Starion Financial v. McCormick (In Re McCormick)
812 F.3d 659
| 8th Cir. | 2016Background
- Stephen and Karen McCormick entered loan transactions with Starion Financial (2004–2009) that included attorney-fee provisions in promissory notes, mortgages, and related documents.
- After default, parties executed a workout agreement and North Dakota state-court judgments were entered against the McCormicks in July 2012 for the loan amounts.
- The McCormicks filed a voluntary Chapter 11 petition in August 2012 and confirmed a plan (with a Starion Addendum) requiring Starion to submit an itemized fee claim at least ten days before the plan's effective date.
- Starion submitted an itemized statement on October 3 and an updated statement including attorney’s fees on October 7; the McCormicks refused payment, disputing entitlement under the plan and 11 U.S.C. § 506(b).
- The bankruptcy court denied Starion’s fee request, finding no agreement for fees in the state-court judgments (and thus no entitlement), and noted but did not decide timeliness or reasonableness.
- The BAP reversed, holding the loan documents and workout agreement contained fee provisions and remanded to determine timeliness and reasonableness; the district circuit dismissed the appeal for lack of jurisdiction because the remand required substantive work by the bankruptcy court.
Issues
| Issue | Plaintiff's Argument (McCormick) | Defendant's Argument (Starion) | Held |
|---|---|---|---|
| Entitlement to attorney’s fees under § 506(b) / agreement requirement | No enforceable agreement authorizes bankruptcy-period fee recovery; state-court judgments lack fee language | Fee entitlement arises from promissory notes, mortgages, workout agreement, and plan addendum that incorporate fee provisions | BAP found an agreement existed in loan documents; circuit did not decide merits but dismissed appeal for lack of jurisdiction on procedural grounds |
| Timeliness of Starion’s fee submission under confirmed plan | Fee claim was untimely (submitted after plan deadline); untimely claims should be denied | Even if late, brief delay (four days) did not prejudice debtors and should not bar recovery | Bankruptcy court found submission late but did not decide timeliness as dispositive; remand required further timeliness analysis |
| Reasonableness of requested attorney’s fees | Fees are excessive and must be reviewed for reasonableness under § 506(b) | Fees are allowable if reasonable and supported by itemization | BAP remanded for bankruptcy court to determine reasonableness; circuit dismissed appeal for lack of jurisdiction |
| Finality / appellate jurisdiction over BAP decision | The McCormicks sought review of BAP reversal | Starion relied on BAP reversal to pursue fees at bankruptcy court | Eighth Circuit dismissed the appeal for lack of jurisdiction because the BAP remand left substantive issues for the bankruptcy court to decide, so the BAP order was not final |
Key Cases Cited
- In re Farmland Indus., 397 F.3d 647 (8th Cir. 2005) (factors for finality of pre-conclusion bankruptcy orders)
- In re Popkin & Stern, 289 F.3d 554 (8th Cir. 2002) (remand that requires substantive work is non-final)
- In re Vekco, Inc., 792 F.2d 744 (8th Cir. 1986) (orders that generate further appeals are not final)
- In re M & S Grading, Inc., 526 F.3d 363 (8th Cir. 2008) (appellate courts must sua sponte consider jurisdiction)
- In re Schriock Constr., Inc., 104 F.3d 200 (8th Cir. 1997) (elements for recovery of attorney’s fees under § 506(b) require oversecurity, agreement or statute, and reasonableness)