In re 268 Ltd.
| Decision Date | 17 April 1987 |
| Docket Number | Bankruptcy No. BK-S-82-1071. |
| Parties | In re 268 LIMITED, a Nevada Limited Partnership, Debtor. |
| Court | U.S. Bankruptcy Court — District of Nevada |
Joshua M. Landish, Las Vegas, Nev., for debtor.
Robert J. Gower, Las Vegas, Nev., for movant.
The case at bar is in this Court on remand from the Ninth Circuit Court of Appeals. That court previously determined that attorney's fees awarded as a secured claim under Bankruptcy Code section 506(b), 11 U.S.C. section 506(b), may not exceed an amount determined by the bankruptcy court to be reasonable. In re 268 Limited, 789 F.2d 674 (9th Cir.1986). The issue on remand is whether a creditor may recover as an unsecured claim the full amount of attorney's fees provided for in a deed of trust when those fees exceed a reasonable amount.
The Debtor, 268 Limited ("Debtor"), a Nevada limited partnership, purchased an apartment complex from Joseph F. Sanson Investment Company ("Sanson"). Sanson retained a security interest in the property evidenced by a note secured by a first deed of trust. The deed of trust provided that upon default by the Debtor and sale of the property, five percent of the balance remaining due at the time of default would be paid to Sanson as attorney's fees. An involuntary Chapter 11 petition was later filed against the Debtor after which the Debtor defaulted on the Sanson obligation and the property was sold. The sale yielded approximately $1,000,000 in excess of the outstanding principal.
Pursuant to Bankruptcy Code section 506(b), Sanson applied to this Court for $197,500 in attorney's fees as provided for in the deed of trust. This Court determined, Judge Lloyd D. George sitting, that fees sought under section 506(b) should be limited to an amount that was reasonable under the circumstances and awarded Sanson $20,000. On appeal, the ninth circuit affirmed this Court's conclusion that attorney's fees awarded under section 506(b) are limited to a reasonable amount, and affirmed the award of $20,000 in fees. The appellate court remanded the case so that Sanson could seek a determination of the balance of the attorney's fees as an unsecured claim. Sanson then filed an unsecured claim against the bankruptcy estate for $177,500 plus interest. The Debtor objected to Sanson's claim and, after a hearing and submission of briefs, the Court took the matter under advisement.
The only remaining question in this matter is whether, under Nevada law, Sanson is entitled to recover the full amount of the fees provided for in the deed of trust. In Nevada, a deed of trust may contain an attorney's fee provision. Nev. Rev.Stat. section 107.030(7). Section 107.030(7) states in relevant part:
COVENANT NO. 7. That the trustee, upon such sale, shall make (without warranty), execute and, after due payment made, deliver to purchaser or purchasers, his or their heirs or assigns, a deed or deeds of the premises so sold which shall convey to the purchaser all the title of the grantor in the trust premises, and shall apply the proceeds of the sale thereof in payment, firstly, of the expenses of such sale, together with the reasonable expenses of the trust, including counsel fees, in an amount equal to ___ percent of the amount secured thereby and remaining unpaid, which shall become due upon any default made by grantor in any of the payments aforesaid;. . . .
The deed of trust executed by the Debtor contained the statutory covenant and designated five percent as the attorney's fees. Where there is such contractual fee arrangement, a creditor may seek the full amount of the fees as an unsecured claim to the extent it is enforceable under state law. See 268 Limited, 789 F.2d at 678 ().
Determining the enforceability of the attorney's fee provision in the case at bar requires consideration of two questions. The first is whether the attorney's fees sought by Sanson pursuant to the deed of trust are subject to a reasonableness determination. If so, the second question is whether the fees sought by Sanson are reasonable.
The first question is one of statutory interpretation. Section 107.030(7) requires the trustee, upon sale of the encumbered property, to first pay the expenses of the sale "together with the reasonable expenses of the trust, including counsel fees, in amount equal to ___ percent" of the unpaid principal. The Debtor argues that the presence of the term "reasonable" in the statute allows this Court to review the fee request for reasonableness. Sanson argues that this Court is bound by the percentage stated in the deed of trust regardless of the amount of the fees sought.
The Court could locate no cases construing section 107.030(7), so must use its best judgment in predicting how the Nevada Supreme Court would construe the statute. See Amfac Mortgage Corp. v. Arizona Mall of Tempe, Inc., 583 F.2d 426, 434-35 (9th Cir.1978); Westchester Fire Ins. Co. v. Sperling, 421 F.2d 141, 142 (9th Cir.1970). The Court could find no legislative history on the statute nor any analogous provisions in other states. Therefore, it must look to principles of statutory construction. A court's duty in construing a statute is to determine the intent of the legislature that enacted it. In ascertaining the intent of the legislature, a court must look to the words of the statute and to the purposes for its enactment. State ex rel. Bartlett v. Brodigan, 37 Nev. 245, 255, 141 P. 988 (1914) (Talbot, C.J., concurring).
The language of section 107.030(7) indicates that the attorney's fees are limited to a reasonable amount. In section 107.030(7), "reasonable" modifies "expenses of the trust" and counsel fees are included among the "expenses of the trust". The legislature's intent is clearly to include attorney's fees among the expenses of the trust. The expenses of the trust that, pursuant to the covenant, are to be paid from the sale proceeds, must be reasonable. The legislature could easily have indicated that the attorney's fee provision was not among the expenses of the trust. For instance, it could have used the word "plus" instead of the word "including". The legislature, however, used the word "including". Accordingly, although the statute allows, and in fact encourages, the parties to designate a percentage of the unpaid principal as counsel fees, those fees, like the other expenses of the trust, must be reasonable.
The evident purpose of section 107.030(7) also suggests that the attorney's fees allowed under that section are limited to a reasonable amount. The purpose of such an attorney's fee provision is to compensate the secured party for the costs of the foreclosure. See, e.g., McLane v. Abrams, 2 Nev. 199, 208 (1866) (). "If the language of a statute is capable of two constructions, one of which is consistent and the other is inconsistent with the evident object of the legislature in passing the law, that construction must be adopted which harmonizes with the intention." Recanzone v. Nevada Tax Comm'n., 92 Nev. 302, 305, 550 P.2d 401, 403 (1976) (quoting State v. California Mining Co., 13 Nev. 203, 217 (1878)). Allowing for recovery of reasonable costs and attorney's fees supports the purpose of compensating the creditor; allowing for recovery of exorbitant fees does not. Thus, the purpose, as well as the language, of section 107.030(7) suggests that it should be read to permit only reasonable attorneys fees.
The limited Nevada case law addressing this issue also supports this interpretation of the statute. The only two Nevada cases dealing with the issue at hand, are Cox v. Smith, 1 Nev. 161 (1865) and McLane v. Abrams, 2 Nev. 199 (1866). In both cases, promissory notes provided that, upon foreclosure, the creditor could recover ten percent of the unpaid balance as attorney's fees. 2 Nev. at 203; 1 Nev. at 165. The Nevada Supreme Court allowed the fees in both cases, but indicated that it was reluctant to do so and that such fees would only be allowed when they were reasonable. 2 Nev. at 208; 1 Nev. at 172. In Cox, the court stated:
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