Federated Capital Corp. v. Haner

2015 UT App 132_________________________________________________________
THE UTAH COURT OF APPEALS
FEDERATED CAPITAL CORPORATION,
Plaintiff and Appellee,
v.
CHERYL HANER,
Defendant and Appellant.
Opinion
No. 20140469-CA
Filed May 29, 2015
Fourth District Court, Provo Department
The Honorable Darold J. McDade
No. 139403292
Lester A. Perry, Attorney for Appellant
Linda M. Jones, Troy L. Booher, and Erin B. Hull,
Attorneys for Appellee
JUDGE J. FREDERIC VOROS JR. authored this Opinion, in which
JUDGES GREGORY K. ORME and JOHN A. PEARCE concurred.
VOROS, Judge:
¶1 This appeal involves the award of attorney fees pursuant
to Utah’s reciprocal attorney fee statute. We hold that fees
should be awarded under that statute on the same basis that
they would be awarded under the applicable contract provision.
In particular, a court should not withhold fees in reliance on
disputed allegations in the pleadings or on the ground that the
prevailing party succeeded on a procedural defense without
litigating the merits of the underlying claim. Applying these
principles, we reverse the district court’s denial of attorney fees
and remand for the district court to award reasonable reciprocal
attorney fees incurred in the district court and on appeal.
Federated Capital Corp. v. Haner
BACKGROUND
¶2 Appellant Cheryl Haner allegedly applied for and
received a business credit card (the Credit Card Account) from
Advanta Bank Corporation.1 As the Credit Card Account holder,
Haner consented to the Advanta Business Card Agreement (the
Agreement), which stated the terms of the Credit Card Account.
The Agreement included a provision allowing Advanta to assign
its rights under the Agreement, a choice-of-law and forum-
selection clause designating Utah for both purposes, and an
attorney-fee provision. The attorney-fee provision required the
account holder to pay fees and costs associated with any
collection action:
To the extent not prohibited by applicable law, you
agree to pay all collections costs, including (but not
limited to) attorneys fees of 25% of any amount we
bring a legal claim to collect. You will pay a smaller
amount if a smaller amount is ruled appropriate or
is provided for by applicable law.
¶3 At some point Haner stopped making payments on the
Credit Card Account. Advanta charged off the Credit Card
1. The record does not establish whether Haner held the Credit
Card Account in her individual capacity or whether her
company, Haner Interprises, held the Credit Card Account as a
limited liability company. The district court resolved the case at
summary judgment on statute of limitations grounds and did
not reach this factual issue. For purposes of clarity, we refer to
Haner individually throughout this opinion while recognizing
that she may not have individually been a party to the Credit
Card Account.
20140469-CA 2 2015 UT App 132Federated Capital Corp. v. Haner
Account in the amount of $12,005.83.2 A short time later,
Appellee Federated Capital Corporation bought tranches of
assets from Advanta, including the Credit Card Account.3
¶4 On September 14, 2013—more than five years after
acquiring Advanta’s rights with respect to the Credit Card
Account—Federated sued Haner in Utah and served her with a
summons and complaint in New Mexico, where she lived. After
receiving the summons and complaint, Haner, who at the time
suffered from several serious health problems, contacted an
attorney in New Mexico. That attorney misinformed her that
Federated had to sue her in New Mexico. Haner accordingly
filed no answer to the Utah complaint.
¶5 On Federated’s motion, the district court entered a default
judgment against Haner. The total default judgment amounted
to $35,338.97, including principal of $12,005.83, interest of
$22,960.76, and costs in the amount of $372.38. The Credit Card
Account had accrued interest for more than five years at 34.99%.
2. “Charge off” means “*t+o treat (an account receivable) as a loss
or expense because payment is unlikely; to treat as a bad debt.”
Black’s Law Dictionary 266 (9th ed. 2009).
3. Not long after Advanta sold tranches of its charged-off
accounts to Federated, Advanta entered into a consent decree
with the FDIC. In re Advanta Bank Corp., FDIC-08-259b, FDIC-08-
403k (Federal Deposit Insurance Corp. June 30, 2009) (Stipulated
Orders). The consent decree resolved allegations that Advanta’s
marketing and repricing of its credit card accounts violated the
Federal Trade Commission Act, 15 U.S.C. § 45(a)(1) (2006); that
Advanta operated “without effective oversight and supervision”
of its credit card products; that Advanta’s violations of law
unjustly enriched it; and that Advanta should make restitution
to remedy the injuries its violations caused.
20140469-CA 3 2015 UT App 132Federated Capital Corp. v. Haner
¶6 After learning of the default judgment, Haner retained
Utah counsel and moved the court to set aside the default
judgment. Federated stipulated to the motion, and the court
granted it. After filing her answer, Haner moved for summary
judgment on multiple grounds, including that the statute of
limitations barred the complaint. She also requested attorney
fees under Utah’s reciprocal attorney fee statute, Utah Code
section 78B-5-826.
¶7 Following a 14-minute hearing, the district court granted
Haner’s motion for summary judgment on statute of limitations
grounds. Federated does not challenge this judgment on appeal.
While granting Haner’s motion for summary judgment, the
district court nevertheless denied Haner’s request for attorney
fees. The district court ruled that she “would be unjustly
enriched if she were awarded her attorney’s fees incurred in this
lawsuit under Utah’s reciprocal attorney’s fee statute, Utah Code
Ann. § 78B-5-826. Therefore, no attorney’s fees are awarded to
her.”
¶8 Haner contends that the district court erred in denying
her request for attorney fees. She also seeks her attorney fees
incurred on appeal.
ISSUE AND STANDARD OF REVIEW
¶9 The sole issue on appeal is whether the district court erred
in denying Haner’s request for attorney fees. Generally
speaking, “*w+hether attorney fees are recoverable in an action is
a question of law, which we review for correctness.” Fericks v.
Lucy Ann Soffe Trust, 2004 UT 85, ¶ 22, 100 P.3d 1200 (citation
and internal quotation marks omitted). However, we review
certain related issues for an abuse of discretion. For example, the
determination of which party prevailed in a civil action—and
thus may be entitled to attorney fees—is reviewed for an abuse
of discretion. See Anderson & Karrenberg v. Warnick, 2012 UT App
275, ¶ 8, 289 P.3d 600 (citing Reighard v. Yates, 2012 UT 45, ¶ 12,
20140469-CA 4 2015 UT App 132Federated Capital Corp. v. Haner
285 P.3d 1168). And we review the calculation of reasonable
attorney fees for an abuse of discretion. See Dixie State Bank v.
Bracken, 764 P.2d 985, 988 (Utah 1988).
¶10 Here, had the district court determined as a matter of law
that the reciprocal attorney fee statute did not allow Haner to
recover fees, we would review its decision for correctness. See
Hooban v. Unicity Int’l, Inc., 2009 UT App 287, ¶¶ 6–7, 220 P.3d
485, aff’d, 2012 UT 40, 285 P.3d 766. Instead, the district court
exercised the discretion our supreme court said the reciprocal
attorney fee statute allows. See Bilanzich v. Lonetti, 2007 UT 26,
¶ 17, 160 P.3d 1041 (“[T]he language of the statute is not
mandatory but allows courts to exercise discretion in awarding
attorney fees and costs.”). Because Haner challenges the district
court’s exercise of discretion, we review its decision for an abuse
of that discretion. See id.; see also Dillon v. Southern Mgmt. Corp.
Ret. Trust, 2014 UT 14, ¶ 48, 326 P.3d 656 (holding that “the
district court did not abuse its discretion in awarding” the
prevailing party attorney fees under the statute).
ANALYSIS
¶11 “In Utah, attorney fees are awardable only if authorized
by statute or by contract.” Dixie State Bank, 764 P.2d at 988.
Under Utah’s reciprocal attorney fee statute, courts may award
attorney fees to the prevailing party of a contract dispute so long
as the contract provided for the award of attorney fees to at least
one of the parties:
A court may award costs and attorney fees to
either party that prevails in a civil action based
upon any promissory note, written contract, or
other writing executed after April 28, 1986, when
the provisions of the promissory note, written
contract, or other writing allow at least one party to
recover attorney fees.
20140469-CA 5 2015 UT App 132Federated Capital Corp. v. Haner
Utah Code Ann. § 78B-5-826 (LexisNexis 2012). Federated does
not dispute that Haner satisfies the requirements of the statute;
rather it contends the district court acted within its statutory
discretion in denying Haner’s request for fees.
¶12 The reciprocal attorney fee statute “provides no guidance
as to when fees should be awarded.” Bilanzich, 2007 UT 26, ¶ 17.
Therefore, “district courts should look to the policies underlying
the statute in exercising [the] discretion” allowed. Id. The
reciprocal attorney fee statute “was designed to creat*e+ a level
playing field for parties to a contractual dispute.” Id. ¶ 18(alteration in original) (citation and internal quotation marks
omitted). It “levels the playing field by allowing both parties to
recover fees where only one party may assert [the right to fees]
under contract.” Id. Thus, the statute “remed*ies+ the unequal
allocation of litigation risks built into . . . contracts of adhesion.”
Id. “Consequently, . . . to further the statute’s purpose, the
exposure to the risk of a contractual obligation to pay attorney
fees must give rise to a corresponding risk of a statutory
obligation to pay fees.” Id. ¶ 19. Accordingly, a court’s discretion
to award or deny attorney fees under the statute must be
exercised in furtherance of the statute’s policy of allocating the
risk of paying attorney fees equally between the party protected
by the statute and the party protected by the contract. See id.
¶ 17.
¶13 “Where the terms of a contract provide for the award of
attorney fees, such fees are awarded as a matter of legal right.”
Saunders v. Sharp, 818 P.2d 574, 579 (Utah Ct. App. 1991) (citation
and internal quotation marks omitted). Accordingly,
“[p]rovisions in written contracts providing for the payment of
attorney*+ fees should ordinarily be honored by the courts.” Soffe
v. Ridd, 659 P.2d 1082, 1085 (Utah 1983), abrogated on other
grounds by Commercial Real Estate Inv., LC v. Comcast of Utah II,
Inc., 2012 UT 49, 285 P.3d 1193. Fees should be awarded, that is,
“where no compelling reasons appear otherwise.” Id; see also
Trayner v. Cushing, 688 P.2d 856, 858 (Utah 1984) (“Where the
parties have agreed by contract to the payment of attorney fees,
20140469-CA 6 2015 UT App 132Federated Capital Corp. v. Haner
the court may award reasonable fees in accordance with the
terms of the parties’ agreement.”).
¶14 Accordingly, to satisfy the supreme court’s direction to
award fees liberally under the reciprocal attorney fee statute,
Bilanzich, 2007 UT 26, ¶ 19, and to ensure that the discretion to
award fees under the statute corresponds with the discretion to
award fees under a contract, we hold that fee requests under the
statute “should ordinarily be honored” unless “compelling
reasons appear otherwise,” Soffe, 659 P.2d at 1085.
¶15 Here, Federated argues that the district court had an
equitable basis to withhold attorney fees, and “courts may . . .
inform their decisions [to award fees] with other equitable
principles.” Bilanzich, 2007 UT 26, ¶ 20. Specifically, Federated
points out that, “in the spirit of leveling the playing field, courts
should avoid using this statute to expose one party to a
disproportionate risk of paying attorney fees that would result in
a windfall to the other party.” Id. Therefore, Federated argues,
because the district court found that Haner “would be unjustly
enriched if she were awarded her attorney’s fees”—i.e.,
awarding fees would have resulted in a windfall—the district
court acted within the equitable bounds of its discretion.
¶16 The district court declared that “*Haner+ would be
unjustly enriched if she were awarded her attorney’s fees
incurred in this lawsuit.” But the court entered no findings and
cited no facts in support of this conclusion. Indeed, no facts were
before the court, only the allegations and denials found in the
complaint and answer. On appeal, Federated suggests a
plausible rationale for the district court’s assertion: if Haner were
awarded her attorney fees, “not only would [she] avoid all
liability stemming from her credit card purchases and from her
failure to pay for her credit card purchases in a timely manner,
but Federated would be required to pay [her] for her attorney
fees.” Or as Federated argued below, “If the Court were to
award reasonable fees and costs, [Haner] would completely
20140469-CA 7 2015 UT App 132Federated Capital Corp. v. Haner
avoid any liability on a legitimate debt that [s]he incurred in the
principal amount of $12,005.83.”
¶17 Federated may well be right about this. Then again, it
may not be. On this record we simply cannot know. A statute of
limitations may—and frequently does—“foreclose a cause of
action before it is ever litigated on its merits.” In re Adoption of
J.S., 2014 UT 51, ¶ 21 (citation omitted), petition for cert. filed sub
nom. Bolden v. Doe, (U.S. Mar. 3, 2015) (No. 14-1106). That
occurred here. The district court dismissed Federated’s claim
without receiving evidence of its merits. In its complaint
Federated alleged the debt, and in her answer Haner denied it.
In addition, she alleged numerous defenses, including lack of
standing, estoppel, lack of subject matter jurisdiction, fraud on
the court, and statute of limitations. The district court ruled that
the last of these had merit. Given that ruling, the district court
had no reason to adjudicate any other claim or defense. The
district court did not determine whether the alleged debt was
legitimate in the amount of $12,005.83 or in any other amount.
Accordingly, Federated’s allegation that Haner owed $12,005.83
provided no compelling reason to withhold from Haner the
attorney fee award to which the contract and the statute
otherwise entitled her.
¶18 The same result might follow even if Federated’s claim
enjoyed evidentiary support. “[T]he core purpose of any statute
of limitations is to compel exercise of a right within a reasonable
time to avoid stale claims, loss of evidence, and faded
memories . . . .” Jensen v. IHC Hosp., Inc., 944 P.2d 327, 332 (Utah
1997). Accordingly, for purposes of awarding attorney fees
under a contract, it is doubtful that equity requires treating a
victory based on a statute of limitations differently from a
victory based on an adjudication of the merits of the underlying
claim. Furthermore, we are mindful of the reciprocal attorney fee
statute’s purpose of leveling the playing field when a contract
allows one party to collect attorney fees. Federated has cited no
authority for the proposition that a district court has discretion
to deny fees under a contract-fee provision merely because the
20140469-CA 8 2015 UT App 132Federated Capital Corp. v. Haner
prevailing party won on statute of limitations grounds. The
reciprocal attorney fee statute dictates a like result here.
¶19 Accordingly, we reverse the district court’s denial of
Haner’s request for attorney fees and remand with directions to
award Haner reasonable attorney fees in accordance with the
terms of the Agreement and the reciprocal attorney fee statute.
In addition, a party entitled by contract or statute to “attorney
fees below” and that “prevails on appeal is entitled to fees
reasonably incurred on appeal.” Giles v. Mineral Res. Int’l, Inc.,
2014 UT App 259, ¶ 25, 338 P.3d 825. We therefore direct the
district court to award Haner her reasonable fees incurred on
appeal as well. See id.CONCLUSION
¶20 The order of the district court denying Haner’s request for
attorney fees is reversed and the matter remanded for the district
court to award Haner her reasonable attorney fees incurred in
the district court and on appeal.
____________
20140469-CA 9 2015 UT App 132