A recent Law 360 story by Nathan Hale, “Wells Fargo Must Face Claim it Inflated Atty Fee Request,” reports that a Florida trial court erred in finding that borrowers could not sue Wells Fargo for expenses they allegedly incurred as a direct result of the bank "grossly" inflating its attorney fees claim after suing them for a loan default, a state appeals court said. In its opinion, the Third District said the lower court's dismissal appeared to be the result of confusion over the issues and that Florida law clearly allows borrower 345 Carnegie Avenue LLC and loan backers Vladimir Galkin and Yakov Baraz to seek damages if the bank made an inaccurate fees claim.
"The hearing transcript reveals that the trial court conflated the issue of whether Wells Fargo was entitled to attorney's fees based on appellants' stipulated default on the loan documents, with the different issue of whether Wells Fargo's estoppel letter was inaccurate causing consequential damages to appellants," the appeals panel said. "It is clear to us that this confusion resulted in the dismissal of a cognizable claim." The Third District said it was not weighing in on whether the borrowers could prove that Wells Fargo Bank NA breached their loan documents and Florida's covenant of good faith and fair dealing, but it said that at this stage in the litigation, the court must accept their allegations as true.
The dispute stems from a 2007 loan issued to 345 Carnegie by Wells Fargo's predecessor, Wachovia Bank. The borrowers did not contest Wells Fargo's March 2014 claim that they committed several nonmonetary defaults, but they disputed the bank's claim that they also owed it more than $100,000 in attorney fees in connection with its enforcement and collection of the note, according to the opinion. The borrowers claimed that amount was grossly inflated and inaccurate, but the bank refused to provide further proof justifying it, citing attorney-client privilege, the opinion said.
The borrowers attempted to pay the roughly $1.2 million amount the bank had demanded aside from the $100,000 in legal fees, but Wells Fargo refused to accept it. As a result, the borrowers filed suit in May 2014 to try to prevent the bank from collecting on the note and foreclosing on a mortgage on commercial property owned by 345 Carnegie that partially secured the loan. Wells Fargo filed a counterclaim, the borrowers stipulated to their liability on the loan default, and the trial court entered a partial final judgment in Wells Fargo's favor and released funds it was holding to the bank to cover those claims. The court said it would rule separately on the reasonableness of the attorney fees claim, the opinion said.
In a second amended complaint, filed in October 2017, 345 Carnegie, Galkin and Baraz claimed that the fees dispute had caused them monetary damages because they were unable to refinance or sell the mortgaged property securing the loan, according to the opinion. The trial court subsequently granted Wells Fargo's motion to dismiss that claim for failure to state a claim.
But the appeals court said the damages the borrowers claim they suffered as a result of Wells Fargo's deliberately inflating its fees request were separate and distinct from the question of their being required to pay attorney fees to the bank, and there is "little doubt" that Florida law recognizes such a claim.
State law requires a mortgage lender to provide the borrower with a written estoppel letter detailing not only the unpaid balance of the loans secured by the mortgage but also "any other charges properly due under or secured by the mortgage," the court pointed out. And the legislature "expressly contemplated" a cause of action rising out of that obligation, including a line in the relevant statute that a prevailing party in a civil action arising from that section of law is entitled to attorney fees and cost, the opinion said.