ON APPEAL FROM BANKRUPTCY COURT Bankruptcy Case No. 05-27158 JTM (Ch. 7) Adversary Proceeding No. 06-02250
The opinion of the court was delivered by: Tena Campbell U.S. District Court Judge
In this second appeal from an adversary proceeding in the United States Bankruptcy Court,*fn1 the parties have filed cross-appeals from the Bankruptcy Court's Post-Remand Order concerning damages and other issues arising out of the Truth In Lending Act (TILA) action prosecuted by Bankruptcy Trustee J. Kevin Bird against Winterfox, LLC, a lender and creditor of Debtor Brian A. Kitts. The court has appellate jurisdiction under 28 U.S.C. § 158(a).
The Trustee raises two questions on appeal.*fn2 First, the Trustee challenges the Bankruptcy Court's decision that the Trustee is foreclosed from recovering the Trustee's asserted "invalidation remedy" because such remedy is barred by the "law of the case" doctrine. Second, the Trustee contends that the Bankruptcy Court misapplied the lodestar method of calculating attorneys' fee awards and erred in significantly reducing the amount of the Trustee's attorneys' fees recoverable under TILA.
Winterfox raises two issues*fn3 on appeal. First, Winterfox contends that the Bankruptcy Court erred when it determined that Winterfox was liable to the bankruptcy estate for $87,500 in finance charges under TILA. Second, Winterfox asserts that the Bankruptcy Court erred in awarding the Trustee $150,000 in attorneys' fees under TILA.
For the reasons set forth below, the court AFFIRMS IN PART, REVERSES IN PART, and VACATES AND REMANDS IN PART.*fn4 The decision awarding the Trustee $87,500 in finance charges under 15 U.S.C. § 1640(a)(4) is AFFIRMED. The decision that the "invalidation remedy" was barred by the law of the case is REVERSED. And the decision reducing the award of attorneys' fees is VACATED AND REMANDED.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Loan Transaction and Bankruptcy Petition
On December 8, 2004, Debtor Brian A. Kitts entered into a $1.35 million, short-term high-interest loan agreement with lender Winterfox LLC (the "First Loan"). The First loan, however, was insufficient to pay off Mr. Kitts's existing obligations, so Winterfox agreed to make another short-term high-interest loan to Mr. Kitts for an additional sum to cover the shortfall. The second loan was made between December 23 and December 31, 2004, in the amount of $39,603.47 (the "Second Loan"). The First Loan and Second Loan together are sometimes referred to as the "Bridge Loan," which totaled roughly $1.39 million and was secured by a house in Park City, Utah.
Winterfox deducted $87,500 from the loan proceeds (the "Loan Origination Fee") before dispensing the funds to Mr. Kitts. In the settlement statement for the First Loan, Winterfox indicated that the Loan Origination Fee was "Paid From Borrower's Funds at Settlement." (Appellant Supp. Appx. at 592.) Winterfox did not provide any TILA-required disclosures to Mr. Kitts.
Because Mr. Kitts did not pay back the short-term Bridge Loan in the time required (in fact, he made no payments on the loan at all), Winterfox threatened to record a deed in lieu of foreclosure given in connection with the First and Second Loans. Mr. Kitts faced losing the Park City house.
In May 2005, Mr. Kitts filed a voluntary Chapter 11 petition for bankruptcy. His Chapter 11 bankruptcy was converted to a Chapter 7 bankruptcy, and J. Kevin Bird was appointed as the Chapter 7 Trustee for Mr. Kitts's estate. In the bankruptcy proceedings, Winterfox filed a proof of claim seeking payment of the debt owed under the mortgage loans, accrued but unpaid fees, continuing post-petition interest, costs, and attorney fees.
In the adversary proceeding, the Trustee, who was substituted as plaintiff, brought claims against Winterfox under section 1640 of TILA. In the adversary proceeding, the Trustee contended that Winterfox violated certain disclosure requirements under TILA concerning the $1.39 million Bridge Loan and, consequently, that the bankruptcy estate was entitled to actual damages, statutory damages, attorney's fees, return of paid finance charges, and invalidation of accrued but unpaid finance charges. The original complaint also sought the alternative remedy of rescission, but six months before trial, the Trustee elected not to pursue rescission. (See Stipulation of Partial Dismissal at 2 (Appellant Appx. at 102) ("The parties . . . stipulate to dismiss with prejudice and on the merits that portion of the Complaint's first cause of action under the federal Truth in Lending Act that asserts any and all claims under 15 U.S.C. § 1635, including but not limited to any claim for rescission.").)
After a series of pretrial motions and proceedings, U.S. Bankruptcy Court Judge Judith Boulden conducted a bench trial. Specific events that occurred during those proceedings are described immediately below because the U.S. Bankruptcy Court Judge Joel T. Marker, on remand, cited to them in his order interpreting Judge Boulden's decisions*fn5 when he held that the "invalidation remedy" was foreclosed by the "law of the case" doctrine.
1. Striking of the Amended Complaint After the Trustee was substituted as plaintiff in the adversary proceeding, he sought leave to file an amended complaint to, among other things, add new claims under the Utah Residential Mortgage Practices Act (URMPA) and "clarify that the Trustee seeks not only affirmative relief, but also relief in the form of objection to Winterfox's claims." (Trustee's Mem. In Support Mot. Leave to File Amended & Supp. Compl. at 2 (Appellant Appx. at 77).)
Although Judge Boulden granted leave to amend in April 2009, the Trustee did not formally file the amended complaint until May 2009, when the motion-filing deadline had arrived. Winterfox moved to strike the amended complaint, contending that allowing the URMPA claims would prejudice Winterfox because it would not be able to file a motion for summary judgment on the new claims. Judge Boulden agreed and granted the motion to strike.*fn6
The original complaint was reinstated. In Mr. Kitts' Prayer for Relief in the original complaint, he sought, under his TILA claim, a judgment rescinding [the Bridge Loan] Agreement [and related deeds and notes]; and a judgment awarding Kitts damages in an amount to be determined by the Court; and for a judgment finding Kitts is not liable for any finance or any other charge; together with costs of this action and reasonable attorneys' fees; and such further relief as the Court deems just and reasonable. (Compl. at 9 (Appellant Appx. at 51) (emphasis added).)
2. Pretrial Order Before trial, the Trustee and Winterfox submitted a stipulated pretrial order which the Bankruptcy Court signed (the "Pretrial Order"). The Pretrial Order specified, under the heading "Trustee's Claims," that the remedies sought by the Trustee included "return and invalidation of all finance charges . . . which were paid by the Debtor or for which payment by the estate and property of the estate is currently sought by Winterfox." (Pretrial Order at 3 (Appellant Appx. at 105).) In the "Contested Issues of Law" section of the Pretrial Order, the parties set forth the following issue for trial:
If TILA applies and the Trustee is entitled to relief under  U.S.C. § 1640[a](4) (which includes damages for finance charges and fees paid by the consumer), can Winterfox nevertheless continue to enforce its claim for finance charges and fees that have not yet been paid, but for which Winterfox seeks payment? (Id. at 16 (Appellant Appx. at 118) (emphases added).)
3. Motion in Limine and the "Invalidation Remedy"
In the Adversary Proceeding, the Trustee sought what he characterizes as an equitable "Invalidation Remedy." Under that remedy, he seeks to avoid the obligation to pay fees that have accrued but remain unpaid on the two loans.
Before trial on the TILA claims, Winterfox filed a Motion In Limine under Federal Rule of Civil Procedure 37 seeking exclusion of evidence (and dismissal) of TILA damage claims because, according to Winterfox, the Trustee failed to disclose calculation of such damages on a timely basis. (See Nov. 20, 2009 Rule 37 Mot. in Limine & Mem. In Support (Adv. Proc. Dkt. 251-252) (Appellant Appx. 135-181).)
Judge Boulden considered that motion and ruled from the bench the morning trial began.
She denied the motion with one exception:
I will allow the [Trustee] to present [his] damages claims based upon the July and the August supplements that were filed by the Trustee, but excluding, is an odd way to put it, excluding the asterisk. In the August 25th, 2009, second supplement there is a reference to interest and in the exhibit to that supplement there is a chart of actual damages for mortgage loans [the Debtor] Brian Kitts had payment from Winterfox LLC with an asterisk. That asterisk refers to the following. "If Brian Kitts is required to pay extension fees and pre and post-petition interest to Winterfox, such fees and interest will also be factored into the actual damages asserted by the Trustee." That's stricken. There's no calculation for that, and to the extent that the motion-in-limin[e] covers that, that portion of the motion-inlimin[e] is granted. (Dec. 1, 2009 Trial Tr. at 9:17-10:7 (Appellant Appx. 185-186) (emphases added).)
4. Decision on Amended Partial Objection to Proof of Claim Soon after trial, but before Judge Boulden issued her Findings of Fact and Conclusions of Law, the Trustee filed an Amended Partial Objection to Winterfox's Proof of Claim, which Winterfox had filed in the separate but parallel bankruptcy proceeding. In the Amended Partial Objection, the Trustee asserted that
The Debtor's estate is entitled to all remedies against Winterfox that are available under 15 U.S.C. § 1601 et seq. and, specifically, § 1640(a) including, without limitation, (a) actual damages sustained as a result of the violations in an amount to be proved, (b) statutory damages of up to [$]8,000 ($4,000 per loan), (c) reasonable attorney's fees as determined by the Court, and (d) return and invalidation of all finance charges (including interest, brokers' fees, origination fees and extension fees) paid by the Debtor, or asserted by Winterfox to be owed by the Debtor's estate, under the Loans. (Amended Partial Objection at 4 (Appellant Appx. at 559) (emphasis added).)
Winterfox filed a motion to strike the Amended Partial Objection on the ground that it raised issues already decided in the adversary proceeding. A week after Judge Boulden dismissed the adversary proceeding (see the discussion below about the Bankruptcy Court's final order in the adversary proceeding), she granted Winterfox's motion and struck the Amended Partial Objection "on the grounds that as a matter of law it is duplicative of issues that were litigated or could have been litigated in the Adversary Proceeding." (Appellant Appx. at 565.)
C. Bankruptcy Court's Final Order in the Adversary Proceeding
On January 8, 2010, Judge Boulden issued her Findings of Fact and Conclusions of Law. (See Jan. 8, 2010 Findings of Fact & Conclusions of Law (Appellant Appx. 266-285) (hereinafter "January 2010 Order").) In the January 2010 Order, Judge Boulden characterized the Trustee's claim as follows:
The Trustee asserts that the estate is entitled [under TILA] to actual damages suffered by the Debtor, statutory damages of up to $4,000 per loan, attorney's fees, and return and invalidation of all finance charges related to the loans. (Id. at 2 (emphases added).) The judge also carefully noted that the January 2010 Order "incorporates by reference all of the Court's oral rulings made on the record during trial. . . . The Court made various rulings during the trial including ruling on motions in limine. Those rulings as reflected on the record are incorporated into these Findings of Facts and Conclusions of Law." (Id. at 2 n.1.)
In the January 2010 Order, Judge Boulden held that Winterfox had not complied with TILA's disclosure requirements but that the Trustee was not entitled to relief because Winterfox was not a "creditor" under TILA and so "TILA does not apply to the First and Second Loans." (Id. at 18.) Based on this threshold decision, Judge Boulden did not address TILA damages ...