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CONTINENTAL BANK N.A. v. EVERETT

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION


March 29, 1993

CONTINENTAL BANK N.A., Plaintiff,
v.
ROBINSON EVERETT, KATHRINE EVERETT, and J. H. FROELICH, Defendants.

The opinion of the court was delivered by: ELAINE E. BUCKLO

REPORT AND RECOMMENDATION

 Continental Bank filed a petition for costs, fees and expenses incurred in collecting guaranties by Robinson Everett, Kathrine Everett and J. H. Froelich of a debt owed the bank by Guilford Telecasters, Inc. The district court previously entered summary judgment in favor of the bank, 760 F. Supp. 713 (N.D. Ill. 1991) and 768 F. Supp. 246 (N.D. Ill. 1991), which judgment was affirmed by the Seventh Circuit, 964 F.2d 701 (7th Cir. 1992). The only issue remaining is the amount of the costs and fees. Id. at 706.

 Continental seeks fees pursuant to two fee petitions. The first, filed before the Seventh Circuit's opinion affirming Judge Bua's prior decisions, seeks $ 7,557.26 in costs, $ 416,981.86 fees and expenses in enforcing the guaranties, and $ 219,797.78 in expenses of enforcing Guilford's and non-defendant guarantors' obligations. Continental's supplemental fee petition seeks $ 208,279.51 in additional collection expenses as well as $ 11,518.27 in additional expenses enforcing the obligations of Guilford or other guarantors.

 In response to Continental's fee petition, defendants have raised numerous objections. I will consider only those that have not been previously ruled upon; see the opinions cited above as well as Judge Nordberg's opinion dated June 17, 1992.

 Defendants first argue that Continental is limited to a judgment for fees incurred in pursuing the defendants' guaranties in this litigation. Continental asks not only for fees and expenses incurred in pursuing these guarantors but for a ruling that defendants are liable for fees and expenses in enforcing the obligations of Guilford or non-defendant guarantors in the amount of $ 219,797.78 (plus $ 11,518.27 in Continental's supplementary petition). The guaranties signed by the defendants provide that they are liable for "all expenses (including attorneys' fees . . .) paid or incurred by the Bank . . . in endeavoring to collect the Liabilities, or any part thereof and in enforcing this Guaranty." Guaranty, § 1. The Guaranties further define Liabilities to include all obligations of Guilford to the bank. Id. The Loan Agreement between Guilford and the Bank provides that Guilford's obligations include "all reasonable expenses . . . incurred by the Bank in connection with . . . (iii) the enforcement of the Company's and the Principals' respective obligations under the Loan Document." Agreement, § 12.3. Each of the guarantors, including the non-defendant guarantors, is a "Principal." Id., § 1.1. Under their contracts, therefore, defendants are liable for the fees and expenses reasonably incurred by Continental in enforcing Guilford's obligations and the enforcement of the obligations of other guarantors.

 Defendants argue, however, that the Seventh Circuit's opinion, in which it stated that the "sum of approximately $ 75,000.00, plus the legal fees the Bank has incurred pursuing the guarantors, are the remaining stakes," precludes any expenses, pre- or post-judgment for any fees other than those the Bank has spent pursuing them. Judge Bua had entered judgment against defendants in the amounts recoverable under the caps in their guaranties, finding that there was no genuine issue of material fact with respect to the principal and interest due under the loan. 768 F. Supp. 246, 247 (N.D. Ill. 1991). In its reply memorandum in support of summary judgment on damages, Continental had argued that the issue of expenses relating to the bankruptcy proceeding, or any other fee issues, was not before the court and would be addressed in a post-judgment fee petition. Judge Bua did not specifically address the question of fees or expenses apart from those incurred by Continental pursuing the guarantors, which he noted was properly addressed at a later time. Id. at 247-48. He did not, however, hold that any expenses in pursuing Guilford were encompassed in the judgment, and Continental's fee request has not been ruled upon up to the present time. Thus, it could not have been before the Seventh Circuit, and indeed, is not mentioned in any brief filed by the parties in the appeal to the Seventh Circuit. I conclude that the Seventh Circuit's opinion in this case does not prevent Continental from pursuing the fees and expenses it seeks in the two petitions before me.

 Defendants also argue that they are entitled to a jury trial on the issue of attorneys' fees. That argument has been rejected in various decisions. E.g., Medcom Holding company v. Baxter Travenol Laboratories, Inc., 1990 U.S. Dist. LEXIS 11647 (N.D. Ill. 1990); A. G. Becker-Kipnis & Co. v. Letterman Commodities, Inc., 553 F. Supp. 118 (N.D. Ill. 1982); Boatmen's Bank of Mt. Vernon v. Dowell, 208 Ill. App. 3d 994, 567 N.E.2d 739, 153 Ill.Dec. 781 (5th Dist. 1991). The courts in Medcom Holding Company and A. G. Becker-Kipnis, considering contract provisions allowing fees, concluded that the parties did not have a right under the Seventh Amendment to a jury trial both because attorneys' fees traditionally were decided by the court and not the jury and because of the fact that attorneys' fees may be on-going (as in the present case), as a practical matter they should not be given to a jury to decide.

 Defendants argue that at least the fees and costs associated with Guilford's obligations (as opposed to the enforcement of defendants' guaranties) should be decided by a jury. They find support in cases such as Beckwith Machinery Co. v. Travelers Indemnity Co., 815 F.2d 286 (3d Cir. 1987). The court in that case held that a jury should decide the issue of attorneys' fees. As Judge Conlon noted in Medcom Holding Company, supra, however, the Third Circuit did not analyze the issue in terms of the Seventh Amendment analysis adopted by the Supreme Court in Ross v. Bernhard, 396 U.S. 531 (1970).

 Defendants have also not pointed to any issue of fact that would be tried to a jury (or to the court, as they suggested would be their alternative right in argument before me on March 26, 1993). In their various memoranda they disagreed with various claims for fees or expenses, but most of the disagreement centers on Continental's legal right to specific items of expense. Affidavits filed by defendants do not raise an issue of material fact as to any of the fees sought by Continental and supported by its affidavits. Defendants do say the contract terms are ambiguous but I have concluded that they are not. They also say they did not attempt in their responses to the two fee petitions submitted by Continental to point out every item with which they disagreed. Their obligation, however, was to do just that.

 Defendants also argue that Continental may not collect any fees incurred in the North Carolina bankruptcy proceeding because it was not a collection proceeding. However, it is clear that expenses incurred in collecting a debt in a bankruptcy proceeding may be collected under the terms of a contract in a separate proceeding. First Bank Southeast v. Predco, Inc., 951 F.2d 842, 852 (7th Cir. 1992). Accord, Candlewick Lake Assocs. v. Continental Illinois National Bank & Trust Co., 1987 WL 9004 (N.D. Ill. 1987). Furthermore, the bankruptcy court expressly held that its order would not affect the rights of the parties to the present case "or any other of Continental's past, present or future collection activities or efforts against any guarantor of the indebtedness to Continental and shall not affect any obligations that any such guarantor might have to Continental." Amended Order Confirming Plan, June 13, 1991.

 Defendants also argue that Local Rule 46 prohibits the collection of expenses incurred after final judgment was entered in this case on July 22, 1991. However, in this case, Continental filed its initial fee petition within the 90-day period and stated at the time that it would seek to file a supplemental petition following the appeal. The district court granted permission to file the supplemental petition in June, 1992. Accord, Chesser v. Illinois, 1990 WL 114645 (N.D. Ill. 1990) (allowing supplemental fee petition following appeal). See also Townsend Engineering Company v. Hitec Co., Ltd., 117 F.R.D. 612 (N.D. Ill. 1987).

 Turning to specific items, defendants have not contested any part of the $ 7,557.26 in statutory costs. They should be awarded without reduction.

 Continental's fee petition includes $ 13,035.00 for fees and expenses of the Bank's in-house counsel in overseeing this litigation. Defendants argue that these fees are not collectible. However, the express language of the loan agreement signed by defendants permits collection of such fees. See Loan Agreement, § 12.3. The objection should be overruled.

 Continental's fee petition includes amounts spent by Walter Rand, a bankruptcy attorney in North Carolina, and his law firm, Carruthers & Roth. Defendants object that the amounts sought include attorneys' fees for Mr. Rand's attendance at his own deposition. I agree that under 28 U.S.C. § 1821, Continental is limited to the statutory witness fee (plus statutory expenses) for the attendance of an attorney at his own deposition. The amount of time Mr. Rand spent in his deposition is therefore not recoverable as attorney time. Defendants further object to some 80 hours of time Mr. Rand spent attending depositions in connection with this litigation. Defendants argue that Mayer, Brown & Platt charged for two attorneys to attend these same depositions, and that if they are required to pay for Mr. Rand's time in addition, they will be charged for three attorneys' time in attending a single deposition. Continental says Mr. Rand contributed his valuable knowledge as a bankruptcy attorney but has not otherwise responded to defendants' argument that three attorneys are at least one too many at a single deposition. I agree. Fees should be reduced accordingly.

 Defendants also object to the remainder of collection fees attributed to the North Carolina law firm of Carruthers & Roth on the ground that the fees are insufficiently documented. However, the fees charged to the defendants' guaranties have been separately stated, and the alleged discrepancies in fees explained. I find nothing objectionable in the statements as explained. The fees sought are reasonable in amount.

 Continental's fee petition includes travel expenses for several Continental bank officers who made trips to defendants' business offices in Greensboro, North Carolina. Defendants object that these expenses are not covered by the guaranties and that more people than necessary made the trips. In response, Continental has filed the affidavit of the bank officer in charge of staffing such trips, who says that the trips were a necessary part of Continental's collection efforts and that no more personnel than necessary went on each trip. Continental also argues, and I agree, that the language of the guaranties, which requires defendants to pay "all expenses" of Continental "in endeavoring to collect the Liabilities, or any part of them," covers these expenses. The objection should be overruled.

 Defendants also object to numerous items on Mayer, Brown & Platt's itemization of fees, arguing that the law firm spent excessive amounts of time on various matters. The first item as to which defendants object is 59 hours billed to research and writing a sur-reply brief to a motion to dismiss filed by defendants. I have examined the briefs in question and conclude that the amount of time billed is not unreasonable. Defendants' motion to dismiss was based on lack of jurisdiction and they raised new issues in, and filed a new affidavit with, their reply memorandum in support of the motion. Ultimately, Judge Bua decided against defendants on the issue, and later concluded there was insufficient evidence to warrant a trial on the issue of personal jurisdiction. That decision was upheld by the Seventh Circuit. Continental's briefs undoubtedly prevented the additional time, and expense, of a trial.

 Defendants' second objection to Mayer, Brown & Platt's billing statements concerns 6.50 hours in August, 1990, that defendants say is unnecessarily duplicative. The time in question was spent reviewing defendants' answers and counterclaim and discussing them with co-counsel and the client. No attorney could adequately work on the case without reviewing the pleadings in question. I do not find the time spent to be unreasonable.

 Defendants next object to the fact that Mayer, Brown & Platt billed 30.25 hours for a reply to defendants' counterclaim. However, defendants' counterclaim was a three count claim in which they sought a discharge from the guaranties and damages. The amount of time spent on the 19-page answer is reasonable.

 Defendants' fourth objection to Mayer, Brown & Platt's billing statements concerns 53.25 hours spent responding to defendants' first set of interrogatories. Continental argues that the interrogatories, with subparts, included 60 questions. I have reviewed the answers to interrogatories. Many of the answers simply note that a few individuals may have the information sought. In other cases, Continental objected to providing any answer. The actual information provided in the answers is not extensive. I conclude that the amount of time spent is excessive for the amount of information provided. I would reduce the number of hours to 40.

 Defendants' next objection is that Mayer, Brown & Platt attorneys spent 270.75 hours researching and writing a memorandum in support of summary judgment. Continental responds that the amount of time billed was 229 hours, which included time spent taking depositions, responding to defendants' motion to transfer and preparing for trial. While much of that time does appear to have been spent on the summary judgment memorandum and supporting materials, in light of defendants' vigorous efforts to defeat Continental's collection efforts, the issues raised and discussed in the memorandum, and the fact that Continental's motion was successful, the amount of time has not been shown to be unreasonable.

 Mayer, Brown & Platt billed 300.25 hours to research and write a reply memorandum in support of its motion for summary judgment. Defendants also object to this expenditure of time. Defendants' response to Continental's summary judgment motion was a 30-page memorandum that included extensive argument and citation of legal authority. Continental reasonably spent considerable time responding to this memorandum. My review of Continental's time records indicates that defendants have included every time entry that in any way referred to the reply memorandum in coming up with their figure of 300 hours. Many of the time entries, however, also included time for trial preparation. Excluding those time entries that included time spent on other matters, the time billed that was devoted exclusively to the reply memorandum is 219.75 hours. While it is fair to assume that a reasonable portion of the additional 80 hours was billed for work on the reply memorandum, the actual time is somewhere in between 220 and 300 hours (rounded off to the hour). That is still a very substantial amount of time. It seems clear that part of the reason for the amount of time is that five attorneys worked on the memorandum. It is apparent that some unnecessary duplication resulted from the efforts of so many attorneys. Taking into account the fact that defendants have not suggested a number of hours that would be reasonable and the fact that some of the duplication caused by multiple attorneys working on the same brief may have been the result of the fact that trial preparation was also necessary during the same period since trial was scheduled to begin soon after the filing date for the brief, I recommend that the time to be charged to defendants be reduced by 30 hours.

 Defendants filed a 15-page sur-reply to Continental's reply memorandum. Continental obtained permission to file its own sur-reply in response to defendants' memorandum. I agree with defendants that Continental did not reasonably need another 136.75 hours to write its sur-reply. Defendants' own sur-reply for the most part simply reargued points made earlier and Continental did not need to do more than minimal new research. I recommend that the time to be charged to defendants be reduced by 60 hours.

 Defendants also complain that Mayer, Brown & Platt charged for 80.75 hours writing a reply memorandum in support of summary judgment on the issue of damages. It is apparent, however, from a review of that memorandum as well as the memoranda filed by defendants in opposition to Continental's initial memorandum in support of summary judgment on damages, that substantial work was required to fully respond to the arguments made by defendants. I do not find the amount of time spent to be unreasonable.

 In summary, I recommend that the time defendants are charged for work done by Mayer, Brown & Platt be reduced by 103.25 hours. I have not attempted to determine which attorneys' time should be reduced and recommend that the average billing rate, which Continental represents is $ 130.00, be applied to this figure to determine the actual reduction.

 Defendants argue that the specific objections noted by them are simply representative and that the fees charged by Mayer, Brown & Platt should be reduced substantially. With few exceptions, however, I have not found that the bills were excessive. It should also be remembered that but for the fact that Continental obtained summary judgment, the case would have gone to trial, almost surely resulting in substantially larger fees and costs. Furthermore, the large fees were necessitated by defendants' insistence on fighting Continental's efforts to enforce the guaranties. Finally, it is apparent both from my reading of the briefs and Continental's success in this litigation, that Mayer, Brown & Platt's representation in this case was of excellent quality. I find no basis for a wholesale reduction in fees on the basis of the records, briefs, and court opinions reviewed by me.

 Continental also seeks reimbursement for costs charged to it by Mayer, Brown & Platt. Defendants object, arguing that photocopying, telephone, delivery, postage and computerized research charges are overhead that is included in attorneys' hourly fees. Defendants' argument ignores the fact that in this case Continental was separately charged for each of the items for which it now seeks recovery against them. The charges were not included in the attorneys' hourly fees. In addition, the loan agreements signed by them allow Continental to recover "all expenses" in the enforcement of the guaranties. These charges are therefore recoverable. Defendants also argue that some of the Lexis and Westlaw charges have not been properly documented. However, in its reply Continental has satisfactorily explained the discrepancies noted by defendants, and provided documentation.

 Defendants make several objections to the amount sought by Continental in its supplemental petition. The first is to amounts that defendants say Continental incurred after December 31, 1991, in seeking to have execution issued against defendants when Continental had received payment from Guilford of the principal amount owed. Defendants say at that point, no one knew what the defendants owed, and it was premature to attempt to register or execute the judgment. They do not, however, point to any specific amount said to be attributable to this effort, nor do they identify the hours in question.

 Defendants also object to Continental's inclusion of attorney's fees and costs incurred in defense of two suits filed in federal district court in North Carolina in 1992 in the fees sought in the present suit. The suit brought by defendants and one non-defendant guarantor, No. 1:92CV00234, is a clear attempt to evade the judgment in this case. That suit seeks to enjoin Continental from executing the judgment in the present case in North Carolina and to enter a satisfaction of the judgment registered in North Carolina. Success in that suit would prevent Continental from enforcing its guaranty -- incorporated in the judgment in this case -- against defendants. Fees generated as a result of that suit are recoverable under the language of the guaranties. Exchange National Bank of Chicago v. Daniels, 763 F.2d 286, 294 (7th Cir. 1985). The second suit is ostensibly brought by Guilford Telecasters, Inc. against Continental, No. 2-92CV00233, also in federal district court in North Carolina. That complaint alleges that Continental is improperly attempting to collect default interest from the guarantors and has overcollected from Guilford and its officers and stockholders (including the guarantors) the amount due. This suit also then directly impacts Continental's judgment in the present case and its ability to collect on that judgment. Continental's fees are within the scope of the obligation of the guarantors to pay the expenses incurred in enforcing the guaranties.

 Conclusion

 I recommend that Continental's fee petitions be allowed in the amount of $ 831,154.92 plus $ 7,557.26 in costs. That includes all of Continental's statutory costs and all fees and expenses sought except for $ 13,422.50 attributable to time spent by Mayer, Brown & Platt on certain briefs and $ 12,000.00 in charges by the bankruptcy firm in North Carolina that I conclude should not be charged to defendants.

 ELAINE E. BUCKLO

 United States Magistrate Judge

 Dated: March 29, 1993.

19930329

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