In re Hawkeye Entm't, LLC

• Decision Date: 19 February 2021
• Docket Number: Case No.: 1:19-bk-12102-MT
• Citation: 625 B.R. 745
• Parties: IN RE: HAWKEYE ENTERTAINMENT, LLC Debtor(s).
• Court: U.S. Bankruptcy Court — Central District of California

625 B.R. 745

IN RE: HAWKEYE ENTERTAINMENT, LLC Debtor(s).

Case No.: 1:19-bk-12102-MT

United States Bankruptcy Court, C.D. California.

Signed February 19, 2021

Sandford L. Frey, Leech Tishman Fuscaldo & Lampl Inc, Pasadena, CA, for Debtor(s).

NOTICE OF MEMORANDUM DECISION ON DEBTOR'S MOTION FOR AN AWARD OF ATTORNEY'S FEES (Dkt. No. 232)

Maureen A. Tighe, United States Bankruptcy Judge

On July 17, 2009, Hawkeye Entertainment, LLC (the "Debtor") entered into a lease agreement ("Lease Agreement") with Pax America Development, LLC ("PAX"). Pursuant to the terms of the Lease, the Debtor was entitled to use the first four floors and the basement of a building located at 618 South Spring Street, Los Angeles, California, more commonly referred to as the Pacific Stock Exchange Building (the "Property").

On September 30, 2013, the Debtor filed its first Chapter 11 petition, 1:13-bk-16307-MT ("Prior Bankruptcy Case"), where it sought to assume the Lease Agreement. The landlord at the time was New Vision Horizon, LLC ("New Vision.) The motion to assume the lease was ultimately resolved through a settlement agreement ("Settlement Agreement").

The Property is now owned by Smart Capital, LLC ("Landlord" or "Smart Capital"). There have been ongoing disputes between Smart Capital and Debtor for years. This culminated in Smart Capital's service of a Notice of Default and Three-Day Notice on Debtor. The Debtor responded by filing this second chapter 11 case followed by a motion to assume ("Assumption Motion") the Lease Agreement and Sublease, to deem the Debtor and W.E.R.M. Investment, LLC ("W.E.R.M." or "Sublessor") not to be in breach or default and authorizing the Debtor to enter into a revised sublease with W.E.R.M. (Docket #21)("Assumption Motion"). The Landlord opposed the Assumption Motion, alleging defaults under the Lease Agreement, an inability to provide adequate assurance of future performance and seeking denial of any modification of the sublease. After a lengthy period of discovery, the Court conducted a trial, found that the Debtor was not in default of the Lease, and granted the Assumption Motion.

Before the trial was held on the Assumption Motion, the Debtor brought several motions that were contested: (1) Motion Authorizing the Debtor to Hold Rent Payments in Trust and Excusing or Deeming the Debtor in Compliance with § 365(d)(3) (Dkt. No. 59), (2) Motion Authorizing the Use of the Leased Premises for Religious Service Events Pursuant to § 363 (Dkt. No 81), (3) Motion Authorizing Post-Petition Financing Pursuant to § 364(c) (Dkt. No. 126), and (4) Motion Authorizing the Use of the Leased Premises for Virtual Music Events and Film Shoots Pursuant to § 363 (Dkt. 130) (collectively referred to as "Motions"). All were granted over the Landlord's opposition

Debtor's Counsel now moves for an award of $813,531.97 in fees and costs against the Landlord which the Landlord opposes.

The order granting the Assumption Motion in favor of the Debtor was entered on October 27, 2020 (docket # 230.) The motion for fees was then filed on November 6, 2020 (docket #232.) The motion is controlled by Rule 54(d) of the Federal Rules of Civil Procedure, as applied through Federal Rule of Bankruptcy Procedure 7054(a). The parties have submitted numerous exhibits, briefs and declarations and have not requested an evidentiary hearing. The issue will be resolved based on the parties’ written submissions and oral argument.

Basis for Attorney Fees

The general rule is that the prevailing party is not entitled to collect attorney's fees from the losing party. Travelers Cas. & Sur. Co. of Am. v. PG&E, 549 U.S. 443, 448, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007). This default rule can be overcome by an applicable statute or enforceable contract. Id. An otherwise enforceable contract allocating attorney's fees (i.e., one that is enforceable under substantive, non-bankruptcy law) is allowable in bankruptcy except where the Bankruptcy Code provides otherwise. Id.

Does California Law Authorize Fees Here?

Parties may agree to attorney fees and costs through California Code of Civil Procedure §§ 1021 and 1032. CCP § 1021 states in relevant part: "[e]xcept as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys ... is left to the agreement, express or implied, of the parties; but parties to actions or proceedings are entitled to their costs, as hereinafter provided." Section 1032 (b) then provides that "a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." Costs are then defined in CCP § 1033.5(a) as including "[a]ttorney's fees, when authorized by" contract or statute. Costs may include attorney's fees when authorized by contract, even when the action is not ‘on a contract.’ " In re Mac-Go Corp., 541 B.R. 706, 715 (Bankr. N.D. Cal. 2015) ; see also Asphalt Prof'ls Inc. v. Davis (In re Davis ), 595 B.R. 818, 832 (Bankr. C.D. Cal. 2019).

California Civil Code § 1717 then authorizes attorney's fees and costs in any action on a contract, "where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party." While one of the functions of § 1717 is to make uni March 30 at 10 amlateral attorney fee provisions reciprocal, Associated Convalescent Enterprises v. Carl Marks & Co., Inc., 33 Cal. App. 3d 116, 108 Cal.Rptr. 782 (1973), courts also apply § 1717 where attorney fee provisions are allowed for either party to recover. See e.g. Sunnyside Dev. Co., LLC v. Opsys Ltd., 2007 WL 2462141 *1, 2007 U.S. Dist. LEXIS 63865 *2-3 (N.D. Cal. 2007) (the Court applied a § 1717 to a lease agreement that read: "If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. ..."); Turner v. Schultz, 175 Cal. App. 4th 974, 979, 96 Cal.Rptr.3d 659 (2009) ( the Court applied § 1717 "In the event any legal action or arbitration is commenced of any kind or character, to enforce the provisions of this Agreement or to obtain damages for breach thereof, the prevailing party in such action shall be entitled to all costs and reasonable attorney's fees incurred in connection with such action Whether § 1717 applies is based on whether the action or proceeding was "on a contract," not whether the attorney fee provision provides for unilateral or mutual fees. The Ninth Circuit, in Penrod v. AmeriCredit Financial Services, Inc., 802 F.3d 1084 (9th Cir. 2015) detailed the three conditions that must be met before § 1717 applies. First, the action generating the fees must have been an action "on a contract." Second, the contract must provide that attorney's fees incurred to enforce it shall be awarded either to one of the parties or to the prevailing party. Id. And third, the party seeking fees must have prevailed in the underlying action. Id. at 1087-88. Penrod also reaffirmed that even in a bankruptcy proceeding, "under California law, an action is ‘on a contract' when a party seeks to enforce, or avoid enforcement of, the provisions of the contract." Id. at 1088.

Do the Governing Contracts Provide for Attorney Fees?

There are several provisions of the governing contracts that provide some basis for attorney fees in some situations. Section 22.11(q) of the 2009 Lease provides:

In the event that ... either Landlord or Tenant shall institute any action or proceeding against the other relating to the provisions of this Lease or any default hereunder , the party not prevailing in such action or proceeding shall reimburse the prevailing party for its actual attorneys' fees, and all fees, costs and expenses incurred in connection with such action or proceeding, including, without limitation, any post-judgment fees, costs or expenses incurred on any appeal or in collection of any judgment. [emphasis added]

Similarly, Section 17 of the Settlement Agreement provides:

Attorneys’ Fees. Each Party hereto shall bear its own attorneys' fees and costs incurred in connection with the Bankruptcy Proceeding, the State Court Actions and this Agreement and the exhibits entered into in connection with this Agreement. In the event that any Party files or prosecutes any action to enforce or interpret the Agreement, or any action arising out of this Agreement , the prevailing Party in any such action shall be entitled to recover from the non-prevailing Party all reasonable costs and attorneys' fees incurred therein, including, without limitation, the costs and expenses of any expert witnesses.[emphasis added]

The First Amendment to the Lease Agreement entered into in connection with the Settlement Agreement, provides, among other things, as follows:

24. Ratification. Landlord and Tenant hereby ratify and confirm all of the terms and conditions of the [2009] Lease as modified by the First Amendment.

26. Remainder Of Lease Unmodified. Except as set forth in this First Amendment, the parties agree that the [2009] Lease is unmodified and is in full force and effect.

The issues in this bankruptcy case so far have focused on the Lease Agreement and the enforcement of its terms. The Landlord is correct that the Settlement Agreement has not been directly at issue. One important issue is the definition of the phrase "institute any action or proceeding against the other ..." as stated in the Lease Agreement. The second significant interpretation issue is the meaning of "relating to the provisions of this Lease or any default hereunder."

"Action or Proceeding"

There are several "actions or proceedings" that are relevant here, and the parties dispute whether this language applies to them. The first is the notice of default and three-day notice. Then there was the filing of the Debtor's bankruptcy...