On January 3, 2024, the U.S. Bankruptcy Court for the Western District of Texas issued an order approving, in substantial part, a contested fee application submitted by 100 E. 7th Street Lender LLC, an oversecured lender to debtor Damon Capital, Ltd. After determining that the requested fees and expenses were recoverable under the parties’ contract, the court considered whether those fees and expenses were reasonable under the Bankruptcy Code. The case was largely a two-party dispute, in which Damon, the single-asset real estate owner, sought to confirm a plan that purported to pay the lender only the contract rate of interest post-petition, rather than the default rate. The lender conducted discovery on the issues and remained vigilant in face of the debtor’s “less than thorough[]” compliance with its responsibilities in the bankruptcy case. At the end, the lender’s fees were nearly twice what the debtor’s fees were, which “would raise an eyebrow in most cases,” the court noted.

In finding that the remaining fees were reasonable, the court acknowledged a few particularities about the bankruptcy case that weighed in favor of finding for the lender. First, the Court noted that because the case involved a single-asset real estate entity, the two parties that “mattered” were the debtor and the lender. Consequently, the lender was required to “stay on its toes” and act timely and firmly to avoid losing its rights. Second, the Court found that the Debtor’s own actions in the case—namely, it’s lack of compliance with its responsibilities and late filings—played a role in the size of the lender’s attorney’s fees.

Although the court ultimately found that the lender’s fees in relation to defending its interests in the bankruptcy case were reasonable, the court discounted the lender’s fees related to the fee application after finding that redactions made to the time sheets attached to the fee application were unnecessary. In the court’s view, “the best practice is to draft time entries in such a way as not to need redactions.” Because the redactions were eventually abandoned at the hearing, the court chose to discount, instead of disallow, the fees related to preparing the fee application.

The case is In re Damon Capital, Ltd., No. 23-10063-cgb (Bankr. W.D. Tex. Jan. 3, 2024). Damon Capital is represented by Barron & Newburger, PC. 110 E. 7th Street Lender LLC is represented by Holland & Knight LLP. The opinion is available here.