A New York court has determined that certificateholders in Article 77 proceedings may recover their attorney’s fees in “unique” cases where their efforts increase overall recoveries to the trust.

In a case involving the First Franklin Mortgage Loan Trust 2006-FF11, New York Supreme Court Justice Marcy S. Friedman considered a certificateholder’s request to recover attorney’s fees that it incurred in connection with a mortgage loan repurchase settlement. In the proceeding, Wells Fargo Bank, National Association sought instruction about the administration and distribution of a settlement payment. The settlement had previously been approved by the Court, and the certificateholder had taken an active role in those proceedings. The certificateholder sought over $500,000 in costs and expenses, claiming that its efforts were instrumental in preserving the trust’s claims and resulted in both the initial settlement offer of $25.6 million, and a second settlement offer worth an additional $14.288 million.

The certificateholder relied on the Restatement (Third) of Trusts in arguing that the court should use its equitable discretion in a trust instruction proceeding to award fees in connection with the certificateholder’s participation in the settlement approval proceeding. The certificateholder also relied on the “equitable common-fund doctrine” under which a litigant who recovers a common fund for the benefit of others “is entitled to a reasonable attorney’s fee from the fund as a whole.” The certificateholder finally cited cases in Minnesota where courts have authorized payment of fees and expenses in similar situations. See “Findings of Fact, Conclusions of Law and Order for Judgment” in In re Bear Stearns Mortgage Funding Trust 2006-SL1, No. 62-TR-CV-13-19 (Minn. Dist. Ct. Dec. 3, 2013); “Findings of Fact, Conclusions of Law and Order for Judgment” in In re SACO I Trust 2006-3 et al., No. 62-TR-CV-13-40 (Minn. Dist. Ct. Dec. 3, 2013); “Findings of Fact, Conclusions of Law, Directions and Order for Judgment” in In re J.P. Morgan Mortgage Acquisition Trust 2006-WMC3, No. 62-TR-CV-17-64 (Minn. Dist. Ct. Jan. 16, 2018); “Findings of Fact, Conclusions of Law, Directions and Order for Judgment” in In re J.P. Morgan Mortgage Acquisition Trust 2006-WMC4, No. 62-TR-CV-17-34 (Minn. Dist. Ct. Oct. 4, 2017). No interested person opposed the relief sought by the certificateholder.

In granting the requested relief, the Court found that the certificateholder’s “substantial contribution” to the settlement supported an equitable award of the certificateholder’s reasonable attorney’s fees and expenses, finding the certificateholder’s actions to be a “but for cause of” both the initial settlement offer and the later decision to substantially increase that offer. In reaching its conclusion, the Court emphasized that it did not find “that it is generally appropriate to reimburse an interested person for fees and expenses incurred in appearing and participating in an Article 77 proceeding.” Here, however, the Court found that such an award was appropriate given the “unique factual circumstances” as to the certificateholder’s “role in procuring the settlement offer ultimately approved by the Court.”