In re Florence Discount Center

175 B.R. 939, 1994 Bankr. LEXIS 2000, 1994 WL 720829
CourtUnited States Bankruptcy Court, S.D. Ohio
DecidedOctober 4, 1994
DocketBankruptcy No. 93-10119
StatusPublished

This text of 175 B.R. 939 (In re Florence Discount Center) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Florence Discount Center, 175 B.R. 939, 1994 Bankr. LEXIS 2000, 1994 WL 720829 (Ohio 1994).

Opinion

DECISION AND ORDER ON MOTION FOR FEES UNDER § 506(c)

BURTON PERLMAN, Bankruptcy Judge.

In this Chapter 11 ease a plan was confirmed May 11, 1994. The debtor and counsel for the debtor, Keating, Meuthing and Klekamp (“KMK”), now move for an order pursuant to 11 U.S.C. § 506(c) to allow them to collect from the proceeds of sale of the real estate which was the subject of the bankruptcy case, $9,324.62, the unpaid balance of its attorney’s fee. The motion is opposed by the Life Insurance Company of Virginia (“LICOVA”).

This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this District. This is a core proceeding arising under 28 U.S.C. § 157(b)(2)(A).

• Debtor was the owner of commercial real estate located in Florence, Kentucky, known as Florence Discount Center. LICOVA held a mortgage on that real estate as well as an assignment of rents derived therefrom. When debtor defaulted on its loan payments, and when LICOVA undertook to enforce its rights under the assignment of rents, debtor filed the present Chapter 11 bankruptcy case on January 25, 1994. LICOVA then filed a motion for relief from stay and also a motion for an order sequestering rents, prohibiting the use of cash collateral, providing adequate protection, and requiring an accounting. Debtor then filed a motion for permission to use cash collateral, and in addition commenced an adversary proceeding against LI-COVA seeking a turnover of rents that LI-COVA had collected. The parties settled the several disputes and signed an Agreed Entry which was entered by the court September 14, 1993. Generally, the Agreed Entry provided that debtor was to have a limited period of time in which to attempt to effect a private sale of the property, with the proviso that if, at the end of the period, sale had not been accomplished, the property would be sold at auction. Debtor was unsuccessful in arranging a private sale, and the property was sold at auction in the bankruptcy court, where LICOVA bid in the property at $2,700,000.00.

[941]*941KMK has been paid $25,000.00 in fees and expenses through June 30, 1994. Of the $25,000.00, $10,000.00 was from the retainer paid by the debtor to KMK, while the other $15,000.00, as authorized in the September 14, 1993 Agreed Entry, was derived from cash collateral consisting of rents collected from the real estate. The final application of KMK for fees and expenses in the case has now been filed. The total amount sought is $34,324.62. The difference between that amount and the $25,000.00 already collected by KMK is the subject of the present motion.

Section 506(e) of the Bankruptcy Code, upon which movants here rely, provides:

(c) The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.

It is the position of movants that they are entitled to recover the $9,324.62 from the sale of the property because LICOVA, the holder of the secured claim in question, was benefitted by the work of counsel. In its motion, KMK stated that its efforts benefit-ted LICOVA as follows:

... KMK’s final application indicates that $5,495.50 of KMK’s fees and expenses were related to the drafting and confirmation of the consensual plan of liquidation that provided for and resulted in the sale of the Property to pay LICOVA’s secured claim. In addition, a review of KMK’s time records indicate [sic] that $782.00 in fees were incurred in negotiating the Agreed Order that provided for the Debt- or’s filing of a liquidating plan; $2,910.00 in fees were incurred in connection with the negotiation of a sale of the Property; $2,284.50 in fees were incurred in negotiating new leases and lease extensions for the Property; and $2,732.50 in fees were incurred in preparation of financial reports that were shared with LICOVA....

In opposition to the position of movants, LICOVA says that a cap was set in the Agreed Entry of September 14,1993, of $15,-000.00 which it would contribute to attorneys’ fees. Additionally, LICOVA argues that it received no benefit within the meaning of § 506(c) which movants can justifiably charge against the sale proceeds.

A fair statement of the applicable law to the question here presented appears in In re Croton River Club, Inc., 162 B.R. 656, 659 (Bankr.S.D.N.Y.1993):

Generally, the normal administrative expenses of the bankruptcy estate may not be recovered from secured claim holders because the trustee acts not for their benefit but for the benefit of the estate and its unsecured claimants. General Elec. Credit Corp. v. Levin & Weintraub (In re Flagstaff Foodservice Corp.), 739 F.2d 73, 76 (2d Cir.1984) (hereinafter Flagstaff I); In re Trim-X, Inc., 695 F.2d 296, 301 (7th Cir.1982); In re Codesco, Inc., 18 B.R. 225, 228 (Bankr.S.D.N.Y.1982). Section 506(c), however, is the exception to the general rule, applicable when expenses of preservation are incurred primarily for the benefit of the secured interest or where the secured claim holder caused or consented to the accrual of such expenses. Flagstaff I, 739 F.2d at 76; In re Trim-X, Inc., 695 F.2d at 301; In re Codesco, Inc., 18 B.R. at 228.
Section 506(c) provides that the “trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.” 11 U.S.C. § 506(c). Attorneys’ fees may properly be recovered under § 506(c) to the extent of the benefit provided so long as: (i) the services were necessary in order to preserve or dispose of the secured creditor’s property; (ii) the amounts charged for such services were reasonable; and (iii) the expenses were incurred for the primary benefit of the secured creditor. (Citations omitted.)
The burden to prove entitlement to fees under § 506(c) rests with the movant, [General Elec. Credit Corp. v. Peltz( ] Flagstaff //[)], 762 F.2d [10] at 12 [(2nd Cir.1985) ], and the burden is a heavy one, In re Emons Indus., 50 B.R. 692, 695 (Bankr.S.D.N.Y.1985).

[942]*942162 B.R. at 659.

In order to succeed on the present motion, movants, then, have the heavy burden of proving either that the services rendered by KMK were not for the benefit of the estate, but were for the primary benefit of LICOVA, or else that LICOVA consented to the accrual of the attorney’s fees and expenses here in question.

The court is not persuaded that the services rendered by KMK were not for the benefit of the estate, but were for the primary benefit of LICOVA. KMK relies on this point on the Croton River Club case, supra.

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Related

In Re Flagstaff Foodservice Corporation
739 F.2d 73 (Second Circuit, 1984)
In Re Croton River Club, Inc.
162 B.R. 656 (S.D. New York, 1993)
In Re Emons Industries, Inc.
50 B.R. 692 (S.D. New York, 1985)
In Re Codesco, Inc.
18 B.R. 225 (S.D. New York, 1982)

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Bluebook (online)
175 B.R. 939, 1994 Bankr. LEXIS 2000, 1994 WL 720829, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-florence-discount-center-ohsb-1994.