(so, what’s special about that?)
An interesting case comes out of the Bankruptcy Court for the Northern District of Florida regarding attorney’s fees for secured lenders. Although that case involved an individual chapter 11 debtor, its holding is helpful to those of us who practice in the commercial arena. Section 506(b) of the Bankruptcy Code provides that:
An over secured creditor is entitled to interest and reasonable fees, costs or charges provided under the agreement or in accordance with state statute.
What this means to our readers is that so long as the collateral securing your loan is in excess of the amount owed to you, including interest, attorney’s fees, etc., and your agreement entitles you to attorney’s fees, then you may recover them from the debtor’s assets.
As we all know, from time to time debtors engage in conduct that require the secured lender and its counsel to expend considerable time and expense to protect the lender’s interest. It is not uncommon to hear a debtor protest the fees charged to the estate by a secured creditor. In a decision that came down April 21, 2016, in a case entitled In re: Earl Bernard Britt, Sr., Debtor[1], debtor’s counsel objected to the secured creditors claim for legal fees because the lender’s legal fees exceeded those of the debtor’s. The court held:
The debtor’s request for reduction of the Bank’s fees . . . merely because its fees exceed the debtor’s is not justified. The debtor filed this chapter 11 voluntarily in order to take advantage of the benefits it might provide. This forced the Bank to retain counsel to protect its interests. . . . The debtor cannot have it both ways: He cannot invoke the provisions of the Bankruptcy Code and then complain when an over secured creditor accrues attorney’s fees as a result.
Notwithstanding, the Court did go on to review the attorney’s fees and found some items to be excessive and made reductions in accordance therewith.
The takeaway from this case is that an over secured creditor is entitled to its attorney’s fees even if those attorney’s fees exceed those of the debtor’s; and in all cases, a secured creditor’s attorney’s fees are subject to review of a reasonableness standard and thus, subject to reduction where a court feels that the fees have gone beyond what is reasonable.
[1] In re: Earl Bernard Britt, Sr., Debtor 206WL3564222.