United States District Court, D. New Hampshire
Marie Dirsa, Esq., Christopher Fisher, Esq. Peter Tamposi,
MEMORANDUM AND ORDER
BARBADORO UNITED STATES DISTRICT JUDGE.
bankruptcy appeal arises from an attempt by a debtor in
possession to recover attorney's fees incurred during the
bankruptcy proceeding from a secured creditor's cash
collateral. The bankruptcy court denied the debtor's
request because the court concluded that the requested fees
did not benefit the secured creditor. I reverse.
Property Management, Inc. (“MRMS”), owned a
single piece of commercial real estate that was subject to a
mortgage held by Bayview Loan Servicing, LLC.
(“Bayview”). Bayview also held an assignment of
leases and rents that entitled it to income from the property
if MRMS defaulted on its mortgage loan.
neglected to maintain its property and refused to make
necessary repairs. This prompted MRMS's sole tenant,
Hudson Medical Associates (“HMA”), to file a
state court action seeking permission to pay its monthly rent
into an escrow account until HMRS performed the required
maintenance and repairs. The court granted this request and
HMA thereafter paid its rent into an escrow account. At some
point, MRMS also stopped paying its mortgage, which put the
mortgage loan into default.
the possibility of foreclosure looming, MRMS filed for
Chapter 11 bankruptcy protection in June 2016. Approximately
a month later, MRMS filed a motion seeking an order from the
bankruptcy court requiring HMA to turn over the withheld rent
to MRMS. Both HMA and Bayview opposed the motion, but the
issue was ultimately resolved by a Stipulation and Order that
directed HMA to turn over the withheld rent to MRMS's
counsel. The Stipulation and Order required counsel to
maintain the withheld rent in his firm's escrow account,
solicit proposals for all required maintenance and repairs,
obtain approval for any work from both Bayview and HMA, and
pay all contractors from the withheld rent. The Stipulation
and Order did not specify how counsel would be paid for his
September 2016, after all necessary maintenance and repairs
were completed, Bayview filed a motion asking the court to
order MRMS to turn over what remained of the withheld rent.
MRMS objected and filed its own motion seeking permission to
deduct approximately $7, 000 from the withheld rent for fees
that counsel incurred in complying with the Stipulation and
bankruptcy court held a hearing on both motions in February
2017. After hearing from the parties, the court denied
MRMS's motion and granted Bayview's motion. In
reaching its decision, the bankruptcy court explained that
MRMS was not entitled to recover counsel fees from the
withheld rent because
I think it's hard for me to conclude that those fees in
and of themselves benefitted the collateral the same way that
the funds expended for the services that were expended for
the services that were rendered to the property did. And I do
believe that the tenant and Bayview were on the cusp of an
agreement to fund out of the rents the work that the tenant
required in order to not - essentially declare the lease a
breach and walk away from the property.
Doc. No. 6-1 at 30. This appeal followed.
STANDARD OF REVIEW
review the bankruptcy court's findings of fact for clear
error and its legal conclusions de novo. In re
Donahue, BAP No. NH 11-026, 2011 WL 6737074 at *8
(Bankr. App. Panel 1st Cir. 2011).