United States District Court, E.D. North Carolina, Western Division
ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR
THE EASTERN DISTRICT OF NORTH CAROLINA RALEIGH
TERRENCE W. BOYLE UNITED STATES DISTRICT JUDGE.
cause comes before the Court on Summit Bridge National
Investment's appeal of an order of the United States
Bankruptcy Court for the Eastern District of North Carolina
entered July 13, 2017. [DE 1-1]. The appeal has been fully
briefed and is ripe for review. For the reasons that follow,
the decision of the bankruptcy court is affirmed.
William Faison, the debtor and appellee in this matter, filed
a petition for relief under Chapter 11 of the Bankruptcy Code
on January 3, 2014. Branch Banking & Trust Company
(BB&T) filed a proof of claim for the total prepetition
amount of $1, 627, 239.82 under three promissory notes
cross-collateralized by two deeds of trust encumbering
roughly 372 acres of farmland in Orange County, North
Carolina. Each promissory note provided for reasonable
attorneys' fees should the note be placed with an
attorney for collection. Faison was not in default on the
loans which formed the basis of BB&T's claims at the
time the Chapter 11 petition was filed. In January 2015,
BB&T sold and assigned its interests in the subject
promissory notes and deeds to appellant SummitBridge.
fifth amended plan of reorganization under Chapter 11 was
confirmed by order of die bankruptcy court on November 16,
2015. The reorganization plan provided that Class 4 consisted
of claims five, six, and seven held by SummitBridge and
secured by the subject Orange County property. The
reorganization plan treated the Class 4 claim as an allowed
secured claim in the aggregate amount of $1, 715, 000.00,
inclusive of principal, prepetition interest, and
post-petition interest, appraisal fees, late fees, and
attorneys' fees. [DE 8-3]. The plan provided that Faison
would convey the SummitBridge collateral to the holder of the
Class 4 claim or its designee, subject only to ad valorem
taxes for the calendar years 2016 and 2017 and the existing
deed of trust securing such indebtedness, in full
satisfaction of the secured claim. The plan further provided
that such treatment would not impair the right of the holder
of the Class 4 claim to seek allowance of unsecured
attorneys' fees and expenses in addition to the Class 4
allowed secured claim, nor the right of the debtor to oppose
or object to the allowance of such an unsecured claim,
tendered to SummitBridge on December 1, 2016, a deed
sufficient to convey the SummitBridge collateral to the
designee of SummitBridge in satisfaction of the Class 4
allowed secured claim. SummitBridge then timely filed Claim
16 in the amount of $302, 596.19 seeking allowance of a
non-priority unsecured claim for post-petition attorneys'
fees equal to 15% of the outstanding indebtedness. [DE 9-4].
Faison objected to SummitBridge's claim for post-petition
attorneys' fees, and a hearing was conducted before the
bankruptcy court on March 1, 2017.
order currently under review, the bankruptcy court concluded
that 11 U.S.C. §§ 506(b) and 502(a) and (b) do not
permit the recovery of post-petition attorneys' fees
sought as unsecured claims. In so holding, the bankruptcy
court relied, inter alia, on its prior decisions
which have held that consideration of a claim for
post-petition attorneys' fees is governed by Section 506,
which provides an exception to the general rule under Section
502 that claims must be determined on the petition date, and
that Section 506 by its express terms applies only to
oversecured creditors. See In re Davis, 570 B.R.
522, 526 (Bankr. E.D. N.C. 2017) (citing In re Constr.
Supervision Servs., Inc., Case No. 12-00569-8-SWH, 2015
WL 4873062, at *4 (Bankr. E.D. N.C. Aug. 13, 2015) and
Ins. Co. o/N. Am. v. Sullivan, 333 B.R. 55, 61 (D.
AND STANDARD OF REVIEW
over this appeal is proper pursuant to 28 U.S.C. §
158(a), which provides that "[t]he district courts of
the United States shall have jurisdiction to hear
appeals'.from final judgments, orders, and decrees...of
bankruptcy judges entered in cases and proceedings referred
to the bankruptcy judges under section 157 of this
title." A bankruptcy court's findings of fact shall
not be set aside unless clearly erroneous. In re
White, 487 F.3d 199, 204 (4th Cir. 2007). "A
finding is 'clearly erroneous' when although there is
evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a
mistake has been committed." United States v. U.S.
Gypsum Co., 333 U.S. 364, 395 (1948). Legal conclusions
made by the bankruptcy court are reviewed de novo. In re
White, 487 F.3d at 204. Mixed questions of law and fact
are also reviewed de novo. In re Litton, 330 F.3d
636, 642 (4th Cir. 2003). As this appeal involves a pure
question of law, the Court reviews the bankruptcy court's
conclusions de novo.
are defined by the Bankruptcy Code as the right to payment,
11 U.S.C. § 101 (5)(a). Section 502 of the Bankruptcy
Code, which addresses whether a claim may be allowed, sets
out that a claim or interest, proof of which is properly
filed, is deemed allowed unless the debtor or other interest
party objects. 11 U.S.C. § 502(a). If an objection is
filed, the court must determine the amount of the claim as of
the date of the filing of the bankruptcy petition, and shall
allow the claim in that amount except where certain
circumstances are present, including where the claim is
unenforceable against the debtor or the claim is for
unmatured interest or an unmatured debt. Id. §
502(b). Section 506 of the Bankruptcy Code addresses the
determination of the secured status of a creditor whose claim
has been allowed. Id. § 506. Section 506(b)
provides that reasonable fees, costs, or charges provided for
under an agreement or applicable state statute may be
recovered where the value of the collateral exceeds the
amount of the allowed claim, resulting in an oversecured
creditor. Id. § 506(b). In other words, §
506(b) preserves the right of a secured creditor to recover
post-petition interest, attorneys' fees, and costs to the
extent the value of the collateral exceeds the amount of the
claim determined under § 502. See generally United
Sav. Ass'n of Texas v. Timbers of lnwood Forest Assocs.,
Ltd, 484 U.S. 365, 371 (1988); Unsecured
Creditors' Comm. 82-0026 1c-11 A v. Walter E. Heller
& Co. &., 768 F.2d 580, 585 (4th Cir. 1985);
In re Record Enterprises, Ltd., 189 B.R. 769, 770
(D. Neb. 1986) (fees under § 506(b) interpreted to
include attorneys' fees).
contends that its unsecured claim for post-petition
attorneys' fees should be allowed under Section 502(b),
which defines which claims are allowed and is wholly silent
as to the allowance or disallowance of a claim for
post-petition attorneys' fees. In support of its
argument, SummitBridge relies heavily on an expansive reading
of Travelers Casualty and Surety Company of America v.
Pacific Gas and Electric Company, wherein the Supreme
Court decided "whether the Bankruptcy Code disallows
contract-based claims for attorney's fees based solely on
the fact that the fees at issue were incurred litigating
issues of bankruptcy law." 549 U.S. 443, 449 (2007). In
concluding that the Bankruptcy Code does not disallow such
claims, the Supreme Court abrogated the Fobian rule,
a rule adopted only in the Ninth Circuit which held that
attorneys' fees for work on issues peculiar to federal
bankruptcy law are not recoverable in bankruptcy.
Id. at 451 (citing In re Fobian, 951 F.2d
1149, 1153) (9th Cir. 1991)). In holding that the
Fobian rule was not supported by the Bankruptcy
Code, the Supreme Court noted that "the Code says
nothing about . unsecured claims for contractual
attorney's fees incurred while litigating issues of
bankruptcy law, " and that, in the absence of a clear
and express exception, claims enforceable under applicable
state law are presumed to be allowed in bankruptcy.
Id. at 452-53 (emphasis in original), SummitBridge
contends that application of Travelers in this
context results in a conclusion that, because Section 502 is
silent as to a claim for unsecured post-petition
attorneys' fees, such a claim is presumed to be allowed.
bankruptcy court in this case recognized that a "a
number of courts adopt some version of the position advanced
by SummitBridge, and hold generally that post-petition
attorneys's fees are allowable as an unsecured claim,
irrespective of whether the creditor is oversecured."
[DE 1-1 at 11] (citing In re 804 Congress, L.L.C.,756 F.3d 368 (5th Cir. 2014), on remand, 529 B.R.
213 (Bankr. W.D. Tx. 2015); In re SNTL Corp., 571
F.3d 826, 842 (9th Cir. 2009); In re Welzel, 275
F.3d 1308 (11th Cir. 2001)); see also Ogle v. Fid. &
Deposit Co. of Maryland,586 F.3d 143, 148 (2d Cir.
2009) (§ 506(b) "does not implicate unsecured
claims for post-petition attorneys' fees, and it
therefore interposes no bar to recovery."). These courts
generally have reasoned that claims for ...