Farmers & Merchants Bank v. Crafty Fox, Ltd. (In Re Crafty Fox Ltd.)

3 B.R. 657, 1980 Bankr. LEXIS 5608
CourtUnited States Bankruptcy Court, W.D. Virginia
DecidedFebruary 6, 1980
Docket15-60053
StatusPublished
Cited by5 cases

This text of 3 B.R. 657 (Farmers & Merchants Bank v. Crafty Fox, Ltd. (In Re Crafty Fox Ltd.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Virginia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Farmers & Merchants Bank v. Crafty Fox, Ltd. (In Re Crafty Fox Ltd.), 3 B.R. 657, 1980 Bankr. LEXIS 5608 (Va. 1980).

Opinion

MEMORANDUM OPINION AND ORDER

H. CLYDE PEARSON, Bankruptcy Judge.

The question presented concerns the reconsideration of the allowance of attorney’s fees provided for in a deed of trust note secured upon debtor’s real estate liquidated under a Chapter XI plan.

The threshold question involves the construction of Bankruptcy Rule 307 1 as to reconsideration of claims. A determination of this issue requires a review of the history of the case.

The Debtor, Crafty Fox, Ltd., owned and operated a 200 acre horse farm and riding stables in Franklin County, Virginia. As a part of this operation, the debtor also boarded horses for persons within the Roanoke area. In the course of its operation, cash flow and other financial troubles befell the debtor resulting in the filing of a Chapter XI petition in this Court. Thereafter, a plan was filed by the debtor, accepted by the creditors and confirmed by the Court. The plan provided for the sale and liquida *659 tion of all assets of the debtor free of liens with the liens being transferred to and impressed upon the proceeds. See Ray v. Norseworthy, 90 U.S. (23 Wall.) 128, 23 L.Ed. 116 (1875); Van Huffel v. Hardeirode, 284 U.S. 225, 52 S.Ct. 115, 76 L.Ed. 256 (1931); Wright v. Union Central Life Ins. Co., 304 U.S. 502, 58 S.Ct. 1025, 82 L.Ed. 1490 (1938); Alleboch v. Thomas 16 F.2d 853 (4th Cir. 1927) cert. denied, 274 U.S. 744, 47 S.Ct. 590, 71 L.Ed. 1325 (1927). The proceeds were to be distributed to its creditors in accordance with their respective priorities.

Among the creditors were two secured creditors holding deed of trust liens securing notes upon the debtor’s real estate.

The first deed of trust had a total payoff of principal and interest of $112,409.70. This note was held by Loyd Flora, et aI. (Flora) representing the initial purchase money of the farm. A second deed of trust note with a final payoff of $71,866.12, including principal and interest, was held by Farmers and Merchants Bank (Bank). Additionally, there were substantial priority creditors such as taxes, costs of administration and other claims, as well as substantial general unsecured creditors. Neither the debts represented by the notes or the liens secured by the deeds of trust were ever challenged throughout the proceedings by the debtor, creditor’s committee or other party.

Both secured creditors filed Complaints pursuant to Rule 11 — 44 to be relieved from the stay and permitted to foreclose their respective deeds of trust. Decision thereon was deferred upon the Complaints to enable the Debtor to present a plan to its creditors for their consideration and acceptance. The plan was presented, accepted and confirmed providing for a sale free of liens at public auction subject to confirmation by this Court. The sale grossed the sum of $262,-000.00. The disbursing agent duly appointed by the Court to receive and disburse the funds, filed his report with this Court projecting that the secured creditors, priority creditors, as well as unsecured creditors should in his judgment be paid in full, as well as all administrative costs and expenses if the sale was confirmed.

Pursuant to Rule 219, Counsel for the two noteholders filed applications for the allowance of attorneys’ fees for services rendered to the noteholders in this Chapter XI proceeding. The applications were filed with detailed exhibits as to time expended, reserving to the applicants their objections to filing the same pursuant to Rule 219. These objections generally asserted the reason that this Court had no jurisdiction to consider and make a determination of the fees for Counsel for the respective deed of trust noteholders, since the notes themselves provided for a fixed contract amount payable to the noteholder for attorneys’ fees and as such was not subject to alteration. Counsel contended that the notes providing a fixed sum was a matter of contract between the parties, to-wit: the maker (the Debtor herein) and the payee (noteholder) and therefore, was not subject to review, determination or revision by this Court.

Thereupon, this Court, in accordance with applicable law, as the Court had perceived it, overruled the objections, proceeded after proper notice, to hear 2 and determine what *660 amount should be fixed as a reasonable fee to Counsel for services rendered to the deed of trust note creditors in the collection thereof. The services rendered consisted primarily of the filing of the Complaint seeking relief from the stay of Rule 11 — 44 to permit foreclosure of the deeds of trust, overseeing the progress of the Chapter XI proceeding through its several hearings and final consideration of the plan, liquidation and payment of the proceeds upon their respective notes in full of principal and interest as contemplated by the plan by the Disbursing Agent. This Court, after mature consideration of the applications and exhibits, Memoranda and arguments of counsel rendering a joint opinion and order, fixing in each case, the sum of $2,000.00 attorneys fees for each noteholder as reasonable compensation for services rendered by counsel in collection of the notes in question. (A copy of the written opinion is attached hereto as Appendix “A”.)

The allowance of the fees in full would have called for payment to the Bank 15% of the payoff amount of $71,866.12, totaling $10,779.92, and the payment upon the first deed of trust note to Flora of $112,409.70 or a total fee of $5,620.49. (Payment of these fees in full, according to an analysis filed with the Court by the Disbursing Agent would result in general unsecured creditors receiving only a fraction of their claims. 3

Counsel for Flora filed their appeal to the District Court from the Order of this Court, in which the District Court reversed, holding that the fixed sum of 5% in the note was a matter of contract between the parties and not subject to a review, determination or revision by this Court. (A copy of this Opinion is affixed hereto as Appendix “B”.)

After the District Court rendered its decision, Counsel for the Bank, pursuant to Rule 307, supra, filed its petition or motion for reconsideration of the claim of the Bank alleging that the Order of the District Court, which in effect had affirmed the initial position of Counsel for the Bank and Flora, warranted this Court’s reopening and reconsidering the claim of the Bank, and that the said Bank should be allowed in payment of its claim the full contract attorney’s fees of 15% of the amount collected to-wit: $10,779.92 because the original order was entered by the Bankruptcy Court as a result of a misapplication of the law.

After due notice to all interested parties, a hearing was held upon the petition for reconsideration. Appearing thereat was counsel for the debtor, Bank, Creditors’ Committee and the disbursing agent in person.

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Bluebook (online)
3 B.R. 657, 1980 Bankr. LEXIS 5608, Counsel Stack Legal Research, https://law.counselstack.com/opinion/farmers-merchants-bank-v-crafty-fox-ltd-in-re-crafty-fox-ltd-vawb-1980.