Opinion
Civil Action No. 1:00-cv-1641-GET.
August 2, 2006
ORDER
The above-styled matter is presently before the court on:
1) Merrill Lynch Credit Corporation and Merrill Lynch Funding Corporation ("Merrill Lynch")'s motion for attorney's fees [docket no. 173], and
2) Michael Welsh and Welsh Law, LLC's motion for attorney's fees [docket no. 181].
Merrill Lynch seeks attorney's fees personally from respondent's attorney Michael Shane Welsh, arising from the filing and pursuit of an emergency motion for injunction, contempt and declaratory judgment, which was granted in this court's order dated March 30, 2006. Merrill Lynch filed its motion for attorney's fees on April 10, 2006. On April 26, 2006, Michael Welsh and his law firm, Welsh LLC, filed a motion seeking attorney's fees incurred in his development of a response to Merrill Lynch's motion for attorney's fees. On April 11, 2006, this court received notice that an appeal of this court's March 30, 2006 order had been filed. In an order dated June 12, 2006, this court deferred ruling on the motions for attorney's fees until the Eleventh Circuit Court of Appeals ruled on the matter. On July 11, 2006, the Eleventh Circuit dismissed the notice of appeal filed by James Holloway and United Oil for want of prosecution.
Background
On May 24, 2000, plaintiff Jacqueline Fowler filed the instant action in the Superior Court of Fulton County against defendant Merrill Lynch Credit Corporation ("Merrill Lynch CC") seeking an injunction barring Merrill Lynch CC from foreclosing on a deed to secure a debt on her property located at 490 West Paces Ferry Road, Atlanta, Georgia ("West Paces Ferry property"). On June 30, 2000, Merrill Lynch CC removed this case to federal court. On August 1, 2000, plaintiff Vaudell Fowler filed an amended complaint which sought "the return of plaintiff's property located at 4499 Garmon Road, Atlanta, Georgia" ("the Garmon Road property") Due to Jacqueline Fowler's continued filing of pleadings in the Superior Court of Fulton County, the Court issued an order which "enjoined and prohibited [Fowler] from filing any pleading or other documents involving the dispute concerning the West Paces Ferry property and the Garmon Road property in any Court except this Court in this case or in the Bankruptcy Court." In an order dated October 2, 2000, this Court granted Merrill Lynch CC's motion to dismiss Jacqueline Fowler's complaint and motion to strike Vaudell Fowler's amended complaint.
Merrill Lynch CC has been required three times to enforce this court's orders establishing interest in the Garmon Road property. On December 1, 2000, Jacqueline Fowler filed a complaint in this Court against the purchaser of the West Paces Ferry Property and two of his attorneys, in the case styled Jacqueline Fowler v. Larry Dean, Ron Stevens, and India Henson, 1:00-cv-3 68-GET ("Fowler II"). On May 18, 2001, without leave of court, Jacqueline Fowler filed a second amended complaint seeking to add thirty-four defendants, including Merrill Lynch CC, and "set aside the wrongful conversion of 4499 Garmon Road, Atlanta, Georgia." On October 23, 2001, the court granted Merrill Lynch CC's motion for an order of contempt against Jacqueline Fowler and dismissedFowler II with prejudice.
In April 2002, Merrill Lynch CC filed a motion for an emergency order to cancel a lis pendens filed by United Oil Brokers, Inc. on the Garmon Road property. The Court found that "united Oil Brokers, Inc. has no interest in the Garmon Road Property" and ordered that the "lis pendens filed on October 5, 2001 by United Oil Brokers, Inc. at Book 86, Page 136 of the lis pendens docket maintained by the Clerk of the Superior Court of Fulton County, Georgia" be cancelled.
Merrill Lynch CC filed a subsequent motion for an emergency order in Fowler II cancelling an additional lis pendens and an assignment of lien rights filed by James Holloway on the Garmon Road property. On May 3, 2002, the Court issued an order acknowledging that James Holloway, at the April 29, 2002 hearing, admitted to having no interest in the Garmon Road property. The order found that James Holloway had no interest in the Garmon Road property and ordered "the his pendens filed on April 26, 2002 by James Holloway at Book 91, Page 53 of the lis pendens docket maintained by the Clerk of the Superior Court of Fulton County, Georgia" and the assignment of lien rights to be canceled.
On August 9, 2002, this Court entered an order in Fowler II permanently enjoining plaintiffs "and anyone acting in concert with plaintiffs," from "filing any actions or pleadings against Merrill Lynch, its parent corporations, subsidiaries, affiliates, officers, directors, agents, and attorneys" without first obtaining prior permission from the Court ("the injunction order") On September 19, 2002, the Eleventh Circuit Court of Appeals affirmed this court's October 23, 2001 order dismissingFowler II. On June 9, 2003, the Eleventh Circuit affirmed "the rulings of the district court-in all respects" in the instant action, including the injunction order.
On March 15, 2006, defendants filed an emergency motion for injunction, contempt and declaratory judgment ("motion for emergency relief") alleging that an action filed in the Superior Court of Fulton County by James Holloway and United Oil Brokers, Inc. against. Kenny and Wanda Rogers, the current owners of the Garmon Road property, and John Doe defendants violates the injunction order. The court held a hearing on Merrill Lynch's motion for emergency relief on March 28-29, 2006. The court found respondents James Holloway and United Oil Brokers in contempt of court for violating this court's orders. Respondents were ordered to dismiss the action styled James Holloway and United Oil Brokers, Inc. v. Kenny Rogers, Wanda Rogers and John Does 1-5, Civil Action No. 2006-cv-111402, Superior Court of Fulton County, Georgia ("Fulton County action") and to dismiss and cancel the two UCC Financing Statements filed and recorded on October 5, 2001 at Deed Book 31088, page 515 and filed and recorded on January 17, 2006 at Deed Book 41762, page 422 no later than close of business on March 30, 2006.
Discussion
Merrill Lynch seeks attorney's fees incurred in bringing and prosecuting its motion for emergency injunction from Mr. Welsh personally. Mr. Welsh filed a cross-motion for fees in his response to Merrill Lynch's motion for attorney's fees. Each party seeks attorney's fees pursuant to 28 U.S.C. § 1927 and this court's inherent authority.
Section 1927 permits an award of the excess costs, expenses and attorney's fees against an attorney who "multiplies the proceedings in any case unreasonably and vexatiously." 28 U.S.C. § 1927. Section 1927 allows courts to assess attorney's fees against counsel who has willfully abused the judicial process by conduct tantamount to bad faith. Malautea v. Suzuki Motor Co., 987 F.2d 1536 (11th Cir. 1993). Likewise, the court may impose sanctions on an attorney who has acted in bad faith pursuant to its inherent authority. Byrne v. Nezhat, 261 F.3d 1075, 1106 (11th Cir. 2001). "One aspect of the court's inherent power is the ability to assess attorney's fees and costs against the client or his attorney, or both, when either has `acted in bad faith, vexatiously, wantonly or for oppressive reasons." Id. Accordingly, both grounds for sanctions in this action require a showing of vexatious behavior.
Merrill Lynch's Motion for Attorney's Fees
Merrill Lynch seeks attorney's fees and costs incurred in filing and prosecuting its motion for emergency injunction to stop the Fulton County action. The Fulton County action asserted that Mr. Holloway and United Oil had a valid security interest in the Garmon Road property in an amount exceeding two million dollars, based on loans advanced to Jaqueline Fowler that were secured by the property, fixtures and structure of the house on the Garmon Road property, as evidenced by a UCC Financing Statement ("the 2001 UCC Financing Statement") Merrill Lynch sought an emergency injunction to establish clear title to the Garmon Road property in time for an impending sale. Because the Fulton County action precipitated the filing of the motion for emergency injunction, if the Fulton County action was filed in bad faith, plaintiff is entitled to a motion for attorney's fees.
An attorney who knowingly or recklessly pursues a frivolous claim acts in bad faith. Schwartz v. Million Air, Inc., 341 F.3d 1220, 1225 (11th Cir. 2043). Knowingly and recklessly filing a complaint without investigating the law or facts, particularly in light of opposing party's warning that the facts do not support a claim, may support a showing of bad faith.Smith v. Grand Bank Trust of Fla., 2006 WL 2034809 (11th Cir. 2006). Merrill Lynch contends that Mr. Welsh failed to investigate the law, particularly the orders issued by this court, the statutes of limitations, and securities law, and the facts, particularly the basis of the 2001 UCC Financing Statement.
Regarding Mr. Welsh's failure to investigate the law, Merrill Lynch argues that it had apprised him of the background litigation concerning the Garmon Road property, some of which is outlined above. Merrill Lynch's lead attorney, Mr. Remar, sent plaintiff a packet of information with a letter directing him specifically to this court's orders concerning the Garmon Road property. Indeed, Mr. Welsh admits in his response to the motion for attorney's fees that he reviewed the orders issued by this court on April 29, 2002; May 3, 2002; and August 8, 2002. He states that the Fulton County action was based on the 2001 UCC Financing Statement and security interest, which he believed represented rights separate from those determined by this court's 2002 orders.
The April 29, 2002 order found that "United Oil Brokers, Inc. has no interest in the Garman Road property" and cancelled the lis pendens to which the 2001 UCC Financing Statement referred. The May 3, 2002 order held that James Holloway has "no interest in the Garmon Road property." Accordingly, prior orders of this court which Mr. Welsh reviewed specifically found that Mr. Holloway and United Oil had no interest in the Garmon Road property. However, Mr. Welsh filed a state court action asserting an interest in the Garmon Road property, based on a UCC Financing Statement that was purportedly created in 2001, before this court issued the relevant orders.
The August 9, 2002 order enjoined the Fowlers and anyone acting in concert with them from filing any actions or pleadings against Merrill Lynch, its parent corporations, subsidiaries, affiliates, officers, directors, agents and attorneys without prior permission of the court." However, after reviewing the injunction, Mr. Welsh filed the Fulton County action on behalf of parties working in concert with the Fowlers against Merrill Lynch. The Fulton County action does not name Merrill Lynch, but asserts claims against individuals who facilitated the sale of the Garmon Road property to the Rogers. From his review of the litigation surrounding the Garmon Road property, Mr. Welsh should have been aware that Merrill Lynch sold the Garmon Road property. Further, although Mr. Welsh argues that the Fowlers are not involved in the Fulton County action, the action is premised on the Fowlers' continuing interest in the Garmon Road property, the Fowlers were two of the initial incorporators of United Oil, and the response to the emergency motion for relief was filed on behalf of the Fowlers, as well as Mr. Holloway and United Oil.
Accordingly, Mr. Welsh had no basis in law to bring the Fulton County action, because it was precluded by the injunction order, and no basis in fact because the April and May 2002 orders held that neither Mr. Holloway nor United Oil had an interest in the Garmon Road property. Mr. Welsh had an opportunity to determine the lack of a basis for his claims, as Merrill Lynch's letter explained the history of the litigation over the Garmon Road property, provided the relevant documentation, and cautioned him that it would seek attorney's fees and costs because it considered the action abusive litigation. Further, Mr. Welsh admitted that he had reviewed the 2002 orders of this court relating to the Garmon Road property.
Mr. Welsh also failed to investigate the law regarding the statute of limitations. As the court found in its March 30, 2006 order, each of the claims asserted in the Fulton County action were barred by the statute of limitations.
Mr. Welsh further failed to investigate either the law or the facts regarding the validity of the 2001 UCC Financing Statement, on which the Fulton County action is based. At the least, the order by this court cancelling the lis pendens to which the 2001 UCC Financing Statement referred should have indicated to Mr. Welsh that the statement was suspect and induced an investigation, particularly in light of his argument that the Fulton County action was not foreclosed by this court's 2002 orders based on rights under the 2001 UCC Financing Statement. However, Mr. Welsh failed to review the 2001 UCC Financing Statement. Had he done so, he would have recognized that it is problematic on its face. Mr. Welsh contends that it establishes an interest in the property, fixtures and structure of the house located on the Garmon Road property. However, the provisions of a financing statement apply only to personal property, not real property. See Redwine v. Windham, 237 Ga. App. 149 (1999). Moreover, a perfected security interest in fixtures at Garmon Road does not have priority over the Ropers' interest. See O.C.G.A. § 11-9-334. The 2001 UCC Financing Statement was not filed until October 5, 2001, six years after the Fowler's sale of the Garmon Road property and five years after Merrill Lynch became the owner of the property. No evidence was presented to this court that Mr. Holloway, United Oil, or their security agreement and the 2001 UCC Financing Statement ever appeared in the chain of title to the Garmon Road property when the Ropers purchased it in December 2002. Thus, Mr. Welsh either failed to investigate or could not find the requisite evidence. Thus, an investigation into the 2001 UCC Financing Statement alone would raise questions as to the validity of the Fulton County action.
Further, the security agreement on which the statement is purportedly based is problematic, as researching securities law would have shown. Pursuant to Georgia law, a financing statement by itself cannot constitute a security agreement. See Amoco Oil Co. v. G. Sims Assoc., 162 Ga. App. 307, 310 (1982). It must be based upon a security interest evidenced by a security agreement with the description of the collateral. O.C.G.A. § 11-9-509, 510. Therefore, if Mr. Welsh investigated the law, he would have known that the security agreement at issue in the case was essential to the creation of a security interest represented by the 2001 UCC Financing Statement.
In response to an inquiry from the court at the hearing on the motion for emergency relief, Mr. Welsh provided a document purporting to be the security agreement. On its face the security agreement was suspect and a cursory review should have prompted further investigation by Mr. Welsh. The document was not a certified copy and was not authenticated. It did not contain a file stamp, and cross-referenced a UCC Financing Statement that was not the 2001 UCC Financing Statement.
The security agreement purports to memorialize a security interest granted by Jacqueline Fowler. This alone should have prompted Mr. Welsh to investigate Jacqueline Fowler's interest in the Garmon Road property, as he admittedly knew it was the subject of prior litigation in this court. Yet, in the hearing on the emergency motion for injunction in this court at which jurisdiction was raised, Mr. Welsh failed to even bring a copy of the security agreement until the second day of the hearing. If he had investigated the facts, he would have discovered that Jacqueline Fowler had no interest in the property to convey in a security agreement. The Garmon Road property was sold by Fowler in 1995. Further, this court's orders establish that Fowler had no interest in the Garmon Road property. Finally, Mr. Holloway and United Oil failed to enter either Jacqueline or Vaudell Fowler's bankruptcy proceedings as a secured creditor, though they are listed as creditors holding unsecured non-priority claims. Thus, an investigation by Mr. Welsh would have revealed that his lawsuit had no basis in fact because the 2001 UCC Financing Statement was based on a security interest granted by Jacqueline Fowler, who had no interest to convey.
Mr. Welsh argues that his response to the motion for emergency relief was not in bad faith because he could legitimately argue that this court lacked jurisdiction. Pursuant to the All Writs Act, the court may direct third parties to dismiss state court proceedings to give force and effect to the district court's prior orders. 28 U.S.C. § 1651, see e.g. Henson v. Ciba-Geigy Corp., 261 F.3d 1065, 1071 (11th Cir. 2001). The requirements for a traditional injunction do not apply to injunctions under the All Writs Act. Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1100 (11 t'' Cir. 2004). The interests of the Fowlers, Mr. Holloway and United Oil in the Garmon Road property have been extensively litigated and have been established in past litigation in Fowler I and Fowler II. The security agreement purporting to be the basis of the UCC Financing Statement is based on a security interest granted by Jacqueline Fowler on the Garmon Road property. Mr. Welsh's review of this court's orders should have made it clear that this court had jurisdiction. Further, even if Mr. Welsh's argument that this court lacked jurisdiction were not made in bad faith, the filing of an emergency motion for injunction in this court should have given Mr. Welsh pause to consider the bases of his claims in light of this court's prior orders.
Taken as a whole, Mr. Welsh's failure to investigate the law and facts supporting his Fulton County action, particularly in light of its acknowledged similarity in subject matter to extensive litigation in this court, amounts to bad faith. The court's finding is not only based on Mr. Welsh's failure to investigate before filing the Fulton County action, but his repeated failure to recognize and explore problems in his case since the action was filed. Merill Lynch sent Mr. Welsh a letter explaining past litigation concerning the Garmon Road property and providing relevant documents. Mr. Welsh contends that he thought the Fulton County action was distinguishable because it was based on rights under the 2001 UCC Financing Statement, but failed to investigate the basis of such rights. A cursory review of Georgia law and the basis of the 2001 UCC Financing Statement, as well as this court's 2002 orders on the Garmon Road property would have revealed to Mr. Welsh that his case was not based on law or fact. Even after Merrill Lynch filed an emergency motion involving this court, Mr. Welsh did not investigate facts to determine whether the 2001 UCC Financing Statement was affected by this court's orders on the Garmon Road Property. Thus, at several points since filing the Fulton County action, Mr. Welsh had the opportunity to recognize and investigate potential issues with his suit to ensure that he was not wasting his time, as well as the time of his clients, Merrill Lynch, the Fulton County State Court, and this court.
Accordingly, and for all the aforementioned reasons, the court finds that Mr. Welsh engaged in vexatious litigation which multiplied proceedings. Plaintiff's motion for attorney's fees [docket no. 173 is hereby GRANTED. Because the court finds that plaintiff's motion for attorney's fees is meritorious, defendant's motion for attorney's fees [docket no. 181], which is based on the allegation that plaintiff's motion for attorney's fees was filed in bad faith, is hereby DENIED.
Merrill Lynch seeks $48,701.17 in attorney's fees and $7,575.33 in expenses. The court finds that, pursuant to Baker v. Alderman, 158 F.3d 516 (11th Cir. 1998), Mr. Welsh is entitled to a hearing and opportunity to offer mitigating facts reflecting on the amount of fees to be awarded, including evidence of his financial condition. Should Mr. Welsh wish to present mitigating facts, a hearing is set on September 6, 2006 at 10:30 a.m., at which time he shall have the burden of establishing his entitlement to a reduction in fees. See Sussman v. Salem, Saxon and Nielsen, P.A., 150 F.R.D. 209 (M.D. Fla. 1993) (inability to pay should be regarded as akin to affirmative defense, with burden on sanctioned parties).
Summary
1) Merrill Lynch's motion for attorney fees [docket no. 173] is hereby GRANTED.
2) Michael Welsh and Welsh Law, LLC's motion for attorney fees [docket no. 181 is hereby DENIED.
Mr. Welsh is entitled to a hearing and opportunity to offer mitigating facts reflecting on the amount of fees to be awarded, including evidence of his financial condition. Should Mr. Welsh wish to present mitigating facts, a hearing is set on September 6, 2006 at 10:30 a.m., at which time he shall have the burden of establishing his entitlement to a reduction in fees.
SO ORDERED.