Perkins State Bank v. Connolly

• Citation: 632 F.2d 1306
• Decision Date: 19 December 1980
• Docket Number: No. 78-3480,78-3480
• Parties: 30 UCC Rep.Serv. 604 PERKINS STATE BANK, a Florida Banking Corporation, Plaintiff-Appellee, v. John CONNOLLY et al., Defendants-Appellees, The Hanover National Bank of Wilkes-Barre, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 1306

632 F.2d 1306

30 UCC Rep.Serv. 604

PERKINS STATE BANK, a Florida Banking Corporation, Plaintiff-Appellee, v. John CONNOLLY et al., Defendants-Appellees, The Hanover National Bank of Wilkes-Barre, Defendant-Appellant.

No. 78-3480.

United States Court of Appeals, Fifth Circuit.

Dec. 19, 1980.

Lansing J. Roy, Gainesville, Fla., for defendant-appellant.

James E. Clayton, Gainesville, Fla., for John Connolly.

William G. O'Neill, Eugene A. Wiechens, Ocala, Fla., for Perkins State Bank.

Appeal from the United States District Court for the Northern District of Florida.

Before FAY, KRAVITCH and RANDALL, Circuit Judges.

RANDALL, Circuit Judge:

This suit began as an interpleader action but was soon expanded by counterclaims and cross-claims to include a full range of actions arising out of an allegedly forged endorsement of a cashier's check. These claims sought to fix liability for the proceeds of the check (most of which had disappeared) in the absence of the forger (who had died). No evidence was presented to dispute the fact of the forgery, and the district court rendered summary judgment on all claims. The court found that the drawee, which had issued the check and later paid it on the forged endorsement, was liable to the purchaser of the check for conversion, while the depositary bank, which had taken the check from the forger and presented it to the drawee for payment, was liable to the drawee under its endorsement warranties. No party challenges this order. But the case has persisted in the form of various claims for attorney's fees and pre-judgment interest. The district court awarded the purchaser of the check both attorney's fees and pre-judgment interest against the drawee, and refused to pass these costs on to the depositary bank, which was ultimately liable for the forgery loss. The drawee appeals from this order, raising important questions about attorney's fees and pre-judgment interest under Florida law.

I. THE FACTS

In March, 1972, John Connolly retained H. Staten Wilson, Jr., an attorney, to represent him in the purchase of a parcel of Florida real estate from Marjorie Walker. In order to provide the balance necessary to close the transaction, Connolly purchased a cashier's check on August 16, 1972, from the Hanover National Bank of Wilkes-Barre (Hanover), in the amount of $50,300. The check was made payable to "Marjorie Walker and H. Staten Wilson, Jr." Connolly delivered the check to Wilson, but Wilson was unable to close the sale because Walker had repudiated the contract. Connolly then instituted suit in state court for specific performance of the contract. Since Wilson had also represented Walker in the real estate transaction, the court required Wilson to withdraw from the case on January 21, 1973. Specific performance was awarded, and the state court of appeals affirmed. Walker v. Connolly, 299 So.2d 67 (Fla.Dist.Ct.App.-1st Dist.1974). The Florida Supreme Court denied certiorari on January 28, 1975. 308 So.2d 117 (Fla.1975).

During the course of Connolly's suit against Walker, the parties were apparently content to leave the cashier's check in Wilson's possession. ¹ Shortly after the decision of the state court of appeals, however, Connolly discovered that Wilson had deposited the proceeds of the check into a trust account at the Perkins State Bank (Perkins) on September 10, 1973. Unfortunately, Wilson died on May 16, 1974, leaving only $5,304.26 in the trust account. Moreover, Walker stated that she did not endorse the check and did not authorize Wilson to do so for her, and on December 11, 1974, she signed an affidavit to this effect. Connolly was therefore forced to borrow the money necessary to close the transaction. On February 28, 1975, Hanover loaned him $50,000 at 10% interest, secured by an assignment of Connolly's claims against Perkins, Walker and Wilson.

Perkins filed an interpleader complaint, based on 28 U.S.C. § 1335, in the United States District Court for the Northern District of Florida, on August 6, 1975, in which he named Connolly, Hanover and Wilson's estate as defendants and sought to determine the ownership of the funds remaining in Wilson's trust account at the time of his death. Connolly counterclaimed against Perkins, and cross-claimed against Hanover, Wilson's estate and the estate of Wilson's father (with whom Wilson had practiced law). In each instance Connolly sought to recover the proceeds of the cashier's check which had disappeared from Wilson's account. Connolly's claim against Hanover was based on Fla.Stat. § 673.3-419, which holds a party liable in conversion when it pays an instrument on a forged endorsement. ² Hanover responded, inter alia, by counterclaiming against Perkins on the basis of Perkins' statutory (Fla.Stat. § 674.4-207) and express (stamped on the back of the check) warranties of prior endorsements. On March 4, 1977, the district court granted summary judgment on all claims. The court found Hanover to be liable to Connolly under section 673.3-419, but found Perkins to be liable in turn to Hanover, under section 674.4-207, for the full amount of Hanover's loss to Connolly. The court ordered that the $5,304.26 remaining in Wilson's trust account (which had been deposited in the registry of the court) be paid to Connolly, and granted a judgment to Connolly against Hanover (and, therefore, a judgment to Hanover against Perkins) for the balance of the cashier's check, $44,995.74.

On October 28, 1977, the district court ruled on the parties' requests for attorney's fees and pre-judgment interest. Connolly was granted his attorney's fees from Hanover, and Hanover was granted its attorney's fees from Perkins. The court denied Connolly's motion for pre-judgment interest. At a later date, however, the court granted motions under Rules 59(e) and 60 of the Federal Rules of Civil Procedure, agreeing to reconsider its October 28 order. On August 23, 1978, the court issued a new order, in which it granted Connolly $14,000 in attorney's fees from Hanover, refused to allow Hanover any recovery of attorney's fees from Perkins, and awarded Connolly pre-judgment interest against Hanover from September 10, 1973 (the date the cashier's check was cashed by Wilson) until March 4, 1977 (the date final judgment was entered). The court refused, despite Perkins' endorsement warranty, to hold Perkins liable to Hanover for the amount of Connolly's judgment against Hanover.

On appeal, Hanover argues that the award of attorney's fees to Connolly was in error; that Hanover should have recovered its own attorney's fees from Perkins; and that Hanover should also have recovered from Perkins the amount of Connolly's judgment against it for pre-judgment interest. Perkins argues on appeal that the award of pre-judgment interest to Connolly was in error. We agree with Hanover on its first two counts, and need not reach the third, for we agree with Perkins' contention that the district court improperly awarded pre-judgment interest. We therefore reverse the August 23, 1978 order of the district court and remand for a determination of the precise amount which Hanover may recover from Perkins for Hanover's legal fees.

II. THE AWARD OF CONNOLLY'S ATTORNEY'S FEES AGAINST HANOVER

The district court found Hanover to be liable to Connolly for Connolly's attorney's fees in the amount of $14,000. Unfortunately, the legal basis of the district court's decision is far from clear. As the court states:

Ordinarily, a federal district court sitting in a diversity action applies state law granting or denying the right to attorney's fees. Aerosonic Corp. v. (Trodyne) Tiodyne Corp., 402 F.2d (223) 1223 (5th Cir. 1968); 6 Moore's Federal Practice P 54.77(2), at 1712-13 (2d ed. 1976). Florida follows the general American rule that attorney's fees are not usually recoverable in the absence of overriding considerations which indicate a need for such recovery, Miller v. Carson, 401 F.Supp. 835 (M.D.Fla.), modified, 392 F.Supp. 515, aff'd, 563 F.2d 741 (1975), statutory authorization or when provided for by agreement. Kessler v. Pennsylvania Nat. Mut. Cas. Ins. Co., 531 F.2d 248 (5th Cir. 1976). However, such fees can be assessed upon a showing of bad faith or vexatious, wanton, or oppressive behavior. See Alyeska Pipeline Serv. v. Wilderness Society, 421 U.S. 240, 258-59 (, 95 S.Ct. 1612, 1622, 44 L.Ed.2d 141) (1975); Carter v. Noble, 526 F.2d 677 (5th Cir. 1976); Pupa v. Thompson, 517 F.2d 693 (5th Cir. 1975); Fairley v. Patterson, 493 F.2d 598 (5th Cir. 1974); 6 Moore's Federal Practice P 54.77(2), at 1709 (2d ed. 1976).

Unpublished Memorandum Opinion, Aug. 21, 1978, at 1-2. The district court recognized the "American rule" on attorney's fees, which generally precludes the recovery of such fees as part of the costs of the action. It found, however, that there is an exception to the general rule when a party is guilty of "bad faith or vexatious, wanton, or oppressive behavior," and it then found Hanover to be guilty of such behavior. What is unclear in the court's explanation is the source of this exception. Two interpretations of the district court's opinion are reasonable: (1) Although state law generally governs the awarding of attorney's fees in diversity cases, the federal "bad faith" exception to the American rule supersedes state law and allows recovery (at least in interpleader cases) whether or not state law also accepts the exception; or (2) Florida law (which governs in this instance) itself adopts the "bad faith" exception to the American rule.

We find that the district court erred in either case, and therefore need not determine which path the court actually took to its decision. Florida law does govern the awarding of attorney's fees in this case, and Florida law does not accept the "bad faith" exception to the American rule.

The Applicable Law

In an ordinary diversity case, awards of attorney's fees are governed by applicable state law. As the Supreme...