557 B.R. 597
Bankr. E.D. Tenn.2016Background
- Debtors filed Chapter 13; Ann Chiang filed Proof of Claim No. 3 for a $65,000 note secured by a deed of trust on Debtors’ residence; claim included pre- and post-petition attorney fees.
- Debtors objected to the claim on miscalculation of principal/interest and that the fees were excessive or not contractually recoverable; parties resolved calculation but not fees.
- Bankruptcy court initially allowed $8,491.32 in attorney fees/expenses (pre- and postpetition) and disallowed portions for duplicative billing, training, and certain overhead charges.
- Debtors moved to alter/amend, arguing (1) the note did not unambiguously obligate them to pay counsel fees and (2) the fees allowed were unreasonable and excessive compared with local practice.
- Court reconsidered scope of fee-recovery under the note and deed of trust, applicable reasonableness standard (federal vs. state), and further reduced fees for duplicative entries; final allowed claim adjusted to $69,836.79.
Issues
| Issue | Debtors' Argument | Chiang's Argument | Held |
|---|---|---|---|
| Whether the note/deed contractually obligates Debtors to pay attorney fees incurred in collection | Note language ambiguous (no clear subject) so fees not recoverable; deed enforcement clause limited | Deed contains two clauses: (1) fees for enforcement/sale and (2) broader clause obligating maker to pay reasonable attorney fees if indebtedness "is collected by an attorney" — which supplies contractual basis | Court: Note ambiguous but deed’s broader secured-obligation clause provides contractual basis to recover reasonable attorney fees, so fees may be imposed on Debtors |
| Whether fees for loan-modification/workout are recoverable as enforcement of the deed of trust | Modification/workout fees not part of enforcement; should be disallowed | Some post-default modifications relate to enforcement/protection of secured interest and could be recoverable | Court: Modification/workout fees are outside enforcement; disallowed. But fees for defending/enforcing lien in bankruptcy (proofs of claim, attending creditors’ meeting, preserving foreclosure rights) are within enforcement and may be allowed |
| Standard for evaluating reasonableness of fees (state vs. federal law) | Federal bankruptcy law governs reasonableness for allowance of fees to oversecured creditors; Debtors cite In re Beyer | Chiang relied on state-law factors but does not dispute federal standard produces similar factors | Court: Federal standard controls (Sixth Circuit/BAP guidance), but similar factors under Tennessee law are relevant; applied federal/BAP framework with attention to local circumstances |
| Whether the amount requested is reasonable given local custom and duplication | Fees excessive compared to local norms; offered examples of lower fees in other cases; urged further reductions | Attorneys’ time was actually spent, reconstruction of handwritten accounting and individualized creditor circumstances justify higher time and rates | Court: Overall fees not manifestly unreasonable given creditor was individual (not mortgage servicer), complex accounting and multiple related disputes; court further reduced fees for identified duplicative entries and unsecured-claim work, resulting in additional $943 reduction |
Key Cases Cited
- House v. Estate of Edmondson, 245 S.W.3d 372 (Tenn. 2008) (Tennessee follows American Rule; fee shifting requires contractual or statutory basis)
- Vick v. Vick, 398 S.W.2d 74 (Tenn. Ct. App. 1964) (attorney fees as an expense of enforcement of a deed of trust recoverable from sale proceeds)
- W. Pointe Props. v. Frye, 934 S.W.2d 339 (Tenn. Ct. App. 1996) (fees incurred in litigation necessary to preserve foreclosure rights may be recoverable under trust-deed language)
- Shepherd v. Kennedy, 11 Tenn. App. 373 (Tenn. Ct. App. 1930) (trust-deed language construed narrowly where fees are not expressly provided by note or deed for certain disputes)
- Quaker Oats Co. v. Burnett, 289 F. Supp. 283 (E.D. Tenn. 1968) (factors guiding judicial discretion on reasonable attorney’s fees)
- In re Bain, 527 F.2d 681 (6th Cir. 1975) (Sixth Circuit guidance on allowance of attorney fees to secured creditors)
- In re Scarlet Hotels, LLC, 392 B.R. 698 (B.A.P. 6th Cir. 2008) (adoption of federal/BAP standards for reasonableness of fees to oversecured creditors)