Lender’s Recovery Of Attorney’s Fees Related To Collateral Actions Denied

Lesson. Depending upon the contractual language, courts may not necessarily award lenders all of their attorney’s fees in loan disputes.

Case cite.  Cent. Mkt. of Ind. v. Hinsdale Bank N.A. 207 N.E.3d 1215 (Ind. Ct. App. 2023)

Legal issue. Whether, in a foreclosure case, a lender can seek attorney’s fees from a borrower based on lender’s involvement in collateral actions with third parties in other jurisdictions.

Vital facts. Please see last week’s post for background on the Hinsdale Bank case. In addition to the underlying action against Borrower, Lender was involved in two related but separate proceedings, one to prosecute fraudulent transfer claims against the loan’s guarantor and another to defend itself in a suit connected to the loan. The promissory note at issue contained an attorney’s fees provision allowing Lender to:

Incur expenses to collect amounts due under [the] Note, enforce the terms of this Note, or other Loan document, and preserve or dispose of the Collateral. Among other things, the expenses may include payments for property taxes, prior liens, insurance appraisal, environmental remediation costs, and reasonable attorney fees and costs

Procedural history. The trial court granted Lender’s motion for summary judgment and awarded a staggering $447,605.91 in attorney’s fees and costs. The award included Lender’s fees for all three actions. Borrower appealed.

Key rules. A contractual provision agreeing to pay attorney's fees is enforceable “if the contract is not contrary to law or public policy.” The amount recoverable “is left to the sound discretion of the trial court.” The amount of the award of attorney's fees must be reasonable and supported by the evidence.

Indiana courts may consider such factors as hourly rate, the result obtained, and the difficulty of the issues in determining what fees are “reasonable.” As to the “results obtained” factor, courts may consider whether “the plaintiff has made multiple claims but has succeeded on only some of them.”

That said, excessive fee awards can be avoided “when fees are apportioned according to the significance of the issues upon which a party prevails, balanced against those on which the party does not prevail.”

Holding. The Indiana Court of Appeals remanded the attorneys’ fees award to the trial court to quantify the reasonable amount of fees after excluding those incurred in the two out-of-state cases.

Policy/rationale.

Based on the language in the promissory note, the Court found that Lender could not collect all of its claimed fees. The collateral actions involved a guarantor and third parties to which the note did not refer. And, Borrower did not participate in those lawsuits. Lender’s position was that it was entitled to fees for the two out of state cases “on the premise they were integral to the enforcement of the promissory note.” The Court rejected that proposition.

Again, the Hinsdale Bank case was only against Borrower, and apparently the only loan document related to a fee recovery was the promissory note and its quoted section above. Had the two collateral actions been litigated within the same suit as the foreclosure action, the outcome may have been different, particularly with a broader, clearer attorney fee provision.

Related posts.

• Indiana Court Discusses Test For Recovery Of Attorney's Fees In Action Against Guarantor
• Attorney Fee Awards in Indiana
• Unsettled: Recoverability Of Attorney’s Fees For In-House Counsel

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Part of my practice involves representing parties in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.