COURT OF CHANCERY
oFTHE 1

STATE OF DELAWARE

V[CE CHANCELLQR 500 N. Kirlg Street, Suite 11400
Wilmington, Delaware 19801-3734

Date Submitted: May 9, 2016

|
]_ TRA\/ls LASTER New Castle County Courthouse l
Date Decided: June 3, 2016 1

Richard H. Cross, Jr. Edward T. Ciconte

Christopher P. Simon Ciconte, Scerba & Kerric, LLC 
Cross & Simon, LLC 1300 King Street 
1105 North Market Street, Suite 901 P.O. Box 1126 `
P.O. Box 1380 Wilmington, DE 19899

Wilmington, DE 19899
Kenneth M. Dubrow
The Chartwel1Law Offices, LLP
130 No. 18““ street 26"‘ Fioor
Philadelphia, PA 19103

RE: james v. National Financial, LLC
C.A. No. 8931-VCL

Dear Counse1:

On March 14, 2016, this court issued a post-trial opinion which held that a loan
agreement between plaintiff Gloria J ames and defendant National Financial, LLC (the
"Disputed Loan") was unconscionable and that National had violated the federal Truth in

Lending Act ("TILA"). Dkt. 187 (the "Opinion"). Among other things, the Opinion

"awarded [James] her attorneys’ fees and costs." Id. at 72 (the "Fee Award"). The
Opinion stated that if the parties could not agree on the amount of fees owed, "they shall
propose a schedule for a fee application." Id.

After the parties failed to agree, James made her application. She sought

clarification that the Fee Award included all of her attorneys’ fees and costs, not just for

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the TILA claim. Alternatively, she argued fee shifting was warranted under the bad faith

exception to the American Rule. National responded that the Fee Award only extended to
the TILA claim and that there was no other basis for fee shifting.

A. The Fee Award Under TILA

TILA directs the court to award reasonable attorneys’ fees and costs "in the case
of any successful action" to enforce Section l640(a)(2)(A)(i). 15 U.S.C. § l640(a)(3).
"TILA does not define action, but its context makes its meaning plain: an action is a
lawsuit." Nigh v. Koons Buick Pontiac GMC, Inc., 478 F.3d 183, 185 (4th Cir. 2007).
"Just as a plaintiff can prevail when only one of his claims succeeds, so his action can
succeed when only one of its constituent claims prevails." Id. Absent distinguishing
circumstances, such as claims arising out of wholly different transactions or occurrences,
the concept of an action under TILA refers to the lawsuit as a whole and not a discrete
legal theory. Id. Consequently, "a successful TILA claimant may recover all reasonable
attorney’s fees incurred litigating the lawsuit containing the successful TILA claim,
including fees reasonably incurred advancing other, ultimately unsuccessful claims
sharing ‘a common core set of facts’ with the successful TILA claim." Bradford v. HSBC
Mortgage Corp., 280 F.R.D. 257, 262 n.6 (E.D. Va. 2012) (quoting Brodziak v. Runyon,

145 F.3d l94, 197 (4th Cir. 1998)).

James succeeded in her action. She prevailed on her TILA claim. Her other claims
arose out of the same common core of facts as her TILA claim. The Fee Award therefore

extends to all of James’ attorneys’ fees and costs.

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June 3, 2016
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B. The Bad Faith Excepti0n T0 The American Rule '

§
Assurr1ing for the sake of argument that TILA did not authorize the Fee Award to 
extend beyond the TILA claim, J ames remains entitled to all of her fees and costs under z

the bad faith exception to the American Rule.

[A]n award of fees for bad faith conduct must derive from either the
commencement of an action in bad faith or bad faith conduct taken during
litigation, and not from conduct that gave rise to the underlying cause of
action. Further, the bad faith exception applies only in extraordinary cases,
and the party seeking to invoke that exception must demonstrate by clear
evidence that the party from whom fees are sought acted in subjective bad
faith. Our courts have not settled on a singular definition of bad faith
litigation conduct, but have found bad faith where parties have
unnecessarily prolonged or delayed litigation, falsified records, or
knowingly asserted frivolous claims. Further, we have recognized the bad
faith exception where a party is found to have misled the court, altered
testimony, or changed position on an issue.

RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816, 877 (Del. 2015) (quotation marks,

alterations, and footnotes omitted).

National’s bad faith litigation conduct began at the outset of the case, when

National moved to compel arbitration. At the time, National knew that J ames had opted 3
out of arbitration, having made that point affirmatively as a basis for dismissing her
earlier federal action. National thus knew that its motion to compel arbitration had no
factual basis, J ames moved for sanctions under Rule ll. l granted the motion. 

National’s misconduct continued during discovery. James sought documents and
information relating to the loans offered by National since September 20, 2010, including

an electronic copy of the data from any database containing the loan information.

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National moved for a protective order, contending that the discovery was overbroad. l
partially granted National’s motion, but I also required National to provide discovery in
response to other requests or narrowed versions of the requests. See Dkt. 44 (the "First
Discovery Order"). Most pertinently, the First Discovery Order required National to
provide specified categories of information about loans made between September 20,
2010, and September 30, 20l3, including information about loan APRs (the "Loan
History Information").

On February 28, 2014, National produced an Excel spreadsheet that purported to
provide the Loan History Information (the "Initial Spreadsheet"). But National failed to
comply with the First Discovery Order by neglecting to include all of the Loan History
Inforrnation.

James’ counsel used the few loan documents they already had to check the APRs
for those loans against the limited data provided on the Initial Spreadsheet. The figures
did not match. James’ counsel then deposed National’s owner and top dog, Tim
McFeeters. He suggested that the Initial Spreadsheet contained errors. He also testified
that the Delaware State Banking Commission had audited National between four and ten
times and expressed concerns about inaccurate APRs.

On March 27, 2014, J ames moved for an emergency temporary restraining order
after McFeeters appeared at James’ home and allegedly threatened her. National

contested the factual allegations but stipulated to a temporary restraining order that

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required McFeeters to remain at least 2,000 feet from J ames and to refrain from
contacting her except through counsel.

On July 17, 2014, James again moved to compel production of the Loan History
Information. I entered a second order requiring National to provide accurate Loan History
Information. Dkt. 120 (the "Second Discovery Order").

National did not comply with the Second Discovery Order, resulting in a written
decision imposing sanctions on National and its counsel. See James v. Nat’l Fin. LLC,
2014 WL 6845560, at *l (Del. Ch. Dec. 5, 2014). That decision found that "National and
its counsel willfully disregarded their discovery obligations and sought to mislead J ames
and her counsel." Ia'. at *12. As a remedy, it was deemed established for purposes of trial
that the APRs disclosed on an updated spreadsheet of Loan History Information were
incorrect and fell outside the tolerance permitted by TILA.

During the pre-trial conference and after testimony at trial, it became clear that
National concealed additional evidence during discovery. J ames had requested all
documents relating to the Disputed Loan. Through its electronic loan management
software-the Payday Loan Manager_National maintained electronic records for every
loan, including the Disputed Loan. National, however, did not produce these records, nor
did it identify the Payday Loan Manager as a source of information.

During depositions, one of National’s witnesses testified about a system National
used to keep notes on its loans. This was one of the types of information maintained in

the Payday Loan Manager. After James specifically requested the notes, National

 

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produced a printout of them (the "First Version"). The document had occasional white
space in odd places, but it was not marked to indicate that any information had been
redacted. lt also did not identify by name any of the individuals who had made any of the
notes. James’ counsel used the First Version in discovery.

Less than a week before trial, National produced another printout of the notes (the
"Second Version"). During the pre-trial conference, National’s counsel represented that
he provided the Second Version because it was easier to read, and he proposed to
substitute the Second Version for the First Version. J ames objected, citing inconsistencies
between the two versions. Among other things, the Second Version had a column that
identified the National employees who had entered the notes into the system. That
column was missing from the First Version. National had redacted it entirely, but without
revealing that it had made the redaction. National had redacted some of the employees’
names from the Second Version as well, but the names were blacl<ed out so at least a
reader could tell that redactions had been made. J ames also identified one entry on the
Second Version that contained text which had been redacted from the First Version,
although in a manner that did not reveal that any redaction had been made. Over
National’s objection, I entered both versions into evidence.

During trial, it was revealed that National had not produced any of the other types

of information about the Disputed Loan that were maintained in the Payday Loan

Manager. Most notably, National never produced the loan payment history for the

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Disputed Loan. At trial, National’s witnesses claimed they could not respond accurately 5
to questions about the Disputed Loan without the loan payment history.

Also during trial, J ames identified a series of items that did not appear on the First
Version but did appear on the Second Version, as well as items that did not appear on the
Second Version that did appear on the First Version. In an effort to explain the changes,
National’s witnesses testified, and its counsel represented, that the Payday Loan Manager
distinguished between "comments," which an employee could enter but which could not
be deleted or edited, and "notes," which could be deleted or edited, This explanation did
not help National, since the differences between the two loan versions meant that
someone had modified the records during the pendency of the case, after the production
of the First Version. But it at least provided a reason for the changes.

In a further attempt at explanation, National’s counsel admitted for the first time at

trial that he had made redactions to the First Version. He claimed that he concluded that

the names of the individuals who entered the notes were not relevant and hence redacted
them. Then, when preparing for trial, he concluded that the names of the individuals who
entered the notes were relevant, so he prepared the Second Version.

Both explanations were notably different than how National’s counsel had
justified the Second Version during the pre-trial conference. At the time, he claimed that
he produced it simply because it was more legible.

In its post-trial answering brief, National offered yet another explanation for the

Second Version, this time supported by a post-trial affidavit from McFeeters. The new f,

June 3, 2016
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story was that an unknown employee inadvertently filtered out a category of entries
called "Admin Notes" when preparing the Second Version. The filter story was contrary
to the explanations provided at trial and to the prior representations (themselves internally
inconsistent) that National’s counsel made to the court. The claim that the "Admin
Notes" were filtered out also did not explain why some notes were still present.

Amazingly National argued that James had not suffered any prejudice from the
multiple problems surrounding the First and Second Versions because by the time of trial,
James had both versions. Of course, James had not been able to use the concealed
information on the First and Second Versions during discovery, James never received
other relevant information about the Disputed Loan that National maintained in the
Payday Loan Manager, and J ames only learned of the full extent of these problems
during trial itself, after it was too late for the problems to be fully remedied without a
litigation do-over.

The Second Version was a false record that National submitted to the court with
the apparent intention to mislead this tribunal. National’s attempts to explain the falsified
record were internally inconsistent and, by logical necessity, someone on National’s side
of the "v" proffered a false explanation, whether by affidavit, testimony, or through
representations made to the court.

This pattern of behavior established that National and its counsel sought to deceive
this court and opposing counsel and to strong-arm James by unnecessarily prolonging

litigation over what National regarded as a small-dollar loan. The bad faith with which

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National and its counsel acted throughout this litigation provides an independent basis for

awarding J ames her attorneys’ fees.

C. Other Objections And The Amount Of The Fee Award

National raised various procedural arguments. None have merit. National’s
challenge to the reasonableness of the amount sought is frivolous. J ames asked for a total
Fee Award of $331,024.50, which excluded fees previously awarded as a discovery
sanction. This request covered multiple rounds of written discovery, often including
repeated deficiency letters and motions to compel. lt covered ten depositions and
extensive substantive motion practice. lt covered James’ expert and the time and expense
of deposing National’s expert. lt also covered a three-day trial plus pre- and post-trial
briefing. Given all that James’ counsel accomplished, the total requested is low. Many
similarly qualified Chancery practitioners would have charged at least double that
amount. National should be commending James’ counsel for their efficiency, particularly
in light of National’s bad-faith efforts to obstruct this litigation.

James is entitled to the full amount sought. Given the seriousness of the
misconduct in which National and its counsel engaged, they are jointly and severally
liable for the Fee Award.

Very truly yours,

/s/ J. Travis Laster

J. Travis Laster
Vice Chancellor

