In re Waugh, Bankruptcy No. 07-21511 (Bankr.N.D.Ind. 2/5/2009)
| Decision Date | 05 February 2009 |
| Docket Number | Bankruptcy No. 07-21511 |
| Parties | IN RE: TIMOTHY RAY WAUGH Debtor |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana |
This Chapter 13 case is before the Court on an Objection filed by the Debtor on November 15, 2008 ("Objection") to the Claim No. 1-1 ("Claim") filed by Peoples Bank ("Peoples") on June 25, 2007.
The Objection asserts that the Claim by Peoples alleging that the prepetition Mortgage arrears owed by the Debtor to Peoples in the sum of $15,168.00 does not itemize how that sum was arrived at. The Objection also asserts that the correct amount of the prepetition arrears is $11,876.00, as calculated and as set out in the summary of the Debtor's Plan at Paragraph No. 13 filed on July 9, 2007.
The Attachment to the Claim by Peoples alleges that included in the prepetition balance of $62,417.14 owed by the Debtor to Peoples is the sum of $3,572.20 incurred by Peoples, which is denominated by it generally as "other fees". There was no further supporting itemization in the Claim as to how the sum of $3,572.20 was arrived at, or what those "other fees" were. The section of the attachment to the Claim relating to "Attorneys Fees" was left blank. These alleged "other fees" were not included in the prepetition arrears Claim of Peoples, which was in the sum of $15,168.00, but in the prepetition balance due.
The Response to said Objection filed by Peoples on December 5, 2007, stated that on or about November 7, 2007 Peoples provided Debtor's Counsel with an itemization of the prepetition Mortgage arrears allegedly due and owing by the Debtor to Peoples, attaching thereto as Exhibit "A", a document that is apparently a partial, computer, print-out of the loan history of the Debtor's Mortgage maintained by Peoples.
Exhibit "A" is not an itemization of the legal services rendered and attorney's fees incurred by Peoples, and merely contains two entries of $1,000.00 and $2,000.00 for attorney's fees and $150.00 for Title work. Exhibit "A" does not state when the fees were incurred, to whom the fees were incurred, or whether any such fees were actually paid by Peoples to an attorney for legal services rendered to it in prosecuting its Secured Claim prepetition.
A Prehearing Conference was held on said Objection on January 29, 2008 and the parties stipulated that counsel for Peoples is an in-house counsel who is paid a salary, and who does not bill Peoples separately for the legal services rendered by him to Peoples in prosecuting People's ecured Claim versus the Debtor. The parties further stipulated that the threshold legal issue to be decided is whether Peoples may recover prepetition reasonable attorney's fees in prosecuting its Secured Claim versus the Debtor when its in-house counsel is paid solely based upon a fixed salary. The parties were then ordered to file list of legal authorities in support of their respective positions.
Peoples filed its Memorandum of Law in Support of Reimbursement of Attorney Fees on February 29, 2008, while the Debtor on March 3, 2008 filed a "Motion to Cite Case".
No objections were made by the parties to the subject-matter jurisdiction of the Court. The Court finds subject-matter jurisdiction to be present, pursuant to 28 U.S.C. §1334(b). The Court also finds this contested matter is a Core Proceeding pursuant to 28 U.S.C. §157(b)(2)(B).
Although a claim versus a bankruptcy estate must arise out of a substantive obligation based on state law, or federal nonbankruptcy law, it is well established that the allowance or disallowance of a claim against a bankruptcy estate is expressly stated to be a core proceeding pursuant to 28 U.S.C. §157(b)(2)(B). See In re Conejo Enterprises, Inc., 96 F.3d 346, 353 (9th Cir. 1996); Matter of U.S. Abatement, 79 F.3d 393, 398 + n. 9 (5th Cir. 1996).
The Memorandum filed by Peoples states that $3,000.00 in attorney's fees arose out of legal services rendered by Peoples' in-house counsel in filing and prosecuting a First Mortgage Loan Foreclosure and obtaining a Summary Judgment versus the Debtor in the State Court on January 9, 2007, and that the State Court awarded Peoples $3,000.00 in attorney's fees.1
Peoples' counsel noted that while in-house counsel is paid solely a salary, time expended in the prosecution of legal matters, and the fees collected are not irrelevant in determining the salary paid to in-house counsel.
Peoples stated that it located no Indiana cases or statutes that prohibit or limit the collection of attorney's fees by a mortgagee in prosecuting the foreclosure of a first mortgage on real estate by its salaried, in-house counsel, and only one Indiana case was found that is somewhat analogous to the threshold legal issue before the Court. This is the case of Streets v. M.G.I.C. Mortgage Corp., 378 N.E.2nd 915 (Ind. App. 1978).
In Streets, the Court interpreted I.C. 24-4.5-3-404 of the Indiana Consumer Credit Code, which prohibits an agreement for the payment of attorney's fees for a "salaried employee of the lender" in the case of a "consumer loan". The Court in Streets held that a First Mortgage Loan on a home was not a "consumer loan" for the purpose of the Indiana Uniform Consumer Credit Code. Id. 378 N.E2d at 918.
The Debtor merely cited one case, without discussion, in support of his position. The Debtor cited the case of Crum v. AVCO Financial Services, "552 N.E.2nd §23" (SIC) (552 N.E.2d 823 (Ind. App. 1990)), as authority for the legal principle that a real estate mortgagee can only collect attorney's fees if they were actually incurred in the foreclosure proceeding. The Crum case was of no assistance in resolving the stipulated threshold issue as the Court in Crum merely held that when awarding attorney's fees, the Trial Court is empowered to exercise its sound discretion. Id. 553 N.E.2d at 831-32.
In order to file a claim cognizable in bankruptcy, a creditor must possess a debt based on state or federal law creating a substantive obligation independent of bankruptcy law. In Matter of Chicago, Milwaukee, St. Paul and Pacific Ry. Co., 878 F.2d 182, 184 (7th Cir 1989), (citing, Vanston Committee v. Green, 329 U.S. 156, 170, 67 S. Ct. 237, 243, 91 L.Ed. 162 (1946) (Frankfurter, J., concurring)).
The validity of a creditor's claim is determined by rules of State law, which as expansively used, includes all nonbankruptcy law that creates substantive claims. Grogan v. Garner, 489 U.S. 279, 111 S. Ct. 654, 657 + n. 9, 112 L.Ed.2d 754 (1991) (citing, Vanston Bondholders Protective Comm. V. Green, 329 U.S. 156, 161, 67 S. Ct. 237, 239, 91 L.Ed. 162 (1946)); Raleigh v. Illinois Department of Revenue, 530 U.S. 15, 120 S. Ct. 1951, 1955, 147 L.Ed.2d 13 (2000) (citing, Butner v. United States; 99 S. Ct. 914 (1979) and Vanston Bondholders Protective Committee v. Green, 67 S. Ct. 237); Travelers Cas. & Surety Co., of America v. Pacific Gas & Elec. Co., ___ U.S. ___, 127 S. Ct. 1199, 1205, 167 L.Ed.2d 178 (2007) "[w]hen the Bankruptcy Code uses the word `claim' — which the Code itself defines as a `right to payment', 11 U.S.C. §101(5)(A) — it is usually referring to a right to payment recognized under State law").
A federal court when adjudicating a claim based on state law is ordinarily required to apply the choice of law principles of the state in which it sits, i.e., the law of the forum state. Matter of Stoecker, 5 F.3d 1022, 1029 (7th Cir. 1993); In re Air Crash Disaster Near Chicago, Illinois, on May 25, 1979, 644 F.2d 633, 637 (7th Cir. 1981); Coldwell Banker & Co. v. Karlock, 686 F.2d 596, 600 (7th cir. 1982).
Where neither party has offered evidence of the applicable state law or asked the Court to take judicial notice thereof, an Indiana Court will apply the law of the forum, i.e., Indiana. See, e.g., Suyemasa v. Myers, 420 N.E.2nd 1334, 1342 (Ind. App. 1981). In addition, it was held in Gonzalez v. Volvo of America Corporation, 752 F.2d 295, 299 (7th Cir. 1985), that where the parties fail to raise a possible conflict of substantive laws, the better rule is that the law of the forum controls. See also, Wood v. Mid-Valley, Inc., 942 F.2d at 425, 426 (7th Cir. 1991) ().
However, when the parties to a contract do agree on the law which should control, the Indiana Courts will give effect to that Agreement. Interurban Industries v. Twin States Publishing Co., Inc., 638 N.E.2d 882, 883 (Ind. App. 1994), (citing, Homer v. Guzulataitis, 567 N.E.2d 153,156 (Ind. App. 1991)). It was held in Paulansky v. Polish Roman Catholic Union of America, 219 Ind. 441, 39 N.E.2d 440, 447 (Ind. 1942) that an express choice-of-law provision will be given effect in the absence of "exceptional circumstances showing a purpose to commit a fraud on the law."
Here, Paragraph 16 of the Mortgage expressly provides, in part, that In that the Real Estate as set out in the Mortgage is located in Indiana, the Court will apply the law of Indiana to Peoples' Claim and the Debtor's Objection thereto.
As to attorney's fees, the "American Rule"...
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