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Attorneys – Fees – Receivership – Appeals – First Impression

The trial court denied outside counsel’s request for fees for work counsel had performed for a court-appointed receiver. Counsel appealed, and the court also denied counsel’s requests for fees related to the appeal because “the Appeal, if successful, would benefit only [counsel] and would reduce the assets of” the receivership. However, there may be circumstances under which an attorney’s actions benefit a receivership even without contributing to an increase in the receivership’s assets; further, applying a per-se rule prohibiting attorneys from recouping fee-litigation fees could ultimately harm parties in need of able legal representation by reducing the pool of attorneys willing to provide vigorous representation on critically important matters.

We reverse the Business Courts orders (1) refusing to authorize the receiver to pay fees for services rendered by attorney Philip Mohr and (2) refusing to authorize the receiver to pay Mohr’s firm’s fee-litigation fees. We remand for further proceedings.

This court has not previously considered whether outside counsel is entitled to compensation for work performed while seeking to recover fees originally incurred for legal services rendered to a receiver. We hold that, where there has been no finding that outside counsel’s fees were unreasonable, the mere fact that authorizing the receiver to pay counsel’s fee-litigation fees will diminish the receivership’s assets does not itself establish that counsel’s services were not rendered for the benefit of the receivership. The trial court’s finding that payment of the firm’s fee-litigation fees “would reduce the assets” of the receivership is insufficient to support its conclusion that the services the firm rendered did not benefit the receivership.

With respect to the trial court’s order denying the receiver’s request to pay attorney Mohr’s fees, our jurisprudence teaches that a trial court’s discretion to grant or deny a receiver’s request for authorization to pay fees to retained outside counsel is generally limited to (1) determining whether outside counsel rendered services which require legal knowledge and skill and which were rendered to the receiver for the benefit of the receivership and (2) determining the amount which comprises reasonable and proper compensation for the services outside counsel performed. Where the trial court’s order denying Mohr’s fees failed to address either of these questions and instead based its denial solely upon what the court perceived to be the receiver’s and Mohr’s failure to adhere to the requirements of a prior order dictating how invoices for attorneys’ fees should be submitted to the court, the trial court’s denial of the request for fees was an abuse of discretion.

The trial court’s denial of Mohr’s fees could be construed as a sanction. A court has the inherent authority to sanction parties and attorneys for misconduct during litigation; however, before an order imposing sanctions is entered, the court must provide the party being sanctioned with notice and an opportunity to be heard. In addition, the trial court’s conclusion that sanctions should be imposed must be supported by findings of fact which must in turn be supported by sufficient evidence.

Here, the trial court did not give Mohr notice that it was considering sanctions.

Furthermore, the trial court’s finding that Mohr “[flagrantly disregarded] … the requirements imposed by” its prior order is unsupported by the record. That prior order required the receiver to submit invoices to the court and specifically forbade “outside counsel” from submitting requests for fees. Therefore, under the terms of the order, Mohr was prohibited from doing precisely that which the trial court apparently penalized him for not doing.

Reversed and remanded.

Bandy v. A Perfect Fit for You, Inc. (Lawyers Weekly No. 010-123-21, 20 pp.) (Anita Earls, J.) Appealed from the Business Court (Gregory McGuire, J.) Philip Mohr and Brent Powell for appellants; no brief filed for appellees. 2021-NCSC-117

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