Ives v. Lyon (In re Lyon)
| Citation | 644 B.R. 211 |
| Docket Number | Case No. 18-62661-tmr7,Adv. Proc. No. 18-6064-tmr,Case No. 18-32190-pcm7,Adv. Proc. No. 18-3076-tmr |
| Decision Date | 18 August 2022 |
| Parties | IN RE Theresa Ann LYON, Debtor. Cassidy Ives and Kyle Fronckowiak, Plaintiffs, v. Theresa Ann Lyon, Defendant. In re Barton Reynolds Lyon, Debtor. Cassidy Ives and Kyle Fronckowiak, Plaintiffs, v. Barton Reynolds Lyon, Defendant. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Oregon |
Melisa Button, Joseph E. Kellerman, Hornecker Cowling LLP, Medford, OR, for Plaintiffs.
Keith Y. Boyd, Medford, OR, for Defendant Theresa Ann Lyon in 18-6064.
Michael R. Fuller, US Bancorp Tower, Portland, OR, for Defendant Barton Reynolds Lyon in 18-3076.
THOMAS M. RENN, United States Bankruptcy Judge After consolidating two separate adversary proceedings for trial, I awarded judgments of nondischargeability in favor of Plaintiffs Cassidy Ives and Kyle Fronckowiak against Defendants Theresa Lyon and Barton Lyon in their separate, individual bankruptcy cases. Plaintiffs have filed separate petitions, moving under Federal Rules of Civil Procedure (FRCP) 54(d), applicable in bankruptcy under Federal Rules of Bankruptcy Procedure (FRBP) 7054, for an award of attorney fees and costs incurred during the adversary proceedings. Defendants oppose the requests. I have reviewed the pleadings and documents filed by the parties, including the petitions, responses, and memoranda related to the fee requests as well as those pleadings related to the original ruling in support of the judgments. I have also reviewed the cases cited by the parties and conducted my own research on the issues. The matter is ready for a ruling, and I find that Plaintiffs are not entitled to recover their attorney fees.
Facts:
Background information surrounding this matter can be found in the Memorandum Decision filed in each of the adversary proceedings,2 but I have included in this memorandum some limited facts helpful for this ruling. Prior to the bankruptcy filing, Plaintiffs signed a form contract to purchase a residence with related real property from the Defendants. After the sale closed, a dispute arose related to the sale, and Plaintiffs pursued claims against Defendants, ultimately obtaining favorable rulings in arbitration including a supplemental award for attorney fees. After both Defendants filed separate chapter 7 bankruptcy cases, Plaintiffs filed these adversary proceedings asserting claims under 11 U.S.C. § 523(a)(2).3 After the conclusion of a trial, in a written decision and separate judgments filed in both proceedings, I held that the Arbitration Award and the Supplemental Arbitration Award were not dischargeable with respect to both Defendants.
Plaintiffs rely on the sale contract, which is the Residential Real Estate Sale Agreement admitted as Plaintiffs’ Exhibit 1 at the trial, as the sole basis for the recovery of their attorney fees. That agreement includes an attorney fee provision that reads as follows:
"The prevailing party in any arbitration between Buyer and Seller shall be entitled to recovery of all reasonable attorney's fees, filing fees, costs, disbursements, and mediator and arbitrator fees."
Page 9, Provision 37.3, entitled "Mediation and Arbitration Between Buyer and Seller." Defendants oppose the award of any attorney fees, but they do not dispute that this is the relevant provision from the contract.
Plaintiffs have moved under FRBP 7054 for a supplemental judgment in each proceeding awarding their reasonable attorney fees and costs incurred in obtaining the judgments. FRBP 7054(b)(2)(A) incorporates FRCP 54(d)(2)(A)-(C) and (E) in adversary proceedings. Those rules require the party seeking attorney fees to file a motion within 14 days after entry of the judgment and to "specify the judgment and the statute, rule, or other grounds entitling the movant to the award." FRCP 54(d)(2). Plaintiffs filed their motion timely and have specified the contract provision as the basis for the allowance of attorney fees.
Jurisdiction:
The bankruptcy court has jurisdiction to decide the claims at issue under 28 U.S.C. §§ 1334 and 157(a), and Oregon Local District Court Rule 2100-2. This proceeding and the motion for attorney fees are core proceedings under 28 U.S.C. § 157(b)(2)(I). All parties have consented, and I find that this court has constitutional authority to enter final orders and judgments in this matter.
Attorney Fees in Bankruptcy:
Bankruptcy law generally does not provide for the recovery of attorney fees by either party in litigating bankruptcy law issues. See Travelers Cas. and Sur. Co. of Am. v. Pac. Gas and Elec. Co. , 549 U.S. 443, 448, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007), citing Alyeska Pipeline Serv. Co. v. Wilderness Soc'y , 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975) (). Bankruptcy law, however, will enforce state statutes or clauses in contracts authorizing fees unless bankruptcy law expressly disallows the fees. See Travelers , 549 U.S. at 452, 127 S.Ct. 1199 (). The Supreme Court has acknowledged that the American Rule is a "bedrock principle" requiring "specific and explicit" authority to deviate from the rule and award fees. Baker Botts L.L.P. v. ASARCO LLC , 576 U.S. 121, 126, 135 S.Ct. 2158, 192 L.Ed.2d 208 (2015), quoting Hardt v. Reliance Standard Life Ins. Co. , 560 U.S. 242, 252-53, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010) ; Alyeska Pipeline , 421 U.S. at 260, 95 S.Ct. 1612.
In Travelers , the Supreme Court stated that courts have "long recognized" that state law governs the substance of claims and the resulting award of attorney fees. Travelers , 549 U.S. at 450, 127 S.Ct. 1199. The fact that a party incurred the fees in litigating issues of bankruptcy law does not change the analysis and is not a basis alone for disallowing a claim for attorney fees. Travelers , 549 U.S. at 453, 127 S.Ct. 1199 (). Thus, an unsecured creditor may be entitled to an award of attorney fees incurred postpetition based on a prepetition contract if allowed under applicable state law. See Centre Ins. Co. v. SNTL Corp. (In re SNTL Corp.) , 380 B.R. 204, 221 (9th Cir. BAP 2007), aff'd 571 F.3d 826 (9th Cir. 2009) (adopting BAP opinion). Both Travelers and SNTL involved creditors’ claims against the bankruptcy estate and not § 523 claims against the debtor. With claims involving exceptions to discharge against the debtor, the Ninth Circuit BAP has stated that it "is particularly true" that the right to attorney fees is governed by state law. Charlie Y., Inc. v. Carey (In re Carey) , 446 B.R. 384, 390 (9th Cir. BAP 2011) ().
In cases involving § 523(a)(2)(A) litigation, the Supreme Court applied an analysis different from Travelers to determine whether attorney fees could be recovered. See Cohen v. de la Cruz , 523 U.S. 213, 223, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998). In Cohen , the Supreme Court concluded that the discharge exception covers any debt resulting from the fraud including treble damages, attorney fees, and other relief. Cohen , 523 U.S. at 223, 118 S.Ct. 1212. Based on Cohen , the Ninth Circuit BAP has concluded that the § 523(a)(2)(A) exception includes all liability, including attorney fees, arising from the fraud, but it further provided that the creditor must prove that it can recover the fees outside of bankruptcy. Levitt v. Cook (In re Levitt) , BAP No. AZ-07-1166, 2008 WL 8448069 at *6 (9th Cir. BAP July 22, 2008).5 See also Kilborn v. Haun (In re Haun) , 396 B.R. 522, 526 (Bankr. D. Idaho 2008) ().
Cohen described the "determinative question" as whether a court would award attorney fees outside of bankruptcy under state or federal law. See AT&T Universal Card Servs. Corp. v. Pham (In re Hung Tan Pham) , 250 B.R. 93, 99 (9th Cir. BAP 2000) ; see also Fry v. Dinan (In re Dinan) , 448 B.R. 775, 785 (9th Cir. BAP 2011).6 The Pham court further stated that exceptions to discharge should "be construed narrowly and in favor of the debtor." Pham , 250 B.R. at 97. In the fraud context, the courts have suggested the existence of a broad-based liability covering all liability "arising on account of debtor's fraudulent conduct." See Dinan , 448 B.R. at 785. In Dinan , the Ninth Circuit BAP asserted that, under Cohen , a prevailing party's attorney fees were included as part of all liability arising under state law on account of the fraudulent conduct. Dinan , 448 B.R. at 785. This approach applies to attorney fee cases based either on a statute or a contract. Dinan , 448 B.R. at 786. See also Redwood Theaters, Inc. v. Davison (In re Davison) , 289 B.R. 716, 724 (9th Cir. BAP 2003) ().
Defendants cite to the Ninth Circuit opinion in Fulwiler for the proposition that a § 523 action is not an "action on a contract" under Oregon Revised Statutes (ORS) 20.096. Grove v. Fulwiler (In re Fulwiler) , 624 F.2d 908, 910 (9th Cir. 1980) ().7 The Circuit said in Fulwiler that the action arose entirely under federal bankruptcy law, so the court could not rely on the Oregon statute in allowing attorney fees. Fulwiler , 624 F.2d at 910. As stated above, Travelers involved a creditor's claim against the bankruptcy estate, but the Court did emphasize the presumption "that claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed." Travelers , 549 U.S. at 452, 127 S.Ct. 1199. In a footnote, Travelers points out that the relevant California and Oregon statutes applied only to an "action on a contract" which did not apply to the claims asserted in the three cases. Travel...
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