Picerne Constr. Corp. v. Castellino Villas, A. K. F. LLC (In re Villas)

• Decision Date: 06 September 2016
• Docket Number: No. 12–57186,12–57186
• Parties: In re Castellino Villas, A. K. F. LLC, Debtor, Picerne Construction Corp., DBA Camelback Construction, Appellant, v. Castellino Villas, A. K. F. LLC, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

836 F.3d 1028

In re Castellino Villas, A. K. F. LLC, Debtor,

Picerne Construction Corp., DBA Camelback Construction, Appellant,

v.Castellino Villas, A. K. F. LLC, Appellee.

No. 12–57186

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 4, 2015

Submission Vacated March 13, 2015

Resubmitted August 29, 2016, Pasadena, California

Filed September 6, 2016

Scott E. Hennigh (argued), Meredith A. Jones–McKeown, and Scott A. Vignos, Sheppard Mullin Richter & Hampton LLP, San Francisco, California, for Appellant.

Beth Ann R. Young (argued), Ron Bender (argued), and Krikor J. Meshefejian ; Levene, Neale, Bender, Yoo & Brill LLP, Los Angeles, California, for Appellee.

Before: Michael J. Melloy,^* Jay S. Bybee, and Sandra S. Ikuta, Circuit Judges.

OPINION

IKUTA

, Circuit Judge:

We are asked to determine whether the bankruptcy court erred as a matter of law by holding that attorneys' fees incurred during litigation after the confirmation of a Chapter 11 bankruptcy plan were discharged by that bankruptcy. We have jurisdiction under 28 U.S.C. § 158(d)

. Picerne's claim for attorneys' fees arose before Castellino filed its bankruptcy petition, and Castellino's post-discharge conduct did not amount to “a whole new course of litigation,” Siegel v. Fed. Home Loan Mortg. Corp. , 143 F.3d 525, 534 (9th Cir. 1998). Therefore, under the circumstances of this case, Picerne's attorneys' fees claim was discharged in Castellino's bankruptcy.

I

Castellino Villas LLC (Castellino) hired Picerne Construction Corp. dba Camelback Construction (Picerne), a general contractor, to construct a 120–unit apartment complex on Castellino's property. Picerne and Castellino entered into an agreement for the work that contained an attorneys' fees provision, which stated, in pertinent part:

Attorneys' Fees . In any suit, action or proceeding between the parties arising out of, or in connection with, any of the terms, covenants, provisions or agreements in the Agreement, the prevailing party in such suit ... shall be awarded ... all reasonable attorneys' fees incurred before any trial or proceeding, at all trials or proceedings and on all appeals.

Castellino defaulted on its obligations and failed to pay Picerne and its subcontractors for their work. In response, Picerne filed a demand for arbitration and a mechanic's lien against the apartment complex. A few months later, Picerne filed a complaint in California Superior Court to foreclose on the mechanic's lien. Picerne later amended the complaint to add Castellino's lender, Bank of the West, as a defendant. In response, Bank of the West asserted that its deed of trust on Castellino's property, which it held as security for Castellino's $14 million debt to the Bank, was superior to Picerne's mechanic's lien.

The court stayed Picerne's action in May 2007 to permit arbitration in accordance with the contract. On May 11, 2009, the arbitrator issued an award in favor of Picerne. The superior court confirmed the arbitration award on July 24, 2009. That same day, Castellino filed a Chapter 11 petition for bankruptcy. The bankruptcy filing automatically stayed Picerne's foreclosure action, see 11 U.S.C. § 362(a)

, but the bankruptcy court granted Picerne's motion to lift the stay so that the parties could continue to litigate the mechanic's lien action in state court. Castellino disputed the validity, priority, and amount of Picerne's lien.

In bankruptcy court, Picerne filed an objection to confirmation of Castellino's proposed plan of reorganization. In order to obtain confirmation of its plan, Castellino entered into a settlement agreement with Picerne. The settlement agreement provided that if Picerne's foreclosure action in state court resulted in a determination that Picerne's mechanic's lien was a “valid, properly perfected and enforceable mechanics lien against the Castellino property” and was senior to the Bank's lien, Picerne would receive specified payments from the trust account which Castellino would fund. The parties expressly did not agree as to whether Picerne was entitled to interest, costs or attorneys' fees if it prevailed on its claim; the settlement agreement stated that “Castellino contends that under no circumstance is Picerne entitled to interest, attorneys' fees or costs” as part of its claim, and “Picerne disputes said contention.” Castellino reserved its defenses relating to the state court litigation. The settlement agreement also provided that upon the court's approval of the settlement terms, Castellino's plan of reorganization would be modified to include those terms and Picerne would withdraw its objection to the confirmation of the plan as modified. Finally, the parties entered into mutual releases, agreeing to release “any and all claims, demands, and causes of action ... that exist as of the date of this Agreement or any time prior thereto.”

After a hearing, the bankruptcy court approved the settlement agreement, and confirmed Castellino's plan of reorganization, as modified to conform to the settlement agreement. As a result, Castellino was discharged from bankruptcy.

Pursuant to the plan and settlement agreement, the parties continued litigating the mechanic's lien action in state court. After a nine day trial, the state court held that Picerne's mechanic's lien was valid and had priority over the Bank's lien, and the court entered judgment for Picerne in the amount of some $2.6 million (including prejudgment interest). Picerne moved for an award of attorneys' fees. The state court held that under the bankruptcy court's order, it lacked the authority to adjudicate or award attorneys' fees, so it denied the motion without prejudice. Castellino appealed the decision to the California Court of Appeal.

While the appeal was pending, Picerne moved the bankruptcy court for a ruling that the state court had the authority to award attorneys' fees. Picerne argued that although it initiated litigation before Castellino filed its petition in bankruptcy, it was entitled to an award of attorneys' fees that were incurred after the confirmation of Castellino's plan, citing In re Ybarra , 424 F.3d 1018 (9th Cir. 2005)

. Picerne also argued that the releases in the settlement agreement and plan of reorganization did not preclude it from seeking post-confirmation attorneys' fees.

The bankruptcy court denied the motion. It reasoned that when Picerne sued Castellino, the contract between the parties gave Picerne a contingent and unliquidated claim for attorneys' fees. Because this claim arose before Castellino filed a petition in bankruptcy, it was discharged by the confirmation of Castellino's plan of reorganization or was released by the parties' settlement agreement. The district court affirmed, and Picerne timely appealed.¹

On appeal, Picerne contends that the bankruptcy court erred in denying its motion for post-discharge attorneys' fees. First, Picerne argues that its claim for attorneys' fees arising from litigation in state court arose after Castellino filed its petition in bankruptcy and therefore was not discharged by the confirmation of Castellino's plan of reorganization. Relying on In re Ybarra

, Picerne argues that when a newly reorganized debtor voluntarily “returns to the fray” of litigation that began before filing a bankruptcy petition, the debtor is not free from liability for attorneys' fees incurred after discharge. 424 F.3d at 1023–24. Second, Picerne contends that its settlement agreement with Castellino released only “existing claims,” and not claims for attorneys' fees incurred after the settlement agreement was approved by the court.² We review a bankruptcy court's factual findings for clear error and its conclusions of law de novo. In re Gebhart , 621 F.3d 1206, 1209 (9th Cir. 2010).

II

We first consider when claims for attorneys' fees are discharged in bankruptcy. The confirmation of a plan of reorganization under Chapter 11 “discharges the debtor from any debt that arose before the date of such confirmation” except as provided in the statute, the plan, or the order confirming the plan. 11 U.S.C. § 1141(d)(1)

(emphasis added).³ “Debt” is liability on a “claim.” 11 U.S.C. § 101(12). “Claim” is defined to include a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5). A “creditor” is defined to include an “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.” 11 U.S.C. § 101(10).

A claim is “contingent” when “the debtor will be called upon to pay [it] only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor.” In re Fostvedt , 823 F.2d 305, 306 (9th Cir. 1987)

(internal quotation marks omitted). A claim is “unliquidated” when it is not “subject to ready determination and precision in computation of the amount due.” Id. (internal quotation marks omitted). “This broadest possible definition of ‘claim’ is designed to ensure that all legal obligations of the debtor, no matter how remote or contingent , will be able to be dealt with in the bankruptcy case.” In re Jensen , 995 F.2d 925, 929 (9th Cir. 1993) (internal quotation marks omitted). “The breadth of the definition of ‘claim’ is critical in effectuating the bankruptcy code's policy of giving the debtor a ‘fresh start.’ ” Id.

“[F]ederal law determines when a claim arises under the Bankruptcy Code.” In re SNTL Corp. , 571 F.3d 826, 839 (9th Cir. 2009)

. We have recognized that under some circumstances, a creditor may have a claim against a debtor for attorneys' fees, even though the creditor has not yet incurred those fees.⁴ For instance, where the debtor and creditor have entered into a contract that includes an attorneys' fees agreement, the creditor may be deemed to have a contingent claim for payment of...