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MRMS Property Management v. Bayview Loan Servicing

United States District Court, D. New Hampshire

December 6, 2017

MRMS Property Management
v.
Bayview Loan Servicing

          Ann Marie Dirsa, Esq., Christopher Fisher, Esq. Peter Tamposi, Esq.

          MEMORANDUM AND ORDER

          PAUL BARBADORO UNITED STATES DISTRICT JUDGE.

         This 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.

         I. BACKGROUND

         MRMS 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.

         MRMS 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.

         With 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 services.

         In 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 Order.[1]

         The 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.

         II. STANDARD OF REVIEW

         I 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).

         III. ...


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