Article 77 Certificate holders can recover legal fees
A New York court has determined that certificate holders in Section 77 proceedings can recover their attorney fees in “one-off” cases where their efforts increase overall collections for the trust.
In a case involving the First Franklin Mortgage Loan Trust 2006-FF11, New York Supreme Court Judge Marcy S. Friedman considered a certificateholder’s request to recover attorney fees he has incurred as part of a mortgage loan repurchase settlement. In the proceedings, the Wells Fargo Bank, National Association sought instructions on the administration and distribution of a settlement payment. The settlement had already been approved by the court and the certificate holder had played an active role in these proceedings. The certificate holder claimed more than $ 500,000 in fees and expenses, claiming that his efforts had helped preserve the trust’s claims and resulted in both the initial settlement offer of $ 25.6 million and to a second settlement offer worth an additional $ 14.288 million.
Certificate Holder relied on Restatement (Third) of Trusts to argue that the court should use its equitable discretion in a trust instruction to award costs in connection with the certificateholder’s participation in the proceeding settlement approval. The certificate holder also relied on the “fair mutual fund doctrine” under which a litigant who recovers a common fund for the benefit of others “is entitled to reasonable attorneys’ fees out of the fund as a whole. “. The certificate holder eventually cited cases in Minnesota where courts have allowed the payment of fees and expenses in similar situations. See “Findings of Fact, Findings of Law and Order for Judgment” in In re Bear Stearns Mortgage Funding Trust 2006-SL1, n ° 62-TR-CV-13-19 (Minn. Dist. Ct. December 3, 2013); “Findings of fact, conclusions of law and order for judgment” in In re SACO I Trust 2006-3 et al., n ° 62-TR-CV-13-40 (Minn. Dist. Ct. December 3, 2013); “Findings of fact, conclusions of law, instructions and judgment order” in In re JP Morgan Mortgage Acquisition Trust 2006-WMC3, n ° 62-TR-CV-17-64 (Minn. Dist. Ct. January 16, 2018); “Findings of fact, conclusions of law, instructions and judgment order” in In re JP Morgan Mortgage Acquisition Trust 2006-WMC4, n ° 62-TR-CV-17-34 (Minn. Dist. Ct. October 4, 2017). No interested party objected to the relief requested by the certificate holder.
In granting the relief sought, the Court concluded that the certificateholder’s “substantial contribution” to the settlement supported a fair allocation of the reasonable fees and expenses of the certificateholder’s lawyer, finding that the certificateholder’s actions were ” but for “good reason” both from the initial settlement offer and the subsequent decision to significantly increase that offer. In reaching its conclusion, the Court stressed that it had not found “that it is generally appropriate to reimburse an interested person for the costs and expenses incurred in appearing and participating in proceedings under Article 77. “. Here, however, the Court concluded that such compensation was appropriate in light of the “unique factual circumstances” as to the “role of the certificate holder in obtaining the settlement offer ultimately approved by the Court”.
© 2022 Faegre Drinker Biddle & Reath LLP. All rights reserved.Revue nationale de droit, volume XI, number 32