by Patrick Hruby, Esq.

Brock & Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN, VT, VA)

Florida attorneys who handle litigated matters, including mortgage foreclosures and related actions, should be very familiar with Florida’s fee-shifting statute, Fla. Stat. § 57.105(7). That statute provides, in pertinent part:

If a contract contains a provision allowing attorney’s fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails in any action, whether as a plaintiff or defendant, with respect to the contract.

In mortgage-related cases, several Florida state courts and federal courts applying Florida law have awarded the prevailing defendant attorney’s fees in various scenarios. The Florida Supreme Court recently awarded fees to the defendant in a mortgage foreclosure case where the creditor failed to prove standing on the day the suit was filed. Page v. Deutsche Bank Tr. Co. Americas, 308 So. 3d 953, 960 (Fla. 2020). The United States District Court for the Middle District of Florida affirmed the bankruptcy court, which awarded a prevailing defendant attorney’s fees for successfully defending a motion to dismiss the debtor’s bankruptcy case. In re Nabavi, 514 B.R. 895 (M.D. Fla. 2014).

In another example, the United States District Court for the Southern District of Florida awarded fees to a prevailing defendant for various claims relating to a mortgage loan modification, including breach of contract, fraudulent misrepresentation, and negligent misrepresentation, among others. Dorval v. Nationstar Mortgage LLC, No. 17-23193-CIV, 2021 WL 2210980 (S.D. Fla. Apr. 26, 2021).

In July, the United States Bankruptcy Court for the Southern District of Florida was presented with a question of first impression, “whether Fla. Stat. § 57.105(7) applies in an adversary proceeding brought solely under 11 U.S.C. § 727(a) for denial of discharge.” Valley Nat’l Bank v. Gleiber (In re Gleiber), --- B.R. ---, 2023 WL 5529650 (Bankr. S.D. Fla. 2023). Valley National Bank (“Valley”) held several loans on which the debtor, defendant Michael A. Gleiber (“debtor”), gave personal guarantees. After debtor’s Chapter 11 case converted to a Chapter 7 case, Valley filed a complaint objecting to debtor’s discharge. Id. at *1. The debtor filed an answer and affirmative defenses in which he made a demand for fees and costs under Fla. Stat. § 57.105(7). Id.

The bankruptcy court granted summary judgment in favor of the debtor. Id. Subsequently, the debtor filed a motion for fees. Id.

Ultimately, the bankruptcy court awarded fees under Fla. Stat. § 57.105(7) to the debtor as the prevailing party. In doing so, it reviewed the guarantees and the language of the statute. Each guaranty contained a section titled “Attorneys’ Fees; Expenses,” which stated:

Guarantor 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 Guaranty. Lender may hire or pay someone else to help enforce this Guaranty, and Guarantor 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…

Id. The court explained the guarantees permitted Valley to unilaterally recover fees and expenses from the debtor “incurred in connection with the [guarantees].” The court further noted the complaint was an attempt to enforce the guarantees. Also, it did not matter that the complaint, if successful, would benefit other creditors. Finally, the court explained it did not matter that Valley did not seek fees in its complaint, because it could have under the guarantees. Id. As such, the Court found the first prong of § 57.105(7) was satisfied. Id. at *2.

            The court then considered whether the debtor had the right to legal fees under § 57.105(7). To make that decision, the court explained it needed to determine whether the adversary proceeding was an “action … with respect to the [guarantees]” and whether the debtor prevailed in the adversary proceeding. Id.

            The court noted that the Florida Supreme Court construes the phrase “action with respect to the contract” broadly. Id. (citing Ham v. Portfolio Recovery Assocs., 308 So.3d 942, 948 (Fla. 2020)). Here, Valley needed to prevail in the adversary proceeding to be able to enforce its rights to liquidate and collect its claims; and it was required to file the adversary proceeding to reserve its rights to do so. Id. The court characterized the relief sought as having “a clear and direct relationship to those guarantees” and, as such, was an “action with respect to the contract” under the statute. Id.

            Next, the court had to determine whether debtor was the prevailing party in the adversary proceeding. Finding that he was, the court explained that debtor was active in the litigation against the summary judgment motion and that it ruled in debtor’s favor on summary judgment. Id. Valley raised an issue that it could not have known at the time it filed the complaint that it would not have succeeded in denying debtor’s discharge under 11 U.S.C. § 727(a)(5), and the allowance of fees would lead to an inequitable result. Id. The court dismissed that argument because during the litigation, but before debtor’s motion for summary judgment, the debtor provided the information necessary for Valley to dismiss the count in the complaint seeking relief under 11 U.S.C. § 727(a)(5), but it failed to do so, and the debtor was forced to litigate that matter completely. Id. at *3.

            In its conclusion, the court stated the 11^th Circuit Court of Appeals has upheld the award of attorneys’ fees under the fee-shifting statute as to the discharge of a particular debt under 11 U.S.C. § 523(a). Id. (citing Cadle Co. v. Martinez (In re Martinez), 416 F.3d 1286 (11th Cir. 2005)). It further noted there have been several bankruptcy cases that upheld fees under § 57.105(7) in adversary proceedings that combined requests for exception to discharge of a particular debt and denial of discharge as to all debts under 11 U.S.C. § 727(a). Id. Noting that there were no reported decisions that examined an award of fees based solely on 11 U.S.C. § 727(a), the court stated it believed the 11th Circuit’s reasoning in other cases supported its award of fees to the debtor in this case.

            While the facts of this case led to a “case of first impression,” the existence of § 57.105(7) should be noted by attorneys and servicers litigating matters in Florida state court and federal courts applying Florida law. Creditors and servicers should discuss matters with counsel to ensure there is a reasonable basis for “any action with respect to the contract” to prevent it from being on the wrong side of Florida’s fee-shifting statute.

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