Telfair v. First Union Mortgage Corp., No. 99-10846

• Decision Date: 07 July 2000
• Docket Number: No. 99-10846
• Parties: (11th Cir. 2000) Eugene TELFAIR, Plaintiff-Appellant, v. FIRST UNION MORTGAGE CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1333

216 F.3d 1333 (11th Cir. 2000)

Eugene TELFAIR, Plaintiff-Appellant, v. FIRST UNION MORTGAGE CORPORATION, Defendant-Appellee.

No. 99-10846.

United States Court of Appeals Eleventh Circuit.

July 7, 2000.

[Copyrighted Material Omitted] Appeal from the United States District Court for the Southern District of Georgia.(No. 98-00193-CV-1), William T. Moore, Jr., Judge.

Before TJOFLAT, MARCUS and KRAVITCH, Circuit Judges.

KRAVITCH, Circuit Judge:

In this review of the bankruptcy court's grant of Appellee's motion for summary judgment we consider the propriety of an attorney's fees award to an oversecured creditor in a Chapter 13 bankruptcy proceeding and determine whether Georgia law imposes fiduciary duties on a mortgagee's administration of a mortgagor's escrow fund. Finally, we review the bankruptcy court's consideration of an affidavit purportedly inconsistent with the affiant's prior testimony as well as the bankruptcy court's denial of Appellant's motion for class certification. We affirm the district court's decision affirming the bankruptcy court on all grounds.

I. BACKGROUND AND PROCEDURAL HISTORY

Appellant Eugene Telfair and his wife obtained a Veteran's Administration (VA) guaranteed loan in 1984 from Appellee First Union Mortgage Corporation's ("First Union") predecessor-in-interest. Pursuant to a VA form Security Deed ("the Deed"), the Telfairs secured the loan with their home and agreed to make single monthly payments towards the principal and interest as well as to pay a pro rata share of the annual tax and insurance obligations to be placed in an escrow account.¹ First Union would make payments from this fund as they came due; any excess funds either would be refunded to the Telfairs or applied to future payments at First Union's discretion and the Telfairs would be responsible for any shortfall.² The Deed also provided that the Telfairs would be charged for any expenses and attorney's fees incurred by First Union in protecting the secured property, whether from default, foreclosure proceedings, or litigation.³ Finally, the Deed obligated the Telfairs to maintain hazard insurance on their home continuously, the provider of which had to be approved by First Union. If the Telfairs failed to provide proof of such continuous coverage, the Deed authorized First Union to "force place" hazard insurance to protect its collateral.⁴ First Union exercised this prerogative in 1988 when the Telfairs failed to provide proof of coverage.

On December 7, 1992, Mr. Telfair filed a Chapter 13 bankruptcy petition in which he proposed a series of payments to satisfy the existing arrearage on the First Union mortgage; the plan was confirmed on May 3, 1993. Outside of the plan, the Telfairs remained responsible for making their usual monthly mortgage payments to First Union, a responsibility that was not always met. After confirmation, First Union filed three separate motions to lift the automatic stay imposed by 11 U.S.C. § 362(a) to recover its costs incurred in attempting to recoup the defaulted payments. First Union assessed attorney's fees incurred with these motions against the Telfairs' account, which created a delinquency following the Chapter 13 payments and discharge.⁵ First Union then notified the Telfairs of its intent to foreclose on the property based upon this default.

The Telfairs responded by filing a two-count complaint against First Union in the bankruptcy court asserting various violations by First Union in its assessment of attorney's fees and its forced placement of the hazard insurance. The Telfairs also sought certification of their claims for class action under Federal Rule of Civil Procedure 23. After First Union moved for summary judgment on both counts, the bankruptcy court held a class certification hearing during which it also entertained argument on the summary judgment motion. The bankruptcy court first concluded that Mrs. Telfair was not an appropriate class representative and dismissed her claim. The court then granted summary judgment to First Union on both substantive counts, rendering Mr. Telfair's request for class certification moot. The bankruptcy court also denied Mr. Telfair's motion to strike an affidavit submitted by First Union in support of its summary judgment motion. The district court affirmed the bankruptcy court on all grounds, and Mr. Telfair ("Telfair") timely appealed.

II. DISCUSSION

In his appeal, Telfair challenges the bankruptcy and district courts' conclusions that First Union's appropriation of attorney's fees from the Telfairs' account did not implicate 11 U.S.C. § 506(b) or 11 U.S.C. § 362(a) and did not violate any fiduciary duties of First Union. We review the bankruptcy court's findings of facts for clear error and the legal conclusions of the bankruptcy and district courts de novo. See In re Southeast Bank Corp., 97 F.3d 476, 478 (11th Cir.1996). Telfair also appeals the bankruptcy court's denial of his motion to strike an affidavit, which we will uphold unless it was an abuse of discretion. See Goulah v. Ford Motor Co., 118 F.3d 1478, 1483 (11th Cir.1997).⁶

A. Attorney's Fees

During the pendency of the Chapter 13 plan, the Telfairs defaulted on several regular loan payments. In order to recoup the costs incurred in attempting to cure these defaults, First Union filed three separate requests for attorney's fees. First Union voluntarily withdrew the first two requests in order to verify receipt of payments allegedly sent by the Telfairs. After the third filing, two money order payments could not be verified, and the bankruptcy court granted the Telfairs ninety days to trace the missing payments. The Telfairs declined to either trace or resubmit the payments. After the plan was discharged, First Union applied post-petition mortgage payments to the outstanding attorney's fees, an action which Telfair contends violated two provisions of the bankruptcy code: 11 U.S.C. § 506(b), governing costs and fees for oversecured claims,⁷ and 11 U.S.C. § 362(a), the automatic stay provision.⁸ Neither of these claims has merit.

1. Section 506

Under his Chapter 13 plan, Telfair agreed to pay supplemental payments towards the arrearage owed to First Union. After this plan was confirmed on May 3, 1993, the Telfairs made all of the required plan payments and the plan was eventually discharged on April 23, 1997. During that time, however, the Telfairs had defaulted on several of their regular loan payments due after confirmation. The attorney's fees assessed by First Union were expended in curing these defaults and thus were allowed under the terms of the Deed. Telfair does not dispute that the Deed provided for the fees taken by First Union, but asserts that First Union should have requested them as part of an amendment to the plan under section 506(b), which provides:

To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.

11 U.S.C. § 506(b) (1999). Holders of these oversecured claims are entitled, under this section, to any interest, fees, or costs provided for in the underlying debt instrument. Because First Union failed to secure an amendment to the plan before paying itself attorney's fees, Telfair contends that it removed assets from the estate in violation of the automatic stay.

The district court affirmed the bankruptcy court's conclusion that section 506(b) only governs fee petitions until the time of confirmation. Because the attorney's fees incurred by First Union arose from its attempts to cure post-confirmation defaults, the bankruptcy and district courts determined that the terms of the Deed, without reference to section 506(b), governed the award of fees. The Deed expressly provided for the attorney's fees assessed by First Union against Telfair.

In considering an oversecured creditor's claim for interest, the Supreme Court has stated that interest accrues under section 506(b) "as part of the allowed claim from the petition date until the confirmation or effective date of the plan." Rake v. Wade, 508 U.S. 464, 471, 113 S.Ct. 2187, 2191, 124 L.Ed.2d 424 (1993).⁹ The fact that the parties in Rake agreed that section 506(b) only applied in the post-petition, pre-confirmation period does not undermine the imperative effect of the Court's decision, and this court has recognized as such. See In re Delta Resources, Inc., 54 F.3d 722, 727 (11th Cir.1995); see also 4 Collier on Bankruptcy ¶ 506.04[2] (Lawrence P. King et al. eds., 15th ed. 2000) ("Section 506(b) ... has no application to a secured creditor's entitlement to post-confirmation interest....").

Telfair relies on a pre-Rake decision for the proposition that a mortgagee should not divert maintenance payments to pay for attorney's fees without court approval. See In re Rathe, 114 B.R. 253 (Bankr.D.Idaho 1990). The creditor in Rathe, however, sought to include attorney's fees as part of its secured claim, and could only do so under section 506(b). See id. at 256. To the extent that the reasoning of In re Rathe is inconsistent with the intervening Rake decision, it has been overruled.

Telfair next seeks to distinguish Rake on the ground that it involved interest accruing on claims prior to confirmation and only in dictum suggested that its holding would apply to attorney's fees. This court, however, can find no basis to distinguish Rake 's statement that section 506(b) "applies only from the date of filing through the confirmation date," 508 U.S. at 468, 113 S.Ct. at 2190, on the ground that it dealt with interest rather than attorney's fees. Cf. In re Harko, 211 B.R. 116, 119 (2d Cir.BAP 1997) ("There is nothing in the language of § 506(b) to suggest that interest, as...