Buettner, III v. Residential Funding Corporation

• Court: United States Bankruptcy Court, E.D. California
• Decided: March 8, 2024
• Docket: 22-02015
• Status: Unknown

Opinion

1 NOT FOR PUBLICATION 2 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF CALIFORNIA 3 In re: ) Edwin Buettner, III, and ) Michele Kay Elkins, ) Case No. 16-26531-C-13G 5 Debtors. ) ) Adv. Pro. No. 22-02015-C 6 || Hal Edwin Buettner, III, and ) Michele Kay Elkins, ) Consolidated 7 Plaintiffs, ) V. ) DCN PGM-3 8 ) PHH Mortgage Corporation, ) 9 Defendants. ) In re: ) 10 || Kevin Randall Krone, ) Debtor. ) 11 )} Case No. 15-21528-C-13G Kevin Randall Krone, ) 12 Plaintiff, ) Adv. Pro. No. 22-02038-C Vv. ) 13 ) Consolidated PHH Mortgage Corporation, and ) 14 | Deutsche Bank National Trust ) DCN PGM-3 Company, ) 15 Defendants. ) 16 ORDER AWARDING FEES 17 || CHRISTOPHER M. KLEIN, Bankruptcy Judge: 18 Plaintiffs’ counsel in these consolidated adversary 19 || proceedings actions seeks an award of prevailing party attorney’s 20] fees under California Civil Code § 1717 in litigation involving 21} California notes and deeds of trust that include fee provisions. 22 In a published Opinion, this court ruled that plaintiffs are 23} entitled to fee awards as prevailing parties. Buettner v. PHH 24 || Mortgage Corp. (In re Buettner), 654 B.R. 927 (Bankr. E.D. Cal. 25 2023). The issue was whether Bankruptcy Courts have power to order liens removed and to clear title after completion of 27 | chapter 13 plan payments that render “void” and “strip off” 28 |) wholly unsecured mortgage liens pursuant to § 506(d). Id.

1 The respective promissory notes and deeds of trust in the 2 consolidated cases provide for attorney’s fees. California Civil 3 Code § 1717 makes all fee provisions reciprocal in favor of the 4 prevailing party. Hence, the present fee application. 5 The federal lien removal cause of action that is embodied in 6 Federal Rule of Bankruptcy Procedure 7070, as explained in the 7 published decision, is a species of in rem judgment enforcement 8 in which the judgment being enforced is the final § 1322(b) order 9 confirming the chapter 13 plan, which order has res judicata 10 effect and renders a lien “void” under § 506(d) upon completion 11 of plan payments. 12 Federal lien removal actions by chapter 13 debtors have been 13 approved and have been held to qualify for prevailing party 14 attorneys’ fees where notes and deeds of trust provide for fees. 15 HSBC Bank USA, Nat’l Ass’n. v. Blendheim (In re Blendheim), 803 16 F.3d 477, 501-02 (9th Cir. 2015); Luchini v. JPMorgan Chase Bank, 17 N.A. (In re Luchini), 511 B.R. 664, 678-81 (Bankr. E.D. Cal. 18 2014); Martin v. CitiFinancial Services, Inc. (In re Martin), 491 19 B.R. 122, 129-30 (Bankr. E.D. Cal. 2013)(Sargis, B.J.); cf. In re 20 Frazier, 469 B.R. 889 (E.D. Cal. 2012)(England, D.J.), aff’g 448 21 B.R. 803 (E.D. Cal. 2011)(anticipating Blendheim). 22 There was a separate count in the Complaints focused on 23 California Civil Code § 2941, which also requires reconveyance as 24 a matter of state law and provides for a $500 award (plus actual 25 damages), on which count the Plaintiffs also demanded fees. After 26 the Complaints were filed, PHH attempted to moot the action by 27 reconveying and making an Offer of Judgment but refusing to 28 include attorney’s fees in the Offer. PHH asserted, incorrectly, 1 that fee awards are not available in cases premised on § 2941. By 2 continuing to contest the fee issue asserted in the complaint, 3 PHH failed to moot the action and left the door open to decide 4 the count asserting the federal lien removal cause of action with 5 attorney’s fees attendant to that cause of action. 6 7 Fee Application Rules 8 Fees are generally based on the “lodestar” formula – the 9 number of hours reasonably expended multiplied by the applicable 10 hourly market rate for legal services. 11 The pertinent law has long been settled in leading Supreme 12 Court cases and numerous decisions of the courts of appeals. 13 E.g., Hensley v. Eckerhart, 461 U.S. 424 (1983); Blum v. Stenson, 14 465 U.S. 886 (1984); Alan Hirsch, Diane Sheehey & Tom Willging, 15 AWARDING ATTORNEYS’ FEES AND MANAGING FEE LITIGATION, 23-60 (Federal 16 Judicial Center, 3d Ed. 2015) (“FJC FEE LITIGATION”). 17 The fee applicant has the burden of establishing lodestar 18 rate and hours reasonably expended. Hensley, 461 U.S. at 433. 19 20 Lodestar Rate 21 In determining the applicable hourly market rate, the 22 attorney’s customary billing rate provides the starting point. 23 E.g., Missouri v. Jenkins, 491 U.S. 274, 285 (1989). 24 The specific rate takes into account the skill and 25 experience of the attorney in the forum community. Blum, 465 U.S. 26 at 895-96 n.11. 27 Here, the evidence presented by the applicant is that the 28 $350/hour rate evidenced by the contract with the clients in 1 these consolidated cases is his customary billing rate. 2 The $350/hour rate is consistent with the experience and 3 skill of counsel, who is an experienced consumer debtor 4 practitioner in the Sacramento Division of the Eastern District 5 of California specializing in chapter 7 and chapter 13 cases, 6 along with the occasional related adversary proceeding. He has 7 been in practice for about 20 years and has participated in about 8 8000 bankruptcy cases. 9 However, his actual experience in litigating more 10 complicated adversary proceedings is more limited. His skill set 11 is focused on the finite set of issues involved in achieving 12 satisfactory resolutions for individual consumers who find 13 themselves insolvent. He does not pretend to have the skills of a 14 more accomplished federal litigator for whom, in this legal 15 marketplace, the lodestar rate is higher than $350/hour. 16 This adversary proceeding involved an important but obscure 17 federal cause of action that ordinarily would be tackled by a 18 more skilled practitioner deserving of a higher lodestar rate. 19 The applicant deserves credit for having had the insight to 20 recognize that something was fundamentally wrong about the 21 behavior of defendant PHH and to serve up the rudiments of what 22 turned out to be the prevailing theory – he smelled the rat and 23 called it out. In doing so, he persevered against a tenacious 24 opposition interposed by a major national law firm that spared 25 little expense in the course of the defense. 26 In short, this court is persuaded the appropriate lodestar 27 for this attorney in this case is $350/hour. 28 1 Hours Reasonably Expended 2 In determining hours reasonably expended, the fee applicant 3 must provide appropriate documentation, exercise “billing 4 judgment,” and exclude hours not “reasonably expended.” Hensley, 5 461 U.S. at 434. 6 Those questions necessarily implicate the context of the 7 litigation and of the defense. 8 The issue is whether at the time the work was performed a 9 reasonable attorney would have engaged in similar time 10 expenditures. Dennis v. Chang, 611 F.2d 1302 (9th Cir. 1980). 11 The Supreme Court has explained, “the defendant cannot 12 litigate tenaciously and then be heard to complain about the time 13 necessarily spent by the plaintiff in response.” City of 14 Riverside v. Rivera, 477 U.S. 561, 580 n.11 (1986). 15 Experienced federal judges recommend “making it a practice 16 to compare plaintiff billing records with defendant billing 17 records as one measure of the reasonableness of a fee request.” 18 FJC FEE LITIGATION, 31. Defendant PHH has conceded that its fees in 19 the defense of these adversary proceedings were about $28,000. 20 In the absence of bad faith or failure to cull hours on 21 unsuccessful claims, a properly supported fee application 22 ordinarily will be treated as meritorious. See Mendez v. County 23 of San Bernardino, 540 F.3d 1109, 1127-28 (9th Cir. 2008). 24 25 These Fee Applications 26 Counsel seeks in these two adversary proceedings a total of 27 $59,475 for 117 billable hours at $350/hour, plus 10.5 paralegal 28 hours at $75/hour. 1 As noted, the documentation provided in these consolidated 2 fee applications is less detailed than what usually is maintained 3 by a law firm whose business model is billing by the hour, with 4 counsel routinely preparing daily time records. The documentation 5 provided here is that of the sole practitioner whose business 6 model does not emphasize hourly billing, but rather tends to rely 7 on a comparatively modest flat fee basis. 8 Hence, the time records do not appear to be fully 9 contemporaneous in a manner typical of sophisticated law firms. 10 They bear some evidence of having been reconstructed by counsel 11 who does not routinely bill consumer clients by the hour and 12 include some approximations. 13 Since contemporaneous time records are, strictly speaking, 14 not essential for a fee award, reconstructed records that include 15 reasonable approximations may suffice. Reconstructions and 16 approximations are not fatal, rather they are matters that bear 17 on the weight afforded by the court as it exercises discretion 18 and may warrant an appropriate adjustment on that account. 19 20 Defendant PHH’s Opposition 21 Defendant PHH, which admits that its counsel billed about 22 $28,000 for its defense, objects that the fee request is 23 excessive and inadequately documented. 24 PHH objects that: (1) time entries are inflated, confusing, 25 and blocked together; (2) time claimed is disproportionate to 26 actual work product; (3) Plaintiffs fail to account for not 27 responding to Offers of Judgment; and (4) $59,475 is out of 28 proportion to the actual recovery. 1 PHH urges that the total fee awards to Plaintiffs should not 2 exceed $12,062.50, notwithstanding that it interposed a $28,000 3 defense. 4 PHH does not assert that Plaintiffs are not prevailing 5 parties. Indeed, it is beyond cavil that reconveyances of the 6 secondary deeds of trust were not executed and recorded until 7 after the adversary proceedings were filed. Moreover, PHH had 8 stonewalled the plaintiffs and not responded to prior 9 communications from plaintiffs’ counsel. 10 The causation question might be more difficult if PHH had 11 responded with apologies for the oversight and promises to 12 accomplish the reconveyances. In sum, this court is persuaded 13 that the filing of the adversary proceedings was the 14 precipitating cause of the execution and recording of the 15 reconveyances. 16 17 Analysis of Objections 18 The objections will be addressed seriatim. 19 20 1 21 The objection by PHH that the time entries are confusing, 22 inflated, and blocked together has some merit. 23 The time aspect of the documentation is less precise than 24 what one ordinarily sees in hourly billing in which various tasks 25 are separately accounted for, usually in tenths of hours. 26 The task documentation is likewise less precise than what 27 one ordinarily sees in hourly billing. 28 Nevertheless, there is no specific requirement that all fee 1 applications must follow the usual format. 2 There are, in essence, two critical questions before the 3 court: (1) Was counsel acting in good faith in rendering the 4 services?; and (2) Did the tasks for which fees are requested 5 appear to be reasonably necessary at the time the services were 6 rendered (as opposed to 20/20 hindsight)? 7 One must also be mindful that consumer debtors’ counsel must 8 deal with the human dimension of the problem of the individual 9 consumer trying to clear debt on the consumer’s home. The reality 10 of life for such practitioners is that they are forced to spend 11 time functioning as quasi-psychologists holding their clients’ 12 hands as they try to enforce the clients’ rights against a 13 faceless institutional creditor represented by sophisticated 14 counsel. 15 The correlative reality for PHH when dealing with individual 16 consumer debtors on matters so personal as the consumers’ homes 17 is that, as in tort, it takes its victims as it finds them and 18 can reasonably be charged with being mindful of the psychological 19 consequences that are inflicted by their passive aggession. 20 This court is persuaded that the applicant was acting in 21 good faith in rendering services in the causes of his clients. As 22 will be explained, part of the challenge facing the applicant was 23 coping with countering a vigorous and partially-unmeritorious 24 defense interposed by PHH. 25 Likewise, this court is persuaded that the tasks for which 26 fees are requested were reasonably necessary at the time they 27 were rendered. 28 The presence of the need to cope with a vigorous and 1 partially-unmeritorious defense informs the analysis of whether 2 services appeared to be reasonably necessary at the time they 3 were rendered. 4 Taking into account the vigorous defense advanced by PHH, 5 some of which (as will be seen) was lacking in merit and 6 seemingly made in bad faith, this court is persuaded that the 7 applicant plaintiffs’ counsel was acting in good faith and 8 reasonably required additional time to cope with the vigorous 9 defense interposed by PHH. Although another lawyer with a higher 10 lodestar rate might have been able to achieve a similar result in 11 less time, the lower lodestar will tend to be associated with 12 taking longer to do so. 13 This court is persuaded that the deficient documentation 14 warrants the exercise of discretion to make a downward adjustment 15 in the fee request of twenty percent. 16 17 2 18 Analysis of the objection that the time claimed is 19 disproportionate to the work product an a necessitates ssessment 20 of the nature of the defense that the plaintiffs were required to 21 overcome. That defense was substantial and not entirely made in 22 good faith. 23 24 a 25 The context of the litigation influences the good faith 26 analysis and illustrates what plaintiffs’ counsel was up against 27 in litigating with PHH. 28 1 (1) 2 Good faith is a reciprocal concept. A defendant who makes an 3 argument lacking in merit and in dubious good faith as part of 4 the defense is in no position to question the good faith of the 5 plaintiff in dealing with that situation. 6 Here, PHH argued that, because one of the debtor plaintiffs 7 had been in default before filing the chapter 13 case, PHH was 8 under no obligation to reconvey until the original debt was paid 9 in full: (1) notwithstanding the final and binding federal court 10 decision that the debtor was unsecured; (2) notwithstanding that 11 the chapter 13 plan payments were complete; and (3) 12 notwithstanding that the lien was void as a matter of federal 13 law. 14 The PHH argument that it is entitled to decline to reconvey 15 until after full payment of the original debt lacks merit and 16 reflects a surprising disregard of the Supremacy Clause of the 17 U.S. Constitution. As suggested in this court’s published 18 opinion, it is indicative of the brick wall that PHH had erected, 19 the good faith of which is dubious. Buettner, 654 B.R. at 940 20 n.11. 21 While PHH contends that the fees requested are 22 disproportionate to the result achieved, PHH ignores that a 23 substantial portion of the services rendered were on account of 24 the vigor of the PHH defense. Countering the vigorous defense 25 necessarily required addition professional services. 26 In short, the claimed fees in that context are not out of 27 proportion to the result achieved. 28 1 (2) 2 Another problem probative of lack of good faith by PHH is 3 illegitimate citation of precedent. 4 PHH cited the decision in Luchini, 511 B.R. at 678-81, as 5 authority for the proposition that attorney’s fees are not 6 available under the California Civil Code § 2941 statutory remedy 7 for delayed reconveyances of deeds of trust. In doing so, it 8 cited a snippet from Luchini in which the Luchini court noted 9 that the California legislature did not prescribe a specific 10 attorney’s fees remedy for a § 2941 violation. 11 The problem for PHH is that the holding in Luchini is that 12 attorney’s fees are available for violations of § 2941 by virtue 13 of California Civil Code § 1717 where the underlying note or deed 14 of trust provides for attorney’s fees. 15 PHH’s snippet from Luchini illegitimately transmogrifies the 16 analysis of that case, which stands for the proposition that the 17 California legislature did not need to create a specific fee 18 provision in § 2941 because § 1717 is up to the task. 19 The experience of this court is that virtually every note 20 and deed of trust in the modern era contains some form of an 21 attorney’s fee clause that potentially triggers § 1717. This case 22 is no exception. 23 Diametrically misstating the holdings of cases is a problem 24 for PHH and PHH’s counsel. It is of ethical proportions that this 25 court does not take lightly. The fee applicant here has had to 26 cope with that problem. 27 28 1 b 2 Nor is the result achieved as insignificant as PHH urges. 3 PHH tried to confine the issue to California law but, by 4 resisting attorney’s fees, left the door open to decision on the 5 federal count. Like the proverbial ostrich, PHH has its head in 6 the sand. 7 The published decision regarding the federal count 8 articulates the poorly-understood contours of the operation and 9 effect of the federal lien removal power embodied in Federal Rule 10 of Bankruptcy Procedure 7070. The analysis applies nationwide to 11 every state in which reconveyances and mortgage releases are 12 required. 13 The simple fact of the matter is that in a chapter 13 case 14 the Bankruptcy Court’s valuation of a junior lien at zero is an 15 appealable order that has res judicata effect, with the 16 consequence that the attendant lien is void as a matter of 17 federal law effective upon completion of payments under a 18 confirmed chapter 13 plan. Bullard v. Blue Hills Bank, 575 U.S. 19 496, 502 (2015); Espinosa v. United Student Aid Funds, Inc., 559 20 U.S. 260, 270 (2010); HSBC Bank USA, Nat’l Assoc. v. Blendheim 21 (In re Blendheim), 803 F.3d 477, 489 (9th Cir. 2015); Enewally v. 22 Wash. Mut. Bank. (In re Enewally), 368 F.3d 1165 1172-73 (9th 23 Cir. 2004). 24 Upon completion of payments, the judgment is encompassed by 25 Federal Rule of Bankruptcy Procedure 7070, incorporating Federal 26 Rule of Civil Procedure 70, that may be enforced by judicial lien 27 removal. The power is enforceable, inter alia, by contempt. Fed. 28 R. Civ. P. 70(e), incorporated by Fed. R. Bankr. P. 7070. 1 The decision on the federal lien removal counts amounted to 2 a declaration the Plaintiffs were entitled to an order vesting 3 title promptly upon completion of their chapter 13 plan payments 4 and, borrowing the California reciprocal fee statute, were 5 entitled to attorney’s fees. It was an application of Federal 6 Rule of Civil Procedure 70, as incorporated and expanded by 7 Federal Rule of Bankruptcy Procedure 7070 decided adversely to 8 PHH over PHH’s opposition that there is no such cause of action. 9 It is a happy coincidence for the debtor plaintiffs that 10 applicable nonbankruptcy law also provides for attorney’s fees on 11 account of the federal cause of action. 12 13 3 14 The objection that fees should be disallowed for not having 15 responded to the Offer of Judgment by PHH is not persuasive. 16 PHH says it made an Offer of Judgment under Civil Rule 68, 17 as incorporated by Bankruptcy Rule 7068, and complains that the 18 plaintiffs did not respond. 19 Although perhaps impolite to decline to respond to an Offer 20 of Judgment, Rule 68 does not require a response. 21 If not timely accepted, it is considered withdrawn and is 22 described as an “unaccepted offer.” Fed. R. Civ. P. 68(b), 23 incorporated by Fed. R. Bankr. P. 7068. 24 An “unaccepted offer” is not admissible except in a 25 proceeding to determine costs. Id. 26 By excluding attorney’s fees from the Offer of Judgment, 27 which fees were an integral part of the Complaint, the PHH Offer 28 of Judgment was not for the complete relief requested and is 1 admissible only if this fee application qualifies as a 2 “proceeding to determine costs.” 3 From the standpoint of mootness, the consequence of an 4 unaccepted Offer of Judgment is that “with the offer off the 5 table, and the defendant’s continuing denial of liability, 6 adversity between the parties exists.” Campbell-Ewald Co. v. 7 Gomez, 577 U.S. 153, 156 (2016). 8 The key consquence of an unaccepted offer is that if the 9 judgment the offeree finally obtains is not more favorable than 10 the unaccepted offer, then the offeree must pay the costs 11 incurred after the offer was made. Fed. R. Civ. P. 68(d). 12 The problem for PHH is that the ultimate result here is more 13 favorable, not less favorable, than its Offer of Judgment for two 14 reasons. 15 First, the judgment includes a determination of entitlement 16 to the attorney’s fees that PHH asserted were not available. 17 Second, the result of the declaration of the rights of the 18 parties pursuant to the federal lien removal action applies to 19 PHH nationwide, not merely in California. 20 21 4 22 The objection that the requested fees are out of proportion 23 to the actual recovery is similarly not persuasive. 24 The fact of the matter is that PHH and its counsel should 25 not have stonewalled the debtors and their counsel when they 26 requested the reconveyances to which they were unquestionably 27 entitled. Rather, PHH should have apologetically admitted to the 28 delay and promised prompt corrective action. Instead, PHH chose play litigation hardball and cannot now be heard to complain that it must pay plaintiff debtors’ counsel for his troubles. 3 4 Conclusion 5 Counsel seeks in these two adversary proceedings a total of 6 || $59,475 for 117 billable hours at $350/hour, plus 10.5 paralegal hours at $75/hour. For the reasons explained, a downward adjustment of twenty percent is an appropriate exercise of judicial discretion on account of imprecise documentation of time 10 | and services. Otherwise, the requested fees are appropriate under lodestar standards. Accordingly, fees in the amount of $47,580 12 || are awarded to the fee applicant. 13 SOQ ORDERED 14} patea; March 08, 2024 \\) 16 Wg United § hon Bankcuptey Judge 18

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1 INSTRUCTIONS TO CLERK OF COURT 2 SERVICE LIST

3 The Clerk of Court is instructed to send the Opinion entered in Case No. 22-02038, Krone v. Deutsche Bank National Trust Company et 4 al; and in Case No. 22-02015, Buettner, III et al v. Residential Funding Corporation et al, via BNC, to the following parties: 5 Peter G. Macaluso 6 7230 South Land Park Drive #127 Sacramento, CA 95831 7 Hal Edwin Buettner III 8 4525 Anatolia Drive Rancho Cordova, CA 95742 9 Michele Kay Elkins 10 4525 Anatolia Drive Rancho Cordova, CA 95742 11 Kevin Randall Krone 12 1154 Wallace Way Yuba City, CA 95993 13 Benjamin White 14 Troutman Pepper Hamilton Sanders LLP 11682 El Camino Real 15 Suite 400 San Diego, CA 92130 16 17 18 19 20 21 22 23 24 25 26 27