MD Ga - Oversecured Creditor Entitled To Post-Petition Attorneys Fees Notwithstanding Contrary Non-Bankruptcy Law
In re Amron Technologies, Inc., Ch. 7 Case No. 06-50508, 2007 Bankr. LEXIS 3234 (Bankr. M.D. Ga. September 18, 2007). The issue before the Court was whether an oversecured creditor could claim post-petition attorneys fees when she was not otherwise entitled to collect them under state law.
The following is a brief summary of the facts: The creditor was an oversecured creditor, the note provided for payment of attorney fees, all attorney fees were incurred post-petition, the fees were limited to time actually spent protecting the security interest, and the creditor never sent Debtor a demand for payment indicating her intent to collect attorney fees and advising Debtor that the fees could be avoided by payment of the debt in full within 10 days of the notice. The Trustee argued that because Ms. LeGrand never sent a 10-day letter required by O.C.G.A. §13-1-11, her claim for attorney fees is unenforceable under state law and, consequently, she was not entitled to recover attorney fees as part other secured claim.
The question, then, is whether post-petition attorney fees should follow the same path set out in Welzel for pre-petition attorney fees. If so, they must first pass through § 502, which allows only claims enforceable under applicable law. According to the Trustee's argument, Ms. LeGrand's claim for attorney fees must be disallowed because she never sent the 10-day notice. If the claim is disallowed, the analysis ends, and § 506 never enters the picture. However, the Trustee's argument is inconsistent with the Supreme Court's decision in Ron Pair.
In Ron Pair, the United States was an oversecured creditor protected by a nonconsenual tax lien. Its proof of claim included pre-petition interest. The debtor's Chapter 11 plan made no provision for post-petition interest. The U.S. objected, seeking post-petition interest pursuant to § 506(b). 489 U.S. at 237, 109 S. Ct. at 1028. At the time of the case, courts were split about whether nonconsenual lienholders were entitled to interest under § 506(b) or whether such interest was limited to consensual creditors. The Court said a "natural reading" of § 506(b)
entitles the holder of an oversecured claim to postpetition interest and, in addition, gives one having a secured claim created pursuant to an agreement the right to reasonable fees, costs, and charges provided for in that agreement. Recovery of postpetition interest is unqualified. Recovery of fees, costs, and charges, however, is allowed only if they are reasonable and provided for in the agreement under which the claim arose.
Id. at 242, 109 S. Ct. at 1030. The Court gave no indication that the availability of post-petition interest is in any way affected by its enforceability under state law. The same is true of post-petition attorney fees. As the Court stated, the difference between attorney fees and interest is restrictions imposed by Congress-not restrictions imposed by state law. See id. While post-petition interest is available to all oversecured creditors without limitation, post-petition attorney fees are available only in a reasonable amount and if provided for by contract or state law. Id. ...
Although Ron Pair does not directly address the question before this Court, two circuit courts have allowed oversecured creditors to include in their claims post-petition attorney fees that were not enforceable under state law. In First W. Bank & Trust v. Drewes (In re Schriock Constr.), 104 F.3d 200 (8th Cir. 1997), state law expressly voided the contractual attorney fees provision on which the creditor relied for its claim. Id. at 201. The court framed the issue as whether state law could trump bankruptcy law with regard to allowance of attorney fees to an oversecured creditor. Id. at 201-02. While noting that property interests generally are determined by nonbankruptcy law, the court said, "Here, the plain language of section 506(b) expressly provides for the award of attorney's fees in bankruptcy proceedings, without reference to contrary state law." Id. at 202. ... Relying on the plain language in conjunction with the legislative history, the court found "the clearly intended effect of section 506(b)" was "that a fee provision unenforceable under state law would be given effect in bankruptcy proceedings[.]" Id. at 203.
The Fourth Circuit Court of Appeals reached a similar conclusion in Unsecured Creditors' Committee v. Walter E. Heller Company Southeast, Inc. (In re K.H. Stephenson Supply Company), 768 F.2d 580 (4th Cir. 1985). In Stephenson Supply, the oversecured creditor failed to comply with a state notice provision similar to Georgia's 10-day notice requirement when it sought fees for services provided during the bankruptcy case. Id. at 581-82. ... the court held the creditor was entitled to post-petition attorney fees as part of its secured claim, notwithstanding its failure to comply with state law. Id.
After considering the language of § 506(b) and the relevant case law interpreting the statute, the court holds that--notwithstanding contrary nonbankruptcy law--a secured creditor is entitled to add post-petition attorney fees to its secured claim if (1) the creditor is oversecured; (2) the fees are reasonable; and (3) the fees are provided for in the agreement or state statute under which the claim arose. Furthermore, the creditor may only receive fees to the extent it is oversecured.