Demand-Triggered Default Interest and Inclusive Fee-Shifting in Commercial Leases: NCO Financial Systems, Inc. v. Montgomery Park, LLC

Introduction

This commentary examines the Fourth Circuit’s decision in NCO Financial Systems, Inc. v. Montgomery Park, LLC, decided April 14, 2025. The dispute began in 2011 over a 100,000-square-foot office lease in Baltimore, Maryland. NCO, the lessee, sought early termination of the lease and alleged misrepresentation of rentable square footage; Montgomery Park, the lessor, counterclaimed for unpaid rent and, ultimately, for costs, fees, and expenses incurred in enforcing its rights under the lease. This appeal—fifth in a 14-year litigation—focuses on three issues:

Whether Montgomery Park validly “demanded” payment of costs, fees, and expenses so as to trigger interest;
Whether fees incurred defending against NCO’s initial claims fall outside the lease’s fee-shifting provision;
Whether expert witness fees are recoverable under the lease’s “reasonable costs, fees and expenses” clause.

Summary of the Judgment

The Fourth Circuit held:

“Demand” under the lease occurred when Montgomery Park filed its post-judgment fee motion on August 24, 2022, not in the 2011 default letter or earlier pleadings. Accordingly, default interest may only accrue from that date; the district court’s interest award must be recalculated.
The district court did not abuse its discretion in awarding attorneys’ fees and non-taxable expenses both for defending against NCO’s claims and for pursuing Montgomery Park’s counterclaims, by application of the “common core of facts” doctrine.
Expert witness fees fall within the lease’s broad “costs, fees and expenses” provision and are recoverable despite the general American Rule against fee-shifting absent statutory or contractual authority.

The Fourth Circuit therefore affirmed in part, vacated the interest portion of the judgment, and remanded with instructions to recalculate default interest from August 24, 2022.

Analysis

Precedents Cited

Hensley v. Eckerhart, 461 U.S. 424 (1983): Established the “common core of facts” approach to apportioning fees in fee-shifting statutes where claims share factual overlap.
Goodwin v. Metts, 973 F.2d 378 (4th Cir. 1992): Recognized district courts’ discretion in applying Hensley and deference to their factual determinations regarding fee allocation.
Weichert Co. of Maryland v. Faust, 989 A.2d 1227 (Md. Ct. Spec. App. 2010), aff’d, 19 A.3d 393 (Md. 2011): Applied the common core doctrine under Maryland law for contractual fee-shifting clauses.
Ochse v. Henry, 88 A.3d 773 (Md. Ct. Spec. App. 2014): Confirmed that fee-shifting contracts may encompass both defense and prosecution costs when claims arise from the same factual nucleus.
Plank v. Cherneski, 231 A.3d 436 (Md. 2020): Emphasized focus on overall relief and proportionality in awarding fees under contractual provisions.
Nova Rsch., Inc. v. Penske Truck Leasing Co., 952 A.2d 275 (Md. 2008): Held that a fee-shifting clause need not recite the phrase “attorney’s fees” to overcome the American Rule.
Bahena v. Foster, 883 A.2d 218 (Md. Ct. Spec. App. 2005): Articulated the American Rule’s presumption against fee awards absent clear contractual or statutory authority.
U.S. Home Corp. v. Settlers Crossing, L.L.C., 833 F. App'x 374 (4th Cir. 2020): Reaffirmed that broad contractual language covering “fees” includes expert witness fees.

Legal Reasoning

The Court’s reasoning unfolds in three parts:

Demand Requirement: Section 14.04 of the lease makes Montgomery Park’s right to attorneys’ fees and expenses “due and payable immediately upon demand” and subject to “Default Rate” interest. The Court rejected NCO’s view that the 2011 default letter constituted demand, since no fees then existed. Instead, the post-judgment motion in August 2022 was the first true demand for incurred fees, triggering interest only from that date.
Fee Allocation: Although NCO argued that only costs “in pursuit” of Montgomery Park’s rent claim were recoverable, the Court applied the common core doctrine (Hensley et al.) to recognize factual overlap between NCO’s square-footage and termination defenses and Montgomery Park’s breach-of-lease counterclaims. The district court’s discretion to lump defense and prosecution fees together was upheld.
Expert Fees: Under the lease’s expansive “all reasonable costs, fees and expenses . . . including but not limited to attorneys’ fees,” expert fees fall within “fees.” Maryland precedent does not require enumerating “expert” fees to override the American Rule where contract language plainly encompasses them.

Impact

This decision is significant for commercial landlords and tenants:

It clarifies that contractual fee-shifting provisions conditioned on “demand” must be strictly applied; interest on fees cannot run until a formal demand for payment is made.
It reinforces that broad “fees and expenses” clauses in leases can include both attorneys’ and expert witness fees, provided the language is sufficiently inclusive.
It illustrates the interplay between federal procedural norms (service of motions) and the parties’ contractual notice requirements.
It confirms the common core of facts doctrine under Maryland law and within the Fourth Circuit, aiding courts in fairly apportioning fees when defense and affirmative claims share factual foundations.

Complex Concepts Simplified

Default Interest: Interest charged on overdue amounts after a contractual or statutory trigger. Here, it runs from the moment of formal demand for payment.
Demand: A clear, post-incurrence request for payment. Letters reserving rights or prospective fee claims do not suffice if fees have not yet been incurred.
American Rule: The default rule that each party bears its own attorneys’ fees unless a contract or statute shifts fees to the other side.
Common Core of Facts Doctrine: When multiple claims arise from the same set of facts, courts may award fees for work that advances all claims together rather than parsing discrete tasks.

Conclusion

NCO Financial Systems, Inc. v. Montgomery Park, LLC establishes that in a commercial lease with a fee-shifting clause:

A formal demand is necessary before default interest accrues on attorneys’ fees and expenses.
Broadly drafted “costs, fees and expenses” provisions are interpreted to include both attorneys’ and expert witness fees, overcoming the American Rule.
Courts retain discretion, under the common core doctrine, to award fees for overlapping defense and prosecution work when arising from the same factual matrix.

This ruling provides clarity for future lease disputes over fee recovery and highlights the importance of precise demand language and comprehensive fee-shifting clauses.