In re Sundale, Ltd.

Citations: 483 B.R. 23; 2012 WL 5503521Docket: Nos. 07-21016-BKC-RAM, 08-11050-BKC-RAM

Court: United States Bankruptcy Court, S.D. Florida.; November 13, 2012; Us Bankruptcy; United States Bankruptcy Court

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The Court, presided over by Bankruptcy Judge Robert A. Mark, held a hearing on June 14, 2012, regarding Florida Associates Capital Enterprises (FACE) Motion for Fees and Costs under 11 U.S.C. § 506(b). Following this hearing, the Court issued a June 21st Order requesting additional briefing on jurisdictional matters related to appellate and foreclosure fees, and asked Samjaz Welleby, LLC to provide marked objections on the invoices from FACE's counsel, Berger Singerman. The Court received supplemental memoranda from FACE, the Debtors, and Samjaz, along with the annotated invoices.

The Court conducted a comprehensive review of the case docket, the FACE Adversary docket, and relevant district court appeal records, alongside the Fee Motion and related memoranda. FACE seeks total fees of $8,215,752.55 and costs of $766,424.40, with a § 506(b) claim totaling $3,982,176.95. FACE voluntarily reduced its claim by $81,860.50 in fees and $10,000 in costs, bringing the adjusted claim to $3,890,316.45. FACE asserts it holds a mortgage on the Debtors' property, contending that the property's value exceeds its claim, thereby justifying its request for attorney's fees as per the loan documents dated September 7, 2001, which stipulate that borrowers agree to pay reasonable attorney's fees for collection services post-default.

The Debtor contends that a provision in the loan documents does not specifically authorize the recovery of fees and costs related to bankruptcy, thus denying FACE the right to the fees sought in the Fee Motion. However, the Court, during a June 14 hearing, found the language in the loan documents adequate to cover bankruptcy fees, dismissing the Debtor's argument. Consequently, the Court is tasked with determining the reasonableness of the fees incurred by FACE in the main case and in the related adversary proceeding initiated on May 1, 2008, concerning the validity and priority of its lien on the Debtors' property. 

The timeline of events outlines significant milestones in the Chapter 11 proceedings for Sundale, Ltd. and Kendall Hotel and Suites, starting with Sundale's petition on December 12, 2007, and the subsequent administrative consolidation of both cases on February 5, 2008. Key developments include the granting of FACE's Motion for Determination as a Single Asset Real Estate Case, the filing of the Trustee Motion, and the initiation of the FACE Adversary. A series of hearings culminated in the Court's January 6, 2009, disclosure hearing, followed by the confirmation of the Debtors’ Second Amended Chapter 11 Plan on May 26, 2009. This Confirmation Order required the Debtors to pay interest and attorneys' fees during the plan term and establish a reserve account to address potential shortfalls. An emergency motion filed by the reorganized Debtor in August 2010 to modify the plan was denied, leading to discussions of converting the case to Chapter 7.

On October 8, 2010, the Court issued a 46-page findings and conclusions in the FACE Adversary (DE# 487 in 08-1312). Subsequently, on November 12, 2010, it rendered a final judgment favoring FACE against Sundale for $6,396,595.00, retaining jurisdiction to determine fees and costs under § 506(b) (DE# 520 in 08-1312), while also ruling against the Debtors on their counterclaims. Following a default by the Debtor under the confirmed plan, FACE initiated a foreclosure case on December 28, 2010, in Miami-Dade County (Case No. 10-64400-CA-15). The Debtors appealed the FACE Adversary Judgment on February 24, 2011, assigned to District Judge Marra (Case No. 1:11-cv-20635-KAM). The Court converted the cases to Chapter 7 on July 14, 2011, and FACE filed a Fee Motion on September 28, 2011. After Judge Isicoff recused on February 13, 2012, the case was reassigned, and on February 14, 2012, the District Court affirmed the FACE Adversary judgment.

In addressing fee reasonableness, the Court considered two issues: its jurisdiction to award fees for the Foreclosure Case and for defending the appeal of the FACE Adversary judgment. FACE acknowledged that fees for the Foreclosure Case should be determined by state court and did not include these fees in the Fee Motion, rendering that jurisdictional issue moot. Regarding appellate fees, Debtors conceded that there is no exclusive jurisdiction for awarding such fees to the district court but urged against the Court exercising its jurisdiction. The Court determined that, while generally appellate fees are awarded by the appellate court, it retains jurisdiction to award these fees as part of its core responsibilities related to FACE's claim. This jurisdiction is supported by Judge Isicoff’s prior judgment, which retained authority over fees under the loan documents and § 506(b). The Court concluded that it will exercise its jurisdiction to award appellate fees, as the relevant statutes and loan provisions support such an award.

To assess the reasonableness of an oversecured creditor's attorney fees under 11 U.S.C. § 506(b), bankruptcy courts utilize the federal lodestar method. This involves multiplying the number of hours reasonably spent on the case by the attorneys’ reasonable rates, adjusting the result based on the twelve factors identified in Johnson v. Georgia Highway Express, Inc. These factors include the time and labor required, the complexity of the legal issues, the attorney's skill level, and the customary fee structure, among others. While these factors can influence the final fee amount, the fundamental calculation remains the product of hourly rates and time spent.

Fees deemed reasonable must be necessary for the collection and protection of a creditor's claim, justified by the economic context and pertinent legal issues. Courts are known to grant significant attorney's fees in complex situations even when the fees exceed the amount of the claim, as evidenced by cases like In re NuMed Home Health Care, Inc. A secured creditor can incur substantial fees when concerned about the depreciation of collateral, as demonstrated in In re Schriock Construction, Inc. However, if services are deemed unnecessary or excessive, courts can disallow fees under § 506(b).

The Debtors have maintained that they do not owe money to FACE, arguing that the funds provided by FACE were not a loan but rather financial support for a dispute involving Mr. Scutieri and Raymond Chambers.

Debtors raised their intention to challenge the FACE note and mortgage early in the case, with Mr. Scutieri insisting that neither he nor the Debtors owed anything to FACE, leading to disproportionate litigation. Despite Debtors' position, FACE had valid concerns regarding the Debtors' ability to repay the loan in a Chapter 11 plan, justified by the failure of the Debtors' plan even with a reserve for shortfalls. The Court observed extensive contentious litigation involving not only the Debtors and FACE but also Ocean Bank and the Codina Parties, attributing much of the excessive litigation to the Debtors and Mr. Scutieri. However, FACE incurred nearly four million dollars in fees to enforce a mortgage debt under five million dollars, prompting the Court to assess whether these fees were excessive or unnecessary due to FACE's actions. The Court deemed the major battles in the case reasonable for enforcing FACE's claim but noted some unnecessary actions and excess time spent by FACE's counsel. 

FACE's SARE Motion was deemed reasonable, as it sought to expedite the Chapter 11 process, even though the Debtors opposed it. The SARE Motion was ultimately granted despite this opposition. Additionally, FACE's collaboration with Codina Parties and Ocean Bank to appoint a Chapter 11 Trustee was found reasonable due to widespread distrust of Mr. Scutieri's management and intentions. The appointment of a trustee could have expedited repayment, aligning with FACE's interest in timely payment. The Trustee litigation became extensive, consuming eight trial days, continuing even after the Debtors filed their plan.

The Court denied the Trustee Motion, but this ruling did not exonerate the Debtors or their principals, as they were described as "sloppy or cavalier" in their obligations. The denial heightened pressure on Sundale to pursue a Chapter 11 plan, with Judge Isicoff indicating that failure to confirm the plan would warrant a trustee's appointment. FACE agreed to reduce its fees by $91,860.50 related to the Trustee Motion, reflecting preliminary findings before Judge Isicoff's recusal. The Court determined that further fee reductions were warranted. 

The Debtors accused FACE of aggressively opposing their reorganization efforts despite having an equity cushion protecting its secured debt. The Court found the Debtors initiated this conflict, and FACE's incurred fees were reasonable and necessary to protect its rights. The Debtors’ initial plan failed to provide for monthly payments to FACE and lacked feasibility, as it did not adequately address projected income shortfalls. After negotiations involving FACE and other parties, a revised plan was confirmed, requiring monthly payments to FACE and amortization of attorney fees. However, the reorganized Debtor subsequently defaulted on the plan, validating FACE's concerns about the Debtors' ability to fulfill their obligations.

In the adversary proceeding, the Debtors contended that FACE did not act efficiently, but the Court largely overruled this objection. The need to litigate the validity of FACE’s mortgage lien was essential, and the Debtors' affirmative defenses expanded the scope of the issues significantly.

The 44-page pleading consists of 83 paragraphs of factual allegations and prompted extensive discovery and several motions, with FACE frequently prevailing. The trial lasted eight days, followed by significant post-trial briefing. The Court affirmed FACE’s claim, finding it held a valid, perfected lien against the Sundale Property and Trustee Property, while the Defendants failed to substantiate their affirmative defenses and counterclaims. The final judgment was issued on November 12, 2010, and the Debtors subsequently appealed, leading to additional fees for FACE. They faced a Motion for Entry of Stay, which was denied. During the appeal, the Debtors contested the bankruptcy court's authority under Stern v. Marshall, prompting further district court briefing. Ultimately, the district court upheld the Adversary Judgment on February 14, 2012, rejecting the Debtors' arguments and confirming the findings of the bankruptcy court.

In terms of general bankruptcy matters, the Debtors claimed that FACE's motions and objections were unnecessary. The court overruled part of this objection, acknowledging FACE's justification in opposing the Debtors' reorganization efforts, but conceded that some of FACE's objections may have been excessive. Although FACE’s counsel documented their work well, the court found that some hours billed were not reasonably necessary, considering the contentious nature of the litigation initiated by the Debtors.

A significant amount of time was billed by paralegals, particularly Lissette Merida, for both essential paralegal tasks, such as research and subpoena preparation, and tasks like document organization and emailing, which, while beneficial, warrant a reduction in fees. The Court observed that multiple attorneys often worked on contested matters, leading to excessive hours billed for interoffice discussions. This "overkill" was noted in light of the extensive contested issues and the large scope of the litigation, which included over twenty days of hearings and depositions, necessitating thorough preparation. 

The Court outlined several reasons for fee reductions: 

1. Invoices often lacked sufficient detail on time entries.
2. Excessive time was billed for drafting and revising documents, especially with multiple attorneys involved.
3. Time spent on minor issues was not justified, such as over eight hours opposing a motion for an extension.
4. Discovery disputes incurred excessive billing, particularly when FACE was not the prevailing party.
5. Numerous strategy sessions after trial led to excessive charges.
6. Over 100 hours billed for post-trial submissions was deemed excessive.
7. High costs for 'litigation support services' and substantial copying costs were noted without adequate justification.
8. Non-work travel time and excessive preparation for confirmation hearings also contributed to inflated billing.
9. Fees associated with the Foreclosure Case were improperly included, as FACE intended to seek these separately.
10. Time related to ancillary litigation in New Jersey was also charged, which the Court found inappropriate.

Overall, the Court concluded that while the time spent was acknowledged, it was disproportionately high given the nature of the contested issues and the results achieved.

The Court has reviewed all findings and invoices related to the Fee Motion, resulting in a total fee and cost award of $3,200,000.00 after a $91,860 voluntary reduction and an additional decrease of $690,816.45. The Chapter 11 cases involved extensive litigation, significantly more than typical cases. Despite the high fee request, the Court finds a considerable portion of the fees and costs to be reasonable and allowable according to FACE’s loan documents and § 506(b) of the Bankruptcy Code, attributing the litigation largely to the actions of the Debtors and Mr. Scutieri. The Fee Motion is granted, allowing FACE to enforce the award against the property securing its loan and each borrower in any competent jurisdiction, including Miami-Dade County, Florida. Additionally, this amount will be recognized as part of FACE's secured claim in Sundale Consolidated's ongoing Chapter 11 case. The objection from Samjaz regarding the fees has been withdrawn but did not influence the Court's decision. The debtors have been substantively consolidated in the Chapter 11 plan. The district court's order affirming the final judgment in the FACE Adversary is under appeal. The reorganized debtor, Sundale Consolidated, has filed a Chapter 11 petition and is seeking approval for a sale that they claim will fully pay Samjaz and FACE.