Opinion
Case No. 6:21-bk-03934-LVV
2022-06-03
IN RE Heather Karen Therese STANLEY-CHRISTIAN, Debtor.
Jacob D. Flentke, Jeffrey Ainsworth, Robert B. Branson, BransonLaw PLLC, Orlando, FL, for Debtor. Bryan E. Buenaventura, Miriam G. Suarez, Office of the United States Trustee, Orlando, FL, for U.S. Trustee. Jerrett M. McConnell, McConnell Law Group, P.A., Jacksonville, FL, Trustee, Pro Se.
Jacob D. Flentke, Jeffrey Ainsworth, Robert B. Branson, BransonLaw PLLC, Orlando, FL, for Debtor.
Bryan E. Buenaventura, Miriam G. Suarez, Office of the United States Trustee, Orlando, FL, for U.S. Trustee.
Jerrett M. McConnell, McConnell Law Group, P.A., Jacksonville, FL, Trustee, Pro Se.
ORDER SUSTAINING DEBTOR'S OBJECTION TO CLAIM NO. 5 OF MATERNAL-FETAL MEDICINE ASSOCIATES OF MARYLAND. LLC
Lori V. Vaughan, United States Bankruptcy Judge Debtor objects to a proof of claim filed by creditor, Maternal-Fetal Medicine Associates of Maryland, LLC ("MFMA"), for attorneys’ fees and costs which have been the subject of a decade plus of litigation between the parties. The attorneys’ fees and costs were previously awarded by a Maryland trial court, but the award was reversed on appeal multiple times for failure to justify the award under a Maryland fee-shifting statute allowing fees when a claim lacks substantial justification. The appellate court determined that three of Debtor's six claims against MFMA lacked substantial justification and would support an award of fees, but that the trial court failed to describe how the fees it awarded were incurred due to these unsubstantiated claims. Having left the issue there, this Court must decide, based on a record substantially similar to that submitted to the trial court, what an appropriate award of fees and costs is, if any. Having reviewed the parties’ submissions, the Court concludes that MFMA has not met its burden and no fees and costs should be awarded.
This case came on for hearing on April 21, 2022, on the Debtor's Objection to Claim No. 5 of Maternal-Fetal Medicine Associates of Maryland, LLC (Doc. No. 77), MFMA's response in opposition (Doc. No. 80), and Debtor's reply (Doc. No. 87).
Factual Background
MFMA filed amended Proof of Claim 5-2, seeking to recover $558,981.03 in attorneys’ fees and costs attributable to defending Debtor's claims which lacked substantial justification. The litigation began in 2007 when Debtor, a physician, sued her former employer, MFMA, and its principal Dr. Hamersley in Maryland state court after an employment dispute. Debtor asserted claims of: (1) fraudulent inducement, (2) breach of contract, (3) tortious interference with contract, (4) wrongful termination, (5) negligent misrepresentation and (6) declaratory judgment regarding the enforceability of a non-compete agreement. MFMA filed a counterclaim for breach of the employment agreement, seeking liquidated damages for Debtor's violation of the non-compete and for reimbursement of malpractice premiums it paid on behalf of Debtor.
Doc. No. 91 ("MFMA's Ex.") Ex. 1.
MFMA's Ex. 8 at 2.
Following a December 2008 hearing, the trial court granted MFMA summary judgment on each of Debtor's claims, except the wrongful termination count. That count and MFMA's counterclaim proceeded to a seven-day jury trial held in February 2009. At the close of evidence, the trial court granted MFMA's renewed motion for judgment on Debtor's wrongful termination count. The jury then found in favor of MFMA on the premium reimbursement portion of its breach of contract counterclaim, but against MFMA on breach of the non-compete. The jury awarded MFMA damages of $23,902 for Debtor's failure to reimburse malpractice premiums paid by MFMA.
Id.
Doc. No. 80 ¶ 12.
MFMA's Ex. 8 at 2.
Id.
Thereafter, MFMA moved for attorneys’ fees and costs pursuant to the employment agreement and/or Maryland Rule 1-341, a fee-shifting statute for claims maintained in bad faith or without substantial justification. MFMA sought attorneys’ fees and costs totaling $591,861.07 and attached redacted bills. Maternal-Fetal Med. Assocs. of Md., LLC v. Stanley-Christian , No. 0967, 2013 WL 3941970, at *12 (Md. Ct. Spec. App. July 24, 2013) (summarizing the procedural history prior to the first appeal). After hearings in May 2009 and August 2010, the trial court awarded MFMA $300,000 in attorneys’ fees and costs. Id.
On appeal, the Maryland Court of Special Appeals (the "Court of Special Appeals") concluded that the trial court did not identify whether it awarded fees under the employment agreement or Maryland Rule 1-341. Maternal-Fetal Med. Assocs. of Md ., 2013 WL 3941970, at * 12. The court vacated the award, determined MFMA had no contractual right to recover attorneys’ fees, and remanded for clarification if the trial court made the award under Maryland Rule 1-341. Id. at *1.
On remand, the trial court again awarded MFMA $300,000 in attorneys’ fees, finding under Maryland Rule 1-341 that each of the six claims brought by Debtor lacked substantial justification. The trial court explained this amount was "reasonable and necessary to defend the claims brought by [Debtor] without substantial justification."
MFMA's Ex. 8. It is unclear if the trial court also awarded costs in its second order. The order only references attorney's fees, while in its first order the trial court stated it awarded "attorney fees and costs."
Id. at 8.
In a second appeal, the Court of Special Appeals affirmed the trial court's finding of no substantial justification under Rule 1-341, but only as to three of the six claims: fraudulent inducement, negligent misrepresentation, and wrongful termination. Christian v. Maternal-Fetal Med. Assocs. of Md ., No. 0013, 2017 WL 2839146 (Md. Ct. Spec. App. July 3, 2017). The Court of Special Appeals reversed the trial court's determination of no substantial justification for the breach of contract, tortious interference with contract, and declaratory judgment actions. The Court of Special Appeals then vacated the trial court's judgment and remanded the case for a determination of whether and to what extent fees should have been granted. Id. at *16-17.
Before the trial court considered the issue on remand anew, the Maryland Court of Appeals (the "Court of Appeals"), granted Debtor's petition for a writ of certiorari and affirmed the Court of Special Appeals’ judgment. Christian v. Maternal-Fetal Med. Assocs. of Md., LLC , 459 Md. 1, 183 A.3d 762, 766 (2018). Specifically, the Court of Appeals "scoured the record for any basis upon which the [trial court] awarded $300,000 in attorney's fees" and finding none, remanded "for further factual findings regarding the amount of attorney's fees to be paid, if any, by [the Debtor] and for an explanation as to how the court calculates that specific amount." Id. at 781.
On the second remand, the trial court conducted limited proceedings, "rather than focus on the deficiencies identified by the Court of Appeals." Stanley-Christian v. Maternal-Fetal Med. Assocs. of Md., LLC , Nos. 292,1285, 2020 WL 7651643, at *6 (Md. Ct. Spec. App. Dec. 23, 2020). The trial court considered the parties’ post-appeal briefs for and against an award of attorneys’ fees, heard argument from the parties, and considered the legal bills MFMA resubmitted to the court. Id. In 2019, the trial court awarded attorneys’ fees and costs, this time in the amount of $490,364.59. Id. at *8.
On the third and final appeal, the Court of Special Appeals vacated this award, determining that the trial court failed to explain how it determined that $490,364.59 in fees and costs were attributable to the three claims that lacked substantial justification. The court opined that it
detected] no analysis of the bills submitted by [MFMA] ... [and from its] review of those documents, [could not] see any way any finder of act could have determined by a preponderance of the evidence—without further explanatory testimony [not seen in] the record—what fraction of [MFMA's] attorneys’ time was spent defending the three meritless counts, to the exclusion of the three other counts and the prosecution of [MFMA's] counterclaims. Most of the time entries on the bills provide no clue as to which substantive issue(s) or count(s) the time related.
Stanley-Christian v. Maternal-Fetal Med. Associates of Maryland, LLC , Nos. 292, 1285, 2020 WL 7651643, at *8 (Md. Ct. Spec. App. Dec. 23, 2020). In closing, the court questioned whether to "simply hold that [MFMA] ... failed to meet [its] burden to prove [its] entitlement to reimbursement" but ultimately remanded for the trial court to determine the "appropriate amount, if any, to award [MFMA]." Id. (emphasis in original).
The court further found the "basis for die amount awarded ... even more mysterious and unfounded" recalling that "the trial court had twice before concluded that an award of $300,000 was the ‘reasonable and necessary amount to defend the claims brought by [Debtor] without substantial justification’ at a time when the court was erroneously assessing the cost of defending against all six counts in the amended complaint, but the award on remand increased by 63% even though both of Maryland's appellate courts have held that only three of the six counts in the amended complaint were correctly found to be without substantial justification." Id. (emphasis in original).
Analysis
Section 502 of the Bankruptcy Code provides a proof of claim is deemed allowed until an interested party objects. 11 U.S.C. § 502(a). A proof of claim filed in accordance with the bankruptcy rules constitutes prima facie evidence of the validity and amount of the creditor's claim. In re Thornburg , 596 B.R. 766, 769 (Bankr. M.D. Fla. 2018) (quoting In re Winn-Dixie Stores, Inc. , 418 B.R. 475, 476 (Bankr. M.D. Fla. 2009) (internal quotation marks omitted)). When an objection is filed, the objecting party has the burden of proof to rebut the prima facie validity of the proof of claim. Id. (citing In re Eddy , 572 B.R. 774, 778-79 (Bankr. M.D. Fla. 2017). The objecting party must refute the legal sufficiency and make a good argument why the claim should not be allowed as filed. Id. at 770. As quoted by Judge Jennemann in Thornburg:
All references to the Bankruptcy Code refer to 11 U.S.C. §§ 101 et seq.
[T]he objecting party [must]...produce evidence at least equal in probative force to that offered by the proof of claim and which, if believed, would refute at least one of the allegations that is essential to the claim's legal sufficiency. This can be done by the objecting party producing specific and detailed allegations that place the claim into dispute, by the presentation of legal arguments based upon the contents
of the claim and its supporting documents ... in which evidence is presented to bring the validity of the claim into question. If the objecting party meets these evidentiary requirements, then the burden of going forward with the evidence shifts back to the claimant to sustain its ultimate burden of persuasion to establish the validity and amount of the claim by a preponderance of the evidence.
Thornburg , 596 B.R. at 770 (quoting In re Armstrong , 320 B.R. 97, 103 (Bankr. N.D. Tex. 2005) (internal quotations omitted) (citations omitted)). Consequently, where a claim lacks prima facie validity, the claimant bears the ultimate burden to offer sufficient evidence to support its claim by a preponderance of the evidence. See In re Taylor , 363 B.R. 303, 309 (Bankr. M.D. Fla. 2007). In this case, Debtor has met its burden in challenging the prima facie validity of the claim. The award of attorneys’ fees has been vacated by the appellate court three times and now MFMA seeks an award substantially greater than the amounts reversed in those opinions. The burden now shifts to MFMA to prove, by a preponderance of the evidence, that the attorneys’ fees and costs should be awarded under Maryland law.
Under Maryland Rule 1-341, if the court finds that a claim or defense was "without substantial justification" the court "may require the offending party ... to pay the adverse party the costs of the proceedings and the reasonable expenses, including reasonable attorneys’ fees, incurred by the adverse party opposing it." Md. R. 1-341. Rule 1-341 is not designed to be punitive but "merely [is] a mechanism to place the ‘wronged party in the same position as if the offending conduct had not occurred.’ " Christian v. Maternal-Fetal Med. Assocs. of Md., LLC , 459 Md. 1, 183 A.3d 762, 772 (2018) (quoting Major v. First Virginia Bank-Central Md. , 97 Md.App. 520, 631 A.2d 127, 132 (1993) ). As explained by the Court of Appeals, " Rule 1-341 requires a court to make two separate findings[.]" Christian , 183 A.3d at 773. First, the court must find the party maintaining the action lacked substantial justification or did so in bad faith. Id. Next, "[i]n light of the severity of the imposition and the rarity with which a court ought to impose such fees under Rule 1-341," the court must make a determination "of how much, if any, [ ] fees should be awarded." Id. at 779. This determination "is within the discretion of the court, as is the discretion to not award attorney's fees." Id. (emphasis in original).
Here, the first step is complete- the Court of Appeals affirmed that three of Debtor's six claims were without substantial justification. Christian , 183 A.3d at 770-71. Accordingly, fees and costs are awardable under Rule 1-341 as to Debtor's claims for fraudulent inducement, negligent misrepresentation, and wrongful termination.
The second step is more challenging. As Maryland appellate courts recognized, if this were a case where all Debtor's claims were found to be without substantial justification, the analysis would be simple. See Christian v. Maternal-Fetal Med. Assocs. of Md., LLC , No. 0013, 2017 WL 2839146, at *16 (Md. Ct. Spec. App. July 3, 2017) (quoting Beery v. Maryland Med. Lab., Inc ., 89 Md.App. 81, 597 A.2d 516, 526-27 (Md. Ct. Spec. App. 1991). But in cases like this where only some of a party's claims are without substantial justification, it can be difficult to fashion an appropriate award. Id. ("Where only part of a proceeding was maintained in bad faith or without substantial justification, however, the aggrieved party may have a great deal of difficulty in separating expenses incurred in opposing one part of his opponent's claim or defense from the remaining part or parts."). Luckily, the Court of Appeals and Court of Special Appeals have provided guidance on this very matter. The Court of Appeals, in vacating the trial court's award, held that an "award of attorney's fees must be apportioned based on the particular claims requiring compensation and must be limited to those claims in order to be reasonable." Christian , 183 A.3d at 780. That requires, in cases like this, the court "make specific findings of fact as to which of the litigant's attorney's fees and expenses are attributable to the maintenance of the meritless claims." Id. (quoting Barnes v. Rosenthal Toyota, Inc ., 126 Md.App. 97, 727 A.2d 431, 436 (Md. Ct. Spec. App. 1999). The Court of Appeals cautioned that "[a] post facto arbitrary apportionment of generalized time records will not suffice." Christian , 183 A.3d at 784 (quoting Beery v. Md. Med. Laboratory, Inc. , 89 Md.App. 81, 597 A. 2d 516, 527 (Md. Ct. Spec. App. 1991). Specifically, the Court of Special Appeals directed the trial court on remand to determine:
the appropriate amount, if any, to award [MFMA] to reimburse them for the fees and expenses that they can prove with reasonable certainty they incurred because of having to defend against the three counts that were asserted by [Debtor] without substantial justification, excluding from that assessment any fees and expenses that were incurred in defense of the three remaining counts and in pursuit of [MFMA's] counterclaims.
Stanley-Christian v. Maternal-Fetal Med. Assocs. of Md., LLC , Nos. 292, 1285, 2020 WL 7651643, at *8 (Md. Ct. Spec. App. Dec. 23, 2020) (emphasis in original). Due to the bankruptcy filing, and the parties’ request, this Court is now tasked with this directive.
MFMA relies on the Court of Appeals decision and the cases cited therein, which in the words of the Court of Special Appeals contained comments which "allow[ed] some leeway in proof of attorney's fees." Stanley-Christian , 2020 WL 7651643, at *7. For instance, the Court of Appeals asserted with respect to multiple claims scenarios, that because a "precise delineation" of time spent on specific aspects of the case may not be practicable, the court does not regard it as an essential condition of the right to recover. Christian , 183 A.3d at 780 (quoting Diamond Point Plaza Ltd. P'ship v. Wells Fargo Bank, N.A. , 400 Md. 718, 929 A.2d 932, 957-58 (2007). Similarly, the Court of Appeals observed that apportionment is not an exact science and trial courts "should not[ ] become green-eyeshade accountants." Christian , 183 A.3d at 782. "It is the duty of a court to accomplish ‘rough justice, not[ ] auditing perfection.’ " Id. at 784 (quoting Fox v. Vice , 563 U.S. 826, 838, 131 S.Ct. 2205, 180 L.Ed.2d 45 (2011) ). The Court of Special Appeals cautioned however that such statements do not excuse "an aggrieved party from its burden of making a good faith effort to provide testimonial and documentary evidence that is sufficient for the trier of fact to make a rational finding by a preponderance of the evidence as to which of the fees and expenses should be reimbursed because they would not have been incurred if the opposing part had not maintained claims without substantial justification." Stanley-Christian , 2020 WL 7651643, at *7 (Md. Ct. Spec. App. Dec. 23, 2020) (emphasis in original).
Similarly, MFMA cites to Weichert Co. of Maryland, Inc. v. Faust , 191 Md.App. 1, 989 A.2d 1227 (2010) and Ochse v. Henry, 216 Md.App. 439, 88 A.3d 773 (2014) for the apparent proposition that the Court should apply the "common core of facts" doctrine and award fees for claims that are factually related to non-fee shifting claims when apportioning fees under Rule 1-341. As the Court of Special Appeals noted when distinguishing these cases, "neither of [them] ... consider[ed] an assessment of litigation fees and expenses pursuant to Rule 1-341." Stanley-Christian v. Maternal-Fetal Med. Assocs. of Md., LLC, Nos. 292, 1285, 2020 WL 7651643, at *7 (Md. Ct. Spec. App. Dec. 23, 2020).
To support their claim for attorneys’ fees and costs on the three unsubstantiated claims, MFMA has submitted attorney invoices with detailed time entries and two affidavits from counsel for MFMA. The Affidavit of Robert W. Liles resembles a standard affidavit in support of attorney's fees designed to submit the attorney's invoices into evidence. The Liles Affidavit then makes the conclusory statement that the fees are reasonable, customary, and necessary for work performed defending against Debtor's false medical billing allegations. No attempt is made to differentiate any of the time entries or expenses by topic or claim. The attached time entries appear to be marked up slightly. Most have check marks by them and a few are crossed out by a large "x" written over them. The Liles Affidavit provides no explanation for these marks. Even if the Court were able to deduce that the crossed-out time entries were excluded from the calculation, there is absolutely no evidence to explain why those entries were excluded.
MFMA's Exs. 2, 3 and 4. MFMA also submitted the trial court docket, the jury trial transcript, and the trial court's first order on remand. MFMA's Exs. 6, 7, and 8.
MFMA's Ex. 3.
Id. ¶ 9.
The Affidavit of Andrew Schulwolf provides additional information. In it, Schulwolf states that he reviewed each time entry, line by line, the docket and pleadings in the cases to determine "what portion of the attorney's fees and costs incurred by MFMA ... related to their defense of those causes of action and claims ... brought without substantial justification." The affidavit then attaches the time records with Schulwolf s hand-written notes apportioning which time entries, "by estimated percentage," relate to the three claims at issue. The attached time entries have hand-written check marks next to some, others have nothing, and others have a percentage indicated. Finally, the affidavit then attaches as Exhibit 3 a spreadsheet summarizing the apportionment of fees as to each of the three claims. Each entry on the spreadsheet includes the total invoice, the allowable amount (the amount included in the proof of claim), what percentage of the invoice is being sought, and then a breakdown of the amount between the three unsubstantiated claims. Notably, the vast majority of those percentages are above 80%. Looking at the total fees and costs, MFMA seeks 89% of the total fees incurred for the "trial period." MFMA is not seeking any fees or costs incurred for the post-trial litigation. Schulwolf attests the attorneys’ fees and costs required to defend the three unsubstantiated claims represented the substantial majority of all the legal work performed on behalf of MFMA. There is no other explanation how the percentage was arrived at or how they relate to the three claims. The Court has only Mr. Schulwolf s affidavit stating that these fees were "related to their defense" of the claims. This is not enough to meet the mandate of the appellate court or the requirements of Maryland law.
MFMA's Ex. 4.
Id. ¶ 5.
Id.
MFMA's Ex. 4 at 360-61. This exhibit is also MFMA's Ex. 5, which was admitted as a demonstrative exhibit. See Doc. No. 94.
MFMA Ex. 414.
Accordingly, MFMA has not submitted evidence to meet its burden. While the Court expects that a portion of MFMA's fees and costs were due to the three unsubstantiated claims, MFMA must provide the Court with some basis to make that determination. Simply stating that counsel reviewed the record and the time entries in detail and determined that some amount is related is not enough and sounds like the "post facto arbitrary apportionment of generalized time records" that the Court of Appeals warned of. The Court was not expecting a detailed breakdown of each time entry. The requirement to maintain detailed time records is fairly burdensome itself without courts asking counsel for a breakdown by claim. Still, some explanation of how counsel arrived at these figures was necessary.
MFMA further misses the mark when counsel argues that the issues involved in the three unsubstantiated claims took up most of the litigation effort. The standard articulated by the Court of Special Appeals, and supported by Maryland law, is that claimant must "prove with reasonable certainty they incurred [fees and expenses] because of having to defend" against the frivolous claims. Stanley-Christian , 2020 WL 7651643, at *8 (emphasis in original). This is akin to a "but for" standard. Christian , 183 A.3d at 784. In other words, the claimant must show that but for these claims, they would not have incurred the fees and costs sought. Factual and legal issues shared amongst the six claims would not appear to meet this standard unless the frivolous claims increased the effort, and then counsel would have to explain how the effort increased. It is difficult to believe that, but for the three unsubstantiated claims, MFMA would have spent only 11% ($66,767) of its total fees and costs. It is possible, but MFMA has given this Court no evidence or basis to reach this conclusion.
In particular, MFMA argues "the overwhelming majority of [its] legal fees and costs involved their defense of [Debtor's] claims regarding medical billing, medical records alterations and medical treatment/patient care decisions" and those claims "comprised" the three unsubstantiated claims and were not defended as part of the substantially justified claims. Doc. No. 80 at 17. MFMA again cites Ochse, 88 A.3d at 778, for the proposition that even if there was some commonality between the factual allegations that were substantially justified, it would not be precluded from a recovery of fees under Rule 1-341. As the Court of Special Appeals observed when MFMA made this argument on the third appeal before it, Ochse did not concern an award of fees under Rule 1-341. In addition, it is at least unclear that only the three unsubstantiated claims concerned the fraudulent billing and medical treatment/patient care decisions. In fact, in its first order on remand, the trial court observed that "[t]he grounds for [Debtor's] causes of actions were [MFMA's] billing methods, patient treatment procedures, and use of the drug Lovenox." MFMA's Ex. 8 at 2. Further, as the Court of Special Appeals acknowledged on the first appeal, Debtor's breach of contract claim, a claim that had substantial justification, also implicated MFMA's billing and patient procedures. See Maternal-Fetal Med. Associates of Md., LLC v. Stanley-Christian , No. 0967, 2009, 2013 WL 3941970, at *8 (Md. Ct. Spec. App. July 24, 2013). Last, as explained in more detail above, MFMA's billing records were not adequately broken-out by topic or claim to support such a finding.
Without proof of what fees were incurred because they had to defend the three unsubstantiated claims, this Court cannot make an award. It is reasonable to believe that some fees and costs (and perhaps most) were incurred due Debtor's unsubstantiated claims, but MFMA has not met its burden of proof to "enable the court to limit the fees and costs awarded to only those incurred in defense of [those counts]." Stanley-Christian , 2020 WL 7651643, at *7. The Court is likewise unable to estimate or award an arbitrary amount in an effort to make MFMA whole. To do so would violate the legal standard and simply repeat the problems identified by the Maryland appellate court that resulted in a reversal of the last two awards. Having tried and failed three times now to establish an entitlement to fees that meets the standard, the time has come to put this issue to rest and find that MFMA is not entitled to an award of fees and costs under Maryland Rule 1-341.
ORDERED.