United States District Court, D. Maryland
October 30, 2014
STEVEN KENNETH REED, Appellant,
DEBORAH A. REED, Appellee. Bankr. No. 12-21819-RAG Adversary No. 12-629.
RICHARD D. BENNETT, District Judge.
This case presents the second appeal arising out of Appellant Steven Kenneth Reed's ("Appellant") Chapter 7 bankruptcy proceeding; in this appeal, Appellant now challenges the United States Bankruptcy Court for the District of Maryland's order awarding attorneys' fees to Appellee Deborah A. Reed's ("Appellee"). Appellant argues that the Bankruptcy Court erred because Appellee is an unsecured creditor who is not entitled to attorneys' fees under Section 506 of the Bankruptcy Code and, alternatively, that the doctrine of merger bars recovery pursuant to Maryland law. Appellee has filed a Motion to Dismiss Appeal (ECF No. 3), arguing that Appellant's failure to timely file his brief and failure to file a transcript of the proceedings below merits dismissal.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 158(a)(1), which extends jurisdiction to the United States District Courts to hear appeals from the final judgments, orders, and decrees of the United States Bankruptcy Courts. The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2014); Fed. R. Bankr. Pro. 8012. For the reasons that follow, the Appellee's Motion to Dismiss Appeal (ECF No. 3) is DENIED. Additionally, the Bankruptcy Court's Order Awarding Attorneys' Fees and Entering Final Judgment (ECF No. 1-12) is AFFIRMED and Appellant's appeal is DENIED.
This Court recently summarized the facts of this case in the related case of Reed v. Reed, Civ. A. No. RDB-14-175, 2014 WL 4926187 (D. Md. Sept. 30, 2014). This Court draws from this Court's previous recitation of the facts in that appeal and supplements that recitation to the extent necessary for this separate appeal.
I. The Parties' Divorce and the Marital Settlement Agreement
Appellant and Appellee were previously married, and they jointly owned a home at 8280 Patapsco Avenue, Pasadena, Maryland 21122 (the "Property"). On September 7, 2006, Appellee filed a Complaint for Absolute Divorce. In May of 2007, Appellee and Appellant contracted to sell the Property to Robert and Madelaine Binner (the "buyers"). After signing the contact of sale but prior to settlement, the Appellant and Appellee entered a Marital Settlement Agreement. Notably, Paragraph 8.3 of that Agreement provided that:
Until the said property is sold and settled, [Appellant] shall be solely responsible for all expenses associated with either the ownership or occupancy of said [Subject] Property. He shall also be solely responsible for all costs and expenses associated with maintaining and/or improving the said [Subject] Property so that it can be sold and, upon the signing of this Agreement, any legal or financial responsibility that Wife [Deborah A. Reed] may have had with regard to any monies that are or may be due as a result of the ownership of the [Subject] Property shall be assumed by Husband [Steven K. Reed]. Husband shall indemnify and hold Wife harmless as to all such legal and financial responsibilities.
On September 6, 2007, the Circuit Court for Anne Arundel County, Maryland granted Appellee an absolute divorce. The Circuit Court specifically noted that the Marital Settlement Agreement was "incorporated, but not merged, " into its Judgment.
II. The Buyers' Suit Against the Parties
Sometime after the closing of the sale of the Property on July 6, 2007, the buyers became dissatisfied with their purchase and filed suit against the Appellant and Appellee. According to the buyers' complaint, the claims against Appellee arose out of various work performed on the Property by Appellant prior to the sale of the Property. The Appellee filed a cross-claim against Appellant in that action, requesting indemnification and contribution against Appellant for any and all liability for damages that Appellee might have to the buyers. After settling the claims as they pertained to her, Appellee filed a motion for summary judgment against the Appellant with respect to her cross-claim. The Circuit Court for Anne Arundel County granted the motion for summary judgment and awarded Appellee $49, 352.53 in damages and $6, 500.00 in attorneys' fees.
III. Appellant's Bankruptcy Proceeding
On June 25, 2012, Appellant filed for relief under Chapter 7 of the Bankruptcy Code. In his papers, Appellant listed Appellee as a judgment creditor holding an unsecured, nonpriority claim of $55, 000.00. Appellee filed an Adversary Complaint against Appellant on September 21, 2012; specifically, Appellee sought to except the state court's judgment from discharge under Section 523(a)(15) of the Bankruptcy Code.
On December 11, 2013, the Bankruptcy Court found in favor of Appellee and granted summary judgment against Appellant. The order allowed Appellee fifteen (15) days to submit a request for additional attorneys' fees and costs arising from the proceeding, and further provided an additional fifteen (15) days for Appellant to respond. Appellee filed her "Verified Request for Attorney's Fees and Costs" on December 26, 2013, seeking an additional $17, 544.50 in attorneys' fees and $1, 756.58 in costs. Appellant filed an opposition in response. The Bankruptcy Court held an initial hearing on February 18, 2014 and issued an oral ruling on April 29, 2014. On May 27, 2014, the Bankruptcy Court issued a written order awarding $10, 672.00 in attorneys' fees and $1, 756.58 in costs to Appellee.
Appellant noted an appeal to the Bankruptcy Court's attorneys' fees order on June 9, 2014, and designated the record on June 23, 2014. The designation, however, did not include the transcript from the hearing below. The appeal was docketed in this Court on July 17, 2014. Appellant filed his brief on August 5, 2014. Subsequently, Appellee filed her pending Motion to Dismiss Appeal (ECF No. 3) and substantive brief (ECF No. 4) on August 21, 2014.
STANDARD OF REVIEW
This appeal is brought pursuant to Rule 8001 of the Federal Rules of Bankruptcy Procedure. On appeal from the Bankruptcy Court, this Court acts as an appellate court and reviews the Bankruptcy Court's findings of fact for clear error and conclusions of law de novo. In re Merry-Go-Round Enterprises, Inc., 400 F.3d 219, 224 (4th Cir. 2005); In re Kielisch, 258 F.3d 315, 319 (4th Cir. 2001). The district court may affirm, modify, or reverse a bankruptcy judge's order, or remand with instructions for further proceedings. See FED. R. BANKR. P. 8013; see also In re White, 128 F.App'x. 994, 999 (4th Cir. 2005); Suntrust Bank v. Johnson, 2006 U.S. Dist. LEXIS 87622, at *6, 2006 WL 3498411 (D. Md. Dec. 4, 2006).
I. Appellee's Motion to Dismiss Appeal
Appellee has moved to dismiss this appeal due to two alleged procedural defects on Appellant's part. Appellee first points to Rule 8009 of the Federal Rules of Bankruptcy Procedure, which require that an appellant "serve and file a brief within 14 days after entry of the appeal on the docket." FED. R. BANKR. P. 8009(a)(1). Appellee points out that Appellant's brief was not filed until August 5, 2014-i.e., nineteen (19) after the appeal was docketed-and was therefore untimely.
Appellee also contends that Appellant failed to include a copy of the transcript of the hearing from the proceedings below, which in Appellee's view constitutes a failure to properly designate the record under Rule 8006. Specifically, Rule 8006 that states "[t]he record on appeal shall include the items so designated by the parties... and any opinion, findings of fact, and conclusions of law of the court." FED. R. BANKR. P. 8006. Appellee points out that the Bankruptcy Court held a hearing on the attorneys' fees issue and that its Judgment (ECF No. 1-11) specifically states that, "[a]s explained on the record, the Opposition was overruled to the extent it sought a complete denial of the requested fees."
This Court assesses violations of Rules 8006 and 8009 within the framework of Rule 8001 of the Federal Rules of Bankruptcy Procedure. See FED. R. BANKR. P. 8001(a) ("An appellant's failure to take any step other than timely filing a notice of appeal does not affect the validity of the appeal, but is ground only for such action as the district court or bankruptcy appellate panel deems appropriate, which may include dismissal of the appeal."). "In applying Rule 8001(a), the district court must take one of the four steps outlined in In re Serra Builders, Inc., 970 F.2d 1309 (4th Cir.1992)." In re Byrd, No. 07-1126, 2007 WL 4103048 (4th Cir. Nov. 19, 2007) (unpublished) ( per curiam ). "Specifically, the court must: (1) make a finding of bad faith or negligence; (2) give the appellant notice and an opportunity to explain the delay; (3) consider whether the delay had any possible prejudicial effect on the other parties; or (4) indicate that it considered the impact of the sanction and available alternatives, ' keeping in mind that dismissal is a harsh sanction which the district court must not impose lightly.'" Id. (quoting Serra, 970 F.2d at 1311). "Proper application of the Serra test requires the court to consider and balance all relevant factors." Id.
With respect to the untimely brief, there is no evidence that Appellant's short-coming was the product of bad faith rather than mere negligence. Moreover, Appellee has failed to demonstrate any concrete prejudice to her interests caused by Appellant's untimely filing. Under these circumstances, dismissal for failure to timely file a brief is unwarranted.
Similarly, there is no basis for dismissal under Rule 8006 either. Again, Appellee is unable to demonstrate any prejudice to her interests. This appeal raises only questions of law that are reviewed de novo, and this Court is certainly capable of reviewing the issues on the record provided. Accordingly, this Court concludes that dismissal is not an appropriate remedy, and Appellee's Motion to Dismiss will be denied.
II. The Bankruptcy Court's Order Granting Attorneys' Fees to Appellee
Appellant appeals the Bankruptcy Court's order granting attorneys' fees to Appellee, arguing that the award of attorney' fees in this case is barred by the provisions of the Bankruptcy Code and the state law doctrine of merger.
A. Attorneys' Fees and the Bankruptcy Code
Appellant contends that Section 506(b) of the Bankruptcy Code bars Appellee's recovery of "post-petition" attorneys' fees because Appellee is an unsecured creditor. Notably, however, the legal landscape with respect to attorneys' fees in bankruptcy cases has shifted slightly in the wake of Travelers Casualty & Surety Company of America v. Pacific Gas & Electric Co., 549 U.S. 443 (2007). In Travelers, the United States Supreme Court struck down the "Fobian Rule, " which derived from the case of In re Fobian, 951 F.2d 1149 (9th Cir. 1991), where the United States Court of Appeals for the Ninth Circuit had held that the recovery of post-petition attorneys' fees incurred while litigating issues of bankruptcy law were categorically barred. The Supreme Court found that there was no textual support for the Fobian Rule in the Bankruptcy Code and held that Section 502(b)(1) did not pose any bar to an unsecured creditor's recovery of post-petition attorneys' fees when the claim arose from a pre-petition contractual obligation. Before the Supreme Court, the debtor argued that Section 506(b) posed a bar to the recovery of attorneys' fees by undersecured or unsecured creditors. The Supreme Court, however, ultimately declined to decide the issue because it had not been properly raised below.
Appellant argues that the majority of courts deciding the issue left open in Travelers have found that attorneys' fees are not recoverable by unsecured creditors. However, the cases cited by Appellant are predominantly pre- Travelers cases. See, e.g., Appellant's Br. P. 12 n.18 (string cite with only one post- Travelers case). Moreover, the cases from courts in this Circuit are split; while there is one decision from the United States Bankruptcy Court for the Eastern District of Virginia supporting Appellant's position, see In re WCS Enterprises, Inc., 382 B.R. 206, 209 (Bankr. E.D. Va. 2007) (finding that Section 506(b) bars recovery of contractually-based claims for post-petition attorneys' fees by unsecured creditor), there is a more recent decision from the Eastern District of North Carolina that is directly contrary, see In re. Holden, 491 B.R. 728, 738 (Bankr. E.D. N.C. 2013) (permitting unsecured creditor to recover post-petition attorneys' fees and finding that Section 506(b) was inapplicable to the analysis). More importantly, the two United States Courts of Appeal that have addressed the issue have conclusively determined that Section 506(b) does not bar recovery of contractually based attorneys' fees by unsecured creditors. See In re SNTL Corp., 571 F.3d 826, 845 (9th Cir. 2009) (adopting the Bankruptcy Appellate Panel for the Ninth Circuit as its own); Ogle v. Fidelity Deposit Co. of Maryland, 586 F.3d 143, 148 (2d Cir. 2009); see also 1 COLLIER BANKRUPTCY MANUAL 502.03[b][iv] (noting that "trend seems to be moving towards courts allowing claims for attorneys' fees where permitted by state law or contractual agreement"). In light of the recent developments with respect to these issues and the recent trends in the caselaw, this Court finds the reasoning of those decisions to be persuasive. Accordingly, this Court holds that Section 506(b) poses no bar to the recovery of the post-petition attorneys' fees awarded by the Bankruptcy Court in this case.
B. Merger Doctrine
Under Maryland law, "a simple contract is merged in a judgment or decree rendered upon it, and... all its powers to sustain rights and enforce liabilities terminate in the judgement [sic] or decree." SunTrust Bank v. Goldman, 201 Md.App. 390, 402 (Md. Ct. Spec. App. 2011) (quoting AccuBid Excavation, Inc. v. Kennedy Contractors, Inc., 188 Md.App. 214, 233 (Md. Ct. Spec. App. 2009)). Typically, therefore, "the entry of final judgment on a contract case extinguishes any contract-based right to further attorneys' fees because attorneys' fees recoverable pursuant to a contract are part of the damages claim.'" Id. (quoting AccuBid, 188 Md.App. at 231). Relying upon this doctrine, Appellant contends that the doctrine of merger bars recovery of attorneys' fees because the agreement was merged into the state court's summary judgment ruling.
However, marital settlement agreements provide one exception to the merger doctrine, and such agreements remain a separate, enforceable contract where the parties clearly intended the document to be incorporated but not merged into the divorce decree. See SunTrust Bank v. Goldman, 201 Md.App. at 405 (discussing Johnston v. Johnston, 297 Md. 48 (1983)). In this case, the parties' agreement clearly indicated such intent,  and the divorce decree unequivocally stated that the Marital Separation Agreement was incorporated but not merged with that decree. Accordingly, the rights created by the Marital Settlement Agreement-including the right to attorney's fees incurred while enforcing the agreement- remain separately enforceable. As discussed above, the attorneys' fees and costs associated with the bankruptcy proceedings were incurred while Appellee sought to enforce the Marital Settlement Agreement. See supra note 13. Therefore, the doctrine of merger does not pose a bar to Appellee's claim for attorneys' fees.
For the reasons stated above, the Appellee's Motion to Dismiss Appeal (ECF No. 3) is DENIED. Additionally, the Bankruptcy Court's Order Awarding Attorneys' Fees and Entering Final Judgment (ECF No. 1-12) is AFFIRMED and Appellant's appeal is DENIED.
A separate Order follows.