ORDER ALLOWING OBJECTION TO CLAIM
STEPHANI W. HUMRICKHOUSE, Bankruptcy Judge.
The matter before the court is the objection to claim filed by debtor O. William Faison with respect to SummitBridge National Investments III, LLC's proof of claim in the amount of $302,596.19. A hearing took place in Raleigh, North Carolina on March 1, 2017, at the conclusion of which the court took the matter under advisement. For the reasons that follow, the court will allow the objection.
BACKGROUND AND PROCEDURAL POSTURE The debtor, O. William Faison ("Faison"), filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on January 3, 2014. The debtor is a trial attorney and remains in possession of certain assets, including sizeable real property holdings in Orange, Wake, and Vance counties. SummitBridge held prepetition claims against the debtor in the total amount of $1,627,239.82, secured by real property in Orange County. On November 10, 2016, SummitBridge filed a proof of claim ("Claim 16") in the amount of $302,596.19, seeking allowance of a non-priority unsecured claim for attorneys' fees equal to 15% of the outstanding indebtedness. Specifically:
Addendum to Proof of Claim of SummitBridge, Claim 16-1 Part 2.
The debtor's Fifth Amended Chapter 11 plan ("the Plan") was confirmed on November 15, 2016, and became effective on December 1, 2016. SummitBridge does not dispute the debtor's accounting of the procedural posture of the matter, which is as follows:
Debtor's Objection to Claim No. 16 Filed by SummitBridge (D.E. # 544) ("Debtor's Objection") at 2-3. At the time the petition was filed, the debtor was not in default.
The debtor contends that to the extent SummitBridge may be entitled under North Carolina law to recover its post-petition attorneys' fees and legal expenses, the mandatory written notice component of that recovery was satisfied by the debtor's delivery to SummitBridge of the duly executed and acknowledged deed to the SummitBridge collateral. Because delivery of the deed "constituted payment-in-kind in the full amount of the indebtedness," the debtor argues, SummitBridge cannot recover attorneys' fees or costs under state law. Alternatively, the debtor maintains that if tender of the deed did not constitute payment of the outstanding indebtedness "so as to bar recovery of any attorneys' fees or costs," then SummitBridge still is not entitled to recover those fees under applicable federal law: "SummitBridge has already received what was permitted under Section 506(b) pursuant to the Plan, and the Bankruptcy Code does not provide for allowance of an unsecured claim for post-petition attorneys' fees or costs." Debtor's Objection at 4.
Responding, SummitBridge points out that it "initially brought the attorneys' fee issue to the fore in an Amended Motion to Lift Stay filed on April 22, 2016." Reply by SummitBridge National Investments III, LLC To Objection (D.E. # 549) ("SummitBridge Reply") at 2. In the April 2016 motion to lift stay, which was heard in connection with the debtor's initial plan confirmation hearing, SummitBridge asked the court to lift or modify the stay to allow SummitBridge to serve the attorneys' fee notice required by N.C.G.S. § 6-21.2(5). By order entered on September 2, 2016, the court denied both confirmation and the motion to lift stay, without prejudice. (D.E. # 501) SummitBridge filed an additional motion for relief from stay on October 3, 2016. That motion was denied as moot in connection with the eventual confirmation of the debtor's Plan, which lifted the stay as a matter of law on the plan's effective date of December 1, 2016. This, SummitBridge argues, is relevant to the instant matter for the following reasons:
At the hearing, it became evident that there are three main issues before the court, each of which presents a purely legal question: 1) whether the debtor's delivery of the deed satisfied North Carolina's statutory five-day notice period such that compliance relieves the estate of the obligation to pay attorneys' fees; 2) whether the Bankruptcy Code permits SummitBridge to pursue this unsecured claim for post-petition attorney fees; 3) and, if so, whether such fees would be allowed at the 15% rate or in a "reasonable" or actual amount. At the conclusion of the hearing, the court informed the parties that this matter probably would be decided on the second issue, which is whether the recovery of post-petition attorneys' fees sought here as an unsecured claim is permitted under 11 U.S.C. §§ 506(b) and 502(a) and (b). For the reasons that follow, the court concludes that it is not.
Section 506(b) of the Bankruptcy Code provides to oversecured creditors like SummitBridge the right to seek reimbursement for "reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose." Whether the attorneys' fees are recoverable under § 506(b) is based on an interpretation of applicable state law. 11 U.S.C. § 506(b); see In re Ormond, 2015 WL 1000218 at *4-6 (Bankr. E.D.N.C. Mar. 3, 2015); In re Winslow, 2011 WL 5902619 at *2 (Bankr. E.D.N.C. Jun. 22, 2011), citing Independence Nat'l Bank v. Dye Master Realty, Inc. (In re Dye Master Realty, Inc.), 15 B.R. 932 (Bankr. W.D.N.C. 1981). Under North Carolina state law, reasonable attorneys' fees incurred in connection with the collection of a debt may be recovered when the note provides for such recovery. North Carolina General Statute § 6-21.2 provides in part:
N.C. Gen. Stat. § 6-21.2.
The debtor and SummitBridge have differing interpretations of precisely which bankruptcy statutes apply here, as well as how federal bankruptcy law intersects with the North Carolina statute. Leaving aside for the moment the question of the extent to which the debtor's delivery of the deed could constitute payment within the meaning of N.C.G.S. § 6-21.2(5), the court turns first to the applicability of §§ 506 and 502. The debtor contends that SummitBridge already has "received what was permitted under Section 506(b) pursuant to the Plan, and the Bankruptcy Code does not provide for allowance of an unsecured claim for post-petition attorneys' fees or costs." Debtor's Objection at 4. SummitBridge argues that the Bankruptcy Code says "nothing whatsoever" about the allowance or disallowance of attorneys' fees on unsecured or undersecured claims, and that "the conclusion that unsecured (and undersecured") creditors are entitled to allowed claims for post-petition attorneys' fees is inescapable." SummitBridge Reply at 13.
Citing precedent from within this district, the debtor argues that this court "previously has considered, and denied, a secured creditor's request for post-petition attorney's fees where there was no excess collateral value available under Section 506(b)." Debtor's Objection at 4, citing In re Croatan Surf Club, LLC, 2012 WL 1906386 (Bankr. E.D.N.C. May 25, 2012) and In re Construction Supervision Servs., 2015 WL 4873062 (Bankr. E.D.N.C. Aug. 13, 2015), aff'd, 2016 WL 2764328 (E.D.N.C. 2016). In Construction Supervision Services, this court held that § 506 (b) is "the only means within the Bankruptcy Code in which a secured creditor is entitled to post-petition attorney's fees." 2015 WL 4873062 at *4. The post-petition interest and/or attorneys' fees cannot exceed the value of the collateral. "This section allows the holder of a secured claim to add post-petition interest and reasonable post-petition attorneys' fees to the secured claim to the extent of the value of the collateral." Id., quoting Croatan, 2012 WL 1906386 at *6.
For a creditor to "show entitlement to the requested post-petition amounts," the creditor must demonstrate that "(1) it is oversecured; (2) the underlying agreement provides for such fees and costs; and (3) the requested fees and costs are reasonable." In re Parker, 2015 WL 5095948 at *2 (Bankr. E.D.N.C. 2015), citing In re Gwyn, 150 B.R. 150, 154 (Bankr. M.D.N.C. 1993). More recently, in In re Davis, Judge Warren of this district noted that § 506(b) is "the only section of the Code that expressly authorizes a creditor to be reimbursed for post-petition attorneys' fees as part of its secured claim." In re Davis, 2017 WL 1628874 *3 (Bankr. E.D.N.C. 2017) (citing Construction Supervision). Moreover, § 506(b) "`is an exception to the general rule contained within § 502 that claims are determined as of the date of the petition and `permits a party to bring a claim for fees, costs, or charges incurred postpetition, provided that the party bringing the claim is an oversecured creditor.'" Id., quoting Ins. Co. of N. Am. v. Sullivan, 333 B.R. 55, 61 (D. Md. 2005) (emphasis in original).
The debtor urges the court to focus on the "plain language of Sections 502(b), 506(a) and 506(b) which, taken together, lead to the conclusion that post-petition interest, fees, costs and charges become part of an allowed claim only as a result of being allowed in favor of an oversecured creditor under Section 506(b)." Debtor's Objection at 5; See Anderson v. Hancock, 820 F.3d 670, 674 (4th Cir. 2016) (court must interpret the provisions of the Bankruptcy Code "as a whole, giving effect to each word and making every effort not to interpret a provision in a manner that renders other provisions inconsistent, meaningless or superfluous"). Under the debtor's analysis, the step-by-step process applicable here requires the court to determine the amount of any "claim" as of the date the petition was filed under § 502(b), then use the amount of that allowed claim in § 506(a) "to determine (i) the amount which is secured and (ii) the amount which is unsecured, where the value of the collateral is less than the amount of the allowed claim." Debtor's Objection at 5. Only if the value of the collateral exceeds the amount of that allowed claim does § 506(b) permit an oversecured creditor to recover its post-petition fees and expenses and to receive the "special treatment" provided under the statute for claims secured by liens on property of the estate. Id.
These fees aren't "allowed" so much as they are "added" within the meaning of United States v. Ron Pair Enterprises, Inc., the debtor argues: "The natural reading of the phrase entitles the holder of an oversecured claim to post-petition interest and, in addition, gives one having a secured claim created pursuant to an agreement the right to reasonable fees, costs, and charges provided for in that agreement. . . . Therefore, in the absence of an agreement, post-petition interest is the only added recovery available." Id. at 6, quoting United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241 (1989) (emphasis in Debtor's Objection). In sum, the debtor concludes, post-petition fees are "added" by § 506(b) rather than "allowed" by § 502(b), and thus are not permitted in favor of undersecured or unsecured creditors. Id.
SummitBridge frames the question differently, arguing that § 506(b) does not apply, and that § 502 does. It reasons that
SummitBridge Reply at 9-10 (italics by the court). SummitBridge thus asserts an unsecured claim for postpetition attorneys' fees based on its contractual (i.e. pre-petition) entitlement to such a claim, notwithstanding the fact that the debtor was not in default at the time the petition was filed, and no such fees had been incurred.
SummitBridge, like the debtor, also cites supporting precedent from within this district, including In re F & G Leonard, LLC, 2011 WL 5909463 (Bankr. E.D.N.C. 2013). In that case, oversecured creditor Textron filed a claim for actual, reasonable, and necessary attorneys' fees and expenses under 11 U.S.C. § 506(b) and N.C.G.S. § 6-21.2, and the debtor objected to the amount of fees sought. In F & G, Judge Leonard wrote that § 506(b) "is not a disallowance statute," and "merely allows an oversecured creditor to include reasonable attorneys' fees as part of its secured claim." 2011 WL 5909463 at *2. If the fees sought are "allowable under state law, but found to be unreasonable under § 506(b), the fees may be recovered as an unsecured claim." Id., citing Welzel v. Advocate Realty Investments, LLC, 275 F.3d 1308, 1318-19 (11th Cir. 2001).
And, in In re Holden, the court overruled a debtor's objection to the attorneys' fees sought by wholly unsecured creditor SSB on grounds that the purpose of § 502 is to allow or disallow claims, and no provision of § 502 expressly disallowed unsecured claims for attorneys' fees. In re Holden, 991 B.R. 728, 739 (Bankr. E.D.N.C. 2013). The Holden court noted, however, that cases like Croatan and F&G Leonard were "not analogous to the present facts as they involve secured claims, which automatically necessitate an analysis pursuant to § 506(b), whereas SSB's claims are wholly unsecured and do not trigger the implications of § 506(b)." In re Holden, 991 B.R. 728, 738 (Bankr. E.D.N.C. 2013) (emphasis by the court).
SummitBridge asks the court to adopt the expansive interpretation set out in Holden and to take it another big step further, arguing that the distinction cited above
SummitBridge Reply at 12.
It is true that 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. See 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) (adopting a bifurcation framework for 506(b) whereby, after a reasonableness analysis, fees deemed reasonable constitute a secured claim and the balance is treated as an unsecured claim). Other jurisdictions adhere to the view held by this court, that § 506(b) provides "the only means within the Bankruptcy Code in which a secured creditor is entitled to post-petition attorneys' fees." Construction Supervision Servs., 2014 WL 4873062 at *4, citing United Sav. Ass'n of Texas v. Timbers of Inwood Forest Assoc's, Ltd., 484 U.S. 365 (1988). "If attorneys' fees were allowable on the unsecured portion of a debt, there would be no need for [§ 506(b)]. If Congress had intended for the holders of both secured claims and unsecured claims to recover attorneys' fees, it could have easily said so. But it did not." In re Saunders, 130 B.R. 208, 210 (Bankr. W.D. Va. 1991), quoted in In re Miller, 344 B.R. 769 (Bankr. W.D. Va. 2006) (adopting same position that undersecured or unsecured creditors cannot be allowed an unsecured claim for post-petition contractual attorneys' fees); see also, e.g., In re Electric Machinery Enterprises, Inc., 371 B.R. 549, 550-51 (Bankr. M.D. Fla. 2007) (summarizing competing views, citing cases, and setting out primary reasons why most courts conclude that "post-petition attorneys' fees should not be allowed as part of an unsecured claim").
The court acknowledges that there are conflicting views expressed by decisions within this district, and divergent views expressed by courts elsewhere. And, while the position taken herein is consistent with what appears to still be the majority consensus among courts to address the question, this court acknowledges further that SummitBridge's interpretation is a viable one, given the recent circuit court opinions cited above. A thoughtful and thorough discussion of the current split is set out in In re Auge, wherein the court canvassed the main points advanced by both sides before concluding, like this court, that § 506(b) "allows only oversecured creditors to add `reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose.'" In re Auge, 559 B.R. 223, 229 (Bankr. D.N. Mex. 2016) (internal quotation omitted). The Fourth Circuit has not specifically addressed the question.
Ultimately, this court is not persuaded that it should deviate from its prior holdings on this issue, and concludes that SummitBridge's position fails to fully credit the plain language of § 506(b), which unquestionably applies to it. There is no viable reading of § 506(b) that could render that statute "inapplicable" here, nor is there a plausible basis upon which to consider it redundant, which is what SummitBridge's interpretation would do. SummitBridge hopes to take an alternative path
A key component of that policy is judicial review of the fees sought. Section 506(b) establishes a nondiscretionary process by which such fees, if otherwise appropriate, shall be allowed. In connection with that, § 506(b) incorporates the bankruptcy courts' oversight in determining the reasonableness of those fees.
For the reasons set forth above, the debtor's objection to SummitBridge's unsecured claim for post-petition attorneys' fees is