In re Brunswick Apts. of Trumbull County, Ltd.
| Citation | 215 BR 520 |
| Decision Date | 23 January 1998 |
| Docket Number | 97-8007.,BAP No. 97-8006 |
| Parties | In re BRUNSWICK APARTMENTS OF TRUMBULL COUNTY, LTD., Debtor. FIRST BANK OF OHIO, Appellant, v. BRUNSWICK APARTMENTS OF TRUMBULL COUNTY, LIMITED, Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit |
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Douglas S. Roberts, argued and on brief, Clark, Perdue & Roberts, Columbus, OH, for Appellee.
James A. Giles, argued and on brief, Mount Vernon, OH, for Appellant.
Before: BAXTER, RHODES, and STOSBERG, Bankruptcy Appellate Panel Judges.
First Bank of Ohio (the Bank) appeals the bankruptcy court's determination of the fees and costs allowed as part of its secured claim against Brunswick Apartments of Trumbull County, Limited, (the Debtor) by virtue of a promissory note executed by the Debtor. The Bank contends that the court's disallowance of a service charge on all payments under the promissory note, the reduction of counsel fees sought, and the disallowance of certain internal operating costs incurred in its loan collection efforts constituted reversible error. We conclude that the bankruptcy court properly construed 11 U.S.C. § 506(b) in these matters and affirm the decision.
The issues are whether the bankruptcy court properly applied § 506(b) in its determination of the costs and expenses to be included in the Bank's oversecured claim and whether the court properly interpreted the parties' contract.
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to hear the appeal of a final order of the bankruptcy court. 28 U.S.C. § 158(b). A final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations and internal quotations omitted). The parties to this appeal consented to its transfer to the BAP.
The bankruptcy court's conclusions of law are reviewed de novo. Mapother & Mapother, P.S.C. v. Cooper, 103 F.3d 472 (6th Cir.1996). In addition, this panel reviews a bankruptcy court's findings of fact for clear error. XL/Datacomp, Inc. v. John R. Wilson, 16 F.3d 1443, 1447 (6th Cir.1994); FED. R. BANK. P. RULE 8013. In this matter, there is an issue as to the interpretation of language in a contract as well as factual determinations by the court. Interpretation of a contract is a matter of law subject to de novo review. United States v. Century Offshore Management, 111 F.3d 443 (6th Cir. 1997); First Am. Bank v. Fidelity & Deposit Co., 5 F.3d 982 (6th Cir.1993). Accordingly, de novo is the appropriate standard of review for the bankruptcy court's interpretation of the language of the contract. The bankruptcy court's determination regarding the reasonableness of fees involves factual findings, subject to review under the clearly erroneous standard. See Manufacturers National Bank v. Auto Specialties Manufacturing Company, 18 F.3d 358 (6th Cir.1994).
The Debtor executed a promissory note (the Note) in favor of Cardinal Industries Mortgage Company on February 1, 1989 in the amount of $1,282,000.00. The Note was later assigned to First Bank of Ohio by the Federal Deposit Insurance Corporation. Subsequently, the Debtor experienced financial difficulties and eventually defaulted on the Note. Thereupon, the Bank commenced foreclosure proceedings which caused the Debtor to file its voluntary petition for relief under Chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 1101-1129.
Following the bankruptcy filing, a dispute arose between the Bank and the Debtor regarding the amount owed on the Bank's secured claim. The Debtor filed its Motion For Determination Of Allowed Amount Of Secured Claim Of First Bank. The court fixed the Bank's secured claim in the amount of $1,308,714.40, subject to adjustment. No service charge was allowed on the secured claim. The court awarded, however, certain attorneys fees as part of the Bank's claim but disallowed other requested fees and costs. On appeal, the Bank challenges the bankruptcy court's disallowance of the full amount of its requested late charges, the total amount of attorney compensation, in addition to other fees and collection costs incurred.
It is undisputed that the Bank's security interest in the subject collateral is oversecured. As such, 11 U.S.C. § 506(b) allows an oversecured claimant not only postpetition interest payments but also affords reasonable fees, costs and charges as provided in the attendant security agreement. See, U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). Section 506(b) provides:
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 under which such claims arose.
11 U.S.C. § 506(b). Our resolution of the issue presented requires consideration of the import of § 506 and the degree of deference given to its "reasonableness" standard by the bankruptcy court.
The Bank does not challenge the amount of postpetition interest allowed by the bankruptcy court but does challenge the reasonableness of the allowed related fees and costs portion of its secured claim. The Bank's lien is consensual. Where, as here, the lien is consensual and is so provided for in the underlying security agreement, it is generally recognized that an oversecured claimant can recover fees and costs from any surplus value in the collateral as long as such fees and costs are reasonable and the surplus exists. Ron Pair, 489 U.S. at 241, 109 S.Ct. at 1030. The Bank specifically argues that the bankruptcy court erred when it disallowed a five percent service charge for the amount due under the Note on January 1, 1994. An examination of the Note reveals that the amount due on January 1, 1994 constituted a "balloon" payment on the matured principal balance, as opposed to a periodic installment payment under the Note. Indeed, the Note provides:
As noted above, a thirty-year amortization schedule required fixed monthly installment payments in the amount of $12,807.95 to be paid by the Debtor to the Bank beginning on February 1, 1989 and continuing until January 1, 1994, when the matured principal balance was "due and payable." As provided under Paragraph VI of the Note, a five percent service charge was to be levied upon any delinquent "installment" payment. The Bank's claim included this service charge not only upon the Debtor's delinquent installment payments but also upon the matured "balloon" balance on the principal which became "payable" on January 1, 1994. The Bank's assessment of the service charge on the matured principal balance was disallowed by the bankruptcy court on the grounds that it was not the equivalent of an obligation to make an installment payment under the Note. We concur. To allow otherwise would constitute an unreasonable and unwarranted charge not provided for under the terms of the Note. A close reading of Paragraph I of the Note clearly shows that the final installment payment is due on the same date as the balloon payment. This evinces two points: (1) the last installment payment is a separate payment from the balloon payment and (2) pursuant to the term of Paragraph III, only the installment payment is to be assessed the five percent service charge for late payment, not the balloon payment. Accordingly, the bankruptcy court committed no error in disallowing the service charge on the matured principal payment as part of the Bank's secured claim. In this regard, the Bank's reliance on In re Consolidated Properties Limited Partnership, 152 B.R. 452 (Bankr.D.Md. 1993) is misplaced. In that case, the promissory note in question provided for a five percent surcharge on any payment of principal or interest that was not timely paid. Id. at 458. Those facts clearly differ from the facts in the present case which underscores the importance of construing the actual terms of the Note.
The Bank next asserts that the bankruptcy court erred in denying a portion of its secured claim which was attributable to legal fees charged by its outside counsel. In this regard, the bankruptcy court approved an amount of $11,551.97, as legal fees paid for the law firm of Arter & Hadden as part of the Bank's secured claim. The fees requested were $63,653.76. Reimbursement of legal fees is properly made to an oversecured claim holder where such is expressly provided in the security agreement and where the fees are reasonable. Manufacturers National Bank v. Auto Specialties Manufacturing Co., 18 F.3d 358, 360 (6th Cir.1994). Herein, the Note clearly provides for reasonable compensation to be paid...
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