Baroni v. Onewest Bank (In re Baroni), Case No.: 1:12-bk-10986-MB

• Decision Date: 29 September 2017
• Docket Number: Adv. Proc. No. 1:13-ap-01249-MB,Case No.: 1:12-bk-10986-MB
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re: ALLANA BARONI, Reorganized Debtor. ALLANA BARONI, Plaintiff, v. ONEWEST BANK, FSB, Defendant. ONEWEST BANK, FSB, Counterclaimant, v. ALLANA BARONI, Counterdefendant.

In re: ALLANA BARONI, Reorganized Debtor.

ALLANA BARONI, Plaintiff, v. ONEWEST BANK, FSB, Defendant.

ONEWEST BANK, FSB, Counterclaimant, v. ALLANA BARONI, Counterdefendant.

Case No.: 1:12-bk-10986-MB

Adv. Proc. No. 1:13-ap-01249-MB

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO VALLEY DIVISION

September 29, 2017

Chapter 11

OPINION RE MOTION FOR ATTORNEYS' FEES

[ADV. DKT. NO. 345]

I. INTRODUCTION

In April 2013, individual debtor Allana Baroni obtained confirmation of her second amended chapter 11 plan (the "Plan"). Case Dkt. 423. Seven months after the entry of the confirmation order, Allana¹ filed this adversary proceeding, objecting to a secured claim asserted by OneWest Bank N.A. (now known as CIT Bank, N.A., "OneWest") in the approximate amount of $1.8 million. Adv. Dkt. 1. OneWest answered and filed a counterclaim (the "Counterclaim"). Adv. Dkt. 15, 16. Approximately one year later, the court entered summary judgment in favor of OneWest on Allana's complaint (the "Complaint"), leaving only the Counterclaim to be resolved. Thereafter the court entered summary judgment in favor of OneWest on its Counterclaim.

Shortly thereafter, OneWest filed a motion seeking attorneys' fees of $498,113 (the "Fee Motion"). Adv. Dkt. 345, 364, 367. OneWest's attorneys' fee entitlement arises under the terms of the promissory note and deed of trust on which its secured claim is based - prepetition contracts, but all of the fees requested were incurred postconfirmation.² Allana argues that, based on the language of the deed of trust, the attorneys' fee award must be added to the balance of the loan underlying OneWest's proof of claim. Adv. Dkt. 366. OneWest argues that the attorneys' fee award should not be treated as part of OneWest's prepetition claim but instead be immediately due and payable by Allana. Adv. Dkt. 345, 364. OneWest relies on Boeing N. Am., Inc. v. Ybarra (In re Ybarra), 424 F.3d 1018 (9th Cir. 2005) and Siegel v. Federal Home Loan Mortgage Corp., 143 F.3d 525 (9th Cir. 1998), in which the court took a different approach, holding that an attorneys' fee award against a chapter 7 debtor should not be treated as a prepetition claim subject to discharge, when the debtor voluntarily commenced the litigation postpetition or "returned to the fray" of litigation commenced prepetition.

For the reasons set forth below, the court concludes that OneWest's attorneys' fee award should be treated as part of its prepetition claim against Allana, subject to treatment and discharge under the Plan. In SNTL Corp. v. Ctr. Ins. Co. (In re SNTL Corp.), 571 F.3d 826 (9th Cir. 2009), the Ninth Circuit established general principles applicable to an attorneys' fee award arising out of prepetition agreements, holding that it is properly treated as a prepetition claim, even when the attorneys' fees were incurred litigating after confirmation of the debtor's chapter 11 plan. Id. at 843-44. The court relied in part on the Ninth Circuit's "fair contemplation" test to determine that the claim for attorneys' fees arose prior to the petition date, even though the claim was then unliquidated and contingent. Although Siegel and In re Ybarra represent an exception to these general principles, the exception recognized in those cases does not apply to the facts and circumstances presented here. As explained below, this conclusion is further supported by the Ninth Circuit's decision in Picerne Const. Corp. v. Castellino Villas, A.K.F. LLLC (In re Castellino Villas, A.K.F. LLC), 836 F.3d 1028 (9th Cir. 2016) [hereinafter "In re Castellino Villas"].

II. JURISDICTION

The court has jurisdiction over this case, the above-captioned adversary proceeding and the Fee Motion pursuant to 28 U.S.C. § 1334(b). These matters have been referred to this court pursuant to 28 U.S.C. § 157. This adversary proceeding and the Fee Motion are core matters pursuant to 28 U.S.C. § 157(b)(2)(A),(B),(O). The Court finds that it has constitutional authority to enter final judgment on the instant motion. See Stern v. Marshall, 131 S.Ct. 2594 (2011).

III. FACTUAL AND PROCEDURAL BACKGROUND

In 2004, Allana and James refinanced their real property located at 3339 Via Verde Court, Calabasas, California (the "Property"), executing a promissory note in the approximate amount of $1.6 million (the "Note") and a deed of trust ("DOT") securing repayment of the Note. In 2011, Allana and James defaulted on the Note and, by 2012, were facing foreclosure. Allana and James filed an action against OneWest in Los Angeles Superior Court challenging that OneWest owned the Note. When the state court denied their request to enjoin the foreclosure sale, Allana commenced this bankruptcy case on February 1, 2012.

On March 27, 2012, OneWest filed its Proof of Claim in this matter, in the amount of $1,860,964.23 (Claim 3-1, the "Claim"), to which OneWest attached the Note and DOT. On April 15, 2013, the Court confirmed the chapter 11 plan proposed by Allana (the "Plan"), over the objection of OneWest. The Plan contemplates, inter alia, that Allana would file a post-confirmation adversary proceeding disputing the OneWest claim and, pending a final adjudication of that dispute, make plan payments into a reserve account. Allana discloses and preserves potential causes of action regarding the OneWest Claim in Exhibit 2 to her Plan, expressly disclosing that she has potential claims for [a] Violations of the Real Estate Settlement and Procedures Act (RESPA); 12 U.S.C. § 2601 et seq., [b] Violations of the Truth-in-Lending Act (TILA) 15 U.S.C. § 1638, [c] Violations of the Fair Debt Collection Practices Act (FDCPA); 15 U.S.C. § 1692 et seq., [d] Violations of Fair Business and Profession Code, [e] Fraudulent Inducement, [f] Negligence, [g] Intentional Infliction of Emotional Distress, [h] Breach of Fiduciary Duties, [i] Wrongful Foreclosure, [j] Slander of Title, [k] Common Law Fraud and [l] Unjust Enrichment.

Allana objected to the Claim by way of an adversary Complaint, which she filed on November 15, 2013. In her Complaint, Allana alleged that OneWest lacked the authority to enforce the Note and DOT. On January 17, 2014, OneWest filed an answer to the Complaint (the "Answer") and a counterclaim (the "Counterclaim") seeking a declaratory judgment that OneWest (i) may enforce the Note and (ii) holds an allowed secured claim under the Bankruptcy Code based on the Note and DOT. On December 4, 2014, the court granted the motion for summary judgment filed by OneWest with respect to each and every claim in the Complaint, leaving only the Counterclaim to be adjudicated. The court held that "OneWest has shown that it is in possession of the Note, thus OneWest may file a proof of claim in this bankruptcy and enforce the Note" and also held that the "Deed of Trust was validly assigned by the FDIC to OneWest." Adv. Dkt. 129. On January 19, 2016, the court granted OneWest's motion for summary judgment with respect to all of the remaining counterclaims and, on that same date, entered judgment in favor of OneWest. Adv. Dkt. 296, 298, 299. The court once again held that OneWest is entitled to enforce the DOT. Adv. Dkt. 299.

During the course of this adversary, Allana filed three appeals of interlocutory orders, all of which were dismissed by the District Court (case numbers 2:14-cv-07842, 2:14-cv-08035, and 2:15-cv-00235). Allana also appealed from the order granting OneWest summary judgment on its Counterclaim, and the final judgment, which the District Court affirmed on October 3, 2016 (case number 2:16-cv-00829). Allana's appeal from the judgment is currently pending before the Ninth Circuit Court of Appeals (case number 16-56618).

On December 31, 2014, after the court entered summary judgment on the Complaint but prior to adjudication of the Counterclaim, OneWest filed a motion for attorneys' fees based on an attorneys' fee provision in the DOT.³ On May 13, 2015, the court denied this initial motion without prejudice pending resolution of the Counterclaim. Shortly after the court entered summary judgment in favor of OneWest on its Counterclaim, OneWest filed the Fee Motion, which included fees incurred by OneWest in connection with matters in the main bankruptcy case as well as this adversary proceeding. The Fee Motion also incorporated by reference legal arguments made by Wells Fargo N.A. ("Wells Fargo") in a related adversary proceeding regarding why OneWest's fees should not be added to its prepetition claim.⁴ At the initial hearing on the Fee Motion, the court directed OneWest to file a supplemental brief separating out the fees incurred in this adversary. OneWest complied and, based on its supplemental briefing, seeks fees in the amount of $498,113, which includes fees incurred in connection with the three dismissed appeals from interlocutory orders but does not include fees incurred in connection with the final judgment.

In opposition to the Fee Motion, as supplemented by OneWest, Allana argues that any attorneys' fees incurred to enforce the Note or DOT must be added to the balance of the loan rather than stated in a separate and immediately payable order. Adv. Dkt. 354, 366. Allana also contends the amount of the fees is unreasonable. Adv. Dkt. 366. OneWest contends that its fees werereasonable in light of a series of frivolous appeals and frivolous motion practice pursued by Allana during the course of this adversary proceeding. Adv. Dkt. 367.

IV. STATUTORY BACKGROUND

The provisions of a confirmed chapter 11 plan generally bind the debtor and all of the debtor's creditors, regardless of whether the creditors' claims are impaired under the plan or whether or not the creditors have accepted the plan. See 11 U.S.C. § 1141(a). Except as otherwise set forth in the plan or order confirming the plan, the confirmation order generally vests in the debtor all of the property of the estate free and clear of all claims, see 11 U.S.C. § 1141(b), (c),⁵ and

[d]ischarges the debtor from any debt that

...