Daniels v. The Elks Club of Hartford, Vt., Inc., No. 49-1-09 Wrcv (Eaton, J., Feb. 26, 2010)

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is not guaranteed.]
                                                STATE OF VERMONT
                                                 WINDSOR COUNTY

RICHARD DANIELS                       )
                                      )                                                    Windsor Superior Court
v.                                    )                                                    Docket No. 49-1-09 Wrcv
                                      )
THE ELKS CLUB OF HARTFORD, VT., INC., )
VERMONT HUMAN RIGHTS COMMISSION, )
WALTRAUD KIELLY, MARILYN McMILLAN,)
JANE THIBODEAU, MAYLEEN E. CAMERON,)
WATTS LAW FIRM PC,                    )
and BEST BINGO SUPPLIES, INC.         )


         DECISION ON INTERVENOR’S MOTION FOR ATTORNEYS’ FEES

        Intervenor Mascoma Savings Bank seeks an award of more than $50,000 in costs
and attorneys’ fees under an exception to the American Rule that permits such awards in
cases where the opposing party has acted in bad faith, or where the opposing party’s
conduct in prolonging the litigation has been “unreasonably obdurate or obstinate.” See
In re Appeal of Gadhue, 149 Vt. 322, 327 (1987) (describing exception). Mascoma
contends that an award is appropriate here because the gender discrimination creditors
“forced” the bank to intervene in two separate lawsuits.

        In response, the gender discrimination creditors argue that an award is
inappropriate given that the bank was not named as a party in either lawsuit, but rather
voluntarily chose to intervene. The creditors further point out that the present foreclosure
proceeding was not initiated by them, but rather by the senior mortgagee. Finally, the
creditors contend that this round of litigation has not been duplicative within the meaning
of Gadhue. The creditors also seek their own award of fees and costs “for defending
against the meritless and highly unusual motion.”

        It is the general rule that parties must bear their own attorneys’ fees in the absence
of a contractual or statutory provision to the contrary. DJ Painting, Inc. v. Baraw
Enters., Inc., 172 Vt. 239, 246 (2001). Courts may nevertheless consider an award of
fees “as the needs of justice dictate . . . in exceptional cases and for dominating reasons of
justice.” Id. (quoting Gadhue, 149 Vt. at 327; Sprague v. Ticonic Nat’l Bank, 307 U.S.
161, 167 (1939)). An award under the equitable exception may be considered in cases
where “where the litigant’s conduct can be characterized as unreasonably obdurate or
obstinate, and where it should have been unnecessary for the successful party to have
brought the action.” Gadhue, 149 Vt. at 329 (internal quotations omitted). In other
words, the equitable exception applies in situations where “a litigant was compelled to
appear twice before [a tribunal] in order to obtain relief which should have been
forthcoming after the first appearance.” Monahan v. GMAC Mortgage Corp., 2005 VT
110, ¶ 77, 179 Vt. 167 (internal quotation omitted).
       The relevant circumstances here began taking shape years ago. Mascoma Savings
Bank was the senior mortgagee on the Elks Club’s lodge in Hartford. The gender
discrimination plaintiffs subsequently commenced a lawsuit against the club and obtained
a writ of attachment on the lodge. The lawsuit eventually resulted in a verdict and a
substantial fee award in favor of the gender discrimination plaintiffs. Both the judgment
and the fee award are secured by the junior attachment.

       Mascoma thereafter sold the mortgage to Richard Daniels, who is a member of
the club. Mr. Daniels apparently initiated non-judicial foreclosure proceedings on the
lodge.

        The gender discrimination creditors protested the non-judicial foreclosure, and
sought preliminary and permanent injunctions from the Washington Superior Court
(where the underlying litigation had occurred). Judge Toor held an evidentiary hearing
and issued a written decision denying the creditors’ requests for relief. She explained
that the creditors had not established entitlement to an injunction because they had not
been harmed by the assignment of the mortgage. They were in “exactly the same
position” as if the bank itself had initiated foreclosure proceedings.

        Mr. Daniels nonetheless did not pursue non-judicial foreclosure. He instead filed
a complaint for judicial foreclosure in the Windsor Superior Court (where the lodge is
located). He named the gender discrimination creditors and the other junior secured
creditors as defendants pursuant to V.R.C.P. 80.1(b)(1). He did not name Mascoma
Savings Bank as a party.

        The gender discrimination creditors and another junior creditor, Watts Law Firm,
filed answers asserting a number of legal and equitable defenses to foreclosure. A flurry
of motion practice followed. Mascoma intervened in the proceedings and filed
memoranda and motions.

        The undersigned granted summary judgment in favor of the senior mortgagee in a
lengthy decision. The rulings necessary to formulate a judgment of foreclosure were that
(1) there was no defect in the promissory note; (2) defendants were not entitled to an
inference of wrongdoing arising out of the fact that the bank made advances and deferrals
on the mortgage at times after the junior attachments were recorded; (3) the fraudulent
conveyance statute did not apply; (4) the doctrine of merger did not apply; (5) the senior
mortgagee was not personally liable on the underlying discrimination judgment; and
finally that (6) the junior secured creditors were not entitled to equitable relief because
they had not been harmed by the assignment of the senior mortgage. See Decision on
Pending Motions at 4–11.

        Of all of these issues, the only one that was common to both proceedings was the
question of whether the gender discrimination creditors had been harmed by the
assignment. Even then, the court was required to decide the issue anew for the benefit of
the other junior creditors who had not been parties to the earlier litigation—such as Watts



                                            2
Law Firm. On this point, the court explained in detail that (1) the senior mortgage
predated the junior attachments by at least fifteen years; (2) the junior creditors were on
notice of the senior mortgage at the time they recorded their attachments; (3) the
assignment changed nothing except the name of the mortgagee; (4) there would be no
windfall because the proceeds from the judicial sale would be distributed to the senior
mortgagee only to the extent of the value of the mortgage and the associated expenses,
whereas any surplus would be paid to the junior lienholders; and (5) the judicial sale
procedures would provide a bulwark against the possibility of a fraudulent transfer of
property. See Decision on Pending Motions at 10–11. And although there may have
been some overlap and similarity between these rulings and Judge Toor’s rulings in the
earlier proceeding, it was necessary to make the rulings in this case anyway because
some of the defendants had not been parties to the earlier litigation.

        In other words, the present litigation was not a second or superfluous trip through
the state court system. It rather involved numerous rulings by the court that were
necessary to formulate the judgment of foreclosure. The end result was that the senior
mortgagee established—for the first time—a right to judicial foreclosure by sale. The
Gadhue exception does not support an award of fees under these circumstances.

        Nor has either party made out a claim for an award under Rule 11 or some other
theory of “bad faith.” Bowman v. Ackerman, 2004 VT 112, ¶ 7, 177 Vt. 589 (mem.);
Cameron v. Burke, 153 Vt. 565, 576 (1990). The litigation was certainly hotly contested,
but the court is not persuaded that any party acted in bad faith or otherwise crossed the
lines set forth by Rule 11.

                                        ORDER

         Mascoma Savings Bank’s Motion for Costs and Attorneys’ Fees (MPR #22), filed
December 14, 2009, is denied. Defendants’ request for an award of costs and attorneys’
fees, filed December 29, 2009, is also denied.

       Dated at Woodstock, Vermont this ____ day of _____________, 2010.


                                             ____________________________________
                                             Hon. Harold E. Eaton, Jr.
                                             Presiding Judge




                                            3
