Highground, Inc. v. Ronald Blackburn

Case: 13-30248 Document: 00512385644 Page: 1 Date Filed: 09/25/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 25, 2013
No. 13-30248 Lyle W. Cayce
Summary Calendar Clerk
In the Matter of: CAROLYN WILLIAMS ALONZO; CHARLES PAUL
ALONZO, JR.,
Debtors
HIGHGROUND, INCORPORATED; DAVID HALLIN,
Appellants
v.
RONALD L. BLACKBURN,
Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:12-CV-2642
Before DAVIS, BENAVIDES, and PRADO, Circuit Judges.
PER CURIAM:*
This appeal arises from Appellants’ adversary complaints against Appellee
Ronald L. Blackburn, and co-debtors Charles P. and Carolyn W. Alonzo. The
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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bankruptcy court dismissed all of Appellants’ complaints with the exception of
a breach-of-contract claim against Blackburn. The sole issue on appeal is
whether the bankruptcy court’s award of $25,000 in attorney’s fees relating to
the breach-of-contract claim was an abuse of discretion.
The district court’s opinion sets out this case’s detailed factual history,
only a small portion of which we need recount for purposes of this narrow
appeal. The Alonzos formed Phoenix Associates Land Syndicate, Inc. (“Phoenix
Associates”) in 1997, and the Alonzos and Blackburn were the majority
stockholders in the company. Although unauthorized to do so, Blackburn signed
an agreement on behalf of Phoenix Associates to purchase Treaty Petroleum,
Inc., a company for which Appellant David Hallin was an officer and director.
The agreement specified that Treaty Petroleum’s shareholders would receive
stock in Phoenix Associates in exchange for their shares, but instead, pursuant
to a subsequent agreement signed by Blackburn, they received stock in Phoenix
Oil & Gas, Inc., a corporation owned by Blackburn. As part of the purchase
agreement, Blackburn also executed three promissory notes on behalf of Phoenix
Associates—again without authority to do so—in favor of Appellants.
Phoenix Associates filed for Chapter 11 bankruptcy in June 2009, and the
Alonzos filed for Chapter 7 bankruptcy in January 2010. Thereafter, Appellants
filed adversary proceedings objecting to the discharge of the Alonzos’ debts.
Appellants also removed a suit against Blackburn and the Alonzos alleging
breach of contract, fraud, and unjust enrichment—claims largely premised on
their receipt of Phoenix Oil & Gas stock rather than Phoenix Associates
stock—and seeking damages and recovery on the three promissory notes.
The bankruptcy court held that Appellants incurred a loss with respect to
the promissory notes, and Blackburn, as the sole signer of the notes and lacking
authority to bind Phoenix Associates, was personally liable for that loss. As for
the allegedly fraudulent stock transaction, the bankruptcy court found that
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Blackburn and Carolyn Alonzo (who had signed the Phoenix Oil & Gas stock
certificates) had intended to deceive Appellants, but it held that Appellants had
failed to show any loss as a result of that deception because the value of the
Phoenix Associates stock was less than the value of the stock Appellants
ultimately received. The bankruptcy court dismissed all other claims, including
the dischargeability claims against the Alonzos.
Because Appellants had only prevailed on their claim against Blackburn
for breach of contract with respect to the promissory notes, the bankruptcy court
determined that “attorney’s fees are only to be awarded for a recovery on the
notes.” R. at 86. The court observed that, in the 1,211-page trial transcript, only
six pages concerned the promissory notes or Blackburn’s representation that he
was acting on behalf of Phoenix Associates, but it also assumed that Appellants
had conducted other preparatory work on the notes claim outside of trial.
Considering “all the circumstances,” the court concluded that an award of
$2,850, representing ten hours of work at an uncontested $285-per-hour rate,
would be “inadequate,” but $25,000 would be “a fair fee.” R. at 98. The district
court affirmed the $25,000 award.
“We review the district court’s decision by applying the same standard of
review to the bankruptcy court’s conclusions of law and findings of fact that the
district court applied.” Caplin & Drysdale Chartered v. Babcock & Wilcox Co.,
526 F.3d 824, 826 (5th Cir. 2008) (internal quotation marks omitted). We review
the bankruptcy court’s award of attorney’s fees for abuse of discretion. Id.Each of the three promissory notes at issue in this case contained a
provision specifying that if the note “is collected through any legal
proceedings . . . Maker agrees to pay all costs of collection including, but not
limited to, court costs and reasonable attorney’s fees.” Thus, in conjunction with
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the notes’ choice-of-law clauses, Appellants’ attorney’s fees are limited to what
is “reasonable” under Texas and Tennessee law.1
Appellants wisely decline to argue that the bankruptcy court’s $25,000
award was unreasonable in sole relation to their efforts to recover on the notes,
as they present no evidence that this award conflicts with the relevant
reasonableness factors. See TEX. DISCIPLINARY R. PROF. CONDUCT 1.04 (listing
factors); TENN. SUP. CT. R. 8, RPC 1.5 (same). Instead, Appellants assert that
their fraud claims were “intertwined” with the notes claim against Blackburn,
thus entitling them to attorney’s fees for the work on the fraud claims as well as
the notes claim.
Texas and Tennessee apply the “American Rule,” under which “fee
claimants have always been required to segregate fees between claims for which
they are recoverable and claims for which they are not.” Tony Gullo Motors I,
L.P. v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006); see also Cracker Barrel Old
Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009) (following
American Rule).2 Under Texas law, however, an “exception to this duty to
segregate arises when the attorney’s fees rendered are in connection with claims
arising out of the same transaction and are so interrelated that their prosecution
or defense entails proof or denial of essentially the same facts.” Navigant
Consulting, Inc. v. Wilkinson, 508 F.3d 277, 298 (5th Cir. 2007) (quoting Stewart
Title Guar. Co. v. Sterling, 822 S.W.2d 1, 11 (Tex. 1991)). Yet interrelated or
intertwined facts are not enough to trigger the exception; “it is only when
1
The bankruptcy court granted recovery on all three of the notes, two of which are
governed by Tennessee law and one of which is governed by Texas law.
2
Appellants also argue that the bankruptcy court should have considered billing
records allegedly segregating time spent on their fraud and breach-of-contract claims from
time spent on the dischargeability claims against the Alonzos. These billing records do not,
however, segregate time spent on Appellants’ notes claim from time spent on their other fraud
claims, and they are therefore of little relevance to the bankruptcy court’s judgment.
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discrete legal services advance both a recoverable and unrecoverable claim that
they are so intertwined that they need not be segregated.” Chapa, 212 S.W.3d
at 313–14.
The bankruptcy court held that Appellants’ claim for recovery on the
promissory notes was not “inextricably intertwined” with their fraud claims
because Appellants “could have sued on these notes and proved solely that Mr.
Blackburn did not have authority and was not an officer of Phoenix and
recovered on the notes.” R. at 91. We agree. Appellants argue that recovery on
the notes would not have been possible without factual development of their
other fraud allegations against Blackburn and the Alonzos, but this is not the
case. The fraud allegations played no role in the bankruptcy court’s finding that
Blackburn was personally liable on the notes.3 Appellants prevailed on the notes
claim because Blackburn signed the notes without authority to do so, not
because of the allegations of fraud relating to other aspects of the purchase
agreement with Treaty Petroleum such as the stock transaction. After all, the
bankruptcy court dismissed all of Appellants’ claims with the exception of the
claim on the notes.
Appellants have failed to show that any discrete legal services used to
advance their dismissed claims also advanced their notes claim. Accordingly,
the bankruptcy court did not abuse its discretion in holding that Appellants are
entitled only to attorney’s fees for their recoverable notes claim, as none of their
unrecoverable claims were sufficiently intertwined with the notes claim.
AFFIRMED.
3
The same holds true for Appellants’ defense against any counterclaims brought by
Blackburn because Appellants have not shown that their defense was necessary to recover on
the notes.
5