In re: 1910 Partners
HI-16-1181-BTaL
| 9th Cir. BAP | Dec 8, 2017Background
- AOAO (condominium association) held secured claim against 1910 Partners (debtor) relating to unpaid maintenance, utilities and attorneys' fees; debtor filed Chapter 11 and an adversary proceeding adjudicated the amount of AOAO's claim.
- AOAO sought recovery of approximately $567,936.25 in postpetition attorneys' fees and costs; it did not include postpetition fees in its amended proof of claim.
- At trial AOAO first pressed entitlement to postpetition fees as both an oversecured creditor under § 506(b) and as an administrative expense under § 503(b)(4)/§1129(a)(9)(A); detailed time records were not provided to debtor before the bankruptcy court entered judgment.
- The bankruptcy court adopted AOAO-drafted findings, awarded $567,936.25 as reasonable under § 506(b) and also treated the full amount as an administrative priority under § 503(b)(4) to be paid in cash under § 1129(a)(9)(A).
- Debtor moved for reconsideration arguing lack of procedural notice, absence of supporting documentation (time sheets) to establish reasonableness and substantial contribution; the court denied reconsideration.
- The BAP vacated the fee award and remanded, holding the record lacked the required evidentiary support and procedure (notice and hearing) to award the fees under either § 506(b) or § 503(b)(4).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether AOAO could recover postpetition attorneys' fees as an oversecured creditor under § 506(b) | AOAO: fees were recoverable and reasonable under § 506(b) without prior separate motion; entitlement proven at trial | 1910 Partners: AOAO failed to present evidentiary support (detailed time records); debtor had no opportunity to review or object | Vacated: court erred — § 506(b) award unsupported because AOAO did not meet burden to prove reasonableness with documentation before judgment |
| Whether AOAO's fees could be given administrative priority under § 503(b)(4) and paid in cash under § 1129(a)(9)(A) | AOAO: made a "substantial contribution" and fees should be allowed as administrative expense payable in full | 1910 Partners: AOAO raised claim without separate motion/notice/hearing; fees benefitted AOAO, not the estate | Vacated: administrative priority award was procedurally improper and unsupported; "substantial contribution" finding was clearly erroneous on this record |
| Whether awarding fees during adversary adjudication without a separate fee motion satisfied due process and local rules | AOAO: trial and proposed findings provided sufficient process; time sheets could be sealed | 1910 Partners: lacked notice and opportunity to contest time records; Local Rules require application and records for § 503(b)(4) claims | Held: debtor was denied due process; local rules/§503(b)(4)'s "notice and a hearing" requirement unmet |
| Whether denial of reconsideration was an abuse of discretion | AOAO: denial proper because issues were litigated and court considered objections | 1910 Partners: denial abused discretion because court applied incorrect legal standard and ignored lack of evidentiary support | Held: abuse of discretion — court committed legal error and clearly erred in factual support for fees, so reconsideration should have been granted |
Key Cases Cited
- Wiersma v. Bank of the West, 483 F.3d 933 (9th Cir. 2007) (finality of orders test)
- Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (U.S. 1982) (trial court is divested of jurisdiction over matters involved in an appeal)
- Padilla v. Neary (In re Padilla), 222 F.3d 1184 (9th Cir. 2000) (trial court may not supplement or expand judgment on appeal)
- Kord Enterprises II v. California Commercial Bank (In re Kord Enters. II), 139 F.3d 684 (9th Cir. 1998) (elements for § 506(b) attorneys' fees)
- Dalessio v. Pauchon (In re Dalessio), 74 B.R. 721 (9th Cir. BAP 1987) (reasonableness requirement and need for documentation for § 506(b) fees)
- Atwood v. Chase Manhattan Mortgage Co. (In re Atwood), 293 B.R. 227 (9th Cir. BAP 2003) (burden on secured creditor to prove reasonableness; sufficiency of proof may include a proof of claim)