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Fifth Circuit says prevailing lender in a wrongful foreclosure action may seek attorney’s fees under Rule 54(d)(2)

On January 31, 2014 by Schnader in Finance

By Stephen J. Shapiro

Under Federal Rule of Civil Procedure 54(d)(2), a prevailing party that has a contractual or statutory right to recover attorney’s fees may request those fees by filing a motion within 14 days of entry of the judgment, “unless the substantive law requires those fees to be proved at trial as an element of damages.” In Richardson v. Wells Fargo Bank, N.A., the Fifth Circuit held that attorney’s fees recoverable under the standard Fannie Mae/Freddie Mac deed of trust are not an “element of damages,” and lenders therefore can seek them by way of a Rule 54(d)(2) post-judgment motion.

In Richardson, after the plaintiff defaulted on her mortgage, her lender sold the property securing the mortgage at a foreclosure sale. The plaintiff then brought claims against the lender relating to the foreclosure. The district court entered judgment in favor of the lender on its motion for summary judgment.

The deed of trust that the plaintiff signed in connection with her mortgage contained an attorney’s fee clause identical to the fee provision in the standard Fannie Mae/Freddie Mac deed of trust for single-family, residential mortgages. Relying on that clause, the lender moved for attorney’s fees under Rule 54(d)(2). The district court denied the lender’s motion, holding that the attorney’s fees were an element of damages that the lender could have sought to recover by pursing a counterclaim, but could not recover under Rule 54(d)(2).

The Fifth Circuit reversed. The Court first noted that, under the controlling Texas law, “collateral” legal costs, such as attorney’s fees incurred in the defense of a claim, are not considered damages. Rather, only attorney’s fees that constitute an independent ground for recovery – such as unpaid legal fees in a suit brought by a lawyer against a client – are considered an element of damages. Because the attorney’s fee clause in the deed of trust permitted the lender to recover fees incurred in defending against the plaintiff’s suit, the fees did not qualify as damages and the lender was entitled to pursue them on a motion under Rule 54(d)(2). Therefore, the Court remanded the case to the district court for further proceedings on the merits of the lender’s motion to recover its legal fees.

Category: Finance