Court upholds $3.8M attorney fee award

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A federal district court did not err by awarding millions to a defendant for attorney’s fees, costs and expenses incurred successfully pursuing remedies because its affirmative claims and defense to the opposing party’s claims overlapped, the 4th U.S. Circuit Court of Appeals has held.

The plaintiff argued that the defendant did not properly demand its fees, costs, and expenses pursuant to an underlying lease. Further, the plaintiff claimed that it was erroneous to award fees incurred for defending against its claims.

But U.S. Circuit Court Judge Paul V. Niemeyer found that defendant Montgomery Park’s motion for fees constituted adequate demand under the lease, while its defense against claims and pursuit of remedies were “two sides of the same coin.”

“In these circumstances, the ‘common core of facts’ doctrine justifies Montgomery Park’s claim for fees incurred both in defending against NCO’s claims and in pursuing its own,” the judge wrote.

Joined by Judges Roger L. Gregory and Pamela A. Harris, Niemeyer affirmed the award of fees, costs and expenses, but remanded the case for recalculation of interest from the date of demand in NCO Financial Systems Inc. v. Montgomery Park LLC (VLW 025-2-135)

Attorneys involved with the case did not respond to a request for comment.

Lease dispute

NCO Financial Systems entered into a commercial lease with Montgomery Park for about 100,000 square feet of office space in Baltimore. NCO vacated the property and stopped paying rent after Montgomery Park maintained that it failed to satisfy conditions for early termination.

Montgomery Park sent a default letter to NCO. Plaintiff NCO sued for a declaratory judgment that it had properly exercised its early termination rights and that the rent was based on Montgomery Park allegedly misrepresented square footage.

The district court entered judgment against NCO for nearly $10 million. Montgomery Park moved for its attorney’s fees, costs, expenses and interest pursuant to § 14.04 of the lease. NCO challenged the court’s award of nearly $3.8 million to Montgomery Park.

Unambiguous language

Pointing to lease language which authorized Montgomery Park to claim costs, fees and expenses only upon demand, NCO maintained that there was no evidence of such a demand. Montgomery Park argued that its default letter served as its demand.

Here, Montgomery Park’s letter stated that it reserved “the right to pursue any and all legal or equitable rights or remedies available under the Lease or otherwise available in equity or at law.”

Niemeyer agreed that unambiguous language of the lease imposed on NCO an obligation to pay costs, fees and expenses contingent upon demand, and that Montgomery Park’s default letter did not demand costs, fees and expenses.

“Indeed, a demand could not have been made at that time because no costs, fees, and expenses had yet been incurred,” the judge noted. “Thus, the default letter could only have noted that Montgomery Park was reserving the right to pursue costs, fees, and expenses in the future — after they would have been incurred and demand would have been made.”

And while the record contained no prelitigation demand from Montgomery Park, Niemeyer noted that its answer and counterclaim, requested “all reasonable costs, fees and expenses” incurred in pursuit of its remedies hereunder including but not limited to attorneys’ fees and court costs.”

“Even so, this request was still prospective, as the litigation in pursuit of remedies had just begun,” the judge said before determining that Montgomery Park’s motion satisfied the requirement of “demand” in the lease.

Nonetheless, NCO contended that the lease made “demand” a term of art and required that any “demand,” to be a valid notice under § 16.01 of the lease, be transmitted to NCO’s address at the leased premises that it vacated.

“But NCO has continuously been a party to this litigation,” Niemeyer pointed out, “and Montgomery Park’s August 24 motion was served on it, as required by the applicable rules of procedure, thus providing it with adequate notice.”

However, the judge found that default interest could not begin to run until after Montgomery Park made demand in its motion.

“As the lease provides, the costs, fees, and expenses were ‘payable immediately upon demand” and “shall bear interest at the Default Rate until paid,” the judge wrote. (emphasis added).

Niemeyer vacated the district court’s award of interest in the amount of roughly $1.6 million plus ongoing interest and remanded the case for a recalculation and revised judgment.

14 years of litigation

NCO also argued that the district court’s award for costs, fees and expenses should be reduced to exclude those incurred by Montgomery Park in defending against NCO’s complaint filed in February 2011.

According to NCO, Montgomery Park’s costs, fees and expenses incurred in defending against these claims were not those “in pursuit of its remedies,” as provided in § 14.04 of the lease.

“As a general proposition, NCO’s argument is well taken, as it was contractually responsible for only costs, fees and expenses incurred by Montgomery Park in pursuit of remedies, not those incurred by Montgomery Park in defending itself from NCO’s claims,” Niemeyer wrote.

But the judge said Montgomery Park’s defense against NCO’s claims and its pursuit of its own remedies were “two sides of the same coin.”

Under these circumstances, Niemeyer said “the ‘common core of facts’ doctrine justifies Montgomery Park’s claim for fees incurred both in defending against NCO’s claims and in pursuing its own.”

Looking to the U.S. Supreme Court’s holding in Hensley v. Eckerhart, Niemeyer said “in some ‘cases the plaintiff’s claims for relief will involve a common core of facts or will be based on related legal theories,’ such that ‘[m]uch of counsel’s time will be devoted generally to the litigation as a whole, making it difficult to divide the hours expended on a claim-by-claim basis.’”

“Thus, the ‘lawsuit cannot be viewed as a series of discrete claims,’ and rather than attempting to so parse the case, ‘the district court should focus on the significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended on the litigation,’” he said.

And in Ochse v. Henry, a Maryland court pointed out that the doctrine “may be applied to both contractual and statutory fee-shifting.”

“Finally, where there is a common core of facts, as in this case, courts have discretion to apply the doctrine, which recognizes the trial court’s ‘superior understanding of the litigation and the desirability of avoiding frequent appellate review of what are essential factual matters,” Niemeyer said.

Costs, fees award affirmed

Niemeyer concluded that the district court did not abuse its discretion and affirmed the award of costs, fees and expenses incurred by Montgomery Park both in defending against NCO’s claims and in pursuing its own counterclaims.

The judge also found no error in the district court’s award of $157,897.99 for expert witness fees paid by Montgomery Park because the parties agreed in the lease to shift the costs, fees, and expenses Montgomery Park incurred in pursuit of its remedies.

“And just as Maryland law does not ‘require the phrase “attorney’s fees” in a contract to override the American Rule,’ neither does it require the phrase ‘experts’ fees,’” Niemeyer wrote.

“By generally requiring NCO to pay ‘fees,’ ‘including but not limited to attorneys’ fees,’” the judge said “the lease clearly indicates that ‘fees’ is not limited to attorney’s fees but includes all fees incurred by Montgomery Park ‘in pursuit of its remedies.’”