SB Bldg. Assocs. v. Iron Mountain Info. Mgmt., LLC (In re 388 Route 22 Readington Holdings, LLC)
| Decision Date | 16 November 2020 |
| Docket Number | Case No. 18-30155 (KCF),Civil Action No. 3:20-cv-02954-FLW |
| Parties | IN RE 388 ROUTE 22 READINGTON HOLDINGS, LLC, Debtor. SB BUILDING ASSOCIATES LIMITED PARTNERSHIP, Appellant, v. IRON MOUNTAIN INFORMATION MGMT., LLC Appellee. |
| Court | U.S. District Court — District of New Jersey |
*NOT FOR PUBLICATION*
Chapter 7 Bankruptcy
This matter arises out of a dispute over attorneys' fees. In the proceedings below, the Bankruptcy Court awarded Iron Mountain Management, LLC ("Appellee" or "Iron Mountain"), the former secured creditor of SB Building Associates Limited Partnership ("Appellant" or "SB"), $2,375,288.01, after SB obtained $3,200,000 in an auction sale of 388 Route 22 Readington ("the Property") conducted by its trustee, Bunce D. Atkinson ("Trustee" or "Atkinson"). The award represents Iron Mountain's full secured claim plus interest, costs, and attorneys' fees related to various actions against SB to recover the value of its mortgage on the Property. SB appeals the award on the grounds that the Bankruptcy Court's decision is contrary to In re A & P Diversified Technologies Realty, Inc., 467 F.3d 337, 341 (3d Cir. 2006), which stands for the proposition that a foreclosure judgment terminates a mortgage, and even if it does not, Iron Mountain's request for attorneys' fees is unreasonable. SB also argues that the Bankruptcy Court improperly charged fees related to a sheriff's sale to SB rather than Iron Mountain. For the reasons set forth below, I find that the parties entered into an agreement for attorneys' fees after the entry of the foreclosure judgment, but remand for further proceedings as to the reasonableness of Iron Mountain's request for the paralegal fees, and who must bear the cost of the sheriff's fee. Accordingly, the Bankruptcy Court's decision is AFFIRMED in part and VACATED in part. The matter is remanded for further proceedings consistent with this Opinion.
Iron Mountain is the former secured creditor of SB. In 2007, Iron Mountain sold SB the Property, located at 388 Route 22 Readington, in exchange for a purchase money mortgage. SB defaulted on that mortgage in 2009, giving rise to the present dispute. On July 7, 2009, to collect on its mortgage, Iron Mountain initiated a foreclosure proceeding in New Jersey Superior Court, which resulted in a foreclosure judgment against SB for $1,658,021.90, entered on January 28, 2011. The Superior Court increased the judgment to $1,722,027.81 on March 16, 2011. Iron Mountain then scheduled a sheriff's sale for July 31, 2013. On the day of the sale, however, SB filed for Chapter 11 Bankruptcy, automatically staying the foreclosure. SB submitted a reorganization proposal on October 29, 2013.
After considerable negotiation, on October 7, 2015, Iron Mountain and SB agreed to a repayment plan (the "Plan"), the terms of which the Bankruptcy Court set forth in the Order Confirming Second Modified Plan of Reorganization ("Confirmation Order"). The Pan provided for $2,200,000 in total payments to Iron Mountain for its secured claim, including a $1,325,000 lump sum payment due before January 15, 2016. The Plan also provided that, if SB failed to makesuch a payment, then it must make a balloon payment before January 1, 2018, for all outstanding principal and interest.
SB did not make either the lump sum or the balloon payment. According to the Confirmation Order, in the event of default, "(i) . . . all obligations owing to [Iron Mountain], including principal and all accrued and unpaid interest, fees, costs, charges and attorney's fees, shall accelerate and become immediately due and payable; and (ii) the holder of the Class 1 Claim shall be permitted (a) to proceed with any and all legal rights and remedies in accordance with the Judgments, the secured lien, the Plan and the law."1 See Confirmation Order. Iron Mountain filed to amend the state court judgment against SB to reflect the $2,200,000 balance due, which the state court granted. Iron Mountain then scheduled another sheriff's sale for October 10, 2018. Yet, again, just before the sale, SB filed for Chapter 11.
Under the 2015 Confirmation Order, in the event of a future insolvency proceeding, all parties agreed to suspend any automatic stay imposed under 11 U.S.C. § 362. To that end, Iron Mountain filed a motion for relief, which the Bankruptcy Court granted. The order prohibited Iron Mountain from executing a foreclosure sale prior to January 19, 2019, so that the Trustee could attempt to sell the Property at a higher value than Iron Mountain might obtain otherwise. A subsequent order extended the stay through September 30, 2019. When the Trustee failed to sell the Property before that date, Iron Mountain scheduled a third sheriff's sale for October 2, 2019. That sale, too, was postponed to October 30, 2019, then to November 20, 2019, and ultimately to January 8, 2020, to give the Trustee more time to market the Property. The Trustee secured a buyer at auction on December 17, 2019, for $3,200,000.
On January 13, 2020, Iron Mountain filed a motion to compel the Trustee to pay from the proceeds of the auction sale, Iron Mountain's full secured claim, plus interests, attorneys' fees, and costs, totaling $2,375,288.01. In the same motion, Iron Mountain argued SB should pay the sheriff's fee of $46,791.91 for the foreclosure sale, which the auction obviated. After various cross-motions, the Bankruptcy Court approved the sale price on January 28, 2020, but did not decide Iron Mountain's motion for fees and costs, instead directing the Trustee to hold them in escrow pending a hearing.
On March 3, 2020, after a hearing, the Bankruptcy Court granted Iron Mountain's motion for fees and costs, and determined that SB must pay the sheriff's fee. The Bankruptcy Court rested its decision on three grounds. First, 11 U.S.C. § 506(b), rather than New Jersey Rule 4:42-9, governs the amount of attorneys' fees, because "a natural reading of [§] 506(b)" reveals "no reference to State law," the mortgage note survived the foreclosure judgment, and the merger doctrine does not "trump 506(b)." Second, the fees requested by Iron Mountain are "eminently reasonable," because SB has "chosen to make this . . . an expensive case" and "cannot now complain" about the costs undertaken by Iron Mountain in response. Third, it is "fair[]" to charge SB with the sheriff's fee because, if Iron Mountain had not decided to forego the sheriff's sale, then there would not be any money left for creditors besides Iron Mountain. See IM 163, at 17:17-25, 18:2-5, 18:2-25. The Bankruptcy Court accordingly entered an order directing the Trustee to pay Iron Mountain $2,375,288.01.
On March 16, 2020, SB appealed that order, which is presently before this Court. The parties' dispute boils down to three issues: whether they have an agreement for attorneys' fees under 11 U.S.C. § 506(b); if so, whether the attorneys' fees are reasonable; and whether, in anyevent, the Bankruptcy Court erred in directing the Trustee rather than Iron Mountain to pay the sheriff's fee.
This Court has jurisdiction to hear this appeal under 28 U.S.C. § 158(a). See also In re Walsh Trucking Co., 838 F.2d 698, 701 (3d Cir. 1988) (). The Court may "affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed. R. Bankr. P. 8013.
The Court reviews the Bankruptcy Court's findings of fact under a clearly erroneous standard and legal conclusions under a de novo standard. See id.; Donaldson v. Bernstein, 104 F.3d 547, 551 (3d Cir. 1997); Chemetron Corp. v. Jones, 72 F.3d 341, 345 (3d Cir. 1995). A factual finding is clearly erroneous when "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." In re CellNet Data Sys., Inc., 327 F.3d 242, 244 (3d Cir. 2003) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). Where an issue presents mixed questions of law and fact, the Court applies the relevant standard to each component of the issue. Chemetron, 72 F.3d at 345.
SB argues on appeal that 11 U.S.C. § 506(b), which permits an over-secured creditor to recover reasonable attorneys' fees from a debtor, is not applicable because there is no agreement between the parties providing for attorneys' fees. Even if there is an agreement for attorneys' fees under § 506(b), SB argues that the Bankruptcy Court failed to adequately determine whether Iron Mountain's fee request is reasonable. In any event, SB argues that the Bankruptcy Court shouldcharge Iron Mountain, not SB, with the sheriff's fee. Iron Mountain disputes all three points. It argues that it is eligible for attorneys' fees under § 506(b) because the parties' various court orders constitute an agreement, that its fee request is reasonable because its actions in this litigation were defensive, and that SB should pay the sheriff's fee.
New Jersey courts follow the "American rule," where parties bear their own litigation costs, including attorneys' fees. See, e.g., McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 554-55 (1993); A&P, 467 F.3d at 341 (citing McKeown-Brand). Courts recognize two exceptions to this rule: where statutory provisions exist providing for fees and where a contractual provision allocates fees. See Travelers Casualty & Surety Co. v. Pacific Gas & Elect. Co., 549 U.S. 443, 448 (2007) (...
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