- Case Type:
- Business
- Case Status:
- Reversed and Remanded
- Citation:
- 19-4131 (10th Circuit, Apr 19,2022) Published
- Tag(s):
-
- Ruling:
- A federal court may not use state fee-shifting statutes to award a prevailing party attorney's fees in a diversity action. Such statutes are procedural and conflict with federal procedure governing attorney's fee awards. Federal law totally displaces state law in such cases.
The Court of Appeals also had appellate jurisdiction, under 28 U.S.C. § 1291, over the attorney's fee judgment because all other claims among the various parties were resolved or deemed moot before Banner appealed.
- Procedural context:
- Following a bench trial, the district court ruled that appellant Banner Bank was liable to defendant Loree Smith for her attorney's fees under Utah's fee-shifting statutes. Banner appealed, arguing that the district court erred by finding that Banner's declaratory judgment action against Loree Smith was meritless and "not brought or asserted in good faith." Utah Code Ann. § 78B-5-825.
- Facts:
- Appellant Banner Bank made a loan to James and Loree Smith and their business entity, Real Estate Investor Support (REIS). James Smith guaranteed the loan and pledged several properties as security for the loan. Loree Smith refused to sign a deed of trust granting Banner a lien on a condominium owned by James and Loree Smith (this property is referred to as Unit 7). The county recorder's office rejected the deed of trust that Loree had refused to sign. Banner amended the deed of trust to remove Unit 7. Banner, however, did not record the amended deed of trust.
In December 2010, REIS, James and Loree sold REIS's assets, subject to the Banner loan and Banner's liens, to Real Estate Investor Education (REIE). REIE agreed to release Loree from all claims arising from or relating to the Banner loan.
REIE defaulted in March 2011.
In July 2011, Banner recorded the altered deed of trust.
Banner Bank sued James and Loree Smith, REIS, REIE and others in a diversity action. Banner sought a declaratory judgment that Loree did not hold any interest in Unit 7 so that Banner could foreclose on Unit 7. Loree Smith counterclaimed against Banner for breach of contract. Banner obtained a judgment against all defendants other than Loree Smith, but did not obtain summary judgment on its foreclosure claim.
In a separate divorce action in Florida, Loree obtained sole title to Unit 7. Banner then released its lien on Unit 7 in 2017. Consequently, the only actions remaining in the diversity action concerned the other properties pledged as collateral for the loan and Loree's counterclaim for breach of contract.
Following a bench trial on those issues, James filed a bankruptcy petition in September 2017, and the district court stayed the litigation.
The bankruptcy trustee subsequently abandoned the remaining properties, and the district court entered an order stating that Banner's foreclosure claim was moot.
The district court then ruled in favor of Loree's counterclaim, holding Banner liable for Loree's attorney's fees under the terms of the release and Utah's attorney's fee statute.
Banner appealed.
- Judge(s):
- HARTZ, PHILLIPS, and EID
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