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Flagstar Bank, FSB v. Caribbean Mortgage Corp.

January 3, 2007

FLAGSTAR BANK, FSB, PLAINTIFF,
v.
CARIBBEAN MORTGAGE CORP., ET AL., DEFENDANTS.



The opinion of the court was delivered by: James Orenstein, Magistrate Judge

MEMORANDUM AND ORDER

On May 30, 2006, the parties to this case entered into a settlement agreement and judgment was entered accordingly. See Docket Entry ("DE") 16. Several months later, defendants Caribbean Mortgage Corporation and Udit Meetoo asked for a conference at which they intended to seek leave to file a motion "to reform or vacate the Stipulation of Settlement and/or vacating [sic] the said Judgment under F.R.C.P. 60(b)." DE 20 at 3. There followed a series of letters from the parties, a conference before me at which I asked about the merits of the contemplated motion, and then a decision by the defendants -- undoubtedly a wise one -- to abandon their efforts to upset the settlement and judgment.

The matter did not end there: before me now, upon a referral from the Honorable John Gleeson, United States District Judge, is a motion by plaintiff Flagstar Bank, FSB ("Flagstar"), for an award of its litigation costs, including reasonable attorney's fees, in responding to the defendants' wholly frivolous application. DE 31. Although I sympathize with the frustration that the recent litigation must have caused the plaintiff and find little merit in the defendant's often specious arguments in opposition to the fee application, I cannot square the language of the settlement agreement's fee-shifting provision, on which Flagstar exclusively relies, with the circumstances of this case. I therefore deny the motion.

I. Background

On May 30, 2006, the parties submitted a "Stipulation and Settlement Agreement for Final Judgment" (the "Stipulation") together with a proposed "Final Judgment by Consent in Favor of Plaintiff Flagstar Bank, FSB and Against Defendants Caribbean Mortgage Corp. and Udit Meetoo." DE 16. The terms of the Stipulation were clear and unambiguous, and the document explicitly stated that it was prepared by all parties, and that it constituted the parties' entire agreement -- thus disavowing any terms other than those written in the document itself and any reliance on any prior discussions or agreements. Stipulation ¶¶ 11, 12. As requested, Judge Gleeson thereafter signed the proposed consent judgment. DE 17. The case was thus closed.

Less than five months later, the defendants sought to undo that stipulated resolution of the case. On October 27, 2006, consistent with Rule 2.A of Judge Gleeson's individual practice rules, their counsel took the first step in the process of filing a motion for relief from judgment pursuant to Federal Rule of Civil Procedure 60(b) by submitting a letter that requested a pre-motion conference. DE 20. The letter described "[t]wo disputes that have occurred between plaintiff and Defendants" in implementing the settlement, id. at 2, and concluded that Flagstar's "lack of cooperation provide[d] a basis for seeking to reform or vacate the Stipulation of Settlement and/or vacating the said Judgment under F.R.C.P. 60(b)." Id. at 3. Judge Gleeson plainly understood the request, as I did, to be the first step in litigating a motion to undo the settlement and alter the consent judgment -- a fact made evident by his order of November 2, 2006, referring to me "[t]he proposed Rule 60(b) motion by Caribbean Mortgage Corp. and Udit Meetoo, which is the subject of Mr. Straniere's letter of October 27, 2006."

The plaintiff submitted a response addressing the merits of the dispute on November 14, 2006. DE 22. Thereafter, on December 8, 2006 (and only after some prodding from me in an attempt to gain a clearer understanding of the legal claims at issue), the defendants submitted a letter describing with greater specificity the reasons they thought the Stipulation might be subject to attack. DE 28. In their letter the defendants asserted that Paragraph 7 of the Stipulation was ambiguous, and went on to argue that the perceived ambiguity should be resolved in the their favor on the basis of factual allegations that one of the lawyers had made about the parties' intentions. The defendants further argued that if the perceived ambiguity was resolved in Flagstar's favor, the result would be an agreement that lacked mutuality, was unconscionable (in that it would require the defendants to pay Flagstar all of what was owed, rather than a lesser amount the defendants unilaterally determined to be reasonable), and therefore unenforceable.

After some difficulty, see DE 23; DE 24; DE 25; DE 26, I managed to get the parties' respective attorneys before me for the pre-motion conference on December 14, 2006. I questioned the attorneys extensively on the merits of the dispute. After hearing both sides, the defendants persisted in their desire to be granted leave to file a Rule 60(b) motion. I granted that application and set a schedule for the submission of further factual allegations and legal arguments. DE 29.*fn1

I am sure that the questions I asked at the conference, the content of the attorneys' responses, and, most importantly, the applicable law, made it apparent to all concerned that the defendants' legal challenge to the Stipulation lacked merit and that, in any event, a motion for relief from judgment pursuant to Rule 60 was not an appropriate procedural mechanism for pursuing such a challenge. It therefore came as no great surprise when, five days after the pre-motion conference, the defendants submitted a letter expressing their decision not to file the motion after all. DE 30. To the extent that the defendants sought to save face by asserting that the discussion at the pre-motion conference "mooted the claims made by us regarding the enforceability of the Stipulation," id., the artifice was obvious: the "clarifications" to which counsel alluded were merely affirmances by Flagstar's counsel that the Stipulation means what it says and what Flagstar's counsel had been saying it meant all along.

Thus, at the end of almost two months of litigation, the plaintiff had prevailed. I use the term advisedly, for reasons that will become apparent, but the justification for using the word is plain: the defendants had taken the first steps needed to reopen a closed case and vacate the judgment, with the stated intention of achieving that result; the plaintiff had opposed those efforts; and at the end of the intervening litigation, the plaintiff's position had been vindicated and the status quo -- which the defendants had sought to upset -- maintained.

Flagstar was, quite understandably, dissatisfied to have had to bear the costs arising from those two months of litigation. Accordingly, on December 21, 2006, it filed a letter motion asking for "an order awarding it contractual attorney's fees and costs incurred in connection with Defendants' attempts to vacate or reform the parties' agreement." DE 31 at 1. The defendants responded on December 27, 2006. DE 32. Flagstar submitted a reply two days later. DE 33.

II. Discussion

The frustration that drives Flagstar's motion is justified. The legal argument that supports it is not. If I could decide this motion by reference to what is fair, or even by weighing the relative quality of the arguments on both sides, I would not hesitate to grant the motion. But the authority on which Flagstar relies in not a creature of law but rather of a private agreement that, in this context, I must construe narrowly. As explained below, Flagstar cannot prevail under the facts of this case.

The parties agree that Flagstar's right to reimbursement of its costs, if such a right exists, is grounded ...


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