Craig Frost

CourtUnited States Bankruptcy Court, D. Idaho
DecidedOctober 5, 2023
Docket21-20463
StatusUnknown

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Craig Frost, (Idaho 2023).

Opinion

UNITED STATES BANKRUPTCY COURT

DISTRICT OF IDAHO

IN RE: Case No. 21-20463-NGH

CRAIG FROST,

Debtor. Chapter 7

MEMORANDUM OF DECISION

Before the Court is an objection to Creditor Karma Habitation’s amended proof of claim filed by the chapter 7 trustee, Patrick Geile.1 A hearing on the matter was held on June 12, 2023, with Trustee and Creditor submitting supplemental briefing and responses by June 26, 2023, after which the Court took the matter under advisement. Doc. Nos. 325, 329, 331, & 332. BACKGROUND Creditor filed a proof of claim, asserting a $413,528.33 claim secured by Debtor Craig Frost’s Maplewood property (the “Property”). The Property was sold at auction on March 27, 2023, for $3,300,000, pending Court approval. Doc. No. 297. Creditor amended its proof of claim on March 29, 2023, to include post-petition attorneys’ fees, increasing its claim to $529,171.93. Trustee objected to Creditor’s amended proof of claim on April 4, 2023. Doc. No. 292.

1 Unless otherwise indicated, all statutory citations are to the Bankruptcy Code, Title 11 U.S.C. §§ 101– 1532. Additionally, all citations to “Rule” are to the Federal Rules of Bankruptcy Procedure and all citations to “Civil Rule” are to the Federal Rules of Civil Procedure. On April 7, 2023, the Court approved the sale of the Property for $3,300,000. Doc. No. 297. In the order approving the sale, Trustee was ordered to distribute $413,528.33 to Creditor. However, the order acknowledged that Trustee had a pending

objection to Creditor’s amended proof of claim to the extent it exceeded $413,528.33, and required Trustee to keep the net sale proceeds to be maintained in a segregated account until the Court adjudicated the claim objection. After the June 12 hearing on the matter, Trustee supplemented his limited objection to Creditor’s amended proof of claim, clarifying the specific attorneys’ fees to which he objects.2 Doc. No. 329. Creditor responded to Trustee’s supplement on June

26, 2023. Doc. No. 332. In its reply brief, Creditor requested an additional $17,580 in attorneys’ fees for the preparation and defense of its proof of claim. Trustee objected to Creditor’s request for additional fees, asserting that including the request in the reply brief was not proper. Doc. No. 333.

ANALYSIS A. Prepetition Fees First, Trustee objects to certain attorneys’ fees that were incurred prepetition. Prepetition fees are governed by § 502 and the general claims allowance process. In re Lopez, 349 B.R. 671, 676 (Bankr. D. Idaho 2006). Pursuant to Rule 3001(f), a timely filed proof of claim constitutes prima facie evidence of the validity and amount of the

claim. The party objecting to the claim bears the burden of producing sufficient evidence to negate the prima facie validity. In re Best View Constr. & Dev., LLC, 2021 WL

2 Trustee did not object to the hourly rate charged by Creditor’s attorney. 3745423, at *5 (Bankr. D. Idaho Aug. 24, 2021). If the objecting party produces sufficient evidence, the burden shifts back to the claimant who must prove it is entitled to the claim by a preponderance of the evidence. Best View Constr., 2021 WL 3745423, at

*5. The ultimate burden of persuasion remains at all times upon the claimant. Creditor asserts Trustee is estopped from objecting to its proof of claim for prepetition fees because its initially filed proof of claim included such fees and Trustee paid out Creditor in such amount from the sale proceeds of the Property. Judicial estoppel “‘precludes a party from gaining an advantage by taking one position, and then

seeking a second advantage by taking an incompatible position.’” Rainsdon v. Duncan L.P. (In re Duncan), 2023 WL 2229349, at *8 (Bankr. D. Idaho Feb. 24, 2023) (quoting Wilcox v. Parker (In re Parker), 471 B.R. 570, 576 (9th Cir. BAP 2012)). “The doctrine is an equitable one, invoked in the exercise of discretion by a bankruptcy court.” Id. Trustee has not taken inconsistent positions regarding the portion of the amended proof of claim dealing with prepetition services. Creditor argues Trustee impliedly found

the prepetition attorneys’ fees reasonable because Creditor’s initial proof of claim of $413,528 included the prepetition attorneys’ fees and Trustee permitted distribution from the sales proceeds in that amount.3 However, in Trustee’s amended motion for sale filed March 8, 2023, Trustee specifically reserved the right to object to Creditor’s proof of claim. Doc. No. 275. Trustee then filed his objection to Creditor’s amended proof of

3 Creditor also argues Trustee made assertions in external communications that Trustee would not be objecting to Creditor’s proof of claim. However, the fact that Trustee at one point did not plan on objecting to Creditor’s claim does not warrant the application of judicial estoppel, especially considering the short time frame in which Trustee communicated that he would be making a limited objection to Creditor’s claim of attorneys’ fees. claim on April 4, 2023, specifying he was objecting to both pre- and post-petition attorneys’ fees. The order granting the motion for sale was entered April 24, 2023. Doc. No. 303. In the order granting the motion for sale, the Court ordered Creditor be paid

$413,528.33, but acknowledged that Trustee maintained an objection to Creditor’s claim to the extent it exceeded such amount. Ultimately, while Creditor has been paid $413,528.33, Creditor is seeking to be paid an additional $115,643.60. Trustee objects to $91,414.05 of this additional claim. Doc. No. 329 at 2. Such an objection is not inconsistent with Trustee’s prior action in

distributing the $413,528.33 from the sale proceeds. Having determined Trustee’s objection to the prepetition fees is not estopped, the Court will turn to the merits of Trustee’s objection. “Under § 502(b), the Court must determine the amount of the claim and allow it unless the claim is unenforceable against debtor or property of the estate under ‘any agreement or applicable law.’” Lopez, 349 B.R. at 677 (quoting § 502(b)(1)). In Lopez, the Court considered a claim for prepetition

attorneys’ fees where a promissory note between the parties permitted for “‘reasonable’ attorneys’ fees incurred in a suit on or foreclosure of the promissory note.” Id. The Court then performed a reasonableness analysis similar to that performed under § 330(a) to determine certain prepetition fees were not allowed. Here, like in Lopez, the agreement between the parties calls for “reasonable

attorneys’ fees.” As such, the Court will undertake a similar analysis. Trustee objects to the following pre-petition attorneys’ fees accrued by Witherspoon Kelley: 9/23/21 DMD Review Frost Complaint and Temporary 1.8 $693.00 Restraining Order, Declaration of Atty. Poorman; telephone conferences with Atty. Ripley and Piskel; review and reply to Atty Poorman email; conference with Atty. Ripley; review I.C. 45-1506 et. seq.; telephone conference with Atty. Piskel. 10/06/21 DMD Review various pleadings in Frost v. Karma 2.4 $924.00 Habitation et. al.; telephone conferences with Atty. Piskel; conference with Atty. Hazel; email Piskels office; review I.C. 45- 1505 re notice requirements 10/07/21 JPH Prepare for preliminary injunction hearing 3.1 $1,054.00 by reviewing pleadings; attend preliminary injunction hearing; telephone conference with Atty.

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