In the matter of Brooks, Case No. 04-13563/JHW (Bankr.N.J. 4/12/2007)
| Decision Date | 12 April 2007 |
| Docket Number | Case No. 04-13563/JHW. |
| Parties | In the matter of Lewis R. Brooks, Sr. and Elizabeth B. Brooks Debtors. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
S. Daniel Hutchison, Esq. Woodbury, New Jersey Counsel for the Debtors.
Bruce D. Gordon, Esq. Fort Lee, New Jersey Counsel for Columbia Bank.
Before the court for resolution is the debtors' motion to compel the mortgagee to disgorge the legal fees that the debtors were required to pay to the mortgagee as part of the mortgage payoff when they sold their home. The debtors were authorized by this court to sell their residence after the mortgagee received relief from the automatic stay. The mortgagee provided the debtors with the necessary final payoff figures to satisfy their two mortgages on the property. The debtors contend that the amount of post petition attorneys' fees claimed by the mortgagee was excessive and out of proportion to the court's standard fee allowances. They now seek a refund of a portion of the fees paid. The mortgagee maintains that the attorneys' fees assessed were reasonable under section 506(b), and that the debtors' motion should be denied.
Debtors Lewis R. Brooks, Sr. and Elizabeth B. Brooks filed a voluntary joint petition under Chapter 13 of the Bankruptcy Code on February 4, 2004. The debtors scheduled their principal residence as 1007 Sussex Avenue, in Deptford, New Jersey with a market value of $115,000.00. They listed Columbia Bank as a secured creditor holding two liens against the property, a first mortgage in the amount of $81,768.00 and a second mortgage in the amount of $4,157.00.
Columbia Bank filed two proofs of claim on June 1, 2004. As to the first mortgage, Columbia asserted a secured claim in the amount of $83,054.49, and as to the second mortgage, a secured claim in the amount of $4,227.17. Neither proof of claim contained supporting documentation or indicated any arrearages that might be due. The debtors nonetheless recognized that they were behind on both mortgages and they proposed to pay into their Chapter 13 plan $162.00 a month for 60 months to cure arrears in the amount of $1,800.00 owed on the first mortgage and arrears in the amount of $400.00 owed on the second mortgage. The plan also provided for payment of administrative expenses, as well as arrears owed on two automobile loans. The debtors' plan was confirmed on June 24, 2004 without objection.
On September 20, 2005, Columbia Bank moved for relief from the automatic stay, asserting that the debtors were two months (August and September 2005) behind on their first mortgage. The debtors defended with a certification claiming that they were able to bring their account current. The matter was marked as resolved on October 24, 2005, with an order to be submitted. The matter was carried for control purposes for the next several months. Email and fax correspondence between the parties through January 2006 indicated that the debtors slowly made up the missed payments to Columbia, but did not become completely current until February 2006. The parties discussed the possibility of entering into a consent order during this time, but ultimately, Columbia withdrew its motion without the entry of an order after the debtors became current.
On June 14, 2006, Columbia filed a second motion for relief from the automatic stay.1 This time, the bank asserted that the debtors were now three months (April, May and June 2006) behind on their first mortgage, and two months (May and June 2006) behind on their second mortgage. The order entered on July 14, 2006 provided that the relief would be effective October 31, 2006, but directed the debtors to continue to make current and timely mortgage payments outside of the plan. The debtors were afforded the opportunity to cure their missed payments over a six month period. In the event that the debtors failed to cure their arrearages as provided or missed any of their regular monthly mortgage payments, Columbia was to be granted relief from the automatic stay upon submission of a certification of default.
On June 20, 2006, Columbia also filed a motion for approval of amended proofs of claim (approximately four years after filing their original proofs of claims), this time providing the documentation that had been missing the first time. In its new amended claims, Columbia acknowledged that the original proof of claim was filed in error, because it did not list pre-petition arrearages due. The amended proofs of claim asserted that the debtors were in arrears as of the petition date for two missed payments on their first mortgage, and three missed payments on their second mortgage. The balances due on both mortgages were the same as the balances noted in the original proofs of claim. Both Installment Loan Notes also provided in relevant part: "COLLECTION COSTS: If you sue me to collect this Note, I will pay you all court costs permitted by law, plus 20% of the amount due as collection costs and attorney fees."
On July 28, 2006, two weeks after the order resolving Columbia's motion for relief from the automatic stay was entered, the debtors moved to sell their property for $260,000. Debtors proposed to pay the two outstanding mortgages in full. In connection with the proposed sale, Columbia provided the debtors with loan payoff statements. On August 9, 2006, Columbia again amended its proofs of claim. This time the bank claimed that the payoff figure on the first mortgage, good through September 1, 2006, was $90,370.54, which included legal fees of $7,740.25 as of August 8, 2006. The payoff figure on the second mortgage, as of August 8, 2006, was $2,102.12, including legal fees of $179.99. The debtors requested and were provided with an itemization of the asserted attorneys' fees. When the sale fell through, debtors refiled their motion to sell their property on August 22, 2006, again for $260,000.00, this time to another buyer. Debtors' motion to sell was granted by order dated September 22, 2006, and the debtors successfully sold the property on or about September 27, 2006.
On November 13, 2006, debtors filed this motion to determine the amount of allowable attorneys fees payable to the mortgagee, and to compel the disgorgement of funds. The debtors object to the amount of attorneys' fees included by Columbia Bank in its payoff statement as being excessive. The debtors cite to the cap provided under New Jersey state law for foreclosures, found at N.J.Ct.R. 4:42-9, and to the standard fees for relief from stay motions generally allowed by the bankruptcy courts in the District of New Jersey, as potential caps on the fees sought. Because the standard attorney fee allowed for filing a motion for relief from the automatic stay, without requiring itemization, is $300.00, plus the filing fee of $150.00, the debtors contend that Columbia should be awarded a maximum fee of $900 in connection with their two motions for relief from the stay.2
Columbia Bank disagrees that the claimed attorneys' fees are excessive. The bank contends that the debtors have been consistently delinquent in their payments, causing the bank to file motions for relief from the automatic stay on two occasions. Each time, the debtors opposed the motion and claimed that they could become current, but Columbia had to continue to pursue the debtors to actually receive payment. Columbia contends that counsel's certification adequately documents the repeated contacts that counsel was forced to make to protect the bank's interest.3
Columbia also asserts that the $7,795.25 sought in attorneys' fees actually represents a significant discount that has been afforded to the debtors. The actual attorneys' fees incurred were $9,336.68, not including the fees incurred to defend the current disgorgement motion. The debtors were thus given a 17% discount on the fees sought. According to the Installment Note, Columbia contends that it could have sought costs of $16,526.05, or 20% of $82,630.29, the amount due at the time of payoff. Thus, in effect, the debtors were given a 46.83% discount on what could have been asked for. Finally Columbia maintains that as a matter of law, N.J.Ct.R. 4:42-9 does not apply here since there was no foreclosure action instituted. Columbia contends that its fee request is reasonable under 11 U.S.C. § 506(b).
The question before the court is the extent to which the mortgagee is entitled to include post confirmation attorneys' fees in its final payoff calculations. The so-called "American rule," which is followed in New Jersey, generally holds that each party will be responsible for its own litigation costs, including attorney's fees. Smiriglio v. Hudson United Bank, 98 Fed.Appx. 914, 915 (3d Cir. 2004). See also Travelers Casualty & Surety Co. v. Pacific Gas & Elect. Co., 127 S. Ct. 1199, 1203 (Mar. 20, 2007); In re A & P Diversified Technologies Realty, Inc., 467 F.3d 337, 341 (3d Cir. 2006); In re Hatala, 295 B.R. 62, 66 (Bankr. D.N.J. 2003). The courts have recognized two exceptions to that rule: (1) where statutory provisions exist that provide for the fee allowance, or (2) where a contractual provision allocating attorneys' fees exists. See Travelers, 127 S. Ct. at 1203 (); Smiriglio, 98 Fed.Appx. at 915; Hatala, 295 B.R. at 66. See also Regency Savings Bank, F.S.B. v. Morristown Mews, L.P., 363 N.J.Super. 363, 366, 833 A.2d 77, 79 (App. Div. 2003) (). The fact that the fees were incurred during the bankruptcy process does not make them unrecoverable. See Travelers, 127 S. Ct. at 1206 (...
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