Starion Financial v. McCormick (In re McCormick), 523 B.R. 151

Background

Debtors had multiple loan transactions with Starion secured by promissory notes, mortgages, and personal guarantees; defaults led to a Workout Agreement and confessions of judgment in 2012 converting obligations into two state-court judgments.
Debtors filed chapter 11 in August 2012; their confirmed Plan (with a Starion Addendum) provided that Debtors would pay Starion’s "allowable attorney’s fees and costs" and required submission of an itemized statement at least 10 days before the Plan Effective Date and court determination if parties disagreed.
Starion submitted itemized charges (including attorneys’ fees) post-confirmation; Debtors refused to pay certain fees, asserting they were not owed under the Plan or 11 U.S.C. § 506(b).
Starion moved to compel payment of $125,014.64 under the Plan and § 506(b); Debtors moved to disallow the requested fees as not agreed to, untimely, and unreasonable.
The bankruptcy court denied Starion’s motion and granted Debtors’ disallowance motion, reasoning the right to fees must be found in the judgment that gave rise to Starion’s secured claim and that those judgments lacked a fee provision under North Dakota law.
The district court (appeal court) reversed, holding the creditor’s right to fees arises from the underlying loan documents/Workout Agreement (in which fee provisions existed), not solely from the post-default judgments; remanded for further proceedings on timeliness and reasonableness.

Issues

Issue	Starion's Argument	Debtors' Argument	Held
Whether § 506(b) requires the fee entitlement to appear in the judgment that made the claim secured	Fee entitlement may be found in original loan documents, Workout Agreement, and Plan/addendum — not limited to the judgment	The judgment is the agreement under which the secured claim arose, and it lacks a fee clause, so § 506(b) does not apply	Reversed: § 506(b) looks to the agreement under which the claim arose (loan documents/Workout Agreement), not solely the judgment
Whether Starion’s secured status must derive from the same instrument that provides fee entitlement	Oversecured status can be established separately; fee entitlement need not appear in the instrument that perfected additional collateral	Fee right must be in the agreement that created the lien securing the claim	Rejected: oversecured status and fee entitlement are separate § 506(b) elements; judgments perfect collateral but do not supplant underlying agreements that created the claim and fee rights
Whether Starion is oversecured	Starion asserted it is oversecured; underlying record and parties’ briefs treated it as oversecured	Debtors did not contest oversecured status in briefs (court treated as conceded)	Bankruptcy court assumed oversecured; appeal did not disturb that assumption for purposes of deciding the agreement issue
Whether requested fees are timely and reasonable	Starion sought allowance under Plan procedure and § 506(b)	Debtors argued the fee request was untimely and unreasonable	Remanded: trial court to determine timeliness and reasonableness on remand

Key Cases Cited

First Nat’l Bank v. Pontow, 111 F.3d 604 (8th Cir.) (standard for appellate review of bankruptcy findings)
Wegner v. Grunewaldt, 821 F.2d 1317 (8th Cir.) (de novo review of § 506(b) issues)
In re Constr. Supervision Servs., Inc., 753 F.3d 124 (4th Cir.) (judicial liens enforce preexisting rights; judgment does not create fee entitlement)
AR Accessories v. [Unknown Party], 345 F.3d 454 (7th Cir.) (lien enforces a preexisting right; lien is mechanism for enforcement)
White v. Coors Distributing Co. (In re White), 260 B.R. 870 (8th Cir. BAP) (four-factor framework for § 506(b) allowance)
In re Sun ’N Fun Waterpark, LLC, 408 B.R. 361 (10th Cir. BAP) (articulating § 506(b) factors)