GERALDINE MUND, Bankruptcy Judge.
One of the principal issues in this case is the amount of the secured claim of California Bank & Trust (CB & T), specifically the sum of attorneys' fees to which the bank is entitled. So that the Debtors could have an approximate figure to us in their disclosure statement and for purposes of refinancing, the Court prepared a Partial Ruling on Debtors' Motion Objecting to Secured Claim of California Bank & Trust (dkt. #402). This did not deal with the objections to interest, foreclosure fees, etc. and the Court requested further briefing on those matters, which was received
Having reviewed all of these newly filed papers, the Court hereby issues its final ruling on the objection to claim # 22. The charts created and used by the Court are those attached to the Partial Ruling (dkt. #402). For convenience of the parties, any changes to the Partial Ruling are indicated by strike-outs (deletions) or underlined text (additions). To the extent that corrections are not made to the Partial Ruling, the objections thereto are overruled.
On December 28, 2010 John and Susan Licursi filed this case under chapter 11 of the bankruptcy code. At that time they had three types of legal relations with California Bank & Trust: a guaranty for their business Spectrum Glass & Aluminum, Inc. (which resulted in actions in the superior court against Spectrum Glass & Aluminum, Inc. and the Licursis on the note and guaranty as well as an action in the superior court against Spectrum Glass & Mirror, Inc. seeking stock, etc.), a second deed of trust on Debtors' business property on Burbank Blvd., and a first deed of trust on a piece of vacant land in Malibu.
The Burbank Blvd. property was sold during the bankruptcy with no payment to CB & T on its second trust deed. Because the deeds of trust were not cross-collateralized, the sale of this property resulted in an unsecured claim for the deficiency on the Burbank Blvd. loan.
The remaining secured claim is due to a
CB & T does not dispute that it is not entitled to have a lien on Malibu for fees and interest arising from the Burbank Blvd. portion of the claim or for the superior court action or the adversary proceedings that took place or were due to its sanctions motion.
The Debtors are now trying to refinance the Malibu property, pay CB & T off, and move forward to confirm a plan. The Debtors argue that the CB & T proof of claim is a "moving target" and that this causes a problem in obtaining the financing. As of May 1, 2014, CB & T was seeking a total of $341,594.08, of which $175,407.58 $172,776.44 was for principal, $92,533.17 was legal fees through April 30, 2014, $38,965.98 was interest and another $26,910.54 was default interest. [According to CB & T, the figures for interest and attorneys' fees have increased and as of August 25, 2014 they are as follows: interest of $42,852.98; default interest of $26,910.54; legal fees of $101,795.88. (dkt. 385)] The Debtors assert that the total fees attributable exclusively to Malibu are no more than $56,683.84 as of August 25, 2014.
Debtors also recalculate the default
In response, Buchalter Neimer (BN), CB & T's attorney, presented a chart showing that it had actually adjusted the amounts and thus had reduced its fees from the total of $209,658 to the amount that it is requesting of $101,795.88 (dkt. 385, p. 5). The amounts removed covered litigation fees of $60,759 related to the state court actions against the Debtors' prior and present businesses; $25,814.50 incurred in defending the Debtors' adversary proceedings; $14,875.88 in seeking sanctions against the Debtors' third bankruptcy counsel; and $4,854.25 for fees attributable to the disposition of the Debtors' Burbank and Studio City properties.
The parties agree that the loan documents permit CB & T to receive its fees and costs:
The background and hostility of this case are important. On April 29, 2011, CB & T filed claim #16 for a total of $649,155.82. This was stated to be completely secured, although it was shown as two separate loans [one in the principal amount of $360,263.96 (the business loan) and the other with a principal of $175,407.58 to the John and Susan Licursi 2005 Trust Dated April 13, 1005 (the Malibu loan)].
CB & T did not amend its claim and on March 14, 2013 the Debtors filed their objection. In response, on May 13, 2013 CB & T filed claim #22-1 (amending claim 16-1), which it immediately amended with claim # 22-2. It divided the claim between secured and unsecured portions and asserted a secured claim against Malibu in the amount of $180,728.41 as of the date that the case was filed. Debtors objected on June 17, 2014 and on August 1, 2014 CB & T filed claim # 22-3 in order to remove the loan numbers.
To assist the Court, Buchalter Nemer (BN), attorney for CB & T, prepared a chart setting forth each charge and categorizing them. Ms. Licursi went through these in careful detail and then Greenberg and Bass, counsel for the Debtors, presented the comments and proposed allocations to BN. At the request of the Court, this was combined into a single chart (one chart for each billing code—A3481-0190 and A3481-0062) and presented to the Court at the hearing on September 9. The excel spreadsheets were also sent to the Court and on about September 24 the Court received revised spreadsheets from the Debtors, highlighting areas of disagreement.
Among the arguments of the Debtors is that the total fee amount is not reasonable.
Collier on Bankruptcy sums up the standard for determining reasonableness as follows:
4 Collier on Bankruptcy 16th, ¶ 506.04(d).
There is no dispute that CB & T has met the physical requirements to receive its claimed fees: it has an allowed secured claim, though some of the amounts are disputed; the security agreement provides for the requested fees; and as of August 25, 2014 CB & T is oversecured, reasonably required for CB & T to attend § 341(a) hearings and status conferences, but certainly they would need to carefully monitor this case and review and object to the disclosure statement. Because of the actions of the Licursis in this bankruptcy, it was also reasonable for CB & T to be proactive.
As noted in prior hearings and rulings, the Court itself has serious questions of the good faith of the Debtors in their plan proposals. The Malibu property is vacant, largely isolated land that they want to hold onto for possible development. They initially tried to convince the Court that it was to be used for agricultural purposes, but this was a ruse. Their most recent Plan would pay only 3.5% to unsecured creditors while they maintain their more than comfortable standard of living, which includes keeping a boat, RV, ATV, motorcycle, and a Mexico vacation home with no equity.
And while much of the concern of CB & T is to protect its unsecured claim, it also has a legitimate interest in making sure that the Debtors act responsibly in paying off its secured claim. Further, there is no income from the Malibu property and while there is equity for the estate, this only has value if it can be realized. In reviewing the motion for relief from the automatic stay, the issue under § 362(d)(2) is whether the property is necessary to an effective reorganization. Thus the Court continued the motion for relief from stay, trailing it with the status conferences and various attempts at a disclosure statement. Had there been no unsecured claim, CB & T would have been entitled to 100% of its fees for much of this continued work. But because of the existence of an unsecured claim, the 50% allocation benefits the Debtors and is not unfair to CB & T, who—given the nature of this relationship and that the level of mutual hostility— would certainly have been just
The Debtors argue that the fees are simply too high given the amount of the principal due on the secured claim, which is about $180,000+. This has not been a simple case. And while CB & T has not been willing to compromise, it has not done unnecessary work. Thus, the amount of fees is what they are and, as modified by the Court, they are reasonable under the circumstances of this case.
Attached hereto
In general, I determined that, according to the charts, the following will be allowed as part of the secured claim:
Account A3481-0062-$17,121.96
Account A3481-0190-$63,876.00
Total-$80,997.94
I tried to be consistent in dividing fees between those concerning the CB & T unsecured claim and those pertaining to its secured claim on the Malibu property. As time went on, the work on Malibu took center stage, although the issues as a general unsecured creditor still remained. I also tried to take into account the comments of the Debtors and adjusted accordingly when I agreed with them. The chart is made more difficult to read because of the allocation into subparts. Thus the Debtors' proposed allocation may be on a different line from that of the Court. But these were all taken into consideration.
Determining fees is more of an art than of a science. For that reason it is especially difficult to be exact. The above amounts are the best that I can do, having reviewed each and every entry and comment
As to Ms. Licursi's claim for $22,500 setoff for her "paralegal" work. I agree with the opposition filed by CB & T on dkt. 385, p. 9 that as a Debtor-in-Possession, it is her duty to review and object to the claim.
Mr. Goodman's request for fees, on the other hand, is allowable if the Debtors are the prevailing party on this objection to claim.
"No one factor should be considered in determining the prevailing party for the purpose of attorney fees. The party that is awarded a money judgment in a lawsuit is not necessarily the successful or prevailing party." See, In re Wilson, 2007 WL 781823, 2007 Bankr.Lexis 891 (Bankr.Mo 2007). The Supreme Court notes that Black's Law Dictionary defines prevailing party as a "party in whose favor a judgment is rendered, regardless of the amount of damages awarded." Buckhannon Bd. and Care Home, Inc. v. W. Virginia Dep't of Health & Human Res., 532 U.S. 598, 603, 121 S.Ct. 1835, 149 L.Ed.2d 855 (2001).
In this case, the Debtors are deemed to be the prevailing party as to the amount of fees that will be allowed on the secured claim. Given the amount requested as of June 17, 2014 ($4,950) it is not efficient to require detailed billings.
Thus, the Court will offset the amount of fees by $4,950 $76,047.94
Per the opposition, the Debtors are attempting to apply adequate protection payments to the loan balance, although these were returned. According to the Debtors' chart received by the Court on about September 24, 2014, at least one payment was never returned. The parties obviously need to work out an accounting on this.
CB & T also asserts that it does not need to accept adequate protection payments because they were never ordered by the Court This is incorrect. Although this is not a single asset real estate case and thus § 362(d)(3) does not apply, there is no reason to hold that a Debtor cannot voluntarily make monthly payments to keep interest from accruing. Thus, the amount of the tendered payments cannot reduce the principal, but there can be a credit as to the accruing interest and post-petition late charges.
The chart attached to the Objection to Claim (dkt. 352, p. 98) does not include non-default interest as a disputed item. If it is disputed, the Court needs information as to the nature of the dispute.
If I correctly understand Exhibit G to the objection to claim (dkt. 352, p. 98), the Debtors assert that default interest is to be calculated at $24 per day. This would mean that the amount of default interest from May 13, 2013 until June, 17, 2014 (the date that the objection was filed, which is a total of 400 days) would be $9,600. I cannot tell what CB & T is asserting. Further, I am not sure whether there is an issue as to the effect of refinance as a part of confirmation on the default rate of interest. The parties are to provide the Court with a clear statement of the dispute and the basis of their respective positions.
Debtors assert that they paid all prepetition late charges. If CB & T disputes this, Debtors are to provide the Court with an accounting showing the payments. As to post-petition late charges, since Debtors assert that they may not be allowable under bankruptcy rules, please provide the Court with some points and authorities on this issue.
Debtors question the prepetition foreclosure fees on three grounds: that the NOD was filed in error, that the account was cured although CB & T later refunded the payments, and that the account was current at the time that the bankruptcy was filed. CB & T is to respond to these statements.
Debtors would like substantiation of the appraisals billed for January 4, 2011 and for August 4, 2011.
On March 26, 2014 the Court ordered Debtors' prior counsel to pay CB & T the amount of $5,000 as a sanction for instituting an adversary against CB & T for violation of the automatic stay (dkt. ## 341, 342). CB & T incurred fees and costs of $46,000+ in defending that adversary proceeding. Since CB & T has removed any claim for fees as to the adversary complaint, the sanctions award cannot be offset against the secured claim for fees.
The amount of attorneys' fees to be added to the secured claim as of August 25, 2014 is $76,047.94.
As noted above, the respective parties are to provide the Court with specifics as to disputes on interest, default interest, foreclosure fees, and appraisal fees. This is to be filed no later than October 8, with any response due by October 13.
The sanctions award is not a setoff, nor is the time spent by Ms. Licursi in analyzing the fee request. However, there will be a credit of $4,950 for fees incurred as to Mr. Goodman.
ITEM AMOUNT COMMENTS
PRINCIPAL $172,776.44 This may be reduced by crediting the adequate
protection payments if the Debtors transmit the
cashier's checks back to CB & T
INTEREST (to 8/25/14) $42,852.98 This may be reduced by crediting the adequate
protection payments if the Debtors transmit the
cashier's checks back to CB & T
DEFAULT INTEREST $29,664 1,236 days at $24 per day
(to 8/25/14)
LATE CHARGES $0 Included in the cure amount of October 4, 2010
and October 13, 2010
LEGAL FEES (to $75,305.44
8/25/14)
LEGAL COSTS (to $2,077.48 These are substantiated on dkt. # 386, ex. 5
7/31/14)
FORECLOSURE FEES $0 Default cured on October 13, 2010 before the foreclosure fees were incurred APPRAISAL FEES $8,850 Back-up provided TITLE & RECORDING $1,593.94 No objection FEES TOTAL $333,120.28 This will certainly continue to escalate, but fees, interest, and costs are—by definition—a moving target. So this at least gives the Debtors a general idea of the minimum that they must obtain to pay off CB & T on its secured loan.
