IN THE SUPREME COURT OF NORTH CAROLINA
2021-NCSC-117
No. 429A20
Filed 29 October 2021
SHELLEY BANDY, plaintiff and third-party defendant
STATE OF NORTH CAROLINA, intervenor–plaintiff
v. A PERFECT FIT FOR YOU, INC., MARGARET A. GIBSON, and RONALD WAYNE GIBSON, defendants
v.
A PERFECT FIT FOR YOU, INC., appellant/intervenor–defendant and third-party plaintiff
MARGARET A. GIBSON, RONALD WAYNE GIBSON, R. WAYNE GIBSON, INC., and RW & MA, LLC, cross-claim and third-party defendants
Appeal pursuant to N.C.G.S. § 7A-27(a)(2) from final orders entered on 6
November 2019, 6 March 2020, 24 March 2020, 30 April 2020, 29 May 2020, 26 June
2020, 22 July 2020, 14 September 2020, and 5 October 2020 by Judge Gregory P.
McGuire, Special Superior Court Judge for Complex Business Cases, after the case
was designated a mandatory complex business case by the Chief Justice pursuant to
N.C.G.S. § 7A-45.4(b). This matter was calendared for argument in the Supreme
Court on 6 October 2021 but determined on the record and briefs without oral
argument pursuant to Rule 30(f) of the North Carolina Rules of Appellate Procedure. BANDY V. A PERFECT FIT FOR YOU, INC.
Opinion of the Court
Philip J. Mohr and Brent F. Powell for appellants A Perfect Fit For You, Inc., Douglas M. Goines as Receiver, and the Law Firm of Womble Bond Dickinson (US), LLP.
No brief filed for appellees.
EARLS, Justice.
¶1 The question before us is whether the Business Court erred in refusing to
authorize the court-appointed receiver for the company A Perfect Fit For You, Inc. (A
Perfect Fit) to pay fees to the law firm Womble Bond Dickinson (US), LLP (Womble)
for services rendered by one of the firm’s attorneys, Philip J. Mohr. The Business
Court did not refuse to authorize the receiver to pay Womble’s fees on the basis of any
finding relating to the nature or quantity of the legal services Mr. Mohr provided.
Instead, the Business Court refused authorization solely on the basis of its conclusion
that Mr. Mohr and the receiver had “flagrant[ly] disregard[ed] . . . the requirements
imposed by” a previous court order which established the process the receiver and
Womble were required to follow when seeking authorization for fee payments.
¶2 Appellants argue that the Business Court abused its discretion in refusing to
authorize fee payments based upon an assessment of the receiver’s and Mr. Mohr’s
purported lack of compliance with a court order. In the alternative, appellants argue
that the Business Court’s order should be construed as an order imposing sanctions
against Womble without prior notice and an opportunity to be heard, in violation of
Womble’s due process rights under the Fourteenth Amendment to the United States BANDY V. A PERFECT FIT FOR YOU, INC.
Constitution and article I, section 19 of the North Carolina Constitution. In addition,
appellants also challenge the Business Court’s denial of the receiver’s subsequent
requests for authorization to pay fees for work performed by Womble on its appeal of
the orders refusing to authorize fee payments for the services rendered by Mr. Mohr.
¶3 We hold that the Business Court’s decision to deny authorization for the
receiver to pay Womble fees incurred for Mr. Mohr’s work was an abuse of discretion.
In addition, the Business Court’s order could not permissibly impose monetary
sanctions on Womble because the record indicates that the party being sanctioned
did not have prior notice and an opportunity to be heard. Finally, it was error to deny
the receiver’s request for permission to pay Womble’s fee-litigation fees without
making necessary findings specifically regarding the value to the receivership, or lack
thereof, of the work which generated these fees. Accordingly, we reverse the Business
Court’s order refusing to authorize payment of fees to Womble for Mr. Mohr’s work
and the relevant Business Court orders denying the receiver’s request to pay
Womble’s fee-litigation fees and remand this case to the Business Court for further
proceedings not inconsistent with this opinion.
I. Appointment of the receiver and the services rendered by Womble.
¶4 In 2016, Shelley Bandy filed a complaint and ex parte request for appointment
of a receiver over A Perfect Fit, a medical equipment company located in Carteret
County. On the day the complaint was filed, Senior Resident Superior Court Judge BANDY V. A PERFECT FIT FOR YOU, INC.
Benjamin G. Alford entered a temporary restraining order and an order appointing
M. Douglas Goines as the company’s receiver. Judge Alford subsequently entered an
order granting a preliminary injunction and appointing a receiver which provided
that Mr. Goines would “continue as receiver, vested with full powers granted under
statute to take possession of and manage the business, books, and profits of the
corporation . . . until further Order of this Court.” The matter was later designated a
mandatory complex business case and transferred to the North Carolina Business
Court.
¶5 After taking over A Perfect Fit, the receiver became concerned that the
company may have fraudulently billed nearly $12 million in claims to the Medicaid
program. The receiver hired Womble to conduct a comprehensive audit of the
company’s records. The audit revealed that the company lacked sufficient funds to
pay back the $12 million the receiver believed the company had fraudulently
obtained. Shortly thereafter, the State of North Carolina filed an intervenor
complaint against A Perfect Fit seeking to recoup the nearly $12 million in allegedly
fraudulent claims. In November 2017, the United States Department of Justice
issued a “target letter” advising the company that it was the target of a federal
criminal investigation. One month later, the United States Attorney for the Eastern
District of North Carolina and the North Carolina Attorney’s General’s Office filed a
civil recoupment action in federal court. The Business Court entered a stay of its BANDY V. A PERFECT FIT FOR YOU, INC.
proceedings pending resolution of the federal matter.
¶6 Until the Business Court stayed proceedings, the receiver had paid Womble’s
fees as an ordinary business expense without seeking permission from the court.
However, on 5 March 2018, the Business Court entered an order providing that the
receiver would henceforth be required to “submit bills for its outside counsel fees to
the court for review on a go-forward basis.” Subsequently, counsel from Womble
submitted invoices for work performed for the receiver on behalf of the receivership.
The court authorized the receiver to pay the invoices and clarified that “[t]he
Receiver, and not outside counsel, should submit the request for authorization to pay
outside counsel’s fees and costs.” (Emphasis added.)
¶7 In September 2018, a hurricane caused extensive damage to A Perfect Fit’s
storefront, ultimately causing the business to cease operations. Around that same
time, some of the named defendants indicated they were close to reaching a tentative
settlement with the United States Department of Justice and the State of North
Carolina.
¶8 In July 2019, the Business Court entered an order calendaring a status
conference. At the conference, the Business Court asked Mr. Mohr why the court had
not received any invoices for work performed by Womble since 2018. Mr. Mohr
responded that no invoices had been submitted because the parties were engaged in
settlement negotiations which, if successful, would have eventually required court BANDY V. A PERFECT FIT FOR YOU, INC.
approval. Mr. Mohr also noted that, pursuant to the Business Court’s previous order
on attorney’s fees, only the receiver was authorized to submit invoices to the court.
The receiver separately explained that he had misunderstood what the order on
attorney’s fees required and had not intentionally failed to comply with the procedure
it set out. During the conference, the Business Court “expressed its frustration that
by not submitting the bills from counsel and the Receiver on a timely basis, that it
placed a difficult burden on the Court to suddenly have to review several months of
bills all at one time.”
¶9 After the status conference, the Business Court entered an order lifting its
earlier stay of proceedings. The receiver then submitted all of Womble’s outstanding
invoices, totaling approximately $70,600 in fees. On 6 November 2019, the court
entered an order authorizing payment of all of Womble’s fees except for those arising
from work performed by Mr. Mohr, finding that “the time expended by the[ ] attorneys
[other than Mr. Mohr] was reasonably necessary to the Receiver to fulfill his duties.”
With regard to the fees incurred for work performed by Mr. Mohr, the Business Court
explained that it would “decline[ ] to approve payment of the $59,355.00 in legal fees
incurred because of Mohr’s work” due to “the Receiver’s and Mohr’s flagrant disregard
for the requirements imposed by the Order on Attorneys’ Fees [which] warrants a
significant reduction in the fees, and that reduction should be borne by Mohr.”
Appellants filed a timely notice of appeal. BANDY V. A PERFECT FIT FOR YOU, INC.
¶ 10 On 30 January 2020, as appellants’ initial appeal was pending before this
Court, the receiver submitted Womble’s December 2019 invoice, which included a
request to pay Womble’s fees for work performed on the appeal of the order refusing
to authorize the payment of fees for work performed by Mr. Mohr. The Business Court
subsequently entered an order approving payment of all fees incurred upon the
finding that “the requested attorneys’ fees and expenses were incurred for services
reasonably rendered by [Womble] to the Receiver for the benefit of Perfect Fit.”
¶ 11 On 27 February 2020, the receiver again submitted an invoice to the court,
again including a request for authorization to pay fees for work performed by Womble
on the fee-recoupment appeal. This time, the Business Court refused to authorize
payment of fees incurred by Womble relating to the appeal, concluding that
the attorneys’ fees related to the Appeal were not incurred for services reasonably rendered by [Womble] to the Receiver for the benefit of Perfect Fit. To the contrary, the Appeal, if successful, would benefit only [Womble] and would reduce the assets of Perfect Fit. The fees incurred for this work should be borne by [Womble], and not Perfect Fit. Accordingly, the Court, in its discretion, declines to approve payment of the $5,030.50 in legal fees incurred because of work done by [Womble] on the Appeal.
The Business Court acknowledged in its order “that it previously approved the
payment of a small amount of [Womble’s] fees for work it performed on the Appeal”
but characterized this approval as resulting from an “inadvertent oversight.”
Appellants filed a timely notice of appeal of this order. BANDY V. A PERFECT FIT FOR YOU, INC.
¶ 12 Thereafter, on 24 March 2020, 30 April 2020, 29 May 2020, 26 June 2020, 22
July 2020, 14 September 2020, and 5 October 2020, the Business Court entered orders
denying the receiver’s request for authorization to pay Womble for legal services
performed by its attorneys relating to the fee-recoupment appeals. The present case
encompasses the appellants’ consolidated appeals from both the initial order refusing
to authorize the receiver to pay Mr. Mohr’s fees as well as all subsequent Business
Court orders denying the receiver’s requests to pay fees incurred for work performed
by Womble in relation to the fee-recoupment appeals.1
II. Legal Analysis.
A. The Business Court’s decision was an abuse of discretion because it was based on a legally extraneous factual finding.
¶ 13 When an attorney performs legal services for a receiver in connection with the
receiver’s administration of a receivership, the attorney may recoup “reasonable and
proper compensation for . . . services which require legal knowledge and skill and
which were rendered to the receiver for the benefit of the receivership.” Lowder v. All
Star Mills, Inc., 309 N.C. 695, 707 (1983). Still, “those employed by a receiver to assist
in the administration of a receivership should understand that their compensation is
subject to trial court review and approval.” Id. A trial court is vested with the
1 On 19 October 2020, this Court allowed appellants’ motion to consolidate the various
appeals and ordered that any subsequent notices of appeal related to any subsequent order denying Womble’s fees related to work performed on the appeals should be filed as a supplement to the record on appeal or as an appendix to the briefs. BANDY V. A PERFECT FIT FOR YOU, INC.
discretionary authority to, in the first instance, “fix[ ] the compensation, if any, to be
allowed for the services of an attorney for a receiver,” and a trial court’s decision on
this issue is accorded deference on appeal. King v. Premo & King, Inc., 258 N.C. 701,
712 (1963) (quoting 75 C.J.S. Receivers § 384a, at 1049). “[N]evertheless[, the trial
court’s] discretion must be properly exercised and not abused, and the matter is
discretionary only in the sense that there are no fixed rules for determining the
proper amount, and not in the sense that the court is at liberty to award more [or
less] than fair and reasonable compensation.” Id.
¶ 14 Put another way, 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. Lowder, 309 N.C.
at 707. When a trial court enters an order granting or denying a request to pay fees
which contains adequate factual findings supporting its conclusions on these two
questions, the trial court’s determination is “prima facie correct,” King, 258 N.C. at
712, and will not be disturbed on appeal absent a showing that the court’s decision
was “manifestly unsupported by reason or . . . so arbitrary that it could not have been
the result of a reasoned decision,” Briley v. Farabow, 348 N.C. 537, 547 (1998). BANDY V. A PERFECT FIT FOR YOU, INC.
¶ 15 In its order denying the receiver’s request to pay Mr. Mohr’s fees, the Business
Court did not enter findings addressing either of these two questions. The Business
Court did not find that Mr. Mohr had not rendered legal services to the receiver for
the benefit of the receivership. Nor did the Business Court find that it would be
reasonable and proper to provide Mr. Mohr with zero compensation for any such
services he may have rendered. Instead, the Business Court denied the receiver’s
request for authorization solely based upon what the court perceived to be the
receiver’s and Mr. Mohr’s failure to adhere to the requirements of its prior order
dictating how invoices for attorney’s fees should be submitted to the court. Absent
any explanation as to how this finding related to the Business Court’s assessment of
the legal services Mr. Mohr provided to the receiver, or to what would comprise
reasonable and proper compensation for those services, this is not a permissible
justification for denying a receiver’s request to authorize the payment of fees to
outside counsel.
¶ 16 A trial court’s decision is necessarily an abuse of discretion when it reaches a
conclusion based solely upon findings of fact which are irrelevant to the legal question
the court is tasked with addressing. See Da Silva v. WakeMed, 375 N.C. 1, 5 n.2 (2020)
(“[A]n error of law is an abuse of discretion.”); see also King, 258 N.C. at 712 (“[An
appellate court] will not alter or modify [an order authorizing or refusing to authorize
payment of fees] unless based on the wrong principle, or clearly inadequate or BANDY V. A PERFECT FIT FOR YOU, INC.
excessive” (emphasis added)). In this case, by answering the question of whether
Womble was entitled to recoup its fees for Mr. Mohr’s work solely by reference to the
receiver’s and Mr. Mohr’s purported failure to properly submit Womble’s invoices for
court approval—rather than by conducting an analysis of the legal work Mr. Mohr
performed for the receiver—the Business Court’s decision constituted an abuse of
discretion.
B. The Business Court’s order impermissibly imposed sanctions without providing notice and an opportunity to be heard to the party being sanctioned.
¶ 17 Although the Business Court’s assessment of Mr. Mohr’s compliance with its
prior order on attorney’s fees cannot support the court’s conclusion that Womble was
not entitled to payment for Mr. Mohr’s work, a trial court does possess the inherent
authority to sanction parties and attorneys for misconduct during the course of
litigation. Under appropriate circumstances, a trial court may impose sanctions,
including monetary sanctions, either on motion of a party or sua sponte. See, e.g.,
State v. Defoe, 364 N.C. 29, 34 (2010) (“[T]rial courts of this State have inherent
authority to enforce procedural and administrative rules . . . .”); see also Grubbs v.
Grubbs, No. COA16-129, 2017 WL 892564, at *14 (N.C. Ct. App. Mar. 7, 2017)) (“A
judge’s power to admonish counsel or parties can be either sua sponte or subject to a
motion from a party, such as a show cause motion or Rule 11 sanctions.”). Further, in
certain cases, a trial court may sanction a party or attorney for failing to comply with BANDY V. A PERFECT FIT FOR YOU, INC.
a prior court order governing the party’s or attorney’s conduct during litigation. See
Daniels v. Montgomery Mut. Ins. Co., 320 N.C. 669, 674 (1987) (holding it to be “within
the inherent power of the trial court to order plaintiff to pay defendant’s reasonable
costs including attorney's fees for failure to comply with a court order”); see also Red
Valve, Inc. v. Titan Valve, Inc., No. 18 CVS 1064, 2019 WL 4182521, at *17 (N.C.
Super. Ct. Sept. 3, 2019) (ordering sanctions based upon a party’s “failure to comply
with the legal duties imposed by the [Business] Court’s orders and applicable law,
which individually and collectively reflect [the party’s] utter disregard for the [court’s]
authority and the legal process”), aff’d per curiam, 376 N.C. 798, 2021-NCSC-17.
Thus, we must also consider whether the Business Court’s order can be sustained as
an order imposing monetary sanctions on Womble based upon Mr. Mohr’s purported
violation of the prior order which specified how the parties should submit Womble’s
invoices to the court.2
¶ 18 There are two legal requirements governing the trial court’s entry of an order
imposing sanctions against a party or attorney which are relevant in this case. First,
2 Not every court order denying a receiver’s request to pay outside counsel’s fees is
immediately appealable. However, in this case, the Business Court’s order can reasonably be construed as an order imposing monetary sanctions on Womble. In addition, the Business Court’s order only denied the receiver’s request to pay outside counsel’s fees in part—the order also granted the receiver’s request to pay fees incurred by counsel for work not performed by Mr. Mohr, thus dissipating the pool of assets of the receivership from which Womble could ultimately be paid. Therefore, under these circumstances, we conclude that this Court has jurisdiction over the challenged orders pursuant to N.C.G.S. 7A-27(a)(2). See Battery Park Bank v. W. Carolina Bank, 126 N.C. 531 (1900). BANDY V. A PERFECT FIT FOR YOU, INC.
before an order imposing sanctions against a party is entered, the party whose
conduct is being sanctioned must be provided with notice of the basis upon which
sanctions are being sought and an opportunity to be heard. See Griffin v. Griffin, 348
N.C. 278, 280 (1998) (“In order to pass constitutional muster, the person against
whom sanctions are to be imposed must be advised in advance of the charges against
him.”); see also Egelhof ex rel. Red Hat, Inc. v. Szulik, 193 N.C. App. 612, 616 (2008)
(explaining that “North Carolina has consistently required” that the party against
whom sanctions have been sought be provided “an opportunity to be heard” before an
order imposing sanctions is entered). Second, the trial court’s conclusion that
sanctions should be imposed against a party or attorney must be “supported by its
findings of fact, and . . . the findings of fact [must be] supported by a sufficiency of the
evidence.” Turner v. Duke Univ., 325 N.C. 152, 165 (1989). In light of these two
requirements, we conclude that even if we were to treat the Business Court’s order
as an order imposing sanctions against Womble—and even if we were to assume that
the Business Court possessed the authority to withhold authorization of payments to
Womble as a penalty for Mr. Mohr’s conduct—the challenged order still fails to meet
the applicable legal requirements.
¶ 19 First, at no time did the Business Court provide Mr. Mohr or Womble with
notice that it was considering imposing sanctions based upon Mr. Mohr’s purported
failure to comply with a court order. Although the Business Court did “express[ ] its BANDY V. A PERFECT FIT FOR YOU, INC.
frustration” regarding what it viewed to be the receiver’s and Mr. Mohr’s tardiness
in submitting fee invoices, the court did not provide notice to the parties that it was
considering imposing sanctions and did not provide “notice of the bases of the
sanctions.” Walsh v. Cornerstone Health Care, P.A., 265 N.C. App. 672, 678 (2019)
(quoting Egelhof v. Szulik, 193 N.C. App. 612, 616 (2008)); see also Griffin, 348 N.C.
at 280 (“The bases for the sanctions must be alleged.”). Further, the fact that Mr.
Mohr was present at a hearing where he disputed the Business Court’s
characterization of his conduct “without knowing in advance the sanctions which
might be imposed does not show a proper notice was given.” Griffin, 348 N.C. at 280.
Allowing the Business Court’s order to deprive Womble of fees its attorney earned
without notice and an opportunity to be heard as a sanction for its attorney’s conduct
would violate Womble’s due process rights as “guaranteed by the Fourteenth
Amendment of the United States Constitution.” Id. (quoting McDonald’s Corp. v.
Dwyer, 338 N.C. 445, 448 (1994)).
¶ 20 Second, the finding that Mr. Mohr “flagrant[ly] disregard[ed] . . . the
requirements imposed by” the order on attorney’s fees is unsupported by the record
evidence. The order Mr. Mohr purportedly violated required the receiver to submit
invoices to the court and specifically forbade “outside counsel” from “submit[ting] the
request for authorization to pay outside counsel fees and costs.” Although Mr. Mohr
represented to the Business Court that he “would take the responsibility for not BANDY V. A PERFECT FIT FOR YOU, INC.
following up with the Receiver to make sure that the Receiver understood that he had
to submit Womble’s bills to the [Business] Court for approval,” nothing in the record
suggests that Mr. Mohr himself undertook any action which constituted a violation
of the Business Court’s order. Indeed, under the terms of the order he purportedly
violated, Mr. Mohr was prohibited from doing precisely that which the Business
Court apparently penalized him for not doing.
¶ 21 Whether construed as an order refusing to authorize the receiver to pay
Womble’s fees or as an order imposing sanctions on Womble for Mr. Mohr’s failure to
adhere to the requirements of a prior court order, the order is legally deficient.
Accordingly, we reverse the order entered on 6 November 2019 and remand to the
Business Court for further proceedings consistent with this opinion, including the
entry of the findings and conclusions necessary to address the questions of
(1) whether Mr. Mohr 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”
any such services Mr. Mohr performed. Lowder, 309 N.C. at 707.
C. The Business Court erred in denying the receiver’s request to pay Womble’s fees for its fee-recoupment litigation solely on the basis that authorizing payment would deplete A Perfect Fit’s assets. BANDY V. A PERFECT FIT FOR YOU, INC.
¶ 22 Appellants also challenge the Business Court’s orders refusing to authorize the
receiver to pay fees incurred by Womble in the course of prosecuting this appeal. After
the Business Court entered an order refusing to authorize the receiver to pay
Womble’s fees for work undertaken by Mr. Mohr, Womble and the receiver appealed.
Subsequently, Womble’s attorneys performed work on this appeal, which they billed
to the receiver. In turn, the receiver requested authorization from the Business Court
to pay Womble for this work. The first time the receiver sought authorization from
the Business Court, it was granted. On every occasion thereafter, the Business Court
denied authorization.
¶ 23 This Court has not previously considered whether outside counsel is entitled
to compensation for work on litigation related to the fees originally incurred for legal
services rendered to a receiver. However, as we have previously stated, outside
counsel retained by a receiver is only entitled to “[r]easonable and proper
compensation” for legal services “rendered to the receiver for the benefit of the
receivership.” King, 258 N.C. at 711 (emphasis added). The trial court’s decision to
grant or deny a fee payment request “must rest on facts showing actual benefits.” Id.
at 712 (quoting 75 C.J.S. Receivers § 384a, at 1049). Accordingly, a trial court’s
decision to grant or deny a receiver’s request to pay outside counsel’s fee-litigation
fees requires a fact-intensive inquiry. It is not susceptible to a per se rule. We express
no opinion on the propriety of authorizing payment of fee-litigation fees as a general BANDY V. A PERFECT FIT FOR YOU, INC.
matter. Instead, this question must be resolved in the first instance by the trial court
on a case-by-case basis after an examination of the purpose and nature of the services
rendered by outside counsel and their relationship to the interests of the receivership.
¶ 24 In this case, the sole factual finding supporting the Business Court’s repeated
denials of the receiver’s requests for authorization to pay Womble’s fee-litigation fees
was the court’s determination that these fees “were not incurred for services
reasonably rendered by [Womble] to the Receiver for the benefit of Perfect Fit. To the
contrary, the Appeal, if successful, would benefit only [Womble] and would reduce the
assets of Perfect Fit.” This finding rests on the erroneous presumption that legal
services rendered in the furtherance of any outcome which would result in the
diminution of a receivership’s assets is necessarily contrary to the interests of the
receivership.
¶ 25 As this Court has previously recognized, there may be circumstances under
which an attorney’s actions benefit a receivership even without contributing to an
increase in the receivership’s assets. See, e.g., In re Will of Ridge, 302 N.C. 375, 384
(1981) (concluding that the trial court did not abuse its discretion in authorizing fee
payments to outside counsel for services rendered in pursuit of an unsuccessful legal
claim). Further, as sister courts have recognized in various contexts, 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 BANDY V. A PERFECT FIT FOR YOU, INC.
to provide vigorous representation on critically important matters. See, e.g., In re
Estate of Trynin, 49 Cal. 3d 868, 871 (1989) (explaining that an outright prohibition
on awarding fee-litigation fees for representatives of decedents’ estates would
“ultimately be deleterious to [the estates] because attorneys would be reluctant to
perform [necessary] services . . . if the compensation awarded for their services could
be effectively diluted or dissipated by the expense of defending unjustified objections
to their fee claims”); see also In re Estate of Bockwoldt, 814 N.W.2d 215, 223 (Iowa
2012) (declining to impose a categorical rule against authorizing fee-litigation fee
payments).
¶ 26 In a case where an attorney retained by a receiver pursues litigation in an
effort to recoup fees that prove to have been extravagant or unreasonable, it is
doubtful the attorney will be able to demonstrate that his or her efforts were for the
benefit of the receivership. However, in a case such as this one 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. Accordingly, we conclude that the
Business Court’s finding that payment of Womble’s fee-litigation fees “would reduce
the assets of Perfect Fit” is insufficient to support the conclusion that the services
Womble rendered did not benefit A Perfect Fit. We remand to the Business Court for BANDY V. A PERFECT FIT FOR YOU, INC.
further proceedings not inconsistent with this opinion, including reconsideration of
the applications for authorization to pay the fee-litigation fees under the proper legal
standard.
III. Conclusion
¶ 27 When a receiver seeks authorization from a trial court to pay fees for services
rendered by outside counsel, it is within the discretion of the trial court to determine
what comprises “reasonable and proper compensation for . . . services which require
legal knowledge and skill and which were rendered to the receiver for the benefit of
the receivership.” Lowder, 309 N.C. at 707. Nevertheless, in this case, the Business
Court’s decision constituted an abuse of discretion because it denied the receiver’s
request for authorization to pay fees to Womble for services performed by one of its
attorneys based only upon the court’s conclusion that the attorney failed to comply
with procedural requirements imposed by a prior court order. Moreover, while a court
generally possesses the authority to impose monetary sanctions on an attorney for
failing to comply with a prior court order under appropriate circumstances, the
Business Court could not impose sanctions against Mr. Mohr and Womble without
providing them with notice of the basis for imposing sanctions and an opportunity to
be heard, and not on the basis of conduct which the record demonstrates did not
violate the order Mr. Mohr purportedly disregarded. In addition, the Business Court’s
conclusion that Womble’s efforts to recoup its fees did not benefit A Perfect Fit cannot BANDY V. A PERFECT FIT FOR YOU, INC.
be sustained solely upon the finding that authorizing payment of the fees would
diminish A Perfect Fit’s assets.
¶ 28 Accordingly, we reverse the Business Court’s order entered on 6 November
2019 in which the Business Court refused to authorize the receiver to pay fees for
services rendered by Mr. Mohr and the Business Court’s orders entered on 6 March
2020, 24 March 2020, 30 April 2020, 29 May 2020, 26 June 2020, 22 July 2020, 14
September 2020, and 5 October 2020 in which the Business Court refused to
authorize the receiver to pay Womble’s fee-litigation fees. We remand to the Business
Court for further proceedings not inconsistent with this opinion.
REVERSED AND REMANDED.