IN RE RIVERMEADOWS ASSOCIATES, LTD., (Bankr.D.Wyo. 1998)

PETER McNIFF, United States Bankruptcy Judge.

Jeff Wanamaker's Application for Reimbursement of Fees and Costs is before the court. Objections were filed by Thomas M. Falcey, the chapter 11 trustee of this estate; Tom Connolly, the chapter 11 trustee of the Donald H. Albrecht estate, case no. 97-20252; the United States Trustee; and Donald H. Albrecht, individually. The court held a hearing on the requested fees on December 18, 1997.

Mr. Wanamaker's filed application requests reimbursement of $983,888.68 (the correct total is $984,888.68) in fees and $152,502.71 in costs. The applicant subsequently and voluntarily reduced that amount to reflect an error in the fee calculation of $18,048.43 and by $3,374.16 for a reduction in travel time billed. Thus, the fee request totals $963,466.09.

Mr. Wanamaker is an oversecured creditor of the Albrecht estate, which is the principal equity holder in the Rivermeadows Associates, Ltd. (RMA) estate. Pursuant to a court approved settlement agreement between Mr. Wanamaker and the trustees of the two estates, the RMA trustee paid Mr. Wanamaker approximately $6,000,000. Thus, the principal and interest on his allowed secured claim have been paid in full.

In the settlement, Mr. Falcey and Mr. Connolly agreed to pay the entire amount of Mr. Wanamaker's secured claim, including any attorney fees and costs. The court required this application, and both trustees objected.

This application presents the final issue in determining the allowed amount of Mr. Wanamaker's secured claim. He is requesting these fees and costs pursuant to 11 U.S.C. § 506(b). That section 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 amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs or charges provided for under the agreement which such claim arose.

Mr. Wanamaker's secured claim exists because of enforcement actions he took on a judgment entered against Mr. and Mrs. Albrecht. The judgment was entered against the Albrechts in a lawsuit based on an unsecured promissory note signed by the Albrechts. The unsecured note provides that "[i]f the holder of this Note incurs cost of collection, cost of enforcement or other costs, including attorney fees, in relation to enforcing this Note, the undersigned promise to pay, and there shall be added to the unpaid principal balance hereof, all costs of collection, including, but not limited to, reasonable attorneys' fees and all expenses incurred. . ."

Mr. Albrecht raised the determinative issue and argued that Mr. Wanamaker is not entitled to an allowance of fees and costs under § 506(b) because the lien creating the secured claim is a judicial lien. Mr. Albrecht cites a decision by the United States District Court for the District of Utah, and contends that attorney fees are only permitted under § 506(b) to the extent that the agreement providing for fees and costs of collection is secured by collateral taken under the same security agreement. State Bank of Southern Utah v. Rushton, 207 B.R. 721 (D.Utah 1997).

Likewise, the court in In re Vulpetti, 182 B.R. 923, 927 (Bankr.S.D.Fla. 1995) held that the statutory language imposes the requirement that the agreement under which the "allowed secured claim" arose must be the same agreement which created the lien, i.e., a security interest. The Rushton court based its decision on a reading of the statutory language in § 506(b) and on certain statements made by the United States Supreme Court in United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026 (1989).

In Ron Pair, the Court held that under § 506(b), interest is payable to an oversecured creditor regardless of the type of lien the creditor holds. In so doing, the Court distinguished between nonconsensual, judicial and statutory liens, and consensual liens granted by a security agreement. Id. at 1030. The Court stated that the statutory language "such claim" refers to an oversecured claim, and that the section "gives one having a secured claim created pursuant to an agreement the right to reasonable fees, costs, and charges provided for in that agreement." Id.

This court agrees with the interpretation of the statuts in the Rushton and Vulpetti decisions. Under § 506(b) the fees and costs must be provided for "under the agreement under which the allowed secured claim arose." (Emphasis provided). In this case, the allowed secured claim arises out of a judgment, not under the unsecured note. The agreement which provides for fees and costs did not create the secured claim.

The reason for this distinction in § 506(b) (that fees are permitted if secured by consensual liens granted in security agreements but disallowed under nonconsensual liens) is discussed by the court in In re D.W.G.K. Restaurants, Inc, 84 B.R. 684, 687 (Bankr.S.D.Cal. 1988). That court stated that § 506(b) "respects the party's contractual rights by allowing the secured party the full extent of his bargained for security." The Congressional purpose is to protect the equity in the estate for the unsecured creditors, of whom the judgment lien holder could be one, for fair and equitable distribution. Only bargained for collateral can secure a bargained-for, consensual, attorney-fee provision.

The court has found no decision holding to the contrary. Mr. Wanamaker chose to pursue collection of his judgment liens and has been repaid in full. However, the attorney fees incurred in so doing cannot be part of his allowed secured claim in the Albrecht related cases because the collateral was not obtained under a consensual agreement allowing for such fees.

It is, accordingly, ORDERED that Mr. Wanamaker's application for reimbursement of fees and costs as part of his allowed secured claim is hereby DENIED.