Topics: Attorneys' Fees; Escrow; U.S. Rev. UCC § 5-111(e)

Note: To provide a down payment for purchase of a residential condominium in Florida, Michael Maddox (Buyer/Applicant), an Alabama resident, obtained a standby letter of credit from Exchange Bank of Alabama (Issuer) in favor of Bay Country Land & Abstract (Beneficiary), the escrow agent for Ocean Reef Developers II, LLC (Seller), in the amount of US$ 104,250. The purchase agreement indicated that Buyer/Applicant's deposit would be fully refunded if Seller did not perform its underlying contractual duties. The agreement also provided that the prevailing party would be awarded costs for enforcement and reasonable attorneys' fees in the event of litigation.

Subsequently, Buyer/Applicant alleged that Seller had not met its contractual obligations and was in default, and demanded that the LC be returned or cancelled. Seller responded that it had not failed to perform and did not comply with Buyer/Applicant's demands.

Buyer/Applicant then sued Seller in Florida to terminate the purchase agreement, for a reimbursement of its deposit, for the cancellation and return of the LC, and for attorneys' fees and costs. While the Florida action was pending, Buyer/Applicant also sued Issuer, Beneficiary, and Seller in Alabama for an injunction or restraining order to prevent Issuer from paying on the LC. It also requested attorneys' fees and costs.

After the Alabama action was filed, the Florida trial court found that Seller had violated the purchase agreement, that Buyer/Applicant could recover all of its deposits along with interest, and ordered that the LC be returned. The Florida trial also awarded Buyer/Applicant US$ 34,793.26 in attorneys' fees and costs.

Buyer/Applicant then amended its Alabama complaint, indicating that it had been awarded attorneys' fees for the action in Florida, but asserted that the award did not cover attorneys' fees incurred in Alabama. Buyer/Applicant asked for an award of US$ 19,605.37 for attorneys' fees plus interest, costs, and any additional fees incurred in the Alabama action.

Seller moved to dismiss Buyer/Applicant's amended complaint, arguing that an award of these fees and costs was prohibited by the doctrine of res judicata. The Etowah Circuit Court denied Seller's motion to dismiss and also denied its subsequent "motion to reconsider". On appeal, the Court of Civil Appeals of Alabama reversed on the issue of attorneys' fees.

In an opinion by Moore, J., the appellate opinion ruled that the doctrine of res judicata does not allow Buyer/Applicant to pursue its claim for attorneys' fees in Alabama. The opinion indicated that the underlying purchase agreement between Buyer/Applicant and Seller provided that attorneys' fees and costs could only be awarded pursuant to enforcement of the terms of the agreement itself. Additionally, the opinion indicated that Buyer/Applicant could have presented to the Florida trial court a claim for all attorneys' fees, but did not do so. Since Buyer/Applicant had already received a binding judgment, it was now prevented from litigating a claim it could have made in the Florida action.

Comment: Rev. UCC § 5-111(e), one wonders whether there was a separate basis on which the Buyer/Applicant could have sought attorney's fees for seeking the injunction, namely, Rev. UCC § 5- 111(e) which mandates the award of fees to the prevailing party. In adopting Revised UCC Article 5, however, Alabama adopted a non-conforming amendment as Ala. Code § 7-5-101 ff in which the requirement that attorney's fees "must" be awarded was changed to "may" be awarded. In view of the appellate opinion, the Alabama courts may have been disinclined to exercise their discretion, even if the issue had been raised.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.