Triad Financial Corp v. O'Connell ( 2006 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
October 18, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 05-20940
Summary Calendar
In The Matter of RAJITHA K NAIR
Debtor,
TRIAD FINANCIAL CORP.,
Appellant
versus
DAVID G. PEAKE,
Appellee
Appeal from the United States District Court
For the Southern District of Texas
Before KING, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.
PER CURIAM:*
Triad Financial appeals from the district court’s order
affirming, in part, a Bankruptcy court sanction of appellant’s
counsel, prohibiting him from filing section-362 orders that
include attorneys’ fees on undersecured claims. We affirm.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
Rajitha Nair’s Chapter 13 plan was confirmed in May of 2003.
When Nair subsequently failed to meet payments on a 2001 Mazda
Tribute, Triad Financial, the undersecured lienholder, filed a
motion for relief from the automatic stay in order to repossess the
Mazda. Prior to the resolution of that motion, Triad and Nair
filed a proposed agreed order, modifying the automatic stay and
requiring Nair to: (1) maintain insurance on the car; (2) pay the
arrears due on the note; and (3) pay Triad’s attorneys’ fees.
The bankruptcy court signed the order, but only after striking
the attorneys’ fees provision. The court then ordered Triad’s
counsel to show cause why the offending provision was not
sanctionable.
At the hearing, appellants counsel argued, as they argue here
on appeal, that the Bankruptcy Code is silent on the question of
whether an unsecured creditor may assert a priority claim for
attorneys’ fees. We disagree. Section 506(b) allows an
oversecured creditor to obtain full payment of its attorneys’ fees,
but only to the extent that it is oversecured.1 By negative
implication, undersecured creditors are not entitled to full
payment of attorneys’ fees. Indeed, while interpreting the
identical provision in the context of interests payments, the
Supreme Court reached this same conclusion, holding that section
1
11 U.S.C. § 506(b).
2
506(b) has “the substantive effect of denying undersecured
creditors postpetition interest on their claims.”2
The cases cited by the appellant do not hold otherwise. Those
cases, beginning with In re United Merchants, allow an unsecured
creditor only an unsecured claim for post-petition attorneys’
fees.3 Here, however, the undersecured creditor seeks a secured
claim for attorneys fees. As the bankruptcy court correctly noted
below, no published opinion has ever granted such a claim.
Reaching this conclusion at the show-cause hearing, the
bankruptcy court sanctioned counsel under Bankruptcy Rule 9011.4
Rule 9011(b) requires counsel to conduct a reasonable inquiry into
the contents of every petition, pleading, written motion or other
paper submitted to the court, and Rule 9011(c) authorizes sanctions
upon counsel who fail to discharge this duty. Under Rule
9011(c)(2), “[a] sanction . . . shall be limited to what is
sufficient to deter repetition of such conduct . . . .” We review
the Bankruptcy Court’s decision to impose sanctions for abuse of
discretion.5
2
United Sav. Ass’n of Texas v. Timbers of Inwood Forest Associated, 108
S. Ct. 626 (1988).
3
In re United Merchants and Mfrs., Inc., 674 F.2d 134, 137 (2d Cir.
1982).
4
FED.R.BANKR.P. 9011(b).
5
In re First City Bancorporation of Texas, 282 F.3d 864, 867 (5th Cir.
2002).
3
On this record, the bankruptcy court did not abuse its
discretion. The bankruptcy court found that “Triad’s request for
attorneys’ fees was not justified by existing law or by a
nonfrivolous argument for the extension, modification, or reversal
of existing law or the establishment of new law.” Worse yet, the
court found that Traid’s request for attorneys’ fees “was made in
the anticipation that it would not be scrutinized by the Court
because it was filed as an agreed order.” Finally, rather than
impose monetary sanctions, the district court merely required
appellant’s counsel, who appears frequently before the court, to
discontinue such requests for attorneys’ fees. Because we are
shown no error in the bankruptcy court’s disposition of this case,
we AFFIRM the judgment of the district court.
4