Pedraza v. United Guar. Corp., 01-15854.

• Decision Date: 09 December 2002
• Docket Number: No. 01-15854.,01-15854.
• Citation: 313 F.3d 1323
• Parties: Marie O. PEDRAZA, on behalf of herself and all other persons similarly situated, et al., Plaintiff-Appellee, v. UNITED GUARANTY CORPORATION, United Guaranty Residential Insurance Company, Defendants, Joshua O. Olorunnisomo, Movant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

313 F.3d 1323

Marie O. PEDRAZA, on behalf of herself and all other persons similarly situated, et al., Plaintiff-Appellee, v. UNITED GUARANTY CORPORATION, United Guaranty Residential Insurance Company, Defendants Joshua O. Olorunnisomo, Movant-Appellant.

No. 01-15854.

United States Court of Appeals, Eleventh Circuit.

December 9, 2002.

Melvin J. Klein, Kent F. Brooks, Dallas, TX, for Movant-Appellant.

Melinda Lawrence, Patterson, Harkavy & Lawrence, L.L.P., Raleigh, NC, Thomas M. Hefferon, Goodwin, Proctor & Hoar, Washington, DC, Thomas W. Tucker, Dye, Tucker, Everitt, Long & Brewton, P.A., Augusta, GA, Michael D. Calhoun, Gulley and Calhoun, Charles A. Bentley, Jr., Bentley & Associates, P.A., Durham, NC, for Plaintiff-Appellee.

Appeal from the United States District Court for the Southern District of Georgia.

Before BLACK and MARCUS, Circuit Judges, and UNGARO-BENAGES^*, District Judge.

MARCUS, Circuit Judge:

This appeal requires us to address a question of first impression in this circuit: Under what circumstances, if any, can anticipated attorneys' fees properly be included within an appellate cost bond issued by a district court pursuant to either Fed. R.App. P. 7 ("Rule 7") or the court's inherent power to manage its affairs?

The district court concluded that both Rule 7 and its inherent power are legitimate sources of authority for including attorneys' fees within an appellate cost bond, and further, that it was appropriate to rely on both of these bases in holding appellant jointly and severally liable for posting a $180,000 bond, the overwhelming majority of which corresponded to the appellee-class's estimated appellate attorneys' fees. After careful review of the parties' briefs and the body of law that bears on these issues, we conclude that although the district court correctly determined that there are cases in which anticipated attorneys' fees may be included in an appellate cost bond, it erred in holding that this is such a case. Accordingly, we vacate the district court's bond order and remand for further proceedings consistent with this opinion.

I.

The factual and procedural history of this large class action is straightforward but complex. Plaintiff Marie O. Pedraza is the representative of a class of borrowers who obtained mortgage insurance from defendants United Guaranty Corporation and United Guaranty Residential Insurance Company (collectively "UG").¹ The class claimed that in 1996 UG began systematically paying kickbacks to lenders, which in exchange agreed to steer borrowers to UG for their mortgage insurance needs, and that UG thereby violated the anti-kickback provision contained in the Real Estate Settlement Procedures Act of 1974 ("RESPA"), 12 U.S.C. § 2607(a).²

The class filed its complaint on December 17, 1999, and UG promptly responded to these allegations by raising several defenses, including (1) that RESPA did not apply to mortgage insurance; (2) that the "filed-rate doctrine" precluded any recovery; (3) that the McCarran-Ferguson Act barred the application of RESPA; and (4) that claims brought by borrowers who had closed their loans more than one year prior to the filing of the action were barred under RESPA's statute of limitations. UG subsequently moved to dismiss on statute of limitations grounds the claims of all borrowers who had closed their loans prior to December 17, 1998. The district court denied the motion, holding that RESPA's limitations period was subject to equitable tolling for up to three years, provided that the class member pled with particularity that UG had fraudulently concealed its activities, thereby precluding the timely assertion of a claim under § 2607. See Pedraza v. United Guaranty Corp., 114 F.Supp.2d 1347, 1358 (S.D.Ga.2000). Accordingly, the class amended its complaint to include allegations that would give rise to equitable tolling for members whose loans had closed between December 17, 1996 and December 17, 1998.

Discovery ensued, and on May 31, 2000 the class moved for certification. Before the court could rule on the motion, however, UG moved for summary judgment based in significant part on the first three defenses listed above. On August 14, 2000, the district court granted summary judgment to UG on the ground that the McCarran-Ferguson Act, 15 U.S.C. § 1012(b),³ invalidated the class's RESPA claims. The class responded by moving for reconsideration under Fed.R.Civ.P. 59(e), and subsequently by filing a notice of appeal. During the pendency of this motion, settlement negotiations began between UG and the plaintiffs. These discussions ultimately proved fruitful, and on December 15, 2000, the parties filed with the court a proposed settlement.⁴ The settlement agreement required UG to pay an amount exceeding $13 million to the class members. Any class member whose claim had accrued between December 17, 1996 and December 17, 1998 was required to submit a form indicating that he or she was unaware of UG's practices prior to the latter date. Although the class agreed to relinquish any future claims against UG, its members retained the right to cancel their mortgage insurance policies. Moreover, UG agreed to permanently cease and desist from two of the alleged kickback practices. On December 20, 2000, the court conditionally certified the class, ordered that the class members be notified, and scheduled a fairness hearing for June 15, 2001.

On February 7, 2001, a notice of pendency of class proposed settlement was filed, and then on March 6, 2001 notice of this settlement was published in nationally circulating newspapers. These notices delineated not only the terms of the settlement, but also the lengthy procedural history of the case and the right of class members to opt out. They also announced an April 24, 2001 deadline for the submission of objections to the settlement. Ultimately, out of 670,000 class members, three filed timely objections and 277 opted out of the class. More than 25,000 members whose claims were potentially subject to equitable tolling submitted claim forms to receive their payments.

On May 17, 2001, Olorunnisomo filed an untimely objection to the settlement, a motion for leave to file a late objection, and a motion for leave to intervene. On June 8, 2001, the district court held a hearing on appellant's motions, and denied on timeliness grounds his requests to intervene and to file an objection. Roughly a week later, the court held its fairness hearing, at which Olorunnisomo was permitted to argue that a Texas subclass, i.e., a subclass comprised of Texas residents, should be created. Specifically, appellant contended that (1) given the facts at bar, Tex. Ins. Code § 21.48A provided class members with an automatic right of recovery; and (2) UG's filed-rate defense was not recognized in Texas. Accordingly, he argued that it was unfair to require that the claims of class members residing in Texas be governed by the less advantageous provisions of Georgia law. The district court considered and rejected these contentions, and approved the settlement with only one minor change, viz., that 20% of the attorneys' fees were to be withheld pending distribution of the settlement proceeds to the class. As a corollary of its approval of the settlement, the court vacated its previous summary judgment order.

On July 6, 2001, Olorunnisomo filed both a Rule 59 motion for reconsideration and a notice of appeal from the orders approving the settlement and denying his request to intervene. He asserted that our then recent holding in Wooden v. Bd. of Regents, 247 F.3d 1262 (11th Cir.2001), established that the district court's certification of the class constituted error. However, on September 19, 2001 the district court denied his Rule 59 motion for lack of standing, and appellant amended his notice of appeal to encompass the September 19, 2001 order as well.

While Olorunnisomo's motion for reconsideration was pending, the class moved to require all objectors and would-be intervenors who had filed notices of appeal to post bonds for attorneys' fees, damages, costs and interest that would be lost on appeal. Although appellant opposed the inclusion of anticipated attorneys' fees in the requested bond, he did not contest the amount of the bond sought by the class. The district court determined that attorneys' fees were properly bondable under Fed. R.App. P. 7, and in support of this conclusion it cited the holding of the United States Court of Appeals for the Second Circuit in Adsani v. Miller, 139 F.3d 67, 71-76 (2d Cir.), cert. denied, 525 U.S. 875, 119 S.Ct. 176, 142 L.Ed.2d 144 (1998). See Baynham v. PMI Mortgage Ins. Co., No. 199-241, slip op. at 6 (S.D.Ga. Oct. 1, 2001) (reasoning that Adsani's approach to Rule 7 "best comports with the `American Rule'" that absent exceptional circumstances each litigant bears responsibility for its own attorneys' fees). The district court also indicated that it could include attorneys' fees in an appellate cost bond pursuant to its inherent power to manage its affairs. See id. at 4.⁵

However, the district court recognized the existence of constraints on its authority to require the posting of such a bond. In particular, it determined that the standard that governs the propriety of including attorneys' fees in an appellate cost bond is set forth in Independent Fed'n of Flight Attendants v. Zipes, where the Supreme Court held that attorneys' fees could not be assessed against losing Title VII intervenor-plaintiffs unless their claims were "frivolous, unreasonable or without foundation." 491 U.S. 754, 761, 109 S.Ct. 2732, 2737, 105 L.Ed.2d 639 (1989). The district court concluded that the Zipes standard was satisfied in this case, stating: "Having asserted no new reason supporting their contention that the denial of intervention was an abuse of the Court's discretion, the Court finds that the appeal of the denial of intervention is without foundation." Baynham, slip op. at 910 (...