E-Alert Case Updates

Contractually Agreed Upon Attorneys’ Fees Reduced to Actually Incurred Attorneys’ Fees

SunTrust Bank v. Goldman, et al.
No. 803 (Md. Ct. Spec. App. Sept. 30, 2011)
by Gregory L. Arbogast, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In SunTrust Bank v. Goldman, the Court of Special Appeals held that SunTrust Bank (“SunTrust”) was only entitled to the attorneys’ fees it actually spent in prosecuting a breach of loan agreement action. The Court held that SunTrust could not enforce a provision of the loan contract which provided for fifteen percent (15%) attorneys’ fees in because SunTrust did not spend that amount in attorneys’ fees.

This case arose out of a line of credit which SunTrust advanced to Frank J. Goldman and Lisa B. Goldman. The line of credit was secured by a deed of trust on the Goldmans’ residence. Importantly, in the loan contract, a section entitled “Lender’s Rights” stated:

We may hire or pay someone else to help collect this Agreement if you do not pay. You will pay us that amount. This includes, subject to any limits under applicable law, our costs of collection, including court costs and fifteen percent (15%) of the principal plus accrued interest as attorneys’ fees or reasonable attorneys’ fees as allowed by law.

After making a payment on October 9, 2008, the Goldmans ceased making payments and they defaulted on the line of credit. SunTrust filed a Complaint, which claimed $401,373.31 in principal due on the loan, interest in the amount of $14,259.31, and attorneys’ fees in the amount of $60,206.00 (15% of principal). The Goldmans failed to answer the Complaint, and the trial court entered a default judgment.

While the trial court entered a default judgment, it held a hearing on the amount due on the loan. At the hearing, it was adduced that, while SunTrust claimed $60,206.00 in attorneys’ fees, SunTrust actually only incurred $3,094.00 in attorneys’ fees. SunTrust maintained that the loan agreement provided that SunTrust could recover fifteen percent (15%) of the principal in attorneys’ fees; and therefore, SunTrust was entitled to $60,206.000. The trial court disagreed and held that SunTrust was only entitled to $3,094.00 in attorneys’ fees, which were SunTrust’s actual losses.

The Court of Special Appeals affirmed the trial court. The Court of Special Appeals held that an attorneys’ fees provision in a contract is only an indemnification provision. The lendee indemnifies the lendor for fees and costs actually incurred. Therefore, a court can only award attorneys’ fees to the extent that they were actually incurred, regardless of whether a contract provides for a fixed amount of attorneys’ fees.

SunTrust acknowledged that an attorneys’ fees provision in a contract is only an indemnification provision, but SunTrust argued that the fifteen percent (15%) accounted for fees that SunTrust would likely incur collecting the judgment. SunTrust argued that it should be entitled to fifteen percent (15%) attorneys’ fees at the outset and then SunTrust would reimburse the Goldmans with any of the money not actually spent on attorneys’ fees. The Court of Special Appeals, however, held that SunTrust’s argument was without merit because the final judgment merges with the contract. Therefore, the indemnification provision can only account for money spent on attorneys’ fees up until the contract’s merger with the judgment. It cannot account for anticipated future expenses.