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Ryker v. Current

February 16, 2006


The opinion of the court was delivered by: Martini, U.S.D.J.


This matters comes before the Court on Appellant Edward J. Ryker's appeal from the United States Bankruptcy Court's Order Denying in Part, and Allowing in Part, Appellants' Motion to Reduce the Proof of Claim filed by Appellees David and Denise Current. There was no oral argument. Fed. R. Civ. P. 78. For the following reasons, the Bankruptcy Court's decision is AFFIRMED IN PART and REMANDED for further consideration.


I. Facts

Appellant Edward J. Ryker ("Ryker") partially owned a piece of commercial property located in Stillwater, New Jersey (the "Property"). David and Denise Current ("the Currents") held a first priority mortgage on the Property. Ryker defaulted under the mortgage and the Currents obtained a foreclosure judgment in the amount of $219,084.26.

The parties then entered into a forbearance agreement (the "Forbearance Agreement") providing that the Currents would stay a foreclosure sale if Ryker satisfied the debt. In addition, the Forbearance Agreement required Ryker to pay the Currents' attorneys' fees "through the completion of the matter." Ryker, however, defaulted under the Forbearance Agreement and a foreclosure sale occurred on October 25, 1999. The Currents were the only bidders at the sale and, as a result, purchased the Property. However, because they already received $169,605.40 from Ryker under the Forbearance Agreement, they paid only the difference, i.e., $49,478.86.

On November 3, 1999, Ryker filed for Chapter 13 bankruptcy. The Currents moved to keep the Property out of Ryker's estate and for relief from the automatic stay. In response, Ryker cross-moved to nullify the foreclosure sale as a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B). The Bankruptcy Court denied the Currents' motion without prejudice, but allowed Ryker to file an adversary proceeding setting forth his fraudulent transfer claim. In response, Ryker re-filed his complaint and the Bankruptcy Court held that the foreclosure sale constituted a fraudulent transfer. See Ryker v. Current (In re Ryker), 272 B.R. 602 (Bankr. D.N.J. 2002) (hereinafter "Ryker I"). As a result, the Bankruptcy Court vacated the sale. Id. at 612.

The Currents appealed the Bankruptcy Court's order. On appeal, the District Court noted, sua sponte, that Ryker potentially lacked standing to attack the sale as a fraudulent transfer. See Ryker v. Current (In re Ryker), 301 B.R. 156, 159-62 (D.N.J. 2003) (hereinafter "Ryker II"). The District Court then remanded the case to the Bankruptcy Court to determine the issue of standing. Id. at 162. On remand, the Bankruptcy Court held that Ryker did not have standing to avoid the sale as a fraudulent transfer. Ryker v. Current (In re Ryker), 315 B.R. 664, 674 (Bankr. D.N.J. 2004) (hereinafter "Ryker III"). However, the Bankruptcy Court held that the Chapter 13 trustee could ratify Ryker's actions and avoid the sale. Id.

The trustee ratified Ryker's actions and his Chapter 13 plan was confirmed on November 4, 2004.*fn1 The Currents submitted a proof of claim to the Bankruptcy Court on November 21, 2004 for $96,397.39 in post-petition attorney's fees. The fees stem mainly from filing the motion for relief from the automatic stay and for litigating Ryker I, Ryker II, and Ryker III. In response, Ryker filed a motion to reduce the Currents' claim to the balance owed under the foreclosure judgment, i.e., $49,478.86. Ryker maintains that, after subtracting amounts already awarded to the Currents, they are entitled only to $495.38 in attorneys' fees.*fn2

II. The Bankruptcy Court's Decision

In an oral opinion, the Bankruptcy Court denied in part, and allowed in part, Ryker's motion to reduce the Currents' proof of claim. First, the Bankruptcy Court analyzed the Forbearance Agreement and held that it clearly provides for the payment of the Currents' post-petition attorneys' fees. Next, the Bankruptcy Court examined whether the fees were reasonable under 11 U.S.C. § 506(b) ("Section 506(b)"). After applying federal bankruptcy law, the Bankruptcy Court held that a portion of the fees were "reasonable," i.e., $71,027.39, while a portion was "unreasonable," i.e., $25,370.00. Finally, the Bankruptcy Court held that, under Section 506(b) and 11 U.S.C. § 502(b) ("Section 502(b)"), those fees deemed reasonable are treated as a secured claim while those fees deemed unreasonable are treated as an unsecured claim. The Currents appeal this order.


I. Standard Of Review

Pursuant to Rule 8013 of the Bankruptcy Code, this Court may "affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed. R. Bankr. P. 8103. "In bankruptcy cases, the district court serves an appellate function." J.P. Morgan Bank v. Tamis, No. 07-737, 2005 U.S. Dist. LEXIS 28102, at *8 (D.N.J. Nov. 16, 2005). The Court thus reviews findings of fact under a clearly erroneous standard and legal conclusions under a de novo standard. See Fed. R. Bankr. P. 8103; Donaldson v. Bernstein, 104 F.3d 547, 551 (3d Cir. 1997); Chemetron Corp. v. Jones, 72 F.3d 341, 345 (3d Cir. 1995). A factual finding is clearly erroneous when "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." In re Cellnet Data Sys., Inc., 327 F.3d 242, 244 (3d Cir. 2003) (citing United States v. United States Gypsum Co., 333 U.S. 364 (1948)). Where a matter presents mixed questions of law and fact, it is appropriate to apply the relevant standard to each component of the issue. Chemetron, 72 F.3d at 345.

II. 11 U.S.C. § 1322(e) Does Not Apply Because Ryker's Chapter 13 Plan Does Not Propose To "Cure a Default"

Ryker first argues on appeal that the Bankruptcy Court erred in analyzing the Currents's fee request under Section 506(b). He argues that 11 U.S.C. ยง 1322(e) ("Section 1322(e)") applies instead. Ryker contends that, under Section 1322(e), the Court must disallow the Currents' legal fees and costs "because the amount necessary to cure his default must be determined under New Jersey law," which Ryker argues either limits or disallows the Currents' fees in ...

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