Starion Financial v. McCormick (In re McCormick)

Citation:
Starion Financial v. McCormick (In re McCormick), 8th Cir. B.A.P (No. 14-6008), December 24, 2014
Tag(s):
Ruling:
The 8th Circuit Bankruptcy Appellate Panel reversed the bankruptcy court’s order denying Starion Financial's Motion to Compel Payment of Fees Under the Confirmed Plan of Reorganization and granting the Debtors’ Motion to Disallow Attorneys’ Fees and Costs. The Bankruptcy Appellate Panel remanded the case back to the bankruptcy court for further proceedings consistent with the panel's opinion.
Procedural context:
The Debtors and Starion Financial executed various promissory notes and mortgages dated December 23, 2004, January 25, 2006, June 13, 2007 and June 30, 2009. The Debtors also executed personal guarantees, in differing amounts, related to the promissory notes and mortgages given to Starion by entities owned by the Debtors. The promissory notes, mortgages and personal guarantees made Debtors liable for payment of Starion’s attorney fees and costs for collection of the indebtedness in the event of default. The Debtors defaulted on the Workout Agreement dated July 26, 2012. On July 27, 2012, based upon two properly filed affidavits executed as part of the Workout Agreement, allowed a North Dakota state court to enter judgments against Debtors in the amounts of $2,078,034.26 and $1,000,000.00, plus interest. Debtors filed a voluntary chapter 11 petition on August 29, 2012. On September 13, 2013 the Debtors’ Plan, was confirmed by the bankruptcy court. October 7, 2013 Starion submitted an updated statement that included its attorneys’ fees. Starion filed a motion requesting the bankruptcy court to compel payment of its Fees in the amount of $125,014.64 based upon the Plan and 11 U.S.C. section 506(b). On the same day the Debtors filed a motion seeking disallowance of the fee request. On March 10, 2014, the bankruptcy court issued its Order denying Starion’s motion to compel payment of attorney fees and costs, and granting Debtors’ motion seeking disallowance of Starion’s request. Starion appeals the bankruptcy court’s ruling.
Facts:
Over the course of several years the Debtors and Starion entered into a series of loan transactions. Pursuant to the various promissory notes and mortgages dated December 23, 2004, January 25, 2006, June 13, 2007 and June 30, 2009 the Debtors were liable for payment of Starion’s attorney fees and costs for collection of the indebtedness. The Debtors also executed personal guarantees, in differing amounts, related to the promissory notes and mortgages given to Starion by entities owned by the Debtors. Defaults under the loans resulted in a Workout Agreement dated July 26, 2012 between Starion and the Debtors. As part of that agreement, the Debtors consented to the entry of judgments against them to secure their personal guarantees. On July 27, 2012, based upon two properly filed confessions of judgment which were executed as part of the Workout Agreement, a North Dakota state court entered judgments against Debtors in the respective amounts of $2,078,034.26 and $1,000,000.00, plus interest. Debtors filed a voluntary chapter 11 petition on August 29, 2012. On September 13, 2013 the Debtors’ Plan, incorporating the Starion Addendum, was confirmed by the bankruptcy court. Section 8.01(c) of the confirmed plan defines “Allowable Attorneys’ Fees and Costs” as “a claim against the debtors for an oversecured creditor’s attorney’s fees and costs incurred in connection with the creditor’s secured claim.” That section goes on to describe the procedure for allowance of the fees and costs. On October 3, 2013 Starion submitted an itemized statement to the Debtor for various costs including interest, late fees, real estate taxes, and appraisal and engineering fees. A few days later on October 7, 2013 Starion submitted an updated statement that included its attorneys’ fees. Taking the position that Starion was not entitled to these amounts based upon the Plan or 11 U.S.C. section 506(b) the Debtors refused to pay the amounts requested for appraisal and engineering costs, and the attorneys’ fees (collectively “Fees”). Starion filed a motion requesting the bankruptcy court to compel payment of its Fees in the amount of $125,014.64 based upon the Plan and 11 U.S.C. section 506(b). On the same day the Debtors filed a motion seeking disallowance of the fee request. On March 10, 2014, the bankruptcy court issued its Order denying Starion’s motion to compel payment of attorney fees and costs, and granting Debtors’ motion seeking disallowance of Starion’s request.
Judge(s):
FEDERMAN, Chief Judge, SALADINO and SHODEEN, Bankruptcy Judges. Opinion authored by Judge Shodeen.

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