Wells Fargo Business Credit, Inc., Respondent, vs. Equinox Enterprises, Inc., et al., Appellants.
This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2002).
STATE OF MINNESOTA
IN COURT OF APPEALSC4-02-2066
Wells Fargo Business Credit,
Equinox Enterprises, Inc., et al.,
Filed September 30, 2003
Hennepin County District Court
File No. 0119478
Virginia A. Bell, Mary R. Vasaly, Amy J. Swedberg, Maslon Edelman Borman & Brand, LLP, 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402-4140 (for respondent)
James P. Mulvahill, Mulvahill Law Firm, P.A., 701 Fourth Avenue South, Suite 500, Minneapolis, MN 55415 (for appellants)
Considered and decided by Peterson, Presiding Judge, Shumacher, Judge, and Minge, Judge.U N P U B L I S H E D O P I N I O N
Borrower appeals the award of attorney fees lender incurred in obtaining summary judgment. Borrower contends that it paid indebtedness and collection costs and that the lender's claims were, therefore, rendered moot. Because the lender sought summary judgment to release the replevin bond and secure its rights to the collateral obtained in the replevin proceeding and because attorney fees incurred for that purpose are recoverable from the borrower under the parties' loan documents, we affirm the district court's grant of summary judgment and attorney fees.FACTS
In May 1997, respondent Wells Fargo entered into a lending relationship with appellant Equinox. A number of documents and agreements governed this lending relationship. The relevant agreements are the credit and security agreement, the collateral and lockbox agreements, the personal guarantees, and the forbearance agreements.
The credit agreement states that Wells Fargo shall provide Equinox with a revolving line of credit and discretionary advances. In the event that Equinox's outstanding balances exceeded a percentage of its accounts receivable (the "borrowing base"), Equinox was obligated to correct the imbalance. The credit agreement also defines events of default, which entitle Wells Fargo to enforce all rights available under the agreements or by law. Equinox's obligations under the credit agreement were secured by collateral including accounts receivable.
The credit agreement also states that Equinox "agrees to pay on demand all costs and expenses (including legal fees) incurred by [Wells Fargo] in connection with the Loan Documents, and any other document or agreement related thereto, and the transaction contemplated . . . including . . . fees and expenses in enforcing this Agreement." The credit agreement also requires collateral and lockbox agreements to ensure that Wells Fargo received all Equinox customer payments. Under those agreements, Equinox was obligated to direct its customers to send their payments to a lockbox. If, instead, the customers sent the payments directly to Equinox, Equinox was obligated to put the funds into a collateral account at Wells Fargo Bank.
In addition, two officers of Equinox signed a personal guarantee obligating them to "absolutely and unconditionally" guarantee the full and prompt payment of any and all debts, liabilities and obligations Equinox owed to Wells Fargo. The guarantees state, "[t]he undersigned will pay or reimburse [Wells Fargo] for all costs, expenses and legal fees paid or incurred by [Wells Fargo] in endeavoring to collect and enforce the Indebtedness and in enforcing this guaranty."
In August 2001, Equinox's outstanding loan balances exceeded the "borrowing base." The parties entered into a forbearance agreement that gave Equinox three months to correct the imbalance or until default or breach before Wells Fargo pursued the available legal remedies. The forbearance agreement states that Equinox "shall pay or reimburse [Wells Fargo] for all costs and expenses connected with this Forbearance Agreement, as set forth in the Credit Agreement."
The parties subsequently extended the forbearance agreement, Equinox remained overadvanced, and Equinox proposed that certain of its vendors be paid with some of the accounts receivable. Despite rejection of the proposal by Wells Fargo, Equinox instructed customers to send their future payments to Equinox. In his deposition, an officer of Equinox acknowledged that this was a breach of the collateral and lockbox agreements.
Soon after learning of Equinox's breach of the lending agreement, Wells Fargo commenced a collection action claiming that Equinox defaulted on the loan. As a part of its action, Wells Fargo sought and obtained an ex parte replevin order subject to posting a replevin bond in the amount of $675,000 in accordance with Minn. Stat. § 565.25 (2000). Wells Fargo posted the bond which secured the return of the collateral seized under the replevin order "if a return or payment to [Equinox] be adjudged against [Wells Fargo]." Pursuant to the replevin order and less than one month after the action was commenced, Equinox satisfied the existing obligations it had to Wells Fargo.
Subsequently, Wells Fargo moved for summary judgment on its claims for breach of contract, replevin and guaranty, and for recovery of its additional attorney fees under the agreements. At the same time, Wells Fargo wrote a letter informing Equinox of outstanding obligations secured by the collateral. The letter states:
If Equinox is willing to stipulate to judgment in favor of Wells Fargo, withdraw the motion it has filed, and pay to Wells Fargo the $4,745 owing as of February 1, 2002, as well as all amounts that have accrued since that date, Wells Fargo will provide Equinox with a UCC Termination Statement.
Equinox did not stipulate to a judgment. On February 8, 2001, Equinox moved the district court for a temporary restraining order to prevent Wells Fargo from communicating with Equinox's customers and account debtors. The court granted the temporary restraining order. Wells Fargo filed a motion to dissolve the temporary restraining order on February 26, 2002; but the court did not decide the motion because Wells Fargo had filed a summary judgment motion. On March 5, 2002, Wells Fargo brought a separate motion for attorney fees. Equinox opposed the summary judgment motion and the attorney fees. Equinox argued that the action was moot because it had paid Wells Fargo in full on January 22, 2002, that Wells Fargo breached the agreement by demanding payment prior to the end of the forbearance period, and that Equinox was not in breach of the lockbox and collateral agreements.
The district court granted Wells Fargo's motion for summary judgment and indicated its intent to award attorney fees pending letters from the parties as to the amount owing on the debt and the amount of attorney fees. Eventually, the district court ordered judgment against Equinox for attorney fees and collection costs in the amount of $39,736.99. Equinox appealed.D E C I S I O N
On appeal, Equinox argues that because it paid its obligation to Wells Fargo on January 23, 2002, and the collection proceeding was then complete, (1) the dispute as to the obligation is moot; and (2) the attorney fees associated with obtaining a summary judgment were unnecessary. Whether a case is moot is a legal question, which we review de novo. In re McCaskill, 603 N.W.2d 326, 327 (Minn. 1999). "[T]his court will not reverse a trial court's award or denial of attorney fees absent an abuse of discretion." Star Tribune v. City of St. Paul, 660 N.W.2d 821, 827-28 (Minn. App. 2003) (quoting Becker v. Alloy Hardfacing & Eng'g Co., 401 N.W.2d 655, 661 (Minn. 1987)).
Equinox cites Vanderweyst v. First State Bank of Benson, to support its argument that once a collection proceeding is complete, the dispute as to the obligation is moot. 408 N.W.2d 208 (Minn. App. 1987). In Vanderweyst, appellants sued respondent, seeking damages and alleging that the interest rates respondent charged on various loans were usurious. Id. at 209. Appellant had already voluntarily paid its obligation. Id. at 211-12. The district court awarded respondent attorney fees incident to the usury claim based on a contractual obligation to pay the lender's attorney fees incident to collecting amounts due that the court found to be within the language of the promissory notes. Id. at 209. This court reversed that part of the decision and found that the costs of defending the claim of usurious rates were not collection costs. Id. at 212.
Here, the record amply supports the summary judgment finding by the district court that Equinox breached the lending agreements it had with Wells Fargo. Wells Fargo entered into a forbearance agreement conditioned upon no further breaches or defaults. The record shows that Equinox breached the lockbox and collateral agreements by depositing money into a separate bank account. Under the forbearance agreement, this breach allowed Wells Fargo to pursue legal remedies.
One of these legal remedies was a replevin order. The record shows that Wells Fargo had legitimate concerns about securing its rights in the collateral and had to post a replevin bond to do so. The replevin order states that Wells Fargo must obtain a final judgment before taking possession of the collateral. The replevin bond was not released until a stipulation was signed on March 14, 2002. Thus, at the time of the summary judgment hearing in 2002, the replevin bond was still outstanding. We, therefore, conclude that the replevin order was not a final adjudication of the merits of Wells Fargo's claim. Because Equinox opposed entry of judgment, Wells Fargo was required to move for summary judgment and continued to spar with Equinox at the total cost of nearly $40,000 in attorney fees.
Unlike Vanderweyst, this case is not a lender defending against claimed illegal conduct in a separate proceeding after the collection proceeding had been completed. Rather, this case involves actual collection costs. Pursuant to the replevin order, Wells Fargo obtained enough of the collateral to satisfy Equinox's obligation, but the replevin order was only provisional and the case needed to be decided on the merits to release the replevin bond and to confirm Wells Fargo's interest in the collateral. Thus, this dispute was not moot.
Regarding attorney fees, Equinox argues that the sole purpose of continuing litigation was to obtain a judgment and that the additional attorney fees pertain only to Wells Fargo's motion for summary judgment. "The general rule is that attorney fees are allowable if authorized by contract or statute. . . . " Material Movers, Inc. v. Hill, 316 N.W.2d 13, 18 (Minn. 1982); see In re Indenture of Trust, 437 N.W.2d 430, 437 (Minn. App. 1989) (denying attorney fees where contract required default), review denied (Minn. May 24, 1989); Erlandson Implement, Inc. v. First State Bank of Brownsdale, 400 N.W.2d 421, 427 (Minn. App. 1987) (finding implement dealers were not entitled to recover attorney fees from the bank in part because their actions were not for collection purposes as required by the security agreement). In addition, here the various agreements provide for attorney fees in the event of default.
This decision is not a license for lenders to engage in strong-arm or oppressive tactics to force acquirers to their every whim on pain of yet additional attorney fees. The courts are certainly open to consider situations of that sort and lenders will have to bear their own attorney fees to defend their actions or that of their attorneys. Although such overbearing conduct has not been alleged or found by the district court in this proceeding, we recognize that once the underlying debt is paid, parties have a mutual responsibility to clear up the loose ends to their lending/borrowing arrangement and minimize expenses, including attorney fees. In sum, in this case final judgment on the merits was necessary to secure the collateral Wells Fargo obtained as a result of Equinox's default. We expect that Wells Fargo was attempting to mitigate attorney fees by requesting that Equinox stipulate to a judgment. When Equinox failed to do so, the district court could reasonably conclude that Wells Fargo was left no choice but to pursue a judgment on the merits in order to release the replevin bond and secure its collateral. Thus, we affirm the district court's summary judgment and award of attorney fees.