Thrifty Oil Co. v. Bank of America Nat. Trust, No. 00-56159.
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
| Writing for the Court | Cynthia Holcomb Hall |
| Citation | 322 F.3d 1039 |
| Docket Number | No. 00-56159. |
| Decision Date | 19 November 2002 |
| Parties | THRIFTY OIL CO., Appellant, v. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Appellee. |
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v.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Appellee.
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Stephan M. Ray and Robert A. Greenfield, Stutman, Treister & Glatt, Los Angeles, CA, for the appellant.
Matthew S. Walker, Pillsbury Madison & Sutro, San Diego, CA, for the appellee.
Appeal from the United States District Court for the Southern District of California; Thomas J. Whelan, District Judge, Presiding. D.C. No. CV-97-01745-TJW.
Before HALL, THOMPSON, and WARDLAW, Circuit Judges.
CYNTHIA HOLCOMB HALL, Circuit Judge.
The opinion filed November 19, 2002, is hereby amended to include the following:
Bank of America ("BofA") seeks an award of attorney's fees incurred in connection with this appeal.1 Thrifty disputes BofA's eligibility for attorney's fees, arguing that BofA waived its right to fees in a settlement agreement entered into during proceedings in the bankruptcy court. Thrifty also argues that even if BofA did not waive its right to attorney's fees, fees should not be awarded because the primary issues on appeal were based on federal, rather than state, law.
Thrifty contends that BofA waived its right to seek attorney's fees when it entered into a settlement agreement that provided, inter alia, "[i]n full satisfaction of any and all post-Petition Date claims against the Debtors ... the Debtors shall have no liability for post-Petition Date [attorney's fee] expenditures." However, the Swap Claim is a pre-Petition claim and is not subject to this waiver. See In re Healthco Int'l, Inc., 272 B.R. 510, 512 (1st Cir. B.A.P.2002) ("[C]laims founded on executed prepetition contracts are prepetition claims."). Accordingly, we reject Thrifty's waiver argument and consider the merits of BofA's request for fees.
Attorney's fees may be awarded to an unsecured creditor in a bankruptcy proceeding only to the extent that state law
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governs the substantive issues and authorizes the court to award fees. Renfrow v. Draper, 232 F.3d 688, 694 (9th Cir.2000). In Renfrow, a creditor, the debtor's former wife, successfully sought a judgment that certain debts were nondischargeable. 232 F.3d at 694. In order to prove nondischargeability, the creditor was required to demonstrate the validity of the parties' divorce decree, which assigned the debts at issue to the debtor. Id. After judgment was entered in the creditor's favor, she sought attorney's fees pursuant to a "hold harmless" provision in the divorce decree. Id. at 691. We held that the creditor was entitled to the portion of attorney's fees incurred in connection with litigating state law issues; namely, the validity and amount of debts owed to her under the divorce decree. Id. at 694.
Under Renfrow, a creditor can recover attorney's fees incurred in connection with litigating the validity of a contract, even if the ultimate issue in the case is one of bankruptcy law. By contrast, the mere presence of an attorney's fees provision in the contract giving rise to the debt at issue does not entitle a prevailing party to attorney's fees. See In re Hashemi, 104 F.3d 1122, 1127 (9th Cir.1996) ("[T]he question of the applicability of the bankruptcy laws to particular contracts is not a question of the enforceability of a contract but rather involves a unique, separate area of federal law.") (citing In re Coast Trading Co., 744 F.2d 686, 693 (9th Cir.1984)). Our past cases awarding attorney's fees to prevailing debtors conform to the same basic principles. See In re Baroff, 105 F.3d 439, 440-42 (9th Cir.1997) (awarding fees incurred by a prevailing party debtor in defending a state law fraudulent inducement claim, but refusing to award fees incurred in connection with a related issue of bankruptcy law).
Renfrow, Hashemi, and Baroff permit a prevailing party in a bankruptcy proceeding to receive attorney's fees incurred while litigating the enforceability of a contract. The California Bucket Shop law, if applicable, would have rendered the Swap Claim at issue unenforceable. We therefore conclude that BofA is entitled to attorney's fees incurred in connection with its successful defense of Thrifty's Bucket Shop objection on appeal.
Thrifty's § 502(b) objection, by contrast, was purely an issue of federal bankruptcy law. See Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 163, 67 S.Ct. 237, 91 L.Ed. 162 (1946) (holding that when, and under what circumstances, federal courts will allow interest on claims against debtor's estates has long been decided by federal law). Thus, the issue of attorney's fees in a § 502(b) case would ordinarily be a straightforward issue; because § 502(b) is exclusively governed by federal law, no fees could ordinarily be awarded to a prevailing party, absent a bankruptcy statute to the contrary.
The instant case, however, is somewhat atypical because, even though state law was irrelevant to the § 502(b) issue, the district court specifically requested that the parties brief issues of state contract law. The parties did so, and even though the district court ultimately decided the issue on purely federal grounds, the parties' appellate briefs repeatedly reference state contract law.
Despite the district court's error, we believe that a prevailing party should not be entitled to attorney's fees for litigation of state law issues merely tangential to an issue of federal bankruptcy law. This conclusion is consistent with our prior cases, in which we have awarded attorney's fees to prevailing bankruptcy parties only where the validity or enforceability of a contract was expressly at issue. Here, even though the parties were misled by the district court's order to brief issues of
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state contract law, neither validity nor enforceability of the Swap Agreement was ever a true component of the § 502(b) issue.
For the foregoing reasons, we GRANT Bank of America's petition for attorney's fees with respect to fees incurred litigating the California Bucket Shop issue, and DENY the petition with respect to fees incurred litigating the § 502(b) issue. The case is referred to the Appellate Commissioner for a determination of the level of fees incurred by BofA in litigating the Bucket Shop issue on appeal. The Commissioner is authorized to enter a judgment for that amount against Thrifty.
The decision of the District Court granting summary judgment to appellee Bank of America is hereby AFFIRMED for the reasons stated in Judge Whelan's opinion, reported at Thrifty Oil Co. v. Bank of America (In re Thrifty Oil Co.), 249 B.R. 537 (S.D.Cal.2000). The District Court's opinion is set forth below in hæc verba:
"Thrifty Oil Company ("Thrifty") appeals an order of the United States Bankruptcy Court, the Honorable Louise DeCarl Adler presiding, granting a motion for summary judgment brought by Bank of America National Trust & Savings Association ("BofA"). This Court has appellate jurisdiction pursuant to 28 U.S.C. §§ 158(a)(1) & (c)(1)(A).
This appeal presents two questions: (1) whether "termination damages" under an interest rate swap agreement, entered into between a lender and a borrower as part of a larger financing transaction, constitute unmatured interest disallowed under Section 502(b)(2) of the Bankruptcy Code, and (2) whether interest rate swap agreements violate California's Bucket Shop Law. On summary judgment, the Bankruptcy Court answered both questions in the negative and entered judgment in favor of BofA. See In re Thrifty Oil Co., 212 B.R. 147 (Bankr.S.D.Cal. 1997).
The Court has read and considered Thrifty's opening, reply and supplemental briefs, BofA's responsive and supplemental briefs, all attached exhibits, the arguments of counsel and the applicable law. For the reasons expressed below, the Court AFFIRMS the judgment of the Bankruptcy Court.
I. INTRODUCTION
To more thoroughly understand the facts of this case and the legal issues presented, the Court will provide a brief overview of derivative swap agreements.1 A "swap" is a contract between two parties ("counterparties") to exchange ("swap") cash flows at specified intervals, calculated by reference to an index. Parties can swap payments based on a number of indices including interest rates, currency rates and security or commodity prices.
The "plain-vanilla" interest rate swap, the simplest and most common type of swap contract, obligates one counterparty to make payments equal to the interest which would accrue on an agreed hypothetical principal amount ("notional amount"), during a given period, at a specified fixed interest rate. The other counterparty must pay an amount equal to the interest which would accrue on the same notional amount, during the same period, but at a floating interest rate. If the fixed rate paid by the first counterparty exceeds the floating rate paid by the second counterparty, then the first counterparty must pay an amount equal to the difference between the two rates multiplied by the notional amount, for the specified interval.
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Conversely, if the floating rate paid by the second counterparty exceeds the fixed rate paid by the first counterparty, the fixed-rate payor receives payment. The agreed hypothetical or "notional" amount provides the basis for calculating payment obligations, but does not change hands.
For example, suppose Counterparties A and B enter into a five-year interest rate swap with the following characteristics: (1) Counterparty A agrees to pay a floating interest rate equal to LIBOR, the London Interbank Offered Rate;2 (2) Counterparty B agrees to pay a 10% fixed interest rate; (3) both counterparties base their payments on a $1 million notional amount and agree to make payments semiannually. If LIBOR is 9% upon commencement of the first payment period,...
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