In re Rogers

Decision Date30 March 2015
Docket NumberNumber 14-40219-EJC
PartiesIn the matter of: GRANT ROBERT ROGERS and ALLISEN NICOLE ROGERS, Debtors.
CourtU.S. Bankruptcy Court — Southern District of Georgia

Chapter 11 Case

MEMORANDUM OPINION

This case is before the Court on the First Application for Attorney's Fees ("Fee Application") (dckt. 62) filed by the McCallar Law Firm ("McCallar," "Applicant," or "Counsel") seeking "an interim award of attorney's fees pursuant to 11 U.S.C. § 330(a)" for work performed on behalf of Grant Robert Rogers and Allisen Nicole Rogers (collectively, "Debtors") prior to their case being converted from Chapter 13 to Chapter 11. (Dckt. 62.) The Fee Application seeks $12,650.41 in fees and expenses over and above the $3,000.00 retainer paid by the Debtors. (Id.) Guy G. Gebhardt, Acting United States Trustee for Region 22 ("U.S. Trustee") objected to the request for additional fees and expenses on two grounds. (Dckt. 95.) First, Counsel's statement making the disclosures required by Rule 2016 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules" or "Rules") reflects Counsel's agreement to represent the Debtors for a flat fee of $3,000.00 and does not disclose an agreement for additional fees based on hourly rates. (Id.) Secondly, the U.S.Trustee argues that because the Debtors were never eligible to be Chapter 13 debtors due to the debt limits of 11 U.S.C. § 109(e),1 the attorneys' efforts were futile and they are not entitled to any additional compensation as a result. (Id.) This matter came on for hearing on September 30, 2014, after which the Court requested that the parties submit briefs.

I. JURISDICTION

This Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and the Standing Order of Reference signed by Chief Judge Anthony A. Alaimo on July 13, 1984. This is a "core proceeding" within the meaning of 28 U.S.C. § 157(b)(2)(B). In accordance with Bankruptcy Rule 7052, the Court makes the following findings of fact and conclusions of law.

II. FINDINGS OF FACT
A. Procedural History

On February 5, 2014, the Debtors filed their Chapter 13 petition and proposed plan to repay creditors. (Dckts. 1, 7.) The plan, as originally filed, proposed monthly payments of $1,350.00 for sixty months. (Dckt. 7.) On March 24, 2014, the Debtors' largest creditor, Bell Resources, Ltd. ("Belle"), filed the Objection to Confirmation of Chapter 13 Plan of Reorganization (dckt. 24), which raised a number of issues with the proposed plan but did not assert that the Debtors' were ineligible for Chapter 13 relief. On April 8, 2014,the Debtors filed their Amended Chapter 13 Plan and Motion (dckt. 36), in which they added the following treatment of Belle's claim:

The Claim of Belle Resources, Ltd. in the approximate amount of $1,882,320.14 is acontingent and unliquidated claim being paid in full outside of this plan by a third-party, Wetdog, LLC, pursuant to a confirmed2 Chapter 11 Plan in Case No. 13-40601-EJC, pending in the Southern District of Georgia, Savannah Division. This claim shall receive payments from Wetdog, LLC pursuant to the confirmed plan in that case and shall not be entitled to share in any distribution to creditors under this plan.

(Id. (footnote added).)

On April 11, 2014, O. Byron Meredith III, the Chapter 13 Trustee ("Chapter 13 Trustee") objected to the confirmation of the Debtors' plan. (Dckt. 41.) The Chapter 13 Trustee's objection outlined the need for additional information, questioned the Debtors' calculation of disposable income, and asserted that the Debtors' non-exempt equity in various assets may require additional plan payments. (Id.) Like Belle's objection, the Chapter 13 Trustee's objection also did not assert that the Debtors' were ineligible for Chapter 13 relief.

On May 2, 2014, Belle filed its Objection to Confirmation of Amended Chapter 13 Plan of Reorganization and Motion to Convert and/or Dismiss (dckt. 44). In this new objection, Belle did assert, as grounds for dismissal or conversion, the Debtors' ineligibility due to the debt limits of § 109(e). (Id.) At a June 17, 2014 confirmation hearing, the eligibility issue was argued at some length by the parties, and the Court took the matter underadvisement.

Before the Court ruled on the § 109(e) issue, on August 5, 2014, McCallar, acting on behalf of the Debtors, moved to convert the Debtors' case from one under Chapter 13 to one under Chapter 11. (Dckt. 63.) On that same day, the Debtors filed the Stipulation and Notice of Substitution of Counsel (dckt. 64), which notified the Court and parties in interest that the Debtors would from that point forward be represented by James L. Drake, Jr. ("Drake"). On August 7, 2014, Drake filed the Application to Approve Employment of Attorney (dckt. 66), which the Court approved along with the stipulation regarding the substitution of counsel on August 11, 2014. (Dckts. 70-71.)

McCallar filed the Fee Application on August 5, 2014, together with supporting time and expense records. (Dckt. 62.) On September 26, 2014, the U.S. Trustee filed his objection to the Fee Application. (Dckt. 95.)

B. The Debtors' Scheduled Claims

In their schedules as originally filed, the Debtors listed secured debts in Schedule D totaling $682,465.35, which consisted of a $596,000.00 first mortgage with Wells Fargo - SunTrust Mortgage on their residence, a $74,440.35 second mortgage with SunTrust Bank on the same residence, and a $12,025.00 car loan with Ally Bank. (Dckt. 1.) In Schedule E, the Debtors listed priority tax debts totaling $50,179.00. (Id.) None of the debts listed in Schedules D and E were represented to be contingent, disputed, or unliquidated. (Id.) In Schedule F on the other hand, the Debtors scheduled theoverwhelming majority of their unsecured debt as contingent, unliquidated, or disputed.

Table 1: Unsecured Debts

     Creditor    Amount    Contingent/Unliauidated/Disputed   Belk   $1,099.00   Belle Resources, Ltd.   $1,880,000.00   Contingent, Unliquidated, and Disputed   Chase   unknown   JP Morgan Chase Bank   unknown   Saks Fifth Avenue   $344.76   Small Business Administration3   $1,365,762.09   Contingent and Unliquidated   SunTrust Bank   $21,538.00 

(Id.) These debts total $3,268,743.85.

Although not listed in Schedule D, the entries regarding the Debtors' unsecured debts to Chase and JP Morgan Chase Bank have a note stating: "Potential Deficiency Claim on Foreclosed House." (Id.) Because the Court is not aware of any other real property owned by the Debtors that is subject to foreclosure (if the automatic stay was not in effect), the Court speculates that these potential deficiency debts relate to the Debtors' residence, which was valued in Schedule A at $600,000.00. A $70,440.00 deficiency would result if only the amount of debt secured by the residence that is listed in Schedule D was considered. In total, the Debtors' schedules reflect total unsecured debt that is neither contingent nor unliquidated of only $22,981.76, plus any deficiency arising under the first and secondmortgages.

C. Wetdog. LLC's Related Chapter 11 Case

To fully understand the U.S. Trustee's objection to the Fee Application, it is important to address a related bankruptcy case. The Debtors are the sole owners of an entity known as Wetdog, LLC ("Wetdog"). which is the debtor in a separate Chapter 11 case pending in this Court, In re Wetdog, LLC, No. 13-40601-EJC (Bankr. S.D. Ga.) (Coleman, J.). Wetdog owns the Foley House Inn, a bed and breakfast located in the historic district of Savannah, Georgia. This business is the Debtors' primary source of income. Wetdog's Chapter 11 case was filed on April 5, 2013, id. (Apr. 5, 2013), ECF No. 1, and its plan of reorganization was recently confirmed by this Court on September 8, 2014. Id. (Sept. 8, 2014), ECF No. 187. The Rogers' debts to Belle and the Small Business Administration reflected in their Schedule F are Wetdog's debts that have been guaranteed by the Rogers. Wetdog's confirmed Chapter 11 plan proposes to pay Belle's claim in full so that the Rogers will not be required to pay that debt. Id. (Jan. 27, 2014), ECF No. 102. In Wetdog's case, the SBA's allowed claim is $ 1,365,762.09, but under the confirmed plan the claim is secured only in the amount of $1,057,080.90, with the balance of $308,681.19 being unsecured based on the Foley House Inn's value and the priority of SBA's lien. (Id.)

The U.S. Trustee argues that the debt to Belle's predecessor, Comerica Bank, was in default when Wetdog filed bankruptcy on April 5, 2013. (Dckt. 95.) Therefore, the U.S. Trustee contends that the Debtors' guaranty obligations became non-contingent by thatdate in the amount of $1,882,320.14. (Id.) In fact, Belle sued the Rogers on their personal guaranties in Harris County, Texas (pursuant to a venue provision in the loan agreements) and obtained a default judgment. The Texas court did not enter the judgment until after the Rogers filed their Chapter 13 case on February 5, 2014. Belle promptly took steps to have that judgment set aside because it was entered after the automatic stay went into effect.

D. The Fee Application

On August 5, 2014, McCallar filed the Fee Application now being considered by the Court. (Dckt. 62.) The Fee Application seeks an award of $12,650.41 in addition to the $3,000.00 retainer that the Debtors paid prior to the filing of their Chapter 13 petition. (Id.) The time period covered by the Fee Application is November 18, 2013 through June 24, 2014.4 (Id.) The total time listed as being spent by attorneys is 58.75 hours, which is itemized in a summary attached to the Fee Application. (Id.) The Fee Application also states that "[t]here was no written fee agreement entered into prior to the handling of this Bankruptcy case, however, the Debtors agreed to pay reasonable attorneys' fees at [various hourly rates]." (Id.)

E. Bankruptcy Rule 2016(b) Disclosures

The Applicant filed its Disclosure of Compensation of Attorney for...

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