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NEVEL v. OCWEN FEDERAL BANK FSB

United States District Court, N.D. Illinois, Eastern Division


January 19, 2005.

IRA T. NEVEL, Plaintiff,
v.
OCWEN FEDERAL BANK FSB, Defendant.

The opinion of the court was delivered by: MATTHEW KENNELLY, District Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Ira Nevel, a Chicago attorney, sued Ocwen Federal Bank FSB, a Florida-based bank, in Illinois state court, seeking to recover unpaid legal fees he claimed Ocwen owed him. Ocwen removed the case to federal court based on diversity of citizenship. The Court held a bench trial from October 27 through November 2, 2004. Nevel testified at the trial. Ocwen presented the testimony of Ronald Osimani, a former associate with Nevel's firm, as well as the deposition testimony of several present and former Ocwen personnel who had dealt with Nevel and his firm. This constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).

Nevel, who has been practicing law since 1983, concentrates his practice in real estate matters, including mortgage foreclosures, real estate closings, and bankruptcy-related real estate matters. He began performing legal services for Ocwen's predecessor, Berkley Bank, in around 1994, and continued to do legal work for the bank after it changed its name to Ocwen*fn1 in 1999. By the late 1990's, Nevel was handling most of Ocwen's foreclosure-related legal work in Illinois. Ocwen consistently had high regard for the quality of Nevel's work.

  Nevel's claim in this case involves bills for legal services that he alleges his firm rendered and out of pocket expenses that he says the firm incurred in matters on which Ocwen retained him. The claim involves bills in several categories of cases: foreclosure and evictions, bankruptcy matters, real estate closings, a so-called "special tax project" which we will describe later, and several miscellaneous matters. Nevel seeks to recover $153,422.87 on unpaid invoices, lost profits of $27,500, and prejudgment interest in the approximate amount of $46,000.

  1. Foreclosures and evictions

  Nevel's bills to Ocwen for foreclosure matters typically included a flat fee for a legal services — unless the matter involved services beyond the norm — plus charges for out of pocket expenses, such as filing fees, fees for publishing notice, and so on. On evictions, Nevel's invoices typically reflected a flat fee for an eviction plus out of pocket expenses. In some instances, more than one flat fee was charged; these were situations when it became necessary to commence multiple eviction actions with regard to a particular property.

  Nevel testified that the work reflected in the foreclosure and eviction invoices was authorized by Ocwen (with the exception noted on the next page), the work was performed, and the billed expenses were incurred.*fn2 The testimony was credible, and there was no reliable contrary evidence. The evidence also establishes that the amounts that Nevel claims are still due are in fact due. The invoices themselves reflect the making of partial payments by Ocwen and the amount remaining due. Nevel also offered in evidence ledger cards (for some, but not all, of the invoices) reflecting amounts billed and payments made.

  The Court finds the invoices and ledger cards to be accurate records of payments received and amounts remaining due. Ocwen's only contrary evidence, defendant's exhibit 27, a spreadsheet prepared by one of its personnel, Christina Weimer, was not shown to be reliable concerning instances where it indicated payments had been made in addition to those reflected on Nevel's ledger cards. Weimer had no personal knowledge of the matters on the spreadsheet but rather extracted them from an Ocwen database the reliability of which was not shown.

  Nevel is entitled to recover for the entirety of the amounts due on the foreclosure and eviction invoices, with one series of exceptions. Several of the invoices — plaintiff's exhibits 115, 116, 118, 125, and 126 — included charges for sale commissions in various amounts, totaling $1,700. Nevel did not explain these charges at trial. The Court has not been provided with a basis in the evidence sufficient to warrant a finding that these amounts are owed to Nevel for services for which Ocwen had expressly or impliedly agreed to pay. Thus the total amount owed for the foreclosure and eviction matters is $32,504.19, calculated as follows: $24,120.39 billed for foreclosures, plus $10,083.80 billed for evictions, less $1,700.00 for commissions from the five referenced invoices.

  2. Bankruptcy matters

  Nevel's bankruptcy invoices involved, for the most part, charges for reviewing proposed Chapter 13 plans submitted by debtors in bankruptcy to ensure that Ocwen's interests were dealt with appropriately. Nevel billed Ocwen a flat fee of $150 for this work. He testified credibly that Ocwen had consistently paid $150 for these services but that at some point it unilaterally reduced its payment to $50.

  Nevel's testimony that the work reflected in the bankruptcy invoices*fn3 was authorized by Ocwen and performed by his firm, and that the expenses reflected were actually incurred, was credible. Nearly all the bankruptcy invoices at issue in this case are invoices on which Nevel billed $150 but Ocwen paid only $50. The only explanation provided by Ocwen was that it had determined that it wished to pay only $50 for these services.*fn4 But Nevel's testimony sufficiently established that the parties had an express or at least an implied agreement for a fee of $150, which the Court finds was a reasonable fee under the circumstances. Ocwen was not entitled to engage Nevel's services pursuant to this understanding and then unilaterally decide to pay less. Nevel is entitled to recover the entire amount of these invoices (one of which involves a fee for reviewing or preparing a reaffirmation agreement), a total of $7,025.00.

  3. Special tax project

  The "special tax project" was conceived by Ocwen because it had lost a significant number of properties due to nonpayment of property taxes because it had not made the payments necessary to redeem the properties. Ocwen retained Nevel to investigate and obtain information regarding taxes due on a number of properties and take the steps necessary to redeem the properties. Once retained, Nevel's firm obtained from Cook County, at a cost of $22 per parcel, tax searches going back ten years, and where taxes were due, obtained from the County, at a cost of $10 per parcel, an estimate of the amount needed for redemption. Nevel billed Ocwen for legal fees for the work performed, typically for one hour of attorney time per parcel at a rate of $150, plus any expenses incurred. See plaintiff's exhibit 51 (invoice). This work was authorized by Ocwen. See defendant's exhibit 3.

  Nevel's testimony regarding the special tax project, the attorney work performed, and the expenses incurred was credible. Ocwen failed to pay the invoice and offered no explanation for this at trial. Nevel is entitled to recover the amount of this invoice, $5,242.00.

  4. Miscellaneous invoices

  One of Nevel's invoices, plaintiff's exhibit 28, involved an auction conducted by Ocwen in March 1999 regarding various properties it was attempting to sell. In April 1999, Nevel sent Ocwen a bill for legal fees on the properties that did not sell (presumably he earned and was paid his usual fee on the properties that did sell). Ocwen did not pay the invoice.

  Nevel's invoice stated a fee of $125 per property for obtaining title insurance, preparing a contract, and attending the auction. Nevel credibly testified that he had an understanding with Ocwen that he would be paid a fee if a property offered at auction was not sold; Ocwen offered no contrary evidence. The fee billed was reasonable. Nevel is entitled to recover the full $2,875.00 on this invoice.

  Two other invoices, plaintiff's exhibits 11 and 104, appear to involve two properties on which there were court proceedings concerning housing code violations. Ocwen offered no explanation for its non-payment of these invoices. The Court notes that the Weimer spreadsheet, defendant's exhibit 27, states without explanation that the invoice in exhibit 104, for $1,300.00, was "not paid" (see invoice number 36943, loan number 2513901, on page two of the exhibit). With regard to the invoice in exhibit 11, the invoice simply states, "cannot identify loan with info" (see invoice number 19964, on page one of the exhibit). On a third invoice, plaintiff's exhibit 34, it appears that Nevel was required to send multiple notices of default to the borrower for which he charged legal fees, and that Ocwen paid all of these charges except one. Nevel is entitled to recover the full amount due on each of these three invoices, a total of $1,675.00 ($250.00 $1,300.00 $125.00).

  Nevel offered no testimony supporting three other miscellaneous invoices, plaintiff's exhibits 72, 73, and 127. With regard to these particular invoices, there is no basis upon which the Court properly can find that Nevel performed legal services for which he was entitled to be paid. Two of these invoices, plaintiff's exhibits 72 and 73, purport to charge a fee for "paying taxes," which would not appear to constitute legal services absent some complicating factor which Nevel made no effort to establish. Plaintiff's exhibit 127 appears to involve a foreclosure that took place in the year 2000; then in 2003 Nevel appears to have attempted to bill Ocwen for services that his ledger card suggests had been rendered nearly two years earlier. The invoice contains the notation "denied by Ocwen," suggesting that there was a dispute regarding the legitimacy of the bill. Under the circumstances, Nevel's failure to offer explanatory testimony undermines his request to recover on that invoice.

  5. Real estate closings

  The largest single component of Nevel's claim involves an omnibus invoice in the amount of $93,686.00 for legal services and expenses on anticipated closings of sales of properties owned by Ocwen as a result of foreclosure or otherwise — referred to by the parties as "REO" (real estate owned) closings. Nevel's claim also includes several other invoices relating to real estate closings, which the Court will discuss at the end of this section.

  Nevel would learn of an impending closing by receipt of a "prelim" form sent by a broker or real estate manager working for Ocwen, directing him to prepare for a closing on a particular property. Ocwen wanted to be able to close quickly once it entered into a contract for the property, so upon receiving the prelim, Nevel or an attorney with his firm would take, or direct members of the firm's non-lawyer staff to take, the steps necessary to prepare to close. This would include ordering title insurance, taking the steps necessary to "clear" any exceptions noted on the insurer's title commitment, obtaining certifications regarding outstanding water bills owed to the City of Chicago, preparation of a deed, and so on.

  Not all prelims led to an immediate closing, and sometimes sales would fall through. Nearly all properties, however, were eventually sold. As a general rule, when a closing had to be canceled or otherwise did not go ahead, the file would remain with Nevel's firm, and he would eventually conduct a closing if the sale was revived or another sale contract was obtained. But there was no guarantee, and no agreement on Ocwen's part, that Nevel would be retained for the subsequent closing; the Court does not credit Nevel's contrary testimony, which was contradicted by, among other things, the testimony of Ronald Osimani and former Ocwen manager Donna McPeek. The ultimate decision on what attorney to use was left to the Ocwen manager responsible for the particular property.

  Nevel claims Ocwen agreed to pay a flat fee of $600 plus expenses for legal services relating to a closing. The Court credits Nevel's testimony that he had an agreement for a $600 flat fee, not a lower figure as Ocwen claims. The evidence also showed that if the sale closed, Nevel would be paid, over and above his legal fee from Ocwen, a commission from the title insurance company out of the insurance premium it earned at the closing. Ocwen was aware of and approved this arrangement.

  The evidence showed, however, showed that Nevel's fee became due only if and when a closing actually occurred, and he (as opposed to some other lawyer) conducted the closing. Nevel's fee and expenses were paid at the closing out of the real estate sale proceeds. The understanding between Nevel and Ocwen was that he would be paid legal fees if, and only if, a closing was held and he or a member of his law firm performed it. But when Nevel had to prepare for more than one closing, the understanding with Ocwen was that he was entitled only to a single legal fee at the agreed upon rate, not two separate fees, one for the aborted closing and one for the successful closing. If no closing occurred, Nevel was entitled to recover the expenses he had paid out of pocket in anticipation of the closing, but he was not entitled to a legal fee.

  In short, the attorney's fee for the closing was effectively a contingent fee which became due only if, and when, a closing actually took place and Nevel or an attorney with his firm performed it. It was just as rational for Nevel to agree to such an undertaking as it is for attorneys to enter into contingent fee agreement in other types of legal matters. The certainty of receiving a flat fee of $600 for the modest amount of routine legal work required for a successful closing provided an ample incentive for Nevel that justified the risk of receiving nothing if a closing never took place or if Ocwen ultimately decided to have a different attorney perform the closing. The lion's share of the amounts sought by Nevel in this case for REO closings involve properties on which he did not actually conduct a closing. These were properties on which Nevel received a prelim and he or Osimani, then a member of Nevel's firm, prepared for a closing. But in late July 2000, Osimani left Nevel's firm and started his own law office. Shortly after Osimani's departure, Ocwen transferred numerous files to Osimani's new firm, including files on which Nevel's firm (through Osimani, for the most part) had done the work to prepare for the closing. It appears that Osimani, or a clerk acting on his or Ocwen's behalf, took documents from some files at Nevel's firm, including deeds that had been prepared in anticipation of closings.

  Nevel offered no direct evidence that closings took place on the 100-plus properties on which Ocwen had sent him a prelim but transferred the file to Osmani or some other attorney. But it is reasonable to infer from the evidence that closings did take place on these properties. Ocwen's practice was not to retain ownership of real estate for any longer than was necessary. Nevel's testimony, which the Court credits on this point, was that all or nearly all of the properties were eventually sold by Ocwen.

  Nevel claims he is entitled to recover the full flat fee of $600 even though he did not perform the closings on these properties. The Court disagrees. Ocwen had a right to retain the counsel of its choosing and thus the right to discharge Nevel. See generally Albert Brooks Friedman, Ltd. v. Malevitis, 304 Ill. App. 2d 979, 986, 710 N.E.2d 843, 848 (1999). In Illinois, when a client terminates an attorney working under a contingent fee agreement, the agreement ceases to exist. E.g., In re Estate of Callahan, 147 Ill. 2d 32, 40, 578 N.E.2d 985, 988 (1991). The discharged attorney is not entitled to recover fees from the former client pursuant to the contract but rather is limited to recovery, in quantum meruit, of a reasonable fee for the services rendered.*fn5 E.g., Rhoades v. Norfolk & Western Ry., 78 Ill. 2d 217, 229-30, 399 N.E.2d 969, 974-75 (1979). Recovery in quantum meruit is premised on the implied promise of a recipient of services to pay for services that are of value to him, on the theory that he would be unjustly enriched if he retained the benefit of the services without paying for them. Callahan, 147 Ill. 2d at 40, 578 N.E.2d at 988.

  In short, Nevel was not entitled to his agreed upon legal fee of $600 on the REO properties that were the subject of the omnibus bill for the closings that he did not conduct. Rather, he was entitled to recover on those matters only his out of pocket expenses and the reasonable value of any legal work that he had performed.

  Nevel also is not entitled to recover from Ocwen the title insurance commissions that he would have received from the insurer had the closings gone ahead. This is not part of a proper quantum meruit recovery, as it does not constitute compensation for a service he actually rendered. Moreover, permitting a discharged attorney to recover lost profits would contravene Illinois' strong public policy entitling a client to retain counsel of his choice and pay reasonable fees commensurate with the services rendered. See Albert Brooks Friedman, Ltd., 304 Ill. App. 3d at 986, 710 N.E.2d at 848. See also, LaRocco v. Bakwin, 108 Ill. App. 3d 723, 727, 439 N.E.2d 537, 541 (1982) (allowing consequential damages for lost profits in attorney's suit against client for breach of fee contract would interfere with client's right to discharge attorney at will).

  The $150 fee claimed by Nevel on several invoices for obtaining a title insurance commitment is likewise not recoverable. It was not entirely clear to the Court whether this represented a fee for services or a claimed expense. If the former, it was not properly billable given the agreement for a flat fee. If the latter, Nevel offered no evidence that the charge represented an expense that he actually paid or incurred.

  The Court agrees with Ocwen that in the present circumstances, Nevel is entitled to recover only a nominal sum in quantum meruit on the aborted REO closings. The evidence reflects that Nevel performed only routine services, such as obtaining figures for water bills and taxes due, and obtaining a title commitment, all of which can be done by filling out a form and which may not have even been performed by an attorney. And these services were of no likely benefit to Ocwen later on, as it is likely that a new title commitment had to be obtained. It also appears that Nevel, or attorneys with his firm, may have prepared deeds for some of the properties. To the extent this occurred, Ocwen ultimately received the benefit of the services necessary to prepare the deeds when the properties were sold. But there is no evidence that the time required to prepare deeds on these properties was anything other than minimal.

  The only evidence provided to the Court that bears on the reasonable value of the services Nevel performed on these matters comes from plaintiff's exhibit 28, Nevel's invoice for legal services on properties not sold at a March 1999 auction, which the Court discussed earlier. On that occasion, Nevel charged a fee of $125 per property for obtaining title insurance, preparing a contract, and attending the auction. By contrast, on the REO property sales that he did not close, Nevel was not required to "attend" anything, either an auction or a closing. Based on the fee charged for the unsold auction properties, the Court finds that the reasonable value of the services that Nevel rendered on the REO properties on which he did not conduct the closing is $50 per property. Because 103 properties are involved, the Court find that the appropriate quantum meruit recovery is $5,150.

  This leaves thirteen additional invoices that appear to concern REO properties. Eight of the invoices reflect that the closing was cancelled, the deal "died," or the matter was put on hold. See plaintiff's exhibits 14, 17, 32, 33, 36, 41, 42 & 43. Nevel provided no testimony about these matters. Given Nevel's understanding with Ocwen discussed earlier, he is not entitled to recover legal fees on these matters. Moreover, there is no basis for quantum meruit recovery of legal fees on these files. In contrast to the properties in omnibus invoice discussed above, there is no indication that Ocwen chose to switch attorneys mid-stream on these properties. Rather, the closings simply did not take place (or conceivably took place later, and Nevel was compensated for them). On these files, Nevel may recover only actual his out of pocket expenses reflected in these invoices. Several of the invoices reflect charges for cancelled title commitments. However, Nevel failed to show that he was charged by the title insurance company when a title commitment was provided but the deal was cancelled. In sum, the only expenses that Nevel may recover on these files are the actual expenses he incurred for obtaining surveys on three of the properties — plaintiff's exhibits 17, 36, and 42 — a total of $585.

  Nevel likewise provided no testimony about the five other REO-related invoices, plaintiff's exhibits 44 through 48. The invoice in plaintiff's exhibit 44 is for $675, but the ledger card reflects only a charge of $75. This suggests that no closing actually took place. That $75 charge is for legal fees for obtaining a zoning certificate, which was supposed to be part of the flat fee Nevel would charge if a property actually closed. The invoices in plaintiff's exhibits 47 and 48 charge fees for services that are well below the agreed-upon sum for REO closings, giving rise to an inference that no actual closing occurred. Finally, with regard to the invoices plaintiff's exhibits 45 and 46, there is no indication in those exhibits, or in Nevel's testimony, that closings actually took place. Recovery on these invoices is denied, except for the $175 out of pocket expense for a survey identified in exhibit 45.

  6. Prejudgment interest

  Nevel seeks an award of prejudgment interest pursuant to 815 ILCS 205/2, which provides that a creditor is entitled to five percent simple interest on moneys due on any "instrument of writing" and on various other grounds, including "unreasonable and vexatious delay of payment." Nevel does not appear to contend that he is entitled to interest under the "instrument of writing" provision, presumably because few if any of the invoices on which the Court has found in his favor were based on a written contract. Rather, in closing argument he relied on the "unreasonable and vexatious delay" provision. Under this provision, delay in payment is not unreasonable or vexatious if there is an honest dispute regarding the existence of an obligation to pay or the amount due. See, e.g., Telemark Development Group, Inc. v. Mengelt, 314 F.3d 972, 986 (7th Cir. 2002). In this case, however, Ocwen offered no evidence regarding its reason for failing to pay the invoices on which the Court has found in Nevel's failure. Rather, the evidence reflects that on these particular invoices, Ocwen either just did not pay them, or unilaterally determined, for baseless reasons, not to pay them in full (e.g., the bankruptcy invoices). Under the circumstances, the Court finds that Ocwen's failure to pay with regard to these invoices was vexatious and unreasonable, thus entitling Nevel to recover prejudgment interest under the statute.

  Nevel is directed to recalculate the prejudgement interest due on these invoices based on the period of time each sum that the Court has held due and owing remained unpaid after it was billed to Ocwen. The calculation should be made on an invoice-by-invoice basis and is to be filed with the Court by no later than January 24, 2005. Ocwen's objection to the particulars of the calculation, if any, is to be filed with the Court by no later than January 27, 2005. The Court will enter final judgment promptly after receiving these submissions.

  7. Motions filed by Ocwen

  Ocwen filed a series of motions that are now largely moot. Its motion for discovery sanctions is denied, as the Court finds that Nevel did not commit any misconduct during the discovery process as claimed by Ocwen. Ocwen's motion for summary judgment is denied, as it was not timely filed. The plethora of Rule 52 motions filed by Ocwen have been superseded by the present ruling and are therefore denied as moot. Ocwen's motions in limine to bar evidence of lost profits, title commitment fees, claim for work done for a title company, and lost profits, are likewise denied as moot. Ocwen's motion to strike testimony not directly limited to breach of contract is denied; as indicated earlier, Nevel's alternative request for quantum meruit recovery was fairly encompassed in his original claims. And finally, Nevel's motion to strike Ocwen's proposed findings and conclusions is denied.

  Conclusion

  For the reasons stated above, the Court finds in favor of plaintiff Ira T. Nevel and against defendant Ocwen Federal Bank, FSB in the amount of $55,056.19. The Court will direct the entry of judgment following review of the parties' submissions regarding the matter of prejudgment interest. All pending motions are terminated as stated above [docket # 17, 18, 25, 26, 27, 28, 33, 34, 35, 36, 37, 38, 39, 40, 41].


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