Banner Bank v. Wyatt (In re Wyatt)

• Decision Date: 01 November 2019
• Docket Number: Adv. Proceeding No. 18-8006-JMM,Bankruptcy Case No. 17-40973-JMM
• Citation: 609 B.R. 530
• Parties: IN RE: Wells A. WYATT, Debtor. Banner Bank, Plaintiff, v. Wells A. Wyatt, Defendant.
• Court: U.S. Bankruptcy Court — District of Idaho

609 B.R. 530

IN RE: Wells A. WYATT, Debtor.

Banner Bank, Plaintiff,

v.Wells A. Wyatt, Defendant.

Bankruptcy Case No. 17-40973-JMM

Adv. Proceeding No. 18-8006-JMM

United States Bankruptcy Court, D. Idaho.

Signed November 1, 2019

Randall Peterman, GIVENS PURSLEY, LLP, Boise, Idaho, Attorney for Plaintiff.

Patrick Geile, FOLEY FREEMAN, PLLC, Meridian, Idaho, Attorney for Defendant.

MEMORANDUM OF DECISION

JOSEPH M. MEIER, CHIEF U.S. BANKRUPTCY JUDGE

Introduction

Banner Bank ("Plaintiff") filed a six-count adversary proceeding seeking relief against Wells Wyatt ("Defendant") under various subsections of §§ 523 and 727 of the Bankruptcy Code on February 14, 2018.¹ On August 21, 2019, after a four-day trial in the adversary proceeding, this Court entered an order denying Defendant his chapter 7 discharge under § 727(a)(3) (failure to keep or preserve adequate records). Subsequent to the entry of that order, Plaintiff filed a motion to consider an award of costs and attorneys' fees ("Fee Motion") on August 30, 2019. Dkt. No. 116. On that same day, Plaintiff filed a brief in support of its Fee Motion, a declaration of Plaintiff's counsel (Randy Peterman, "Peterman"), and a bill of costs. Dkt. Nos. 117, 118, 119. Defendant objected to the Fee Motion on September 13, 2019. Dkt. No. 130. Plaintiff replied to the objection on October 8, 2019, Dkt. No. 144, and Defendant responded to Plaintiff's reply on October 10, 2019. Dkt. No. 146. On October 15, 2019, the Court heard oral argument on the Fee Motion and thereafter took the matter under advisement. The Court has considered the parties' briefing and arguments, and this Memorandum of Decision sets forth the Court's findings, conclusions, and reasons for its disposition of the Fee Motion. Rules 7052; 9014.

Factual Background

In June 2007, Defendant organized his cattle operation as an Oregon corporation known as Wyatt Livestock, Inc. ("Livestock"). After Livestock suffered a variety of setbacks and losses, Defendant filed a chapter 7 bankruptcy petition on November 3, 2017.² The majority of Defendant's debts at the time he filed his petition were owed to Plaintiff for one loan made to Livestock and three loans made to another entity, partially owned by Defendant, known as Wyatt Feeding LLP ("Feeding").

Plaintiff filed an adversary complaint against Defendant on February 14, 2018, pleading six separate causes of action. Dkt. No. 1. In Counts I through IV, Plaintiff sought denial of Defendant's bankruptcy discharge under §§ 727(a)(2) (fraudulent transfer or concealment of property), 727(a)(3) (failure to keep or preserve adequate records), 727(a)(4) (false oath or account, presentation of false claim, extortion, bribery, or withholding documents and records from an officer), and 727(a)(5) (failure to explain loss of assets or insolvency). Id. at 7–9. In Counts V and VI, Plaintiff asked the Court to determine that Defendant's debts owed specifically to Plaintiff are nondischargeable under either § 523(a)(2)(A) (false pretense, false representation, or actual fraud), or § 523(a)(2)(B) (materially false statement in writing respecting the debtor's financial condition). Id. at 9–10.

Defendant filed a motion for summary judgment on January 18, 2019. Dkt. No. 43. The Court granted Defendant's motion for summary judgment on Counts I and III under §§ 727(a)(2) and (4), but denied the motion as to Counts II, IV, V, and VI. Dkt. No. 77. Those four surviving counts were the subject matter of the trial. On June 11, 2019, at the end of the second day of trial, Defendant orally moved to dismiss Counts IV, V, and VI. Dkt. No. 98. The Court denied Defendant's oral motion, but during the arguments on the motion, Plaintiff agreed to withdraw its claims as they applied to Feeding, leaving only the Plaintiff's claims on Counts II, IV, V, and VI as they related to Livestock before the Court at the conclusion of trial.

After the trial, on August 21, 2019, the Court issued an order in which it denied relief on Plaintiff's Count IV under § 727(a)(5) and granted relief based on Plaintiff's Count II under § 727(a)(3). Dkt. No. 111. The Court declined to address Plaintiff's Counts V and VI under §§ 523(a)(2)(A) and 523(a)(2)(B) because they were mooted by the relief granted under § 727(a)(3). Id. On September 4, 2019, Plaintiff filed a motion to amend the Court's decision, in which it asked the Court to grant a judgment specifying the amount of the debt owed by Defendant to Plaintiff that would not be discharged. Dkt. No. 122. After a hearing on September 16, 2019, the Court orally denied the motion to amend for several reasons, one of which was that Plaintiff did not adduce sufficient evidence at trial to establish the updated amount of the debt owed to it by Defendant as of the time of trial. Dkt. No. 131.

On August 30, 2019, Plaintiff filed the instant Fee Motion, in which it seeks an order requiring Defendant to pay $6,143.41 in costs and $138,985.00 in attorneys' fees. Dkt. Nos. 116, 117. On that same day, Plaintiff filed its bill of costs pursuant to Local Bankruptcy Rule 7054.1 ("LBR 7054.1"). Dkt. No. 135. Defendant filed an objection to the Fee Motion on September 13, 2019, and both parties briefed the issue in advance of a hearing on the Fee Motion that was held on October 15, 2019, after which the Court took the matter under advisement. Dkt. Nos. 117, 130, 144, 146, 149. The clerk of Court issued its notice of taxing costs on September 23, 2019, in which it considered Defendant's objections, allowed $6,103.41 in costs, and disallowed $40.00 in costs under LBR 7054.1.

Analysis and Disposition

A. Attorneys' Fees in Bankruptcy Cases

Plaintiff requests $138,985.00 in prevailing party attorneys' fees pursuant to (1) Idaho Code § 12-120(3), and (2) the fee-shifting provisions in a guaranty executed by Debtor in which Debtor guaranteed payment of Livestock's debts to Plaintiff. Dkt. No. 117 at 4–6. Defendant objects to such an award of fees, arguing that Idaho Code § 12-120(3) does not apply and that there is no other basis for awarding attorneys' fees in this case. Dkt. No. 130 at 3; Dkt. No. 146 at 1-3.

"No general right to attorney fees exists under the Bankruptcy Code." Heritage Ford v. Baroff (In re Baroff) , 105 F.3d 439, 441 (9th Cir. 1997). Nor does any provision in § 727 provide for prevailing party attorneys' fees in causes of action under § 727(a). Optekar v. Tickemyer (In re Tickemyer) , No. 08-07012-TLM, 2011 WL 1230326 (Bankr. D. Idaho 2011) (citing Tuloil, Inc. v. Shahid (In re Shahid) , 254 B.R. 40, 44–45 (10th Cir. BAP 2000) ). "Although [Rule] 7054 adopts Fed. R. Civ. P. 54(a)-(c), it is in Fed. R. Civ. P. 54(d) that provision is made for an award of attorney's fees. Although the bankruptcy rules include a provision for an award of costs in [Rule] 7054(b), there is no provision for an award of attorney's fees in an adversary action." Tuloil , 254 B.R. at 43.

Despite the lack of a general provision expressly providing for attorneys' fees in bankruptcy cases, such fees may be awarded under certain circumstances. For example, under § 523(d), Congress created a limited exception providing for attorneys' fees in cases where the court finds that the position of the creditor was not substantially justified. Additionally, the United States Supreme Court has also identified limited circumstances under which attorneys' fees may be awarded in bankruptcy cases. For example, the Supreme Court has held that an unsecured creditor may assert a postpetition claim against the estate if governing contracts and state law permit such fees. Travelers Cas. & Sur. Co. of Am. v. Pac. Gas. & Elec. Co. , 549 U.S. 443, 453–54, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007). Of course, the ruling in Travelers applies to "claims against the estate and not to nondischargeable claims against a debtor." Kilborn v. Haun (In re Haun) , 396 B.R. 522, 526 (Bankr. D. Idaho 2008). The Supreme Court has also held that the discharge exception under § 523(a)(2)(A) applies to all liability on account of a debtor's fraudulent conduct, including attorneys' fees and costs available under state law, such that attorneys' fees can be available in those cases as well. Cohen v. de la Cruz , 523 U.S. 213, 223, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998).

Interpreting Cohen , the Bankruptcy Appellate Panel of the Ninth Circuit ("Ninth Circuit BAP") has explained that "[a] prevailing creditor in a nondischargeability proceeding is entitled to contractual attorney's fees under state law if the bankruptcy court adjudicates a contract action in connection with the bankruptcy court proceeding." AT&T Universal Card Servs. v. Pham (In re Pham) , 250 B.R. 93, 96 (9th Cir. BAP 2000). "[T]he determinative question in cases under § 523(a)(2) is whether the successful plaintiff could recover attorney's fees in a non-bankruptcy court." Id. at 99 ; see also Bertola v. N. Wis. Produce Co. (In re Bertola) , 317 B.R. 95, 99–100 (9th Cir. BAP 2004). As this Court has previously explained, this language from Bertola is "imprecise" and "cannot be read literally." Haun , 396 B.R. at 528. Rather, in light of Cohen and Pham , "the inquiry instead must be whether the creditor plaintiff would be entitled to fees in state court for establishing those elements of a claim which the bankruptcy court finds support a conclusion of nondischargeability." Id.

Here, Plaintiff urges this Court to import the logic of the § 523 cases discussed above into its request for attorneys' fees in this adversary proceeding under § 727. Per Plaintiff, attorneys' fees should be awarded under Idaho Code § 12-120(3) because its fees incurred in the § 727(a)(3) litigation were related to a commercial transaction. Idaho Code § 12-120(3) provides, in relevant part:

In any civil action to recover on an open account, account stated, note, bill, negotiable instrument, guaranty, or contract relating to the purchase or sale of goods, wares, merchandise, or services and in any commercial transaction unless otherwise

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