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Northern Regal Homes, Inc. v. Roundpoint Mortgage Servicing Corp.

United States District Court, D. Utah, Northern Division

December 11, 2017

NORTHERN REGAL HOMES, INC., and RICK WILLIAMS, Plaintiffs,
v.
ROUNDPOINT MORTGAGE SERVICING CORP., and NATIONSTAR, INC., Defendants.

          Jill N. Parrish District Judge

          REPORT AND RECOMMENDATION GRANTING PLAINTIFFS' MOTION FOR AN AWARD OF ATTORNEY'S FEES and FINDING DEFENDANT'S MOTION FOR ISSUANCE OF DEED AND TO ALLOW DEPOSIT OF JUDGMENT FUNDS MOOT

          Brooke C. Wells United States Magistrate Judge.

         This matter is before the Court on Plaintiffs Northern Regal Homes, Inc.'s and Rick Williams' (collectively “Plaintiffs”) Motion for an Award of Attorney's Fees Against RoundPoint Mortgage Servicing Corp. (“Attorney's Fees Motion”), [1] and Defendant RoundPoint Mortgage Servicing Corp.'s (“RoundPoint”) Motion for Issuance of Deed and to Allow Deposit of Judgment Funds into Court Registry (“Issuance Motion”).[2] Both motions have been fully briefed by the parties.[3] This matter was referred to Magistrate Judge Brooke Wells by District Judge Jill Parrish pursuant to 28 U.S.C. § 636(b)(1)(A).[4] The Court has carefully reviewed the memoranda submitted by the parties. Pursuant to DUCivR 7-1(f), this Court has determined that oral argument on the motions is unnecessary and will determine the motions on the basis of the written memoranda.

         BACKGROUND[5]

         In November 2006, Plaintiffs entered into a construction loan agreement (“Loan Agreement”) with Barnes Banking Company (“Barnes”) for constructing a single-family residence in Hooper, Utah. Plaintiffs intended to use the property as a rental investment. In connection with the Loan Agreement, Plaintiffs executed a promissory note (“Note”), and a construction deed of trust (“DOT”). Later, in May 2007, Plaintiffs and Barnes entered into a change in terms agreement (“CIT Agreement”) that converted the construction loan into a five year mortgage. After construction was complete, Plaintiffs rented the house to a tenant and his family.

         Sometime in early 2011 the servicing of the loan was transferred to RoundPoint, and then the loan was sold to RoundPoint. When RoundPoint took over the servicing of the loan, RoundPoint's records erroneously indicated that Plaintiffs were late on payments. In October 2011, RoundPoint sent a letter notifying Plaintiffs they were in default. Plaintiffs disputed the alleged default and explained that they had made every payment. Plaintiffs sent their November 2011 payment by check, and RoundPoint rejected it and returned the check. Plaintiffs made continued attempts to make payments for the next six months, every payment was rejected and sent back by RoundPoint.

         Although no default had occurred, and despite Plaintiffs efforts to inform RoundPoint of its error, RoundPoint recorded a notice of default with Weber County (which was later cancelled). In June 2012, RoundPoint reaffirmed its position that the loan was in default via letter to Plaintiffs, and stated that if the default was not cured it would foreclose. A few days later, after Plaintiffs' tenants had moved out, RoundPoint's agents changed the locks on the doors to the property and disabled the garage door opener. RoundPoint also cut the grass, winterized the property, and posted a sign in the front window stating the home was managed by RoundPoint's agent. Plaintiffs sent RoundPoint a letter in August 2012, informing RoundPoint that they continued to dispute the existence of a default and that they had been locked out of the property.

         Between August 2012 and January 2014, there were a number of communications between the parties, and at one point RoundPoint moved forward with foreclosure proceedings, but did not go through with the trustee's sale due to the dispute. Ultimately, in September 2013, RoundPoint acknowledged that there were errors in the loan file with regard to payments, maturity date, and payment due dates when it received the loan. RoundPoint offered to reconcile the account and work with Plaintiffs to reinstate the loan. Plaintiffs rejected RoundPoint's offer.

         On or about September 25, 2014, Plaintiffs filed their original complaint in the Second Judicial District Court, Weber County, Ogden Department, Utah.[6] On or about January 22, 2015, Plaintiffs filed an amended complaint and served it on RoundPoint.[7] On February 20, 2015, RoundPoint removed the action to this Court.[8]

         In Plaintiffs' amended complaint they assert three causes of action against RoundPoint- breach of contract, unjust enrichment, and lender liability.[9] With respect to the breach of contract claim, Plaintiffs alleged “that RoundPoint breached the parties' agreement when it failed to accept loan payments and returned them to [Plaintiffs], erroneously declared a default and wrongfully pursued the non-existent default, and twice initiated foreclosure proceedings when there was no delinquency or other default.”[10] The Court found that RoundPoint had breached the express terms of the Note by failing to accept Plaintiffs' payments and returning them, instead of applying the payments as directed under the terms of the Note.[11] The Court also found that RoundPoint had breached the terms of the Note, DOT, and Loan Agreement “by exercising rights related to an event of default when no such event had taken place.”[12]

         Additionally, in their breach of contract claim, Plaintiffs argued “that RoundPoint breached the Loan agreements when it took control, use, possession, and management of the Property without a right to do so by changing the locks and disabling the garage door openers, thereby depriving [Plaintiffs] of any access to the Property.”[13] The Court concluded that “RoundPoint did take possession and control of the Property and did so without a contractual right. Therefore, RoundPoint breached its obligations under the Loan as a matter of law when it changed the locks and disabled the garage door openers, thereby depriving [Plaintiffs] of their right to the Property.”[14]

         With regard to the unjust enrichment claim, the Plaintiffs conceded to the dismissal of this claim because “[t]he parties do not dispute that there is an express contract that governs their relationship and that the unjust enrichment claim arises out of the same facts as the breach of contract claim.”[15]

         Finally, Plaintiffs' lender liability claim relied on the argument that RoundPoint breached common law duties when it took possession of the property and blocked Plaintiffs from accessing it.[16] RoundPoint argued that lender liability is only available to third parties.[17]Finding no Utah law that would support a claim for a lender's conduct toward its borrower, the Court did not allow this claim to go forward and granted RoundPoint's motion for summary judgment on the lender liability claim.[18]

         In April 2017, the Court held a bench trial to determine the appropriate measure of damages stemming from RoundPoint's breach of contract. The Court ordered that the title to the property be transferred to RoundPoint in satisfaction of the Note, that judgment be entered against RoundPoint in the amount of $138, 668.00, plus postjudgment interest, and that the Plaintiffs file any motion for attorney's fees within ten days of the Court's order.[19]

         ANALYSIS

         I. Motion for an Award of Attorney's Fees Against RoundPoint

         Plaintiffs seek an award of their attorney's fees against RoundPoint pursuant to Utah Code Ann. §78B-5-826 (2008) (the “Reciprocal Fee Statute”). RoundPoint opposes such award by arguing that Plaintiffs were not the prevailing party in this action, and that even if the Court finds Plaintiffs prevailed they are not entitled to attorney's fees under the Reciprocal Fee Statute. Finally, RoundPoint argues that even if Plaintiffs are entitled to attorney's fees, the fees requested are not reasonable. The Court addresses these arguments below.

         a. Reciprocal Fee Statute

         “Attorney fees are generally recoverable in Utah only when authorized by statute or contract.”[20] Here, Plaintiffs seek an award of their attorney's fees incurred in this action under the Reciprocal Fee Statute. The Reciprocal Fee Statute states:

A court may award costs and attorney fees to either party that prevails in a civil action based upon any promissory note, written contract, or other writing executed after April 28, 1986, when the provisions of the promissory note, written contract, or other writing allow at least one party to recover attorney fees.[21]

         “The statue ‘is triggered only when the provisions of the contract would allow at least one party to recover fees if that party had prevailed under its theory of the case.'”[22] The Reciprocal Fee Statute “‘was designed to create a level playing field for parties to a contractual dispute . . . by allowing both parties to recover fees where only one party may assert such a right under contract, remedying the unequal allocation of litigation risks built into many contracts of adhesion.'”[23]

         The Reciprocal Fee Statute “does not create an independent right to a fee award that the contract's attorney fee provision would not allow to either party simply because the fee provision is one-sided.”[24] Accordingly, this Court “must look to whether fees would have been available to the other party had it prevailed on the claims asserted rather than considering hypothetical claims that might have been asserted by the losing party.”[25]

         In order to apply the Reciprocal Fee Statute to this matter, this Court must determine “(a) [i]f the provisions of a written contract allow [Plaintiffs] to recover[] attorney fees in [this] action based upon the contract, ”[26] and (b) if Plaintiffs are the prevailing party.

         i. Attorney's Fees Provision

         In looking at the contracts in this matter there are several attorney's fees provisions to consider. The Court in its decision on the merits in favor of Plaintiffs on their breach of contract claim collectively referred to the Note, Loan Agreement, and DOT as the “Loan”, and found that RoundPoint had “breach its obligations under the Loan.”[27] Based on this finding, this Court will consider the attorney's fees provisions in each of those contracts.

         The attorney's fees provision in the Note states:

Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including without limitation all attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals.[28]

         This provision is similar to the provision at issue in Velocity Press.[29] In Velocity Press “[t]he attorneys' fee provision allowed Key to recover only if it ‘hire[d] or pa[id] someone else to help collect this Note if [Velocity] does not pay.'”[30] The Tenth Circuit found that “[b]ecause Key did not incur expenses to collect on the note, the fee provision in this case would not have allowed for recovery if Key had successfully defended against Velocity's claims.”[31] Similar to Velocity Press, this Court cannot find that Plaintiffs may recover under this provision given the same limited circumstances. Here RoundPoint did not incur expenses to collect on the note, and would not be entitled to attorney's fees if they had prevailed on its defense against Plaintiffs under this provision.

         Turning to the DOT, the attorney's fees provision states:

If Lender institutes any suit or action to enforce any of the terms of this Deed of Trust, Lender shall be entitled to recover such sum as the court may adjudge reasonable as attorneys' fees at trial and upon any appeal. Whether or not any court action is involved, and to the extent not prohibited by law, all reasonable expenses Lender incurs that in Lender's opinion are necessary at any time for the protection of its interest or the enforcement of its rights shall become a part of the Indebtedness payable on demand and shall bear interest at the Note rate from the date of expenditure until repaid. Expenses covered by this paragraph include, without limitation, however, subject to any limits under applicable law, Lender's reasonable attorneys' fees and expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services, the cost of searching records, obtaining title reports (including foreclosure report), surveyors' reports, and appraisal fees, title insurance, and fees for the Trustee, to the extent permitted by applicable law. Trustor also will pay any court costs, in addition to all other sums provided by law.[32]

         This attorney's fees provision is broader than the scope of the Note provision, but the scope is somewhat narrowed by the introductory phrase “if Lender institutes any suit or action.” If this Court were to only look at the litigation of this matter and not the pretext leading to the litigation, it would appear that RoundPoint (had it succeeded) would not be entitled to fees under this provision because it did not institute the litigation. However, this provision clearly contemplates an action “whether or not any court action is involved.” Here, it was RoundPoint who took a number of “actions” to enforce the agreements in this matter prior to any litigation. RoundPoint initiated action to enforce the agreements when it rejected Plaintiffs' loan payments and returned them, “erroneously declared a default and wrongfully pursued the non-existent default, and twice initiated foreclosure proceedings when there was no delinquency or other default.”[33] Further, RoundPoint “took control, use, possession, and management of the Property without a right to do so by changing the locks and disabling the garage door openers, thereby depriving [Plaintiffs] of any access to the Property.”[34] It was these actions, initiated by RoundPoint, which forced Plaintiffs to file suit. Plaintiffs would not have filed this action but for the actions RoundPoint initiated to enforce the agreements. There is no doubt that had RoundPoint succeeded in its defense of this action, that it would argue that it is entitled to fees based on the actions they initiated prior to the litigation. Thus, should this Court determine that Plaintiffs are the prevailing party in this litigation, Plaintiffs may be awarded attorney's fees under the Reciprocal Fee Statute under the DOT attorney's fees provision.

         Assuming, arguendo, that Plaintiffs were not entitled to attorney's fees under the DOT provision, the Court will consider the Loan Agreement attorney's fees provision which is even broader. The Loan Agreement states:

Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone to help enforce this Agreement, and ...

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