Rose v. Aaron, Civil Action 4:19-CV-98

CourtUnited States District Courts. 5th Circuit. United States District Court of Eastern District Texas
Writing for the CourtMARCIA A. CRONE UNITED STATES DISTRICT JUDGE
PartiesIN RE CAROL ALISON RAMSEY ROSE CAROL ROSE and CAROL ROSE, INC., Appellants, v. LORI AARON, PHILLIP AARON, AARON RANCH, and JAY MCLAUGHLIN, Appellees. CAROL ALISON RAMSAY ROSE and CAROL ROSE, INC., Appellants/Cross-Appellees, v. EQUIS EQUINE, LLC, and ELIZABETH WESTON, Appellees/Cross-Appellants.
Docket NumberAPPEAL OF ADVERSARY 17-04104,Civil Action 4:19-CV-98,17-04131
Decision Date21 September 2021

IN RE CAROL ALISON RAMSEY ROSE

CAROL ROSE and CAROL ROSE, INC., Appellants,
v.

LORI AARON, PHILLIP AARON, AARON RANCH, and JAY MCLAUGHLIN, Appellees.

CAROL ALISON RAMSAY ROSE and CAROL ROSE, INC., Appellants/Cross-Appellees,
v.

EQUIS EQUINE, LLC, and ELIZABETH WESTON, Appellees/Cross-Appellants.

Civil Action No. 4:19-CV-98

APPEAL OF ADVERSARY Nos. 17-04104, 17-04131

United States District Court, E.D. Texas

September 21, 2021


MEMORANDUM AND ORDER

MARCIA A. CRONE UNITED STATES DISTRICT JUDGE

Pending before the court is Appellants Carol Rose (“Rose”) and Carol Rose, Inc.'s (collectively, the “Rose Parties”) appeal from the bankruptcy court's Memorandum Opinion and Order entered September 30, 2020, and Memorandum Opinion and Order (Corrected) entered October 1, 2020, wherein the bankruptcy court awarded attorneys' fees and costs to Appellees Equis Equine, LLC, and Elizabeth Weston (“Weston”) (collectively, the “Weston Parties”).[1]Having reviewed the bankruptcy court's orders, the record, the submissions of the parties, and the applicable law, the court is of the opinion that the bankruptcy court's orders should be affirmed in part and reversed in part.

I. Background[2]

On October 3, 2013, the Rose Parties filed suit against the Aaron Parties in the 235th Judicial District Court of Cooke County, Texas (“Rose-Aaron State Court Lawsuit”), alleging various claims. In response, the Aaron Parties asserted various counterclaims against the Rose Parties. After the Weston Parties unsuccessfully attempted to intervene in the Rose-Aaron State Court Lawsuit, they filed suit in the 235th Judicial District Court of Cooke County, Texas (“Weston State Court Lawsuit”). In their lawsuit, the Weston Parties asserted claims against Lori and Phillip Aaron and the Rose Parties for common law fraud, fraudulent inducement, fraud by non-disclosure, negligent misrepresentation, violations of the Texas Theft Liability Act (“TTLA”), conspiracy, and aiding and abetting.[3] Additionally, the Weston Parties asserted claims against the Rose Parties, separately, for violations of Texas Business and Commerce Code § 2.328 and negligence. The Weston Parties sought approximately $450, 000.00 in actual damages, as well as exemplary damages and attorneys' fees.

In September 2017, the Rose Parties filed for bankruptcy and removed the Rose-Aaron State Court Lawsuit and the Weston State Court Lawsuit to the bankruptcy court, commencing Adversary Proceeding Nos. 17-04104 and 17-04125, respectively. On December 19, 2017, the Weston Parties filed a complaint to determine dischargeability of the indebtedness owed by the Rose Parties and for equitable subordination of the Aaron Parties' claims, commencing Adversary Proceeding No. 17-4131. The Weston Parties and the Aaron Parties filed proofs of claim in the Rose Parties' bankruptcy cases based on their respective claims in the state court litigation. The bankruptcy court administratively consolidated the claim objections with the adversary proceedings.

After a nine-day trial, the bankruptcy court found in favor of the Weston Parties on their claims for violations of Texas Business and Commerce Code § 2.328, violations of Texas Administrative Code § 67.70, common law fraud, fraudulent inducement, fraud by non-disclosure, negligence, negligent misrepresentation, violations of the TTLA, equitable subrogation, and, as to Rose individually, non-dischargeability under 11 U.S.C. § 523(a)(2)(A). Accordingly, the bankruptcy court granted rescission of the sale of SHINERS LENA DOC and awarded the Weston Parties actual damages in the amount of $437, 918.12, prejudgment interest, post-judgment interest, and attorneys' fees.

In accordance with the bankruptcy court's judgment, the Weston Parties filed a fee application on February 22, 2019, requesting an award of attorneys' fees and costs incurred by Davis & Santos, P.C. (“D&S”), and Baker Botts, LLP (“BB”), through February 1, 2019.[4] In support of the fee application, the Weston Parties submitted hundreds of pages of detailed, contemporaneous billing records and several sworn declarations of counsel explaining the legal services rendered and the tasks performed. On the eve of the fee hearing, the Weston Parties filed a supplemental application seeking additional fees incurred after February 1, 2019, and through the fee hearing. In total, Weston requested $1, 537, 142.44 in attorneys' fees and costs.

Subsequently, the Rose Parties objected to the Weston Parties' fee application and raised more than 1, 900 specific objections to individual billing entries. The bankruptcy court held a hearing on the Weston Parties' fee application on April 24, 2019, and May 16, 2019. During the hearing, D&S's lead attorney, Jason Davis (“Davis”), testified regarding D&S's and BB's billing procedures. On September 30, 2020, the bankruptcy court issued its Memorandum Opinion and Order awarding the Weston Parties $1, 074, 305.19 in attorneys' fees and $45, 247.06 in court costs. A day later, on October 1, 2020, the bankruptcy court issued its Memorandum Opinion and Order (Corrected), in which the bankruptcy court corrected “several clerical-type errors.” The Rose Parties filed a notice of appeal on October 13, 2020, appealing from the bankruptcy court's Memorandum Opinion and Order entered September 30, 2020, and the Memorandum Opinion and Order (Corrected) entered October 1, 2020.

II. Analysis

The Rose Parties appeal from the bankruptcy court's award of attorneys' fees and court costs to the Weston Parties. In their appeal, the Rose Parties complain that the bankruptcy court erred in awarding the Weston Parties over $1 million in attorneys' fees, approximately $125, 000.00 in “fees for fees, ” and $45, 247.06 in costs. The court reviews attorneys' fee awards for abuse of discretion; however, the court reviews the underlying legal conclusions that determine attorneys' fees de novo. McBride v. Riley (In re Riley), 923 F.3d 433, 437 (5th Cir. 2019); Gibbs & Bruns LLP v. Coho Energy Inc. (In re Coho Energy Inc.), 395 F.3d 198, 204 (5th Cir. 2004). A court abuses its discretion if it bases its decision on an erroneous view of the law or on a clearly erroneous assessment of the evidence. Tercero v. Tex. Southmost Coll. Dist., 989 F.3d 291, 301 (5th Cir. 2021); Bollore S.A. v. Import Warehouse, Inc., 448 F.3d 317, 321 (5th Cir. 2006) (“A court abuses its discretion when it acts ‘in an unreasonable or arbitrary manner . . . without reference to any guiding rules and principles.'”); Mendoza v. Temple-Inland Mortg. Corp. (In re Mendoza), 111 F.3d 1264, 1266 (5th Cir. 1997) (holding that a bankruptcy court abuses its discretion if it premises its exercise of discretion on an erroneous conclusion of law).

A. Award of Attorneys' Fees

The bankruptcy court awarded the Weston Parties $1, 074, 305.19 in attorneys' fees that it characterized as reasonable and necessary. In their first issue, the Rose Parties contend that the bankruptcy court's fee award is premised on legal error because (1) the bankruptcy court failed to apply the lodestar method for calculating attorneys' fees and (2) the bankruptcy court's fee award is otherwise unreasonable and excessive. The Rose Parties also challenge certain “supplemental fees” that they allege were incurred for unrecoverable work.

1. The Lodestar Method

The Rose Parties take issue with the bankruptcy court's application of the lodestar method for calculating attorneys' fees because, as they allege, it failed to find the reasonable rates and hours spent required for the calculation and discount for the “many” downward adjustments that it found appropriate. The Weston Parties argue that the bankruptcy court correctly applied the lodestar method. As previously noted, the court reviews attorneys' fees awards for abuse of discretion but reviews the underlying legal conclusions de novo. In re Riley, 923 F.3d at 437; In re Coho Energy Inc., 395 F.3d at 204.

In federal court in the Fifth Circuit, an attorneys' fees award “is governed by the same law that serves as the rule of decision for the substantive issues in the case.” Chevron USA, Inc. v. Aker Maritime Inc., 689 F.3d 497, 505 (5th Cir. 2012) (citing Mathis v. Exxon Corp., 302 F.3d 448, 461 (5th Cir. 2002)); accord Sabre Indus. v. Module X Sols., L.L.C., 845 Fed.Appx. 293, 301 (5th Cir. 2021). “State law controls both the award of and the reasonableness of fees awarded where state law supplies the rule of decision.” ATOM Instrument Corp. v. Petroleum Analyzer Co., L.P. (In re ATOM Instrument Corp.), 969 F.3d 210, 216 (5th Cir. 2020), cert. denied sub nom. Olstowski v. Petroleum Analyzer Co., L.P., 209 L.Ed.2d 754 (May 17, 2021) (quoting Mathis, 302 F.3d at 461); accord Trafficware Grp., Inc. v. Sun Indus., L.L.C., 749 Fed.Appx. 247, 253 (5th Cir. 2018); Symetra Life Ins. Co. v. Rapid Settlements, Ltd., 775 F.3d 242, 248 (5th Cir. 2014). Hence, when attorneys' fees are sought for state law claims brought in federal court, the applicable state law governs. Symetra Life Ins. Co., 775 F.3d at 248; Chevron USA, Inc., 689 F.3d at 505; Ashland Chem. Inc. v. Barco Inc., 123 F.3d 261, 263 (5th Cir. 1997).

Texas generally follows the “American Rule, ” which imposes the burden of attorneys' fees on the individual litigants. JCB, Inc. v. Horsburgh & Scott Co., 597 S.W.3d 481, 491 (Tex. 2019); Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 135 (Tex. 2019); see Transverse, L.L.C. v. Iowa Wireless Servs., L.L.C., 992 F.3d 336, 344 (5th Cir. 2021); Ferrari v. Aetna Life Ins. Co., 754 Fed.Appx. 266, 269 n.5 (5th Cir. 2018). In Texas, this rule has been modified to permit the recovery of attorneys' fees when provided by statute or by contract between the parties. JCB, Inc., 597 S.W.3d at 491; see Richardson v. Wells Fargo Bank, N.A., 740 F.3d 1035, 1038 (5th Cir. 2014) (citing In re Nalle Plastics Family Ltd. P'ship, 406 S.W.3d at 172); Symetra Life Ins. Co., 775 F.3d at...

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