In re Allegretti
| Decision Date | 24 April 2018 |
| Docket Number | No. 17 B 17844,17 B 17844 |
| Citation | 584 B.R. 287 |
| Parties | IN RE: James ALLEGRETTI and Alicia Allegretti, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Attorney for debtors James and Alicia Allegretti: Maura G. Zalc, Bernicky Law Firm, Naperville, IL
Attorney for Webster Bank, N.A.: Lauren Newman, Thompson Coburn LLP, Chicago, IL
A. Benjamin Goldgar, United States Bankruptcy JudgeBefore the court for ruling in this chapter 13 case is the objection of debtors James and Alicia Allegretti to the claim of Webster Bank, N.A. The Bank holds a second mortgage on the Allegrettis' home. The Allegrettis object only to the portion of the claim consisting of the attorney's fees and costs the Bank incurred in state court litigation as well as in a previous chapter 13 case, fees and costs to which the Bank says it is entitled under the note and mortgage. The Allegrettis do not question the terms of the note or the mortgage but insist the Bank's fees and costs are not reasonable, as the two documents require them to be.
For the reasons explained below, the objection will be overruled.
The court has subject matter jurisdiction of this case under 28 U.S.C. § 1334(a) and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(B). See In re Bulk Petroleum Corp. , 796 F.3d 667, 670 (7th Cir. 2015) ().
The relevant facts are drawn from the parties' papers and the court's docket.1 No facts are in dispute.
The Allegrettis own property in Northbrook, Illinois, that serves as their principal residence. In 2007, they borrowed $207,000 from Webster Bank, executing a note in favor of the Bank. To secure repayment, they executed a mortgage granting the Bank a lien on the property. The note permits the Bank to recover all of its costs and expenses if the Allegrettis default, including "reasonable attorney's fees." The mortgage has a similar provision.
Some time after 2007 (it is unclear exactly when), the Allegrettis defaulted, and in 2013 the Bank brought an action against them in Illinois state court. The action alleged only a breach of the note. The Bank elected not to foreclose on the mortgage because it was a second mortgage. The Bank was initially represented by different counsel; current counsel first appeared for the Bank in July 2014.2
The Bank aptly describes the action as "difficult and heavily litigated." (Bank Resp. at 2). The Allegrettis defended the action separately, as if the two of them were strangers rather than co-obligors on the same note. James answered the complaint (denying he had ever signed the note), raised affirmative defenses, and asserted a counterclaim under the Fair Credit Reporting Act.3 Alicia, on the other hand, failed to answer. She was defaulted, and a default judgment was entered against her, although that judgment was later vacated and an answer filed.
Perhaps because of the affirmative defenses and counterclaim, the Bank spent considerable time on discovery in what would otherwise have been a straightforward contract action. In the midst of discovery, the Bank was also compelled to obtain an emergency restraining order against James to stop him from making harassing telephone calls and sending harassing emails to the Bank's president.
In December 2014, the Bank moved for partial summary judgment on its claim against Alicia. After briefing, the motion was granted. The state court entered a partial final judgment against Alicia in October 2015 and set the claim against James for trial. The Bank began its trial preparation. In December 2015, however, counsel for the Allegrettis withdrew, leaving them pro se. Days later, the Allegrettis filed the first of their two chapter 13 bankruptcy cases. The chapter 13 petition stayed the state court action against them.
The chapter 13 case lasted only about seven months, but it, too, was heavily litigated. In the course of the case, the Allegrettis submitted no fewer than five modified plans. All but one of the modified plans proposed to treat the Bank's secured claim as unsecured, presumably by stripping the Bank's lien on the theory that no equity supported it. The Bank filed written objections to each modified plan.4 In April 2016, the Allegrettis also filed an adversary complaint to strip off the lien.5 The Bank sought and received an order allowing an inspection of the property and also sought and received leave to take the Rule 2004 examination of the Allegrettis. While the case was pending, the Bank also repeatedly had the time extended to object to the dischargeability of the Allegrettis' debt.
But nothing came of all this effort. In March 2016, the chapter 13 trustee had moved to dismiss the case on the ground of unreasonable delay prejudicial to creditors. See 11 U.S.C. § 1307(c). The motion was continued several times to give the Allegrettis an opportunity to confirm a plan. With no plan confirmed, the trustee's motion was granted in July and the case dismissed. In the weeks after the dismissal, the Bank and the Allegrettis had settlement discussions, but nothing came of those either. In October, the case closed.
In January 2017, the litigation in the state court resumed. The state court once again set the claim against James for trial, and in May the Bank resumed its trial preparations. On June 12, 2017, before the trial could take place, the Allegrettis filed a second chapter 13 case, the current one. The Bank filed a timely proof of claim asserting a total claim of $441,522.66. Of that amount, $93,735.68 consists of attorney's fees and costs due as of the petition date.
The Allegrettis have now objected to the claim on the ground that the Bank's fees and costs (they do not object to other aspects of the claim) are not supported with any sort of itemization and are unreasonable. In response, the Bank has submitted the affidavit of one its attorneys, Lauren Newman, and attached an itemization. Citing Harris Trust & Sav. Bank v. American Nat'l Bank & Trust Co. , 230 Ill. App. 3d 591, 171 Ill.Dec. 788, 594 N.E.2d 1308 (1st Dist. 1992), the Bank asserts that the affidavit meets the requirements for fee requests under Illinois law. In their reply, the Allegrettis complain that the Bank failed to attach the itemization to its proof of claim.6 They also single out for criticism specific entries on the itemization and label as excessive or unnecessary the time spent on particular tasks.7
The objection will be overruled. Under the applicable law—federal law, not Illinois law—the Bank has supported adequately its request for attorney's fees and costs, and the Allegrettis have supplied no cognizable reason to reduce the amounts sought.
Both sides treat the reasonableness of the Bank's fees and costs as a question of Illinois law. If that were so, the kind of intensive scrutiny to which the Allegrettis subject the Bank's itemization would be necessary. Illinois standards for attorney's fee requests are exacting. See Metavante Corp. v. Emigrant Sav. Bank , 619 F.3d 748, 774 n. 21 (7th Cir. 2010) (making this observation). The petitioner must present the court with "detailed records containing facts and computations upon which the charges are predicated specifying the services performed, by whom they were performed, the time expended and the hourly rate charged." Harris Trust , 230 Ill. App. 3d at 595, 171 Ill.Dec. 788, 594 N.E.2d at 1312. The court must then weigh a host of other factors, such as the nature of the case, the novelty of the issues, and the skill of the attorneys employed. Id. A line-by-line examination of the attorney's records is typical. See, e.g., Harris Trust , 230 Ill. App. 3d at 599, 171 Ill.Dec. 788, 594 N.E.2d at 1314 ; Mercado v. Calumet Fed. Sav. & Loan Ass'n , 196 Ill. App. 3d 483, 494, 143 Ill.Dec. 370, 554 N.E.2d 305, 313 (1st Dist. 1990).
But state law does not apply to requests for attorney's fees in federal court—including requests under contractual fee-shifting provisions. According to the Seventh Circuit, the standards for proving the reasonableness of attorney's fees are procedural, not substantive. See Metavante , 619 F.3d at 774 ; Taco Bell Corp. v. Continental Cas. Co. , 388 F.3d 1069, 1076 (7th Cir. 2004) ; see also Capital One Auto Fin., Inc. v. Orland Motors, Inc. , No. 09 C 4731, 2012 WL 3777025, at *4 (N.D. Ill. Aug. 27, 2012) (); JPMorgan Chase Bank, N.A. v. PT Indah Kiat Pulp & Paper Corp. , 729 F.Supp.2d 1014, 1021 (N.D. Ill. 2010) (), aff'd , 707 F.3d 853 (7th Cir. 2013). Because they are, and because federal law controls procedure in the federal courts, Elustra v. Mineo , 595 F.3d 699, 704 (7th Cir. 2010), the applicable standards come from federal law, not state law, Taco Bell , 388 F.3d at 1076 ; JPMorgan , 729 F.Supp.2d at 1021.8
The decisions reaching this conclusion all arise under federal diversity jurisdiction, see, e.g., Taco Bell , 388 F.3d at 1076, but the same conclusion follows in bankruptcy. Just as federal law governs procedure in diversity cases, see Hanna v. Plumer , 380 U.S. 460, 465, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), it governs procedure in bankruptcy cases, see United Airlines, Inc. v. HSBC Bank USA, N.A. , 416 F.3d 609, 617 (7th Cir. 2005) ( ); Vancil Contracting, Inc. v. Tres Amigos Props., LLC (In re Vancil Contracting, Inc.) , Nos. 06–71254, 07–7044, 2008 WL 2557459, at *1 (Bankr. C.D. Ill. June 24, 2008) ; In re Wheatfield Bus. Park LLC , 286 B.R. 412, 425 (Bankr. C.D. Cal. 2002).
The Allegrettis argue that section 1322(e) of the Code expressly applies state law to a mortgage creditor's...
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