Bank allowed to add attorney's fees to debt as sanction

On July 9, 2015, the Iowa Court of Appeals issued an opinion in a contentious suit between debtor, FoGe Investments, LLC (FoGe), and creditor, First National Bank of Wahoo, Nebraska (FNBW).  FoGe brought eight small claims suits against FNBW, four in Nebraska and four in Iowa.  The Nebraska suits were consolidated, transferred to the district court, but ultimately dismissed by the court when FoGe failed to obtain licensed counsel to represent FoGe. The Iowa suits were consolidated and transferred to the Iowa district court.  FNBW then filed a counterclaim, asking the court to enter a declaratory judgment against FoGe, allowing FNBW to add to the FoGe debt all attorney's fees that FNBW had incurred in defending against the Nebraska and Iowa suits.  FoGe's managing member, a non-lawyer, filed an answer to the counterclaim, but FoGe was then directed to obtain counsel to represent FoGe.  FoGe retained counsel, who then withdrew. 

On December 29, 2013, FoGe retained new counsel.  On January 2, 2014, FoGe's new counsel asked to continue trial, which was set to start on February 13, 2014.  The court denied the motion.  After the request for continuance was denied, FoGe dismissed its claims, without prejudice.  FNBW's counterclaim, however, remained pending.  FNBW filed a notice, advising that FNBW intended to continue pursuing the counterclaim. On February 3, 2014, FNBW attended a pretrial conference that had been scheduled several months prior.  No representative of FoGe, nor FoGe's counsel appeared, though the court attempted to call FoGe's counsel.  FNBW asked the court to enter judgment in FNBW's favor on the counterclaim, and FNBW asked the court to sanction FoGe and FoGe's counsel for failing to attend the pretrial conference. FoGe's counsel called the district court that afternoon and was told that the court intended to enter judgment in favor of FNBW.  FoGe's counsel claimed he had missed the pretrial because he had been meeting with his client, preparing for trial.  On February 6, 2014, FNBW's counsel filed an affidavit of attorney's fees, claiming $26,340.57 in fees from defending against FoGe's eight lawsuits, all pertaining to the same note and mortgage.  Also on February 6, 2014, the district court entered an order finding: (1) FoGe had failed to file an answer to FNBW's counterclaim; (2) judgment was warranted on FNBW's attorney-fee counterclaim 'under the circumstances'; (3) attorney fees in the amount of $26,340.57 were reasonable; (4) FoGe did not appear at the pretrial conference, and this absence was not substantially justified; and (5) sanctions in the amount of $500 both to FoGe's attorney and FoGe were warranted pursuant to Iowa Rule of Civil Procedure 1.602(5). FoGe filed a 43-page motion to amend or enlarge the judgment, and to set aside a default judgment.  FoGe's motion accused the district court of 'completely abdicat[ing] her role as an Iowa trial judge by assigning [the writing of the decree to FNBW's counsel], and g[etting] back an ugly pig, which didn't get prettier when the lipstick [sic] added the lipstick that is her signature.' After filing the motion to enlarge, FoGe's counsel sent several 'bluntly worded' emails to FNBW's counsel, which emails were later included in the district court record.  These emails contained obscenities and were of a harsh and unprofessional tone.  The district court denied FoGe's motion to amend and enlarge and set aside default. FoGe's managing member, the same non-lawyer that had filed the answer to the counterclaim, filed a notice of appeal. After the court ordered FoGe to retain counsel for the appeal, an attorney appeared on FoGe's behalf. 

This attorney was not the attorney that had originally appeared on FoGe's behalf (who had then withdrawn), nor was it the attorney that had filed the motion to amend. In deciding the appeal, the Court of Appeals recognized that, based upon Iowa Rule of Civil Procedure 1.602(5), the district court may sanction a party or its attorney if either 'fails to obey a scheduling or pretrial order, or if no appearance is made on behalf of a party at a scheduling or pretrial conference.' Such sanction may be imposed upon motion or the court's own initiative, and the court's order may include any of the orders provided in Rule 1.517(2)(b)(2)–(4).  Rule 1.602(5) specifically allows the court, 'In lieu of or in addition to any other sanction, [to] require the party or the attorney representing that party or both to pay the reasonable expenses incurred because of any noncompliance with this rule, including attorney's fees, unless the court finds that the noncompliance was substantially justified or that other circumstances make an award of expenses unjust.' The Court of Appeals then quoted the relevant sections of Rule 1.517(2)(b)(2)–(4), emphasizing that the rule specifically allowed the district court to render a judgment by default against a disobedient party. Within the parameters of Rules 1.602(5) and 1.517(2)(b)(2)-(4), the Court of Appeals found that the district court's entry of a default judgment as a sanction was proper. Although FoGe had been given the opportunity to protest the court's sanctions in the hearing on the motion to amend, enlarge, or set aside the default judgment, the district court remained unconvinced that FoGe's conduct should be excused: the pretrial conference had been set months in advance; the motion to continue had been denied; and trial was to start 10 days later. The Court of Appeals held that under the rules, imposing the sanction of the default judgment was well within the court's discretion.  

Moreover, the rules also permitted the specific sanction of the default judgment. Consequently, the Court of Appeals affirmed the district court's order granting, as a sanction against FoGe, FNBW's counterclaim.  The Court of Appeals also affirmed the imposition of $500 sanctions against FoGe and counsel for failing to attend the conference.  Rule 1.602(5) allows the district court to impose sanctions against both a part and the party's attorney when absent from a pretrial conference. The Court of Appeals reminded that one of the goals of sanctions ‘is to maintain a high degree of professionalism in the practice of law. 

The appellate court noted that the record was 'replete with instances of FoGe's unprofessional conduct including, but not limited to, the expletives used in the email communications with opposing counsel, the condescending tone of all communications with the court and opposing counsel, and the pursuit of several meritless claims. Given FoGe's misconduct, we cannot say the district court abused its discretion when sanctioning FoGe and its counsel.' Finally, the Appellate Court agreed that the district court could order FoGe to pay attorney's fees incurred for all eight matters, including the Nebraska matters. 

Because the district court's jurisdiction had been properly invoked with regard to whether FoGe was responsible for paying attorney fees, it did not matter that some of the expenses occurred while FNBW was defending FoGe's Nebraska suits. FoGe Investments, LLC v. First National Bank of Wahoo, Nebraska, is another example of how financial institutions may ultimately succeed in what initially appears to be a challenging suit.  Although faced with numerous suits that FNBW apparently believed to be without merit, the bank ultimately succeeded, largely by relying upon the bank's right to attorney's fees, a right typically included in most loan documents. As was the case in the recent opinion by the Iowa Court of Appeals in U.S. Bank v. Lamb, the rights of financial institutions can often be advanced simply by remembering the basics. For questions regarding FoGe Investments, LLC v. First National Bank of Wahoo, Nebraska, or regarding estate mortgage foreclosure, contact Mollie Pawlosky.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.