Enter. Bank v. Frazier Family L.P.

J-A05041-17
2017 Pa. Super. 256
ENTERPRISE BANK IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
FRAZIER FAMILY L.P., A PENNSYLVANIA
LIMITED PARTNERSHIP
Appellee No. 1171 WDA 2016
Appeal from the Order Entered August 3, 2016
In the Court of Common Pleas of Allegheny County
Civil Division at No(s): GD 14-001375
BEFORE: BENDER, P.J.E., SHOGAN, J., and MOULTON, J.
OPINION BY MOULTON, J.: FILED AUGUST 8, 2017
Enterprise Bank (“Enterprise”) appeals from the August 3, 2016 order
entered in the Allegheny County Court of Common Pleas in favor of Frazier
Family L.P., a Pennsylvania Limited Partnership (“Frazier”) denying
Enterprise’s request for counsel fees. We agree with the trial court that the
relevant loan documents do not authorize Enterprise to collect counsel fees
for work performed by its in-house counsel. Accordingly, we affirm.
On December 28, 2012, Frazier executed and delivered in favor of
Enterprise three loan documents in the principal amount of $421,000.
Frazier first signed a Business Loan Agreement (“Loan Agreement”), which
contains the following provision:
Attorneys’ Fees; Expenses. 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 else to
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help enforce this Agreement, and Borrower shall pay the
costs and expenses of such enforcement. Costs and
expenses include Lender’s reasonable attorneys’ fees and
legal expenses whether or not there is a lawsuit, including
reasonable attorneys’ fees and legal expenses for
bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower
also shall pay all court costs and such additional fees as
may be directed by the court.
Loan Agreement, 12/28/12, at 5.
Second, Frazier signed a Promissory Note (“Note”), which contains the
following provision:
ATTORNEYS’ FEES; EXPENSES. 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 attorney’ fees and Lender’s legal expenses,
whether or not there is a lawsuit, including reasonable
attorneys’ fees, expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay
or injunction), and appeals. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to
all other sums provided by law.
Note, 12/28/12, at 2.
Third, Frazier signed an Open-End Mortgage and Security Agreement
(“Mortgage”) for the premises at 100 Highland Pines Court, Pittsburgh,
Pennsylvania (“Mortgaged Premises”) as security for repayment of the Note.
The Mortgage contained the following provision:
Attorneys’ Fees; Expenses. If Lender institutes any
suit or action to enforce any of the terms of this Mortgage,
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
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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 the 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
Lender’s legal expenses, whether or not there is a lawsuit,
including 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 reports), surveyors’ reports, and appraisal fees
and title insurance, to the extent permitted by applicable
law. Grantor also will pay any court costs, in addition to all
other sums provided by law.
Mortgage, 12/28/12, at 12.
On January 30, 2014, Enterprise filed a complaint in mortgage
foreclosure in the amount of $418,030.93 requesting, among other things,
that Frazier pay Enterprise’s reasonably incurred counsel fees. On May 2,
2014, Frazier filed preliminary objections, asserting that the language “pay
or hire someone else” in the Note did not include Enterprise’s in-house
counsel. On January 13, 2015, the trial court appointed Kuzneski & Lockard,
Inc., as receiver for the Mortgaged Premises.
On February 26, 2016, the receiver filed an amended motion for order
of distribution. The order of distribution included a $512,777.15 payoff from
Enterprise, dated December 2, 2015 (“Payoff”). “The Payoff contained an
itemization for fees and expenses due and owing [Enterprise], including
[counsel] fees through November 25, 2015 for $34,569.25. The basis for
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these [counsel] fees is the time spent by [Enterprise]’s in-house legal
counsel Joseph A. Fidler and paralegal Justina Fuller. . . .]. Opinion,
10/3/16, at 1-2 (unpaginated) (“1925(a) Op.”). On February 29, 2016, the
trial court entered a consent order directing the receiver to make
distributions of the funds resulting from the sale of the Mortgaged Premises
to Enterprise, Frazier, and other interested third parties. The consent order
also directed the parties to submit to the trial court proposed findings of fact
and conclusions of law regarding whether the contract permitted recovery of
Enterprise’s in-house counsel fees and, if so, whether the fees were
reasonable.
In its proposed findings of fact and conclusions of law, Enterprise
offered its interpretation of the relevant language from the Loan Agreement,
the Note, and the Mortgage. It also included its in-house counsel’s and in-
house paralegal’s billable rate and time entries. Enterprise asserted that
these documents “clearly encompass [counsel] fees generated by in-house
counsel.” Enterprise’s Proposed Findings of Fact and Conclusions of Law,
3/10/16, ¶ 27. Specifically, regarding the language “hire or pay someone
else,” Enterprise explained that it was “broad and not open to
interpretation.” Id. ¶ 28. Enterprise further asserted that it “hired” in-
house counsel “to collect the debt and in this case, file a mortgage
foreclosure” action. Id.
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Frazier, in contrast, argued that the language “hire or pay someone
else” did not include “general counsel and vice president of Enterprise Bank,
Joseph Fidler.” Frazier’s Proposed Findings of Fact and Conclusions of Law,
3/10/16, ¶¶ 58, 61. Frazier understood this language as “clearly stat[ing]
the intention of Enterprise Bank to ‘hire’ ‘someone else’ if needed.” Id. ¶
79. It claimed that because in-house counsel was in Enterprise’s employ
prior to the execution of the loan documents, Enterprise “did not hire or pay
‘someone else’ to recover any alleged obligation.” Id. ¶ 81. Frazier stated
that at the very least, the language was ambiguous.1
On August 3, 2016, following the parties’ submissions, the trial court
accepted Frazier’s interpretation of the language in question and therefore
denied Enterprise’s request for counsel fees. Enterprise timely appealed to
this Court.
Enterprise raises the following issue on appeal: “Whether the Trial
Court erred in concluding that Enterprise, as mortgagee[,] was not entitled
to be reimbursed its in-house [counsel] fees and costs as provided for in
loan documents executed by Frazier, as mortgagor?” Enterprise’s Br. at 4.
“Pennsylvania law embodies the American rule, per which there can be
no recovery of [counsel] fees from an adverse party in litigation, absent
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1
Frazier further pointed out that Enterprise obtained a receiver who
retained outside counsel, and that Frazier paid the receiver’s counsel fees.
See Consent Order, 2/29/16; Frazier’s Br. at 5.
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express statutory authorization, clear agreement by the parties, or some
other established exception.” Doctor’s Choice Physical Med. & Rehab.
Ctr., P.C. v. Travelers Pers. Ins. Co., 128 A.3d 1183, 1189 (Pa. 2015).
Enterprise claims that the language in the loan documents covers payments
to in-house counsel and, therefore, the contract serves as an exception to
the American Rule.
Because “a mortgage is a contract,” it is subject to principles of
contract law. See Phila. Trust Co. v. Northumberland Cty. Traction
Co., 101 A. 970, 974 (Pa. 1917). We have explained that “contract
interpretation is a question of law” over which our standard of review is de
novo. Miller v. Poole, 45 A.3d 1143, 1145 (Pa.Super. 2012) (quoting
Ragnar Benson, Inc. v. Hempfield Twp. Mun. Auth., 916 A.2d 1183,
1188 (Pa.Super. 2007)). Therefore, “this Court is not bound by the trial
court’s interpretation” of a contract. Id. (quoting Ragnar, 916 A.2d at
1188).
“When the words of an agreement are clear and unambiguous, the
intent of the parties is to be ascertained from the language used in the
agreement . . . .” Id. at 1146 (quoting LJL Transp., Inc. v. Pilot Air
Freight Corp., 962 A.2d 639, 647 (Pa. 2009)). “[G]enerally, courts must
give plain meaning to a clear and unambiguous contract provision unless to
do so would be contrary to a clearly expressed public policy.” Allstate Fire
and Cas. Ins. Co. v. Hymes, 29 A.3d 1169, 1172 (Pa.Super. 2011)
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(quoting Prudential Prop. & Cas. Ins. Co. v. Colbert, 813 A.2d 747, 750
(Pa. 2002)).
A contract provision is ambiguous when “it is reasonably susceptible
[to] different constructions and capable of being understood in more than
one sense.” Miller, 45 A.3d at 1146 (quoting Ins. Adjustment Bureau,
Inc. v. Allstate Ins. Co., 905 A.2d 462, 468 (Pa. 2006)). “Where a
provision of a [contract] is ambiguous, [it] is to be construed . . . against . .
. the drafter of the agreement.” Prudential Prop. & Cas. Ins. Co. v.
Sartno, 903 A.2d 1170, 1174 (Pa. 2006) (quoting Standard Venetian
Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983)).
Further, when “an ambiguity exists, parol evidence is admissible to explain
or clarify or resolve the ambiguity, irrespective of whether the ambiguity is
patent, created by the language of the instrument, or latent, created by
extrinsic or collateral circumstances.” Miller, 45 A.3d at 1146 (quoting Ins.
Adjustment Bureau, Inc., 905 A.2d at 468).
Enterprise argues that the language “hire or pay someone else”
unambiguously includes its “hiring” of its own in-house counsel and
paralegal. Frazier, on the other hand, argues that “hire or pay someone
else” unambiguously excludes in-house counsel and paralegal fees. In the
alternative, Frazier contends that any ambiguity should be construed against
Enterprise.
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The trial court found that the phrase “‘someone else’ . . . can be
construed in a few different ways” and “none of the loan documents at issue
define who ‘someone else’ is.” 1925(a) Op. at 5. The trial court further
stated that because Enterprise drafted the loan documents, “any ambiguity
should be construed against it.” Id. We agree.
After careful consideration, we conclude that the language “hire or pay
someone else” is, at best, ambiguous. Frazier makes a strong case for the
proposition that “someone else” necessarily means someone not then in
Enterprise’s employ. Otherwise, the meaning of the term is difficult to
discern. For example, does the use of other in-house staff to recover the
debt, before the involvement of any attorneys, constitute the hiring by
Enterprise of “someone else”? If so, then all of Enterprise’s employees
would appear to be “someone else,” a particularly peculiar reading of the
term.
Nevertheless, especially in the Loan Agreement, when the phrase “hire
or pay someone else” is read in conjunction with the broad authorization of
the collection of “Lender’s reasonable attorneys’ fees,” the phrase might
plausibly be read to allow Enterprise to recover its in-house counsel fees.
We therefore conclude that the language in the counsel fees’ provisions is
ambiguous. As such, it must be construed against the drafter, Enterprise.
See Prudential, 903 A.2d at 1174; Egyptian Sands Real Estate, Inc. v.
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Polony, 294 A.2d 799, 803 (Pa.Super. 1972).2 Accordingly, the trial court
properly denied Enterprise’s request for counsel fees.3
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2
In PNC Bank, N.A. v. Kimbrough & Assocs., LLC, by contrast, the
loan document included language that specifically allowed the lender to
recover the cost of in-house counsel and its staff.
We may hire or pay someone else to help us collect this
account if you fail to pay in accordance with this
Agreement. You agree to pay our collection costs
(including, without limitation, the cost of in-house
attorneys and staff), whether or not we hire anyone else
to help us collect this account. This includes, subject to
any limits under applicable law, our attorneys' fees and
legal expenses whether or not there is a lawsuit . . . .
No. 6:13-CV-1558-orl-28KRS, 2015 WL 327533, at *12 (M.D. Fla. Jan. 23,
2015) (emphasis added).
3
Because we find the contract language ambiguous, and construe it
against Enterprise, we need not reach the broader question, briefed by the
parties, of whether a lender in Pennsylvania may recover for the work of
salaried, in-house counsel. Compare Prison Legal News v. Stolle, 129
F. Supp. 3d 390, 398 (E.D. Va. 2015) (in-house counsel may recover fees for
“litigation tasks that ordinarily would have been performed by outside
counsel,” but not “when merely acting as a liaison or corporate contact or
representative”) (quotation omitted), and AMX Enterprises, L.L.P. v.
Master Realty Corp., 283 S.W.3d 506, 517 (Tex. App. 2009) (holding
successful claimant may recover in-house counsel fees); with Burger King
Corp. v. Mason, 710 F.2d 1480, 1499 (11th Cir. 1983) (“[T]here is no
Florida authority to justify, much less mandate, [counsel fees for the
services of in-house counsel.]”), and In re Cummins Util., L.P., 279 B.R.
195, 207 (Bankr. N.D. Tex. 2002) (denying motion for in-house counsel fees
on the ground that “[t]his item should be included in . . . overhead”). See
also Nicholas N. Nierengarten, Fee-Shifting: The Recovery of In-House
Legal Fees, 39 Wm. Mitchell L. Rev. 227 (2012) (discussing the controversy
over whether in-house counsel fees are recoverable).
(Footnote Continued Next Page)
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Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/8/2017
_______________________
(Footnote Continued)
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