August 16, 2018

Tenth Circuit: Attorneys Who Withheld Information About Appraiser Properly Sanctioned

The Tenth Circuit Court of Appeals issued its opinions in Auto-Owners Ins. Co. v. Summit Park Townhome Association on March 30, 2018. The Tenth Circuit Court of Appeals VACATED its original opinions and issued the following revised opinions: Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, No. 16-1638, and Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, No. 16-1352.

Two attorneys, Mr. William Harris and Mr. David Pettinato, represented Summit Park Townhome Association against its insurer. The two attorneys were sanctioned for failing to disclose information to the district court. The attorneys appealed the sanction on these five arguments:

  1. The district court lacked authority to require the disclosure requirements.
  2. The attorneys did not violate the court’s disclosure requirements.
  3. The district court awarded attorneys’ fees beyond the scope of an earlier sanctions order.
  4. The district court’s award of attorneys’ fees resulted in a deprivation of due process.
  5. The amount of attorneys’ fees awarded was unreasonable.

The Tenth Circuit Court of Appeals AFFIRMED the district court’s actions in issuing sanctions, determining the scope of the sanctions, and calculating the amount of the sanctions.

The initial lawsuit was related to an insurance dispute following a claim filed by Summit Park with Auto-Owners Insurance for hail damage. The parties disagreed on the dollar amount of the damages, and Auto-Owners sued for a declaratory judgement to decide the value.

Summit Park attorneys Harris and Pettinato moved to compel an appraisal following the insurance policy requirements. Auto-Owners asked the district court to resolve the dispute over the dollar amount by ordering an “appraisal agreement.” The district court ordered the appraisal agreement and warned both parties that if the parties and/or counsel did not comply, the court would impose sanctions.

George Keys was the appraiser for Summit Park, and Auto-Owners questioned his impartiality. Mr. Keys and the court-appointed umpire both agreed on an appraisal award of over $10 million. Auto-Owners then objected to Mr. Keys based on impartiality and that Summit Park had failed to disclose evidence bearing on his impartiality. The court disqualified Mr. Keys and vacated the appraisal award. Auto-Owners then moved for sanctions against Mr. Harris and Mr. Pettinato, including attorney fees and expenses. The district court assessed sanctions against the two attorneys for $354,350.65 in fees and expenses.

Attorneys Harris and Pettinato questioned the district court’s authority to enter the disclosure order, and they refused to comply with the order. They could have sought reconsideration or a writ, but they could not violate the order. See Maness v. Meyers, 419 U.S. 449, 458 (1975) (“If a person to whom a court directs an order believes that order is incorrect the remedy is to appeal, but, absent a stay, he must comply promptly with the order pending appeal.”). Orders issued by a court must be obeyed by the parties until “reversed by orderly and proper proceedings.” United States v. United Mine Workers, 330 U.S. 258, 293 (1947); See United States v. Beery, 678 F.2d 856, 866 (10th Cir. 1982); and see also GTE Sylvania, Inc. v. Consumers Union of U.S., Inc, 445 U.S. 375, 386 (1980). Failure to comply with the court order could trigger sanctions. See United Mine Workers, 330 U.S. at 294 (quoting Howat v. Kansas, 258 U.S. 181, 190 (1922)), so Mr. Harris and Mr. Pettinato were obligated to comply in the absence of an appellate challenge, and could be sanctioned for noncompliance.

Attorneys Harris and Pettinato challenged the district court’s conclusion that they had violated the disclosure order by arguing that the district court misinterpreted the term “impartial” and that Harris and Pettinato disclosed sufficient information about Mr. Keys.

Because Mr. Harris and Mr. Pettinato urged a legal error consisting of misinterpretation of the term “impartial,” the Tenth Circuit Court of Appeals engaged in de novo review. Hamilton v. Boise Cascade Express, 519 F.3d 1197, 1202 (10th Cir. 2008), and it otherwise confined the review sanctions under the abuse-of-discretion standard. Russell v. Weicker Moving & Storage Co., 746 F.2d 1419, 1420 (10th Cir. 1984) (per curiam).

The district court requested disclosure of (1) the appraiser’s “financial or personal interest in the outcome of the appraisal,” (2) any “current or previous relationship” between the appraiser and Summit Park’s counsel, and (3) any other facts subsequently learned that “a reasonable person would consider likely to affect” the appraiser’s impartiality.

Harris and Pettinato made two disclosures:

  1. “Mr. Keys does not have any significant prior business relationship with [Merlin], Summit Park, or C3 Group. Mr. Keys has acted as a public adjuster and/or appraiser on behalf of policyholders that [Merlin] has represented in the past, however, this obviously does not affect his ability to act [as] an appraiser in the matter.” Appellant’s App’x, vol. 2 at 292.
  2. “Mr. Keys has acted as a public adjuster and/or appraiser on behalf of policyholders that [Merlin] has represented in the past. Mr. Keys has no financial interest in the claim, and has no previous relationship with the policyholder in this matter.” Id. at 298.

Mr. Keys made the following disclosure: “I do not have a material interest in the outcome of the Award and have never acted either for or against Summit Park Townhome Association. My fee agreement is based upon hourly rates plus expenses. . . . I do not have any substantial business relationship or financial interest in [Merlin]. There have been cases where both [Merlin] and Keys Claims Consultants acted for the same insured but under separate contracts.” Id. at 307-08.

Regardless of the district court’s definition of “impartial,” attorneys Harris and Pettinato failed to disclose that (1) other attorneys in their firm (Merlin Law Group) had worked with Mr. Keys on appraisals for at least 33 clients, (2) Merlin attorneys had represented Mr. Keys on various matters for over a decade, (3) Merlin’s founder and Mr. Keys had co-founded a Florida lobbying operation, and (4) Merlin attorneys had served as the incorporator and registered agent for one of Mr. Key’s companies.

Attorneys Harris and Pettinato claim they disclosed sufficient information about Mr. Keys’ impartiality and that they lacked personal knowledge about the undisclosed facts. Both of these arguments failed. The district court could reasonably find that the undisclosed information was meaningful, and Harris and Pettinato knew about some of Mr. Keys and Merlins contacts, and they had an obligation to inquire about contacts with other Merlin attorneys. Therefore, the district court acted within its discretion on Mr. Harris’ and Mr. Pettinato’s failure to disclose information.

As far as Mr. Harris’ and Mr. Pettinato’s argument over the district court’s definition of “impartial,” the disclosure order issued by the district court defined “impartial” by stating: “An individual who has a known, direct, and material interest in the outcome of the appraisal proceeding or a known, existing, and substantial relationship with a party may not serve as an appraiser.” Id. at 245.

Using the definition of “impartial” provided in the district court’s order, the district court required disclosure of any facts that a reasonable person would view as likely to affect the appraiser’s impartiality. Mr. Harris and Mr. Pettinato argued that evidence of an appraiser’s advocacy was unlikely to affect the appraiser’s impartiality. See Owners Ins. Co. v. Dakota Station II Condominium Ass’n, 2017 WL 3184568, at *4 (Colo. App. July 27, 2017), cert. granted, 2018 WL 948601 (Colo. Feb. 20, 2018). Even if Mr. Harris and Mr. Pettinato were correct, the district court could have reasonably viewed Mr. Keys’ undisclosed prior statements as likely to affect his impartiality based on a known, direct, and material interest in the outcome. Additionally, in an advertisement on Mr. Keys’ website, Mr. Pettinato endorsed Mr. Keys, saying: “Both Mr. Keys and his staff have assisted me as well as my firm in resolving an untold number of large multi-million dollar losses to an amicable resolution and settlement to the policyholders’ benefit and satisfaction.” Id. at 704. And a profile on Merlin’s website reported that Mr. Keys “ha[d] dedicated his professional life to being a voice for policyholders in property insurance claims.” Id. at 723. In this profile, Mr. Keys stated: “I was taught to always handle a claim as if my momma was the insured.” Id.

Therefore, the district court did not abuse its discretion by finding that Mr. Harris and Mr. Pettinato had violated the disclosure order.

Mr. Harris and Mr. Pettinato argued that Auto-Owners waived the right to object by failing to object despite their knowledge of past relationships between Merlin and Mr. Keys. The Tenth Circuit disagreed, because without the undisclosed information, Auto-Owners would not have had full knowledge of the relationship.

For the sanction against the two attorneys, the district court invoked 28 U.S.C. § 1927. Under § 1927, an attorney “who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” 28 U.S.C. § 1927. The two attorneys argued that these three items fell outside of the initial sanctions order: (1) Auto-Owners’ preparation of the motion for sanctions ($51,309.50), (2) Auto-Owners’ preparation of the application for attorneys’ fees and expenses ($16,960.50), and (3) Auto-Owners’ other related work ($61,662.50).

The Tenth Circuit disagreed with those arguments, because the district court explained the attorney fees in the sanctions order. Therefore, the Tenth Circuit deferred to the district court’s interpretation of its own order. See, e.g., Chi., Rock Island & Pac. R.R. v. Diamond Shamrock Ref. & Mktg. Co., 865 F.2d 807, 811 (7th Cir. 1988) (“We shall not reverse a district court’s interpretation of its own order ‘unless the record clearly shows an abuse of discretion.’” (quoting Arenson v. Chicago Mercantile Exch., 520 F.2d 722, 725 (7th Cir. 1975))). The Tenth Circuit found it reasonable for the district court to consider these litigation expenses.

The fifth area that Mr. Harris and Mr. Pettinato questioned was a deprivation of due process based on an inability to respond to the district court’s inclusion of litigation activities outside of the initial sanctions order. The Tenth Circuit disagreed because they could have objected to any of the attorney fees included on the Auto-Owners application that was filed. This opportunity supplied due process. See Resolution Tr. Corp. v. Dabney, 73 F.3d 262, 268 (10th Cir. 1995); see also Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, No. 16-1352, slip op. at 17-19 (10th Cir. Mar. 30, 2018) (to be published) (discussing a similar argument made by Summit Park Townhome Association).

The last argument was that the court awarded an unreasonable about of attorney fees. The Tenth Circuit reviewed a determination of attorney fees for an abuse of discretion. See AeroTech, Inc. v. Estes, 110 F.3d 1523, 1528 (10th Cir. 1997). In applying the abuse-of-discretion standard, the Circuit considered whether the district court’s determination appeared reasonable in light of the complexity of the case, the number of strategies pursued, and the responses necessitated by the other party’s maneuvering. See Robinson v. City of Edmond, 160 F.3d 1275, 1281 (10th Cir. 1998). The district court was not required to identify and justify every hour allowed or disallowed. See Malloy v. Monahan, 73 F.3d 1012, 1018 (10th Cir. 1996).

Based on the Tenth Circuit’s review, the district court considered three areas when determining reasonableness of fees. First, the district court concluded that it was reasonable for Auto-Owners’ counsel to spend long hours because “Auto-Owners had over $30 million at stake” and the issues were complex. Appellants’ App’x, vol. 3 at 673-74. Second, the court considered the local market, the qualifications of the attorneys, and the contentiousness of the litigation. These considerations led the district court to find that the billing rates had been reasonable. Third, the court considered the use of billing judgment by Auto-Owners’ counsel through concessions such as staffing with lower-billing attorneys, declining to charge for all hours worked, and discounting hours worked by paralegals and secretaries. The district court acted reasonably in considering these concessions. The Tenth Circuit concluded that the district court did not abuse its discretion in calculating the amount of the sanction ($354,350.65).

The Tenth Circuit Court of Appeals concluded that the district court did not err in sanctioning Mr. Harris and Mr. Pettinato, that Mr. Harris and Mr. Pettinato violated the district courts order by failing disclose information bearing on Mr. Key’s impartiality, and that the amount set by the district court was reasonable.

Colorado Supreme Court: Colorado Court Lacks Jurisdiction to Award Attorney Fees for Foreign Action

The Colorado Supreme Court issued its opinion in Roberts v. Bruce on Monday, June 18, 2018.

Attorney Fees—Statutory Interpretation.

In this case, the supreme court considered whether a trial court may award attorney fees under C.R.S. § 13-17-102 for conduct occurring outside Colorado courts. Reviewing the plain language of 13-17-102, the court concluded that an award of attorney fees pursuant to that section is limited to conduct occurring in Colorado courts and therefore affirmed the judgment of the court of appeals.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Survivor Statute Does Not Allow Personal Injury Award to be Limited

The Colorado Supreme Court issued its opinion in Guarantee Trust Life Insurance Co. v. Estate of Casper on Tuesday, May 29, 2018.

Unreasonable Delay and Denial of Insurance Benefits—Abatement—Actual Damages.

The supreme court considered the operation of C.R.S. § 13-20-101, Colorado’s survival statute, and C.R.S. § 10-3-1116(1), a statutory cause of action for the unreasonable delay or denial of insurance benefits. The court also considered the scope of the trial court’s authority to enter a final judgment nunc pro tunc.

The original plaintiff in this case died after receiving a favorable jury verdict but before that verdict had been reduced to a written and signed entry of final judgment. Defendant then moved to substantially reduce the jury award, arguing that the survival statute barred certain damages. The court concluded that the survival statute does not limit the jury’s verdict in favor of the original plaintiff. The court further concluded that an award of attorney fees under C.R.S. § 10-3-1116(1) is a component of the “actual damages” of a successful claim under that section and that, although the survival statute did not limit the damages awarded by the jury, the trial court abused its discretion by entering a final judgment nunc pro tunc.

The court of appeals’ judgment was affirmed in part and reversed in part.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Attorney Fee Award Non-dischargeable as Civil Penalty Under CCPA

The Colorado Court of Appeals issued its opinion in State of Colorado ex rel. Coffman v. Robert J. Hopp & Associates, LLC on Thursday, May 17, 2018.

Bankruptcy—Attorney Fees—Colorado Consumer Protection Act—Colorado Fair Debt Collection Practices Act—Civil Penalty—Reasonableness—Groundless.

The State brought an action alleging that Hopp and his wife Lori Hopp, and Hopp’s law firms and affiliated companies, violated the Colorado Consumer Protection Act (CCPA) and the Colorado Fair Debt Collection Practices Act (CFDCPA) (see 2018 COA 69, No. 16CA1983, State of Colorado v. Robert J. Hopp & Associates, LLC). The district court entered judgment against Hopp and in favor of plaintiffs, but concluded there was insufficient evidence to find Lori Hopp liable for any alleged misconduct. The trial court also awarded plaintiffs most of their reasonable attorney fees and costs incurred in bringing the enforcement action under the CCPA and CFDCPA.

On appeal, Hopp contended that the trial court erred when it imposed an award of attorney fees and costs against him because it was precluded from doing so by his discharge of debts in bankruptcy. Hopp filed for bankruptcy in January 2013 and obtained a discharge in February 2014. Plaintiffs’ enforcement action was filed 10 months later. Hopp argued that the bankruptcy discharge applied to any claim for attorney fees and costs that could have been fairly or reasonably contemplated during the bankruptcy case. The trial court’s attorney fee awards under the CCPA and CFDCPA are not dischargeable, and the Court of Appeals declined to order that they be vacated as void under 11 U.S.C. § 5243.

Hopp further contended that the trial court erred when it failed to reduce plaintiffs’ attorney fees award by the amount of any fees incurred for their unpursued and unsuccessful claims. Because plaintiffs’ claims involved a common core of facts and were brought under the same legal theories, the trial court did not abuse its discretion in declining to reduce plaintiffs’ attorney fees.

Lori Hopp contended that the trial court erred in rejecting her argument that she was entitled to her attorney fees and costs under C.R.S. §§ 13-17-101 to -106 for defending against plaintiffs’ eventually unsuccessful claims against her. The trial court’s decision that plaintiffs’ CCPA claim against Lori Hopp was not substantially groundless was not manifestly arbitrary, unreasonable, or unfair, and the trial court did not abuse its discretion when it declined to award her attorney fees.

The order was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: District Court had Personal Jurisdiction over Out of State Client in Legal Fee Dispute

The Colorado Court of Appeals issued its opinion in Dorsey & Whitney LLP v. RegScan, Inc. on Thursday, February 22, 2018.

Attorney Fees—Personal Jurisdiction—Long Arm Statute—Due Process—Expert Witness—Fed. R. Evid. 703—Jury Instructions—CRE 408—Settlement Negotiations—Evidence.

RegScan, Inc., a Pennsylvania-based Internet company, reached out to and retained a specific Colorado attorney in Dorsey & Whitney LLP (the law firm) to represent it in a matter ultimately filed in Virginia. After a disagreement about the amount of fees owed, the law firm sued RegScan in Denver District Court. Judgment was ultimately entered for $373,707.43 against RegScan.

On appeal, RegScan argued that the district court lacked personal jurisdiction. It contended that its actions connecting it to Colorado did not demonstrate purposeful availment because it merely contacted a Minnesota-based firm that happened to staff the case with Colorado attorneys. A plaintiff desiring to invoke a Colorado court’s jurisdiction over a nonresident defendant must show that doing so comports with the long-arm statute and due process. Here, RegScan specifically retained an attorney in Colorado based on an existing relationship. The totality of the circumstances surrounding this retention demonstrates that RegScan’s purposeful activities directed at Colorado satisfy the minimum contacts requirement. Further, requiring RegScan to defend this case in Colorado was not unreasonable. Therefore, the district court did not err in denying RegScan’s motion to dismiss for lack of personal jurisdiction.

RegScan next contended that the court erred by allowing the law firm’s expert witness on the reasonableness of its fees to testify to the substance of information in pro forma bills (records reflecting the total number of hours worked) that the law firm didn’t offer into evidence. Fed. R. Evid. 703 allows an expert to base his opinion on facts or data that wouldn’t be admissible if such facts and data are of a type on which experts in the field would reasonably rely. But the expert may not disclose those inadmissible facts to the jury unless the court so allows after engaging in the balancing analysis required by the rule. RegScan’s argument confuses information that can’t be admitted under the evidence rules with information that simply has not been admitted. Here, RegScan failed to timely argue that the pro formas weren’t admissible. Further, the substance of the testimony was already in evidence, and RegScan did not argue that the witness’s ultimate opinion was inadmissible or wrong. Therefore, there was no violation of Fed. R. Evid. 703.

RegScan also contended that the district court erred by failing to include a fairness element in the elemental breach of contract jury instruction. Even if the court erred in omitting the element that the fee agreement was “fair and reasonable under the circumstances,” all relevant evidence in the record overwhelmingly shows that the fee agreement was fair and reasonable under the circumstances. Thus, any error was harmless.

Finally, RegScan argued that the district court erred by relying on CRE 408 to exclude email communications in which RegScan disputed the reasonableness of the law firm’s fees and didn’t admit liability. This evidence was properly excluded under CRE 408 because at the time the communications occurred the parties disputed the amount owed and were exchanging offers to resolve the dispute.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Sovereign Immunity Does Not Bar Attorney Fee Award Against Government Entity

The Colorado Supreme Court issued its opinion in C.K. v. People in Interest of L.K. on Monday, December 18, 2017.

Discovery Sanctions—Attorney Fees—Sovereign Immunity.

In this case, the Colorado Supreme Court considered the narrow question of whether sovereign immunity bars an award of attorney fees against a public entity. The court concluded that sovereign immunity does not bar an award of attorney fees against a public entity because sovereign immunity does not presumptively protect the state of Colorado and Colorado’s Governmental Immunity Act does not provide immunity for an award of attorney fees against a public entity. Accordingly, the court reversed the court of appeals’ judgment and remanded to that court for proceedings consistent with this opinion.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Corporate Veil Properly Pierced to Impose Attorney Fees on LLC Manager

The Colorado Supreme Court issued its opinion in Stockdale v. Ellsworth on Monday, December 18, 2017.

Corporations—Piercing the Corporate Veil—Attorney Fees—Joinder.

The Colorado Supreme Court reversed the Colorado Court of Appeals’ opinion vacating the trial court’s judgment awarding attorney fees. The court held that the trial court properly pierced the corporate veil to impose joint and several liability on a limited liability company’s managing member for attorney fees. The court also held that the managing member was properly joined as a party to the litigation, and that imposing such liability did not violate the managing member’s due process rights under the circumstances of this case.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: District Court Properly Denied Attorney Fees to Non-prevailing Party

The Colorado Court of Appeals issued its opinion in Klein v. Tiburon Development, LLC on Thursday, August 10, 2017.

Attorney Fees—Fee-Shifting Provision—Contract—Violation of Public Policy—Substantial Justification.

Following remand, the district court denied the Kleins’ request for attorney fees and costs pursuant to a line of credit agreement (LOC) between them and Tiburon Development LLC (Tiburon). The district court granted Tiburon’s and Sell’s (a member of Tiburon) motions for attorney fees and costs.

On appeal, the Kleins contended that the district court erroneously denied their request for attorney fees pursuant to the fee-shifting provision of the LOC. However, enforcing  and awarding the Kleins their attorney fees and costs pursuant to the LOC would violate public policy because the Kleins lost the predominant and only contested part of the LOC claim, and they had only nominal success on the secondary and uncontested issue of entitlement to interest on the LOC. It would have been an abuse of discretion to conclude that the Kleins were the prevailing party on the LOC claim. Further, the Kleins were sanctioned for their conduct during the litigation and ordered to pay all of Tiburon’s attorney fees.

The Kleins next contended that the district court erred in awarding Sell the attorney fees he incurred in seeking an award of fees because Sell failed to carry his burden to prove that the Kleins’ defense to his fees motion lacked substantial justification, and the district court never found that the Kleins’ defense was frivolous. An award of fees incurred in seeking fees under C.R.S. § 13-17-102 must be supported by a determination in the record that the sanctioned party’s defense to the fees motion lacked substantial justification. Because the record in this case does not support that finding, the district court erred in including in its fee award the fees Sell incurred in pursuing his motion for fees.

The Kleins further contended that the district court’s award of fees to Sell unreasonably included fees Sell incurred to respond to the Kleins’ C.R.C.P. 59 motion, which they asserted was not relevant to their claims against Sell. It was not an abuse of discretion for the district court to award Sell the attorney fees he incurred to respond to the Kleins’ C.R.C.P. 59 motion, and the decision was supported by findings in the record.

The judgments denying an award of attorney fees and costs to the Kleins and awarding Sell the attorney fees he incurred to respond to the Kleins’ C.R.C.P. 59 motion were affirmed. The judgment was reversed insofar as the court awarded Sell the attorney fees he incurred in seeking fees against the Kleins, and the case was remanded for the district court to subtract the amount of such fees from the award.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Attorney Must Assume Financial and Ethical Responsibility in Order to Share Fees

The Colorado Court of Appeals issued its opinion in Scott R. Larson, P.C. v. Grinnan on Thursday, June 15, 2017.

Attorney Fee Dispute—Referral Fees—Division of Fees.

Grinnan is a general practitioner with limited experience in personal injury cases. Grinnan’s friend Kelley asked Grinnan to represent him in a personal injury case. Grinnan obtained Kelley’s approval to involve Scott Larson., P.C. in the case, and Larson entered into a contingency fee agreement with the Kelley family. As relevant here, the agreement identified Grinnan as “associated counsel,” stated that Grinnan would be paid a percentage of Larson’s fee “not to exceed 100%,” and provided that Larson was responsible for paying case expenses. Grinnan was not a signatory to the agreement.

Larson brought claims against various entities and settled with one early in the case. From Larson’s $333,333 fee on this settlement, he sent Grinnan a check for $50,000. After three years of litigation, the case settled. Based on the settlements, the contingent fee agreement entitled Larson to a fee of $3,216,666.67. Larson had incurred about $300,000 in costs.

Larson and Grinnan couldn’t agree on how to divide the contingent fee. Grinnan entered his appearance, and the court granted his request that all attorney fees paid to Larson be placed in a restricted interest bearing account. Following a hearing, the trial court entered a detailed written order allocating the attorney fees. The trial court declined to divide the fees in proportion to services and found that Grinnan had assumed joint responsibility for the litigation. The court divided the fees by awarding Grinnan 20% of the $333,333.34 from the first settlement and 12.5% of the $2,883,333.33 fee from the other two settlements. The court also awarded Grinnan prejudgment interest at the rate of 8% from the date the settlement checks were issued until final judgment entered on the fees allocated to him. It also awarded Larson interest on the fees placed in the restricted account less the fees awarded to Grinnan (as a wrongful withholding). The court declined to award costs, finding that neither lawyer was the prevailing party.

On appeal, Larson asserted that Grinnan never assumed joint responsibility because he did not assume responsibility for the representation as a whole. The court of appeals found that Grinnan had assumed one of the two components of joint responsibility—financial responsibility for the case—because of Grinnan’s exposure to liability for any malpractice of Larson. A remand was necessary to determine whether he also assumed ethical responsibility, the second component, on which the court had made no findings.

As guidance to the trial court on remand, the court analyzed the ethical responsibility issue. It concluded that a referring lawyer must: actively monitor the progress of the case; make reasonable efforts to ensure that the firm of the lawyer to whom the case was referred has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct; and remain available to the client to discuss the case and provide independent judgment as to any concerns the client may have that the lawyer to whom the case was referred is acting in conformity with the Rules of Professional Conduct.

On remand, if the court finds that Grinnan assumed ethical responsibility, the court’s fee award will stand, subject to appeal by Larson. If the court finds that Grinnan did not assume ethical responsibility, he is only entitled to fees in proportion to the services he performed, with the referral fees to be reallocated to Larson, subject to appeal by Grinnan.

The court concluded that Grinnan failed to preserve issues he raised on cross-appeal.

Grinnan also contended that the trial court erred in finding a wrongful withholding.  The court found no error in the trial court’s award of prejudgment interest to Larson based on Grinnan’s wrongful withholding.

The court also noted that on remand the trial court could reconsider its decision not to award costs based on its findings on ethical responsibility.

The attorney fee award was vacated, the cross-appealed rulings were affirmed, and the case was remanded.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Forbearance Fees and Interest Charges on Loan Were Not Usurious

The Colorado Court of Appeals issued its opinion in Blooming Terrace No. 1, LLC v. KH Blake Street, LLC on Thursday, May 18, 2017.

Usury—Motion to Dismiss—Attorney Fees.

KH Blake Street, LLC and Kresher Holdings, LLC (collectively, lender) loaned Blooming Terrace No. 1 LLC (borrower) $11 million for an origination fee of $220,000. The loan was secured by a deed of trust and memorialized by a promissory note (note) that contained an accrual interest rate of 11% per annum, a default interest rate of 21% per annum, a 5% late charge on any late monthly payments, and an $110,000 exit fee. The note required monthly interest payments calculated at the rate of 8% per annum, with none of the monthly payments being applied to the principal.

Borrower defaulted. The parties executed a forbearance agreement whereby lender agreed to forbear from foreclosing on the deed of trust in exchange for a $110,000 forbearance fee plus continued accrual of default interest, late charges, and certain additional fees. At that time, the amount of all outstanding charges was $778,583.33. The loan was not paid when due, and the forbearance agreement was amended for $220,000. Borrower then paid off the loan, including all outstanding interest, fees, and costs.

Borrower sued lender, claiming that the fees, interest, costs, and expenses exceeded the 45% per annum interest allowable under Colorado’s usury law. Lender moved to dismiss under C.R.C.P. 12(b)(5), arguing the loan fees did not constitute interest above the maximum allowable rate. The district court agreed, concluding that the effective rate of interest was 12.924% based on the total amount of interest charged during the life of the loan. The complaint was dismissed. Lender sought attorney fees pursuant to the note, and the district court awarded attorney fees in the amount of $15,407.20 to lender.

On appeal, borrower argued that the court of appeals should annualize the forbearance charges. The district court had measured the interest charged on a purely per annum rate based on the entire amount of interest charges over the life of the loan. The court concluded that borrower’s computation would not accurately reflect the rate of interest actually charged. Although it found the district court overlooked some charges, the court agreed with the district court’s computation approach and calculated an interest rate of 17.60%. The court concluded that the interest charges were not usurious and the complaint failed to state a claim for which relief could be granted

Borrower then argued it was error to grant attorney fees, asserting that because the forbearance agreements were not loan documents, the litigation regarding those agreements was not related to any loan document. The note provided for attorney fees incurred in any litigation related to any “Loan Document.” This litigation concerned the interest charged by lender under both the note and the forbearance agreements. Therefore attorney fees were properly awarded.

Borrower further contended that the district court abused its discretion in calculating the fees awardable to lender. The court rejected this contention.

The judgment was affirmed and the case was remanded for determination of the amount of reasonable appellate attorney fees to be awarded to lender.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: Attorneys’ Charging Liens May Attach to Spousal Maintenance Awards

The Colorado Supreme Court issued its opinion in Stoorman & Associates, P.C. v. Dixon on Monday, May 15, 2017.

Attorneys’ Liens—Dissolution of Marriage.

In this case, the supreme court considered whether attorneys’ charging liens may attach to spousal maintenance awards under Colorado’s attorney’s lien statute. The court applied the plain language of the attorney’s lien statute, C.R.S. § 12-5-119, which provides that attorneys shall have a lien on “any judgment they may have obtained or assisted in obtaining,” and held that an attorney’s charging lien may attach to an award of spousal maintenance. Accordingly, the court reversed the court of appeals’ judgment and remanded this case to that court with instructions to return the case to the trial court for proceedings consistent with this opinion.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Denial of Attorney Fees Not Error in Close Case with No Vexatious, Groundless Claims

The Colorado Court of Appeals issued its opinion in In re Estate of Fritzler on Thursday, January 12, 2017.

Wills—Business Records Exception—Jury Instruction—Presumption of Undue Influence—Attorney Fees—Costs.

Fritzler and his wife executed numerous wills during the last 10 years of their lives. The last will was drafted just a few years before they each passed away. In all of the wills, the Fritzlers sought to distribute their farm in a generally equitable manner among their five children, but the last will increased son Glen’s portion over son Steven’s portion. Steven contested the will, contending that Glen unduly influenced Fritzler. After a lengthy trial, a jury concluded that the will was valid. Following the verdict, the estate and the personal representative (PR) sought attorney fees and costs. The court denied the award of fees, finding that the case was “close” and Steven did not lack substantial justification. The court partially denied costs, concluding that it lacked equitable authority to grant fees without concurrent statutory authority.

On appeal, Steven contended that the trial court abused its discretion by excluding Fritzler’s hospital medical records because they were admissible under the business records exception. Although the exclusion was an abuse of discretion, any error was harmless because the records were cumulative of other admitted evidence.

Steven also contended that the trial court erred by refusing to instruct the jury on the presumption of undue influence. However, the PR offered sufficient evidence to rebut this presumption. Thus it would have been improper for the court to instruct the jury thereon.

The PR contended that the trial court erred by denying her request for attorney fees under C.R.S. § 13-17-102 and by denying her certain costs as the prevailing party under C.R.C.P. 54(d). The trial court noted that this was a close case and found that even though Steven did not prevail, his claims were not groundless, frivolous, or vexatious. Therefore, the court did not err by denying the request for fees. As to the costs, the trial court awarded most of the requested costs to the PR after a hearing, denying only some that it found to be unreasonable. Therefore, the court did not err in its award of costs.

The judgment and orders were affirmed.

Summary provided courtesy of The Colorado Lawyer.