Opinion
Case No. 6:21-bk-00983-LVV
2022-08-03
IN RE: 218 JACKSON LLC, Debtor.
Justin M. Luna, Daniel A. Velasquez, Latham, Luna, Eden & Beaudine, LLP, Orlando, FL, for Debtor. Jill E. Kelso, Office of the United States Trustee, Orlando, FL, for U.S. Trustee.
Justin M. Luna, Daniel A. Velasquez, Latham, Luna, Eden & Beaudine, LLP, Orlando, FL, for Debtor.
Jill E. Kelso, Office of the United States Trustee, Orlando, FL, for U.S. Trustee.
ORDER ON ATTORNEYS’ FEES AND COSTS AND LATE FEES
Lori V. Vaughan, United States Bankruptcy Judge
This is a dispute over attorneys’ fees and late fees charged by an over-secured creditor. Shortly after confirmation, the Debtor sold its real property and paid the fully secured creditor the amounts provided in the payoff, subject to resolution of this dispute. The Court must decide whether the requested attorneys’ fees and costs and late fees are allowed and reasonable under §§ 502 and 506 of the Bankruptcy Code. The Debtor argues the attorneys’ fees are not reasonable and that the creditor waived the right to collect late fees. After reviewing the relevant time entries and loan documents, the Court disallows some attorneys’ fees as being unreasonable and disallows all late fees.
Background Facts
The relevant facts are undisputed. The Debtor is a Florida limited liability company that owned two parcels of real property—one with a commercial building and the other vacant land—located respectively at 218 Jackson Street and 226 Jackson Street in Maitland, Florida (collectively the "Property"). The Debtor signed various loan documents with Bank of America, N.A. ("BOA") to procure the Property, including a Loan Agreement and a Mortgage which encumbered the Property. In 2019, BOA notified the Debtor that a default occurred under the Loan Agreement ("Default Letter") and initiated a foreclosure action against the Debtor in state court. During the foreclosure action, National Loan Acquisition Company ("NLAC") acquired the loan documents by assignment from BOA.
Doc. No. 77.
NLAC Ex. 2. The Loan Agreement is located at ECF p. 29 of 110. The Mortgage, Assignment of Rents, Security Agreement and Fixture Filing ("Mortgage") is at ECF p. 88 of 110.
NLAC Ex.1 and Doc. No. 77.
Doc. No. 77.
The Debtor filed this chapter 11 case under subchapter V on March 8, 2021. Within a month, the Debtor filed a plan asserting that the Property had a value between $1.3 and $1.5 million and proposing to pay NLAC's allowed secured claim over seven years in monthly instalments with a balloon final payment. Although NLAC would retain its mortgage lien and other security interests, NLAC's claim was impaired. NLAC responded by objecting to the Debtor's eligibility under subchapter V, seeking dismissal of the case for alleged bad faith or alternatively stay relief, and opposing confirmation. Both parties were adversarial throughout the case.
Doc. No. 1.
Doc. No. 35, p. 15. The plan provides "In full satisfaction of its Class 1 Allowed Secured Claim, National Loan Acquisitions Company shall retain its lien on Debtor's Property and shall receive equally monthly payments for seven (7) years at 4% per annum and a 25-year amortization, with a balloon payment occurring in month 84. Payments shall commence on the Effective Date. There shall be no prepayment fee associated with any payments including the balloon payment of the Class 1 Claim."
Doc. No. 35, p. 12.
Doc. No. 77.
Doc. No. 176.
Doc. No. 115.
During the case, NLAC filed a claim fully secured by the Property, which it later amended on May 21, 2021, for $1,078,987.05 ("Claim"). The Claim attached the Loan Agreement, Mortgage, other relevant loan documents, including an itemization of the amounts owed. Because the Property value exceeded the Claim, NLAC filed its Motion for an Award and Payment of Attorneys’ Fees and Costs Pursuant to 11 U.S.C. 506(b), which it later supplemented (collectively the "Motion for Fees and Costs"). The Debtor responded with an Objection to Claim, which it later amended ("Objection to Claim").
Claim 1-2.
Claim 1-2, p. 7.
Doc. Nos. 130, 197.
Doc. No. 189. NLAC filed a response to the amended objection to claim. Doc. No. 192.
On September 30, 2021, the Court entered an order confirming the Debtor's Plan of Reorganization. Except for the interest rate, the Debtor's proposed treatment of NLAC's allowed claim did not change. About a week after entry of the confirmation order and at the Debtor's request, NLAC provided the Debtor a payoff statement for the Loan Agreement. The payoff included NLAC's legal fees and costs totaling $52,952.52, and late fees totaling $6,760.50. The Debtor sold the Property on October 21, 2021, and furnished the amounts requested by NLAC subject to resolution of the Objection to Claim and Motion for Fees and Costs.
Doc. No. 182. The confirmation hearing was held July 30, 2021 and September 16, 2021.
Doc. No. 182.
NLAC Ex. 5.
NLAC Ex. 5.
Doc. No. 189. The parties did not provide evidence of the sale terms or sale amount.
The Court held a final hearing on the Motion for Fees and Costs and Objection to Claim on February 3, 2022. At the hearing, the Debtor conceded that the only disputes for the Court to resolve are (1) whether $23,805.01 of the attorneys’ fees and costs provided in the payoff ("Attorney Fees") were reasonable and (2) whether NLAC may recover late fees totaling $6,760.50 ("Late Fees"). No witnesses were called. The parties relied on the documents presented to the Court to support their respective arguments.
Discussion
Section 502 of the Bankruptcy Code provides a claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502. If a party in interest objects, the court must determine the amount of the claim after considering the exceptions enumerated under § 502(b) precluding claim allowance. 11 U.S.C. § 502(b) ; In re Oliver , 306 F. App'x 458, 460 (11th Cir. 2008) ; In re Reorganized Lake Diamond Associates, LLC , 367 B.R. 858 (Bankr. M.D. Fla. 2007). The court cannot allow claims "unenforceable against the debtor and property of the debtor, under any agreement or applicable law..." which is an exception under § 502(b). 11 U.S.C. § 502(b)(1). Once allowed, creditors holding over-secured claims may recover under § 506 "any reasonable fees, costs or charges" provided under the agreement. In re Welzel , 275 F.3d 1308, 1318 (11th Cir. 2001). See also 11 U.S.C. § 506(b). Here, the Court must determine if the Attorney Fees and Late Fees are enforceable against the Debtor under the Loan Agreement and therefore allowed under § 502 and if allowed, are they reasonable under § 506.
Attorney Fees
The Court looks first to the Loan Agreement. The Loan Agreement provides the Debtor shall reimburse NLAC for "any reasonable costs and attorneys’ fee" incurred by NLAC in connection with any bankruptcy proceeding. Florida law governs the Loan Agreement. In Florida, "[t]he right to attorney's fees under any contractual provision is limited by the terms of such provision." Islander Beach Club Condominium v. Skylark Sports , L.L.C., 975 So.2d 1208 (Fla. 5th DCA 2008) (citing Bowman v. Kingsland Dev., Inc ., 432 So.2d 660, 664 (Fla. 5th DCA 1983) ). Courts interpret contract attorney fee provisions very narrowly. Reorganized Lake Diamond , 367 B.R. at 867. Because the Loan Agreement allows only reasonable costs and attorneys’ fees, the Attorney Fees must be reasonable to be an allowed claim under § 502(b).
NLAC Ex. 2, Loan Agreement at ECF p. 39 of 110.
NLAC Ex. 2, Loan Agreement at ECF p. 38 of 110.
To determine reasonable attorneys’ fees and costs, Florida applies the federal loadstar method. Dependable Component Supply, Inc. v. Carrefour Informatique Tremblant, Inc. , 572 F. App'x 796, 802 (11th Cir. 2014) (citing Fla. Patient's Comp. Fund v. Rowe , 472 So.2d 1145, 1151-52 (Fla. 1985) ; Regions Bank v. Roth , No. 8:16-cv-468, 2018 WL 3213331 at *1 (M.D. Fla. June 13, 2018). The loadstar method requires "courts to determine the number of hours reasonably expended on the litigation and the reasonable hourly rate for the type of litigation, multiply the reasonable number of hours by the reasonable hourly rate, and, when appropriate, adjust the fee." Id. Fee adjustments require consideration of the twelve factors outlined in Johnson v. Georgia Highway Express, Inc ., 488 F.2d 714 (5th Cir. 1974). See also In re Unnerstall , Case No. 17-bk-00336, 2018 WL 1989936 at *2 (Bankr. M.D. Fla. Apr. 25, 2018). Reasonable fees for secured creditors are limited to "those [fees] necessary to the collection and protection of a creditor's claim and includes fees for those actions a similarly situated creditor might have taken." Reorganized Lake Diamond , 367 B.R. at 867 (quoting In re Digital Prods. Corp. , 215 B.R. 478, 482 (Bankr. S.D. Fla. 1997) ). Because the court itself is an expert on reasonable attorneys’ fees and costs, it "may consider its own knowledge and experience concerning reasonable and proper fees and may form an independent judgment either with or without the aid of witnesses as to the reasonableness of the fee request." Dependable Component , 572 F. App'x at 802.
The Johnson factors are: (1) the time and labor required; (2) the novelty and difficulty of the questions involved; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the "undesirability" of the case; (11) the nature and the length of the professional relationship with the client; (12) awards in similar cases. Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974).
The Court thoroughly reviewed the Attorney Fees and in particular the highlighted fees Debtor contends are unreasonable and should be disallowed. As an initial matter, the Court finds an attorney hourly rate of $295 and a paralegal hourly rate of $150 reasonable, considering the prevailing market rate in the local bankruptcy community for similar services provided by lawyers of reasonably comparable skills, experience, and reputation.
Debtor Ex. 1. The Attorney Fees at issue are highlighted yellow.
As to reasonable hours expended, the Court believes some of the Attorney Fees hours should be reduced. In September 2020 through October 2020, NLAC's counsel spent an inordinate amount of time (4.8 hours) conferring with former counsel about the foreclosure case, counsel substitution, and reviewing the state court complaint. Further, this time was a result of NLAC's acquisition of the BOA loan and should not have been charged to the Debtor. The Court finds these charges excessive and unreasonable. In October 2021, NLAC's counsel also spent time (1.9 hours) attempting to challenge the confirmed plan after Debtor had requested a payoff to pay NLAC in full and sell the Property. This time is also unreasonable considering the posture of the case. NLAC incurred these fees trying to contest a confirmed plan so it could obtain the Property, and not to collect and protect its claim. Although Debtor argues all the disputed Attorney Fees are unreasonable because NLAC did not incur them collecting and protecting its claim, the Court disagrees.
The Debtor confirmed a plan to pay NLAC's allowed claim over time. It wasn't until after confirmation that the Debtor sought to sell the Property and pay NLAC early. Nobody disputes that NLAC has been over-secured throughout this case. So, it is reasonable that NLAC may have wanted its claim paid quicker by obtaining the Property and was unsure of the Debtor's ability to perform. Attorney fees relating to Debtor's eligibility under subchapter V, dismissal of the case for alleged bad faith or alternatively stay relief, and opposing confirmation all relate to the collection of the claim quicker—outside of bankruptcy—as opposed to what the Debtor proposed. No doubt NLAC's attorneys were aggressive during the case, however, the Court finds the remaining Attorney Fees reasonable.
As a result, the Court finds $1,976.50 of the Attorney Fees (6.7 hours x $295) unreasonable and not allowed under § 502(b). Because $1,976.50 of the Attorney Fees are unreasonable, they are also not allowed under § 506(b). The remaining amounts of the Attorney Fees totaling $21,828.51 are reasonable and allowed under § 502(b) and § 506(b) —for a total attorneys’ fees and costs payoff amount of $50,976.02. Any other attorney fees and costs sought by NLAC are not allowed under § 506(b).
The 6.7 hours consisted of attorney time only.
At the hearing, NLAC requested an additional $6,500 of attorneys’ fees and costs incurred from October 8, 2021 (after the payoff letter) through February 3, 2022 (hearing date). NLAC did not provide the Court with the number of hours spent, who may have done the work or detailed time entries for this time period. The Court cannot apply the loadstar method given the lack of information and as a result, they are not reasonable or allowed. Furthermore, NLAC likely incurred these fees due to "fees on fees" litigation, which generally is not allowed. See Baker Botts L.L.P. v. ASARCO, LLC , 576 U.S. 121, 133-34, 135 S.Ct. 2158, 192 L.Ed.2d 208 (2015) ("In our legal system, no attorneys, regardless of whether they practice in bankruptcy, are entitled to receive fees for fee-defense litigation absent express statutory authorization."). See also McMahan v. Toto , 311 F.3d 1077, 1085 (11th Cir. 2002) (under Florida law, fees incurred for litigating the amount of fees is not recoverable).
Late Fees
The Loan Agreement provides "[to] the extent permitted by law, the [Debtor] agrees to pay a late fee in an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days late." Debtor argues NLAC waived the right to recover the Late Fees by failing to declare it would seek late fees from the Debtor. Debtor contends that the payoff letter is the first time NLAC sought payment of the Late Fees and as a result should be disallowed under § 502. NLAC denies waiving the Late Fees.
NLAC Ex. 2, Loan Agreement at ECF p. 42 of 110.
Waiver is the "intentional relinquishment of a known right." In re Garfinkle , 672 F.2d 1340, 1347 (11th Cir. 1982) (citing Fireman's Fund Ins. Co. v. Vogel, 195 So.2d 20 (Fla.App.1967) ; Gilman v. Butzloff , 155 Fla. 888, 22 So.2d 263 (1945) ); In re Ferry , 631 B.R. 790, 800 (Bankr. M.D. Fla. 2021). "Waiver requires (1) the existence at the time of the waiver a right, privilege, advantage, or benefit which may be waived; (2) the actual or constructive knowledge thereof; and (3) an intent to relinquish such right, privilege, advantage, or benefit." Garfinkle , 672 F.2d at 1347. It may occur expressly or be implied from a party's conduct. Id. For waiver to be implied, the conduct, acts or circumstances that give rise to the waiver "must make out a clear case." Id. See also Ferry , 631 B.R. at 800. "A party's intent to waive its rights must be shown through unequivocal acts and may not be inferred from doubtful and ambiguous circumstances." Ferry , 631 B.R. at 800 (internal quotations omitted).
Here, the Court finds NLAC did not waive the Late Fees. The Loan Agreement requires any waiver be made in writing. No evidence of a written waiver was presented. NLAC's prepetition Default Letter demands that the Debtor pay the principal amount of the Loan Agreement, "plus accrued interest, late fees, and other costs." The itemization attached to the Claim also included an amount for late fees. Simply put, NLAC's conduct does not demonstrate an intent to waive the Late Fees.
NLAC Ex. 2. at ECF p. 39 of 110.
NLAC Ex. 1 at ECF p. 3 of 4.
Although the Debtor argued no other legal basis to disallow the Late Fees, the Court cannot ignore the Loan Agreement and Florida law. The Loan Agreement qualifies the payment of late fees "to the extent permitted by law" and Florida law provides that after acceleration of a note, late fees cannot accrue unless the mortgage specifically allows it. France v. Ditech Financial, LLC , Case No. 8:17-cv-3038, 2018 WL 1695405 at * 6 (M.D. Fla. Apr. 6, 2018) (citing Fowler v. First Federal Sav. & Loan Ass'n of Defuniak Springs , 643 So.2d 30, 33 (Fla. 1st DCA 1994), Patel v. Seterus, Inc ., 2015 WL 13547010 at *4 (M.D. Fla. June 19, 2015) ). See also PNC Bank v. Dick Stark's Carpet Shop, Inc ., Case No. 3:13-cv-0218, 2014 WL 12569437 at *2 n.3 (M.D. Fla. Mar. 21, 2014). Here, the Late Fees accrued after BOA accelerated the Loan Agreement. So, the Loan Agreement or Mortgage must specifically provide for accrual of post-acceleration Late Fees to be enforceable against the Debtor and allowed under § 502. The Court carefully reviewed the Loan Agreement and Mortgage and could not identify language that would allow accrual of Late Fees after acceleration. As a result, the Court finds the Late Fees are not enforceable against the Debtor under the Loan Agreement and not allowed under § 502. Because the Late Fees are not allowed under § 502, they are likewise not reasonable or allowed under § 506. Accordingly, it is
By the Default Letter dated August 8, 2019, BOA accelerated the amounts due under the Loan Agreement. NLAC Ex. 1 at ECF p. 3 of 4. The Late Fees are for payments due on and after August 31, 2019—after acceleration by BOA. NLAC Ex. 13.
ORDERED:
1. The Objection to Claim (Doc. No. 189) is SUSTAINED IN PART.
2. The Motion for Fees and Costs (Doc. No. 130, 197) is GRANTED IN PART .
3. NLAC is allowed attorneys’ fees and costs totaling $50,976.02 under §§ 502(b) and 506(b) of the Bankruptcy Code. Any other attorneys’ fees and costs sought by NLAC are not allowed under §§ 502(b) and 506(b) of the Bankruptcy Code.
4. NLAC may not recover late fees totaling $6,760.50 under §§ 502(b) and 506(b) of the Bankruptcy Code.
ORDERED.