In re 900 Corp.

• Citation: 327 B.R. 585
• Decision Date: 23 May 2005
• Docket Number: No. 03-35721-BJH-11.,03-35721-BJH-11.
• Parties: In re 900 CORP., et al., Debtors.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas

327 B.R. 585

In re 900 CORP., et al., Debtors.

No. 03-35721-BJH-11.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

May 23, 2005.

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Cynthia Cole, Neligan, Tarpley, Andrews & Foley, L.L.P., Dallas, TX, for Debtor.

MEMORANDUM OPINION AND ORDER

BARBARA J. HOUSER, Bankruptcy Judge.

Before the Court are two applications for fees pursuant to 11 U.S.C. § 506(b) filed by Winstead, Sechrest & Minick, P.C. ("Winstead") as counsel to Wells Fargo Business Credit, Inc. ("WFBC"). The first application seeks fees of $191,435.50 and expenses of $2,253.63 incurred preconfirmation, between May 7, 2003 and June 30, 2004 (the "First Application"). The second application seeks fees of $47,558.50 and expenses of $773.24 incurred post-confirmation, between July 1, 2004 and December 31, 2004 (the "Supplemental Application"). Bag `n Baggage, Ltd. and 900 Corp. (collectively, the "Debtors") oppose both applications. Also before the Court is the Debtors' objection to WFBC's proof of claim, as it relates to these fees. The Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (K) and (0) and 28 U.S.C. § 1334.

The Court's ruling is as follows — with respect to the First Application, WFBC is entitled to $140,382.28 in fees and $2,253.63 of expenses. The remainder of the fees sought are disallowed under Texas state law (as to the pre-petition fees) and under section 506(b) of the Bankruptcy Code (as to the post-petition fees) because they are not reasonable within the meaning of either state law or section 506(b). With respect to the Supplemental Application, WFBC is not entitled to any fees or expenses for several reasons. First, section 506(b), under which WFBC seeks to recover its post-confirmation fees and expenses, authorizes the recovery of fees and expenses only from the date of the bankruptcy filing through the date of confirmation, and thus cannot provide the basis for any recovery of fees and expenses first incurred post-confirmation. Second, even if section 506(b) continued to be relevant post-confirmation, it authorizes the recovery of fees by an oversecured creditor. Having released its liens, WFBC was no longer a secured creditor at the time it incurred the fees and expenses sought in the Supplemental Application. Third, even if WFBC could avail itself of section 506(b) (as an unsecured creditor at the time its fees were incurred), that section allows for the recovery of attorneys' fees and expenses only where those fees and expenses are provided for by the agreement under which the claim arose. Here, the agreement under which WFBC's claim arose terminated by its own terms prior to WFBC incurring the fees and expenses at issue in the Supplemental Application. Fourth, to the extent that WFBC is simply making a contractual argument that it is entitled to recover its fees and expenses based on the Debtors' plan of reorganization, the Court concludes that the plan does not provide any basis for the recovery of the fees and expenses sought in the Supplemental Application.

The Court's analysis with respect to its rulings is set forth in detail below.

I. Factual Background

The Debtors filed voluntary petitions for relief under chapter 11 on June 3, 2003. The cases were jointly administered by Order dated June 9, 2003.¹ As of the petition date, WFBC was owed approximately $2.5 million, secured by liens on substantially all of the Debtors' personal property (including inventory).

These were atypical bankruptcy cases from a secured creditor's point of view. Very early in the cases, it became clear that WFBC was significantly oversecured, holding liens on assets worth several multiples of its debt. Moreover, no party ever challenged the validity or priority of WFBC's liens on the Debtors' assets. The Debtors filed a joint plan of reorganization quite quickly — i.e., seven months into the cases, having extended their periods of exclusivity only once. That plan did not propose to impair WFBC in any way. The Debtors did not propose to cram down their plan over WFBC's objection, and WFBC was not expected to serve as an involuntary lender to the reorganized Debtors. In fact, instead of proposing to pay WFBC over time, as so many plans propose to do with respect to pre-petition secured lenders, the Debtors proposed to pay WFBC's claim in full, in cash, shortly after confirmation. Specifically, the Debtors proposed to obtain exit financing from a new lender and to use a portion of that new loan to pay WFBC's pre-petition secured claim in full. The cases were, in short, unusually promising from a secured creditor's point of view. Nevertheless, WFBC's counsel, with a cast of 17 lawyers and paraprofessionals, expended 589.1 hours and incurred $191,435.50 of fees and $2,253.63 of expenses in the protection of its $2.5 million oversecured claim.

The day after the bankruptcy filings, the Debtors filed an emergency motion to use cash collateral. On June 9, 2003, after two interim hearings, the Court signed an interim order authorizing the Debtors to use WFBC's cash collateral on specified terms. See Interim Order Regarding Limited Use of Cash Collateral, Docket No. 34. Two days later, the Debtors filed an "Emergency Motion to Compel Turnover of Debtors' Property in Compliance with Court Orders" (the "Motion to Compel"). The Motion to Compel alleged that the Debtors' Credit and Security Agreement dated September 5, 2002 with WFBC (the "Agreement")² required the Debtors to maintain their accounts at Wells Fargo Bank (an affiliate of WFBC), and that notwithstanding the entry of the cash collateral order, Wells Fargo Bank applied a debit hold on the Debtors' accounts and refused to release the funds the Debtors were authorized to use. The Motion to Compel was granted on June 12, 2003.

As noted previously, it was determined very early in the cases that WFBC was oversecured,³ and no party ever challenged the validity, priority, or extent of WFBC's liens on the Debtors' assets. On January 5, 2004, the Debtors filed a disclosure statement and a plan of reorganization which treated WFBC as unimpaired and proposed to pay it in full upon the closing of certain exit financing. While the plan was amended several times, WFBC's treatment never changed, and the plan ultimately confirmed by the Court on April 22, 2004 provided for WFBC to be paid, in full, from the exit financing.

Specifically, ¶ 6.02 of the confirmed plan states:

The Holders of the Wells Fargo Secured Claim shall give the Debtors or the Reorganized Debtors written notice, at least 24 hours before the Credit Facility Closing Date, of the asserted amount of such Wells Fargo Secured Claim. The Debtors or the Reorganized Debtors shall pay such asserted amount in Cash in full on the Credit Facility Closing Date, which amount shall be the Allowed amount of the Wells Fargo Secured Claim unless, and notwithstanding section 6.02 of the Plan, a Debtor, the Reorganized Debtors, or the Creditors' Committee files with the Bankruptcy Court a written objection thereto within fifteen (15) days after the Credit Facility Closing Date. Wells Fargo's possession of the funds disbursed by the Debtors in satisfaction of the Wells Fargo Secured Claim shall not give rise to a secured claim to those funds ... In the event of any objection to the asserted amount of the Wells Fargo Secured Claim, the Bankruptcy Court shall determine the Allowed amount of the Wells Fargo Secured Claim, and the Holder thereof shall disgorge any amount by which such Allowed amount is less than the amount it received on the Credit Facility Closing Date on account of the asserted Wells Fargo Secured Claim. Notwithstanding (a) any objection by a Debtor, the Reorganized Debtors, or the Creditors' Committee to the asserted amount of the Wells Fargo Secured Claim or (b) a Final Order of the Bankruptcy Court concerning any such objection, and except as otherwise set forth in this section, on the Credit Facility Closing Date, the Holder of the Wells Fargo Secured Claim shall execute such documents and take all other actions as may be necessary to release any liens and security interest they have in the Debtors' property. Notwithstanding anything else contained in the Disclosure Statement, the Plan, and the Confirmation Order ... and notwithstanding the confirmation of the Plan, Wells Fargo, as the Holder of the Wells Fargo Secured Claim, shall be entitled to all the liens, protections, benefits, and priorities granted to Wells Fargo under the Cash Collateral Order. All such liens, protections, benefits, and priorities shall continue until the Allowed Wells Fargo Secured Claim is paid in full or in part pursuant to a Court order. Until a Final Court Order is entered reducing the Wells Fargo Secured Claim, Wells Fargo, on the Effective Date, shall be paid its entire Allowed Claim, including all unpaid principal, accrued but unpaid interest and attorneys' fees, costs and expenses, as provided in the Cash Collateral Order through the date of the payment in full of the Wells Fargo Secured Claim. If the amount of the Wells Fargo Secured Claim is then reduced pursuant to a Final Court Order, Wells Fargo shall return to the Reorganized Debtor the difference between the amount in such Final Court Order and the amount paid at the Effective Date. This Class is unimpaired.

The phrase "Wells Fargo Secured Claim" was defined in the plan to mean any and all allowed amounts owed to WFBC under the Wells Fargo Credit Facility. In turn, the phrase "Wells Fargo Credit Facility" was defined as the pre-petition Credit and Security Agreement extended by WFBC on or about September 5, 2002. The phrase "Credit Facility" was defined as a credit facility of up to ten million dollars to be entered into by the Debtors with a lender and in form and substance acceptable to the Debtors and the Committee, and the phrase "Credit Facility Closing Date"...