgagor warning before
foreclosure begins so he or she has the opportunity to apply for a
state loan to help pay off the mortgage and stave off foreclosure.
See Bennett v. Seave, 554 A.2d 886, 891-92 (Pa. 1989). Since
ASC did not follow through on its warning and actually initiate
foreclosure, the $35 tolerance was not applicable here.
3.
Finally, McCutcheon challenges the District Court’s
finding that he timely received the necessary documents under
TILA regulations, which require a lender making a variable-rate
loan to provide a mortgagor with certain disclosures about the
variable-rate feature of the loan both before and at closing. 12
C.F.R. §§ 226.18(f)(2), 226.19(b). The District Court found that
“there is no dispute that [McCutcheon] received all required
disclosures” by the time of the closing, enough to satisfy TILA’s
requirements even if he did not actually read them until afterward.
(App. 4.) This finding is well supported by the record.
In McCutcheon’s case, the pre-closing documents had to
be provided within three business days of the receipt of his loan
application. 12 C.F.R. § 226.19 n.45b. McCutcheon indicates that
Fremont received his application by December 20, 2005. (See
Appellant’s Br. 20.) At trial, a Fremont employee testified that the
necessary disclosures had been timely mailed to McCutcheon on
December 20, 2005, but he denied receiving such a mailing at trial
and now alleges that even if it was sent it did not include a
particular booklet required by 12 C.F.R. § 226.19(b). McCutcheon
does not provide any citation to the record in support of his
assertions. He states that there was no evidence offered regarding
the mailing when in fact the Fremont employee’s testimony laid

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the foundation for the successful introduction of a business record
that documented that the disclosures had been sent. The relevant
exhibit also showed that the required handbook was among the
documents mailed. This was sufficient evidence for the District
Court to conclude, as a factfinder, that McCutcheon had received
the necessary disclosures. Cf. McCarthy v. Option One Mortgage
Corp., 362 F.3d 1008, 1011 (7th Cir. 2004) (stating that a
presumption of delivery will arise in response to “evidence of [a
lender’s] regular office procedures and customary practices” in
mailing TILA disclosures). McCutcheon also objects that the
District Court made formal findings only as to the disclosures
provided at the settlement on December 23, 2005, but the District
Court clearly stated that “he received all required disclosures,”
including the pre-closing documents.6 (App. 4 (emphasis added).)
As for the disclosures to be made at settlement,
McCutcheon signed a form on December 23, 2005,
acknowledging that he had been given the disclosures, and that the
required disclosures were in fact contained in the documents given
to McCutcheon when he signed the mortgage loan. The fact that
McCutcheon failed to read the disclosures he received at the loan
signing has no bearing on whether Fremont properly provided
them. We therefore find no clear error by the District Court in its
determination that McCutcheon timely received the variable-rate

6
Even if Fremont had failed to send the pre-closing
variable-rate disclosures McCutcheon would not be entitled to
rescind the mortgage at this time. TILA provides an extended
three-year rescission period only where the mortgagee did not
provide “material disclosures.” See 12 C.F.R. § 226.23(a)(3). The
only required “material disclosures” with respect to the variable-
rate nature of the mortgage are a notification that the interest rate
and monthly payment may increase and the amount of the single
maximum monthly payment, and McCutcheon does not deny
receiving that information. See id. n.48; 12 C.F.R. § 226.32(c)(4).

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disclosures.
B.
Fremont’s cross-appeal relates only to the issue of
attorneys’ fees. It is true that the District Court’s order was
regrettably brief, simply stating that “IT IS hereby ORDERED
that the Defendant Fremont Investment & Loan Company is
directed to pay fees and expenses to the Plaintiff in the amount of
TEN THOUSAND DOLLARS ($10,000).” (App. 8.) However,
there is (just barely) a sufficient basis for us to review and affirm
this award.
In calculating a fee award under the usual “lodestar
method,” a district court uses as a starting point the product of the
attorney’s appropriate hourly rate and the number of hours the
attorney reasonably expended on the action. Interfaith Cmty. Org.
v. Honeywell Int’l, Inc., 426 F.3d 694, 703 n.5 (3d Cir. 2005).
Although the District Court did not explicitly conduct this
calculation, an examination of Fremont’s opposition to
McCutcheon’s motion for fees and costs shows that Fremont
never objected to his attorney’s proposed figures for hourly rate
and hours spent on the case. The sole ground for Fremont’s
argument in favor of reducing McCutcheon’s requested award of
$14,851 was that the figure should be reduced to account for the
time that McCutcheon’s attorney spent pursuing claims against the
other two defendants and on his unsuccessful claim against
Fremont seeking rescission of the mortgage.
In an attorneys’ fees determination, once a prevailing party
has produced “sufficient evidence of what constitutes a reasonable
market rate for the essential character and complexity of the legal
services rendered in order to make out a prima facie case[,] . . . the
opposing party bears the burden of producing record evidence that
will contest this rate.” Lanni v. New Jersey, 259 F.3d 146, 149 (3d
Cir. 2001). “The district court cannot decrease a fee award based
on factors not raised at all by the adverse party.” Rode v.

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Dellarciprete, 892 F.2d 1177, 1183 (3d Cir. 1990) (internal
quotation marks omitted). Since Fremont did not challenge the
hours and rate aspect of McCutcheon’s claim for fees, the fact that
the District Court did not go through the motions of reaching an
initial lodestar determination in this case does not itself undermine
the validity of the award.
Once a lodestar calculation has been reached, a court may
then reduce that amount to account for “limited success” by a
plaintiff, focusing on “the significance of the overall relief
obtained by the plaintiff in relation to the hours reasonably
expended on the litigation.” Hensley v. Eckerhart, 461 U.S. 424,
435-36 (1983). Fremont argues that the District Court did not
properly decrease McCutcheon’s requested award to account for
time his attorney spent on claims against defendants besides
Fremont and on McCutcheon’s unsuccessful rescission claim.
Specifically, Fremont contends that $2378 should have been
subtracted from the requested award because it was for work done
solely on claims against the other two defendants, and that certain
other expenses should have been reduced by $4094, subtracting
two-thirds or one-half to the extent they represented costs incurred
in pursuing claims jointly against two or three of the defendants.
(Br. of Appellee/Cross-Appellant Fremont 27.) Such a reduction
would leave an award of $8469, which Fremont urged the District
Court to halve yet again to approximately $4234 since
McCutcheon had won on only one of two claims against it.
The District Court, however, properly did not adopt the
purely mathematical approach proposed by Fremont. An analysis
whereby a court simply “compar[es] the total number of issues in
the case with those actually prevailed on” has been expressly
rejected by the Supreme Court, which recognized that “[s]uch a
ratio provides little aid in determining” a reasonable fee since it is
not “necessarily significant that a prevailing plaintiff did not
receive all the relief requested.” Hensley, 461 U.S. at 435 n.11.
We subsequently held that mathematically deducting fees

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proportional to a plaintiff’s losing claims is “too simplistic and
unrealistic.” W. Va. Univ. Hosps., Inc. v. Casey, 898 F.2d 357,
363 (3d Cir. 1990).
The District Court’s grant of an award in between the two
parties’ requests indicates that it took into account the fact that
some of McCutcheon’s attorney’s work had gone into claims
against defendants besides Fremont. It was proper for the District
Court not to reduce the fee award in a purely mathematical
fashion. After all, McCutcheon’s victory in obtaining statutory
fees was based on the same factual situation—the overcharge for
title insurance—that constituted one of his arguments in favor of
the alternative remedy of rescission. Therefore, it would be
entirely reasonable to think that there was substantial overlap
between the two claims, rendering a simple halving of the fee
award inappropriate. See Hensley, 461 U.S. at 435 (noting that
claims for relief may “involve a common core of facts or . . . be
based on related legal theories,” making it “difficult to divide the
hours expended on a claim-by-claim basis”). Similarly, decreasing
the fee proportionally based on the number of defendants would
be unrealistic given that McCutcheon obtained a default judgment
against United and thus most of his counsel’s work on the case
probably did not relate to that defendant.
The District Court’s award of $10,000 reflects such an
understanding: it does reduce the requested award by a significant
enough sum to account for fees that did not represent work against
Fremont in particular or that represented work solely in pursuit of
the rescission remedy, but it does not strictly rely on the fractional
approach advocated by Fremont. In essence, the District Court
granted Fremont’s request to decrease the fee award requested by
McCutcheon and did so in the only way permissible under our
precedent, taking into account both the proportional amount of
time McCutcheon’s attorney spent on his successful claims and
how those claims overlapped with the unsuccessful ones. While
some elucidation of the balancing of those factors would have

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been helpful to us in reviewing the fee award, the brevity of the
District Court’s decision does not amount to an abuse of
discretion.
IV.
For the foregoing reasons, we will affirm both the District
Court’s judgment and its fee award.

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