Case: 10-20609 Document: 00511634450 Page: 1 Date Filed: 10/17/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 17, 2011
No. 10-20609 Lyle W. Cayce
Clerk
In the Matter of: LAWRENCE DAVID VELAZQUEZ; TRACY LOUISE
VELAZQUEZ,
Debtors
LAWRENCE DAVID VELAZQUEZ; TRACY LOUISE VELAZQUEZ,
Appellees
v.
COUNTRYWIDE HOME LOANS SERVICING, L.P.,
Appellant
Appeal from the United States District Court
for the Southern District of Texas
Before KING, DAVIS, and GARZA, Circuit Judges.
PER CURIAM:
In the Chapter 13 case of Appellees Lawrence David Velazquez and Tracy
Louise Velazquez, Appellant Countrywide Home Loans Servicing, L.P. sought
the recovery of attorney’s fees incurred in connection with the bankruptcy as
well as a determination that compliance with Federal Rule of Bankruptcy
Procedure 2016 was not necessary for the recovery of such fees. The bankruptcy
court held that Countrywide Home Loans Servicing, L.P. was not entitled to
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recover its attorney’s fees and determined that there was no justiciable issue to
resolve regarding the applicability of Bankruptcy Rule 2016 because
Countrywide had already complied with the rule. The district court affirmed.
We hold that the bankruptcy and district courts misconstrued the provision of
the contract governing the availability of attorney’s fees and that Countrywide
is entitled to recover the fees sought in its Fee Application. Like the bankruptcy
and district courts, however, we decline to address whether Bankruptcy Rule
2016 applies. We reverse and remand for further proceedings.
I. Factual and Procedural Background
On September 8, 2006, Lawrence David Velazquez and Tracy Louise
Velazquez (“the Velazquezes”) executed a note (the “Note”) in the principal
amount of $125,986 for the purchase of a home in Pasadena, Texas. The Note
was secured by a deed of trust (the “Deed of Trust”) on the property.
Subsequently, the Velazquezes defaulted on their obligations under the Note and
the Deed of Trust. On May 19, 2008, the Velazquezes filed a petition for relief
under Chapter 13 of the Bankruptcy Code.
Countrywide Home Loans Servicing, L.P. (“Countrywide”) timely filed a
proof of claim (the “Proof of Claim”) on August 4, 2008, in the Velazquez case for
$141,733.93.1 The claim consisted of a principal balance of $125,232.87 and
$16,501.06 as the amount of arrearage to be cured by the plan. The Proof of
Claim listed $200 in “Post-Petition Bnk. Atty. Fees” as part of the arrearage. On
January 9, 2009, Countrywide filed a fee application (the “Fee Application”)
seeking approval of the $200 included in the Proof of Claim as well as recovery
of an additional $150 in fees incurred for the preparation and prosecution of the
Fee Application.
1
An amended proof of claim was filed on February 27, 2009, but it does not affect the
analysis.
2
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On February 26, 2009, a hearing was held in the United States
Bankruptcy Court for the Southern District of Texas regarding the Fee
Application. At the hearing, Countrywide argued that compliance with Federal
Rule of Bankruptcy Procedure 20162 was not required in this instance and that
Countrywide should not be subjected to the “[Rule] 2016 process.” According to
Countrywide, because it filed the Proof of Claim and no party in interest
objected, the claim for attorney’s fees should be deemed allowed under 11 U.S.C.
§ 502(a).
Countrywide further argued that Sections 9 and 14 of the Deed of Trust
entitle it to collect the attorney’s fees sought. Section 9 of the Deed of Trust
provides:
9. Protection of Lender’s Interest in the Property and
Rights Under this Security Instrument. If (a) Borrower fails to
perform the covenants and agreements contained in this Security
Instrument, (b) there is a legal proceeding that might significantly
affect Lender’s interest in the Property and/or rights under this
Security Instrument (such as a proceeding in bankruptcy, probate,
for condemnation or forfeiture, for enforcement of a lien which may
attain priority over this Security Instrument or to enforce laws or
regulations), or (c) Borrower has abandoned the Property, then
Lender may do and pay for whatever is reasonable or appropriate to
protect Lender’s interest in the Property and rights under this
Security Instrument, including protecting and/or assessing the value
of the Property, and securing and/or repairing the Property.
Lender’s actions can include, but are not limited to: (a) paying any
sums secured by a lien which has priority over this Security
Instrument; (b) appearing in court; and (c) paying reasonable
attorneys’ fees to protect its interest in the Property and/or rights
under this Security Instrument, including its secured position in a
bankruptcy proceeding. Securing the Property includes, but is not
limited to, entering the Property to make repairs, change locks,
replace or board up doors and windows, drain water from pipes,
2
Throughout this opinion, we will use “Bankruptcy Rule” or “Rule” to describe the
Federal Rules of Bankruptcy Procedure. In addition, any references to the “Code” denote the
United States Bankruptcy Code.
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eliminate building or other code violations or dangerous conditions,
and have utilities turned on or off. Although Lender may take
action under this Section 9, Lender does not have to do so and is not
under any duty or obligation to do so. It is agreed that Lender
incurs no liability for not taking any or all actions authorized under
this Section 9.
Any amounts disbursed by Lender under this Section 9 shall
become additional debt of Borrower secured by this Security
Instrument. These amounts shall bear interest at the Note rate
from the date of disbursement and shall be payable, with such
interest, upon notice from Lender to Borrower requesting payment.
....
(emphasis added).
Section 14 of the Deed of Trust states:
14. Loan Charges. Lender may charge Borrower fees for
services performed in connection with Borrower’s default, for the
purpose of protecting Lender’s interest in the Property and rights
under this Security Instrument, including, but not limited to,
attorneys’ fees, property inspection and valuation fees. In regard to
any other fees, the absence of express authority in this Security
Instrument to charge a specific fee to Borrower shall not be
construed as a prohibition on the charging of such fee. Lender may
not charge fees that are expressly prohibited by this Security
Instrument or by Applicable Law.
....
The bankruptcy court held that the Deed of Trust did not entitle
Countrywide to be reimbursed for the attorney’s fees sought in the Fee
Application. In re Rangel, 408 B.R. 650, 674 (Bankr. S.D. Tex. 2009). The court
focused on the language in the Deed of Trust providing that the “Lender may do
and pay for whatever is reasonable or appropriate to protect Lender’s interest
in the Property and rights under this Security Instrument . . . .” Id. at 674
(emphasis added). The court interpreted the Deed of Trust as allowing recovery
of fees only when they were incurred to protect both Countrywide’s interest in
the property and its rights under the Security Instrument. Id. at 675–76. The
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bankruptcy court further found that “Countrywide’s ‘interest in the
Property’—i.e. the Velazquezes’ homestead—cannot be affected by the
Velazquezes’ Chapter 13 proceedings because . . . [11 U.S.C.] § 1322(b)(2)
expressly provides that a Chapter 13 plan may not modify a home lender’s
contract rights.” Id. at 674–75.
The bankruptcy court declined to reach the issue regarding the
applicability of Rule 2016 to Countrywide, finding there was no controversy to
resolve. Id. at 664. Under Rule 2016, “[a]n entity seeking interim or final
compensation for services . . . from the estate shall file an application setting
forth a detailed statement of (1) the services rendered, time expended and
expenses incurred, and (2) the amounts requested.” Fed. R. Bankr. P. 2016(a).
The bankruptcy court reasoned that whether Countrywide was required to file
a fee application under Rule 2016 was not a justiciable issue because
Countrywide had already complied with the rule by filing the Fee Application.
Countrywide appealed the bankruptcy court’s rulings regarding its
entitlement to fees and the applicability of Rule 2016 to the United States
District Court for the Southern District of Texas, which adopted the bankruptcy
court’s reasoning in full and affirmed. Countrywide Home Loans Servicing, LP
v. Velazquez, No. 09-CV-02084, at 9 (S.D. Tex. Aug. 11, 2010). Countrywide now
appeals to this court.
II. Discussion
In appeals originating from a bankruptcy court’s decision, we review
findings of fact for clear error, and conclusions of law are reviewed de novo.
Plunk v. Yaquinto (In re Plunk), 481 F.3d 302, 305 (5th Cir. 2007).
Interpretation of the Deed of Trust presents a question of law that the court
reviews de novo. See Cleere Drilling Co. v. Dominion Exploration, 351 F.3d 642,
645 (5th Cir. 2003).
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A. The Deed of Trust
As the bankruptcy court noted, “[a] home lender’s ability to collect fees and
costs from a Chapter 13 debtor’s bankruptcy estate is governed, in the first
instance, by the language of its loan documents.” In re Rangel, 408 B.R. at 655.
Texas state law governs the interpretation of the Deed of Trust. “The primary
concern of a court in construing a written contract is to ascertain the true intent
of the parties as expressed in the instrument.” Nat’l Union Fire Ins. Co. of
Pittsburgh v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995) (citations
omitted). When interpreting a contract, a court “should examine and consider
the entire writing in an effort to harmonize and give effect to all the provisions
of the contract so that none will be rendered meaningless.” Coker v. Coker, 650
S.W.2d 391, 393 (Tex. 1983) (emphasis omitted). “No single provision taken
alone will be given controlling effect; rather, all the provisions must be
considered with reference to the whole instrument.” Id.
Countrywide argues that the bankruptcy and district courts misconstrued
the language in Sections 9 and 14 of the Deed of Trust. Section 9 of the Deed of
Trust entitles Countrywide to “do and pay for whatever is reasonable or
appropriate to protect Lender’s interest in the Property and rights under this
Security Instrument . . . .”3 The district and bankruptcy courts interpreted this
phrase as providing for the recovery of fees only for the limited set of activities
that simultaneously protect both Countrywide’s interest in the property and its
rights under the Deed of Trust. Countrywide, No. 09-CV-02084, at 6; In re
Rangel, 408 B.R. at 675–76. Countrywide, on the other hand, maintains that
“and” should be interpreted as “either or both.” In other words, Countrywide
3
Section 14 of the Deed of Trust contains similar language regarding services
performed “for the purpose of protecting Lender’s interest in the Property and Rights under
this Security Instrument . . . .” However, our ruling is based on our interpretation of Section
9.
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interprets Section 9 as entitling it to do or pay for activities that protect its
interest in the property, protect its rights under the Deed of Trust, or protect
both its interest in the property and its rights under the Deed of Trust.
At the outset, we note that the word “and” is often construed as
conjunctive and interpreted in a manner consistent with the rulings of the
bankruptcy and district courts. See Bruce v. First Fed. Sav. & Loan Ass’n of
Conroe, Inc., 837 F.2d 712, 715–16 (5th Cir. 1988) (noting that “[t]he word ‘and’
is . . . to be accepted for its conjunctive connotation rather than as a word
interchangeable with ‘or’ except where strict grammatical construction will
frustrate clear legislative intent” but holding that “and” should be given a
disjunctive rather than conjunctive meaning in the statute at issue); Bd. of Ins.
Comm’rs of Tex. v. Guardian Life Ins. Co. of Tex., 180 S.W.2d 906, 908 (Tex.
1944) (noting that “and” and “or” are typically not interchangeable). However,
“and” can be interpreted as disjunctive when the context requires. See Leon Ltd.
v. Albuquerque Commons P’ship, 862 S.W.2d 693, 703–04 (Tex. App.—El Paso,
1993, no writ) (interpreting “and” in the context of a provision listing a
partnership’s purposes as permitting the partnership to engage in “any one or
all of” the activities listed); Aerospatiale Helicopter Corp. v. Universal Health
Servs. Inc., 778 S.W.2d 492, 502 (Tex. App.—Dallas 1989) (“Although in common
usage ‘and’ is conjunctive and ‘or’ is disjunctive, and, therefore, the two are not
usually interchangeable, they are interpreted as synonymous when the context
so requires in order to give effect to the manifest intent.”); see also Bd. of Ins.
Comm’rs, 180 S.W.2d at 908 (stating that “and” may be interpreted as “or” where
necessary to “effectuate the manifest intention of the user”) (internal quotation
marks and citation omitted). “One of the recognized uses of ‘and’ is to refer to
‘either or both’ of two alternatives . . . .” Aerospatiale Helicopter Corp., 778
S.W.2d at 502.
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We note that a Texas appellate court interpreted very similar language to
that found in Section 9 of the Deed of Trust in Lanier v. Spring Cypress
Investments and found that “and” meant “either or both.” 1995 WL 489427, at
*2 (Tex. App.—Houston [1st Dist.], August 17, 1995, no writ) (not designated for
publication). In Lanier, a note provided that “Maker shall be fully liable to
Payee or other holder of this note . . . for: (a) ad valorem and other taxes,
assessments and impositions paid by Payee to protect its interest and the lien of
the Deed of Trust securing this note . . . .” Id. at *1 (emphasis added). The
related deed of trust contained a similar provision. Id. Appellees defaulted on
their payment obligations, and the appellant foreclosed his lien on the property
on March 6, 1990. Id. at *2. After the foreclosure, appellants paid $42,173.24
in past-due taxes for 1988 and 1989 and sought to recover this amount under the
note and the deed of trust. Id. Appellees, however, argued that they were not
liable for any taxes paid by the appellants after the foreclosure. Id. According
to appellees, their liability only existed when the note holder paid taxes to
protect its interest and the lien of the Deed of Trust. Id. Because the lien was
extinguished following foreclosure, the appellees reasoned, the payment of taxes
could not have protected the appellant’s lien. Id. The court, however, rejected
this argument and interpreted the language of the note as imposing liability “for
any taxes paid by Lanier to protect either or both his interest and the lien.” Id.
at *3 (emphasis added).4 Although Lanier, being unpublished, is not binding
precedent, the similarity of the provision at issue in Lanier and Section 9 of the
Deed of Trust, as well as the applicability of Texas law in both instances,
militates in favor of interpreting “and” as “either or both” in Section 9.
4
The Lanier court also noted that interpreting the language of the note in the manner
suggested by the appellees would cause an absurd or commercially unreasonable result.
Lanier, 1995 WL 489427, at *3. However, the court’s interpretation of the language at issue
does not appear to depend on this finding of absurdity.
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Moreover, in the instant case, we find that consideration of Section 9 as a
whole requires construing “and” to mean “either or both” to effectuate the clear
intent of the parties.5 Section 9 specifically lists contemplated actions that can
be undertaken by the lender. It states that “Lender’s actions can include, but
are not limited to . . . paying reasonable attorneys’ fees to protect its interest in
the Property and/or rights under this Security Instrument, including its secured
position in a bankruptcy proceeding.” (emphasis added). In light of this
language, it is clear that the Deed of Trust contemplates entitlement to
attorney’s fees incurred to protect Countrywide’s interest in the property or
rights under the Deed of Trust. Consequently, “and” does not strictly mean
“both” in the phrase “Lender may do and pay for whatever is reasonable or
appropriate to protect Lender’s interest in the Property and rights under this
Security Instrument.” (emphasis added). To interpret Section 9 otherwise
would impermissibly render portions of the agreement meaningless and
frustrate the intentions of the parties as made clear by Section 9 as a whole. See
Phoenix Holdings, Ltd. v. Circle C Land Corp., 987 S.W.2d 933, 937 (Tex.
App.—Austin 1999, pet. denied) (stating that courts are required “to interpret
the contract in its entirety, to harmonize its various provisions, and to reject
where possible an interpretation that would render any provision meaningless
because it is presumed the parties intended each provision to have effect”).
Further, we find that all the requirements for the recovery of attorney’s
fees set out by Section 9 have been satisfied. It is not disputed that the
Velazquezes were in default on their obligations under the Note and Deed of
Trust. Further, as the bankruptcy court noted, the Velazquezes’ Chapter 13 case
5
We are aware that a separate panel recently addressed the meaning of the language
at issue here. See Wells Fargo Bank v. Collins (In re Collins), No. 10-20658, 2011 WL 3568910
(5th Cir. Aug. 15, 2011) (per curiam). In Collins, the court affirmed the denial of fees for want
of reversible error. We respectfully disagree regarding the meaning of the contract at issue.
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was a proceeding that could significantly affect Countrywide’s rights under the
Deed of Trust, meaning that the triggering event under Section 9 had occurred.
In re Rangel, 408 B.R. at 675. Countrywide incurred fees for acts that were
reasonable or appropriate to preserve its rights under the Deed of Trust.6 See
id. at 667 (determining that the fees incurred were reasonable for the services
rendered); Countrywide, No. 09-CV-02084, at 8 (stating that the bankruptcy
court concluded that the Proof of Claim protected Countrywide’s rights under the
Deed of Trust). In addition, at least under the interpretation of Rule 2016
adopted by the bankruptcy judge, compliance with Rule 2016 was required by
the bankruptcy court for Countrywide to recover its attorney’s fees from the
estate. As a consequence, the fees resulting from filing and prosecuting the Fee
Application were reasonably and appropriately incurred to protect
Countrywide’s rights under the Deed of Trust. Thus, we hold that Countrywide
was entitled to recover the attorney’s fees sought in its Fee Application.
Therefore, we reverse the judgment of the district court and remand for entry by
the bankruptcy court of an order allowing such fees.
B. The Applicability of Bankruptcy Rule 2016 to Countrywide
Having concluded that Countrywide is entitled to the fees requested in its
Fee Application, the issue of whether Countrywide was required to file a fee
6
The bankruptcy court noted that there is a split of authority regarding whether “the
filing of a proof of claim is a ministerial act for which attorney services are not necessary.” In
re Rangel, 408 B.R. at 666. The court then concluded that “the filing of a proof of claim is not
a mere ministerial act. . . . Given the breadth of case law and far-reaching legal implications
inherent in the filing of proofs of claim, this Court agrees . . . that paying an attorney for
preparation of the proof of claim and the additional services rendered is reasonable.” Id.
(internal quotation marks and citation omitted). At several points in their briefing, the
Velazquezes refer to the filing of a proof of claim as a “ministerial act.” However, they fail to
present any argument challenging the ruling that Countrywide’s use of an attorney—as
opposed to a non-attorney—to prepare and file the Proof of Claim was reasonable, and thus
we do not address this issue. Consequently, we do not foreclose the ability of a bankruptcy
court to assess the legitimacy of expenses on this ground.
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application under Bankruptcy Rule 2016 is moot, regardless of whether it was
moot in the bankruptcy and district courts (an issue we need not decide).
III. Conclusion
For the reasons stated above, we REVERSE the judgment of the district
court and REMAND for entry by the bankruptcy court of an order allowing the
fees covered by the Fee Application. Costs shall be borne by the Appellees.
11