In re Good Taste, Inc.
| Decision Date | 29 October 2004 |
| Docket Number | No. A00-00880-HAR.,A00-00880-HAR. |
| Citation | 317 B.R. 112 |
| Parties | In re GOOD TASTE, INC. d/b/a Saucy Sisters Catering, Debtor. |
| Court | U.S. Bankruptcy Court — District of Alaska |
Gary Sleeper, Anchorage, AK, for Conie Bennett.
Thomas Yerbich, Anchorage, AK, for the Dobtor.
Cabot Christianson, Michelle Boutin, and Gary Spraker, Anchorage, AK, for the Trustee.
Contents Page
1. INTRODUCTION..................................................114
2. ISSUE.........................................................114
3. ANALYSIS......................................................114
3.1. The Successful Defendant Against a Trustee's § 544(b) Avoidance
Action Based on the Alaska Fraudulent Conveyance Act is Entitled
to Attorney Fees and Costs.......................................114
3.2. The Abercrombie and Kadjevlch Cases Are Not Dispositive as to
Whether or Not the Fees and Costs Are Entitled to Administrative
Expense Priority..................................................114
3.3. The Fundamental Fairness Doctrine of Reading Company v Brown
Requires That Administrative Expense Priority for Attorney Fees
and Costs for Successfully Defending Against the Trustee's § 544(b)
Avoidance Action..................................................116
4. CONCLUSION ....................................................121
1. INTRODUCTION—The trustee brought an avoidance action under § 544(b),1 in conjunction with the Alaska Fraudulent Conveyance Act,2 to recover a prepetition transfer from the debtor to Connie Bennett, debtor's sole shareholder. Bennett successfully defended and was awarded $14,364.40 in attorney fees and costs which were allowable under state law.
She moved to have these treated as administrative expenses. The trustee objected that the fees should not be given administrative expense priority because they did not benefit the estate and arose from a prepetition transaction.
I hold that attorney fees and costs awarded against the trustee (i.e., the estate) in a postpetition adversary proceeding seeking to avoid a transfer under § 544(b), and relying on state law which allows for attorney fees and costs to the prevailing party, should be granted administrative expense priority as a matter of fundamental fairness alluded to in Reading Company v. Brown.3
2. ISSUE—When a trustee files an avoidance action under § 544(b), using the Alaska Fraudulent Conveyance Act as his vehicle, and he loses the case, are the attorney fees and costs which the defendant is awarded under Alaska law entitled to administrative claim priority?
3. ANALYSIS—
3.1. The Successful Defendant Against a Trustee's § 5kh(b) Avoidance Action Based on the Alaska Fraudulent Conveyance Act is Entitled to Attorney Fees and Costs—The general rule regarding attorney fees in bankruptcy is that they are not awarded to the successful party.4
In a case decided in state court under the Alaska Fraudulent Conveyance Act,5 attorney fees are awardable to the prevailing party per court rule.6
If a bankruptcy matter is decided with reference to state law which does recognize the award of attorney fees to a prevailing party, bankruptcy law will generally follow the state law rule and award attorney fees. The 9th Circuit Bybee case involved a § 544(b) action in which the defendant was awarded attorney fees, but the opinion does not say whether they were to be treated as an administrative expense claim with high priority in payment or a general unsecured claim, which is at the lower end of the payment priorities.7
The trustee does not contest the award of attorney fees and costs in this case, only the priority of payment.
3.2. The Abercrombie and Kadjevich Cases Are Not Dispositive as to Whether or Not the Fees and Costs Are Entitled to Administrative Expense Priority—Recently, the BAP, in In re Ybarra,8 discussed the ambiguous state of the 9th Circuit authority regarding either the dischargeability of attorney fees against a debtor, or their status as administrative expenses, with respect to postpetition litigation activity based on prepetition claims.
The ambiguity arose when the 9th Circuit deciding two cases in close proximity, in arguably a contradictory manner, without referring to each other (Abercrombie and Siegel).9 A third case (Kadjevich) adopted the view of Abercrombie without referring to or distinguishing Siegel.10 The trustee relies on the Abercrombie and Kadjevich cases to argue that postpetition attorney fees with respect to a prepetition claim should not be given administrative priority.
The BAP, in Ybarra, summarized the three circuit cases and tried to harmonize them. It determined the cases stood for the following:11
The plurality in Ybarra struggled to rationalize the three cases, one of which seemed at odds. Finally, without much enthusiasm, the principal opinion said that a possible rationalization of the cases was that in Abercrombie and Kadjevich the actions on the prepetition claims had been commenced prepetition, whereas in Siegel, the action on the prepetition claim was commenced postpetition. While admitting "puzzlement" as to why that should make a difference, it concluded that the facts of the Ybarra case itself clearly fell within the Abercrombie and Kadjevich ambit.
The facts of Ybarra allowed the court to follow the two more defensible 9th Circuit eases (Abercrombie and Kadjevich). Had the facts been that the suit in question was filed postpetition, I suspect that the BAP would have searched further rather than just saying the Siegel factor that the proceeding had been filed postpetition was the controlling factor. Thus, while I might conclude this memorandum by saying Ybarra controls in favor of Bennett's claim for attorney fees because the § 544(b) proceeding was brought postpetition, I do not think that rationale alone is convincing, so I will search further for an answer.
Also, Kadjevich clearly excluded cases, like ours, where the suit is brought by a trustee. Should Abercrombie and Kadjevich be extended to the current facts or are there other legal principles to consider which may change the result?
3.3. The Fundamental Fairness Doctrine of Reading Company v Brown Requires That Administrative Expense Priority for Attorney Fees and Costs for Successfully Defending Against the Trustee's § 5Mb) Avoidance Action—The Bankruptcy Code provides that administrative expenses are granted first priority in distribution18 for "the actual, necessary costs and expenses of preservation of the estate, including wages, salaries, or...
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