A recent decision by the Maryland Court of Special Appeals (“COSA”) stands to change how banks and other creditors handle documenting loan facilities and enforcing rights and remedies thereunder. In Suntrust Bank v. Goldman, the COSA held that only attorneys’ fees actually incurred, which may include future fees if they can be proven with certainty, may be awarded despite contractual language allowing for a greater amount.

A summary of the facts of the case are as follows. Suntrust Bank (“Suntrust”) extended a line of credit to the Goldmans, evidenced by a line of credit agreement, which contained a provision allowing Suntrust, in the event of a default, to assess against the Goldmans attorneys’ fees of 15% of the principal and interest then due under the line of credit or reasonable attorneys’ fees. The Goldmans defaulted on the line of credit and Suntrust filed suit. Suntrust sought attorneys’ fees equal to 15% of the principal and interest then due. The Goldmans failed to respond to the suit and Suntrust moved for default judgment. The Court refused to award Suntrust the attorneys’ fees sought and, instead, awarded attorneys’ in an amount equal to attorneys’ fees Suntrust had actually incurred to date. Suntrust appealed the trial court’s decision.

Suntrust unsuccessfully argued that the 15% attorney fee represents fees actually incurred to date as well as fees that will be incurred in post-judgment collection activity (which a lot of the time is the bulk of expenses incurred in such actions). Suntrust further argued that because of the doctrine of merger, if it were held that Suntrust was only entitled to attorneys’ fees incurred to date, Suntrust would have no recourse to recover future attorneys’ fees because its right to do so would be superseded by the final judgment. The COSA pointed out that Maryland law follows the principal that attorneys’ fee language serves as an indemnity agreement between the parties. Accordingly, the creditor may not be awarded any more in fees than actually incurred. In addressing Suntrust’s merger argument, the COSA suggested that the parties to a contract can set forth language in the document(s) that clearly state that the right to collect attorneys’ fees will not be merged with a judgment. Another noteworthy point is the fact that the COSA also implied that confessed judgment provisions fall within the same requirements.

Accordingly, the COSA’s opinion in this case creates the necessity to significantly revise traditional attorneys’ fee language in loan documents and other contracts, including confessed judgment provisions.