In re Kyung Tae Ko

• Decision Date: 28 November 2016
• Docket Number: Bky. No. 15–18948 ELF
• Parties: In re: Kyung Tae Ko, Young Hee Ko, Debtors.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

560 B.R. 245

In re: Kyung Tae Ko, Young Hee Ko, Debtors.

Bky. No. 15–18948 ELF

United States Bankruptcy Court, E.D. Pennsylvania.

Signed November 28, 2016

Hae Yeon Baik, The Baik Law Firm, P.C., Philadelphia, PA, for Debtors.

ORDER

ERIC L. FRANK, CHIEF U.S. BANKRUPTCY JUDGE

AND NOW , the Debtors' chapter 13 plan having been confirmed on October 11, 2016 ;

AND , upon consideration of the Application for Compensation (Doc. # 90) filed by the Debtors' counsel, The Baik Law Firm ("Baik"), in which Baik requested the allowance of compensation in the total amount of $11,855.00 and the reimbursement of expenses in the amount of $42.00 ;

AND , for the reasons stated in accompanying Memorandum;

It is hereby ORDERED that:

1. The Application is GRANTED IN PART AND DENIED IN PART.

2. Baik is ALLOWED compensation in the amount of $6,000.00 and reimbursement of expenses in the amount of $42.00 .

3. The Chapter 13 Trustee shall make a distribution of $42.00 to Baik on account of the reimbursement of expenses authorized by Paragraph 2 as an administrative expense pursuant to 11 U.S.C. § 1326(b), 11 U.S.C. § 507, 11 U.S.C. § 503(b) and 11 U.S.C. § 330(a)(4)(B).

4. On or before December 9, 2016 , Baik shall place $1,000.00 of the $4,000.00 received from the Debtors in the Baik's attorney trust account.

5. On or before December 16, 2016 , Baik shall file a certification with the court confirming that it has complied with Paragraph 4 above.

6. As a sanction for Baik's violation of 11 U.S.C. §§ 330, 331 and Fed. R. Bankr. P. 2016(b) :

a. the funds placed in the attorney trust account pursuant to Paragraph 4 shall be the sole source of any additional compensation applied for and allowed for services rendered in the future in connection with the two (2) junior liens on the Debtors' properties;

b. Absent compelling circumstances, Baik shall be entitled to no further compensation for any other services provided to the Debtors in this bankruptcy case.

MEMORANDUM

I. INTRODUCTION

Before the court is the application for compensation and reimbursement of expenses ("the Application"), filed by the Debtors' counsel, The Baik Law Firm ("Baik").¹ Baik seeks the allowance of compensation in the amount of $11,855.00 and the reimbursement of expenses in the amount of $42.00.

No objections to the Application were filed. Nevertheless, the bankruptcy court "has a duty to review fee applications, notwithstanding the absence of objections by the United States trustee ..., creditors, or any other interested party, a duty which ... derives from the court's inherent obligation to monitor the Debtors' estate and to serve the public interest." In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833, 841 (3d Cir. 1994) (emphasis in original).

The Application will be granted in part and denied in part.

As explained below, only $6,000.00 of the requested $11,855.00 will be allowed at this time. This significant reduction is made primarily because Baik:

(1) was inefficient and expended excessive time on certain matters; and

(2) violated 11 U.S.C. §§ 330, 331 by taking compensation from property of the bankruptcy estate without court approval.²

II. BACKGROUND

A. Events in the Bankruptcy Case

1. Confirmed Plan and Motions with Regard to the Debtors' Properties

The Debtors filed this chapter 13 case on December 15, 2015. They filed their bankruptcy schedules and statements, and initial chapter 13 plan on January 15, 2016. Their fourth amended chapter 13 plan ("the Confirmed Plan") was confirmed on October 11, 2016.

The Debtors own two (2) pieces of real estate: a residential property in Colmar, PA ("the Residence") and a commercial property in Philadelphia, PA ("the Commercial Property").

Both properties are encumbered by a first mortgage. According to the Debtors' Schedule D, PNC Bank ("PNC") holds a second mortgage on the Residence and Citizens Bank ("Citizens") holds a second mortgage on the Commercial Property. (See Doc. # 11). In addition, the City of Philadelphia ("the City") filed a secured claim for unpaid taxes due on the Commercial Property. (Claim No. 8). In Schedule F, the Debtors listed general unsecured claims totaling $39,709.22. (Doc. # 11).

In both Schedule D and in later motions, the Debtors asserted that the balance due on the first mortgage on each property exceeds the value of the property, which would render each junior lien unsecured. See11 U.S.C. § 506(a).

The Confirmed Plan requires that the Debtors make payments to the chapter 13 trustee totaling $68,389.00. The plan further provides for:

(1) payment of Debtors' counsel's allowed compensation;

(2) resolution of the prepetition delinquency of the first mortgage on the Residence through a loan modification by the first mortgagee;

(3) distributions by the chapter 13 trustee to effect a cure of the arrears owed on the first mortgage on the Commercial Property ($38,296.00);

(4) treatment of the junior liens on both the Residence and the Commercial Property as unsecured claims based on the lack of value of the collateral. see11 U.S.C. § 506(a) ;

(5) distributions by the chapter 13 trustee to satisfy the City's tax claim on the Commercial Property ($15,893.00, which includes post-confirmation interest pursuant to 11 U.S.C. § 1325(a)(5)(B)(ii) ); and

(6) distributions by the chapter 13 trustee on allowed unsecured claims on a pro rata basis.

Prior to confirmation, the Debtors filed two (2) motions (collectively, "the Motions"), each designed to address the status of PNC and Citizens' junior liens (both of the liens described in Schedule D as based on mortgages). Each motion was styled as a "motion to avoid lien." (See Doc. #'s 28, 29). The Motions were premised on the theory that the balance due on the first mortgage on both the Residence and the Commercial Property exceeded the property's value, entitling the Debtors to "strip" the junior liens on the properties.

The Motions were flawed, each in its own way. These flaws both complicated case administration and are significant in evaluating Baik's entitlement to professional compensation.

2. The Motion to Avoid PNC's Lien

The Motion to Avoid PNC's Lien was flawed because a mortgage lien cannot be "avoided" by filing a motion, see Fed. R. Bankr. P. 7001(2) ; see also In re Cusato, 485 B.R. 824, 829–31 & n. 6 (Bankr. E.D. Pa. 2013) (discussing relevant Code provisions, case law and procedures available for voiding undersecured mortgage liens). As a result, I treated this motion as a motion for valuation under Fed. R. Bankr. P. 3012.

Although PNC did not file a proof of claim, it did contest the Debtors' motion. After a hearing, I granted the motion with regard to PNC and entered an order determining that the value of the collateral securing PNC's "unfiled claim" was less than the unpaid balance of the prior lien on the collateral and that the Debtor may modify PNC's rights in her chapter 13 plan. SeeIn re Kyung Tae Ko, 2016 WL 4399501 (Bankr. E.D. Pa. Aug. 9, 2016). Significantly, while the August 9, 2016 order resolving the Motion to Avoid PNC's Lien granted the Debtors some relief, it did not void PNC's lien—which appeared to be the purpose of the motion. However, by citing a reported decision describing the available procedures for voiding an undersecured mortgage lien in chapter 13 cases, the August 9, 2016 order provided Baik with a "roadmap" describing how the valuation order could be employed to void the lien. SeeIn re Kyung Tae Ko, 2016 WL 4399501, at *1 n.2 (Bankr. E.D. Pa. Aug. 9, 2016).

3. The Motion to Avoid Citizens' Lien

The Debtors' motion with respect to Citizens' lien on the Commercial Property, on its face, had the same basic flaw as the PNC motion; it was a misguided attempt to avoid a mortgage by filing a motion. However, the Citizens Motion also was premised on a factual flaw. Citizens filed a proof of claim asserting secured status on the Commercial Property based on a judgment lien, not a mortgage . (See Claim No. 2).

Citizens' judicial lien was potentially avoidable by motion as impairing the Debtors' exemptions. See11 U.S.C. § 522(f) ; Fed. R. Bankr. P. 7001(2). Instead of invoking this simpler procedure for avoiding Citizen's judicial lien, Baik presented the matter to the court as a mortgage lien strip.

Although Citizens participated in the case by filing a proof of claim, it did not contest the Debtors' motion with regard to its lien. When the uncontested motion came before me, I did not at first notice the faulty premise of the motion. Consequently, much in the same way that I fashioned appropriate relief in connection with the PNC motion, I entered an order granting an appropriate form of limited relief. The order entered by default disallowed Citizens' claim as a secured claim and allowed it as an unsecured claim. The order did not , however, avoid Citizens' lien on the Commercial Property. (See Doc. # 58).

Again, the purpose of the Debtors' motion was not achieved due to the pleading's defects.

4. Current Status of the Liens on the Residence and the Commercial Property

Despite the express, limited effect of the two (2) orders, Baik took no further action prior to confirmation of the Debtors' plan to void or avoid either the PNC mortgage or Citizens' judicial lien—either by plan provision, motion or adversary complaint. See generallyIn re McDonald, 205 F.3d 606, 615 (3d Cir. 2000) (wholly unsecured mortgage is subject to the modification under 11 U.S.C. § 1322(b)(2) ); In re Sligh, 542 B.R. 723, 726 n.3 (Bankr. E.D. Pa. 2015) (discussing how the lien securing a claim subject to modification under McDonald may be avoided through a chapter 13 plan provision or by adversary proceeding).

B. The Application

1. History of and Request for Payment

Baik filed the Application on August 12, 2016. I scheduled a hearing to consider the Application.³ Hae Yon Baik appeared and responded to the court's inquiries.

Baik has requested compensation totaling $11,855.00. Prior to the commencement of the bankruptcy case, Baik received a prepetition retainer of $3,000.00 from the...