Continental Bank, NA v. Everett

• Decision Date: 29 March 1994
• Docket Number: No. 90 C 1476.,90 C 1476.
• Parties: CONTINENTAL BANK, N.A., Plaintiff, v. Robinson EVERETT, Katherine Everett, and J.H. Froelich, Defendants.
• Court: U.S. District Court — Northern District of Illinois

861 F. Supp. 642

CONTINENTAL BANK, N.A., Plaintiff, v. Robinson EVERETT, Katherine Everett, and J.H. Froelich, Defendants.

No. 90 C 1476.

United States District Court, N.D. Illinois, Eastern Division.

March 29, 1994.

Janet Lynn Reed, Howard J. Roin, Lynn Dee Thesing, Andrew Stanley Marovitz, Mayer, Brown & Platt, Chicago, IL, for plaintiff.

James R. Figliulo, Robert E. Wiss, Jeffrey Charles Blumenthal, Patrick Randall Gabrione, Foran & Schultz, Chicago, IL, William H. Hrabak, Goldstine, Skrodzki, Russian, Nemec & Hoff, Ltd., Summit, IL, Ronald J. Guild, Michael Joseph Kralovec, Feiwell, Galper & Lasky, Ltd., Chicago, IL, for defendants.

MEMORANDUM OPINION AND ORDER

NORDBERG, District Judge.

STATEMENT OF FACTS

Defendants are shareholders of Guilford Telecasters, Inc. ("Guilford"), and guarantors of a $4.2 million loan made to Guilford by plaintiff, Continental Bank. Guilford has undergone Chapter 11 reorganization in the Middle District of North Carolina Bankruptcy Court, and all payments to be made to plaintiff under its reorganization plan have been made. Meanwhile, in this district, plaintiffs were found to be entitled to costs and attorneys fees incurred in connection with the enforcement of the guarantees, the amount of which could be determined in a post-judgment proceeding. Continental Bank N.A. v. Everett, 768 F.Supp. 246, 247-48 (N.D.Ill.1991). Judgment in favor of plaintiff was affirmed by the Seventh Circuit, Continental Bank N.A. v. Everett, 964 F.2d 701 (7th Cir.), cert. denied, ___ U.S. ___, 113 S.Ct. 816, 121 L.Ed.2d 688 (1992).

During appeal of the judgment, this court referred plaintiff's petition for costs and fees to Magistrate Judge Pallmeyer, who transferred the case to Magistrate Judge Bucklo. The fee petition is in fact two separate petitions, one for costs and fees incurred in enforcing defendants' guarantees, and a second, supplemental petition for costs and fees incurred since filing of the initial petition. The court is now in possession of the magistrate judge's report and recommendation concerning both petitions, and defendants' objections to it.

ANALYSIS

A petition for attorneys' fees is not one of the enumerated duties assignable to a magistrate judge under the statute determining their jurisdiction, instead falling under the statute's catch all provision for "such additional duties as are not inconsistent with the Constitution and laws of the United States." 28 U.S.C. § 636(b)(3). The local rules for this district do not specifically provide for the referral of petitions for attorneys' fees either, although such a matter is within the general grant of authority provided in Local Rule 1.70(A). Consequently, in reviewing the report and recommendation, the most appropriate course of action for the court is to adopt the standard of review provided for pretrial matters dispositive of a claim or defense of a party, Fed.R.Civ.P. 72. 12 Wright & Miller: Federal Practice and Procedure, § 3076.5, at p. 48 (1993 Pocket Part).

In the case of Rule 72(b) matters, once a timely objection has been made to the magistrate judge's report and recommendation, the district court to whom the case is assigned shall conduct a de novo review upon the record. The court may accept, reject or modify the recommended decision. Fed. R.Civ.P. 72(b). The court need not conduct a new hearing, but must give "fresh consideration to those issues to which specific objections have been made." 12 Wright & Miller: Federal Practice and Procedure, § 3076.8, at p. 57 (1993 Pocket Part).

Defendants' main and, as they might characterize it, solitary objection to the report and recommendation at this point is that they are entitled to a jury trial or, failing that, an evidentiary hearing as to the reasonableness of plaintiff's attorneys' fees. Defendants have indicated that their specific objections to the fee petition thus far have been "merely suggestive" of the errors they believe it contains, and that "it is simply impractical to mention each and every excessive instance." This is certainly a foreboding statement. However, before that may be considered, the court must first determine if defendants are indeed entitled to a jury trial or evidentiary hearing at all.

I. The Right to a Jury Trial

The magistrate judge concluded that defendants were not entitled to a jury trial on the issue of attorneys' fees, relying on A.G. Becker-Kipnis & Co. v. Letterman Commodities, 553 F.Supp. 118 (N.D.Ill.1982) and Medcom Holding Co. v. Baxter Travenol Laboratories, Inc., Case No. 87 C 9853, 1990 WL 129595 (N.D.Ill. September 5, 1990). These opinions themselves relied on the three factor analysis created by the Supreme Court in Ross v. Bernhard, 396 U.S. 531, 538, n. 10, 90 S.Ct. 733, 738 n. 10, 24 L.Ed.2d 729 (1970), for determining whether an issue is legal or equitable for purposes of the Seventh Amendment. Decisions subsequent to Ross have modified its analysis, encouraging reexamination of the question.

The Seventh Amendment requires a jury trial for "suits at common law," as of the date of ratification of the Amendment, 1791. However, the phrase "Suits at common law" refers to more than the common-law forms of action recognized in 1791, but all "suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies administered." Parsons v. Bedford, 3 Pet. 433, 447, 7 L.Ed. 732 (1830). To determine whether a particular action will resolve legal rights, the court first compares the action to 18th century actions brought in the courts of England prior to the merger of the courts of law and equity. This step seeks an inference from the fact that, prior to 1791, jury trials were customary in suits brought in the English law courts. Tull v. U.S., 481 U.S. 412, 417, 107 S.Ct. 1831, 1835, 95 L.Ed.2d 365 (1987). Second, the court examines the nature of the remedy sought, and determines whether it is legal or equitable. Id., at 417-18, 107 S.Ct. at 1835-36. The second inquiry is the more important in the court's analysis. Local 391 v. Terry, 494 U.S. 558, 565, 110 S.Ct. 1339, 1345, 108 L.Ed.2d 519 (1990) (citing Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41, 109 S.Ct. 2782, 2790, 106 L.Ed.2d 26 (1989)). A third factor cited by the Ross court, the practical abilities and limitations of juries, has been relegated to instances where Congress has entrusted the resolution of certain disputes to an administrative agency or specialized court of equity. Terry, 494 U.S. at 565, n. 4, 110 S.Ct. at 1345 n. 4 (citing Granfinanciera, 492 U.S. at 42, n. 4, 109 S.Ct. at 2790, n. 4).

The purpose of this test is to determine whether a right to jury trial exists for "actions brought to enforce statutory rights that are analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century, as opposed to those customarily heard by courts of equity or admiralty." Granfinanciera, 492 U.S. at 42, 109 S.Ct. at 2790. Since the availability of attorneys' fees in certain statutory actions predates the Seventh Amendment, the inquiry appears unnecessary. The English courts have allowed costs, including attorneys' fees, to the prevailing party in specific statutory-authorized actions for centuries. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247, 95 S.Ct. 1612, 1616, 44 L.Ed.2d 141 (1975) (citing Goodhart, Costs, 38 Yale L.J. 849 (1929)). In the courts of law, the determination of costs was left to the judge, as it obviously was to the Chancellor in equity, the only difference being one of subject matter application. Goodhart, 38 Yale L.J. at 852-854. Hence, defendants do not appear to have a right to jury trial on the issue of attorneys' fees.

This result does not change even if the court chooses to put the two part Tull test through its paces. As stated supra, the remedy of attorneys' fees was available to both the courts of law and equity prior to 1791, creating the inference that the remedy does not involve legal rights. Given that the awarding of attorneys' fees was left to the judge in the courts of law, the nature of the remedy must be described as equitable as well.

The fact that the relief sought by plaintiff will take the form of a monetary judgment does not necessarily make the remedy "legal." Terry, 494 U.S. at 569, 110 S.Ct. at 1347. Instead, it is the context of the legal action in which the remedy is sought which determines its legal or equitable nature. See, e.g. Terry, 494 U.S. at 570-74, 110 S.Ct. at 1348-49 (remedy of backpay is equitable in the context of title VII but legal in the context of an unfair labor practice action under the NLRA). Hence, this case is distinguishable from Simler v. Conner, 372 U.S. 221, 83 S.Ct. 609, 9 L.Ed.2d 691 (1963), in which the court found a right to jury trial in an action by an attorney against his client for past unpaid legal services. For Seventh Amendment purposes there is a distinction between attorneys' fees as the measure of damages in an action in contract and attorneys' fees as a post-judgment remedy to be awarded to the prevailing party. Becker-Kipnis, 553 F.Supp. at 123.

II. The Right to An Evidentiary Hearing

Defendants' right to an evidentiary hearing on the amount of attorneys' fees, before the court if not before a jury, need not be grounded in the Seventh Amendment however. In diversity cases, state law governs the granting of attorneys' fees. Jackman v. WMAC Investment Corp., 809 F.2d 377, 383 (7th Cir.1987). This principle applies not only to the right of a party to attorneys' fees, but to procedures for determining the amount of fees. See id., at 384 (citing to Wisconsin law on sufficiency of evidence of fees). In Illinois, the reasonableness of attorneys' fees is a matter of proof, and the party sought to be charged therewith should be afforded an ample opportunity to cross-examine as to the reasonableness of the...