United States v. Ebersole, 1:03cr112 (LMB)
| Decision Date | 12 December 2012 |
| Docket Number | 1:03cr112 (LMB) |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | UNITED STATES OF AMERICA v. RUSSELL LEE EBERSOLE, Defendant, and BRIDGET KLINE-PERRY, Garnishee. |
Before the Court is a motion by the law firm Thomas H. Roberts and Associates, P.C. ("Roberts & Associates") to intervene and quash a writ of garnishment that the United States seeks to enforce against a judgment the law firm obtained for Russell Lee Ebersole ("Ebersole") [Dkt. No. 259]. For the reasons discussed in open court and in this Memorandum Opinion, the motion will be granted in part and denied in part.
Ebersole was convicted on June 20, 2003 of 26 counts of wire fraud in violation of 18 U.S.C. § 1341. In addition to his 63-month prison sentence he was ordered to pay restitution of $708,458.79. The United States perfected a lien on that amountby filing notice in Washington and Frederick Counties in Maryland in September 2003. Resp. to Mot. to Intervene and Opp. to Mot. to Quash Garnishment ("Opp."), at 1-2. The latest figure for Ebersole's net outstanding balance was $690,858.78 as of May 30, 2012. Id. at 2.
On July 25, 2012, Ebersole prevailed against Bridget Kline-Perry in a civil case for defamation and conspiracy to harm a business. See Ebersole v. Kline-Perry, No. 1:12cv26 (E.D. Va. Sept. 26, 2012). Roberts & Associates represented him in that litigation. Ebersole won $30,000 in actual compensatory damages and $15,000 in punitive damages (after remittitur). Id. Because the conspiracy cause of action provides for attorneys' fees to the prevailing party, Roberts & Associates requested $138,083.10 in attorneys' fees and costs; however, Judge Cacheris, the trial judge, only awarded $79,786.42 in attorneys' fees and costs after determining that the lower amount reflected a "reasonable fee" under Virginia Code § 18.2-500(a).
In a 49-page opinion, Judge Cacheris analyzed and applied the twelve "Johnson/Kimbrell"1 factors to decide what would constitute a "reasonable" number of hours and hourly rate. He then considered whether to reduce the resulting "lodestar figure" by any fees incurred for unsuccessful claims that wereunrelated to successful claims. Although plaintiff pursued three claims and the only claim for which there was statutory authority to award attorney fees was the business conspiracy claim, the Court nevertheless found that "no further reduction [for unsuccessful, unrelated claims] is necessary because in this case all of Plaintiff's claims arose from a 'common core of facts,'" and despite being "legally distinct causes of action, each was an attempt to produce the desired outcome of addressing the resulting harm from this common nucleus of facts." Kline-Perry, No. 1:12cv26 at *42-43. Judge Cacheris further reduced the total award to account for the plaintiff's partial success, citing Ebersole's failure to prevail on his tortious interference with contract claim and the fact that the jury awarded him substantially fewer damages than those sought. He also observed that the attorneys' fees were twice the amount of the total damages awarded to Ebersole. Id. at *44-45.
On October 11, 2012, the government filed an application for a Writ of Continuing Garnishment as to Ebersole's judgment against Kline-Perry based upon the outstanding balance owed on the criminal restitution judgment entered against Ebersole. Roberts & Associates seeks to intervene and quash the writ of garnishment, asserting that it holds an attorney's lien on the entire judgment based on Ebersole's contractual obligation to the law firm, which it estimates as $125,699.93. It furtherargues that the government's writ impairs that security interest. The government argues that there are two liens that attach to the total judgment against Kline-Perry, and that although Roberts & Associates has a lien with priority over the $79,786.42 in costs and attorneys' fees that Judge Cacheris deemed "reasonable," the government has a restitution lien with priority over the $45,000 in compensatory and punitive damages.2
It is undisputed that the priority of a federal lien based on an order of restitution is determined by the principle of "first-in-time, first-in-right," and that in this case, the government's lien was the first lien filed. Opp. at 4-5; Reply of Thomas H. Roberts and Associates, P.C., to the United States' Opp. to Mot. to Quash Writ of Garnishment ("Reply"), at 11. The legal question before the Court is the applicability of one exception to that general rule, which gives "superpriority" status to an attorney's lien "to the extent of [the attorney's] reasonable compensation for obtaining such judgment." 26 U.S.C.§ 6323(b)(8).3 Under applicable federal regulations, the term "reasonable compensation" in that statute "means the amount customarily allowed under local law for an attorney's services for litigating or settling a similar case or administrative claim," and is "determined on the basis of the facts and circumstances of each individual case." 26 C.F.R. § 301.6323(b)-1(h)(1).
The government concedes that the exception in § 6323(b)(8) grants Roberts & Associates superpriority over the $79,786.42 that Kline-Perry was ordered to pay in attorney's fees and costs, but argues that the exception does not apply to any fees and costs over that amount - including those equal to the $45,000 that Kline-Perry was ordered to pay in compensatory and punitive damages - because Judge Cacheris expressly excluded them from his determination of "reasonable" compensationattributable to obtaining the judgment. As the government argues, the rationale behind the statutory exception was not to protect attorneys' fee contracts, but rather was to maximize tax collection by encouraging attorneys to bring suits from which the Treasury might benefit, secure in the knowledge that they could recover reasonable fees from the resulting judgment before the IRS could collect the remainder of the award. See Opp. at 6; see also Montavon v. United States, 864 F. Supp. 519, 523 (E.D. Va. 1994).
Roberts & Associates contends that Judge Cacheris determined the reasonable attorney fees in the context of balancing equities between the parties and "reimburs[ing]" Ebersole solely for his success for the conspiracy to harm a business claim, and that the decision "merely sets the floor for the total compensation Mr. Ebersole should reasonably pay" his attorneys for litigating his claims. Reply at 4. Specifically, Roberts & Associates argues that the federal regulation's definition of reasonable compensation as "the amount customarily allowed under local law for an attorney's services" differs from the result of Judge Cacheris's twelve-factor analysis and various reductions to the fee award, and that under Virginia law, if there is a valid and enforceable contract for attorney's fees - which the government does not contest - then the full contractual amount would be the "amountcustomarily allowed under local law," and thus the amount covered by the exception in § 6323(b)(8). Id. at 6-8. The law firm adds that unspecified fees for its post-trial work defending Ebersole's punitive damages award on the defamation claim were neither requested of, nor awarded by, Judge Cacheris but should nevertheless be taken into account in coming up with a "reasonable" fee. Id. at 5.
The law firm's arguments are unpersuasive given Judge Cacheris's thorough analysis of the entire litigation and thoughtful explanation of the reasons for finding that a lesser amount of attorneys' fees was reasonable. In particular, Judge Cacheris excluded fees for hours that were excessive or redundant in light of his judicial experience with attorney practices in the region, finding that the law firm's use of "block billing" "pr...
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