In re Boyd, No. 08-14279 (RTL).

• Decision Date: 09 December 2008
• Docket Number: No. 08-14279 (RTL).
• Citation: 401 B.R. 137
• Parties: In re Theresa Ann BOYD, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

401 B.R. 137

In re Theresa Ann BOYD, Debtor.

No. 08-14279 (RTL).

United States Bankruptcy Court, D. New Jersey.

December 9, 2008.

William M.E. Powers III, Esq., Powers Kirn, LLC, Attorney for U.S. Bank Home Mortgage.

Howard Schmidt, Esq., Attorney for Albert Russo, Standing Chapter 13 Trustee.

Steven Abelson, Esq., Attorney for Debtor.

OPINION

RAYMOND T. LYONS, Bankruptcy Judge.

INTRODUCTION

Before the court is a chapter 13 secured creditor's fee application for post-petition, preconfirmation attorney's fees incurred in the course of responding to the Debtor's motion to modify its claim. The issue is whether a secured creditor is entitled to include these post-petition, preconfirmation attorney's fees in its claim, essentially shifting its costs of litigation to the Debtor. Under § 1322(e) of the Bankruptcy Code "the amount necessary to cure the default, shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law." 11 U.S.C. § 1322(e). Since the note contains a fee shifting provision that is enforceable under New Jersey law, the mortgagee's post-petition, preconfirmation fees may be included in the amount necessary to cure the default.

JURISDICTION

This court has jurisdiction of this contested matter under 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a) and the Standing Order of Reference by the United States District Court for the District of New Jersey dated July 23, 1984, referring all proceedings arising under Title 11 of the United States Code to the bankruptcy court. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B) and (L) concerning the allowance of a claim and confirmation of a plan.

BACKGROUND

This fee application arises in a chapter 13 case. Here, the Debtor owns a residence together with her spouse encumbered by two mortgages. The first mortgage is held by U.S. Bank Home Mortgage (hereinafter "US Bank") and a second is held by Bank of America. Both claims are oversecured, as the Debtor's bankruptcy schedule lists the value of her one half interest in the residence to be higher than the combined secured claims.

The Debtor entered into her mortgage agreement with U.S. Bank on April 24, 2001. Included in the agreement was a fee-shifting provision in the event of a default:

6. BORROWER'S FAILURE TO PAY

. . .

(C) Payment of Costs and Expenses

If Lender has required immediate payment in full, as described above, Lender may require Borrower to pay costs and expenses including reasonable and customary attorney's fees for enforcing this Note to the extent not prohibited by applicable law. Such fees and costs shall bear interest from the date of disbursement at the same rate as the principal of this Note.

Roughly two years later, on August 30, 2003, the mortgage was modified following some hardship and a subsequent default. The Debtor defaulted a second time and the mortgage was modified once more on June 1, 2007. On January 8, 2008, the Debtor defaulted for a third time, and U.S. Bank commenced a foreclosure proceeding in state court.

Just prior to the entry of the foreclosure judgment, on March 11, 2008, the Debtor filed a petition under chapter 13 of the Bankruptcy Code. The Debtor also filed a chapter 13 plan in concert with her petition. The plan primarily proposed to cure the arrears the Debtor owed to U.S. Bank and Bank of America.

US Bank timely filed its proof of claim on April 28, 2008, for $211,527.11. In addition to the unpaid principal of $166,225.03 and the pre-petition arrears of $12,686.12, U.S. Bank's claim included escrow shortages, legal fees, and interest to amortize these advances. The Debtor objected to U.S. Bank's claim. Multiple briefs were filed by the Debtor and U.S. Bank in support of their positions. Ultimately, this court overruled the Debtor's objection and allowed U.S. Bank's claim as filed.

The instant fee application arises out of the additional legal fees incurred by U.S. Bank in litigating the Debtor's objection to its claim. The amount sought is $3,642.50, less $625 already included in the original proof of claim. This total figure was calculated using the lodestar method and itemized the time spent responding to the Debtor's objection to its claim and opposing confirmation of the Debtor's plan. In a supplemental pleading, U.S. Bank produced proof that it had been billed for, and approved payment of, the same amount of attorney's fees requested in its application.

The Debtor now objects that: (i) there is no basis for the creditor to charge back the Debtor, (ii) the amount of fees are unreasonable, (iii) it is questionable whether the mortgagee actually incurred the amount of fees requested, (iv) part of the mortgagee's objection to confirmation was overruled, and (v) allowing additional fees to the mortgagee would chill Debtor's rights under the Bankruptcy Code. She argues, "If this application is permitted, no debtor would ever dare challenge a creditor for fear of retribution." The Trustee also objects, citing the fees as excessive, without legal authority, and without disclosure of the fee agreement between the creditor and its attorney. The court reviewed the detailed time entries and the hourly rate and finds the fees reasonable. The creditor provided proof that its obligation to pay attorney's fees matches the amount of reimbursement being sought from the Debtor. Additionally, the court rejects the argument that the fees should be disallowed because the mortgagee's objection to confirmation was overruled; this was a minor issue that did not generate significant legal fees. The only issue that merits further consideration is the argument by the Debtor and the Trustee that there is no legal basis to require the Debtor to reimburse the mortgagee for its legal fees.

DISCUSSION

The issue before the court is whether a secured creditor in a chapter 13 case is entitled to its post-petition, preconfirmation attorney's fees as part of the arrears to be cured. The Third Circuit squarely addressed this issue in the non-precedential opinion, Smiriglio v. Hudson United Bank (In re Smiriglio), 98 Fed.Appx. 914 (3d Cir.2004). The debtors in Smiriglio had defaulted on a guarantee agreement that was secured by their personal residence. Prior to the filing of a foreclosure action by the mortgagee, the debtors commenced their bankruptcy case. Id. at 916. The debtors intended to retain their home by proposing a cure plan under chapter 13.¹ The mortgagee's oversecured claim became the subject of litigation as the parties fought over the mortgagee's lien position on the real property. The dispute was resolved in favor of the mortgagee, and the mortgagee moved to include post-petition, preconfirmation attorney's fees into its arrearage claim, as provided for in the note and guarantee. Id. at 914. Both the bankruptcy court and district court sided with the creditor. Id.

The Third Circuit first observed that the New Jersey law on attorney's fees was consistent with the American Rule: "[T]he parties bear the burden of their own counsel fees." Id. at 915 (citing McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 626 A.2d 425, 429 (1993)); see also, Hatch v. T & L Assocs., 319 N.J.Super. 644, 726 A.2d 308, 309 (App.Div.1999). Next, the Third Circuit acknowledged that New Jersey law also respected the general right to contract and allowed for the shifting of reasonable attorneys fees where specified in an agreement. Smiriglio, 98 Fed.Appx. at 915 (citing Alcoa Edgewater No. 1 Fed. Credit Union v. Carroll, 44 N.J. 442, 210 A.2d 68, 72 (1965); Belfer v. Merling, 322 N.J.Super. 124, 730 A.2d 434, 443 (1999)). The agreement in Smiriglio provided that the debtor was obligated to reimburse the lender for its legal fees and since that agreement was enforceable under New Jersey law, "the amount of the arrearage must be `determined in accordance with the underlying agreement and applicable nonbankruptcy law,' as provided under § 1322(e)." Smiriglio, 98 Fed. Appx. at 915 (quoting 11 U.S.C. § 1322(e)). The Third Circuit affirmed the decisions of the bankruptcy and district courts allowing the inclusion of the lender's legal fees and expenses in the arrears cured under the plan.

The facts of this case are similar to those present in Smiriglio. As in Smiriglio, the Debtor entered into and defaulted upon a mortgage agreement with an explicit fee-shifting clause. The Debtor then commenced a bankruptcy case under chapter 13 and sought to retain her residence through a cure plan. During the bankruptcy case, the mortgagee had to defend its claim, accumulating legal fees in the process. The mortgagee then sought to amend its claim to be compensated for its attorney's fees. Consequently, the legal conclusions that the Third Circuit arrived at in Smiriglio are directly applicable to the instant case. By proposing a cure plan, the Debtor is similarly obligated by § 1322(e) to cure her arrears according to the underlying agreement and applicable nonbankruptcy law. The underlying agreement is enforceable under New Jersey law, so the amount necessary to cure the arrears must include the mortgagee's reasonable attorney's fees and expenses.

Neither the Debtor nor the Trustee have argued that U.S. Bank's fees should be limited by the New Jersey Court Rule 4:42-9(a)(4).² They both maintain that fee shifting is inappropriate. Their position is refuted by § 1322(e) and Smiriglio. There is no reason for this court to consider whether U.S. Bank's application for reimbursement of attorney's fees should be limited by the New Jersey Court Rule.³

While Smiriglio is a non-precedential Third Circuit opinion, this court is comfortable in relying upon it. It is clear that a non-precedential opinion ("NPO") of the Third Circuit is not precedent for the district courts below. In re: Grand Jury Investigation, No. 06-1474, 445 F.3d 266, 276 (3d Cir.2006) (reasoning that because the Third Circuit's Internal Operating Procedures do not regard NPOs as...