United States Bankruptcy Appellate Panel

For the Eighth Circuit

___________________________ 

No. 14-6008 

___________________________ 

In re: Stephen D. McCormick, also known as Steve D. McCormick; Karen A. 

McCormick 

lllllllllllllllllllllDebtors 

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Starion Financial 

lllllllllllllllllllllMovant - Appellant

v. 

Stephen D. McCormick; Karen A. McCormick 

lllllllllllllllllllllDebtors - Appellees

____________ 

Appeal from United States Bankruptcy Court 

for the District of North Dakota - Fargo 

____________ 

 Submitted: October 28, 2014

Filed: December 24, 2014

____________ 

Before FEDERMAN, Chief Judge, SALADINO and SHODEEN, Bankruptcy 

Judges.

____________ 

SHODEEN, Bankruptcy Judge
2 

 Starion Financial appeals from the bankruptcy court’s order denying its 

Motion to Compel Payment of Fees Unde r the Confirmed Plan of Reorganizatio n 

and granting the Debtors’ Motion to Disallow Attorneys’ Fees and Costs Clai med 

by Starion Financial. We have jurisdiction of this appeal from entry of the 

bankruptcy court’s final or der pursuant to 28 U.S.C. section 158(b). For the 

reasons set forth below, we reverse and remand for further proceedings. 

BACKGROUND 

Over the course of several years the Debtors and Starion entered into a series 

of loan transactions. Pursuant to the various promissory notes and mortgages dated 

December 23, 2004, January 25, 2006, June 13, 2007 and June 30, 2009 the 

Debtors were liable for paym ent of Starion’s attorney fees and costs for collection 

of the indebtedness. The Debtors also executed personal guarantees, in differing 

amounts, related to the promissory notes and mortgages given to Starion by entities 

owned by the Debtors. Defaults under th e loans resulted in a Workout Agreement 

dated July 26, 2012 betw een Starion and the Debtors. As part of that agreement, 

the Debtors consent ed to t he entry of j udgments against t hem to secure their 

personal guarantees. On July 27, 2012, based upon two properly filed confessions 

of judgment which were executed as part of the Workout Agreement, a North 

Dakota state court entered judgments agai nst Debtors in the respective am ounts of 

$2,078,034.26 and $1,000,000.00, plus interest. 

 Debtors filed a voluntary chapter 11 petition on Augus t 29, 2012. Preconfirmation modifications to the Debtors’ Second Amended Plan of 

Reorganization (“Plan”) were accomplished by a series of filed addendum s. One 

such addendum was filed to resolve and define the payment term s for Stari on’s 

claim (“Starion Addendum”). Specifically that addendum stated: 

Collection Costs. Debtors agree to pay St arion’s 

allowable attorney’s fees and costs associated with both 

Debtors’ bankruptcy procee dings including but not 

limited to reasonable attorneys’ fees, consulting, 
3 

appraisal, filing fees, late f ees, etc. (collectively referred 

to as “Fees”) through the Plan. The procedure for 

allowance of such attorneys’ fees and costs will be as 

provided in the Plan. 

On September 13, 2013 t he Debtors’ Plan , incorporating the Starion Addendum, 

was confirmed by the bankruptc y court. Section 8.01(c) of t he confirmed plan 

defines “Allowable Attorneys’ Fees and Costs” as “a cl aim against the debtors for 

an oversecured creditor’s attorney’s fees and costs incurred in connection with the 

creditor’s secured clai m.” That section goes on to describe the proc edure for 

allowance of the fees and costs as follows: 

Any Allowable Fees and Costs m ust be approved by 

Debtors before payment is di sbursed. At least ten days 

prior to the Effective Date of the Plan, the creditor a nd/or 

its counsel, shall submit an itemized statement (reflecting 

date, a description of the se rvices, increments of time 

spent, and hourly rate being charged), to the Debtors and 

their counsel, for approval. If the parties cannot come to 

an agreement or resolution as to the am ount of the 

Allowable Attorneys’ Fees and Costs to be paid, the 

matter shall be determ ined by the Bankruptcy Court, 

upon notice and hearing. No paym ent of Allowable 

Attorneys’ Fees and Costs will be due until eithe r the 

agreement of the parties or a final determination by the 

Bankruptcy Court that those am ounts are due under the 

Plan. 

 On October 3, 2013 Starion subm itted an itemized statement to the Debtor 

for various costs including interest, late fees, real esta te taxes, and appraisal and 

engineering fees. A few days later on October 7, 2013 Starion submitted an 

updated statement that included its attorneys’ fees. Taking the position that Starion 
4 

was not entitled to these am ounts based upon the Plan or 11 U.S.C. section 506(b) 

the Debtors refused to pay the amounts re quested for appraisal and engineering 

costs, and the attorneys’ fees (collectively “Fees”). 

 Starion filed a motion requesting the bankruptcy court to compel payment of 

its Fees in the am ount of $125,014.64 ba sed upon the Plan and 11 U.S.C. section 

506(b). On the same day the Debtors fi led a motion seeking disallowance of the 

Fee request contending that: there is no agreement for the payment of Fees; th e 

Fee request was untimely; and the Fees are not reasonable. 

BANKRUPTCY COURT DECISION 

On March 10, 2014, the ba nkruptcy court issued its Order denying Starion’s 

motion to com pel payment of attorney fees and costs, and granting Debtors’ 

motion seeking disallowance of Starion’s re quest. The court began its analysis by 

noting the term s of the St arion Addendum and the Pl an, and specifically 

determined that: “bot h Debtors and St arion agree that the Court’s analysis 

regarding Starion’s eligibility to recover attorney fees is confined to limits outlined 

in section 506 of the Bankruptcy Code.” 

Since section 506 allows an oversecured creditor to recover reasonable fees 

and costs provided for unde r the agreem ent under which the claim arose, the 

bankruptcy court first looke d at whether Starion’s claim was oversecured. The 

court noted that, “D ebtors do not disput e Starion’s claim that it is oversecured. In 

fact, in their brie fs, Debtors refer to Starion’s claim as oversecured.” 
5 

Notwithstanding, the bankruptcy court did not ultimately decide whether Starion is 

oversecured, but instead assumed1

 that it was for purposes of its order. 

Next, the bankruptcy court looked at whether fees and costs were all owed 

under an agreement under which the claim arose. It held tha t: “Starion’s judicial 

liens ‘arose’ under the Judgments, which wh en entered by the clerk and recorded 

under North Dakota law created liens on real property. N.D.C.C. §28-20-13. 

Consequently, the documents this Court looks to for an agre ement giving rise to 

the claim for attorney fees and costs are the Judgment s.” Relying upon a North 

Dakota statute that disfavors paym ent of attorney fees, the bankruptcy court 

concluded that the absence of “a clau se or sentence [in the judgment] entitling 

Starion to collect attorney fees” was fa tal to St arion’s request for payment. 

Accordingly, Starion’s m otion to com pel payment was denied and the Debtor’s 

motion disallowing the Fees was granted. Starion appeals the bankrupt cy court’s 

ruling. 

STANDARD OF REVIEW 

 A bankruptcy court ’s findings of fact are reviewed for clear error and its 

conclusions of law are reviewed de novo . First Nat’l Bank v. Pontow, 111 F.3d 

604, 609 (8th Cir. 1997) (quoting Miller v. Farmers Home Admin. (In re Miller), 

16 F.3d 240, 242-43 (8th Cir. 1994)). In this case we review de novo the 

bankruptcy court’s interpreta tion and application of 11 U.S.C. section 506(b). 

Wegner v. Grunewaldt, 821 F.3d 1317, 1320 (8t h Cir. 1987); White v. Coors 

Distributing, Co. (In re White), 260 B.R. 870, 874 (B.A.P. 8th Cir. 2001). 

 

1

 Based upon footnote 9 in the bankruptcy court’s order this element is deemed to have been conceded by the 

parties. 
6 

DISCUSSION 

Payment of attorney fees and costs to an oversecured creditor is permitted by 

the Bankruptcy Code at 11 U.S.C. section 506(b), which states: 

To the extent that an allowed secured claim is secured by 

property the value of which, after any recovery under 

subsection (c) of this section, is greater than the am ount 

of such claim, there shall be allowed to the holder of such 

claim, interest on such clai m, and any reasonable fees, 

costs, or charges provided for under the agreement or 

State statute2

 under which such claim arose. 

The statute requires a showing of four fa ctors: “(1) the clai m must be an allowed 

secured claim; (2) the creditor holding th e claim must be over-secured; (3) th e 

entitlement to fees, costs, or charges m ust be provided for under the agreement or 

state statute under which the claim arose; and (4) the fees, costs and charges sought 

must be reasonable in amount.” In re Sun ‘N Fun Waterpark, LLC, 408 B.R. 361, 

366 (B.A.P. 10th Cir. 2009). See also In re White, 260 B.R. 870, 880 (B.A.P . 8th 

Cir. 2001) (citing First W. Bank & Trust v. Drewes (In re Schriock Constr., Inc.), 

104 F.3d 200, 201 (8th Cir. 1997)). Upon proving these factors the st atute plainly 

states that payment of reasonable fees, costs or charges “shall be allowed.” 

 

The bankruptcy court’s decision was ba sed solely on the third factor. Our 

review is, therefore, lim ited to the third factor which requires a determination of 

whether the agreement under which the cl aim arose provides for the payment of 

attorney fees and costs. 

 

2

 In 2005, the reference to a State statute as a basis for payment of an oversecured creditor’s claim for reasonable 

fees and costs was added to 11 U.S.C. section 506(b) to place consensual and non-consensual liens “on a level 

playing field” for purposes of applying the statute. In re Gift, 469 B.R. 800, 806 (Bankr. M.D. Tenn. 2012).
7 

Starion argues that the bankruptcy cour t committed error in holding that the 

state court judgments made Starion oversecu red, and thus t he judgments were the 

“agreement” under which Starion’s claim m ust arise. Instead, Starion contends 

that the underlying l oan documents, the Workout Agreement, Plan and addendum 

thereto should be considered collectively to constitute the agreement required by 

section 506(b). 

The bankruptcy court’s reliance upon the judgments as the “agreement” 

under which Starion’s right t o payment of it s fees arises is m isplaced. It is 

undisputed that the promissory notes, mortgages, Workout Agreement and ot her 

documents related to the loans that constitute Starion’s claim do contain 

appropriate attorney fee provisions. Those are the instruments under which 

Starion’s “claim arose.” The t erm “claim” is defined in the bankruptcy code as a 

“right to payment, whether or not such right is reduced to judgm ent, liquidated, 

unliquidated, fixed, conti ngent, matured, unmatured, disputed, undisputed, legal, 

equitable, secured or unsecured...” Stari on’s right to payment, or claim, arose 

directly from its loan docum ents—as the definition of claim expressly recognizes 

that the claim may exist with or wit hout a judgment. A judgm ent is sim ply a 

means of enforcing a right to payment. Here, the judgments happen to give Starion 

a lien on real property of the judgm ent debtors in the counties where the judgm ent 

was entered, which increases the collateral for Starion’s claim but does not change 

the instruments under which the right to claim attorney fees arose. 

[A] lien secures an interest th at already exists. See, e.g., 

In re AR Accessories, 345 F. 3d at 458–59 (describing 

lien as “a mechanism for ... enforcement of a preexisting 

right”); 51 Am.Jur.2d Liens § 2 (2014) (“A lien is a cause 
8 

of action, a remedy ..., or a method by which to enforce 

an underlying claim. That is, a lien is pa rt and parcel of 

the underlying claim, the former existing only because of 

the latter.”) 

Branch Banking & Trust Co. v. Constr. S upervision Servs., Inc. (In re Constr. 

Supervison Servs., Inc.), 753 F.3d 124, 128 (4th Cir. 2014). The fact that the 

parties utilized confessions of j udgment to obtain the judicial lien is also relevant 

to the analysis under 11 U.S.C. section 506(b). 

A “judgment by confession” or “confession of judgment” 

signifies an acknowledgment of indebtedness, on which it 

is contemplated that a judgment may and will be 

rendered. It is a judgm ent entered pursuant to t he 

voluntary act or agreement of the defendant, and is 

substantially an acknowledgment that a debt is justly due. 

... 

It is in effect a private ad mission to liability for a debt 

without trial. 

49 C.J.S. Judgments § 170 (emphasis added) . The judgments entered by the state 

court in favor of t he Appellant served to acknowledge inde btedness and secure 

payment of the obligations that existed under the notes, mortgages, guarantees3

 and 

Workout Agreement. 

 It appears that the parties’ argum ents and t he bankruptcy court’s order 

intermixed the two requirements of the right to fees under 506(b)—that the creditor 

be oversecured and that the right to fees be provided for under the agreement under 

which the claim arose. Those are two separate requirements. In particular, section 

506(b) does not require that the right to fees be provided in the agreement under 

 

3

 The underlying guarantees were not admitted into evidence. The record reflects that the Debtors did not contest 

the issue that the guarantees included a provision for the payment of attorney fees. 
9 

which the creditor became oversecured. 4 It also doe s not require that it be in all

agreements that make up the secured claim of the creditor. 

The record reflects that the parties had a long standing lending relationship 

that involved numerous real estate lending t ransactions. It is undisputed that the 

original notes, m ortgages and guaranty documents provide d for payment of 

Starion’s Fees. Th e terms of the Workout Agreement also referenced Starion’s 

right to clai m its Fees. The confession s of judgment and subsequent judgment 

liens merely served as the mechanism to perfect an interest in additional collateral 

to secure payment of all obligations t o Starion. As such, t he judgment entries 

cannot be construed as the sole agreem ents for purposes of applyi ng 11 U.S.C. 

section 506(b), and the bankruptcy court’ s conclusion that the Judgments m ust 

constitute the agreement under which the Appellant’s Fee claim arose for purposes 

of applying 11 U.S.C. section 506(b) is erroneous as a matter of law. 

CONCLUSION 

For the reasons set forth, the decision of the bankruptcy court is reversed. The case 

is remanded for further proceedings to determine the reas onableness and the 

timeliness of the Appellant’s Fee request.   

 

4

 We note that Debtors cite to D.W.G.K. Restaurants, Inc., 84 B.R. 684, 687 (Bankr. S.D. Cal. 1988) which states 

that the agreement referenced in section 506(b) is a security agreement. That conclusion is based on the legislative 

history of section 506(b), which states in part, “if the security agreement between the parties provides for attorneys’ 

fees, it will be enforceable under title 11....” The D.W.G.K. court and the Debtors seem to believe that as a result of 

that legislative history, only a security agreement can serve as the “agreement” under section 506(b). We disagree. 

The legislative history is certainly not limiting in its language and the statute clearly does not create any such 

limitation.