Stephanie Osborn and C&S Organics, LLC, 24-40202

Background

Debtors (Colton and Stephanie Osborn and related entities) filed Chapter 12 on March 8, 2024; Stockmen’s Bank filed an over‑secured proof of claim asserting $666,600.77 owed and collateral valued at $1,721,300.
Loan docs permitted 45% default interest and recovery of attorney’s fees and costs; bank alleges >$1,000,000 of its personal property collateral was sold prepetition and proceeds never paid to the bank.
Bank obtained relief from the automatic stay and sued third parties (Double H settled; Lime, LLC and Bosle contested), incurring substantial litigation and attorneys’ fees.
In June the bank and debtors settled: total indebtedness fixed at $555,597.42 as of May 5, 2025 and incorporated into a modified note reducing interest to 9.5% post‑settlement; only $277,798.71 is personal recourse and post‑May 6, 2025 fees/costs are nonrecourse.
Lime and Bosle objected because the settlement did not seek prior approval of § 506(b) fees/costs; the court approved the settlement but did not rule then on fee allowance under § 506(b).
Bank moved to allow $307,399.09 (about $295,312 in fees) under 11 U.S.C. § 506(b); court evaluated entitlement and reasonableness given the settlement and case circumstances.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Stockmen’s Bank may recover attorney’s fees and costs under § 506(b) as an over‑secured creditor	Bank: loan agreement authorizes fees; bank is over‑secured so § 506(b) allows interest and reasonable fees/costs	Lime/Bosle: settlement and lack of prior § 506(b) approval preclude allowance; fees not chargeable to debtor/its collateral as settled	Court: Entitlement elements met; fees/costs allowed under federal law § 506(b) for Chapter 12 plan purposes only
Whether requested fees are reasonable in amount	Bank: fees were necessary given converted collateral, stay relief, protracted litigation, discovery, and contested adversaries	Objectors: fees excessive, unusually high rates, billed for routine docket review, and nearly half the filed claim	Court: Considering facts, fees are reasonable under federal § 506(b) solely for Chapter 12 plan purposes despite being large and atypical
Effect of the prior settlement on fee allowance and debtor’s liability	Bank: allowance should not disturb the settlement; fees may be relevant to rights against third‑party converters	Objectors: settlement did not disclose/approve fees; settlement cannot be used to bootstrap fee allowance against third parties	Court: Approval of fees does not disturb settlement; debtors’ personal recourse capped at $277,798.71 and bank gets 45% interest up to settlement effective date, but court takes no position on rights against third parties under state law
Treatment if fees deemed unreasonable	Bank: seeks § 506(b) allowance for reasonable portion	Objectors: argue disallowance or reduction	Court: If unreasonable portions existed they could be treated as unsecured (Welzel), but here court finds fees reasonable for § 506(b) purposes and makes no state‑law determination

Key Cases Cited

First W. Bank & Tr. v. Drewes (In re Schriock Const., Inc.), 104 F.3d 200 (8th Cir. 1997) (§ 506(b) creates federal right to reasonable attorney's fees where agreement so provides)
Starion Fin. v. McCormick (In re McCormick), 523 B.R. 151 (B.A.P. 8th Cir. 2014) (elements creditor must prove to recover fees under § 506(b))
White v. Coors Distrib. Co. (In re White), 260 B.R. 870 (B.A.P. 8th Cir. 2001) (factors for determining reasonableness of fees under § 506(b))
Bank of Mo. v. Fam. Pharmacy, Inc. (In re Fam. Pharmacy, Inc.), 614 B.R. 58 (B.A.P. 8th Cir. 2020) (postpetition interest allowed at contract rates under § 506(b) if state law permits)
Welzel v. Advocate Realty Inv., LLC, 275 F.3d 1308 (11th Cir. 2001) (unreasonable fee portions may be bifurcated: reasonable as secured, unreasonable as unsecured)
United States v. Ron Pair Enter., Inc., 489 U.S. 235 (1989) (contractual rates govern postpetition interest under § 506(b) if allowed by state law)