CRAIG A. GARGOTTA, UNITED STATES BANKRUPTCY JUDGE.
On June 20 and 21, 2017, came on for hearing Pilgrim REO, LLC ("Pilgrim") and Party-in-Interest Capital Crossing Servicing Company, LLC (Capital Crossing) (also referred to as "Respondents") Motion for Approval of Default Interest, Costs, Expenses, and Attorneys' Fees Under 11 U.S.C. § 506(b) (the "Motion" — ECF No. 203).
The Court has subject matter jurisdiction over this Motion pursuant to 28 U.S.C. § 1334(b). This matter is referred to this Court under the United States District Court for the Western District of Texas' Order of Reference of Bankruptcy Cases and Proceedings dated October 4, 2013. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(A) (matters affecting the administration of the estate) and § 157(b)(2)(B) (allowance or disallowance of claims against the estate). Venue in this district is proper under 28 U.S.C. §§ 1408 and 1409. The parties have agreed to invoke the adversary procedures in the resolution of this dispute.
Debtor filed his Debtor's Second Amended Objections and Counterclaims to Original Claim No. 6 and Amended Claim No. 6 Filed by Pilgrim REO, LLC and Capital Crossing Servicing Company, LLC on May 4, 2017 (ECF No. 159). Respondents filed their Response on May 18, 2017. The Court denied in part, and granted in part, Debtor's Second Amended Objections and Counterclaims to Original Claim No. 6 and Amended Claim No. 6 Filed by Pilgrim REO, LLC and Capital Crossing Servicing Company, LLC (ECF No. 224). Respondents also filed their Motion to Dismiss Debtor's Counterclaims Pursuant to Fed. R. Civ. P. 12(b)(6) on May 18, 2017 (ECF No. 164). Debtor filed his Response to the Motion to Dismiss on June 12, 2017 (ECF. No. 183). Respondents then filed a Reply in support of their Motion to Dismiss on June 16, 2017 (ECF No. 202). On July 14, 2017, the Court
Pilgrim and Capital Crossing filed their Motion for Approval of Default Interest, Costs, Expenses, and Attorney's Fees Under 11 U.S.C. § 506(b) of the Bankruptcy Code (ECF No. 203). Debtor filed his Objection and Response on June 19, 2017 (ECF No. 210). The parties provided further briefing on the issues contained in the Motion and Response. The Court will address the allowance of Respondents attorneys' fees in this Order.
Debtor (Carl N. Merkle) owns and operates an apartment complex known as the Northeast Village Apartments, located at 4535 Schertz Rd., San Antonio, Texas 78233 (the "Property"). See Second Amended Claim Objection ¶ 1.17. On or about July 11, 2005, Debtor entered into a Multifamily Note (the "Note") to purchase the Property and a Multifamily Deed of Trust Assignment of Rents and Security Agreement ("Deed of Trust," and together with the Note, the "Loan Documents"), which secured payment of all sums due under the Note. See Second Amended Claim Objection ¶ 2; Respondents' ("R") Exhibits 34 and 35. The Property is collateral subject to the Deed of Trust. (R-35).
Pilgrim is the current holder of the Loan Documents. Capital Crossing services the Note on behalf of Pilgrim. Motion ¶ 7. At various times since 2005, the Debtor has been in default under the terms of the Loan Documents. Specifically, Debtor has, inter alia, failed to make monthly installment payments of principal, interest, and escrow in full and on time. See Second Amended Claim Objection ¶¶ 12-13.
On or about September 4, 2015, the Respondents sent Debtor a Notice of Default and Notice of Intent to Accelerate ("Notice of Default"), noting Debtor's ongoing payment defaults and invoking the remedy of acceleration under the Loan Documents. See Second Amended Claim Objection ¶ 15; (R-53).
On or about October 8, 2015, Debtor had not cured the payment defaults, and Respondents sent Debtor a Notice of Acceleration. See Second Amended Claim Objection ¶¶ 12-16 (admitting that Debtor had not paid the full amounts due for January, 2015 to July, 2015; admitting that Respondents sent the Notice of Default in September 2015; and alleging that Respondents sent the Notice of Acceleration "despite the fact that Debtor had made a full payment for August") (R-54). Debtor did not pay the full amount owed under the Loan Documents as required by the Notice of Acceleration, and the Second Amended Claim Objection does not contain any factual assertion that Debtor made full payment in compliance with the Notice of Acceleration. On or about December 15, 2015, Respondents sent Debtor a letter transmitting the Notice of Substitute Trustee's Sale ("Sale Notice"). See Second Amended Claim Objection ¶ 17; (R-55).
On January 4, 2016 (the "Petition Date"), the Debtor filed a voluntary petition seeking relief under title 11 of the Bankruptcy Code (11 U.S.C. § 101 et seq.) (ECF no. 1) (R-1). Debtor proposed a First Amended Plan of Reorganization and Debtor's Order Confirming First Amended Plan was entered on April 5, 2017 (ECF No. 128) (R-26).
On April 29, 2016, Pilgrim filed its Proof of Claim No. 6, asserting a secured claim of $877,134.63 (R-7). On November 4, 2016, Pilgrim filed an Amended Proof of Claim No. 6, asserting a secured claim for $922,675.19 (R-8). On May 18, 2017, Pilgrim filed a Second Amended Proof of
On March 17, 2017, Debtor filed his Objections and Counterclaims to Original Claim No. 6 and Amended Claim No. 6 filed by Pilgrim REO, LLC and Capital Crossing Servicing Company, LLC (ECF No. 111); (R-21). On March 27, 2017, Debtor filed his First Amended Objections and Counterclaims to Original Claim No. 6 and Amended Claim No. 6 filed by Pilgrim REO, LLC and Capital Crossing Servicing Company, LLC (ECF No. 119); (R-24). On May 4, 2017, Debtor filed his Second Amended Objections and Counterclaims to Original Claim No. 6 and Amended Claim No. 6 filed by Pilgrim REO, LLC and Capital Crossing Servicing Company, LLC (ECF No. 159); (R-28) (together with the filings at ECF No. 111 and ECF No. 119, the "Claim Objection"). Pilgrim filed its Motion to Invoke Adversary Procedures and to Enter Scheduling Order on April 19, 2017 (ECF No. 143); (R-27). Debtor filed his Response to the Motion to Invoke Adversary Procedures on April 20, 2017 (ECF No. 148). An Agreed Scheduling Order was entered on April 25, 2017 (ECF No. 154). Debtor filed his Joint Pretrial Order on June 13, 2017 (ECF No. 189).
Respondents argue that as an oversecured creditor, § 506(b) entitles them to collect post-petition interest, attorneys' fees, and costs. Motion ¶¶ 16-19. Second, under the Loan Documents, Respondents maintain that they have a contractual basis to collect default interest, attorneys' fees and, expenses. Motion ¶ 20. The Note provides that "in the event of any default in the payment of this Note, and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof all expenses and costs, including, but not limited to, attorney's fees." Motion, Exhibit A, p. 2.
Similarly, the Deed of Trust states that "[a]ny attorney's fees and other expenses incurred by Lender in connection with Borrower's bankruptcy ... shall be additional indebtedness of Borrower secured by this Instrument pursuant to paragraph 8 hereof." Motion, Exhibit B, ¶ 18. The Deed of Trust further states that in the event of default, if the noteholder elects to invoke its remedies under the Loan Documents, including acceleration and foreclosure, the noteholder "shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including, but not limited to, attorney's fees, costs of documentary evidence, abstracts and title reports." Motion Exhibit B, ¶ 27.
Respondents argue that the attorneys' fees and expenses that Pilgrim has incurred, and continues to incur, were reasonable and necessary, as set forth in the affidavits of Bradley Gordon and David Gragg and as demonstrated by the invoices attached thereto. Pilgrim has incurred post-petition legal fees in excess of $65,000, not including fees for attending and representing Respondents at the June 20-21, 2017, hearings and post-trial briefing.
Debtor contends that there are three ways that a creditor may seek attorneys' fees: (1) an objection to proof of claim; (2) the filing of a fee application that would be examined under 11 U.S.C. § 330; or (3) a motion to allow fees and expenses under § 506(b). Objection ¶¶ 6-16. Debtor argues that the Respondents' Motion is untimely and should be denied. Objection ¶ 18. Further, Debtor argues that Respondents are not entitled to pre-petition and post-confirmation attorneys' fees under § 506(b). Debtor argues that attorneys' fees must be necessary and reasonable, and, Respondents have not met their burden in demonstrating that their fees and costs are reasonable and necessary. Objection ¶¶ 22-26. Debtor additionally argues that Respondents' proofs of claim fail to comply with the requirements of Fed. R. Bankr. P. 3001(a) because of insufficient supporting documentation. ¶¶ 15-17. Debtor states in his Brief in Support of Denying Creditor's Pre-Petition Attorneys' Fees (ECF No. 219) that Respondents' attorneys' fees and costs for conducting a non-judicial foreclosure are excessive and unnecessary. ¶¶ 7-12. Debtor also objects to the fees for Winstead P.C., former counsel to Respondents, because there is no supporting affidavit from Winstead in support of its fees.
As an initial matter, the Court has already determined that Respondents' notice of default was proper under the Deed of Trust. See (ECF No. 214, pp. 8-10) (Order Denying Debtor's Counterclaims). As such, the debt was properly accelerated and Debtor owed the entire balance due when the property was posted for foreclosure. The Court found that Respondents did not waive their rights under the Loan Documents to require the full amount of the debt paid.
Debtor further argues that the Court should examine attorneys' fees for foreclosure services under the Fifth Circuit's decision in
The Fifth Circuit agreed with the bankruptcy court, finding that:
The Court agrees with Debtor that it should examine the reasonableness of Respondents' attorneys' fees under § 506(b), but there are two important distinctions in
Debtor also argues that Respondents are not entitled to recover their pre-petition and post-confirmation attorneys' fees under § 506(b). The Fifth Circuit held in
Debtor argues that the Respondents' Motion is late and does not comply with Fed. R. Bankr. P. 3001(a). The Order Confirming Debtor's First Amended Plan of Reorganization specifically states that:
The Court finds that, by agreement that the Respondents and Debtor agreed to adjudicate the Respondents' proof of claim and related fees and expenses in the context of a claims objection. Further, the Court suggested that Respondents file a motion under § 506(b) to determine the Respondents' attorneys' fees and expenses. See
Respondents' Second Amended Proof of Claim, dated May 18, 2017, (R-9) has the following components:
Respondents calculate their proof of claim to be $964,253.16 as of May 31, 2017, with a per diem of $142.73. Respondents' proof of claim includes a copy of the Multifamily Note and Deed of Trust, plus a one-page breakdown of the charges and fees. Under the Bankruptcy Code, oversecured creditors may collect certain sums incurred post-petition:
The Note provides that "in the event of any default in the payment of this Note, and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof all expenses and costs, including, but not limited to, attorney's fees." (R-34, p. 2). Similarly, the Deed of Trust "[a]ny attorney's fees and other expenses incurred by Lender in connection with Borrower's bankruptcy ... shall be additional indebtedness of Borrower secured by this Instrument pursuant to paragraph 8 hereof." (R-35 ¶ 18). The Deed of Trust further states that in the event of default, if the noteholder elects to invoke its remedies under the Loan Documents, including acceleration and foreclosure, the noteholder "shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including, but not limited to, attorney's fees, costs of documentary evidence, abstracts and title reports."(R-35, ¶ 27). As such, by agreement, Respondents are entitled to their reasonable attorneys' fees and costs.
Pilgrim states that it has incurred post-petition legal fees in excess of $65,000, with the accrual of more fees and expenses after the June 20th hearing on the Claim Objection. Attached to Respondents' Motion as Exhibit C is the Affidavit of Bradley Gordon and the invoices for fees incurred by RGM and Winstead PC through March 31, 2017. Attached to Respondents' Motion as Exhibit D are the Affidavit of David S. Gragg and invoices detailing the fees and expenses incurred by L & B through April 30, 2017. Both RGM and L & B have continued to accrue fees related to Pilgrim's efforts to collect the amounts due under the Loan Documents.
The Court finds that Debtor's objections do not relate to the competency or hourly billing rate of Respondents' attorneys. This Court noted in
As such, following Fifth Circuit precedent, this Court held
522 B.R. at 907 (internal citations and quotation marks omitted).
The Respondents argue that the following
Additionally, Respondents point to the following pleadings/hearings that their attorneys filed and made appearances as an indication of the scope of their work, the hours expended, and the basis for their fees (this recitation does not include the matters discussed in the "Procedural Background" in this Order):
On August 3, 2016, Pilgrim filed its Motion for Relief from the Automatic Stay ("Motion to Lift Stay") (ECF No. 37). After a number of voluntary continuances, the Motion to Lift Stay was ultimately set for hearing on March 28, 2017, in conjunction with the hearing on confirmation of the Debtor's plan of reorganization.
On September 2, 2016, Debtor filed his Debtor Plan of Reorganization ("Plan") (ECF No 50) and Debtor's Disclosure Statement to Plan of Reorganization ("Disclosure Statement") (ECF No. 51). The hearing on the Disclosure Statement was set for October 17, 2016.
On October 11, 2016, Pilgrim filed its Objection to Debtor's Disclosure Statement (ECF No. 57).
On October 17, 2016, the hearing on the Disclosure Statement was re-set for October 31, 2016.
On October 27, 2016, Debtor filed his Motion to Convert Case from Chapter 11 to Chapter 13 (ECF No. 59) ("Motion to Convert"). The hearing on the Motion to Convert was set on an expedited basis for October 31, 2016 and then re-set in open Court for November 10, 2016.
On October 31, 2016, upon Debtor's Motion, the Disclosure Statement Hearing was continued to November 10, 2016. See Order on Motion for Continuance for Hearings on (1) Disclosure Statement; and (2) Motion for Relief from the Automatic Stay (ECF No. 66).
On October 31, 2016, upon Debtor's Motion, the Disclosure Statement Hearing was continued to November 10, 2016. See Order on Motion for Continuance for Hearings on (1) Disclosure Statement; and (2) Motion for Relief from the Automatic Stay (ECF No. 66).
On November 4, 2016, the Respondents filed their Response and Objection to Debtor's Motion to Convert Case from Chapter 11 to Chapter 13 (ECF No. 69).
On November 10, 2016, the Disclosure Statement hearing was again re-set for December 14, 2016.
The hearing on the Motion to Convert was again re-set for February 6, 2017 and then for February 24, 2017.
On February 24, Debtor filed his First Amended Debtor Plan of Reorganization (ECF No. 93) and Debtor's Disclosure Statement to Plan of Reorganization (ECF No. 94). The confirmation hearing was set for March 28, 2017.
On March 9, 2017, Debtor filed Debtor's Application to Employ ACR Mutlifamily as Commercial Realtor (ECF No. 105). The hearing on that Application was set for March 20, 2017 and was approved at that time. (ECF No. 112).
On March 17, 2017, Debtor filed his Objections and Counterclaims to Original Claim No. 6 and Amended Claim No. 6 filed by Pilgrim REO, LLC and Capital Crossing Servicing Company, LLC. (ECF No. 111) (as subsequently amended, the "Claim Objection").
On March 21, 2017, Pilgrim filed Pilgrim REO, LLC's Objection to Debtor's First Amended Disclosure Statement and First Amended Plan of Reorganization (ECF No. 113).
On March 27, 2017, Debtor filed his First Amended Objections and Counterclaims to Original Claim No. 6 and Amended Claim No. 6 filed by Pilgrim REO, LLC and Capital Crossing Servicing Company, LLC (ECF No. 119).
At the March 28, 2017 hearing on Plan confirmation, Debtor and Respondents reached an agreement that resolved Respondents' objections to the Plan. As part of that agreement, among other things, the parties agreed that the Claim Objection would be heard on June 8, 2017 and that the parties would invoke the Adversary Procedures, but Debtor would not file an adversary proceeding to assert the counterclaims contained within the Claim Objection. The Court approved the proposed Plan as modified by the agreement of the parties and the Confirmation Order was entered on April 5, 2017.
On March 29, 2017, the Court entered its Order Mooting Pilgrim's Motion to Lift Stay (ECF No. 123).
On April 5, 2017, the Court entered the Order Confirming Debtor's First Amended Plan of Reorganization (ECF No. 128).
Debtor argues generally that the Respondents are not entitled to recover the attorneys' fees requested because they were not reasonable or necessary. Debtor does not point to specific examples of overbilling other than to suggest that counsels' fees should be similar to the commission awarded the substitute trustee in
Additionally, the same analysis applies to Debtor's arguments regarding the allowance of post-petition fees. This case involved a mediation, numerous motions and settings for matters that pre-dated the confirmation hearing, a contested disclosure statement and plan confirmation hearing, and matters concerning the Debtor's proof of claim objections. The Court cannot discern that the work performed or the amount billed was unnecessary or unreasonable.
Debtor objected to the admission of Exhibit R-80, the affidavit of Bradley Gordon, to the extent that it offered an opinion on the reasonableness of the fees incurred by Winstead PC. The Court sustained Debtor's objection to the admission of Gordon's affidavit regarding Winstead PC attorneys' fees (R-21). As such, the Court cannot rely upon Gordon's affidavit in support of Winstead's fees. Further, Gordon was not qualified as an expert, so he cannot give an expert opinion in this matter. Respondents submit that the Court can evaluate the Winstead PC invoices (which were admitted without objection) independently and that no witness testimony regarding their reasonableness and necessity is required. The Court finds that Gordon's affidavit is admissible to the extent that it relates to the fees and expenses incurred by Reese Gordon Marketos, LLP (R-20). The Court finds that these fees are allowed.
This Court found in
Debtor has also claimed his attorneys' fees as damages. The Court finds that, as a matter of law, Debtor is not entitled to recover any attorneys' fees against the Respondents. Debtor sought to recover his attorneys' fees incurred in connection with the bankruptcy case. The only statutory basis for recovery that Debtor has articulated is Chapter 38 of the Texas Civil Practice and Remedies Code. Section 38.001(8) of the Texas Civil Practice and Remedies Code provides for the recovery of attorneys' fees incurred in relation to a claim on a written contract. Debtor alleged two counterclaims for breach of contract, based on alleged improper notice of foreclosure and misapplication of insurance proceeds, respectively. Both counterclaims were dismissed with prejudice (as was Debtor's third counter-claim for common law unreasonable debt collection, which does not fall under any of the categories covered by section 38.001 of the Texas
Debtor has not asserted any other statutory basis for awarding him his attorneys' fees. Further, nothing in the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, or the Local Rules provides that a Debtor who objects to a creditor's claim may recover attorneys' fees. See, e.g., 11 U.S.C. § 502, Fed. R. Bankr. P. 3007, Local Rule 3007. As such, the allowance of Debtor attorneys' fees against the Respondents is denied. The Debtor's counsel may seek compensation as professional of the estate under 11 U.S.C. § 330.
For the reasons stated herein, it is ORDERED, that Respondents' attorneys' fees and expenses are ALLOWED but for the fees and expenses of Winstead PC and estimated fees for L & B for July 2017.
The Court calculates the Respondents' attorneys' fees and expenses as follows: Respondents' attorneys' fees and expenses of $98,236.76, per proof of claim 6-3, less Winstead PC attorneys' fees of $10,131.12 and expenses of $1,360.37 for a total of $86,745.27.
In addition, per Exhibit A of Respondents' Motion, attorneys' fees of $48,247.20 and expenses of $4,210.03 for June 2017 are allowed for a total of $52,457.23. Further, per Exhibit B of Respondents Motion, attorneys' fees of $2,947.50 and expenses of $614.61 for July 2017 are allowed for a total of $3,562.11. Respondents' claim for attorneys' fees and expenses is allowed in the total amount of $142,764.61.
All other relief requested is DENIED.