Article

Prior History: International-Matex Tank Terminals- Illinois v. Chemical Bank, No. 1:08-cv-1200, 2009 WL 3270276 (W.D. Mich. Oct. 5, 2009) [U.S.A.], abstracted in 2010 Annual Review at 535.

Note: International-Matex Tank Terminals (Beneficiary) sought to recover attorney's fees and expenses for US$190,000.68 in its successful action for wrongful dishonor of a standby letter of credit for $200,000 against Chemical Bank (Issuer). Issuer resisted, claiming that the fees were excessive. Attorney's fees are governed by Michigan's version of U.S. Rev. U.C.C. § 5-111(e) (Remedies).

The trial court referred the question to Magistrate Judge Scoville, who recommended that the attorney's fees awarded to Beneficiary be lowered to $74,471.31 and expenses to $3,992.88. Adopting this recommendation, the U.S. District Court for the Western District of Michigan, Southern Division, Maloney, J., awarded beneficiary the amount of attorney's fees and expenses recommended by the Magistrate and ordered Issuer to pay a total of $78,471.31 with interest by October 29, 2010.

Although the case was heard in a federal court in Western Michigan, the opinion stated that under applicable federal jurisdictional rules, the availability of attorney's fees would be governed by Rev. U.C.C. Section 5-111(e), which provides that "'[r]easonable attorney's fees and other expenses of litigation must be awarded to the prevailing party in an action in which a remedy is sought' under [the article]."

The opinion stated that what constitutes a reasonable attorney's fee would be determined by state law. Looking to relevant Michigan case law, the Judge accepted the Magistrate's recommendation that the question of reasonableness should be answered by first determining the fee customarily charged in the locality for similar legal services and then multiplying the fee by the number of hours reasonably expended. The Judge rejected Beneficiary's argument that a federal exception for its charges based on out-of-state attorneys applied because there was no decision by Michigan courts accepting this theory. The Magistrate had concluded that the case was "a straightforward collection action" as the issues were straightforward and the damages sought were limited.

Factors considered by the Magistrate in the rate reduction:

- Michigan law does not permit taxing time spent by paralegals, librarians or other staff against the opponent. These efforts contributed to the attorney's work and should be considered overhead.

- The Magistrate Judge observed that Beneficiary offered no objective evidence that their attorney's hourly rates were appropriate and that there are a plethora of commercial lawyers in Western Michigan well suited to handle a "straightforward suit to collect on a letter of credit".

- The median hourly rate was established using the periodic surveys by the State Bar of Michigan and using the local median attorney fee. The most recent survey occurred in 2007, so the court adjusted these fees for inflation.

- The Magistrate Judge identified several inefficiencies in the billed time by associates working for Beneficiary, and reduced all associate time by 20%.

- Beneficiary time that was billed in connection with obtaining admission to the bar of the U.S. District Court for the Western District of Michigan was also removed because it is the responsibility of the lawyer, not the client, to obtain the proper credentials to practice. The expenses charged for obtaining admission to the bar were also removed.

Comment:

This case did not involve any novel or difficult issues (although this is not appreciated by the trial judge). The question was whether the delivery of documents to the issuer at the wrong location (where it could not be a proper presentation) imposed a duty to forward the documents, notify the beneficiary, or return them, and also if that breach of duty resulted in estoppel.

[JEB/sws]

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