The attorney’s fee provision in a promissory note covered the costs incurred in collecting the debt post-judgment, the South Carolina Court of Appeals has ruled.
The court rejected the so-called “merger doctrine” in a case of first impression, which should come as welcome news to lawyers who handle post-judgment debt collection work.
Under the merger doctrine, detailed in the Restatement of Judgements, once a contracted-for debt is reduced to judgment, there no longer is an operative fee provision.
The court’s Dec. 20 opinion in Raynor v. Byers is barely four pages long and fixed on a narrow issue, but it’s an issue that affects creditors’ ability to collect on judgments ordering repayment of debts and their attorneys’ ability to get paid.
The creditor’s attorney in Raynor, Kevin Molony of Angell Molony in Aiken, said the decision should “give creditors hope.” It also allows him to move forward in seeking more than $82,400 in fees and costs for his efforts to collect a judgment against the debtors who defaulted on a $250,000 promissory note from his client.
“If creditors draft the attorney fee provisions appropriately, this decision certainly helps keep the fight going in the hopes of collecting the judgment,” he added. “I think the court did a good job clarifying for the rest of us how the terms of the attorney fee provision of a promissory note should be clear and unambiguous, making sure that the provision would extend post-judgment.”
Molony is a former prosecutor who joined the bar in 2011 and Raynor was his first post-judgment collection case after he transitioned to private practice. Now, his practice is focused on post-judgment collection.
Had the decision gone the other way, it would have had a potentially detrimental impact on Molony and other lawyers who specialize in the same type of work. Their clients would likely be forced to pay fees from the proceeds of a judgment, assuming their collection efforts were successful, as opposed to being able to add fees on top of the judgment.
Now, though, creditors have more of an incentive to hire post-judgment collection attorneys and those attorneys can use the threat of fees, which snowball as a collection effort drags on, as leverage to collect judgments quickly.
But an attorney for the debtors in Raynor, Andy Syrett of Columbia, who has been in practice since 1975, has petitioned the Court of Appeals to rehear the case. He said his clients were prepared to take the fight to the state Supreme Court.
“My thought is that the Court of Appeals doesn’t want to be saying this is the law in South Carolina in a case of first impression,” he said. “I think they’re probably, without saying it, deferring to the Supreme Court.”
Syrett had urged the Court of Appeals to follow a decision from Maryland’s appellate court in Monarc Construction Inc. v. Aris Corp. and apply the merger doctrine to post-judgment debt collection. He also stressed that South Carolina Family Court had adopted the doctrine in merging a separation agreement with a divorce decree.
Under the doctrine in the debt collection context, the contract underlying the debt — in this case it was a promissory note that included a provision stating that the borrower agreed to “pay all costs of collection, including a reasonable attorney’s fee” — merges with the judgment, which forecloses the creditor from seeking attorneys’ fees for any effort to collect on the judgment.
“The individual provisions of the note just drown in the judgment,” Syrett said. He added that “there’s no [state] statute that allows you to collect attorneys’ fees for pursuing collection of a judgment. “
In rejecting Syrett’s argument, Court of Appeals Judge Paula Thomas held that while state law was silent on the issue, the promissory note in question “clearly provided for the recovery of reasonable attorney’s fees for necessary litigation in the event of default.”
“There is no limitation in the contract for only fees incurred prior to or in the process of obtaining the judgment,” she added in the unanimous opinion. “Instead, the parties intended for [the debtors] to be reasonable for all costs of collection.”
The four-page decision is Raynor v. Byers (Lawyers Weekly No. 011-001-18),. An opinion digest is available at sclawyersweekly.com.
Follow Phillip Bantz on Twitter @SCLWBantz