Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-01962/USCOURTS-azd-2_07-cv-01962-2/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

In re:

Michael Keith Schugg, dba Schuburg

Holsteins, and Debra Schugg, 

Debtors. _________________________________

Wells Fargo Bank, N.A., 

Appellant, 

vs.

Alan A. Meda, Trustee,

Appellee. 

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

No. CV 07-1962-PHX-JAT

ORDER

BK No. 2-04-13226-PHX-GBN

BK No. 2-04-19091-PHX-GBN

(Jointly Administered and Substantively

Consolidated)

Wells Fargo Bank, N.A. (“Wells Fargo”) has filed a Second Application for Fees,

Costs and Expenses Incurred on Appeal (Doc. #16-2). Debtor Michael Schugg has filed an

Objection to Wells Fargo’s Second Application for Reimbursement of Fees and Costs (Doc.

#19-3). On November 19, 2008, the Court determined that this Court was the proper court

to decide the Fee Application, rather than the Bankruptcy Court. (Doc. #21). Mr. Schugg

also has filed a Motion to Extend Time to File Notice of Appeal (Doc. #18), which Wells

Fargo has not opposed.

I. Background

Michael and Debra Schugg filed their voluntary Chapter 11 bankruptcy petitions on

July 29, 2004 and November 1, 2004, respectively. (Doc. #16-2 ¶1). The Schuggs owed

Case 2:07-cv-01962-JAT Document 23 Filed 06/11/09 Page 1 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 2 -

Appellant Wells Fargo Bank approximately $4.2 million under certain promissory notes and

other related documents. (Doc. #16-2 ¶2). Wells Fargo also had a standby letter of credit

outstanding with a commitment of $3.4 million. (Doc. #16-2 ¶2). The letter of credit was

drawn upon during the pendency of the Schuggs’ bankruptcy cases. (Doc. #16-2 ¶2). Wells

Fargo’s indebtedness in the Chapter 11 cases was secured by liens in substantially all of the

Schuggs’ assets. (Doc. #16-2 ¶2). The Bankruptcy Trustee agreed in May of 2006 to pay

in full the indebtedness owed by the Schuggs to Wells Fargo. (Doc. #16-2 ¶3).

On May 24, 2007, Michael Schugg filed a stipulation purporting to reflect an

agreement between Mr. Schugg and the Plan Trustee allowing Mr. Schugg to pursue

litigation against Wells Fargo on behalf of the estate, specifically with respect to contesting

the Wells Fargo claim and recovering any related attorneys’ fees that might be owed to the

estate. (Doc. #16-2 ¶14). Initially, the Bankruptcy Court denied the bankruptcy estate a right

to recover fees from Wells Fargo. (Doc. #16-2 ¶15). On May 25, 2007, Schugg filed a

Motion to Reconsider that ruling. (Doc. #16-2 ¶15). Wells Fargo defended against the

Motion to Reconsider. (Doc. #16-2 ¶16). The Bankruptcy Court held a hearing on the

Motion to Reconsider on June 29, 2007. At the hearing, the Bankruptcy Court granted the

Motion to Reconsider and found that the estate was entitled to recover fees from Wells

Fargo. (Doc. #16-2 ¶16).

Wells Fargo appealed the Bankruptcy Court’s ruling on the Motion to Reconsider to

this Court on July 13, 2007 (the “First Appeal”). (Doc. #16-2 ¶17). On August 8, 2007, Mr.

Schugg filed a Motion to Dismiss the First Appeal as an improper appeal from an

interlocutory order. (Doc. #16-2 ¶20). 

During the pendency of the First Appeal, the parties briefed and argued the Trustee’s

application for $152,091.50 in fees purportedly owed under the Reconsideration Order.

(Doc. #16-2 ¶18). The Bankruptcy Court entered an order on October 3, 2007 (the

“Reimbursement Order”) granting the Trustee’s application in a reduced amount of

$55,881.50. (Doc. #16-2 ¶18). Wells Fargo filed an appeal from the Reimbursement Order

on October 10, 2007 (the “Second Appeal”). (Doc. #16-2 ¶19). 

Case 2:07-cv-01962-JAT Document 23 Filed 06/11/09 Page 2 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 3 -

While waiting for the Court to rule on Schugg’s Motion to Dismiss the First Appeal,

the parties worked on a proposed order either: 1) consolidating the First and Second Appeals

or 2) vacating the Second Appeal and withdrawing the Motion to Dismiss. (Doc. #16-2 ¶22).

This Court did not accept either of the parties’ suggestions and granted Schugg’s Motion to

Dismiss on December 11, 2007. (Doc. #16-2 ¶23). 

On December 21, 2007, Schugg filed a motion for attorneys’ fees with the Court for

fees incurred on the First Appeal (the “Schugg Fee Motion”). (Doc. #16-2 ¶24). Wells

Fargo opposed the motion. The Court denied the Schugg Fee Motion in its entirety on June

26, 2008. (Doc. #16-2 ¶25).

The Court held oral argument on the Second Appeal on August 25, 2008. (Doc. #16-2

¶27). On September 3, 2008, the Court entered an Order reversing the Reconsideration

Order. (Doc. #16-2 ¶28). Wells Fargo filed its Notice of Filing Application For Fees, Costs,

and Expenses Incurred on Appeal (the “Second Fee Application”) on September 17, 2008.

(Doc. #16).

II. Analysis and Conclusion

Mr. Schugg raises an initial procedural objection to certain fees requested by Wells

Fargo in the Second Fee Application. Mr. Schugg argues that the Second Fee Application

is untimely with regard to fees and costs incurred in the First Appeal, and the related Schugg

Fee Motion, because Wells Fargo did not file the Application within two weeks of this

Court’s final orders on those issues. Mr. Schugg asserts that because no applicable Local

Rule of Bankruptcy Appeal Procedure exists, the Court should apply the time limitation in

Circuit Rule 39-1.6(a). See L.R. Bankr. 8018-1; F.R.B.P. 9014 (C); F.R.B.P. 8014; Local

R. Bank. Proc. 7054-1(a) and 7054; Fed.R.Civ.P. 54(a) and d(2)(B); and Circuit Rule 39-

1.6(a).

Local Rule of Bankruptcy Procedure 8018-1 provides that when the Local Rules of

Bankruptcy Appeal Procedure and the Federal Rules of Bankruptcy Procedure are silent as

to a particular matter of practice relating to a bankruptcy appeal, then the Court may apply

the Rules of the United States Court of Appeals for the Ninth Circuit and the Federal Rules

Case 2:07-cv-01962-JAT Document 23 Filed 06/11/09 Page 3 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

Mr. Schugg does not argue that the request for fees incurred in the Reconsideration

Motion, the Trustee Fee Motion, and the Second Appeal were untimely. The Court therefore

will treat them as timely.

- 4 -

of Appellate Procedure. No Local Rule of Bankruptcy Procedure or Federal Rule of

Bankruptcy Procedure regarding the time for filing a motion for attorneys’ fees exists.

Circuit Rule 39-1.6(a) provides that, absent a statutory provision to the contrary, a request

for attorneys’ fees must be made no later than 14 days after the expiration of the period

within which a petition for rehearing may be filed, unless at timely petition for rehearing is

filed. Unless the United States or its agent is a party, a petition for rehearing must be filed

within 14 days after the entry of judgment. So, a request for attorneys’ fees pursuant to

Circuit Rule 39-1.6(a) must be made within 28 days of judgment.

Wells Fargo does not counter Schugg’s argument regarding the timing of a motion for

attorneys’ fees on appeal in its Reply to Schugg’s objection. Wells Fargo does not cite to any

cases holding that Circuit Rule 39.-1.6(a)’s timing requirement does not apply to an

application for costs and expenses incurred on appeal pursuant to Section 506(b) of the

Bankruptcy Code. Further, the Court finds that common sense and judicial economy favor

a timely motion for attorneys’ fees so the Court can review the request close in time to the

underlying substantive legal work performed and to avoid lumping work on several discreet

legal matters into a single fee application. See In re Newman, 270 B.R. 845, 848(Bankr. S.D.

Ohio 2001). 

The Court therefore finds that Wells Fargo’s request for attorneys’ fees and expenses

is untimely with regard to fees and expenses incurred on the First Appeal and the related

Schugg Fee Appeal. Wells Fargo did not file the pending Second Application until many

months after this Court’s Order granting the Motion to Dismiss the First Appeal and until two

months after the Court denied the Schugg Fee Motion in its entirety. Accordingly, the Court

will not award Wells Fargo any fees or expenses incurred in prosecuting the First Appeal or

defending the Schugg Fee Motion.1

Schugg objects to the remainder of the categories of fees requested as unreasonable.

Case 2:07-cv-01962-JAT Document 23 Filed 06/11/09 Page 4 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 5 -

Under §506(b) of the Bankruptcy Code, an oversecured credit can recover attorneys fees and

costs agreed to by contract. In re Circle K Corp., 141 B.R. 688, 692 (Bankr. D. Ariz. 1992).

The creditor is entitled to fees if: “(1) the claim is an allowed secured claim; (2) the creditor

is oversecured; (3) the fees are reasonable; and (4) the fees are provided for under the

agreement.” In re Kord Enterprises II, 139 F.3d 684, 687 (9th Cir. 1998). In assessing

reasonableness, the Court analyzes whether the creditor incurred expenses that fall within the

scope of the agreement, whether the fees and costs were reasonably calculated to protect the

creditor’s interest, and whether the creditor took action that similar creditors would have

taken. In re Circle K, 141 B.R. at 692.

Schugg does not dispute that Wells Fargo is an oversecured creditor with an allowed

secured claim. Further, the Schuggs’ loan security agreement with Wells Fargo provided:

Section 7.3 COSTS, EXPENSES AND ATTORNEYS’ FEES.

Borrower shall pay to Bank immediately upon demand the full

amount of all payments, advances, charges, costs and expenses,

including reasonable attorneys’ fees . . ., expended or incurred

by Bank in connection with . . . (b) the enforcement of Bank’s

rights and/or the collection of any amounts become due to the

Bank under any of the Loan documents, and (c) the prosecution

or defense of any action in any way related to any of the Loan

Documents, including without limitation, any action for

declaratory relief, whether incurred at the trial or appellate level,

in an arbitration proceeding or otherwise, and including any of

the foregoing incurred in connection with any bankruptcy

proceeding (including without limitation, any adversary

proceeding, contested matter or motion brought by Bank or any

other person) relating to any Borrower or any other person or

entity.

Doc. #16 Ex. H, p. 12, para 7.3.

Wells Fargo’s fee application therefore satisfies requirements one, two, and four for

awarding attorneys fees and expenses under §506(b). Mr. Schugg takes issue with the third

factor – reasonableness. Mr. Schugg argues that a similarly situated secured creditor would

not have taken the actions that Wells Fargo did and that Wells Fargo’s actions were not

reasonably necessary to protect its interest. Mr. Schugg also makes some specific objections

with regard to certain time entries.

The Court disagrees with Mr. Schugg and finds that the fees and expenses incurred

Case 2:07-cv-01962-JAT Document 23 Filed 06/11/09 Page 5 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

This amount excludes $93.60 for transcription fees and a $255 filing/service fees

because those expenses should be requested from the Bankruptcy Court as taxable costs.

- 6 -

by Wells Fargo in the Reconsideration Motion, the Trustee Fee Motion, and the Second

Appeal were reasonable. The Court finds that a similarly situated oversecured creditor might

have taken the actions taken by Wells Fargo. Further, the Court finds that Wells Fargo’s

actions were taken to protect its secured interest. Finally, the Court does not agree with any

of Mr. Schugg’s specific objections. The Court therefore will award Wells Fargo its

attorneys’ fees and expenses associated with the Reconsideration Motion, the Trustee Fee

Application, and the Second Appeal, but will exclude certain taxable costs.

Mr. Schugg has filed a Motion to Extend Time to File Notice of Appeal (Doc. #18).

The Court will deem Wells Fargo’s failure to respond as consent to that Motion. L.R.Civ.P.

7.2(i).

Accordingly,

IT IS ORDERED Granting in part and Denying in part Wells Fargo’s Second

Application for Reimbursement of Fees, Costs and Expenses Pursuant to Section 506(b) of

the Bankruptcy Code (Doc. #16-2). The Court will award Wells Fargo attorneys’ fees in the

amount of $9,298.50 for the Reconsideration Motion; $4,194.50 for the Trustee Fee

Application; and $17,558 for the Second Appeal. The Court will award Wells Fargo costs

and expenses in the amount of $1,003.63 for the Reconsideration Motion; $536.00 for the

Trustee Fee Application; and $792.432

 for the Second Appeal.

IT IS FURTHER ORDERED Granting Schugg’s Motion to Extend Time to File

Notice of Appeal (Doc. #18).

DATED this 10th day of June, 2009.

Case 2:07-cv-01962-JAT Document 23 Filed 06/11/09 Page 6 of 6