In re Taal

540 B.R. 24

2015 BNH 010

In re: Guylaine L. Taal, Debtor

Bk. No. 14–10163–JMD

United States Bankruptcy Court, D. New Hampshire.

Signed October 22, 2015

Nancy H. Michels, Parnell, Michels & McKay, PLLC, Londonderry, NH, Attorney for the Debtor

Gregory T. Uliasz, Feniger & Uliasz, LLP, Manchester, NH, Attorney for Creditor St. Mary's Bank

MEMORANDUM OPINION

J. Michael Deasy, Bankruptcy Judge

I. INTRODUCTION

The Court has before it the Debtor's objection to proof of claim no. 11 (Doc. No. 56) and her objection to a notice of post-petition mortgage fees, expenses, and charges relating to claim no. 11 (Doc. No. 58) (collectively the “Objections”). St. Mary's Bank is the creditor that filed both claim no. 11 (“POC 11”) and the post-petition fee notice (the “Post–Petition Fee Notice”).¹In this opinion, the Court addresses the portion of the Objections that relates to attorney's fees and expenses, which St. Mary's Bank seeks to recover pursuant to a note and mortgage.

II. JURISDICTION

This Court has authority to exercise jurisdiction over the subject matter and the parties pursuant to 28 U.S.C. §§ 1334, 157(a), and U.S. District Court for the District of New Hampshire Local Rule 77.4(a). This is a core proceeding in accordance with 28 U.S.C. § 157(b)(2)(A) and (G).

III. FACTS

The background of this case is complex, involving the details of a contentious relationship between the Debtor (the “Debtor”), her non-debtor spouse (“Mr. Taal”), and St. Mary's Bank (the “Bank”). The Bank is the mortgagee and note-holder of the first mortgage on the Debtor's principal residence (the “Note,” “Mortgage,” and “Property” respectively). Mr. Taal is not obligated on the note, but did sign the mortgage and is a co-owner of the Property. Mr. Taal has filed three bankruptcy cases in this Court in the past several years, all of which were dismissed without substantial progress toward confirming a chapter 13 plan. In contrast to Mr. Taal's conduct of his bankruptcy cases, the Debtor obtained counsel prior to filing, has prosecuted this case in a timely manner, and has made significant progress towards confirming a chapter 13 plan. Aside from this brief background, the Court will not recount the details of the relationship between the parties. The Court set out the full background of this case and the parties' relationship in a previous opinion. SeeIn re Taal,520 B.R. 370 (Bankr.D.N.H.2014).

Continuing disputes between the Debtor and the Bank have delayed confirmation of a chapter 13 plan in this case. First, the Bank moved to dismiss this case as a bad faith filing and asked for in remrelief pursuant to 11 U.S.C. § 362(d)(4).²The Court resolved that motion in favor of the Debtor. SeeTaal,520 B.R. at 380. Next, the Debtor filed the Objections. The Court held a number of hearings on the Objections, which were filed in November 2014. The first was on January 16, 2015. At this hearing, the Court addressed the two main issues raised in the Objections: (1) whether the Bank had misapplied pre-petition mortgage payments; and (2) the amount of attorney's fees and expenses included in POC 11 and in the Post–Petition Fee Notice. After the hearing, the Court sustained the Objections in part, ruling that the Bank had misapplied certain pre-petition mortgage payments and directed the Bank to correct its accounting. SeeJanuary 22, 2015 Order (Doc. No. 88). The Court also ordered the Bank to provide the Debtor with copies of the invoices supporting its attorney fee and expense claim, which the Court directed the Debtor to respond to. SeeJanuary 21, 2015 Order (Doc. No. 85).

After the Debtor filed a response to the Bank's fee invoices (Doc. No. 104) and a response to the Bank's re-accounting of pre-petition mortgage payments (Doc. No. 106), the Court held another hearing on April 3, 2015. At the hearing, the Court determined that the fee invoices that the Bank had provided to the Debtor were insufficiently detailed for the Court to make a ruling on whether the fees were allowable. The Court then ordered the Bank to submit complete copies of its fee invoices and set a new deadline for the Debtor to respond. Once the parties made their submissions, the Court took the dispute concerning the fee and expense invoices under advisement.³

IV. DISCUSSION

The current dispute between the Debtor and Bank focuses on attorney's fees and other expenses that the Bank incurred both pre-petition and post-petition, which the Bank asserts are recoverable under the Note and Mortgage. The Debtor has proposed a chapter 13 plan that would cure any defaults under the Note and Mortgage and maintain regular payments to the Bank during the life of the plan. SeeChapter 13 Plan Dated January 30, 2014, ¶ 5 (Doc. No. 8); § 1322(b)(5).

Legal Standard Applicable to Fees and Expenses

When a chapter 13 plan proposes to cure a default under § 1322(b)(5) the amount necessary to cure the default is determined under state law. Specifically, § 1322(e) overrides the default rules pertaining to secured claims set down in § 506(b), such as a secured creditor only being entitled to attorney's fees if the value of its collateral exceeds the value of its secured claim. Section 1322(e) provides:

Notwithstanding subsection (b)(2) of this section and sections 506(b) and 1325(a)(5) of this title, if it is proposed in a plan to cure a default, the amount necessary to cure the default, shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.

Here, the Bank is claiming attorney's fees and expenses in POC 11 and in the Post–Petition Fee Notice. Pursuant to § 1322(e), the Court will determine the Cure Amount of the attorney's fees and expenses under state law and the provisions of the Note and Mortgage.

Three different parts of the Note and Mortgage govern the Bank's ability to recover attorney's fees and other costs from the Debtor. Paragraph 7 of the Note, entitled “Borrower's Failure to Pay as Required,” provides in section (E):

Payment of the Note Holder's Costs and Expenses

If the Note Holder has required me to pay immediately in full as described above, the Note Holder will have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees.

Section 9 of the Mortgage provides:

Protection of Lender's Interest in the Property and Rights Under this Security Instrument.

If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b) there is a legal proceeding that might significantly affect Lender's interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy ...) ... then Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property.... Lender's actions can include, but are not limited to: ... (b) appearing in court; and (c) paying reasonable attorney's fees to protect its interest in the Property and/or rights under this Security Instrument, including its secured position in a bankruptcy proceeding.... Any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrowing requesting payment.

Finally, § 14 of the Mortgage provides:

Loan Charges.

Lender may charge Borrower fees for services performed in connection with Borrower's default, for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument, including, but not limited to, attorneys' fees, property inspection and valuation fees. In regard to any other fees, the absence of express authority in this Security Instrument to charge a specific fee to Borrower shall not be construed as a prohibition on the charging of such fee. Lender may not charge fees that are expressly prohibited by this Security Instrument or by Applicable Law.

Under the mortgage, “Applicable Law” is defined in sub-section (H) of the definitions section (page 2 of the Mortgage) to mean “all controlling applicable federal, state and local statutes, regulations, ordinances and administrative rules and orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions.”

Under New Hampshire law, a request for attorney's fees “must be grounded upon statutory authorization, a court rule, an agreement between the parties, or an established exception to the rule that each party is responsible for paying his or her own counsel fees.” In the Matter of Hampers & Hampers,154 N.H. 275, 289, 911 A.2d 14 (2006)(quotation omitted). An agreement between the parties that shifts attorney's fees is interpreted by “giving the language used by the parties its reasonable meaning.” Turner v. Shared Towers VA, LLC,167 N.H. 196, 207, 107 A.3d 1236 (2014). Here, the Note and Mortgage plainly provide the Bank with the ability to recover attorney's fees and other costs from the Debtor under certain circumstances. The parties agree that the Bank may recover attorney's fees and other expenses as long as they are “reasonable or appropriate to protect [the Bank's] interest in the Property and rights under” the Note and Mortgage. SeeMortgage § 9. The parties disagree, however, as to whether specific tasks the Bank's attorney performed fall within the definition of fees chargeable to the Debtor. The parties also disagree as to whether the Bank's attorney expended a reasonable amount of time on specific tasks. Finally, the parties disagree about whether certain expenses related to the foreclosure process are reasonable.

In determining whether the attorney's fees included in the Cure Amount are reasonable, the Court finds the federal lodestar...