Opinion
Case No. 95-20322, Chapter 11
December 5, 1999
ORDER APPROVING APPLICATION FOR COMPENSATION OF HOWARD, RICE, NEMEROVSKI, CANADY, FALK RABKIN
The first interim application for allowance of attorney fees and costs filed by James L. Lopes of the law firm of Howard, Rice, Nemerovski, Canady, Falk Rabkin, came before the court for hearing on October 9, 1997. After considering the application and the arguments of Mr. Lopes, the court issued an order requesting an amended application with additional information. At the hearing, the applicant addressed the expense reimbursement issues raised by the United States Trustee. In its order, the court addressed the applicable law on the issue of whether Mr. Lopes performed services outside the scope of his employment authorization.
Mr. Lopes filed the second supplement to the first interim application. After considering all the submissions and pleadings, the arguments, and the applicable law, the court concludes as follows:
1. Approximately half of the services performed by the Howard Rice firm clearly exceeded the scope of the applicant's appointment order, or are somewhat questionable. Despite Mr. Lopes' reply, the responsibility to ensure that the employment is authorized for all purposes untaken is the applicant's. Mr. Lopes is a professional and experienced bankruptcy attorney who should not have performed services more akin to those of general counsel without authority;
2. After reviewing the entries, the court concludes that Mr. Lopes should be given the benefit of the doubt with regard to the sale hearing and the associated services. Matters relating to JoAnne Albrecht's interests under California law and to Donald Albrecht's individual bankruptcy case did arise in the sale proceedings;
3. However, all fees for services which even Mr. Lopes has categorized in attachment 3 as outside the scope of his employment, totaling $9,861.50, will be disallowed. These services cannot be compensated under the standards applicable to an after-the-fact employment theory in the Tenth Circuit;
4. Some items of expense reimbursement must also be denied. Counsel may only be reimbursed for ground travel from Denver to Cheyenne in the amount of $30 each way, a rate personally known to and paid by the court on occasion. This represents a deduction of $110;
5. Applicant may not be reimbursed for a forfeited room deposit of $84.53 which did not benefit the estate;
6. Finally, the applicant may only be compensated for travel time at half his hourly rate, regardless of whether or not he made productive use of part of that time. In none of the three pleadings is travel time precisely delineated. The burden is on the applicant to support the application, but instead some travel is billed and some is not. The court will reduce allowed travel by 23 hours, which is the court's best estimate of half the time counsel spent traveling from San Francisco to Wyoming based on the pleadings. The fee award will be reduced by $7,935.00, calculated at counsel's highly compensatory rate of $345 per hour.
It is therefore ORDERED that Howard, Rice, Nemerovski, Canady, Falk Rabkin is allowed an interim fee for services in the amount of $70,168.50 and reimbursement of expenses in the amount of $10,766.10, for a total allowance of $80,934.60.
ORDER DENYING FEE APPLICATION
Jeff Wanamaker's Application for Reimbursement of Fees and Costs is before the court. Objections were filed by Thomas M. Falcey, the chapter 11 trustee of this estate; Tom Connolly, the chapter 11 trustee of the Donald H. Albrecht estate, case no. 97-20252; the United States Trustee; and Donald H. Albrecht, individually. The court held a hearing on the requested fees on December 18, 1997.
Mr. Wanamaker's filed application requests reimbursement of $983,888.68 (the correct total is $984,888.68) in fees and $152,502.71 in costs. The applicant subsequently and voluntarily reduced that amount to reflect an error in the fee calculation of $18,048.43 and by $3,374.16 for a reduction in travel time billed. Thus, the fee request totals $963,466.09.
Mr. Wanamaker is an oversecured creditor of the Albrecht estate, which is the principal equity holder in the Rivermeadows Associates, Ltd. (RMA) estate. Pursuant to a court approved settlement agreement between Mr. Wanamaker and the trustees of the two estates, the RMA trustee paid Mr. Wanamaker approximately $6,000,000. Thus, the principal and interest on his allowed secured claim have been paid in full.
In the settlement, Mr. Falcey and Mr. Connolly agreed to pay the entire amount of Mr. Wanamaker's secured claim, including any attorney fees and costs. The court required this application, and both trustees objected.
This application presents the final issue in determining the allowed amount of Mr. Wanamaker's secured claim. He is requesting these fees and costs pursuant to 11 U.S.C. § 506(b). That section states:
To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs or charges provided for under the agreement which such claim arose.
Mr. Wanamaker's secured claim exists because of enforcement actions he took on a judgment entered against Mr. and Mrs. Albrecht. The judgment was entered against the Albrechts in a lawsuit based on an unsecured promissory note signed by the Albrechts. The unsecured note provides that "[i]f the holder of this Note incurs cost of collection, cost of enforcement or other costs, including attorney fees, in relation to enforcing this Note, the undersigned promise to pay, and there shall be added to the unpaid principal balance hereof, all costs of collection, including, but not limited to, reasonable attorneys' fees and all expenses incurred. . ."
Discussion
Mr. Albrecht raised the determinative issue and argued that Mr. Wanamaker is not entitled to an allowance of fees and costs under § 506(b) because the lien creating the secured claim is a judicial lien. Mr. Albrecht cites a decision by the United States District Court for the District of Utah, and contends that attorney fees are only permitted under § 506(b) to the extent that the agreement providing for fees and costs of collection is secured by collateral taken under the same security agreement. State Bank of Southern Utah v. Rushton, 207 B.R. 721 (D.Utah 1997).
Likewise, the court in In re Vulpetti, 182 B.R. 923, 927 (Bankr.S.D.Fla. 1995) held that the statutory language imposes the requirement that the agreement under which the "allowed secured claim" arose must be the same agreement which created the lien, i.e., a security interest. The Rushton court based its decision on a reading of the statutory language in § 506(b) and on certain statements made by the United States Supreme Court in United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026 (1989).
In Ron Pair, the Court held that under § 506(b), interest is payable to an oversecured creditor regardless of the type of lien the creditor holds. In so doing, the Court distinguished between nonconsensual, judicial and statutory liens, and consensual liens granted by a security agreement. Id. at 1030. The Court stated that the statutory language "such claim" refers to an oversecured claim, and that the section "gives one having a secured claim created pursuant to an agreement the right to reasonable fees, costs, and charges provided for in that agreement." Id.
This court agrees with the interpretation of the statuts in the Rushton and Vulpetti decisions. Under § 506(b) the fees and costs must be provided for "under the agreement under which the allowed secured claim arose." (Emphasis provided). In this case, the allowed secured claim arises out of a judgment, not under the unsecured note. The agreement which provides for fees and costs did not create the secured claim.
The reason for this distinction in § 506(b) (that fees are permitted if secured by consensual liens granted in security agreements but disallowed under nonconsensual liens) is discussed by the court in In re D.W.G.K. Restaurants, Inc, 84 B.R. 684, 687 (Bankr.S.D.Cal. 1988). That court stated that § 506(b) "respects the party's contractual rights by allowing the secured party the full extent of his bargained for security." The Congressional purpose is to protect the equity in the estate for the unsecured creditors, of whom the judgment lien holder could be one, for fair and equitable distribution. Only bargained for collateral can secure a bargained-for, consensual, attorney-fee provision.
The court has found no decision holding to the contrary. Mr. Wanamaker chose to pursue collection of his judgment liens and has been repaid in full. However, the attorney fees incurred in so doing cannot be part of his allowed secured claim in the Albrecht related cases because the collateral was not obtained under a consensual agreement allowing for such fees.
It is, accordingly, ORDERED that Mr. Wanamaker's application for reimbursement of fees and costs as part of his allowed secured claim is hereby DENIED.