Starion Financial v. McCormick (In Re McCormick)

United States Court of Appeals
For the Eighth Circuit
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No. 15-1160
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In re: Stephen D. McCormick, also known as Steve D. McCormick; Karen A. McCormick
lllllllllllllllllllllDebtors
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Starion Financial
lllllllllllllllllllllAppellee
v.
Stephen D. McCormick; Karen A. McCormick
lllllllllllllllllllllAppellants
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Appeal from the United States Bankruptcy
Appellate Panel for the Eighth Circuit
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Submitted: October 20, 2015
Filed: February 1, 2016
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Before WOLLMAN, BEAM, and GRUENDER, Circuit Judges.
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BEAM, Circuit Judge.
Stephen and Karen McCormick, debtors in a Chapter 11 bankruptcy
proceeding, appeal the ruling of the Eighth Circuit Bankruptcy Appellate Panel
(BAP). The BAP held that Starion Financial is entitled to recover the attorney's fees
it incurred while collecting on its secured debt in the course of the McCormicks'
bankruptcy proceedings.
The McCormicks and Starion entered into a series of loan transactions between
December 2004 through June 2009. Pursuant to the various promissory notes and
mortgages, the McCormicks were liable for payment of Starion's attorney's fees and
costs if Starion was required to collect upon its debt. When the McCormicks
defaulted on the loans, Starion and the McCormicks agreed upon a workout agreement
wherein the McCormicks consented to the entry of judgment against them in a North
Dakota state court on July 27, 2012, in the respective amounts of $2,078,034.26 and
$1,000,000.
Shortly thereafter, in August 2012, the McCormicks filed a voluntary Chapter
11 bankruptcy petition. In their second amended plan of reorganization, the
McCormicks filed modification addendums, and as relevant here, one known as the
Starion Addendum, in which the McCormicks again agreed to pay Starion's allowable
attorney's fees and costs associated with the bankruptcy proceedings. Starion was
required by the plan to submit an itemized statement of its claim for fees and expenses
at least "ten days prior to the Effective Date of the Plan." The bankruptcy plan
containing this addendum was confirmed by the bankruptcy court on September 13,
2013, and the effective date of the plan was October 15, 2013. On October 3, Starion
submitted an itemized statement to the McCormicks setting out various costs
including interest, late fees, real estate taxes, and appraisal and engineering fees. On
October 7, Starion submitted an updated statement that included attorney's fees. The
McCormicks took the position that Starion was not entitled to these amounts based
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either upon the plan or 11 U.S.C. § 506(b),1 and refused to pay the amounts requested.
Starion filed a motion requesting the bankruptcy court to compel payment of its
attorney's fees in the amount of $125,014.64. The McCormicks argued to the
bankruptcy court that there was no agreement for the payment of fees; the fee request
was untimely; and the fees were not reasonable.
The bankruptcy court found that while Starion might well be oversecured (as
required for payment of fees by § 506), its claim for fees arose from the judgments
entered in North Dakota state court, and those judgments did not mention Starion's
right to collect attorney's fees. Accordingly, the court denied the request for fees,
based upon the lack of an agreement for fees. With regard to the timeliness of the fee
request, the court found that the application for fees was untimely (because the
October 3 filing did not contain the request for attorney's fees), but that the
McCormicks were not prejudiced by such delay. The court did not ultimately decide
the timeliness issue, however, finding that in light of its ruling that there was no
agreement for fees, it need not decide the timeliness issue. The court did not address
the reasonableness of the fee request itself.
Starion appealed to the BAP, which reversed and remanded. The BAP held that
the bankruptcy court erroneously relied upon the state court judgments as the only
possible "agreement" under which Starion's right to payment of its fees arose. The
BAP found it was undisputed that the promissory notes, mortgages, workout
agreement and other documents related to the loans between the parties contained
attorney's fees provisions. In re McCormick, 523 B.R. 151, 154-56 (B.A.P. 8th Cir.
2014). The BAP reversed and remanded, stating, "For the reasons set forth, the
1
A secured creditor claiming entitlement to attorney's fees and costs in a
bankruptcy proceeding pursuant to 11 U.S.C. § 506(b) must establish for an allowed
secured claim that: it was oversecured; an agreement or state statute authorizes
attorney's fees; and the fees are reasonable. In re Schriock Constr., Inc., 104 F.3d 200,
201 (8th Cir. 1997).
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decision of the bankruptcy court is reversed. The case is remanded for further
proceedings to determine the reasonableness and the timeliness of the Appellant's Fee
request." Id. at 156. The McCormicks appeal.
"We have an independent obligation to examine our jurisdiction and must
address any jurisdictional problems we perceive even if the issue has not been raised
by the parties." In re M & S Grading, Inc., 526 F.3d 363, 367 (8th Cir. 2008).
Jurisdiction over bankruptcy appeals is governed by 28 U.S.C. § 158(d)(1). Our
jurisdiction over appeals from the BAP in bankruptcy matters extends to "final
decisions, judgments, orders, and decrees." To determine the finality of an order
entered before the conclusion of a bankruptcy case we consider:
the extent to which (1) the order leaves the bankruptcy court nothing to
do but execute the order; (2) the extent to which delay in obtaining
review would prevent the aggrieved party from obtaining effective relief;
(3) the extent to which a later reversal on that issue would require
recommencement of the entire proceeding.
In re Farmland Indus., Inc., 397 F.3d 647, 650 (8th Cir. 2005) (quoting In re Koch,
109 F.3d 1285, 1287 (8th Cir. 1997)).
The BAP ordered the bankruptcy court on remand to determine the timeliness
of the fee request, an issue with which the bankruptcy court wrestled, but which it
ultimately did not decide. The bankruptcy court found that while the fee application
was submitted four days late, the debtors were not prejudiced by the four-day delay,
but the court did not decide "whether Starion should be excused from submitting an
untimely claim . . . despite the clear language of the plan requiring a timely
submission." Because resolution of the timeliness and reasonableness of the fee
application affect the merits of the underlying dispute over the fee request, the
bankruptcy court on remand is left with more than a "purely mechanical or ministerial
task." In re Popkin & Stern, 289 F.3d 554, 556 (8th Cir. 2002). Indeed, the BAP's
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remand order leaves the bankruptcy court tasks which are likely to "generate a new
appeal or to affect the issue that the disappointed party wants to raise on appeal." In
re Vekco, Inc., 792 F.2d 744, 745 (8th Cir. 1986) (quoting In re Fox, 762 F.2d 54, 55
(7th Cir. 1985)). Accordingly, we dismiss the appeal for lack of jurisdiction.
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