In re Club Associates
| Decision Date | 31 October 1989 |
| Docket Number | Bankruptcy No. 87-01356. |
| Citation | 107 BR 794 |
| Parties | In re CLUB ASSOCIATES, a Georgia Limited Partnership, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
J. William Boone, Alston & Bird, Atlanta, Ga., for Sun Life Assur. Co. of Canada.
Warren O. Wheeler, Schreeder, Wheeler & Flint, Atlanta, Ga., for Transamerica Life Ins. and Annuity Co.
J. Scott Jacobson, Holt, Ney, Zatcoff & Wasserman, Atlanta, Ga., for Vinland Property Trust.
This matter is before the court on the motions of Sun Life Assurance Company of Canada (hereinafter "Sun Life") and Transamerica Life Insurance and Annuity Company (hereinafter "Transamerica") for allowance and payment of interim attorneys fees and expenses pursuant to 11 U.S.C. § 506(b). Sun Life filed its application March 17, 1989, seeking compensation of $13,284.00 and $504.90 as reimbursement of expenses. Transamerica filed its application February 1, 1989, seeking compensation of $5,327.00 and $115.87 as reimbursement of expenses. The United States Trustee filed comments with respect to both applications April 17, 1989 and February 15, 1989 respectively. Consolidated Capital Realty Investors1 (hereinafter "CCRI") filed objections to the applications April 6, 1989. Following a hearing held May 4, 1989,2 Transamerica and Sun Life filed a joint brief May 24, 1989.
Pursuant to 11 U.S.C. § 506(b):
To the extent that an allowed secured claim is secured by property the value of which, after 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 claim arose.
In the instant case, the agreements under which Sun Life's and Transamerica's claims for attorneys fees arise provide for collection of attorneys fees incurred in connection with a default and in connection with "any action, legal proceeding or dispute . . . affecting the indebtedness secured hereby."3
In the instant case, Debtor's sole asset is a 652-unit complex operating as the Tahoe Club Apartments in Clarkston, DeKalb County, Georgia (hereinafter the "Property"). Debtor purchased the Property from CCRI November 30, 1984. In connection with the purchase, Club gave CCRI a promissory note in the principal amount of $22 million (hereinafter the "Note"). The Note is a wraparound note, which includes three prior first mortgages,4 the principal balances of which aggregate approximately $7.8 million. Sun Life and Transamerica are the mortgagees holding two of those first mortgages.
Sun Life's mortgage creates a first priority lien on one parcel of the Property in the original principal amount of $3.45 million maturing March 1, 2002. Sun Life's claim is evidenced by a promissory note between Sun Life and CCRI, to which Club is not a party, which is not and has not been in default.
Transamerica's mortgage creates a first priority lien on one parcel of the Property in the original principal amount of $3 million maturing November 1, 1998. Transamerica's claim is evidenced by a promissory note between Transamerica and CCRI, to which Club is not a party, which is not and has not been in default.
The third first priority mortgage on the Property is held by American Savings Bank in the original principal amount of $2.75 million maturing November 30, 1990. As with the mortgages of Sun Life and Transamerica, the debt to American Savings Bank is evidenced by a promissory note between American Savings Bank and CCRI, to which Club is not a party, which is not and has not been in default.
Under the terms of the original wraparound Note between CCRI and Debtor and under the terms of Debtor's plan of reorganization, confirmed by order entered September 18, 1989, CCRI is responsible for making all payments of principal and interest on the underlying first mortgage notes.
Sun Life and Transamerica seek attorneys fees under § 506(b). Neither § 506(b) nor the clause in the security deeds requires a default in order for Sun Life or Transamerica to be entitled to attorneys fees. Additionally, because the mortgage is not in default, the notice requirements of OCGA § 13-1-11 do not apply in the instant case.
In the instant case, however, although the security deeds provide for payment of attorneys fees in connection with "any action, legal proceeding, or dispute," Debtor is not a party to the security deeds.5 Although the Property is subject to Sun Life's and Transamerica's security interest, the contractual agreement is between CCRI and the mortgagees or their predecessors.6
In the case of Pendergrast v. Ewing, 158 Ga.App. 5, 279 S.E.2d 233 (1981), the property involved in the case was originally sold by Pendergrast to New London Enterprises, Inc. New London then transferred the property to Harvie Ewing. Thereafter, the original security deed between Pendergrast and New London was modified to a nonrecourse agreement. Mr. Ewing was a party to that modification. Subsequently, Mr. Ewing transferred the property to his wife. Mrs. Ewing took the property subject to the original security deed, as modified, but did not assume the indebtedness secured by that security deed. Thereafter, upon default, Pendergrast accelerated the debt and foreclosed after sending the requisite statutory notice of intention to seek attorneys fees to New London and to Mr. Ewing. Mrs. Ewing was not sent notice. After the property was sold pursuant to the foreclosure, Mrs. Ewing claimed the $53,000 by which the purchase price exceeded the principal, interest and past due taxes due on the note. Pendergrast claimed entitlement to the $53,000 as attorneys fees. Mrs. Ewing contested that claim because she had not received the statutory notice of intention to seek attorneys fees. The Georgia court held that no individual or entity is personally liable for the attorneys fees provided for in the notes secured by real property where the original maker of the note has been released from personal liability after transferring the property. In Ewing, no other individual or entity had assumed the obligation. The court held that the owner of the property who was subject to the note and security deed was not entitled to notice pursuant to the statutory requirements of OCGA 13-1-11.7
The requirement in § 506(b) that the agreement provide for collection of attorneys fees evidences an intent of Congress that the creditor must show the parties agreed to the payment of attorneys fees.8 Interest may be collected without regard to any contractual agreement which might exist. In re Colegrove, 771 F.2d 119 (6th Cir, 1985). Attorneys fees and other reasonable fees, costs or charges, however, will be allowed only if provided for in the agreement. In re D.W.G.K. Restaurants, Inc., 84 B.R. 684 (Bankr.S.D.Cal.1988). In the instant case, Debtor was not a party to the agreements with Sun Life and Transamerica, and Debtor never assumed either obligation. Therefore, because neither Sun Life nor Transamerica has satisfied the requirement of § 506(b) concerning an agreement between the parties, they are not entitled to attorneys fees under that provision.
Even if the requirement under § 506(b) with respect to the agreement were satisfied, the reasonableness requirement included in § 506(b) has not been satisfied by Sun Life and Transamerica. As noted above, the posture of the other first priority lender, American Savings Bank, is similar to that of Sun Life and Transamerica. American Savings Bank, however, did not send a legal representative to attend hearings and monitor case development as have Sun Life and Transamerica. Each of the three underlying first mortgagees are substantially oversecured. The order entered September 18, 1989 (hereinafter the "Confirmation Order"), confirming Debtor's plan of reorganization (hereinafter the "Plan"), finds that the value of the Property is $18.75 million.9 The aggregate principal balance for all three first mortgagees is $7.8 million. Additionally, the proposed treatment of Sun Life and Transamerica in Debtor's Plan impaired Sun Life and Transamerica only by including a provision requiring written notice to Debtor of a default by CCRI and an opportunity to cure such a default within five days of receipt of such notice. The treatment of American Savings Bank proposed in the Plan included the notice provision contained in the treatment of Sun Life and Transamerica but also included a provision which extended the maturity date of American Savings...
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