In re Crescent City Estates, LLC

Decision Date07 December 2009
Docket NumberNo. 08-2367.,08-2367.
Citation588 F.3d 822
PartiesIn re CRESCENT CITY ESTATES, LLC, Debtor. MR Crescent City, LLC; McCrary Crescent City, LLC; Michael C. McCrary, Plaintiffs-Appellants, v. Douglas S. Draper; William J. Murphy, Parties-in-Interest-Appellees, and Giannasca Crescent City, LLC; Edward V. Giannasca, II; Crescent City Estates, LLC; Stuart C. Neil Fisher; TJ Biscayne Holdings, LLC; Market Street Properties Palm Beach, LLC; Tamara J. Fisher, Defendants.
CourtU.S. Court of Appeals — Fourth Circuit

ARGUED: Mark Jerome Friedman, DLA Piper U.S. LLP, Baltimore, Maryland, for Appellants. W. Neil Eggleston, Debevoise & Plimpton, LLP, Washington, DC, for Appellees. ON BRIEF: David B. Misler, DLA Piper U.S. LLP, Baltimore, Maryland; William H. Murphy, Jr., Kenneth B. Frank, William H. Murphy, Jr. & Associates, PA, Baltimore, Maryland, for Appellants. Alan M. Grochal, Kristin P. Herber, Tydings & Rosenberg, LLP, Baltimore, Maryland, for Appellee Douglas S. Draper.

Before WILKINSON, MICHAEL, and AGEE, Circuit Judges.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Judge MICHAEL and Judge AGEE joined.

OPINION

WILKINSON, Circuit Judge:

This case presents a purely legal question: whether 28 U.S.C. § 1447(c) permits the imposition of legal fees on an attorney who erroneously removes a case from state to federal court. The district court held that it does not. We affirm.

I.

This case began in Maryland state court in February 2007. Several entities with an ownership stake in Crescent City Estates, LLC (collectively, appellants) brought a derivative suit against defendants Crescent City Estates, LLC and its managers, alleging that the managers had not accounted properly for approximately $12 to 15 million in insurance proceeds. In connection with the litigation, defendants retained as legal counsel the appellees in this case: attorneys Douglas S. Draper and William J. Murphy.

About six months after the suit's commencement, defendants removed the state court action to the United States Bankruptcy Court for the District Court of Maryland. As lawyers for the defendants, appellees signed the notice of removal. Shortly thereafter, appellants filed a motion to remand the case back to state court. In doing so, appellants sought attorneys' fees for improper removal under 28 U.S.C. § 1447(c), which allows a court to "require payment of . . . attorney fees . . . incurred as a result of removal." Notably, appellants sought attorneys' fees both from defendants and from their attorneys, the appellees.

The attorneys argued that they could not be liable, claiming that § 1447(c) authorized the imposition of attorneys' fees only against removing parties and not against removing attorneys. The federal bankruptcy court, however, disagreed. It held that, as a matter of law, § 1447(c) applied both to parties and to attorneys. Appellees sought immediate review, and on interlocutory appeal, the United States District Court for the District of Maryland reversed. Crescent City Estates, LLC v. MR Crescent City, LLC (In re Crescent City), 2008 WL 5216243 (D.Md. Dec. 9, 2008). After examining statutory text, legislative history, and relevant case law, the district court concluded that "§ 1447(c) . . . [gave] authority to impose liability for costs (including legal fees) upon parties but not attorneys." Id. at *4. Appellants now ask us to reverse the district court's decision.

II.

The statute, 28 U.S.C. § 1447(c), states in relevant part: "An order remanding [an erroneously removed] case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of removal." The statute, however, does not state expressly who may be required to make such payment. Appellants contend that both removing parties and their lawyers are liable, while appellees assert that only removing parties are liable.

As of yet, no circuit court has confronted this issue, and the district courts that have addressed it are badly divided. Compare Creek Ventures, LLC v. World Parts, LLC, 2004 WL 1166642, at *4 (W.D.N.Y. Apr. 14, 2004) (holding that § 1447(c) does not apply to counsel); Marketplace Illustrated Inc. v. Intrex Travel, Inc., 1993 WL 405494, at *3 (W.D.N.Y. Sept. 30, 1993) (same), with Peraza v. Mazak, 2008 WL 186613, at *3 (M.D.Fla. Jan. 18, 2008) (holding that § 1447(c) applies to counsel); Saxon v. Thomas, 2007 WL 1115239, at *5-6 (W.D.La. Apr. 12, 2007) (same), aff'd by 2007 WL 1974914 (W.D.La. June 29, 2007); Game Time Laser Tag Adventure, LLC v. MillsServices Corp., 2006 WL 2422593, at *1 (S.D.Ohio Aug. 22, 2006) (same); Wisconsin v. Missionaries to the Preborn, 798 F.Supp. 542, 543-44 (E.D.Wis.1992) (same); Polanco v. 21 Arden Realty Corp., 121 B.R. 425, 428 (S.D.N.Y.1990) (same).

Appellants argue that because § 1447(c) does not explicitly prohibit a fee award against counsel, it thereby permits it. Appellants, however, have the presumption reversed. The proper presumption is that when a fee-shifting statute does not explicitly permit a fee award against counsel, it prohibits it. In short, silence does not equal consent. Because we find that the presumption is not overcome in this case, we accordingly hold that § 1447(c) does not apply to counsel.

III.

The presumption that fee-shifting statutes apply only to parties unless they expressly state otherwise is consistent with the American Rule. Under the American Rule, "the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys' fee from the loser." Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). In other words, the American Rule creates a presumption that parties bear their own legal costs, win or lose. Fogerty v. Fantasy, Inc., 510 U.S. 517, 533, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994). The American Rule's presumption can be further subdivided into two distinct underlying premises: first, that parties bear their own legal fees and second, that parties bear legal fees.

Congress is, of course, free to alter either or both of these premises through legislation. See id. However, departures from the American Rule require "explicit statutory authority." See Buckhannon Bd. & Care Home, Inc. v. West Virginia Dep't of Health & Human Servs., 532 U.S. 598, 602, 121 S.Ct. 1835, 149 L.Ed.2d 855 (2001). In other words, if Congress wishes to overcome either premise underlying the American Rule, it must express its intent to do so clearly and directly. This is because the American Rule is a longstanding legal principle, see Key Tronic Corp. v. United States, 511 U.S. 809, 815, 114 S.Ct. 1960, 128 L.Ed.2d 797 (1994), and one "deeply rooted" in our nation's common law tradition, with origins dating back perhaps as early as 1796. Alyeska Pipeline, 421 U.S. at 271, 249-50, 95 S.Ct. 1612 (citing Arcambel v. Wiseman, 3 U.S. (3 Dall.) 306, 1 L.Ed. 613 (1796)). And "[i]n order to abrogate a common-law principle, the statute must `speak directly' to the question addressed by the common law." United States v. Texas, 507 U.S. 529, 534, 113 S.Ct. 1631, 123 L.Ed.2d 245 (1993).

Absent explicit authorization from Congress, it is our duty to keep the American Rule intact. "Congress ha[s] not `extended any roving authority to the Judiciary to allow counsel fees . . . whenever the courts might deem them warranted.'" Buckhannon, 532 U.S. at 610, 121 S.Ct. 1835 (citing Alyeska Pipeline, 421 U.S. at 260, 95 S.Ct. 1612). Because fee-shifting statutes are "in derogation of the common law," courts are obligated to construe them strictly, Rowe v. U.S. Fid. & Guar. Co., 375 F.2d 215, 219 (4th Cir.1967), employing a "presumption favoring the retention of long-established and familiar principles, except when a statutory purpose to the contrary is evident," Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783, 72 S.Ct. 1011, 96 L.Ed. 1294 (1952). This means that unless there is at least some indication that Congress intended attorneys to pay under § 1447(c), we will apply the American Rule's presumption that parties pay.

In this case, it is undisputed that Congress intended § 1447(c) to modify the American Rule in part. Section 1447(c) is, after all, a fee-shifting statute. See Martin v. Franklin Capital Corp., 546 U.S. 132, 137-38, 126 S.Ct. 704, 163 L.Ed.2d 547 (2005). Thus, the parties agree that § 1447(c) was meant to overcome the first premise underlying the American Rule (that parties bear their own legal fees), thereby enabling courts to shift fees from the prevailing party (here, the party successfully obtaining remand) to the losing party (here, the party erroneously attempting removal). Appellees argue that § 1447(c) stops there, leaving undisturbed the second premise of the American Rule (that parties bear legal fees). That is, whether prevailing or losing, it is nonetheless parties — not attorneys — who bear attorneys' fees. Appellants, on the other hand, would have us depart from the American Rule more radically, by shifting fees not merely from a prevailing litigant to a losing litigant, but from a prevailing litigant to a losing attorney. Under this view, § 1447(c) reverses both parts of the American Rule's presumption, shifting fees and introducing a new payer.

We see no justification for the dramatic deviation from the American Rule advocated by appellants. Neither § 1447(c)'s text nor its legislative history is sufficient to overcome the American Rule's presumption that parties rather than attorneys are liable for attorneys' fees. First, the text of § 1447(c) makes no explicit mention of counsel. And because "Congress legislates against the strong background of the American Rule," Fogerty v. Fantasy, Inc., 510 U.S. 517, 533, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994), the fact that Congress did not explicitly exclude counsel from the reach of § 1447(c) is no indication of congressional intent to include counsel. Congress knows that in order to...

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