In re Lettie

597 B.R. 637

IN RE: Nicholas D. LETTIE and Angela M. Renier-Lettie, Debtors.

Case No. 18-24510-beh

United States Bankruptcy Court, E.D. Wisconsin.

Signed February 22, 2019

Dylan S. Gehrtz, Debt Advisors, S.C., Chad L. Schomburg, Milwaukee, WI, David Pietrek, Debt Advisors, S.C., Green Bay, WI, for Debtors.

DECISION AND ORDER DENYING MOTION TO VACATE NOVEMBER 19, 2018 ORDER GRANTING APPLICATION FOR COMPENSATION OF ATTORNEYS' FEES

Beth E. Hanan, United States Bankruptcy Judge

The debtors' counsel have asked this Court—via a motion to vacate the Court's prior order granting their application for compensation—to direct the Chapter 13 trustee to pay counsel's approved fees before the debtors proceed with their imminent intent to convert their case to Chapter 7. CM-ECF Doc. No. 55. The debtors were unable to achieve a confirmed plan, largely because of limited income and a recent fire loss on their uninsured home. See In re Lettie , No. 18-24510, 2018 WL 3636827 (Bankr. E.D. Wis. July 30, 2018). Although the Court grants reconsideration of the November 19, 2018 order, on reconsideration it denies the request to authorize payment of allowed administrative expenses preconfirmation and in anticipation of conversion, in line with Harris v. Viegelahn , ––– U.S. ––––, 135 S.Ct. 1829, 191 L.Ed.2d 783 (2015).

BACKGROUND

The debtors filed their Chapter 13 case on May 7, 2018. Their counsel first submitted a fee application, CM-ECF Doc. No. 39, on October 17, 2018. The request stated "[c]ounsel believes that interim compensation will not create an undue hardship on any party, since payments can be made in the usual course of the Chapter 13 plan." Id. , at 4. The application requests "this amount to be paid as an administrative claim by the Chapter 13 Trustee pursuant to 11 U.S.C. § 330(a), 503(b), and 1326." Counsel's proposed order likewise asked that fees be paid through the debtors' plan. CM-ECF Doc. No. 41, at 2. The proposed order, but not the application, added that "if the Debtors' case is dismissed, or converted, before this claim is paid in full, the Trustee will pay this administrative priority claim prior to refunding any funds to the Debtor." Id. The Court deleted that last sentence,¹ and, on November 19, 2018, simply ordered that counsel's fees be paid through the plan. CM-ECF Doc. No. 43.

But there was no confirmed plan at the time the fee order was signed. That same day, the trustee objected to confirmation of the debtors' plan, an objection the Court sustained. The Court's December 10, 2018 order (docketed on December 11) required the debtors to file an amended plan or convert their case to Chapter 7 on or before December 28, 2018. CM-ECF Doc. No. 48.

On December 21, 2018, the debtors' counsel filed correspondence, noting the differences between their original proposed fee order and the edited order signed by the Court. Counsel stated "the original Application should have been clearer as to the Debtors' intentions. The Debtors are under an existing Order to convert the case or file a Modified Plan.... Counsel wishes to be paid the awarded fees upon conversion of the case." CM-ECF Doc. No. 50. Counsel attached another copy of their original proposed order for fees, and asked the Court to vacate its November 19, 2018 order, and instead enter the originally proposed order with the alternative language about payment.

On December 28, 2018, the Court directed counsel to file their letter request in the form of a formal motion with supporting memorandum. The Court also directed counsel to address Harris v. Viegelahn , ––– U.S. ––––, 135 S.Ct. 1829, 191 L.Ed.2d 783 (2015), and the ensuing split among courts on the question of whether the Chapter 13 trustee can pay approved administrative expenses when a preconfirmation case is to be converted to Chapter 7.² The Court requested a responsive memorandum from the trustee, and extended the time for the debtors to amend their plan or convert. CM-ECF Doc. No. 52.

Counsel thereafter submitted a motion to vacate and memorandum of law. CM-ECF Doc. Nos. 55, 54, 57. The motion reiterated that "it is the intention of the debtors to convert this case to a Chapter 7 bankruptcy prior to confirmation, and counsel therefore wishes to be paid the approved fees prior to conversion.... Should the Court agree the approved fees can be paid prior to conversion, any remaining funds the Trustee is holding above and beyond the fees awarded and paid to counsel will be paid to debtors upon conversion." The motion also stated, "[c]ounsel for debtors hereby requests that the order is corrected so as to account for the likelihood that this case will be converted to Chapter 7, and that any approved fees are paid to counsel prior to conversion." CM-ECF Doc. No. 55, at 1.

The trustee also filed a legal memorandum. CM-ECF Doc. No. 58. The Chapter 13 trustee has $ 5,735.88 on hand. The fee application seeks $ 2,750.00. No parties have objected.

DISCUSSION

1. Rule 60 Standard

The debtors' counsel filed a motion to vacate this Court's order of November 19, 2018, an order which allowed counsel's fees to be paid through the debtors' plan. Counsel's motion cites Federal Rule of Bankruptcy Procedure 9024, which incorporates Federal Rule of Civil Procedure 60, to support their request to vacate due to "an omission from that order, as well as any other reason that justifies relief." CM-ECF Doc. No. 55, at 1.

Federal Rule of Civil Procedure 60(a), made applicable by Federal Rule of Bankruptcy Procedure 9024, provides that "[t]he court may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record. The court may do so on motion or on its own, with or without notice." The bankruptcy court may correct an order under Rule 60(a) if the error was mechanical in nature and not the result of a deliberate choice, and the correction reflects the intent of the bankruptcy court at the time it entered the order. In re McClellan , 459 B.R. 371, 373 (Bankr. E.D. Wis. 2011), citing Wright & Miller, Federal Practice and Procedure § 2854 at 441 (2d ed. 1995, Supp. 2011).

It is not clear from the motion to vacate if the error asserted is that the Court mechanically omitted a sentence from counsel's proposed order, or if the asserted error is counsel's own "lack of clarity" in the original application—"Counsel now realizes that the original Application should have been clearer as to the Debtors' intentions.... Counsel wishes to be paid the awarded fees upon conversion of the case." CM-ECF Doc. No. 50. Attorney oversight rarely warrants relief from an order. In re Kellogg , 197 F.3d 1116, 1120 n.3 (11th Cir. 1999) (addressing Rule 60 relief generally). In any event, and as will be discussed further below, the Court's deletion of one sentence from counsel's proposed order was consistent with the application requesting that fees be paid through the plan and was a deliberate edit by the Court. If an error of "substantive judgment" is alleged, correction of such errors is outside the ambit of Rule 60(a), see In re Whelan , 582 B.R. 157, 167 n.16 (Bankr. E.D. Tex. 2018). Accordingly, Rule 60(a) is not a basis to vacate the November 19, 2018 order.

Rule 60(b), also cited by the Letties' counsel, provides other grounds for relief from an order. On motion and just terms, the Court may relieve a party from a final order for:

(1) mistake, inadvertence, surprise, or excusable neglect;

(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);

(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;

(4) the judgment is void;

(5) the judgment has been satisfied, released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or

(6) any other reason that justifies relief.

The first five clauses and the catchall clause, clause (6), are mutually exclusive, so that if the asserted grounds for relief fall within one of the first five clauses, relief under the catchall section is not available. Webb v. James , 147 F.3d 617, 622 (7th Cir. 1998). Counsel's motion invokes the catchall section. Courts repeatedly caution, however, that Rule 60(b), and thus Rule 9024, " ‘is an extraordinary remedy’ which is to be granted only ‘in exceptional circumstances.’ " In re Dorff , 480 B.R. 919, 922 (Bankr. E.D. Wis. 2012) (citations omitted).

Counsel has effectively conceded that exceptional circumstances are absent: "Counsel now realizes that the original Application should have been clearer as to the Debtors' intentions." Counsel submitted the application and plainly and solely asked that fees be paid as part of the debtors' plan. Although the relief sought in counsel's application and proposed order didn't match up exactly, the Court edited the order before entering it. If Rule 60(b)(6), the catchall provision, is mutually exclusive of 60(b)(1), which concerns mistake or neglect, see Webb v. James , 147 F.3d at 622, then counsel's err in "lack of clarity" cannot constitute the exceptional circumstances envisioned by Rule 60(b)(6) to otherwise justify relief.

But there may be another circumstance that could justify relief. Arguably, a portion of the Court's own directive to counsel to follow proper procedure, and seek reconsideration or vacation of an order not by letter but by formal motion, could have created a basis to justify reconsideration under Rule 60(b)(6). It is the second part of the Court's December 28, 2018 directive, the part which requested both the debtors' counsel and the Chapter 13 trustee to address the Harris v. Viegelahn holding and progeny, that could be read to open the door to reconsideration. Accordingly, the Court will take a second look.

2. Counsels' Argument on Reconsideration

The debtors' counsel contend that Harris v. Viegelahn does not...