In re Wetdog, LLC

In the matter of: WETDOG, LLC, Debtor.

Case Number 13-40601-EJC

United States Bankruptcy Court for the Southern District of Georgia Savannah Division

August 14, 2015

Chapter 11

OPINION

This case is before the Court on Wetdog, LLC's ("Wetdog") amended objection to Belle Resources, Ltd.'s ("Belle") claim (dckt. 193); Wetdog's motion in limine (dckt. 204); Belle's Application of Oversecured Creditor for Allowance of Professional Fees and Costs (§ 506(b) Motion") (dckt. 220); and Belle's motion to strike (dckt. 236). The Court held a hearing on these matters on February 17, 2015.

Wetdog owns and operates the Foley House Inn, which is a nineteen-room bed and breakfast located in historic downtown Savannah, Georgia. Grant and Allisen Rogers each own 50% of Wetdog, and they personally guaranteed its debt to Belle. The Court confirmed Wetdog's reorganization plan over Belle's objections on September 8, 2014, and no party appealed the confirmation order.

According to Belle's proof of claim and the confirmed plan, Belle has a $1,882,320.14 secured claim in Wetdog's bankruptcy case. Belle's claim is secured by a first-in-priority lien on real property worth $2,939,401.00 (according to theapproved disclosure statement). Consequently, Belle was an oversecured creditor and entitled to add "interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement . . . under which such claim arose" to its secured claim under § 506(b) of Title 11 of the United States Code ("Bankruptcy Code"). Indeed, Belle's proof of claim includes an addendum that purports to reserve its right to post-petition interest, attorney fees, and other charges and costs. (See Claim 3-1.) Nevertheless, prior to confirmation, Belle neither sought the allowance of such interest and reasonable fees, costs, and charges nor objected to Wetdog's plan of reorganization based on the plan's failure to provide for the payment of these amounts.

The main issue before the Court is whether Belle now, on motion filed over four months after plan confirmation, may increase the amount of its secured claim to compensate it for such interest and reasonable fees, costs, and charges. Regarding interest for the roughly seventeen-month period between the petition date and the order confirming Wetdog's plan ("Pendency Period"). Belle asserts that it is entitled to the contractual default rate of around 13%.¹ Also, Belle seeks to add the following amounts to its secured claim: pre-confirmation attorneys' fees and costs in the amount of $126,966.57, accountant and expert witness fees of $13,105.00, and engineering and expert witness fees of $12,500.00.

This dispute came to light after confirmation when Belle sent a spreadsheet to Wetdog showing the amount it claimed it was still owed after givingWetdog credit for payments made during the bankruptcy case. In the spreadsheet Belle charged 18% interest during² the Pendency Period and added certain fees described above to the amount owing for work performed by lead counsel and local counsel on its behalf.

In response, Wetdog filed a claim objection, contending that Belle is barred from now asserting its entitlement to interest at the note's default rate during the Pendency Period and is instead limited to the floating contract interest rate of LIBOR plus 4.25% (about 4.5% for the relevant period). Regarding the "reasonable fees, costs, or charges provided for under the agreement" under § 506(b), Wetdog asserts that Belle is now barred from claiming these amounts and that the majority of the fees were unreasonable in any event. After accounting for cash collateral payments it made to Belle during the case and Pendency Period interest that it agrees it owed, Wetdog contends that the outstanding balance of Belle's secured claim was $1,770,586.27 as of the confirmation date. (Ex. D1-C.)

For its part, Belle filed a post-confirmation motion relying on § 506(b), which asks the Court to determine that the fees described above are part of the payoff balance of its lien. Belle asserts that the language in an addendum to its proof of claim adequately preserved its rights. In the end, Belle seeks a court order confirming its position that is was still owed $2,161,103.05 on the confirmation date. (Belle's Br., dckt. 225, at 2.)

I. JURISDICTION

This Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and the Standing Order of Reference signed by then Chief Judge Anthony A. Alaimo on July 13, 1984. These matters are "core proceeding[s]" within the meaning of 28 U.S.C. § 157(b)(2)(B) and (K). See In re Amron Techs. Inc., 376 B.R. 49, 49 (Bankr. M.D. Ga. 2007) (Walker, J.). No party, at any time during these proceedings, has questioned the Court's authority to enter a final, binding judgment on the matters presented. See Universal Am. Mortg. Co. v. Bateman (In re Bateman), 331 F.3d 821 (11th Cir. 2003). In accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), the Court makes the following findings of fact and conclusions of law.³

II. FINDINGS OF FACT

To finance a portion of the acquisition price for the Foley House Inn, Wetdog borrowed $1,940,000.00 from Sterling Bank. In a letter dated March 26, 2013, Comerica Bank (as successor in interest to Sterling Bank) sent notice to Wetdog referencing § 13-1-11 of the Official Code of Georgia Annotated ("Georgia Code"), declaring that Wetdog was in default, and demanding full repayment within ten days. (Ex. D-6.) Before that ten-day period expired, Wetdog filed its Chapter 11 petition on April 5, 2013.

Soon thereafter, attorneys C. James McCallar Jr. and Tiffany E. Caron of the McCallar Law Firm were appointed counsel for the debtor in possession and have served in that capacity throughout this case. (Dckt. 17.)

On April 9, 2013, Wetdog moved for authorization to use Comerica Bank's cash collateral, which was the rental income produced by the Foley House Inn. (Dckt. 6.) On April 24, 2013, the Court entered the first interim order on cash collateral (authorizing such use for a ninety-day period), which was consented to by Comerica Bank. The consent order provided for monthly adequate protection payments of $11,750.00 to Comerica Bank commencing on May 1, 2013 with payments "applied according to the original terms of the note." (Dckt. 23, at 4.) On July 16, 2013, the Court entered a second interim order authorizing Wetdog to use Comerica Bank's cash collateral for another ninety-day period, which was again consented to by Comerica Bank. (Dckt. 39.)

Comerica Bank sent two documents titled "Loan Payment Notice" to Wetdog during the bankruptcy case. The first notice has a "Bill Date" of April 28, 2013 and shows an "Accrual Rate" of interest of 4.5326%. (Ex. D-3.) The second notice has a "Bill Date" of June 27, 2013 and shows an "Accrual Rate" of 4.524%. (Ex. D-3.)

On August 6, 2013, which was the claims-bar date for non-governmental claims (dckt. 4), Comerica Bank filed a proof of claim. (Claim 3-1.) In the proof of claim, the bank asserted that the amount of its claim as of the petition date was $1,882,320.14. It also asserted that its claim was fully secured by the real estatecomprising the Foley House Inn. An addendum to the proof claim provides in relevant part:

3. Debt Amount. As of the Petition Date, the Claimant holds a claim against the Debtor and its estate, in the aggregate amount of $1,882,335.58.⁴ The claim consists, in part, of the following:

Unpaid Principal:

$1,786,089.56

Accrued and Unpaid Interest:

[$]89,195.58

Accrued and Unpaid Fees:

[$]7,035.00

Attorney's Fees:

TOTAL:

$1,882,320.14

Plus all other fees, costs and other amounts due under the Loan documents.

4. Post-petition interest, attorneys' fees and expenses. In accordance with Section 506(b) of the Bankruptcy Code, Claimant claims in addition to the foregoing amounts:

a. Post-petition interest at the maximum rate provided in the loan documents referred to in this schedule and/or by applicable law;

b. Post-petition attorneys' fees as provided in the loan documents referred to in this schedule and/or by applicable law; plus

c. Other charges and costs incurred by Claimant in their case, including without limitation, as the same may be applicable or permitted under the applicable loan documents, late charges, late fees, non-sufficient funds fees, costs of appraisal and environmental studies and any advances made by Claimant, including without limitation, advances for taxes, assessments, deposits, insurance or other purposes attributed by Claimant as protection or preservation of the collateral, including interest on such advances, late charges, and costs.

. . . .

(Claim 3-1, at 5-6.) Also, the promissory note attached to the proof of claim provides: "It is stipulated and agreed that reasonable attorney's fees shall be FIFTEEN AND 00/100 PERCENT (15.00%) of all sums due hereunder unless any party pleads otherwise." (Claim 3-1, at 12 (emphasis added) (footnote added).)

On August 29, 2013, a notice of transfer was filed showing that Comerica Bank had transferred its interest in the Wetdog note to Belle on August 13, 2013. (Dckt. 47.) The day before, on August 28, 2013, attorneys Kathleen Home and Margaret Puccini of Bouhan Falligant, LLP filed a notice of appearance on behalf of Belle. (Dckt. 46.) The Court granted Jeffrey L. Marks's request to appear pro hac vice on October 17, 2013. (Dckt. 67.) Mr. Marks has served as Belle's lead counsel throughout this case.

Wetdog filed its original plan and disclosure statement on August 30, 2013. The certificates of service attached to the plan and disclosure statement indicate that Bryan Timothy Glover (as counsel for Comerica Bank) as well as Kathleen Home and Maggie Puccini of Bouhan Falligant LLP were served. The disclosure statement provided that Belle's secured claim was $1,882,320.14 and would be repaid with the following repayment terms: twenty-five year amortization at 4.25% and monthly payments of $10,197.25....