In re Davenport

Citation627 B.R. 705
Decision Date24 November 2020
Docket NumberCase No. 15-00540
Parties IN RE Stuart Mills DAVENPORT, Debtor.
CourtUnited States Bankruptcy Courts. District of Columbia Circuit

Jeffrey M. Orenstein, Wolff & Orenstein, LLC, Michael G. Wolff, Goren, Hofberg & Wolff, Rockville, MD, for Debtor.

MEMORANDUM DECISION RE DEBTOR'S MOTION TO MODIFY PLAN AND SECURED CREDITORS’ APPLICATION FOR ALLOWANCE OF POSTPETITION FEES AND EXPENSES

S. Martin Teel, Jr., United States Bankruptcy Judge

Stuart Mills Davenport commenced this case as the debtor by filing a voluntary petition under Chapter 13 of the Bankruptcy Code (11 U.S.C.) on October 14, 2015. He owns a property located at 1700 1st Street, N.W., Washington, D.C. 20001 (the "Property").1 Babak Djourabchi and Monica Welt hold a claim against Davenport pursuant to a Note issued for $80,000.00 that is secured by a Deed of Trust against the Property. This Memorandum Decision addresses Davenport's Motion to Modify Chapter 13 Plan After Confirmation (Dkt. No. 125) and the Application of Secured Creditors Babak Djourabchi and Monica Welt, for Allowance and Payment of Interest, Costs, Fees and Other Expenses Due on Secured Note (part of Dkt. No. 137) ("Application for Fees and Expenses ").

ISUMMARY

On January 15, 2016, the court confirmed Davenport's amended Chapter 13 plan, which called for Davenport to make payments of $4,400.00 per month to the Chapter 13 trustee, and for the trustee to pay Djourabchi and Welt's allowed secured claim (which had to be fixed as of the date of confirmation), with postconfirmation interest at 6% per annum on the amount of the allowed secured claim. In an order of July 21, 2016, the court fixed the allowed secured claim of Djourabchi and Welt as consisting of:

• the $80,000.00 of principal;
• plus amounts (not determined by the order) that were allowable under 11 U.S.C. § 506(b) as monetary obligations arising under the Note and the Deed of Trust after the commencement of the case and before confirmation of the plan;
• less a credit of $26,422.90 on hand as of the petition date.

The Note and Deed of Trust governed Davenport's debt obligations up to the point of confirmation. Under the terms of the Note , the $26,422.90 credit could not be applied to the $80,000.00 principal amount of the Note during the period preceding confirmation because the Note had not been paid in full.2 However, pursuant to 11 U.S.C. § 1325(a)(5)(B), the confirmed plan altered Djourabchi and Welt's rights and thereby permitted application of the $26,422.90 credit to be applied as of the confirmation date in fixing the amount of the allowed secured claim remaining at the conclusion of that date.

On January 17, 2017, Davenport filed a Motion to Modify Chapter 13 Plan After Confirmation (Dkt. No. 125), contending that he had submitted to the Chapter 13 trustee sufficient funds to satisfy the allowed secured claim, and seeking (based on a reduced income) to modify the plan by reducing his remaining monthly plan payments to $1,425.00 per month, an amount sufficient to satisfy the only other allowed claim in the case, a claim of the Internal Revenue Service ("IRS"). Djourabchi and Welt opposed the Motion to Modify and filed their Application for Fees and Expenses seeking allowance of fees and expenses for which they had incurred liability postpetition (Dkt. No. 137). They do not seek prepetition fees and expenses.

Under the Deed of Trust , upon being given notice of a payment of reasonable attorney's fees and expenses incurred by Djourabchi and Welt in protecting their secured position, Davenport became liable to reimburse Djourabchi and Welt for the amount of that payment. It was only after confirmation of Davenport's Chapter 13 plan that Djourabchi and Welt gave Davenport notice of payments of any of the attorney's fees and expenses at issue, and thus Davenport incurred a reimbursement obligation regarding the fees and expenses only after confirmation of his plan, and therefore the amounts owed pursuant to that reimbursement obligation are not part of the allowed secured claim (fixed as of the confirmation date). Nevertheless, the claims in that regard remain debts secured by the Deed of Trust , and had a potential impact on the debtor's performance under his confirmed plan, such that the court had subject matter jurisdiction to adjudicate the amounts owed.

The court issued a scheduling order regarding the litigation of the Motion to Modify and the Application for Fees and Expenses . The claim was oversecured. Accordingly, under 11 U.S.C. § 506(b), the allowed secured claim included:

• postpetition interest accruing prior to confirmation at the Note rate of 10.5% per annum on the $80,000.00 of principal; and
• any fees and expenses for which Davenport incurred a reimbursement obligation between the filing date of the petition and the confirmation date.

There were, however, no such reimbursement obligations incurred during the postpetition period prior to the date of confirmation. In a Memorandum Decision and Order re Motions in Limine of September 11, 2017 (Dkt. No. 168) ("In Limine Decision "), the court found that the amount of the allowed secured claim (fixed as the confirmation date) was $55,717.03 (consisting of the $80,000.00 of principal, plus postpetition interest of $2,139.93, less the credit of $26,422.90).

For reasons set forth below, I conclude with respect to the Motion to Modify that under the modified plan more than sufficient funds will be available to complete payment of the allowed secured claim (and the postconfirmation interest thereon) plus the IRS's claim. Accordingly, I will grant Davenport's Motion to Modify .

As to Djourabchi and Welt's Application for Fees and Expenses , I will reject Davenport's attempt to have the court deny all of the claim for reimbursement of payments of attorney's fees and expenses. However, under District of Columbia law, which governs the reasonableness of amounts incurred as a reimbursement liability after the date of confirmation, the fee and expense amounts incurred in the bankruptcy case and for which reimbursement is sought are in large part unreasonable.3

Finally, I conclude that with respect to Davenport's obligation to reimburse Djourabchi and Welt for any payment of reasonable attorney's fees and expenses, Davenport is required to pay interest at the Note rate of 10.5% per annum from the date of notice that the payment had been made.

IIFACTS

The history of this case is extensive, but essential to understanding the issues being considered, especially Davenport's defenses to postconfirmation attorney's fees and expenses. The pertinent facts are set forth below.

ATHE NOTE AND THE DEED OF TRUST

On September 22, 2006, Davenport executed the Note (titled Promissory Note for Business and Commercial Purposes ) and the Deed of Trust in favor of Djourabchi and Welt, who were his neighbors, for a loan of $80,000 secured by the Property. The Property was already subject to an existing first deed of trust in favor of Bayview Loan Servicing, LLC ("Bayview"). The Note was drafted by Djourabchi, an attorney, although his usual legal work did not encompass the drafting of promissory notes. Several provisions of the Note and the Deed of Trust are significant to the questions at hand. The Note provides in part:

1. Secured Interest and Right to Record. Debtor acknowledges that his ownership and financial interest in certain real property situated in the District of Columbia, and having a street address of 1700 1st Street, NW, Washington, DC 20001, is being offered as a security interest for the balance of principal and interest on this Note. ... Such a lien on the Deed shall be released, if and only if all outstanding debts from this instrument, including but not limited to all accrued interest and fees, have been paid in full to the satisfaction of Creditor.
2. Payments of Interest and Fees. All payments are due by 5:00 PM on the first calendar day of each month. Debtor understands and acknowledges that he has requested to make interest-only payments to Creditor, and Creditor has made this Promissory Note in full reliance of the same—therefore, monthly payments shall remain interest-only for life. Interest is calculated on a monthly basis accruing on the first calendar day of each month, at 9:00 AM, and will not be prorated for a daily calculation for any reason. Any consideration for prepayment shall include interest for the entire calendar month in which the prepayment is scheduled to be made.
Method of Payments. Any and all payments by Debtor, including, but not limited to prepayments of principal, interest, or any other amounts of any kind with respect to this Promissory Note shall be made in immediately available funds by Debtor to Creditor and shall be deposited directly at Citibank ... or in such other means and at such other addresses as Creditor shall direct from time to time, on or before the due date and without any prior demand, i.e., without any type of billing, invoicing or notice. Debtor understands and accepts that it is Debtor's sole and absolute responsibility to ensure that any and all payments are made on time and in Creditor's possession when due. Any payments of amounts due hereunder shall be in such currency of the United States at the time of payment as shall be legal tender for the payment of public or private debts.
3. Maturity Date. The Principal Balance and all Interest and Fees shall be due and payable on September 22, 2016.
4. Prepayment. For Debtor to prepay this Promissory Note in full prior to the Maturity Date, Debtor must deliver to Creditor notice of intent to prepay at least 20 (Twenty) days in advance of Debtor's intended date of prepayment ("Notice of Prepayment"). With successful delivery of Notice of Prepayment to Creditor, Debtor may prepay this Promissory Note in whole, but only in whole, together with any accrued interest. No partial payments shall be accepted. If there is a conflict between the provisions of this Paragraph and any other
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4 cases
  • Hilgartner v. Yagi
    • United States
    • U.S. District Court — Eastern District of Virginia
    • June 30, 2022
    ...for post-petition awards have recently been enforced despite the filing of a bankruptcy petition. See, e.g., In re Davenport , 627 B.R. 705, 731-32 (Bankr. D.D.C. 2020) (applying the Travelers rule to allow post-petition fees and costs). Furthermore, this Court agrees with the Bankruptcy Co......
  • Hilgartner v. Yasuko Yagi
    • United States
    • U.S. District Court — Eastern District of Virginia
    • June 30, 2022
    ...providing for post-petition awards have recently been enforced despite the filing of a bankruptcy petition. See, e.g., In re Davenport, 627 B.R. 705, 731-32 (Bankr. D.D.C. 2020) (applying the Travelers rule to allow post-petition fees and costs). Furthermore, this Court agrees with the Bank......
  • White v. Newrez LLC (In re White)
    • United States
    • U.S. Bankruptcy Court — Southern District of Georgia
    • July 19, 2022
    ...some courts have held that the confirmed plan does not provide for contractual installment payments. For example, in In re Davenport , 627 B.R. 705 (Bankr. D.D.C. 2020), the contract required the debtor to make interest payments of 10.5% per annum, but the confirmed plan, treating the claim......
  • White v. NewRez LLC (In re White)
    • United States
    • U.S. Bankruptcy Court — Southern District of Georgia
    • July 19, 2022
    ...confirmed plan, treating the claim under §§ 1322(c)(2) and 1325(a)(5), only provided for post-confirmation interest of 6% per annum. Id. at 734-35 n.32. The court that this modification "eliminated [the creditors'] entitlement to contractual installment payments" and thus that "Rule 3002.1 ......

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