### I N THE UNI TED STATES COURT OF APPEALS FOR THE FI F TH CI RCUI T

No. 12-50382

In the Matter of: 804 CONGRESS, L.L.C., Debtor,

----------------------------------- WELLS FARGO BANK, N.A.; GRETA GOLDSBY, Appellees,
v. 804 CONGRESS, L.L.C., Appellant.

Cons w/ 12-50392 In the Matter of: 804 CONGRESS, L.L.C., Debtor,

----------------------------------- WELLS FARGO BANK, N.A., Appellee,
v. 804 CONGRESS, L.L.C., Appellant. U n i t e d S t a te s C o u r t o f A p p e al s F i f t h C i rc u i t 

### F I L E D June 23, 2014 Ly l e W . Cay ce Clerk Case: 12-50382 Document: 00512674156 Page: 1 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

Cons w/ 12-50425 In the Matter of: 804 CONGRESS, L.L.C., Debtor,

----------------------------------- GRETA GOLDSBY, Appellee,
v. 804 CONGRESS, L.L.C., Appellant.

Appeals from the United States District Court for the Western District of Texas

Before JOLLY, GARZA, and OWEN, Circuit Judges. PRISCILLA R. OWEN, Circuit Judge: The principal is s u e in this case is whether, after an a utomatic stay in bankruptcy has been l i f t e d and a creditor is permitted to foreclose on real property, federal or state law governs an oversecured c reditor’s recovery of attorneys’ and other fees from the sale proceeds. A corollary i ssue is whether the bank r uptcy c ourt has jurisdiction over the sale proceeds for purposes of determining the creditor’s right to recover attorneys’ fees and the D eed of Trust trustee’s right to r ecover a contractually s pecified commission for conducting the non-judicial foreclosure sale. The bankruptcy c ourt held that it had jurisdiction. It d enied the request for attorney s ’ f e e s , b ased o n the lack of supporting evidence, a nd s ubstantially reduced the Deed of Trust t rustee’s c ommission,

2 Case: 12-50382 Document: 00512674156 Page: 2 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

finding the contractual commission unreasonable under 1 1 U.S.C. § 506(b). The district court rev e r s e d , holding that the bankruptcy court had no jurisdiction. We reverse the district court’s judgment and remand for further proceedings. I The debtor in the bankruptcy p r oceedings is 804 C ongress, whose only significant asset w as an office building in A ustin, Texas (to w hich we will refer

as “ the property”). Wells Fargo Bank, N.A. ( W e l l s F a r go) had f inanced the purchase of the property and held a “Real Estate Lien N ote” (the Note). To

secure t he Note, 804 Congress e xecuted a “Deed of Trust S e c urity Agreement/Fina n c i n g Statement” ( the Deed of T rust), which granted Wells Fargo a first-priority lien on t he property. Greta Goldsby (Goldsby, and, collectively with W ells Fargo, the Creditors) became t h e s u b s t i t u t e t r u s tee under the Wells Fargo Deed of Trust. After purchasing t he building, 804 C ongress obtained a loan from another creditor, VIA Lending (VIA), secured by a secondpriority lien on the property. This bankrup t cy proceeding is 804 Congress’s second. In response to threatened foreclosure by VIA, 804 Congress first filed for bankruptcy in 2009. T h a t case was dismissed. 804 Congress commenced the present bankruptcy proceeding after a foreclosure sale was scheduled by Wells Fargo. 1 Wells Fargo filed an Emergency M o tion for Relief from Stay, seeking to proceed w ith a non-judicial foreclosu r e sale of the property. The bankruptcy court granted Wells Fargo’s motion in an order that provided that Wells Fargo “shall be permitted to c onduct a foreclosure sale of the Property on September 7, 2010, in accordance with applicable state laws” if 804 Congress had not met certai n c onditions designed to permit i t to sell the property under the

1 8 0 4 C ongres s had been in d ef ault on Wells Fargo’s loan s ince Augus t of 2009, a n d Wells Fargo actually had been op erating the build ing its elf f or s om e tim e af

ter 804 Congres s aband oned it. 3 Case: 12-50382 Document: 00512674156 Page: 3 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

superintendence of the bankruptcy court before that date. 804 Congress did not meet these conditions. Goldsby condu c t e d a non-judicial foreclosure sale of the property in accordance with the Deed of Trust, and that sale yielded p roceeds of

a p p roximately $4.355 million. Pursuant to t he terms o f the Deed of Trust, 2 Goldsby determined that the proceeds should be distributed as follows: 1) Commission to the Deed of Trust Trustee (Goldsby), equaling five percent of the bid $217,750.00

2) Indebtedness and management expenses to Wells Fargo (including attorneys’ fees of more than $87,000) $3,296,915.00

3) To VIA, as second lienholder $618,639.28
4) To 804 Congress, remaining balance $221,695.72

Because 804 Congress d id not have a debtor-in-possession account in which to deposit the a mount d ue 8 0 4 Congress, Goldsby filed a motion with the bankruptcy court t o distribute t he funds to 804 Congress’s attorney. Upon objection from the United States Trustee in the bankruptcy proceeding, Goldsby withdrew this motion.

2 The D eed of Trus t directed the trus tee to d is tribute the p roceed s of th e f o r eclos ure s ale in f ollow ing ord er, cons is tent w ith Texas law :
a. exp ens es of f

oreclos ure, includ ing a com m is sion to Trus tee of 5% of the bid ; b. to [ Wells Fargo] , the f ull am ount of p rincip al, interes t, attorney’s f ees , and other charges d ue and unp aid ; c. any am ounts required by law to be p aid bef ore paym ent to [ 804 Congres s ] ; and d

. to [ 804 Congres s ] , any balance.
4 Case: 12-50382 Document: 00512674156 Page: 4 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

The bankruptcy court indicated t h a t it i ntended to exercise j urisdiction

over the entire proceeds of the f orec l o s u r e sale, and the Creditors each filed proofs of claim for the amount to which t hey claimed they were entitled under the Deed of Trust. 804 Congress subsequently filed objections to W ells Fargo’s and Goldsby’s proofs of claim and filed a Motion to Distribute Funds seeking an order d irecting Goldsby to p ay the principal and interest du e W e l l s F argo and VIA and to pay the remaining funds to 804 Congress pending resolution of the claims against the funds. The bankruptcy court subsequently entered an order directing G oldsby to pay ( 1) VIA in full, 3 (2) Wells Fargo in full with t he exception of i t s claim for attor n e y s ’ fees, which the bankruptcy court c o mpletely disallowed, and (3) herself $7,500 rather t han $217,750. The bankruptcy c ourt reasoned t hat Wells Fargo’s request for a ttorneys’ fees in the amount of $87,894 should be denied in its entirety because it had not filed a proper application for fees and provided no supporting documentation or testimony t h at the fees were reasonable. With regard t o Goldsby’s claim fo r h e r c ommission, the bankruptcy court r easoned that $217,750 (five percent of the bid for the property, as specified in the Deed of Trust) was an unreasonable amount under 11 U.S.C. § 506(b), since Goldsby testified that she had spent no more than twenty hours of time on the foreclosure and that her hourly rate was $375. T h e b ankruptcy c ourt awarded Goldsby $7,500, based on twenty hours of work at her hourly rate. Wells Fargo appealed to the district c ourt, which reversed the bankruptcy court and r emanded for f urther proceedings. The district court held that when t h e b a n k ruptcy court lifted the stay and the foreclosure sale o ccurred, the bankruptcy court ceased to have jurisdiction over the property a nd the sale proceeds. The district c ourt held “that t h e bankruptcy court erred in exercising

3 VIA had alread y been paid , s o the bank rup tcy court’s ord er w as actually a ratif ication of that p rior p aym ent. 5 Case: 12-50382 Document: 00512674156 Page: 5 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

jurisdiction over the foreclosure-sale p roceeds, as the proceeds were governed by Texas law.” The district court remanded “for f ur t h e r p r oceedings with instructions that Goldsby disburse the foreclosure-sale proceeds in accordance with Texas law and the Deed of Trust.” This appeal followed. II The extent of a bankruptcy court’s j urisdiction is a legal is s ue that we review de novo. 4 W e lls Fargo contends that the bankruptcy estate only has an interest i n “any surplus p roceeds over the contractual, state law calculated debt payable under the Deed o f Trust.” It argues that the bankruptcy court therefore “had no authority to direct G o ldsby to disburse the foreclosure s ale proceeds in a manner different than provided under the Deed of Trust.” We disagree. Contrary to W ells F argo’s p osition and the d istrict court’s holding, federal law governs what is to be distributed to a s ecured claimant that is oversecured. 5 When a “secured claim is secured by property the value of which, a f t e r any

recover y [ o f certain amounts by the bankruptcy trustee], is greater than the amount of such claim, t here shall be allowed t o the holder of such claim, interest

on such claim, and any reasonable fees, costs, or charges provided f or under the agreement or State statute under w hich s u ch claim arose.” 6 By the terms of § 506(b), an oversecured creditor may recover, on a secured basis, “fees, costs, or charges provided f

or under the agreement

. . . under which such claim aros e,”

s u c h a s t h e Deed o f Trust at issue in t his case, b ut only to the extent that t h e fees, costs, or charges are r easonable. We do n ot r e ad § 506(b) as applying only when a sale occurs by the trustee in bankruptcy under § 363. 7

4 Ba ss v. D enney ( I

n re Ba ss ) , 171 F. 3d 1016, 1021 ( 5th Cir. 1999)

.
5 11 U

. S. C. § 506( b)

.
6 Id

.
7 11 U

. S. C. § 363. 6 Case: 12-50382 Document: 00512674156 Page: 6 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425 A The only disputed a mounts in this appeal are the amount to be p a id to the Deed o f T rust trustee, Goldsby, and the a m o unt o f attorneys’ f ees that Wells Fargo is to recover. The Note provided that Wells Fargo w a s e n t i t l e d to “all reasonable attorneys’ and/or collection f ees” that it incurred following de f ault. The D eed of Trust directed that upon foreclosure, the t rustee was to “from the proceeds of the sale, pay, in this order”:

a. expenses of foreclosure, inclu d ing a commission to Trustee of 5% of the bid; b. to [Wells Fargo], the full amount of principal, i nterest, attorney’s fees, and other charges due and unpaid;
c. any amounts required by law to be paid before payment to [804 Congress]; and d. to [804 Congress], any balance.
The attorneys’ fees t h at Wells Fargo seeks were largely incurred post-petition, though t h e parties agree that Wells Fargo claimed pre-petition a ttorneys’ fees as well. Our court a ddressed the applicability of § 506(b) to pre-petition a ttorneys’ fees in Blackburn-Bliss T r u s t v. Hudson Shipbuilders, Inc. (In re Hudson Shipbuilders, Inc. ), 8 holding that § 506(b) g overns, rather than state law. 9 The creditor in that case h eld a note that was s ecured by a lien on r eal p ropert y . 1 0 The note provided that upon default and if the note was placed in the hands of

an attorney for c ollection, an additional amount of fifteen percent was to be

8 794 F. 2d 1051 ( 5th Cir. 1986) , ov errul ed i n p a rt by Stern v. M a rsha ll , 131 S. Ct. 2594 ( 2011) , a s recogni z ed in Fra z in v
. H a ynes & B oone, L

. L. P

. ( In re Fra z i n) , 732 F .3d 313, 319 ( 5th Cir. 2013)

.

9 In re Hudson Shi

pbui l ders, I

nc. , 794 F. 2d at 1056- 58.

1 0 Id

. at 1053. 7 Case: 12-50382 Document: 00512674156 Page: 7 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

added to the remaining u npaid principal as attorneys’ fees. 1 1 The creditor filed

a proof of claim in b ankruptcy that included attorneys’ fees calculated as fifteen percent of the unpaid balance. 1 2 The creditor r equested the bankruptcy court to lift the automatic stay s o that it could foreclose on the debtor’s property. 1 3 The bankruptcy court entered an order lifting t he stay, but before the f orec losure occurred, a second-in-priority lienholder filed a motion in t he bankruptcy court disputing t he amount of attorneys’ fees that the first-priority creditor claimed. 1 4 The bankruptcy court held that § 506(b) controlled, n ot state law, and that notwithstanding the agre e m e n t ’s provisions, a reasonable attorneys’ fee was $30,000. 1 5 This court affirmed. We held in Hudson Ship b u i l ders that the bankruptcy c ourt had jurisdiction to r esolve the attorneys’ fee issue reasoning t h a t “ t he bankruptcy court acted pursuant to t h e [c]ongressional m andate expressed in 11 U.S.C. § 506(b) to prevent [the first-priority cre d itor] from getting a windfall by extracting attorneys’ fees in excess of what could legitim a t e l y b e demanded in

a bankruptcy proceeding.” 1 6 We rejected the creditor’s contention “that s tate law
governs t he enforcement of attorneys’ f ee provisions in connection with secured claims in bankruptcy.” 1 7 We concluded tha t when C ongress enacted § 506(b), it “intended that federal l aw should g overn the enfo r cement of attorneys’ fees

1 1 Id

.

1 2 Id

.

1 3 Id

.

1 4 Id.

1 5 Id. at 1054.

1 6 Id

. at 1055.

1 7 Id

. at 1056. 8 Case: 12-50382 Document: 00512674156 Page: 8 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

provisions, notwithstanding contrary state law.” 1 8 We held that the c reditor’s “assertion that if t h e contractual attorneys’ fee p rovision is valid u nder state law it must b e e n f

o r c e d b y t he bankruptcy court, and that i n such cases the bankruptcy court is without power to arrive at what it otherwise p erceives to be

a reasonable fee, is contrary to the weight of j udicial precedent and is betrayed by a legislat i ve intent indicating that awards a re t o b e made under § 506(b) regardless of state law.” 1 9 Our decision in Hudson Shipbuilders i s controlling, at least with respect to W ells Fargo’s claim for pre-petition attorneys’ fees. With regard to claims for post-petition attorneys’ fees and Goldsby’s p o s t

- p e t i t i o n c l a i m f o r t h e five percent Deed of Trust trustee’s fee, we can discern no basis from the text of § 506(b) for treating post-petition c l a i ms differently. We agree with the Eleventh Circuit t h a t § 5 0 6(b) “does not draw a distinction between f ees vested pre- or postpetition.” 2 0 The Supreme C ourt held in United States v. Ron Pair Enterprises 2 1 that § 506(b) governs an oversecured creditor’s claim for post-petition interest, 2 2 and in d icta, clearly i ndicated that § 506(b) would govern post-petition claims for

1 8 Id

. ( citing Josep h F. Sa nson Inv

. Co. v. 268 Ltd. ( I n re 268 L td. ) , 789 F. 2d 674 ( 9th Cir. 1986) ; U

nsecured Credi tors’ Com m
. v
. Wa l t er E. H el l er & Co. Se. (

In re K. H

. Step henson Sup pl y C o. ) , 768 F. 2d 580 ( 4th Cir. 1985) )

.

1 9 Id

. at 1057; see a l so Wel z el v
. A dv oca te Rea l ty Inv s. , LLC ( In r e W e l z e l ) , 275 F

. 3d 1308, 1311, 1314, 1316 (11th Cir. 2001) ( hold ing that although a note provid ed f or attorneys ’ f ees equal to f

if teen p ercent of the p rincip al, which w ould have been $146, 799, “the language of 506( b) [ d oes not] ind icate that j u s t b e caus e a given f ee arrangem ent is enf orceable und er s tate law , it s hould be exem p t f rom the reas onablenes s s tand ard ” and that “the contractually
s et attorney’s f

ees [ that becam e d ue und er the note p re- petition]

. . . m u s t b e as s es s ed f or reas onablenes s und er § 506( b) ”)

.

2 0 In re Wel z el , 275 F. 3d at 1314.

2 1 489 U

. S. 235 (1989)

.
2 2 Ron P a i r Enters. , 489 U

. S. at 237. 9 Case: 12-50382 Document: 00512674156 Page: 9 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

fees, costs, or c h a r ges provided for under the agreement f rom w hich the claim

arose. 2 3 The only distinction that the text of § 5 06(b) draws b etween interest and fees, costs, or charges is that fees, costs, o r charges provided for in an agreement or under a state statute must be reasonable while no such r estriction i s placed

on interest. The Supreme Court held in Ron P a i r Enterprises that the word “reasonable” in § 5 06(b) does not modify “ i nterest” but does modify “fees, costs,

or charges provided f or under the a greement.” 2 4 T he issue in that c ase was whether a creditor could r eceive post-petition interest on a n onconsensual oversecured claim allowed in a bankruptcy proceeding. 2 5 The creditor was the federal government, w hich had filed proof of a pre-petition claim for u n p a i d withholding and Social Security taxes, penalties, and pre-petition interest and had perfected a lien on property owned by the debtor. T he Supreme Court held t h a t under § 506(b), an oversecured creditor is entitled t o recovery o f p o s t

petition interest. 2 6 “Recovery of postpe t i t ion interest is unqualified.” 2 7 H owever, “[r]ecovery o f fees, costs, a nd charges . . . is allowed only if they are reasonable and provided for in the agreement under which the claim arose.” 2 8 The question remains as to whether a lifting of a stay in bankruptcy and

a n o n - judicial foreclosure c onducted under state law changes the equation.

2 3 Id

. a t 241; see a l so 1 C OL L I E R B A N KR U P T C Y M A N U A L ¶ 506. 03 ( Alan N

. Res nick & H enry J. Som m er ed s
. , 4th ed

. 2013) ( “In the cas e of p os tp etition f ees , cos ts and charges , the allow ance of thes e exp ens es as p art of an overs ecured claim is subject to a d eterm ination as to their reas onablenes s und er f ed eral bank rup tcy law

. ”)

.
2 4 Ron P a i r Enters. , 489 U

. S. at 241.

2 5 Id

. at 237.

2 6 Id

. at 241.

2 7 Id

.
2 8 Id

. 10 Case: 12-50382 Document: 00512674156 Page: 10 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

Again, we can discern no intent from § 506(b) t hat oversecured c reditors who are permitted to foreclose are to be t reated differently from oversecured creditors whose claims are satisfied within the bankruptcy proceeding. Wells Fargo and G oldsby a rgue t hat once the stay w as lifted and foreclosure occurred, state law should govern how the proceeds from the sale of the property are distributed b y the Deed of Trust trustee. They contend that the terms o f the Deed o f Tr u s t a r e t o b e s trictly applied and are controlling. A
necessary corollary of that argument is that the D eed of Trust trustee would be empowered to resolve not only what attorneys’ fees, charges, and costs were to be paid from t he proceeds t o W e l ls Fargo and Goldsby, but also the validity or amount o f claims asserted by subordinate lienholders, such as V IA, si n c e the Deed of Trust directed Goldsby to pay “any a mounts required by l aw t o be paid before p ayment ” t o t h e d e b t or. Although there i s no dispute in this c a se as to whether VIA was to be paid from the sale proceeds or how much it was to be paid, in other cases i n which a deed of trust directs the trustee to satisfy junior liens from the sale proceeds, disagreements could arise. Under Wells F a r go’s and G oldsby’s view o f the law, the bankruptcy c ourt would have no role to p lay in resolving disputes about a junior lienholder’s claim. The bankruptcy court’s order lifting the stay all o w e d Wells Fargo to foreclose o n t h e p roperty in accordance with state law foreclosure procedures. It did not g ive the Deed o f Trust trustee any further a uthority and did not have t he effect of insulating the debtor or any of the creditors from the reach o f § 506(b). Lifting the a utomatic stay t o allow Wells F a r g o t o foreclose was not tantamount to an abandonment of the property. 2 9

2 9 See Ki l l eb r e w v
. Brew er ( In re Ki l l ebrew ) , 888 F. 2d 1516, 1519 ( 5th Cir. 1989) ( exp laining that “[ t] he concep t of aband onm ent ap p ears to have becom e conf us ed w ith actions tak en to allow [ a cred itor] to realize on its s ecurity interes t through the lif ting of the autom atic
s tay und er s ection 362”) ; see a l so Ca ta l a no v
. Com m ’r , 279 F .3d 682, 687 ( 9th C i r
. 2002) ( hold ing that “an ord er lif ting the autom atic s tay by its elf d oes not releas e the es tate’s interes t

11 Case: 12-50382 Document: 00512674156 Page: 11 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425 B Based on the text of § 506(b), both the Deed of Trust trustee’s fee sought by Goldsby and the attorneys’ fees sought b y W ells Fargo must be r easonable. It is not dispositive that under Texas law, 3 0 a trustee’s c ontractual fee of five percent o f the indebtedness would generally be enforceable. We h eld in Hudson Shipbuilders t ha t a b ankruptcy court has the power t o arrive at a reasonable attorneys’ fee e ven “if t h e c o n tractual a ttorneys’ f ee provision is valid under state law.” 3 1 We a gree w ith the Elev e n t h C i r c uit that “the language of 506(b) [does not] indicate t hat just because a given f ee arrangement is enforc e a b l e under state law, it should be exempt from the reasonableness standard.” 3 2 The Ninth Circuit’s decision i n Joseph F. San s on Investment Co. v. 268 Ltd. (In re 268 Ltd.) 3 3 is al s o p e r s u asive. T h e debtor, 268 Limited, had purchased property from Sanson and executed a deed of trust that provided that in t he event 268 Limited defaulted and the p roperty was sold by the deed of trust trustee, five percent of the remaining balance due at the time of default would be p aid Sanson, w ho h ad retained a security interest in the property evidenced by the deed of trust. 3 4 An involuntary bankruptcy petition was filed against 268

in the p rop erty and ‘the act of filing the autom atic s tay is not analogous to an aband onm ent of the p rop erty’”)

.

3 0 E. g. , A da m s v
. Fi rst Na t’l Ba nk of Bel l s / S a v oy , 154 S. W. 3d 859, 874 ( Tex. Ap p
. — D allas 2005, no p et. ) (enf orcing f ive- p ercent com m is s ion p rovis ion) ; Ai rl i ne Com m erce Ba nk v
. C

om m erci a l Credi t Corp

. , 531 S. W. 2d 171, 176 (Tex. Ap p
. — H ous ton [ 14th D is t. ] 1975,
w rit ref ’d n. r. e. ) ( s am e)

.
3 1 Bl a ckburn- Bl i ss Trust v
. H udson Shi p bui l ders, Inc. (In re H udson Shi p bui l ders, Inc. ) , 794 F. 2d 1051, 1057 ( 5th Cir. 1986)

.

3 2 Wel z el v
. A dv oca te Rea l ty Inv s. , LLC ( I n re Wel z el

) , 275 F

. 3 d 1 3 0 8 , 1314 ( 11th Cir. 2001)

.
3 3 789 F. 2d 674 ( 9th Cir. 1986)

.

3 4 In re 268 Ltd. , 789 F. 2d at 675. 12 Case: 12-50382 Document: 00512674156 Page: 12 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

Limited, the prop e r t y was sold for a sum in excess of the principal owed, and Sanson, as an oversecured creditor, applied to the bankruptcy court to recover the five percent stipulated in the deed of trust f or attorneys’ fees. 3 5 The Ninth Circuit held that “§ 506(b) preempts the state l a w governing the availability of attorney’s fees as part of a secured claim, a nd

. . . the bankruptcy court c orrectly engaged in an i ndependent reasonableness i n q uiry.” 3 6 The debtor had argued “that if the contractua l fee provision would be enforceable under Nevada law, then the amount provided is reasonable p er se under § 5 0 6 ( b )

. ” 37 The court

r e j e c ted t hat argument, explaining that “[r]easonableness and e nforceabili t y a r e not, however, coterminous.” 3 8 The court upheld t he bankruptcy court’s finding that $20,000 was a reasonable fee, rather than $197,500, which was five percent of the outstanding balance at the time the property was sold. 3 9 The reasoning in H

udson Shipbuilders , Welzel , and 268 Limited , t h a t a bankruptcy court m ay engage in a reasonableness analysis u nder § 506(b) even if an agreement’s provisions for fees would be enforceable un d e r s t a te law, applies to a deed o f t r u s t ’ s p r ovisions setting a commission f or a trustee. If a

c o n t r a ctual fee is not reasonable, i t will not be given effect for the purpos e s o f § 506(b).

3 5 Id

.
3 6 Id

.
3 7 Id

.
3 8 Id

. at 675- 76.

3 9 Id

. at 675, 677- 78; see a l so 1 C OL L I E R B A N KR U P T C Y M A N U A L ¶ 506. 03[ 3] [b] ( Alan N

. Res nick & H enry J. Som m er ed s. , 4th ed

. 2013) ( obs erving that “m os t courts hold that f ed eral law ap p lie s i n d e t erm ining the enf orceability of a p rovis ion requiring the p aym ent of attorney’s f ees ” and “[ o] nly a hand f ul of courts have held that s tate law , or a s yn t h e s i s o f s t a t e and f ed eral law , ap p lies ”) ; id

. at ¶ 506. 03[ 3] [ c] ( “The courts have been fairly u nif orm in hold ing t h at they have inherent pow er to d eterm ine the reas onablenes s of the am ount of a n y attorney’s f

ees to be allow ed und er s ection 506( b) and that reas onablenes s is to be d eterm ined in accord ance w ith f

ed eral s tand ard s
. ”)

. 13 Case: 12-50382 Document: 00512674156 Page: 13 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

A fee determination under 11 U.S.C. § 5 06(b) is a mixed q uestion of law and fact. We review the applicability of § 506(b) de novo b u t r e v i e w the bankruptcy judge’s d e t ermination of reasonableness for abuse of d iscretion. 4 0 The bankruptcy c o u r t did not abuse i ts discretion in concluding that a reasonable f

e e f o r Goldsby was $7,500. This amount was supported by her testimony that she spent m ore than ten but no more than twenty hours in carrying out the foreclosure and that her hourly rate was $375. Whether the bankruptcy court abused its discretion i n f inding that Wells Fargo failed to prove any r easonable attorneys’ fees is a closer question. There

w as evidence that a ttorneys for Wells Fargo had provided s ome servi c e s , a n d there was evidence that Wells Fargo had i n fact paid its attorneys t he a mounts it s o u g h t t o recover. H owever, o n balance, w e c o nclude that the bankruptcy court was within its discretion in finding that there was no documentation of the time that was spent and no testimony as to what was a reasonable fee. 4 1 Based

on this record, we cannot s ay that the b ankruptcy court erred in finding under § 506(b) that the amount of a t t orneys’ f ees Wells Fargo sought was not substantiated and therefore was not shown to be reasonable. We note that even if Texas law g overned the issue of attorneys’ fees, the Supreme Court of Texas has recognized that a noteholder can be l i mited to reasonable attorneys’ fees notwithstanding a c l a u s e in the note obligating payment of a s p e c ified percentage of t h e l o an as attorneys’ fees to the

4 0 See B r idgep ort Ta nk Trucks v
. Li en A gent ( In re EnRe LP) , 457 F. 3d 493, 494 ( 5th C i r. 2006) ; Bl a ckburn- Bl iss Trust v
. H udson Shi p bui lders, Inc. (In re H udson Shi p bui l d e r s , Inc. ) , 794 F. 2d 1051, 1058 ( 5th Cir. 1986)

.

4 1 See g e n e r a l l

y 1 C OL L I E R B A N KR U P T C Y M A N U A L ¶ 506. 03[ 3] [ c] ( Alan N

. Res nick & H enry J. Som m er ed s
. , 4th ed

. 2013) ( “The bank rup tcy courts w ill generally require the p arty s eek ing allow ance of attorney’s fees to carry the burd en of dem ons trating reas onablenes s by p rovid ing a d etailed d es crip tion of the s ervices rend ered , sup p orting d ocum entation, or other evid ence p rior to m ak ing a d eterm ination on an ap p lication for p aym ent [ und er § 506( b) ]

. ”)

. 14 Case: 12-50382 Document: 00512674156 Page: 14 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

noteholder. 4 2 Under Texas law, We l l s F a rgo would bear the burden of demonstrating that the fees it requested were reasonable. 4 3 III Wells Fargo and Goldsby assert that, even if § 506(b) governs rather than state l a w, and the bankruptcy court did not a buse its discretion in failing to find that the c ontractual commission u nder the D eed of Trust and the attorneys’ fees that Wells F argo c laims were reasonable under § 506(b), the claims for the balance of the commi s s i o n a nd all of Wells Fargo’s a ttorneys’ fees should be recoverable under § 502. Several courts have concluded that § 506(b) d eals with the p riority of secured claims, not allowance of claims. 4 4 These same courts have indic a t e d that certain claims for amounts found not to be reasonable under § 506(b) may be recoverable under § 502. 4 5 The Ninth Circuit, in 268 Limited , discussed above, held that although the bankruptcy court found that $20,000 was a reaso n a b le attorneys’ fee under

4 2 E. g. , F. R. Herna ndez Constr. & Sup p l y Co. v
. N

a t ’l Ba nk of Com m erce of Brow nsv i l l e , 578 S. W. 2d 675, 676- 77 ( Tex. 1979)

.

4 3 See G a rci a v
. G om ez , 319 S. W. 3d 638, 646 ( Tex. 2010)

.

4 4 See U PS Ca p ita l Bus. Credi t v
. G enca rel l i ( I n re G enca rel l i

) , 501 F. 3d 1, 5 ( 1s t Cir. 2007) ( a s s erting that “[ t] here is univers al agreem ent that w hereas s ection 506 f urnis hes a s eries of us ef

ul rules f

or d eterm ining w hether and to w hat extent a claim is s ecured ( and , theref ore, entitled to p riority) , it d oes not ans w er the m aterially d if f erent ques tion of w hether the claim its elf s hould be allow ed or d is allow ed ” and that “the general rules that govern the allow ance or d is allow ance of cl a i m s are s et out in s ection 502”) ; Wel z el v
. A dv oca te Rea l ty Inv s. , LLC (In re Wel z e l ) , 275 F. 3d 1308, 1317 ( 11th Cir. 2001) (hold ing that § 506( b) “is
com p letely silent w ith regard to the allow ance/ d is allow ance is s ue” and t h a t “ [ t ] h is s ilence
s ugges ts that § 506( b) is m eant not to d is p lace the general ins tructions laid d ow n in § 502, but to be read together with § 502 in a com p lem entary m anner”) ; In re 268 Ltd. , 789 F. 2d at 678 ( conclud ing that § 506( b) “es tablis hes the requirem ents for a s e c u r e d claim ” and “m ay be und ers tood to d ef

ine the p ortion of the f ees which s hall be af

ford ed s ecured s tatus ”) ; see a l so 1 C OL L I E R B A N KR U P T C Y M A N U A L ¶ 506. 01 ( Alan N

. Res nick & H enry J. Som m er ed s
. , 4th ed

. 2013) ( “[ Sec t i o n 506] d oes not govern the allow ance or d is allow ance of the und erlying claim its elf

. R ules governing the allow ance of claim s generally are p rovid ed in s ection 502. ”)

.

4 5 See i d

. 15 Case: 12-50382 Document: 00512674156 Page: 15 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

§ 506(b), the remainder of the five percent contractual attorneys’ f e e w as recoverable u n der § 5 02 as an unsecured claim. 4 6 T he co urt reasoned that the t ext o f § 506(b) supported its conclusion and that “to b ar S anson from seek i n g the b alance o f its f

ees as an u nse c ured claim would m ake it worse off in bankruptcy than it would have been if its claim were unsecured.” 4 7 Similarly, in Welzel , the Eleventh Circuit held that any portion of a contractual attorneys’ fee that was not f ound reasonable under § 506(b) should be bifurcated and treated as an unsecured claim. 4 8 In Wel z e l a contractual provision in a note stipulated that the lender would be e ntitled to collect fifteen
p e rcent of the principal plus accrued interest a s attorneys’ fees. 4 9 A f t e r concluding that these “contractually set attorney’s f ees
. . . m ust be assessed for reasonableness under § 506(b),” 5 0 the court held that “ [r]easonable fees are then to be treat e d a s a secured claim. I f a portion of t he fees are deemed unreasonable, howev e r , t h e fees should be bifurcated between the reasonable portion, t reated as a secured claim, and the unreasonable portion, t reated as an unsecured claim.” 5 1 The First Circuit, in dicta, agreed with Welzel , concluding t hat contractual prepayment penalties were recoverable b y a c reditor from a solvent debtor under § 502 even if, or to t he extent that, the penalties were found unreasonable under

4 6 In re 268 Ltd. , 789 F. 2d at 678.

4 7 Id

.

4 8 In re Wel z el , 275 F. 3d at 1318.

4 9 Id

. at 1311.

5 0 Id

. at 1316.

5 1 Id

. at 1318. 16 Case: 12-50382 Document: 00512674156 Page: 16 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

§ 506(b). 5 2 The court ultimately concluded t hat because the debtor was “solvent and t he bankruptcy estate possesses funds sufficient to pay all claims (secured and unsecured) in full, no useful purpose would b e served b y in q u i r ing into whether the prepayment penalties a r e r easonable (and, thus, deserving of priority) within the contemplation of section 506(b).” 5 3 The reasoning in 268 Limited, Welzel , and Gencarel l i r e garding the allowance under § 502 of fees, costs, or charges found unreasonable under § 5 06(b) is arguably i n tension w ith the Supreme Court’s d e c i s i o n in United Savings Ass’n of Texas v. Timbers of Inwood Forest Associates

. 5 4 T he S upreme Court held that, w ith respect to interest, § 506(b) had the “substantive effect of denying undersecured creditors p o s t p e tition interest on their claims.” 5 5 The contention has been m a de th a t § 506(b) similarly has the substantive effect of denying recovery of post-petition fees, costs, or charges found unreasonable from

5 2 U PS Ca p i ta l B us. Credi t v
. G enca rel l i ( In re G e n c a r e l l i

) , 501 F. 3d 1, 6- 7 ( 1s t Cir. 2007) ; see a l so i d

. at 5, conclud ing:

We a r e p ers uad ed that U PS’s view of the interrelations hip betw een s ections 502 and 506( b) is correct. As a m atter of bank rup tc y law , the low er courts s hould not have dis allow ed the claim s f or p rep aym ent p enalties in toto bas ed s olely up on a f

ind ing that they w ere not entitled to priority und er s ection 506( b)

. Section 502, not s ection 506( b) , af f ord s the ultim ate tes t f or allow ability, and any claim s atis f ying that tes t is , at the very w ors t, collectible as an uns ecured claim

. Lead ing com m entators , cas e law f rom other c i r c u i t s , and
com m on s ens e all cond uce to this res ult.

5 3 Id

. at 8.

5 4 484 U

. S. 365 (1988)

.
5 5 Ti m bers of Inw ood Fores t A s socs. , 484 U

. S. at 372; i d

. at 373, 379 ( hold ing that § 506( b) “d eni[ es ]

. . . p o s t p e tition interes t to und ers ecured cred itors , ” and recognizing “an ap p arent anom aly” that w hen a d ebtor p roves solvent, 11 U

. S. C. § 726( a) ( 5) p rovid es f or p os tp etition interes t on uns ecured claim s “but not on the s ecured portion of und ers ecured cred itors ’ claim s, ” but conclud ing that t h e s e p articular “inequitable ef fects

. . . are entirely avoid able, s ince an und ers ecured cred itor is entitled to ‘s urrend er or w aive his s ecurity and p rove his entire claim as an uns ecured one[ ] ’”) ( quoting U

. S. Na t’l Ba nk v
. Cha se N a t’l Ba nk , 331 U

. S. 28, 34 ( 1947) )

. 17 Case: 12-50382 Document: 00512674156 Page: 17 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

being recovered as unsecured claims. 5 6 However, the Second Circuit, i n Ogle v. Fidelity & Deposit Co. of Maryland , 5 7 distinguished T imbers , c oncluding that in addition to § 506(b), Timbers referenced § 5 02(b)(2), “which expressly d isallows a claim for interest that is unmatured.” 5 8 In Travelers Casualty & Surety C o. of America v
. P

a c i fic Gas & Electric Co. , 5 9 the Supreme Court expressly de c lined to consider whether “§ 506(b) categorically disallows unsecured c laims for c ontractual attorney’s f ees” because that issue had not been raised in the courts below. 6 0 It is not clear whether the i s s u e of whether § 506(b) c ategorically f orecloses recovery of fees or char g e s f o u n d t o b e unreasonable was raised by 8 04 Congress in the bankruptcy court

5 6 See O gl e v
. Fi d. & D ep osi t Co. of M d. , 586 F. 3d 143, 147- 48 ( 2d Cir. 2009) ( obs erving that “[ a] f

air ques tion is rais ed by O gle as to w hether s ection 506( b) of the Cod e am ounts to an exp res s d is allow ance of [ t h e c r ed itor’s ] claim by negative inf erence or otherw is e” but conclud ing “that s ection 506( b) d oes n o t i mp l i c a t e u n secured claim s f or p os t- p etition attorneys ’ f ees , and it theref

ore interp o s e s n o b ar to recovery, ” rejecting the argum ent that Ti m bers
s up p orts a general rule that bars “claim s f or pos t- p etition attorneys ’ f ees ”)

.
5 7 586 F. 3d 143 ( 2d Cir. 2009)

.
5 8 O gl e , 586 F. 3d at 148; see a l so In re Genca rel l i , 5 0 1 F. 3d at 6 n. 2 ( d is tinguis hing Ti m bers on the bas is that it “d ealt w i t h claim s f or p os t- p etition interes t, which— unlik e the p rep aym ent p enalties at is s ue here— are mad e unavailable as uns ecured claim s by an exp licit
s tatutory provis ion”)

.

5 9 549 U. S. 443 ( 2007)

. B u t s e e Ogl e , 586 F. 3d at 145- 46, 148 ( d is cus s ing the s p lit of
a u t h ority and hold ing that an uns ecured claim f or attorneys ’ f

ees incurred p os t- p eti t i o n i n s eek ing to enf

orce a pre- p etition ind em nity agreem ent s hould have been allow ed and that “s ection 5 0 6 ( b ) d oes not im p licate uns ecured claim s for p os t- p etition attorneys ’ f ees , and it theref ore interp os es no bar to recovery”) ; SN TL Corp

. v
. Centre Ins. Co. ( In re SN TL Corp

. ) , 571 F

. 3d 826, 841 ( 9th Cir. 2009) ( hold ing that “w e reject the argum ent th a t s ection 506( b) p r eem pts p os tp etition attorneys ’ f ees f or all excep t overs ecured cred itors ”) ; 1 C O LLI ER B A N KR U P T C Y M A N U A L ¶ 502. 03[ 2] [ b] [ iv] ( Alan N

. Res nick & H enry J. So m m er ed s. , 4th ed

. 2013) ( “[ T] he N inth Circuit has analyzed and d is card ed the m os t com m only m ad e argum ents that other bank rup tcy p rincip les p rovid e an ind ep end ent bas is for d i s allow ing uns ecured claim s f or attorney’ s f

e e s incurred p os tp etition” and that “the trend s eem s to be m oving tow ard s courts allow ing claim s f or attorney’s f

ees w here p erm itted by s tate law or contractual agreem ent”)

.

6 0 Tra v el ers C

a s. & Sur. Co. of A m
. , 549 U

. S. at 454- 55 ( em p has is ad d ed ).

18 Case: 12-50382 Document: 00512674156 Page: 18 Date Filed: 06/23/2014Nos. 12-50382, 12-50392 & 12-50425

or the d istrict court, and we decline to decide an issue of such m oment on the
sparse briefing an d s ketchy factual r e cord before us. Similarly, it is unclear whether t h e closely-related arguments that Wells F a rgo and Goldsby have included in their briefing in this court regarding treatment of th e ir claims, or parts of their claims, as unsecured claims under § 502 w e r e raised in the bankruptcy court. We le a v e i t to t he bankruptcy court t o consider in the first instance the questions raised r egarding § 502 and whether Goldsby m ay seek to recover the remainder of h er c ontractual commission as an unsecured c reditor, a nd whether Wells F argo m ay seek to recover p re- or post-petition attorneys’ fees u nder § 502,

even though the bankruptcy court failed to find that its claim as a n oversecured creditor for attorneys’ f ees was reasonable under § 5 0 6 ( b) for purposes of determining whether those fees s hould be paid from the proceeds of the sale of secured property. * * * We REVERSE the district court’s judgment and REMAND the case to the bankruptcy court for proceedings consistent with this opinion.

19 Case: 12-50382 Document: 00512674156 Page: 19 Date Filed: 06/23/2014