In re Simoukdalay

• Decision Date: 02 September 2016
• Docket Number: CASE NO.: 1:15-bk-14988-SDR
• Citation: 557 B.R. 597
• Parties: In re: Ky Simoukdalay, Sanh Simoukdalay, Debtors
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

557 B.R. 597

In re: Ky Simoukdalay, Sanh Simoukdalay, Debtors

CASE NO.: 1:15-bk-14988-SDR

United States Bankruptcy Court, E.D. Tennessee, Southern Division.

Signed September 2, 2016

Amelia Roberts, Chattanooga, TN, for Debtors.

ORDER AND MEMORANDUM

Shelley D. Rucker

, UNITED STATES BANKRUPTCY JUDGE

The court has before it the Debtors' motion to alter or amend. The Debtors contend that the legal fees and costs associated with the Proof of Claim of Ann Chiang, claim no. 3, are either not allowed under the contractual documents or are excessive and should be reduced further. The court has jurisdiction to determine this matter under 28 U.S.C. §§ 1334(b)

and 157(b)(2)(B). After reviewing the motion and the response, the court asked for additional briefing on the issue of what fees could be charged based on language in the deed of trust where the note did not contain a clear obligation for the debtors to pay for the costs of collection.

After reviewing the Debtors' motion and the creditor's response and the supplemental briefs, the court will grant in part and deny in part the Debtors' motion to reconsider.

I. Background

On January, 6, 2016, the Debtors objected to the claim of Ann Chiang. The claim arose from a note for $65,000 executed by the Debtors on February 24, 2003, secured by a lien on their principal residence. The lien is evidenced by a deed of trust dated February 24, 2003, and was properly perfected by filing in the Registers Office of Hamilton County, Tennessee. (Proof of Claim No. 3.) The claim also included prepetition attorney's fees of $3,927.56. (Id. ) The basis of the objection was that the principal and interest had been miscalculated and that the creditor had not given credit for all of the payments. On March 16, 2016, the Debtors again objected to claim no. 3 of Ann Chiang on the basis that the creditor was seeking excessive and unreasonable fees and costs and the creditor had improperly calculated the principal and interest. (Doc. No. 38.)

On March 16, 2016, the Debtors also filed a Motion for Determination of Mortgage Fees and Expenses and Objection to Post Petition Mortgage Fees and Expenses of Creditor Anny Chiang. Both the amended objection and the motion were heard on March 17, 2016. The parties announced that they had been able to reconcile the payments and the calculation of interest but not the amount of the fees. Following the hearing, the court allowed the proof of claim in the amount of $70,779.79. The Debtors filed a timely motion to reconsider.

Prior to the bankruptcy filing, the Debtors had defaulted on their payment obligations. Ms. Chiang and the Debtors had entered into a loan modification in the summer of 2015. There were additional defaults. From the entries in the itemized statements provided by Ms. Chiang's counsel, Ms. Chiang resumed her foreclosure actions in the fall of 2015. Ms. Chiang became concerned that there would be damage to the property before the sale could be conducted and an investigator was retained to determine if there was damage to the property. No damage was found.

On November 11, 2015, the Debtors filed bankruptcy. Proof of Claim No. 3 was filed on December 16, 2015. Following the objection, the claim was amended and post- petition attorney fees of $6,067.00 were added. This addition time included time to prepare the proof of claim, attend the first meeting of creditors, respond to the objections, and prepare the amended claim. Ms. Chiang had filed two other claims to which the Debtors objected and which she ultimately withdrew.

In the court's first opinion, the court disallowed fees that it considered to be for training and for duplicative billings by two attorneys. It also disallowed expenses for credit card charges that it found to be part of the firm's overhead. It allowed fees and expenses for the prepetition period of $3,028.82 and the post-petition period of $5,462.50, for a total of $8,491.32. The parties agree that the value of the property securing the note exceeds the amount claimed by Ms. Chiang.

The court has jurisdiction under 28 U.S.C. § 1334

and 157(b)(2)(B) to hear and determine this matter.

II. Standards for Reconsideration

Motions for reconsideration are construed as motions to alter or amend judgment under F.R.C.P. 59

, made applicable to bankruptcy proceedings by Rule 9023 of the Federal Rules of Bankruptcy Procedure.

A court may grant a motion to alter or amend judgment only if there was “(1) a clear error of law; (2) newly discovered evidence; (3) an intervening change in controlling law; or (4) a need to prevent manifest injustice.” Intera Corp. v. Henderson , 428 F.3d 605, 620 (6th Cir.2005)

(citing GenCorp, Inc. v. Am. Int'l Underwriters , 178 F.3d 804, 834 (6th Cir.1999) ).

Am. Civil Liberties Union of Kentucky v. McCreary Cnty., Ky. , 607 F.3d 439, 450 (6th Cir.2010)

.

“Motions for reconsideration are ‘not an opportunity to re-argue a case’ and should not be used by the parties to ‘raise arguments which could, and should, have been made before judgment issued.’ ” Sault Ste. Marie Tribe of Chippewa Indians v. Engler , 146 F.3d 367, 374 (6th Cir.1998)

; FDIC v. World Univ. Inc. , 978 F.2d 10, 16 (1st Cir.1992).

In re SCBA Liquidation, Inc ., 485 B.R. 153, 160 (Bankr.W.D.Mich.2012)

.

The burden is on the party seeking reconsideration to demonstrate the existence of manifest errors of fact or law. Hager v. Paul Revere Life Ins. Co., 489 F.Supp. 317, 321 (E.D.Tenn.1977)

, aff'd. without opinion , 615 F.2d 1360 (6th Cir.1980) ; Solar Laboratories v. Cincinnati Advertising Products Co. , 34 F.Supp. 783 (S.D.Ohio 1940), appeal dismissed , 116 F.2d 497 (6th Cir.1940) (motion for reconsideration not to be granted unless the court manifestly misapprehended the law or the facts).

In re Watson , 102 B.R. 112, 113 (Bankr.S.D.Ohio 1989)

.

III. The Issues to Be Reconsidered

The Debtors ask the court to reexamine its holdings that (1) preparation of a modification to the note is not “on account of the execution and enforcement” of the trust created by the deed of trust which secured the obligation of the Simoukdalays to Ms. Chiang, and (2) whether the fees requested are reasonable.

A. The Scope of Fees Included in Enforcement of the Deed of Trust.

The Debtors request the court disallow $624 related to modification of the loan after default. They raise the issue because the note they executed does not contain a clear right to obtain attorney's fees and expenses incurred in the collection of the note. The note states:

Demand, notice and protest are expressly waived and if not paid in full at the time and in the manner above specified, then all principle shall at the option of the legal holder hereof become at once due and payment without notice and will pay all expenses and cost, including reasonable attorney's fee, incident to collection.

(Claim No. 3, Ex. 1, Note.) This single sentence is a combination of a waiver of demand, notice and protest, presumably by the debtor, a right to accelerate by the noteholder, and an attorney's fees clause for fees incident to collection. The court found the attorney's fee clause to be ambiguous because it did not specify who would pay the attorney's fees. Tennessee recognizes the American rule and does not allow for fee shifting without a contractual agreement. House v. Estate of Edmondson, 245 S.W.3d 372, 377 (Tenn.2008)

. The creditor put on no proof to clarify the ambiguity at the hearing. Because of the lack of a subject as to who would pay, the court then considered whether the deed of trust contained a contractual obligation to pay attorney's fees.

The deed of trust mentions attorney's fees in two places. The first reference to attorney's fees is contained in the description of the obligations which the real property secures. The deed of trust provides:

But this conveyance in made in trust for the following uses and trusts, to-wit:

For the purpose of securing the payment of a promissory note of even date, in the principal amount of Sixty Five Thousand and 0/100 ($65,000) Dollars, together with interest and other costs. And at such interest rate as therein stated, executed by Sanh Simoukdalay and payable to the order of Ann Chiang, beneficiary as set out in said note, and to further secure any all indebtedness which the Grantor'(s) herein may owe to said beneficiary at any time during the life of this deed of trust, whether evidenced by notes, checks, overdrafts or otherwise, and providing for the payment by the maker of a reasonable attorney's fee, or commission charges, for collection in case said indebtedness is collected by an attorney, and for the further purpose of securing and making certain the payment of any and all notes that may be hereafter given and accepted in renewal of said indebtedness, in whole, or in part, or any extensions of the notes above described or of any of the payments thereunder, or of any additional notes which may be hereinafter given, whether secured or otherwise.

(Proof of Claim No. 3–1 p. 2.)

The second reference to attorney's fees is found in the provision related to the application of proceeds. There it provides:

In case of sale under this Deed of Trust, the proceeds will be applied to [sic] the Trustee:

First—To pay all costs and charges of executing this trust, including attorney's fees and the expense of any litigation which may arise on account of the execution and enforcement of this trust.

Second—To pay any debt, or any balance then remaining unpaid.

Third—The residue to be paid to Ann Chiang, or order.

(Proof of Claim No. 3-1 p. 3.)

The court relied on the second reference in the deed of trust to provide the contractual basis for the award of attorney fees. Only in the post hearing briefs did the creditor direct the court's attention to the additional provision describing the debt obligations secured by the conveyance.

The fees that the Debtors challenged were the fees expended in pre-bankruptcy modification of the note and in preparation of the proofs of claim and the participation in the...