Baroni v. Wells Fargo Bank, N.A. (In re Baroni)

• Decision Date: 30 September 2016
• Docket Number: Case No.: 1:12-BK-10986-MB,Adv. Proc. No. 1:13-AP-01071 -MB
• Citation: 558 B.R. 916
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re: Allana Baroni, Debtor. Allana Baroni, Plaintiff, v. Wells Fargo Bank, N.A., As Trustee for Structured Adjustable Rate Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-17, Defendant.

558 B.R. 916

In re: Allana Baroni, Debtor.Allana Baroni, Plaintiff,

v.Wells Fargo Bank, N.A., As Trustee for Structured Adjustable Rate Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-17, Defendant.

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

Adv. Proc. No. 1:13-AP-01071 -MB

United States Bankruptcy Court, C.D. California, San Fernando Valley Division .

Signed September 30, 2016

Richard L. Antognini, Grass Valley, CA, Louis J. Esbin, Stevenson Ranch, CA, Michael S. Riley, Fort Lauderdale, FL, for Plaintiff.

Bernard J. Kornberg, Severson & Werson PC, Adam N. Barasch, San Francisco, CA, for Defendant.

OPINION RE MOTION FOR ATTORNEYS' FEES [DKT. 73]

Martin R. Barash, United States Bankruptcy Judge

I. INTRODUCTION

In April 2013, individual debtor Allana Baroni obtained confirmation of her second amended chapter 11 plan (the “Plan”). Case Dkt. 423. On the day of the plan confirmation hearing, but several weeks before entry of the confirmation order, Allana¹ filed this adversary proceeding, objecting to a secured claim asserted by Wells Fargo, N.A. (“Wells Fargo”) in the approximate amount of $800,000. Adv. Dkt. 1. After almost two years of litigation, the court entered summary judgment in favor of Wells Fargo. Adv. Dkt. 69.

Shortly thereafter, Wells Fargo filed a motion seeking attorneys' fees pursuant to a fee-shifting provision in the prepetition loan documents on which Wells Fargo asserted its claim. Adv. Dkt. 73 (the “Fee Motion”). Wells Fargo seeks total fees and costs of $50,620.76. Adv. Dkt. 73, 105 & 141. At an initial hearing on May 13, 2015, the court indicated its intention to grant the attorneys' fee request in favor of Wells Fargo—the prevailing party in the adversary proceeding—for the reasons stated on the record. The court, however, requested supplemental briefing on the question of how the fee award should be implemented and has held several additional hearings since then.

Specifically, the court asked the parties whether the award should be (i) added to the unsecured portion of Wells Fargo's allowed prepetition claim (i.e., subject to treatment and discharge under the confirmed Plan), or (ii) payable in full directly by Allana (i.e., not subject to such treatment and discharge). The dilemma presented stems from the fact that Wells Fargo's attorneys' fee entitlement arises under a prepetition contract, but nearly all of the fees comprising that award were incurred postpetition —indeed postconfir mation, i.e., after entry of the order confirming the plan.

Allana argues that the attorneys' fee award should be treated as part of Wells Fargo's prepetition claim, relying principally on SNTL Corp. v. Ctr. Ins. Co. (In re SNTL Corp.) , 571 F.3d 826 (9th Cir. 2009). In In re SNTL Corp . , the court held that a creditor's attorneys' fee award arising out of a prepetition agreement was properly treated as a prepetition claim, even though 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.

Wells Fargo argues that the attorneys' fee award should not be treated as part of Wells Fargo's prepetition claim, but instead promptly paid by Allana. Wells Fargo 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 Wells Fargo's attorneys' fee award should be treated as an unsecured, prepetition claim against Allana, subject to treatment and discharge under the Plan. Although Siegel and In re Ybarra represent an exception to the general principles recognized in In re SNTL Corp. —i.e., that a postpetition attorneys' fee award based on a prepetition contractual attorneys' fee provision is properly treated as a prepetition claim—the exception recognized in those cases does not apply to the facts and circumstances presented. As explained below, this conclusion is further supported by the Ninth Circuit's recent 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 , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).

III. FACTUAL AND PROCEDURAL BACKGROUND

A substantial portion of the factual and procedural background relevant to the Fee Motion is summarized in the November 10, 2015 opinion of the Bankruptcy Appellate Panel (“BAP”) affirming the court's summary judgment order, which is excerpted here:²

In May 2005, Allana and her husband James purchased a condominium in Henderson, Nevada. To finance that purchase, the Baronis executed a note in the approximate amount of $675,000 and a deed of trust securing repayment of the note....

In February 2012, Allana commenced her bankruptcy case by filing a voluntary chapter 13 petition. Later that same month, she voluntarily converted her case from chapter 13 to chapter 11. In June 2012, Wells Fargo filed a proof of claim asserting a secured claim in Allana's bankruptcy case in the approximate amount of $800,000. Wells Fargo attached to the proof of claim the following documents: (i) itemized statements of interest, fees, expenses and charges accrued on the loan; (2) a copy of the Henderson note, which included an indorsement in blank on the face of the note's signature page; (3) a copy of the Henderson deed of trust with a recording stamp reflecting that the deed of trust was recorded in the Clark County Recorder's Office; and (4) a copy of an assignment of deed of trust executed by a Khadija Gulley on behalf of Mortgage Electronic Registration Systems, Inc. (MERS) in favor of Wells Fargo with a recording stamp reflecting that the assignment was recorded in the Clark County Recorder's Office.

In April 2013, Allana obtained an order confirming her second amended reorganization plan. In relevant part, Allana set forth in her disclosure statement and plan that she disputed and objected to Wells Fargo's proof of claim but that, to the extent the bankruptcy court ultimately allowed any claim secured by the Henderson property, she would pay the holder of that allowed claim in accordance with the terms of her plan.

That same month, Allana filed her complaint against Wells Fargo. In the complaint, Allana in essence alleged that Wells Fargo's proof of claim did not establish that Wells Fargo is the holder of the Henderson note, the owner of the Henderson note, or the successor to the beneficiary under the Henderson deed of trust. Allana further complained that the alleged sale of the Henderson note to Wells Fargo was inconsistent with information she had received from third parties regarding who is the note's owner and who is the note's investor and that the alleged sale violated the terms of the trust agreement pursuant to which Wells Fargo supposedly was acting as trustee. Allana also posited that the assignment of deed of trust was invalid because: (1) there was no proof the assignment's signatory—Khadija Gulley—was authorized to execute the assignment on behalf of MERS; and (2) the timing and manner of the assignment violated the terms of the trust agreement.

Based on these allegations, Allana's complaint included a claim for declaratory relief seeking a judicial determination as to whether Wells Fargo's proof of claim should be allowed or disallowed and whether that claim was secured or unsecured. The complaint also included a claim for relief alleging that Wells Fargo would be unjustly enriched if its claim were allowed in the absence of proof that Wells Fargo was entitled to enforce the Henderson note and deed of trust. The complaint's third claim for relief under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., alleged that Wells Fargo had falsely represented that it was entitled to enforce the Henderson note and deed of trust by filing the proof of claim. Allana's fourth and final claim for relief, based on all of the same allegations, set forth a claim under California's unfair competition law, Cal. Bus. & Profs. Code § 17200, et seq.

In September 2014, Wells Fargo filed its summary judgment motion on the complaint. After receiving briefs from the parties and holding a hearing at which the parties submitted without oral argument, the court granted summary judgment to Wells Fargo. The BAP aptly summarized the court's analysis:

According to the court, Wells Fargo had established that it had possession of the original Henderson note, indorsed in blank, so Wells Fargo was a “person entitled to enforce” the Henderson note under Uniform Commercial Code § 3–301 and hence had standing to file a proof of claim based on the Henderson note. Even if Wells Fargo had not qualified as the holder of the note, the court reasoned, Wells Fargo had established that it possessed the note as trustee of a securitization trust and that Wells Fargo owned the Henderson note as trustee of that trust. Thus the court held that Wells Fargo had alternately established that it was “a

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