Neelkanth Hotels, LLC v. U.S. Bank (In re Neelkanth Hotels, LLC)

• Decision Date: 22 October 2021
• Docket Number: 20-69501-JWC
• Parties: IN RE: NEELKANTH HOTELS, LLC, Debtor. v. U.S. BANK NATIONAL ASSOCIATION, Trustee for the registered holders of COMM 2012-CCRE3 COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES acting by and through KEYB ANK NATIONAL ASSOCIATION, as Special Servicer Respondent. NEELKANTH HOTELS, LLC, Movant,
• Court: U.S. Bankruptcy Court — Northern District of Georgia

IN RE: NEELKANTH HOTELS, LLC, Debtor.

NEELKANTH HOTELS, LLC, Movant,
v.
U.S. BANK NATIONAL ASSOCIATION, Trustee for the registered holders of COMM 2012-CCRE3 COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES acting by and through KEYB ANK NATIONAL ASSOCIATION, as Special Servicer Respondent.

No. 20-69501-JWC

United States Bankruptcy Court, N.D. Georgia, Atlanta Division

October 22, 2021

CHAPTER 11

CONTESTED MATTER

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ORDER AND MEMORANDUM OPINION

I. INTRODUCTION

Before the Court is Neelkanth Hotels, LLC's Objection to Claim No. 5 filed by U.S. Bank National Association as Trustee for the registered holders of COMM 2012-CCRE3 Commercial Mortgage Pass-Through Certificates acting by and through KeyBank National Association, as Special Servicer ("U.S. Bank") [Doc. 81] (the "Objection"), ^[1] which came before the Court for an evidentiary hearing on August 24, 2021. After fully considering the evidence and testimony adduced at the hearing, the arguments of counsel, the written briefs of the parties submitted before and after the hearing, and the record in the case, the Court will sustain the Objection in part and overrule the Objection in part as set forth below.

II. PROCEDURAL BACKGROUND

Neelkanth Hotels, LLC ("Debtor") commenced this Chapter 11 case on August 31, 2020 on the eve of a foreclosure sale being conducted on behalf of U.S. Bank. Debtor owns and operates a hotel franchised as a Best Western Premier in Conyers, Georgia. U.S. Bank asserts a lien against all of Debtor's assets and filed a proof of claim [Claim No. 5-1] and amended claim [Claim No. 5-2] asserting a prepetition claim against Debtor in the amount of $6, 211, 853.17.^[2] Among other things, the claim includes the following fees, expenses, or charges to which Debtor objected: $83, 000 in prepetition legal fees, a liquidation fee of $57, 264.74, special servicer fees in the amount of $7, 299.48, a Phase I environmental survey fee of $2, 750, property protection advances

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of $450, a payoff processing fee of $1, 200, a yield maintenance premium of $532, 036.69, ad valorem taxes to Rockdale County in the amount of $117, 795.74, and ad valorem taxes owed to the City of Conyers of $39, 936.77.^[3] Debtor and U.S. Bank resolved Debtor's objection to the ad valorem taxes by separate order [Doc. 199], and U.S. Bank waived its inclusion of the special servicing fees, the payoff processing fee, and the property protection advance [Doc. 204, p. 8] thereby voluntarily reducing its claim by $8, 949.48. For the reasons discussed below, U.S. Bank's entitlement to the remaining contested fees, expenses, and charges are resolved as follows:

(1) Debtor's objection to U.S. Bank's attorney's fees and expenses will be sustained in part and overruled in part, and U.S. Bank will be allowed prepetition attorney's fees and expenses in the amount of $41 289.71

(2) Debtor's objection to the liquidation fee will be sustained, and such claim will be disallowed without prejudice to U.S. Bank's right to assert a claim for any liquidation fee as and when such fee becomes payable in the future;

(3)Debtor's objection to the environmental survey fee will be sustained, and that portion of the claim will be disallowed; and

(4) Debtor's objection to the yield maintenance premium will be sustained in part and overruled in part, and U.S. Bank will be allowed a yield maintenance premium in the amount of $49, 629.60, representing 1% of the outstanding principal of the loan, without prejudice to U.S. Bank's right to offer additional evidence at the hearing on confirmation of Debtor's proposed plan with respect to any additional premium that may be payable in accordance with the terms of the

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loan documents as set forth below. Debtor raises no objection to the balance of U.S. Bank's claim, and U.S. Bank will have an allowed prepetition claim in the amount of $5, 618, 770.67.^[4]

III. JURISDICTION

The Court has jurisdiction to hear and determine this dispute pursuant to 28 U.S.C. §§ 157 and 1334. Venue of this proceeding in this district is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This matter constitutes a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). The following constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Bank. P. 7052.

IV. FINDINGS OF FACT AND CONCLUSIONS OF LAW

Section 502(a) of the Bankruptcy Code^[5] provides that absent objection from a party in interest a filed proof of claim is deemed allowed. 11 U.S.C. § 502(a). If an objection to the claim is filed, then the court must determine the validity and amount of the claim. 11 U.S.C. § 502(b)(1). Among the grounds for disallowance of a claim under § 502 is if the claim is "unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured…." Id. Courts look to state law to determine the amount and validity of a claim.^[6]

The burden of proof for claims asserted in a bankruptcy case rests on different parties at different times. In re Allegheny Int'l, Inc., 954 F.2d 167, 173 (3d Cir. 1992); Broadfoot v. Jamestown Mgmt. Corp. (In re Int'l BioChemical Indus., Inc.),

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521 B.R. 395, 398 (Bankr. N.D.Ga. 2014). A proof of claim filed in accordance with the Bankruptcy Rules constitutes "prima facie evidence of the validity and amount of the claim." Fed.R.Bankr.P. 3001(f). A party objecting to a proof of claim bears the burden of overcoming the prima facie validity of the claim, but once it has done so, "the burden of proof shifts to the claimant to prove its claim by a preponderance of the evidence." In re Beaulieu Group, LLC, 616 B.R. 857, 863 (Bankr. N.D.Ga. 2020). At the hearing on the Objection, the Court determined that Debtor satisfied its burden of overcoming the prima facie validity of U.S. Bank's claim, and, as a result, U.S. Bank bears the burden of proof to establish its claim. The Court addresses each of the objections raised by Debtor with that burden in mind.^[7]

A. Legal Fees

Debtor objects to U.S. Bank's inclusion of $83, 000 in legal fees as part of its prepetition claim. Debtor's objection raises issues as to amount of the fees asserted as well as the reasonableness of the fees claimed.

1. Amount of Fees

Debtor raises two objections to the amount of legal fees. First, Debtor points to the billing compilation provided by counsel for U.S. Bank in support of the claim, which totals only $80, 534.85 in fees and expenses, an amount less than the $83, 000 asserted in the claim. Second, Debtor argues that a portion of the fees asserted were waived by U.S. Bank by agreement and cannot now be recovered as part of its claim. Debtor points to the prepetition Reinstatement Agreement between the parties dated February 7, 2020. Under that agreement, Debtor paid a

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"Reinstatement Amount" made up of various fees and expenses due to U.S. Bank as of the "Effective Date" of the agreement, including legal fees and costs of counsel of $96, 564.00. Having paid the Reinstatement Amount in accordance with the agreement, Debtor argues U.S. Bank is precluded from asserting fees and expenses that predate the effective date of the Reinstatement Agreement, including fees and expenses from January 2020 through February 7, 2020 in the amount of $24, 605.

As to the discrepancy between the legal fees asserted in the claim and the amount reflected in the billing compilation, U.S. Bank responds that it provided the billing compilation to counsel for Debtor in February, 2021, along with an explanation of the difference between the two numbers. Merrick Gross, a shareholder at Carlton Fields, P.A. and the billing partner on this matter, testified that the $83, 000 number included both prepetition and post-petition amounts and that counsel for U.S. Bank provided supplemental billing information to Debtor showing $77, 315 in prepetition fees and $3, 219.85 in prepetition costs. U.S. Bank's proof of claim was never amended to reflect the reduced amount, but U.S. Bank acknowledges that its claim should be reduced by the difference, which equals $2, 465.15. Additionally, following the hearing U.S. Bank filed a Declaration of Merrick L. Gross [Doc. 211] which sought to clarify and correct certain testimony offered by Mr. Gross at the hearing. Mr. Gross's declaration confirmed, contrary to his testimony at the hearing, "that certain credits were applied by the firm post-petition to fees incurred pre-petition" and that "a total amount of $39, 245.14 in post-petition credits was applied to pre-petition costs and fees incurred and provided by Carlton Fields. Of that total $24, 605 applied to fees and costs incurred prior to February 7, 2020[.]" Id. At a telephonic hearing held on September 22, 2021, counsel for U.S. Bank confirmed that its request for prepetition fees and expenses should be further reduced by the amount of $39, 245.14 in light of the post-petition credits. This reduction

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resolves the Debtor's challenge to the fees based on amounts included and paid under the Reinstatement Agreement. U.S. Bank's voluntary reduction of its fees based on the post-petition credits removes from its claim any request for fees and expenses incurred prior to the Reinstatement Agreement, and Debtor's objection to the fees and expenses requested on that basis is overruled as moot.

2. Reasonableness and Other Arguments

Debtor also raises other arguments as to the fees and expenses incurred, none of which from the Court's perspective require further reduction of U.S. Bank's attorney's fees claim. Debtor points to the attorney's fees provisions of the loan agreement in sections 5.1.14^[8] and 10.13 and argues U.S. Bank failed to present competent evidence as to its entitlement to fees under either provision. As to fees and expenses payable pursuant to section 5.1.14, Debtor argues that such provision only authorizes...