January 2012

The only thing sweeter than winning a civil case against the federal government is to win the case and then be awarded your attorneys’ fees.  But the winning defendant in EEOC v. Great Steaks, Inc., decided last week by the Fourth Circuit, will have to resign itself to eating cake without icing, notwithstanding three colorable fee arguments which were shot down by the Court.

The EEOC sued Great Steaks on behalf of several employees who claimed they had been sexually harassed in their work at Great Steaks’ restaurant in Greensboro.  Great Steaks won the case after a three day jury trial and moved for its fees under Title VII’s fee-shifting provision, under the Equal Access to Justice Act (the "EAJA") and under 28 U.S.C. § 1927.  Judge Beaty of the Middle District of North Carolina denied the fee request and was affirmed by the Fourth Circuit. 

Title VII’s Fee-Shifting Provision

Title VII contains a provision allowing the Court in its discretion to award reasonable attorneys’ fees to prevailing parties in actions brought under it. 42 U.S.C. § 2000e-5(k).  The statute makes no distinction between the standard for prevailing plaintiffs versus prevailing defendants, but in Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978), the Supreme Court established a more stringent standard governing when prevailing defendants may recover as compared to prevailing plaintiffs.  The Supreme Court said in Christianburg Garment  that a prevailing defendant is entitled to fees only if the trial court:

finds that [the plaintiff’s] claim was frivolous, unreasonable, or groundless, or that the plaintiff continued to litigate after it clearly became so.

Id. at 422.  A Title VII plaintiff who prevails, on the other hand, "is ordinarily entitled to attorneys’ fees unless special circumstances militate against such an award."

The reasons for the difference are discussed by the Court on pages 9-10 of the opinion.

A highly significant factor to the Fourth Circuit in its determination that no fees were warranted was that Great Steaks had made a motion for judgment as a matter of law at the close of the EEOC’s evidence at trial, which had been denied.  So the case was strong enough to go to the jury.  Judge Floyd said that the denial of a Rule 50 motion was a ""particularly strong indicator that the plaintiff’s case is not frivolous,unreasonable, or groundless."  He said that "we are hard-pressed to imagine circumstances where the district court could make this determination and nevertheless deem the plaintiff’s case frivolous, unreasonable, or groundless."  Op. at 12.

The review was for abuse of discretion, and the appellate court said that Judge Beaty was "in the best position"  to make the fee assessment" since he had "managed the litigation and conducted the trial."  Op. at 14.

All Great Steaks had to offer in support of its motion was that the EEOC’s case had steadily eroded over time from being a class action on behalf of numerous Great Steaks’ employees to a case involving only one employee who turned out not to be very credible and whose testimony had been deemed "troubling" by the Magistrate Judge who recommended that a summary judgment motion made by Great Steaks be denied.  One potential class member had refused to appear for her deposition, and another announced that she was quitting the case at her deposition.  This wasn’t enough to establish frivolity or groundlessness, according to the Court

Great Steaks took two more shots at a fee award.


Continue Reading Fourth Circuit Denies Attorneys’ Fees To Prevailing Defendant in EEOC Action

If a bartender serves a visibly intoxicated customer with even more alcohol and the customer then causes an accident while driving drunk, the bartender can be liable under North Carolina’s Dram Shop Act, N.C. Gen. Stat §18B-120, et seq.  But if a banker showers cash on a borrower to fund a  deal which goes bad, does the borrower have any claim against the banker for not cutting him off?

 The short answer is that bartenders are held to a higher standard than bankers.  A claim against a lending bank for anything other than a violation of the terms of the loan documents — say such as a claim for breach of fiduciary duty — is almost always doomed to dismissal  Judge Gale of the Business Court last week did exactly that to the borrower’s claim in Wells Fargo Bank, N.A. v. Vandorn, 2012 NCBC 6, saying that “[I]n an ordinary lender-borrower relationship, the lender does not owe any duty to its borrower beyond the terms of the loan agreement[,]” Op. ¶__. (quoting Branch Banking & Trust Co. v. Thompson, 107 N.C. App. 53, 418 S.E.2d 694, 699 (1992)).

Wells Fargo had sued Vandorn, Cook and an LLC formed by the two individuals to collect on a defaulted loan made for the LLC  to buy a lot in a high-end resort development called Laurelmor.  Laurelmor was billed as a 6,000 acre golf resort, with the course designed by PGA great Tom Kite, to be developed in the North Carolina mountains.  The Winston-Salem Journal says that Laurelmor "collapsed under the bad economy and a massive loan."

The three defendants counterclaimed, seeking to avoid liability on their loan.  They alleged that Wells Fargo (then Wachovia) had breached its fiduciary duty to them because it failed to obtain an accurate appraisal on the lot and it also failed to determine that the LLC borrowing the funds was insufficiently capitalized to repay the loan.

The Vandorn Defendants said that Wells Fargo owed them a fiduciary duty to vet the deal because one of the Defendants, Cook, was a client in the Bank’s Wealth Management Division.  That’s the part of the Bank which handles its wealthiest clients, offering them a "holistic approach" and the advice of a "team of highly experienced specialists." Cook said he relied on the Division  for most of "his banking, investment, and insurance needs, and . . . for advice and counseling regarding a broad spectrum of financial matters." p. Par. 9.  Cook said he had relied upon the Bank to obtain a valid and reliable appraisal on the Laurelmor property and that the Defendants would not have purchased the lot if the Bank had appropriately protected them.

Judge Gale said that the "conclusory allegations" of the Counterclaim didn’t have enough heft to establish a fiduciary relationship and he granted Wells Fargo’s Motion to Dismiss. He summed up what was lacking this way:

Defendants do not allege Plaintiff or its employees located, identified, or recommended the lot, or that the lot purchase was part of a broader financial plan that Plaintiff had developed for [] Cook or the Defendants. Defendants do not allege that B. Cook or any other Defendant sought investment advice regarding the lot transaction. To the contrary, Defendants’ allegations indicate that Plaintiff became involved in the lot transaction only after Defendants had located the lot, formed the intent to purchase the lot, formed [the LLC] to facilitate the purchase, and approached Plaintiff about financing the transaction.

Op. ¶17

So if the Wealth Management Division had recommended the development to the Defendants, might that have established a fiduciary relationship?  Maybe, but the Vandorn decision is the latest in a series of Business Court decisions where investors in resort  development projects sought unsuccessfully to transfer the burden of their loss to their lenders, See Allran v. Branch Banking & Trust Corp., 2011 NCBC 21 (N.C. Super. Ct. Jul.6, 2011), and  Beadnell v. Coastal Communities,  (N.C. Super. Ct. June 3, 2011).

On a totally different subject, yesterday I checked out http://www.supremecourthaiku.com/, which summarizes US Supreme Court decisions in haiku.  The video explaining it is absolutely hilarious.  If I could write in three line haikus, my blog posts would be much shorter.  But I’m probably better at limericks, but not by much.

You probably know that there is a fight afoot between the North Carolina State Bar and the do-it-yourself vendor of legal documents, LegalZoom. The simmering dispute has been covered in the Wall Street Journal, the ABA Journal, and the case is now in the Business Court over Legalzooom’s vitriolic objections.  The issue is whether LegalZoom’s offerings constitute the unauthorized practice of law.

LegalZoom bills itself as “transform[ing] the way people think about and fulfill common legal needs.” It says that it has made its mission “to simplify the process and to set new standards for convenience and service in an industry not typically known for great customer care.” The company basically sells legal forms to non-lawyers (and helps its customers to fill them out by computer) which enable them to form their own corporations, write their own wills, and get their own divorces, while at the same time avoiding what LegalZoom condemns as the high cost of attorneys’ fees.

It’s said pretty often that “you get what you pay for,” so it’s not surprising that LegalZoom has taken some heat (like from Consumer Reports) for the quality of its services, even though it advertises that 94% of its customers "recommend LegalZoom to friends and family." The lawyers who provide the same services as those offered by LegalZoom, such as estate planning lawyers, and lawyers filing trademark applications, aren’t keen on the service. 

Not much has happened in the Business Court so far, except for LegalZoom’s strident efforts to stay out of the Business Court. Those began with the filing of the case by LegalZoom against the State Bar. LegalZoom immediately asked the Chief Justice of the NC Supreme Court for an exceptional case designation to Superior Court Judge Paul Gessner. That was granted back in October, apparently without notice to the NC Bar.  The Bar then designated the case to the Business Court as a mandatory complex business case, which LegalZoom opposed, saying its case was not a " complex business case" within the mandatory jurisdiction of the Business Court.

LegalZoom has lost Round 1.  Judge Jolly (who decides all designation motions as the Chief Judge of the Business Court) ruled that the claims made by LegalZoom in its Complaint are squarely within the jurisdiction of the Business Court. Count 1 of the Complaint is for a violation of the Monopoly Clause of the North Carolina Constitution, saying that the State Bar has interfered with LegalZoom’s constitutional right to freely do business in North Carolina. Count 2 says that the State Bar has also violated the state Constitution by excluding LegalZoom from “register[ing] its legally compliant prepaid legal services plan.” (That’s a whole different LegalZoom service).  The third count is for “commercial disparagement,” alleging that the State Bar has made false statements to the public which caused the public “to regard [LegalZoom’s] product as legally unauthorized, and imputing illegal conduct to [LegalZoom].”

 In opposing the Bar’s designation as a mandatory business case, LegalZoom argued that its case was “exceptional,” but not a “complex business case.”  Judge Jolly didn’t spill much ink in denying the Opposition in an Order on January 9th. He said:

Plaintiff’s Complaint specifically alleges that "this case includes claims that involve a material issue relating to . . . [a] anti-monopoly, anti-competition, and antitrust law claims that are not based solely on N.C. Gen. Stat. § 75-1.1; [b] unfair competition law claims that are not based solely on N.C. Gen. Stat. § 75-1.1; and [c] the Internet and electronic commerce." These allegations are substantially identical with three separate statutory grounds for designation of a civil action as a mandatory complex business case under the Removal Statute.

Order ¶3.  So that’s that.  The case has been assigned to Judge Gale and will be resolved in the Business Court.

Where was the vitriol?

Continue Reading We’re Gonna Zoom A Zoom A Zoom in North Carolina