UNITED STATES BANKRUPTCY
COURT
EASTERN DISTRICT OF
KENTUCKY
PIKEVILLE DIVISION
IN RE:
MOSES CASE
d/b/a Case Coal Company
DEBTOR CASE
NO. 95-70447
MEMORANDUM
OPINION & ORDER
This matter is before the Court on a Motion for Relief
filed herein by Utica Mutual Insurance Company (AUtica@), an oversecured creditor of the debtor. Utica filed its Motion for the purpose of
allowing it to enforce its lien on certain certificates of deposit securing the
debtor=s claimed indebtedness for attorney fees in the amount
of $35,359.35. Utica has filed an
Amended Proof of Claim for these fees.
The trustee filed an Objection in response to Utica=s Motion objecting to $20,229.00 of the requested fees
and another creditor, Firstar, N.A., f/k/a Star Bank, N.A., successor to Trans
Financial Bank, N.A. (AFirstar@),
filed an Objection and Response. The
Court will treat these as objections to Utica=s Amended Proof of Claim. This
matter was heard on March 4, 1999, and was first submitted for decision by
Order entered on April 9, 1999.
After review of the matter, this Court issued an Order
on June 11, 1999, requiring the parties to submit further memoranda on the
issues of the state statutory or other authority for the collection of attorney
fees pursuant to the language of an indemnity agreement, and whether, if the
indemnitee is made whole (i.e., pays out nothing on the indemnity bond itself)
on the underlying obligation, its attorney fees constitute a loss under the
terms of the indemnity agreement. Utica
and the trustee have submitted their respective memoranda, and this matter is
now ready for decision.
The record in this case shows that Utica was surety on
reclamation bonds which the debtor obtained for his permitted mine sites. In connection with the issuance of the
bonds, the debtor and his non-debtor wife entered into a General Agreement of
Indemnity (AGAI@) with Utica
wherein they promised to
...indemnify
and save [Utica] harmless from and against every claim, demand, liability,
cost, charge, suit, judgment and expense which [Utica] may pay or incur in
consequence of having executed, or procured the execution of, such bonds, or
any renewals or continuations thereof or substitutes therefor, including fees
of attorneys, .... , and the expense of procuring, or attempting to procure,
release from liability, or in bringing suit to enforce the obligation of any of
the Indemnitors under this Agreement.
GAI,
&2. This is the
basis of Utica=s claim for attorney fees pursuant to 11 U.S.C. '506(b). Both
Utica and the trustee agree that authority exists for the recovery of attorney
fees under the terms of an indemnity agreement. Each cites Fidelity & Casualty Co. of New York v. Mauney,
Ky., 116 S.W.2d 960 (1938) as authority, as well as other Kentucky cases. Utica also contends that KRS 411.195, in
providing for the enforceability of a written agreement to pay attorney fees
encompasses the GAI.
Where the underlying agreement provides for attorney
fees, the value of the collateral exceeds the debt plus accrued interest and
fees, and the fees are reasonable, the creditor is entitled to recover attorney
fees. 11 U.S.C. '506(b). The ultimate
determination of the reasonableness of attorney fees is a matter for the
bankruptcy court alone to determine regardless of what the parties may have
agreed and federal standards apply in this determination. In re B & W Management, Inc., 63
B.R. 395 (Bkrtcy.D.C. 1986). The
creditor seeking reimbursement for attorney fees has the burden of proof to
establish entitlement to reimbursement for the fees requested. In re Scott Lenoir Gwyn, 150 B.R. 150
(Bkrtcy.M.D.N.C. 1993).
The objections of the trustee and Firstar are based
solely on the question of the reasonableness of the fees sought, i.e., the
amount. However, as both the trustee
and Firstar have asserted, Utica has suffered no loss in regard to the reclamation
bonds themselves, a fact apparently not contradicted by Utica. In the absence of a loss under the bond, the
issue of whether Utica is entitled to recover attorney fees in any amount from
the debtor as indemnitor under the GAI must first be resolved by the
Court.
In Mauney, supra, the court found that
the surety/indemnitee was entitled to attorney fees incurred in defending a
suit on the bond through its own attorneys, notwithstanding that the principal=s attorneys were allegedly caring for the surety=s interest, that one of the surety=s defenses was that the damages sued on were not
within the coverage of the bond, and that the principal was allegedly able to
pay any judgment to the extent of the surety=s
liability. Further, in United States
Fidelity & Guaranty Company v. Napier Electric & Construction Company,
Inc., 571 S.W.2d 644, Ky.App. (1978), the court stated that the law on this
subject is well settled in Kentucky as set out in National Surety Corp. v.
Peoples Milling Co., 57 F.Supp. 281 (W.D.Ky. 1944):
>The
right of an indemnitee to recover of the indemnitor under a contract of
indemnity according to the terms of such a contract is well recognized. Such a contract is not against public policy
and will be enforced if the indemnitee has suffered loss thereunder and has
complied with its terms. Id. at 282.=
At
645. It seems clear, therefore, that
Kentucky law requires that a loss be suffered in order for an indemnitee to
recover attorney fees.
Utica does
not argue that it suffered any loss or damage under the bond itself, but takes
the position that attorney fees it incurred in relation to this matter
constitutes a loss which is allowable as part of its secured claim against the
bankruptcy estate. Utica=s Motion for Relief sets out that the attorney fees
and expenses it seeks were incurred for Aactivities
related to the above-referenced case.@ These activities consist mainly of
monitoring and intervening in various matters.
This Court agrees that Utica should be able to recover reasonable
attorney fees for its actions necessary to avoid or minimize any liability on
the bonds involved. No party involved
in the bankruptcy proceeding was charged with protecting Utica=s rights and, while Utica, the debtor-in-possession
and, later, the trustee, may have had the same interests in much of the
proceeding, these interests were not identical and Utica would have done itself
a disservice in not taking the steps necessary to protect its interests in the
matter. This having been said, Utica
had to choose the extent to which it would go to protect these interests, i.e.,
the level of involvement which it wanted its counsel to have. This choice by Utica does not bind the
estate to pay all fees incurred unless they are reasonable under a federal
standard. In re B & W
Management, Inc., id. In other
words, Utica was free to spend as much as it chose for its attorneys, but only
that portion which federal law deems reasonable is compensable from property of
the estate upon which it has a lien.
Therefore it is necessary to examine the time spent on various matters
and the charges incurred to determine the reasonableness.
While the record does not contain the full detail of
the services provided by Utica=s attorneys
because of a claim of privilege of some of the information contained therein,
Utica=s counsel has provided the Court with complete and
unredacted statements for in camera review by the Court. The trustee has taken much time and trouble
to color code the objectionable services/charges in accordance with five
categories of objections and this effort has proven very helpful to the Court
in focusing on the specific objections she has to the lengthy billing
statements.
A review of the hourly rates charged by the attorneys
reveals that the rates charged, when compared to the experience and ability of
the attorneys involved, are reasonable, and even modest, for the services
rendered. Therefore, the following
analysis relates only to the necessity of the services under the federal
standard and whether the services are sufficiently detailed to be compensable.
The Court finds that the following services from the
trustee=s Anot necessary@ grouping, appear to be objectionable as excessive
under the circumstances of this case:
01/09/97 MMW Review
case/Creek River
Lease/purchase agreement .30 42.00
01/16/97 PLH Review
motion re entering into
lease
with Creek River (.2);
review
order approving assignment
of
lease and review lease
related
thereto (.7); conference
re same .90 121.50
05/20/97 MMW Review
correspondence re sale
of Case property .20 28.00
07/23/97 PLH Work
on locating
auctioneers/sellers/brokers
for
land .50 67.50
07/28/97 MMW Review
correspondence from
Transfinancial
attorney re Case
bankruptcy .30 42.00
08/12/97 WTG Review
status of bankruptcy and
collateral
issues (.5);
correspondence re same (.6) 1.10 165.00
08/19/97 MMW Research re Agreed Order (.3) .30 42.00
09/02/97 MMW Draft
claim for Case bankruptcy
(.8) .80 112.00
09/19/97 PLH Review
and revise proof of claims;
work
on claim calculation and
attachments .30 40.50
09/22/97 MMW Review
documents for proof of
claim (.2) .20 28.00
10/23/97 PLH Travel
to Pikeville (3.0); attend
auction
of prep plant (4.2);
return to Lexington (3.0) 10.20 1377.00
10/24/97 WTG Research
re results of
bankruptcy
auction 1.20 180.00
11/06/97 MMW Review
issues re purchase of
Case property .20 28.00
TOTALS 16.50 2273.50
The trustee further objected to the charges itemized
by counsel for Utica which related to the filing of an action against Lizzie
Case, the debtor=s wife and a co-guarantor. The action against Lizzie was commenced at a time when there was
no assurance that a full recovery would be had from the bankruptcy proceeding
and was therefore reasonable and justifiable on the part of the creditor. The Court further believes that a
distinction cannot be made between these attorney fees as opposed to those for
work on the bankruptcy case itself since the debtor=s agreement of indemnity stood for all attorney
fees. Therefore Utica should recover
the fees reasonably incurred in the prosecution of the action against
Lizzie. A review of those fees leads
the Court to conclude that there was some Aoverkill@ in pursuit of that matter and that the following
charges should not be allowed as excessive or duplicative:
01/15/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .50 70.00
01/15/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral 1.70 238.00
01/16/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral 2.10 294.00
06/11/97 PLH Review
letter to Lizzie Case
requesting additional collateral .10 13.50
07/18/97 MMW Research re Lizzie Case .80 112.00
07/29/97 MMW Research re Lizzie Case
1.20 168.00
08/05/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral 3.20 448.00
08/05/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing
rights to collateral
(.8) .80 112.00
08/07/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing
rights to collateral
(.7) .70 98.00
08/09/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .40 56.00
08/11/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing
rights to collateral
(3.9) 3.90 546.00
08/12/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing
rights to collateral
(.3) .30 42.00
08/20/97 MMW Correspondence
and research
related
to recovery of claims and
enforcing
rights to collateral
(.8) .80 112.00
08/25/97 MMW Research (.3) .30 42.00
09/18/97 MMW Research re Lizzie Case .20 28.00
09/24/97 MMW Research re Lizzie Case .40 56.00
10/02/97 MMW Services
related to Lizzie Case
lawsuit .40 56.00
10/03/97 PLH Services
related to Lizzie Case
(.4) .40 54.00
10/10/97 PLH Services
related to Lizzie Case
(.5) .50 67.50
10/13/97 MMW Correspondence
re status of Case
bankruptcy litigation 1.40 196.00
10/30/97 MMW Correspondence
re status of Case
bankruptcy and litigation 1.40 196.00
01/26/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .30 45.00
02/10/98 MMW Review
Case bankruptcy pleadings
(.1);
review pleadings in L. Case
lawsuit (.2) .30 45.00
02/12/98 MMW Review
pleadings re L. Case lawsuit
(.3);
call to Case attorney re
joint status report (.1) .40 60.00
03/10/98 WTG Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .20 34.00
03/11/98 WTG Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .40 68.00
03/12/98 WTG Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .20 34.00
03/12/98 WTG Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .20 34.00
03/12/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .20 30.00
03/12/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .40 60.00
03/12/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .30 45.00
03/13/98 WTG Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .50 85.00
03/13/98 ELT Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .50 72.50
03/13/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .30 45.00
04/02/98 ELT Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .30 43.50
04/02/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .30 45.00
04/03/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .30 45.00
04/10/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .10 15.00
04/13/98 ELT Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .20 29.00
05/18/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .40 60.00
05/18/98 MMW Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .20 30.00
05/19/98 ELT Correspondence
and research
related
to recovery of claims and
enforcing rights to collateral .20 29.00
TOTALS 27.70 3959.00
Additionally, the following services appear to be a
duplication of efforts or billing and should not be reimbursed:
10/21/97 MMW Review
lease for Case
permits (.5) .50 70.00
08/25/97 MMW Research .30 42.00
10/06/97 MMW Correspondence
re water
monitoring
(.3); draft letter to
bankruptcy
trustee re water
monitoring
(.2); conference re
water monitoring (.2) .70 98.00
TOTALS 1.50 210.00
Finally, because the burden is on the movant to
identify and sufficiently elaborate on the services rendered to allow the Court
to determine the necessity for the services, the following charges should be
disallowed for reimbursement since they fail to meet that standard:
07/18/97 MMW Research Case operations .70 98.00
07/18/97 MMW Conference
with P. Hanrahan re
Case operations .20 28.00
07/23/97 MMW Correspondence re Case matters
2.30 322.00
08/16/97 MMW Correspondence re Chapter 7
2.00 280.00
03/25/98 MMW Draft
letter to bankruptcy
trustee re Case collateral 1.60 240.00
TOTALS 6.80 968.00
GRAND TOTAL
$7,410.50
Of the $35,359.35 in fees requested, $27,948.85 should
be allowed and its amended claim should be allowed in this amount and $7,410.50
should not be allowed.
In accordance with the above, it is hereby ORDERED
that the Motion for Relief filed by Utica herein is SUSTAINED as to $27,948.85
of the funds and it may take such steps as are necessary to enforce its lien as
to said amount, that its amended claim is allowed in that amount, and the
Motion is OVERRULED as to the balance of the amended claim and for relief from
stay as to such balance.
Dated:
By the Court -
Judge
Copies to:
Debtor
Elizabeth Lee Thompson, Esq.
Phaedra Spradlin, Esq.,
Trustee
Tracey N. Wise, Esq.