     Case: 13-10002   Document: 00512511432     Page: 1   Date Filed: 01/24/2014




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                 Fifth Circuit

                                                                    FILED
                                                                January 24, 2014
                                 No. 13-10002
                                                                 Lyle W. Cayce
                                                                      Clerk
PAMELA RICHARDSON,

                                           Plaintiff–Appellee
v.

WELLS FARGO BANK, N.A.;
FEDERAL HOME LOAN MORTGAGE CORPORATION,

                                           Defendants–Appellants


                Appeal from the United States District Court
                     for the Northern District of Texas


Before JONES, WIENER, and GRAVES, Circuit Judges.
EDITH H. JONES, Circuit Judge:
      The sole question presented here is whether Appellants Wells Fargo,
N.A., et al. (“Wells Fargo”) can move for attorney’s fees under Rule 54(d)(2) of
the Federal Rules of Civil Procedure.           Appellee Pamela Richardson
(“Richardson”) sued Wells Fargo in Texas state court.       After Wells Fargo
removed the case to federal court, the district court dismissed all of
Richardson’s claims. Wells Fargo then filed a motion for attorney’s fees, which
the district court denied as being unauthorized by Rule 54(d)(2). We conclude
that the bank may utilize this Rule and therefore reverse and remand the case
for further proceedings.
    Case: 13-10002    Document: 00512511432     Page: 2   Date Filed: 01/24/2014



                                No. 13-10002

                                       I.
      In 2006, Richardson borrowed $240,950.00 from Wells Fargo to refinance
the mortgage on her property in Grapevine, Texas. The debt was secured by a
deed of trust. In 2009, Richardson defaulted on her mortgage payments. The
following year, Wells Fargo offered Richardson a “Special Forbearance Plan.”
After Richardson failed to comply with the terms of this plan, Wells Fargo sold
the property at a foreclosure sale to Freddie Mac for $247,763.62. Richardson
then brought suit, asserting claims related to Wells Fargo’s foreclosure and
Freddie Mac’s attempts to evict her. On June 29, 2012, the district court
dismissed all of Richardson’s claims on summary judgment.
      The district court first raised the procedural question at issue here.
Following the entry of final judgment, Wells Fargo moved for attorney’s fees
under Rule 54(d)(2), which provides that claims for attorney’s fees “must be
made by motion unless the substantive law requires those fees to be proved at
trial as an element of damages.” Fed. R. Civ. P. 54(d)(2)(A). Wells Fargo relied
on a standard provision from Richardson’s deed of trust that supports recovery
of the legal fees it incurred in defending against her claims. Richardson
disputed that the deed of trust allowed Wells Fargo to recover attorney’s fees,
but did not object to using Rule 54(d)(2) as a vehicle for resolving the matter.
After Richardson responded to the motion, the district court sua sponte
requested additional briefing on whether Rule 54(d)(2) was available to Wells
Fargo in light of the Rule’s exception for claims that “must be proved at trial
as an element of damages.” Ultimately, the district court held that Wells Fargo
had a substantive right to attorney’s fees under the deed of trust, but the bank
could not recover these fees under Rule 54(d)(2) because they were an element
of damages. The district court explained that Wells Fargo could have recovered



                                       2
    Case: 13-10002    Document: 00512511432     Page: 3   Date Filed: 01/24/2014



                                 No. 13-10002

attorney’s fees by pursuing a counterclaim, but it refused to reopen the
pleadings for this purpose. Wells Fargo then appealed.
                                       II.
      This Court reviews legal questions regarding the application of Rule
54(d)(2) de novo. Romaguero v. Gegenheimer, 162 F.3d 893, 895 (5th Cir. 1998).
As noted, the Rule generally prescribes that claims for attorney’s fees must be
made by motion, but carves an exception where “the substantive law requires
those fees to be proved at trial as an element of damages.” Because federal
jurisdiction is premised on diversity, we apply the substantive law of Texas.
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Under Texas law, attorney’s
fees are recoverable as a cost of collection only if authorized by statute or
contract. In re Nalle Plastics Family Ltd. P’ship, 406 S.W.3d 168, 172 (Tex.
2013). Wells Fargo’s claim for attorney’s fees arises under the deed of trust.
Accordingly, we consider whether the attorney’s fees claimed under this
agreement are damages under Texas law.
                                      III.
      Texas courts “have long distinguished attorney’s fees from damages.” In
re Nalle Plastics Family Ltd. P’ship, 406 S.W.3d at 172. To differentiate the
two, Texas courts draw a distinction between “compensation owed for an
underlying harm and fees that may be awarded for counsel’s services.” Id. at
173. Thus, attorney’s fees for the prosecution or defense of a claim are not
damages under Texas law. Id. Texas courts also recognize, however, that in
some cases attorney’s fees are compensation for an underlying harm and
therefore recoverable as damages. For example, attorney’s fees are considered
damages if the fees are incurred in litigation with a third party, or if the fees
are unpaid legal bills sought in a breach of contract action against a client, or
if the fees are expended before litigation to obtain title from a third party to

                                       3
     Case: 13-10002      Document: 00512511432        Page: 4    Date Filed: 01/24/2014



                                     No. 13-10002

whom defendants had wrongfully transferred title. 1 In these cases, the legal
fees constitute “an independent ground of recovery,” Heliflight, Inc. v.
Bell/Agusta Aerospace Co. LLC, No. 4:06-CV-425-A, 2007 WL 4373259, at *2
(N.D. Tex. Dec. 12, 2007) (quoting Crumpton v. Stevens, 936 S.W.2d 473, 476
(Tex.App.-Fort Worth 1996)), and are therefore distinguishable from the
collateral legal costs associated with collecting a debt or prosecuting or
defending against a pending lawsuit.
      Here, the deed of trust provided for attorney’s fees to compensate Wells
Fargo, inter alia, for the prosecution or defense of a claim. The agreement
stated, in pertinent part:
      Protection of Lender’s Interest in the Property and Rights:
      Under this Security Instrument. If (a) Borrower fails to perform
      the covenants and agreements contained in this Security
      Instrument, (b) there is a legal proceeding that might significantly
      affect Lender’s interest in the Property and/or rights under this
      Security Instrument . . . , or (c) Borrower has abandoned the
      Property, then Lender may do and pay for whatever is reasonable
      or appropriate to protect Lender’s interest in the Property and
      rights under this Security Instrument, . . . . Lender’s actions can
      include, but are not limited to: (a) paying any sums secured by a
      lien which has priority over this Security Instrument;
      (b) appearing in court; and (c) paying reasonable attorneys’ fees to
      protect its interest in the Property and/or rights under this Security
      Instrument. (emphasis added).
Attorney’s fees sought under this provision are expressly distinguished from
the damages that Wells Fargo incurs whenever the bank’s substantive interest
in Richardson’s property is harmed by the borrower’s failure to perform. The
fees are not an “independent ground of recovery.”               They are the costs of



      1 See Am. Home Assur. Co. v. United Space Alliance, LLC, 378 F.3d 482, 490 (5th Cir.
2004) (third-party litigation); In re Nalle Plastics Family Ltd. P’ship, 406 S.W.3d at 174
(unpaid legal bills); Donnelly v. Young, 471 S.W.2d 888, 891 (Tex. Civ. App.-Fort Worth
1971,writ ref’d n.r.e.) (pre-litigation costs resulting from wrongful conversion).
                                            4
     Case: 13-10002      Document: 00512511432         Page: 5    Date Filed: 01/24/2014



                                     No. 13-10002

collection or costs incurred to protect the bank’s interest in the mortgaged
property and its rights under the security agreement.
       Richardson, echoing the district court, asserts that the following
language from another provision of the deed of trust demonstrates that the
attorney’s fees are damages: “Any amounts disbursed by Lender under this
Section 9 shall become additional debt of Borrower secured by this Security
Instrument.” Richardson contends that, under this provision, Wells Fargo’s
attorney’s fees are part of her contractual debt. True enough, but how this
makes any difference under Texas law is a mystery that Richardson does not
attempt to solve. The additional debt provision speaks only to the manner in
which Wells Fargo’s attorney’s fees will be collected. It authorizes the bank to
collect its attorney’s fees from the proceeds of a foreclosure sale or through a
separate judgment in the event that the foreclosure proceeds are insufficient
to reimburse fees. The mechanism of collecting attorney’s fees, however, has
no relevance under Texas law to determining whether those fees are in the
nature of damages or collateral costs.
       According to the district court, “No reasonable argument can be made
that facts establishing the existence and amount of [Richardson’s]
indebtedness do not have to be proved at trial as elements of damages.”
Richardson v. Wells Fargo, N.A., No. 4:11-CV-359-A, 2012 U.S. Dist. LEXIS
171671, at *10 (N.D. Tex. Dec. 3, 2012). Yet this assertion is contrary to
numerous decisions of other district courts that have granted Rule 54(d)(2)
motions to recover attorney’s fees provided by contracts that included the same
additional debt term. 2 See, e.g., Shaw v. Wells Fargo Bank, N.A., 4:12-cv-


       2 The attorney’s fee provision in the deed of trust is a standard term used by Fannie
Mae/Freddie Mac when originating single-family residential mortgage loans. See Form 3044:
Texas Deed of Trust, http://www.freddiemac.com/uniform/unifsecurity.html (last visited
Jan. 13, 2014).
                                             5
    Case: 13-10002     Document: 00512511432      Page: 6    Date Filed: 01/24/2014



                                  No. 13-10002

01422, 2013 WL 4829268 (S.D. Tex. Sept. 10, 2013); Palmer v. Wells Fargo
Bank, N.A., No. 3:13-cv-00429-Y (N.D. Tex. July 19, 2013); Daniels v. Wells
Fargo Home Mortg., No. 3:12-cv-00163 (S.D. Tex. May 29, 2013). Although
some lenders have counterclaimed for attorney’s fees, as opposed to moving
under Rule 54(d)(2), none of the courts reviewing these counterclaims
characterized the attorney’s fees as damages on account of the additional debt
language. See, e.g., Simicek v. Wells Fargo, No. H:12-1545, 2013 WL 5425126,
at *4-6 (S.D. Tex. Sept. 26, 2013); May v. Wells Fargo Bank, N.A., No. 4:11-
3516, 2013 WL 4647673, at *5 (Aug. 29, 2013).        The consensus among these
district courts exists for good reason. Holding otherwise would invite needless
satellite litigation over the possible procedural ramifications of contractual
attorney’s fee language, which is contrary to the aim of the Federal Rules of
Civil Procedure. Chambers v. NASCO, Inc., 501 U.S. 32, 51 (1991) (declining
to restrict a court’s authority to sanction litigants where restriction “would
serve only to foster extensive and needless satellite litigation, which is contrary
to the aim of the Rules themselves”); see also Fed. R. Civ. P. 8(d)(1) (providing
that no “technical form” is required in pleading a claim).
      Richardson contends that Wells Fargo must prove its attorney’s fees as
damages because they are authorized by contract. In support, Richardson
relies on the Advisory Committee Notes to Rule 54(d)(2) and two district court
cases, Caremark, Inc. v. Coram Healthcare Corporation, 924 F. Supp. 891
(N.D. Ill. 1996) and Allgood Elec. Co. v. Martin K. Eby Constr. Co., 179 F.R.D.
646, 649 (M.D. Ga. 1998). None of these authorities, however, proves that
Rule 54(d)(2) is always off-limits to attorney’s fees provided by contract. The
Advisory Committee Notes indicate that Rule 54(d)(2) is inapplicable “to fees
recoverable as an element of damages, as when sought under the terms of a
contract.” Fed. R. Civ. P. 54(d)(2) (1993 Advisory Committee Notes). The Notes

                                        6
    Case: 13-10002     Document: 00512511432     Page: 7     Date Filed: 01/24/2014



                                 No. 13-10002

set no bright-line rule that fees sought under the terms of “any contract” or “all
contracts” must be considered damages. Instead, attorney’s fees provided by
contract are an example of fees that might be recoverable as an element of
damages. The language of the contract and the nature of the claim are the
dispositive factors concerning whether the fees are an element of damages or
collateral litigation costs. Moreover, the Seventh and Eleventh Circuits have
rejected Carmark’s and Allgood’s blanket prohibition against Rule 54(d)(2)
motions to recover fees provided by contract. Those circuit courts considered
the text of Rule 54(d)(2) and the Advisory Committee Notes and concluded
that, in appropriate situations, contractual attorney’s fees may be pursued
under Rule 54(d)(2). Rissman v. Rissman, 229 F.3d 586, 587-88 (7th Cir. 2000)
(holding that the party seeking contractual attorney’s fees is entitled to a
decision on the merits); Capital Assert Research Corp. v. Finnegan, 216 F.3d
1268, 1270 (11th Cir. 2000) (per curiam) (same).           For the reasons stated
immediately above, we agree that motions for attorney’s fees provided by
contract are permissible under Rule 54(d)(2).
      Accordingly, the district court’s order denying Wells Fargo’s motion for
attorney’s fees is REVERSED and the case is REMANDED for resolution of
the motion on its merits.




                                        7
