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BONNIE & CO. FASHIONS v. BANKERS TRUST CO.

July 21, 1997

BONNIE & COMPANY FASHIONS, INC. and BONNIE BOERER, individually, Plaintiffs, against BANKERS TRUST COMPANY, Defendant.


The opinion of the court was delivered by: EDELSTEIN

 EDELSTEIN, District Judge :

 Currently before this Court is a question concerning the release of plaintiff Bonnie Boerer's ("plaintiff" or "Boerer") personal $ 1,000,000 collateral which presently is held by defendant Bankers Trust Company ("defendant," the "Bank," or "BTC"). For the reasons stated herein, this Court finds that defendant must immediately release Boerer's collateral to her, minus $ 20,723.87 reimbursement for BTC's expenses of collection, or $ 979,276.13.

 BACKGROUND

 This cases arises from an alleged breach of a factoring agreement (the "Factoring Agreement") between plaintiff Bonnie & Co. Fashions, Inc. ("Bonnie & Co.") and BTC. This Court previously has conducted an exhaustive review of both the factual and procedural history underlying this litigation, see Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 945 F. Supp. 693, 699-702 (S.D.N.Y. 1996) (the "1996 Opinion"); Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 170 F.R.D. 111 (S.D.N.Y. 1997); Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 955 F. Supp. 203 (S.D.N.Y. 1997) (the "1997 Opinion"); Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 171 F.R.D. 79 (S.D.N.Y. 1997), and, therefore, this Court will review herein only as much background as is necessary to resolving the instant issues.

 Although this case originally consisted of six claims by plaintiffs and eleven counterclaims and affirmative defenses, only one claim is at issue here: Plaintiff's Count Four. In that claim, Boerer seeks the return of a $ 1,000,000 Treasury Bill which she personally pledged to BTC pursuant to a security agreement (the "Security Agreement"). See Bonnie & Co., 945 F. Supp. at 701-02. In addition, plaintiff sought in Count Four $ 250,000 in punitive damages for defendant's alleged wrongful withholding of Boerer's collateral. Id.

 Count Four has been the subject of numerous motions before this Court. First, in 1992 plaintiffs moved for summary judgment on Count Four to compel the immediate return of the Treasury Bill. Id. at 714. This Court denied that motion, finding that while defendant "has an undisputed security interest in the collateral . . . the amount of collateral necessary to secure defendant's security as this litigation continues is a genuine issue of material fact." Id. (citing (Order, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 (Mar. 6, 1992))).

 In 1994, defendants moved for summary judgment on all claims, counterclaims and affirmative defenses. In the 1996 Opinion, this Court denied defendant's motion for summary judgment on Count Four, explaining that "it remains as true now as it did [in 1992]" that an issue of material fact exists concerning the amount of collateral to which each party was entitled, "because plaintiffs claim that they are owed $ 221,200 by BTC for BTC's alleged breaches of the Factoring Agreement, while BTC claims it is owed $ 127,608.35 plus interest by plaintiffs for debts arising under the Factoring Agreement." Id. (citations omitted). However, this Court granted summary judgment to BTC on plaintiffs' Count Four claim for $ 250,000 punitive damages. Id. In the wake of the 1996 Opinion, therefore, Count Four exists only as a claim for the release of Boerer's $ 1,000,000 collateral.

 Third, in November 1996, plaintiffs again moved for summary judgment on Count Four, as well on defendant's counterclaims which seek attorneys' fees. See Bonnie & Co., 955 F. Supp. at 206. In the 1997 Opinion, this Court determined that plaintiffs had established, and that BTC did not dispute, that Bonnie & Co.'s alleged $ 127,608 factor account debit to BTC had been satisfied through a 1994 bankruptcy settlement. Id. at 213. Even though Bonnie & Co. had satisfied its factor account liabilities to BTC, however, this Court found that it was inappropriate to order that BTC release Boerer's $ 1,000,000 Treasury Bill to her. Id. at 215. This Court rejected Boerer's attempt to obtain the immediate release of her collateral because the parties' Factoring Agreement "unambiguously states that the Treasury Bill is collateral for plaintiffs' liability to BTC for Bonnie & Co.'s unpaid factor accounts, as well as for any attorneys' fees and costs for which plaintiffs are liable." Id. This Court further found that plaintiffs' liability to BTC under the Factoring Agreement was limited to BTC's "expenses of collection" of Bonnie & Co.'s unpaid factor account debit of $ 127,608, and did not include liability for all of BTC's attorneys' fees in this litigation. Id. at 218-220.

 Finally, in February 1997, plaintiffs again sought the immediate release of Boerer's $ 1,000,000 Treasury Bill. See (Order, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 at 1 ("March 1997 Order") (Mar. 11, 1997).) In light of the 1997 Opinion's finding that BTC's expenses of collection constituted the only liability secured by Boerer's collateral, plaintiffs sought from this Court an Order compelling BTC to provide plaintiffs with a "calculation, along with documentary backup, of the 'expenses of collection' allegedly incurred by defendant in pursuing [Bonnie & Co's alleged $ 127,608 factor account debit balance]." Id. Plaintiffs also sought a hearing to determine the reasonableness of BTC's claimed expenses of collection and the release of the collateral. Id. In considering plaintiffs' motion, this Court found that "the only interest defendant has in retaining Boerer's $ 1,000,000 collateral is to secure defendant's expenses of collection," and "that it is just and proper to finally adjudicate the amount of Boerer's $ 1,000,000 collateral that defendant may retain as payment for its expenses of collection." Id. at 2. Because plaintiffs' liability for BTC's expenses of collection had not yet been determined, this Court again denied plaintiffs' request for the immediate release of Boerer's collateral, as well as their request for a hearing on that issue. Id. at 3. This Court also ordered BTC to provide plaintiffs with a calculation, with documentary backup, of BTC's expenses of collection, and set a briefing schedule so that this Court could finally determine how much, if any, of Boerer's $ 1,000,000 collateral should be returned to her. Id.

 In accordance with this Court's March 1997 Order, on April 21, 1997, BTC served upon plaintiffs and this Court a "Calculation of Expenses." (Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("BTC's Calculation of Expenses") (Apr. 21, 1997).) BTC's Calculation of Expenses contains two separate expense calculations. BTC's first calculation, titled "Summary I," totals $ 433,739.30 and reflects "all of the legal fees and disbursements incurred and paid by the Bank in connection with this matter from August 1990 to May 15, 1995." Id. at 1. BTC's "Summary II" amounts to $ 183,672.00 and reflects "those [expenses] attributable to the prosecution of [BTC's] counterclaims" for Bonnie & Co.'s factor account debit. Id. The parties have each fully briefed the issue of how much of Boerer's $ 1,000,000 collateral BTC may retain in payment for its expenses of collection. See (Defendant's Memorandum Of Law In Support Of Its Calculation Of Expenses, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("BTC Memo") (May 5, 1997)); Plaintiff's Memorandum Of Law In Opposition To Bankers Trust's Calculation Of Expenses, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Pltf. Memo") (May 5, 1997)); (Defendant's Memorandum Of Law In Reply to Plaintiffs' Objections To Its Calculation of Expenses, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("BTC Reply Memo") (May 12, 1997)); (Plaintiffs' Reply Memo Of Law In Opposition To Bankers Trust's Calculation of Expenses, Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 ("Pltf. Reply Memo") (May 12, 1997)). It is that issue which this Court must resolve in the instant Opinion.

 Before determining amount of collection expenses which BTC may withhold from Boerer's collateral, this Court notes that on June 3, 1997, this Court received a copy of a letter from the United States Marshals Service to counsel for BTC. (Letter from Elizabeth Baskerville, Administrative Support Assistant for the United States Marshals Service, to Joseph A. Vogel, Esq. (the "Marshals Letter") (June 3, 1997).) In that letter, the Marshals Service informs BTC that "pursuant to the attached copy of Writ of Execution, [it is] herewith levying on all the right, title interest which the said, Bonnie & Co. Fashion Inc. d/b/a/ Bonnie & Company, judgment debtor, has in any funds, property or assets you may be holding in your possession to the amount of $ 194,092.60 to satisfy the judgment of $ 194,048.88, and Marshals fees in the amount of $ 43.72." Id.

 Finally, in apparent anticipation of an adverse ruling in the instant Opinion and Order, BTC has requested, pursuant to Federal Rule of Civil Procedure ("Rule") 54(b), an express determination of the finality of this Court's adjudication of Count Four so that BTC may immediately appeal. BTC has further requested a stay of this Court's findings during the pendency that appeal.

 DISCUSSION

 This Court must resolve three issues in the instant Opinion & Order. First, this Court must determine the appropriate level of BTC's "expenses of collection," and, once that figure is calculated, order BTC to return Boerer's $ 1,000,000 collateral less BTC's expenses of collection. Second, this Court must consider the effect upon Boerer's collateral of the Marshals Service's levying upon $ 194,092.60 of Bonnie & Co.'s assets held by BTC. Third, this Court must address BTC's Rule 54(b) request, as well as its request for a stay pending its appeal. These issues will be discussed individually.

 I. BTC'S APPROPRIATE "EXPENSES OF COLLECTION"

 The parties' submissions make clear their disagreement over the appropriate level of BTC's expenses of collection. BTC claims that it is entitled to the expenses calculated in Summary I, $ 433,739.30, or that, alternatively, it is at least entitled to $ 183,672.00, as tabulated in Summary II. As might be expected, plaintiffs argue that BTC is not even entitled to the proposed Summary II expenses. Each side offers several arguments in support of its respective position, and this Court will consider the appropriateness of BTC's proposed expense summaries individually

 A. BTC's Summary I Expense Calculation

 In arriving at the $ 433,739.30 level of fees in Summary I, BTC employed an "intertwined claims" argument. That argument reasons that if BTC, rather than plaintiffs, initiated this lawsuit to recover Bonnie & Co.'s factor account debit balance, "five of plaintiffs' six claims (negligence, breach of fiduciary duty, breach of contract, return of collateral, and damages from negligence and breach) would likely have been asserted by plaintiffs as affirmative defenses." Id. at 7. As a result, BTC argues, "time spent on discovery or preparing a motion directed to one or more of [BTC's] claims necessarily entailed addressing some or most of plaintiffs' claims." Id. According to BTC, "the intertwined nature of these claims makes it proper for [BTC] to recover its expenses incurred in both prosecuting counterclaims and in defending inter-related affirmative claims, all of which involve a common core of operative facts." Id.

 Additionally, BTC contends that "it is both unnecessary and inappropriate to attempt to apportion the expenditure [of time] by [BTC's] counsel between the prosecution of [BTC's] counterclaims and defense of the plaintiffs' claims" because most of counsel's time was dedicated to determining "the parties' respective rights and obligations under the Factoring Agreement and the related agreements." Id. at 8-9. As a result, BTC claims that it "is entitled to recover all of its fees and disbursements through May 15, 1995[,] in the amount of $ 433, 739.30." Id. at 9.

 Plaintiffs oppose BTC's attempt to recover all of its attorneys' fees in this litigation, as calculated in Summary I. See (Pltf. Memo at 5.) Specifically, plaintiffs deride BTC's request for $ 433,739.30 in attorneys' fees for a $ 127,608 collection claims as "nothing short of outrageous." Id. Moreover, plaintiffs point out that "in requesting all of its litigation expenses . . . BTC makes a mockery of this Court's decisions" which make clear that BTC is entitled only to its "expenses of collection" of Bonnie & Co.'s factor account debit balance, not all of its expenses arising from this lawsuit. Id. at 5-7.

 This Court begins its resolution of the applicability of Summary I by noting that its prior decisions in this case are abundantly clear in the following respect: under the Factoring Agreement, BTC is contractually entitled to no more than its "expenses of collection" of Bonnie & Co.'s factor account debit balance. Neither party expressly disputes this premise. The parties' disagreement over the propriety of Summary I, therefore, arises from their differing interpretations of what constitutes BTC's collection expenses in this litigation.

 Nevertheless, the parties's submissions indicate that they appear to agree that BTC's ability to collect its Summary I expenses turns upon this Court's reading of the Second Circuit's decision in Diamond D Enterprises USA, Inc. v. Steinsvaag, 979 F.2d 14 (2d Cir. 1992), cert. denied, 508 U.S. 951, 124 L. Ed. 2d 660, 113 S. Ct. 2442 (1993). There, Diamond D Enterprises USA, Inc. ("Diamond"), a franchisor of wedding-service businesses, entered into a franchise agreement with Wedding Services, Inc. ("WSI"), a corporation owned by Richard Steinsvaag ("Steinsvaag"), who personally guaranteed WSI's obligations. 979 F.2d 14, 16. When WSI defaulted on its obligations to Diamond under their franchise agreement, Diamond terminated WSI's franchise and sued WSI and Steinsvaag ("defendants") for, inter alia, breach of contract. Id. Defendants asserted three affirmative defenses and eight counterclaims against Diamond as well as two additional defendants. Id. As the Second Circuit noted, "although the counterclaims alleged various contract, tort, and statutory claims, they shared a common nucleus: that Diamond fraudulently induced WSI to execute the franchise agreement by misrepresenting the prospects of [Diamond's] franchises." Id. After the district court dismissed two of defendants' counterclaims, a jury trial was held and a verdict was returned awarding Diamond D $ 1,300 on its contract claim and rejecting defendants' remaining counterclaims. Id. at 17.

 Diamond successfully moved for a new trial on the issue of damages, and moved for an interim award of attorneys' fees under a fee-shifting clause in the franchise agreement. Id. The district court awarded interim attorneys' fees in the amount of $ 34,288. Id. The jury in the second trial awarded damages of $ 17,109, to which the trial judge added $ 6,990 for attorneys' fees incurred since the first award. Id. On appeal, defendants argued that the award of attorneys' fees were unauthorized by the franchise agreement and were excessive. Id.

 The franchise agreement's fee-shifting provision under which Diamond was awarded fees was, according to the Second Circuit, an "ambling one-sentence clause" that was "hardly a paragon of clarity." Id. at 18. Steinsvaag argued that the clause's text provided for reimbursement only of those attorneys' fees which Diamond "incurred in enforcing" the franchise agreement, and excluded reimbursement for costs Diamond incurred defending defendants' counterclaims. Id. The Second Circuit, however, reasoned that

 
the nature--not the nomenclature--of a claim is controlling. Thus, 'where a fee applicant recovers on a claim subject to a contractual attorneys' fee provision and in the process litigates a counterclaim on which he must prevail in order to recover on his claim, the fee applicant is entitled to his attorneys' fees for both the claim and the counterclaim.'

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