Contract – Revolving Credit – Attorney’s Fees – N.C. Law

Despite conflicting lines of cases from North Carolina’s intermediate appellate court, we read G.S. § 6-21.2(1) and (2) as they are written and uphold the district court’s award of attorney’s fees to the plaintiff-lender in an amount equal to 15 percent of the outstanding balance of the defaulted loan.

We affirm summary judgment for the lender.

Mitigation & Obstruction

The defendant-borrower does not contest the fact that it defaulted on its revolving credit account (revolver) with the lender. The borrower asserted defenses, arguing that the lender failed to mitigate its damages and obstructed the borrower’s contract performance by declining to approve several third-party financing options. However, the borrower only proffered vague testimony from its majority shareholder, Greg Lindberg, with no details about these financing proposals.

This lack of detail matters. Under North Carolina law, the burden is on the breaching party (here, the borrower) to prove that the nonbreaching party (here, the lender) failed to exercise reasonable diligence to minimize the loss.

To avoid summary judgment, the borrower needed to raise triable issues about whether any of the purported financing offers could have prevented a breach, mitigated damages, or enabled repayments and whether the offers’ terms were sufficiently favorable that it would have been unreasonable or wrongful for the lender to withhold its approval. The borrower failed to do so.

Attorney’s Fees

In North Carolina, a prevailing party is not entitled to attorneys’ fees unless expressly authorized by statute. As relevant here, G.S. § 6-21.2 makes “[o]bligations to pay attorneys’ fees upon any . . . evidence of indebtedness . . . valid and enforceable . . . subject to” certain “provisions” set forth in the rest of the statute. This case requires us to interpret the relationship between two of those provisions.

The first—Subsection 1—addresses circumstances where the “evidence of indebtedness provides for attorneys’ fees in some specific percentage of the ‘outstanding balance.’” § 6-21.2(1). In that situation, “such provision and obligation shall be valid and enforceable up to but not in excess of fifteen percent of said ‘outstanding balance’ owing on said note, contract or other evidence of indebtedness.”

Subjection 2, in contrast, applies if the “evidence of indebtedness provides for the payment of reasonable attorneys’ fees by the debtor, without specifying any specific percentage.” § 6-21.2(2). In that case, “such provision shall be construed to mean fifteen percent of the ‘outstanding balance’ owing on said note, contract or other evidence of indebtedness.”

Although the North Carolina Court of Appeals has varying lines of cases construing this statutory language, the North Carolina Supreme Court has not reconciled them. We predict that the high court would give effect to the plain meaning of the statute.

This statute’s plain words divide the world into two types of fee-shifting provisions: those that “provide[] for attorneys’ fees in some specific percentage of the ‘outstanding balance’” and those that “provide[] for the payment of reasonable attorneys’ fees . . . without specifying any specific percentage.” § 6-.21.2(1)–(2). Because the revolver provides for “the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel,” without mentioning any specific percentage, it is governed by Subsection 2. Subsection 2, in turn, provides the revolver “shall be construed to mean” that Academy is required to pay “fifteen percent of the ‘outstanding balance’” as attorneys’ fees.

It is well established in North Carolina that the word “shall” is generally imperative or mandatory, and here the inference is strengthened by the legislature’s use of “up to but not in excess of fifteen percent” in the directly neighboring Subsection 1. The district court thus did not err in imposing a 15 percent fee award.

Affirmed.

Colorado Bankers Life Insurance Co. v. Academy Financial Assets, LLC (Lawyers Weekly No. 001-020-23, 13 pp.) (Toby Heytens, J.) No. 22-1104. Appealed from USDC at Raleigh, N.C. (James Dever, J.) Matthew Nis Leerberg, Matthew Krueger-Andes and Aaron Tobin for appellant; Lauren Elizabeth Fussell, Camden Webb and Alexander Gormley for appellee. 4^th Cir.