In re Shore
| Decision Date | 19 May 2020 |
| Docket Number | Case No. 17-50459 |
| Court | U.S. Bankruptcy Court — Middle District of North Carolina |
| Parties | In re: Wiley Walter Shore and Shelby Jean Matthews Shore, Debtors. |
THIS MATTER came before the Court upon the Motion to Reconsider (Docket No. 225, the "Motion") and Application for Compensation (Docket No. 193, the "Fee Application") filed by creditor Carolina Farm Credit, ACA ("CFC"). CFC requests the Court reconsider and amend its February 6, 2018 order sustaining the objections of Wiley Walter Shore and Shelby Jean Matthews Shore (the "Debtors") to Claims 6 and 7 of CFC and requiring CFC to file an application for attorneys' fees within 14 days (Docket No. 125, the "Claim Objection Order"). CFC requests, in light of the recent decision of the Fourth Circuit Court of Appeals in SummitBridge National Investments III, LLC v. Faison, 915 F.3d 288 (4th Cir. 2019), that the Court reconsider the rationale it applied in the Claim Objection Order, determine that 11 U.S.C. § 506(b)1 has no application to prepetition claims for attorneys' fees, and enter an order overruling the Debtors' objections and approving CFC's asserted attorneys' fees in the total amount of $181,682.51, representing fifteen percent (15%) of its outstanding debt as of the Debtors' bankruptcy petition date. CFC cites N.C. Gen. Stat. § 6-21.2(2) for the amount it claims due as attorneys' fees, which is approximately $68,000 more than the incurred fees and expenses documented in its submitted application for attorneys' fees, which totaled $113,440.12 for the period from September 12, 2016 to June 19, 2019. (Docket No. 193). The Debtors2 filed responses objecting to both the Motion and the Fee Application (Docket No. 233, 234, 243, 244). The Bankruptcy Administrator also filed responses opposing both the Motion and the Fee Application (Docket No. 241, 242). CFC filed numerous replies to the objections of both the Debtors and the Bankruptcy Administrator (Docket No. 237, 238, 245, 246).
For the reasons discussed below, the Court will grant CFC's motion to reconsider and will approve the Fee Application. The Court has examined the Fourth Circuit's decision in SummitBridge, with its clarifications regarding the interplay between § 502 and § 506(b), and considered the changed nature of this bankruptcy case, which has progressed for two years since the Claim Objection Order and resulted in additional accumulated fees for CFC. The Court is also cognizant of the fact that CFC has now submitted timesheets that aid the Court in determining the reasonableness of its fees. In addition, as reflected by the record in this case, including the various hearings in the last nine months, counsel for CFC dedicated a substantial amount of time to this case subsequent to June 19, 2019 and will continue to spend time on thiscase in the future. While the Court does not agree with CFC's reading of N.C. Gen. Stat. § 6-21.2(2), CFC has submitted sufficient documentation, when combined with the additional pleadings and the subsequent activity within the bankruptcy case, for the Court to find the $181,682.51 that CFC requests in attorneys' fees to be reasonable under both North Carolina law and § 506(b).
The Court assumes the reader's familiarity with the factual underpinnings of this case, which are not contested. The Debtors filed a petition for relief under Chapter 12 of the Bankruptcy Code on April 27, 2017. On August 4, 2017, CFC filed two secured claims in the case, for a combined total amount of $1,393,576.96,3 which were secured by deeds of trust recorded with the Register of Deeds in Yadkin County. Of the combined total claim amount, $181,682.51 constitutes attorneys' fees,4 which CFC calculated as 15% of the principal and interest balance as of the petition date.
CFC's promissory notes contain the same attorneys' fee provision:
If Association [CFC] employs attorney(s) to collect the indebtedness evidenced by this note, or to enforce or preserve any right provided for herein or relating to any security for this note, or suit is filed hereon, or proceedings are had in bankruptcy or any other court whatsoever with respect thereto, then, in addition to any principal, interest or other charges as provided for herein, Association shall also recover all costs and expenses, including attorneys' fees and legal expenses reasonably incurred in connection therewith, including such costs and fees incurred on appeal. Such amounts shall become part of the indebtedness evidenced hereby and shall be immediately payable on demand, and shall, to the extent permitted by law, bear interest from the date incurred until paid at the rate provided herein. (Emphasis added.)
Also, CFC's deeds of trust contain the following language:
In the event of default, if the Lender [CFC] employs counsel to collect the debt evidenced by any note secured hereby, or to enforce or protect any rights provided for herein, in any court or before any administrative body whatsoever, then in addition to any principal, interest, and other charges as provided for in any note secured hereby, Lender shall also recover all costs and expenses reasonably incurred by Lender, including reasonable attorneys' fees, which costs, expenses and attorneys' fees shall become part of the indebtedness secured hereunder, shall be immediately payable, and shall draw interest from the date Lender retains counsel until paid at the highest rate provided in any note or notes secured hereby. (Emphasis added.)
In compliance with its noticing obligations under N.C. Gen. Stat. § 6-21.2(5), CFC sent demand letters to the Debtors on November 10, 2016 and November 21, 2016 regarding the indebtedness evidenced by Claim 6 and Claim 7, respectively.5
After briefing from the Debtors, CFC, and the Bankruptcy Administrator, the Court entered the Claim Objection Order on February 6, 2018 (Docket No. 125). The Court extensively retraced the caselaw considering whether the 15% attorneys' fees described within N.C. Gen. Stat. § 6-21.2(2) should be viewed as a mandate or simply a cap. The Court, however, found itunnecessary to resolve the question, deciding instead to follow the existing practice in the district to determine an award of prepetition and postpetition attorneys' fees together, through the application of § 506(b). To that end, the Court sustained the Debtors' objections and ordered CFC to file an application for attorneys' fees within 14 days of the Claim Objection Order.
Prior to filing an application for attorneys' fees, CFC appealed the Claim Objection Order on February 19, 2018 (Docket No. 131). While there was no resolution of CFC's appeal for more than a year, all parties continued to cooperate in pushing forward the Debtors' bankruptcy case, including the approval of sales of real property under § 363(f)(2), which the Debtors finalized with the consent of CFC (Docket No. 203, 210). On June 26, 2019, the District Court dismissed CFC's appeal, finding the Claim Objection Order was interlocutory and not a final order under 28 U.S.C. § 158(a)(1), which was required to grant the District Court jurisdiction over the appeal. Carolina Farm Credit ACA v. Shore, No. 1:18CV118, 2019 WL 2617098 (M.D.N.C. June 26, 2019).
Following the dismissal of the appeal, on July 2, 2019, CFC filed its application for attorneys' fees as required by the Claim Objection Order (Docket No. 193, the "Fee Application"). After efforts to reach a global settlement faltered, CFC filed the instant Motion on February 14, 2020. Rather than hearing oral arguments telephonically,6 the Court provided the parties with a final opportunity to file any last replies on the Motion and the Fee Application before taking both matters under advisement. The Debtors, CFC, and the Bankruptcy Administrator all subsequently filed replies (Docket Nos. 241-246).
The Debtors oppose both the Motion and the Fee Application, arguing there is no basis for reconsidering the Claim Objection Order under Rule 54(b) of the Federal Rules of Civil Procedure and, if the Court is inclined to grant reconsideration, N.C. Gen. Stat. § 6-21.2(2) does not entitle CFC to a strict, no-look 15% attorneys' fee award. The Debtors also contend that CFC's Fee Application was filed long after the 14-day deadline instituted by the Claim Objection Order and is thus untimely and should be denied in its entirety. The Bankruptcy Administrator filed responses critical of both the Motion and the Fee Application, arguing that CFC was rehashing old arguments that SummitBridge does not address, which does not warrant reconsideration of the Claim Objection Order, that N.C. Gen. Stat. § 6-21.2(2) is not a mandate, but a cap on a fee award, and, if any portion of CFC's attorneys' fees are deemed unreasonable under § 506(b), and thus unsecured, the confirmed chapter 12 plan does not provide for the payment of those unsecured fees. The Bankruptcy...
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