Opinion
CIVIL ACTION NO. 01-646 SECTION "K"(2)
April 8, 2003
ORDER AND REASONS
Before this Court is the plaintiff, counter-claim defendant Michael Shwartz, who submits his objections to the Magistrate Judge's Findings and Recommendation which found that the defendant, counter-claim plaintiff was entitled to $30,535.00 in reasonable attorneys fees. ( See Rec. Doc. 47, Findings and Recommendation, and Rec. Doc. 48, Plaintiff's Objections).
Facts and Background
As recounted in the Court's July 22, 2002 Order and Reasons, in 1986 Michael Shwartz opened a credit card account with American Express Travel Related Services Company, Inc. ("AETRS") and established three accounts, including: (1) an Optima Card Account, (2) a Platinum Card Account, and (3) an AETRS Corporate Card Account. According to the terms of the Platinum Card account, AETRS was authorized to revoke a card member's privileges at any time. Specifically, the Platinum Card Agreement stated that AETRS could revoke credit card privileges of a card member "whether or not the [card member] has breached the agreement and without giving [the cardmember] notice. Similarly, the Optima Card Agreement entered into between Shwartz and AETRS stated that:
Agreement between Platinum Card Member and AETRS; Motion for Summary Judgment, Exhibit A.
[W]e may suspend or cancel your Optima Card privileges at our sole option subject to applicable law, at any time with or without cause and without giving you notice. Any such action on our part will not cancel your obligation to pay us the outstanding balance, Finance Charges and other charges due on your card account. . . You agree to pay all such obligations despite any suspension or cancellation of your Card Account.
Agreement between Optima Card Member and AETRS; Motion for Summary Judgment, Exhibit C.
In February 2001, AETRS became concerned with the excessively high balances on Shwartz's Platinum Card account and demanded that he produce various personal financial information with respect to items purchased on that account. Shwartz objected to providing such information, but assured the AETRS representative that he would continue to timely make all payments. He reminded AETRS that in his fourteen years as a customer with American Express, he had never missed or been late with a payment. Shwartz also suggested that AETRS contact his banker to verify that he had a line of credit sufficient to cover the outstanding charges. AETRS did not accept plaintiff's offer and advised Shwartz that: (1) it could not assure itself that he could afford to pay the outstanding charges and (2) his accounts would be "cut off." AETRS also demanded payment of charges not yet billed.
Motion for Summary Judgment, p. 4.
Opposition to Motion for Summary Judgment, p. 2-3.
Opposition to Motion for Summary Judgment, p. 3.
Opposition to Motion for Summary Judgment, p. 3.
Thereafter, Shwartz filed a complaint with this Court alleging that AETRS had unlawfully terminated his credit card privileges. Shwartz sought damages for embarrassment, humiliation, severe anxiety, and emotional distress which required treatment with a mental health professional following the termination of his accounts.
AETRS subsequently filed a counterclaim denying petitioner's allegations and demanding that Shwartz pay the outstanding balance on his Optima and Platinum Card Accounts — an amount totaling $68,879.53. AETRS also requested the following relief: (1) damages equaling the amount which Shwartz has been "unjustly enriched" and (2) the cost of the proceedings, and (3) attorneys fees.
On June 18, 2002, AETRS filed a motion for summary judgment, (Rec. Doc. 18), arguing that there existed no genuine issue of material fact as to Shwartz's claims and AETRS's counterclaim. It argued (1) that AETRS did not breach any contract it had with Shwartz when it cancelled his Optima and Platinum Card accounts because the terms of both contracts entitled AETRS to revoke the privileges of the card member for any reason, (2) that there was no genuine issue of fact as to its counterclaim for the outstanding balances on the cards, and (3) no issue of fact as to AETRS's entitlement to attorneys' fees.
This Court granted AETRS's motions for summary judgment, dismissing Shwartz's claim with prejudice and entitling AETRS to prevail on its counterclaim. The Court then entered a judgment against Shwartz and in favor of AETRS for $68,879.53 plus costs and attorneys fees. ( See Rec. Doc. 44).
Thereafter, AETRS filed a Motion for Attorneys Fees, (Rec. Doc. 32), and proposed that $30,535.00 was the amount it was reasonably entitled to recover under the lodestar method of calculating attorneys fees. See Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974). Along with its motion, AETRS attached a lengthy exhibit which enumerated the hours billed in connection with this matter and the applicable hourly rates which varied depending upon which attorney or law clerk performed the work.
In his Findings and Recommendation, the Magistrate Judge held that AETRS should receive its reasonable attorney's fees in the full amount of $30,535.00. Applying principles of Delaware and Louisiana law, he found that the fee AETRS requested was reasonable and that the plaintiffs arguments against the award were meritless. Additionally, the Magistrate Judge held (1) that AETRS was entitled to attorneys' fees for its effort defending Shwartz's suit, as well as for the amounts it incurred in collecting the outstanding balances on the accounts, (2) that AETRS was not required to segregate its fees between the defense of the plaintiff's suit and collection of the amounts owed on its counterclaim, and (3) the language of the credit card agreements pertaining to AETRS's entitlement to attorney fees was broad enough to encompass fees for defending Shwartz's suit and for bringing its counterclaim to collect the balance.
Shwartz's main contention in his Objections to the Magistrate Judge's Findings and Recommendation is that the award is excessively higher than amount the parties agreed to in the written credit card agreements. The award, he argues, is contrary to law because in all the cases the Magistrate Judge cited, courts use their discretion to reduce unreasonable attorney fee provisions in written contracts; they do not award a higher amount of attorneys fees than the written contracts indicates.
Standard of Review for Magistrate Judge's Finding and Recommendation
Magistrate judges are empowered by statute to preside over certain pretrial matters upon appointment by a district judge. 28 U.S.C. § 636(b)(1)(A); see also Rules Governing § 2254 Cases, Rule 10. A district court evaluating a magistrate judge's recommendation may adopt those portions of the recommendation to which no specific objection is made, as long as those sections are not clearly erroneous. See id.; Fed.R.Civ.P. 72(b). However, where a party makes "specific, written objections" within 10 days after being served with a copy of the magistrate's recommendations, the district court must undertake de novo review of those contested aspects of the report. 28 U.S.C. § 636(b)(1)(C); see also Fed.R.Civ.P. 72(b). The district judge may then "accept, reject, or modify the recommended decision, receive further evidence, or recommit the matter to the magistrate judge with instructions." Fed.R.Civ.P. 72(b).
An award of attorney's fees is reviewed for abuse of discretion. Atari v. McNeal, 2002 WL 221613 * 1 (E.D. La. 2/8/02). Factual findings are reviewed for clear error, but the conclusions of law underlying the award are reviewed de novo. Id.
Review of Shwartz's Objections
As noted earlier, Shwartz's main contention is that the Magistrate Judge's award of attorneys' fees is out of proportion with the parties' written agreements. This case involves two different credit cards with varying language. The agreements provide:
Optima Card:
Upon your default, and subject to any limitation or requirements of applicable law, you agree to pay all our reasonable costs, including reasonably attorneys' fees incurred by us (1) in collecting the balance due, including Finance Charges, if any, whether or not suit is brought against you, and (2) in protecting ourselves from any harm that we may suffer as a result of your default.Platinum Card:
You agree to pay all court costs plus attorney's fees of 15% of the unpaid balance if we must refer your account to an attorney who is not our employee, subject to the law of your jurisdiction.
The balance on the Platinum card, as stipulated by the parties, is $62,734.63. Therefore, Shwartz argues that, according to the Platinum agreement, Shwartz should only be obligated to pay, at most, $9,410.20 (15% of the balance). Subtracting this amount from the Magistrate Judge's overall award of attorneys fees, $30,535.00, yields $21,124.80 in attorneys fees on the Optima card. The Optima card has a stipulated balance of $6,144.90. Shwartz argues that the award of $21,124.80 in attorneys' fees on a $6,144.90 balance is excessive and unreasonable because the award is over three times the balance and because the total award of attorneys fees is approximately half the balance on both cards.
A district court judge does not need to give effect to an agreement regarding attorneys fees, and has considerable discretion to inquire into its reasonableness. See Forbush v. J.C. Penney Co., 98 F.3d 817, 822 (5th Cir. 1996). "A district court is not bound by the agreement of the parties as to the amount of attorneys fees. The court must only consider whether the attorneys' fees proposed are reasonable." Id. (citations omitted). Further, the substantive right to receive attorneys fees is governed by state law in a diversity case. Atari v. McNeal, 2002 WL 221613 *1 (E.D. La. 2/8/02). Louisiana law allows courts to inquire into the reasonableness of attorney's fees as a part of their authority to regulate the practice of law. Id. The factors a court may consider when assessing the reasonableness of attorney's fees are contained in Disciplinary Rule 2-106 of the Code of Professional Responsibility. Scott v. J.S. Noel, 506 So.2d 1313, 1318 (2 Cir. La. 1987). The factors that determine the reasonableness of attorney's fees are:
The agreements both state that Delaware law should apply. Louisiana law and Delaware law are similar in the factors they apply to assess the reasonableness of fees. Additionally, neither party objected to the Magistrate Judge's use of Louisiana law to assess the reasonableness of the attorney's fees.
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal services properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment would preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and the length of time of professional relationship with the client;
(7) the experience, reputation and ability of the lawyer or lawyers performing the service; and
(8) whether the fee is fixed or contingent.
Id.
The instant case calls for the Court to analyze whether it is reasonable to interpret the contracts as allowing for the costs of defending Shwartz's breach of contract claim.
The Platinum Card Agreement
The Platinum Card provides that the cardholder agrees to pay "all court costs plus attorneys' fees of 15% of the unpaid balance if we must refer your account to an attorney who is not our employee." Considering the factors set forth in DR 2-106, the Court finds that a fee of $9,410.20 on a balance of $62,734.63 is reasonable. The language of the Platinum Card agreement is unambiguous. The text does not provide for attorneys' fees for defending a breach of contract claim — it strictly limits recovery to a percentage of the balance on the card. Therefore, AETRS cannot recover defense costs pursuant to the language of the Platinum Card. Its recovery is limited to the fixed percentage in the agreements.
The Optima Card Agreement
The Optima Card agreement employs language that is broader than the language in the Platinum agreement. It states that upon default, the cardholder is liable for reasonable attorneys fees incurred "(1) in collecting the balance due, including Finance Charges, if any, whether or not suit is brought against you, and (2) in protecting ourselves from any harm that we may suffer as a result of your default."
Only one clear proposition can be deduced from the language of the first clause in the agreement: that AETRS can recover the attorneys fees incurred "collecting the balance due." The second clause which states that AETRS may collect attorneys fees incurred "in protecting ourselves from any harm that we may suffer as a result of your default" is ambiguous and does imply that AETRS may recover for costs defending against Shwartz' claim for breach of contract claim.
According to Louisiana law on the interpretation of contracts, "in case of doubt [as to the parties' intent] that cannot be other wise resolved, a contract must be interpreted against the party who furnished its text." See La. Civ. Code. Art. 2056; See Louisiana-Gaming Corp. v. Kuyell Enterprises, Inc., 35, 297 (La.App. 2 Cir. 1/15/01), 804 So.2d 736. As a result, the second clause must be construed against the drafter, AETRS. The Court is not cloaked with the task of spinning thread into gold and cannot allow the drafter of an agreement to recover for something not expressly stated by the agreement's terms. The Court must interpret the Optima agreement, as it reads — allowing AETRS to collect reasonable attorneys fees incurred in the collection of its debt because it is not clear that " in protecting ourselves from any harm that we may suffer as a result of your default" includes defending against a claim brought by the plaintiff. AETRS has not demonstrated that defending a breach of contract claim is any way related to Shwartz's default. Moreover, the term "collecting the balance due," does not include defending against a breach of contract claim. Had the drafter intended such a meaning he or she could have crafted an agreement that specifically stated that the cardholder could be held responsible for attorneys' fees incurred in relation to any suit the cardholder brought.
Consequently, the Court agrees with Shwartz's argument that the attorneys' fees on the Optima Card are unreasonable because they include the legal costs incurred defending the Shwartz's claim.
Applying the factors set out in DR 2-106, this Court finds that an attorneys fee award of one-third of the balance on the Optima Card is reasonable. This reduction reflects the equitable amount of attorney's fees that should be charged considering that (1) the amount involved was only $6,144.90, (2) the collection action itself was uncomplicated and not a novel issue of law, and (3) the fact that the attorney's fees award does not include the costs of defending against Shwartz's suit.
The Magistrate Judge used of the Code of Professional Responsibility to determine whether the contractual fee was reasonable. Disciplinary Rule 2-106 provides certain guidelines Louisiana courts may apply in their review and control of attorney fees established by contract between the parties. It provides in pertinent part:
(A) a lawyer should not enter into an agreement for, charge, or collect an illegal or clearly excessive fee.
(B) a fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. Factors to be considered as guides in determining the reasonableness of the fee include the following:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal services properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment would preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and the length of time of professional relationship with the client;
(7) the experience, reputation and ability of the lawyer or lawyers performing the service; and
(8) whether the fee is fixed or contingent.
Accordingly,
IT IS ORDERED that the Findings and Recommendation of the Magistrate Judge is hereby MODIFIED.