In re Robb, Case No. 07-50429 (Bankr.S.D.Ohio 6/10/2008), Case No. 07-50429.

• Decision Date: 10 June 2008
• Docket Number: Case No. 07-50429.
• Parties: In re: DONALD E. ROBB and HEIDI D. ROBB, Chapter 13 Debtors.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

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In re: DONALD E. ROBB and HEIDI D. ROBB, Chapter 13 Debtors.

Case No. 07-50429.

United States Bankruptcy Court, S.D. Ohio, Eastern Division at Columbus.

June 10, 2008.

MEMORANDUM OPINION ON DEBTORS' OBJECTION TO PROOF OF CLAIM

OF WILSHIRE CREDIT CORPORATION

JOHN HOFFMAN Jr., Bankruptcy Judge

This contested matter is before the Court on Debtors' Objection to Proof of Claim of Wilshire Credit Corporation ("Objection") (Doc. 45),¹ Debtors' brief in support of the Objection (Doc. 50) and the responses (Docs. 34, 49 and 51) filed by Wilshire Credit Corporation ("Wilshire"). For the reasons explained below, the Objection is sustained in part and overruled in part.

On October 30, 2006, the Common Pleas Court of Logan County, Ohio ("Logan County Court") granted judgment in favor of Wilshire in a foreclosure action it commenced against Debtors in July 2006. Wilshire scheduled a sheriff's sale for January 24, 2007. On January 23, 2007 ("Petition Date"), Debtors filed their Chapter 13 petition, thereby preventing the sale. On March 15, 2007, Wilshire filed a proof of claim, designated claim number 11 ("Claim 11"), in which it asserts a claim in the amount of $98,675.43, secured in part by a mortgage on Debtors' residence ("Mortgage"). Debtors assert—and Wilshire does not dispute—that the claim is undersecured. The Objection challenges the allowability of $1,146.50 in prepetition foreclosure costs that Wilshire included in Claim 11.

Debtors' Chapter 13 plan proposes to cure the default under the Mortgage. Wilshire contends that the proposed cure makes its prepetition costs an allowable part of its claim. Wilshire bases its argument on § 1322(e), which provides in pertinent part as follows: "Notwithstanding . . . section[] 506(b) . . . if it is proposed in a plan to cure a default, 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).

Debtors assert three grounds for the Objection. First, although they do not dispute that Wilshire is entitled to reasonable foreclosure costs under the terms of the Mortgage or applicable nonbankruptcy law, Debtors argue that some of Wilshire's costs might be disguised attorney fees to which Wilshire is not entitled.² See In re Tudor, 342 B.R. 540, 545 (Bankr. S.D. Ohio 2005) (holding that creditor is not entitled to prepetition or postpetition attorney fees in context of cure of mortgage arrearage under Chapter 13 plan). Neither Wilshire's proof of claim nor its responses are clear on whether the costs at issue were incurred by its attorneys or by others, but the costs are not disguised attorney fees in any event. See Tudor, 342 B.R. at 571 ("The Court finds that it is the nature of the service, rather than the identity of the person or entity who performs it, that should govern how the charge for such service is characterized. Because title work may be done by attorneys and nonlawyers alike, the Court concludes that the Costs do not constitute disguised attorney fees . . . .").

Debtors' second argument relies on In re Evans, 336 B.R. 749, 755 (Bankr. S.D. Ohio 2006), for the proposition that Wilshire is not entitled to its costs because its claim is undersecured. Without collateral value to secure the full amount of the claim, Wilshire does not meet the limitation imposed by § 506(b) that costs be added to a claim only "[t]o the extent that an allowed secured claim is secured by property the value of which . . . is greater than the amount of such claim . . . ." 11 U.S.C. § 506 (i.e., to the extent the claim is oversecured). Wilshire does not argue that its claim is oversecured. Instead, relying on In re Thompson, 372 B.R. 860, 863 (Bankr. S.D. Ohio 2007) and other decisions, Wilshire contends that the "notwithstanding clause" of § 1322(e) means that the § 506(b) limitation on costs does not apply. See also In re Larkin, 2008 Bankr. LEXIS 1522 at **2-3 (Bankr. S.D. Ohio May 22, 2008); Tudor, 342 B.R. at 567.³

The Court concludes once again that the meaning of § 1322(e)'s "notwithstanding clause" is plain. And it does so based on good authority. In Cisneros v. Alpine Ridge Group, 508 U.S. 10, 18 (1993), the United States Supreme Court analyzed the following contractual provision: "`[n]otwithstanding any other provisions of this Contract, adjustments as provided in this Section shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the Government' (emphasis added)." Cisneros, 508 U.S. at 18. The Supreme Court held that the effect of the notwithstanding clause was that the section in which it appeared—§ 1.9d of the contract—overrode any other conflicting provisions of the contract. "[W]e think it clear beyond peradventure that § 1.9d provides that contract rents `shall not' be adjusted so as to exceed materially the rents charged for `comparable unassisted units' on the private rental market—even if other provisions of the contracts might seem to require such a result." Id. at 18-19. In so holding, the Supreme Court reasoned:

As we have noted previously in construing statutes, the use of such a "notwithstanding" clause clearly signals the drafter's intention that the provisions of the" notwithstanding" section override conflicting provisions of any other section. Likewise, the Courts of Appeals generally have interpreted similar notwithstanding language . . . to supersede all other laws, stating that [a] clearer statement is difficult to imagine.

Id. at 18 (citation and internal quotation marks omitted). See also Larkin, 2008 Bankr. LEXIS 1522 at *3 (applying Cisneros in holding that "the provisions of § 1322(e) override the provisions of § 506(b)").

Applying the reasoning of Cisneros, the Court finds that § 1322(e)'s notwithstanding clause signals Congress's intention that § 1322(e) override conflicting provisions of the Bankruptcy Code, including § 506(b)'s limitation on a creditor's secured claim for costs—namely, that the creditor's claim be oversecured. If a debtor proposes to cure a default in a Chapter 13 plan, the amount necessary to cure the default includes costs determined in accordance with the underlying agreement and applicable nonbankruptcy law even if the creditor's claim is undersecured.

In addition, the costs Wilshire included in its proof of claim all arose prior to the Petition Date. There is a split of authority as to whether § 506(b) limits prepetition amounts. See In re McKenna, 362 B.R. 852, 855 (Bankr. N.D. Ohio 2006) ("Although there exists authority to the contrary, courts have generally held that § 506(b) is limited in its applicability to postpetition fees and charges."). Compare In re Woods Auto Gallery, Inc., 379 B.R. 875, 882 (Bankr. W.D. Mo. 2007) (§ 506(b) only applies to postpetition amounts), McKenna, 362 B.R. at 855 (same), In re Leatherland Corp., 302 B.R. 250, 258 (Bankr. N.D. Ohio 2003) (same), In re Vanderveer Estates Holdings, Inc., 283 B.R. 122, 131 (Bankr. E.D.N.Y. 2002) (same), and In re Cummins Util., L.P., 279 B.R. 195, 201 (Bankr. N.D. Tex. 2002) (same), with Welzel v. Advocate Realty Invs., LLC (In re Welzel), 275 F.3d 1308, 1314-15 (11th Cir. 2001) (§ 506(b) applies to both prepetition and postpetition amounts), and In re Center, 282 B.R. 561, 565-67 (Bankr. D.N.H. 2002) (same). In light of the Court's conclusion with respect to the effect of § 1322(e)'s notwithstanding clause, the Court need not decide whether § 506(b) applies to prepetition costs.

Debtors' third argument is that Wilshire may recover its costs, if at all, only by filing an application for approval of the costs under Fed. R. Bankr. P. 2016(a), which provides in pertinent part:

An entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested. . . . The requirements of this subdivision shall apply to an application for compensation for services rendered by an attorney or accountant even though the application is filed by a creditor or other entity. Unless the case is a chapter 9 municipality case, the applicant shall transmit to the United States trustee a copy of the application.

Fed. R. Bankr. P. 2016(a). The courts are split on the issue of whether a creditor seeking costs under § 1322(e) must comply with Rule 2016, or whether inclusion of the costs in the creditor's proof of claim is sufficient. Compare In re Madison, 337 B.R. 99, 103 (Bankr. N.D. Miss. 2006) (holding that proof of claim is sufficient in § 1322(e) context for routine claims), with Padilla v. Wells Fargo Home Mortgage, Inc. (In re Padilla), 379 B.R. 643, 655 (Bankr. S.D. Tex. 2007) (requiring Rule 2016(a) application for postpetition costs).

Two factors militate against requiring a Rule 2016(a) application in this case. First, Wilshire incurred the costs prior to the Petition Date. See In re Ransom, 361 B.R. 895, 902 (Bankr. D. Mont. 2007) ("[A] creditor may be able to disclose all prepetition fees and costs in the proof of claim without the need to file a fee application."). In addition, the costs appear to be routine (if not entirely reasonable, an issue addressed below). See Madison, 337 B.R. at 103 ("[C]osts and other charges claimed by a creditor may be made in most routine circumstances through the filing of a proof of claim."). The Court, therefore, finds that Rule 2016 does not apply here.⁴ But in asserting its claim for costs, Wilshire nonetheless must itemize its costs with a reasonable degree of specificity. See Madison, 337 B.R. at 103 (creditor's claim for costs "must be specific, i.e., the costs and charges must be itemized so that any interested party may object if so desired."). Although Wilshire identified its costs in Claim 11 with the less-than-informative descriptions "L...