FILED
DEC 19 2013
1
SUSAN M. SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-12-1516-DKiTa
)
6 SEYED SHAHRAM HOSSEINI, ) Bk. No. 10-16228
)
7 Debtor. ) Adv. No. 10-01385
______________________________)
8 )
SEYED SHAHRAM HOSSEINI, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M1
11 )
KEY BANK, N.A., )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on November 21, 2013
at Pasadena, California
15
Filed - December 19, 2013
16
Appeal from the United States Bankruptcy Court
17 for the Central District of California
18 Honorable William V. Altenberger, Bankruptcy Judge, Presiding
19
Appearances: Denise M. Fitzpatrick, Esq. for Appellant, Seyed
20 Shahram Hosseini; Holly Jo Nolan, Esq. of Solomon,
Grindle, Silverman & Wintringer, APC for Appellee,
21 Key Bank, N.A.
22
Before: DUNN, KIRSCHER and TAYLOR, Bankruptcy Judges.
23
24
25
26 1
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
1 The debtor, Seyed Shahram Hosseini, appeals the bankruptcy
2 court’s order 1) denying his motion for attorney’s fees and
3 2) allowing only costs for service of process requested in his
4 bill of costs.2 We AFFIRM.
5 FACTS
6 Prepetition, the debtor obtained a total of $280,046.34 in
7 student loans (“student loan debt”) from Key Bank, N.A. (“Key
8 Bank”) to fund his medical school education. Despite several
9 attempts, he was unable to pass the medical licensing exam. The
10 debtor did not become a physician, as he had hoped, but instead
11 became a night security guard earning only $13.50 per hour. He
12 also was beset with various physical and mental ailments,
13 including diabetes and depression.
14 The debtor filed a chapter 7 bankruptcy petition on May 24,
15 2010. He initiated an adversary proceeding to discharge the
16 student loan debt under § 523(a)(8). Two years after Key Bank
17 filed its answer in the adversary proceeding, the bankruptcy
18 court held a trial. It granted judgment in the debtor’s favor,
19 discharging his entire student loan debt to Key Bank (“Discharge
20 Order”).
21 Shortly after the bankruptcy court entered the Discharge
22 Order, the debtor filed a bill of costs (“Cost Bill”) seeking a
23
2
Unless otherwise indicated, all chapter and section
24
references are to the federal Bankruptcy Code, 11 U.S.C.
25 §§ 101-1532, and all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of
26 Civil Procedure are referred to as “Civil Rules.”
27 The Local Bankruptcy Rules for the United States Bankruptcy
Court for the Central District of California are referred to as
28 “LBR.”
2
1 total of $4,960.39 in expenses incurred by his attorney, Denise
2 Fitzpatrick, in the adversary proceeding.3 Along with the Cost
3 Bill, he submitted a declaration by Ms. Fitzpatrick (“Cost Bill
4 Declaration”), which included an itemization of each cost sought
5 to be recovered by him (“Cost Bill Itemization”).
6 According to the Cost Bill Itemization, the debtor sought
7 $101.20 for copying and printing (mostly for documents served
8 electronically), $20.90 for faxing (all for evidentiary documents
9 from the debtor to Ms. Fitzpatrick), $107.74 for “service of
10 process” (postage for service of summons, status reports and
11 other documents mailed by Ms. Fitzpatrick), and $4,730.55 for
12 miscellaneous costs (consisting of messenger service fees, online
13 software purchases, exhibit preparation costs, transportation
14 costs for Ms. Fitzpatrick’s meetings with co-counsel and/or the
15 debtor, “research and document retrieval” costs, phone charges
16 for a status conference through Court Call, a $2,500 “consultant
17 fee” to Charles Murray4 (“Murray consultation fee”), and a $500
18 fee to Hector Vega for “[consultation] and appearance – necessary
19
20
21 3
The debtor initially sought $6,210.39 in costs.
22
4
Ms. Fitzpatrick employed Mr. Murray as a “consultant” to
23 help her during trial. She filed a notice of association of
counsel on July 17, 2012, indicating that Mr. Murrary was
24
co-counsel in the adversary proceeding. According to
25 Ms. Fitzpatrick, Mr. Murray “did the oral arguments” at trial.
The bankruptcy court determined that Mr. Murray was not a
26 consultant but an attorney as he “[had] tried the case.” Tr. of
27 September 10, 2012 hr’g, 29:4. The bankruptcy court therefore
found that the $2,500 “consultant fee” for Mr. Murray actually
28 was an attorney’s fee to be included in the Attorney Fee Motion.
3
1 to obtain trial continuance and prevent dismissal.”5
2 The debtor also filed a motion for allowance of attorney’s
3 fees (“Attorney Fee Motion”), seeking a total of $110,701.50 “for
4 reasonable and necessary fees incurred [by Ms. Fitzpatrick] in
5 [the adversary proceeding].”6
6 In support of the Attorney Fee Motion, the debtor relied on
7 a provision (“fee provision”) in the promissory note for the
8 student loans (“promissory note”), which he claimed authorized
9 him to seek attorney’s fees as the prevailing party in the
10 adversary proceeding.7 The fee provision stated:
11 When and as permitted by applicable law, I [the
borrower] agree to pay your [the lender] reasonable
12 amounts, including reasonable attorney’s fees for any
13
5
14 Ms. Fitzpatrick failed to appear at the trial set for
April 25, 2012. She had Mr. Vega specially appear to represent
15 the debtor in her stead. It seems that the $500 fee to Mr. Vega
16 was for his special appearance at the April 25, 2012 hearing.
6
17 In her declaration filed in support of the Attorney Fee
Motion (“Attorney Fee Declaration”), Ms. Fitzpatrick claimed that
18 she spent a total of 316.29 hours litigating the adversary
19 proceeding. She attached to her declaration an “attorney time
log” that described the various tasks she performed, the time
20 spent on each task and the amount due.
21 7
The debtor also referenced LBR 7054-1(g)(1), which allows
22 a prevailing party to file a motion for an award of attorney’s
fees where such fees may be awarded, within 30 days after entry
23 of judgment.
LBR 7054-1(g) provides:
24
(1) If not previously determined at trial or other hearing,
25 a party seeking an award of attorneys’ fees where such
fees may be awarded must file and serve a motion not
26 later than 30 days after the entry of judgment or other
27 final order, unless otherwise ordered by the court.
(2) The requirements of LBR 9013-1 through LBR 9013-4 apply
28 to a motion for attorneys’ fees under this rule.
4
1 attorney who is not your regularly salaried employee and
court and other collection costs, that you incur in
2 enforcing the terms of the [promissory] Note if I am in
default.
3
4 He further relied on California Civil Code (“Civil Code”)
5 § 1717, arguing that Civil Code § 1717 reinforced the fee
6 provision through reciprocity.8 According to the debtor, Civil
7 Code § 1717 “require[d] payment of attorney fees to prevailing
8 parties when attorney fees are afforded to any contracting
9 party.”
10 Key Bank opposed the Cost Bill, contending that the debtor
11
8
12 Civil Code § 1717 provides, in relevant part:
13 (a) In any action on a contract, where the contract
14 specifically provides that attorney’s fees and costs,
which are incurred to enforce that contract, shall be
15 awarded either to one of the parties or to the
prevailing party, then the party who is determined to
16
be the party prevailing on the contract, whether he or
17 she is the party specified in the contract or not,
shall be entitled to reasonable attorney’s fees in
18 addition to other costs.
19
Where a contract provides for attorney’s fees, as set
20 forth above, that provision shall be construed as
applying to the entire contract, unless each party was
21 represented by counsel in the negotiation and execution
22 of the contract, and the fact of that representation is
specified in the contract.
23
Reasonable attorney’s fees shall be fixed by the court,
24
and shall be an element of the costs of suit.
25
Attorney’s fees provided for by this section shall not
26 be subject to waiver by the parties to any contract
27 which is entered into after the effective date of this
section. Any provision in any such contract which
28 provides for a waiver of attorney’s fees is void.
5
1 could not recover certain costs because they were not allowed
2 under LBR 7054-1. Specifically, it opposed the debtor’s request
3 for recovery of costs for every copy ever made in the adversary
4 proceeding because LBR 7054-1 allowed recovery of costs of copies
5 of documents admitted into evidence only if the original
6 documents were not available. It further opposed recovery for
7 postage, Court Call charges, fax charges, messenger and delivery
8 charges, software costs, transportation costs, PACER research
9 charges and the Murray consultation fee because LBR 7054-1 did
10 not include such expenses as recoverable costs.
11 Key Bank also opposed the Attorney Fee Motion, arguing that
12 there was no statutory basis for an award of attorney’s fees
13 under § 523(a)(8) as required under the American Rule.
14 Key Bank also contended that the fee provision only applied
15 to actions seeking to enforce the terms of the promissory note.
16 Here, the debtor had initiated the adversary proceeding to
17 discharge his student loan debt under § 523(a)(8), not to enforce
18 the promissory note’s terms. The debtor therefore could not seek
19 attorney’s fees because he prevailed on a claim to relieve
20 himself from his debts under federal law, not on a Key Bank claim
21 to recover following a default under the promissory note.
22 Key Bank further asserted that Civil Code § 1717 did not
23 apply because the promissory note contained a provision stating
24 that Ohio law, not California law, governed the prevailing
25 party’s recovery of attorney’s fees (“governing law provision”).
26 Specifically, the governing law provision stated:
27 I understand and agree that (i) you are located in
Ohio, (ii) that this Note will be entered into in Ohio
28 and (iii) that your decision on whether to lend me
6
1 money will be made in Ohio. CONSEQUENTLY, THE
PROVISIONS OF THIS NOTE WILL BE GOVERNED BY FEDERAL
2 LAWS AND THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD
TO CONFLICT OF LAW RULES. I agree that any suit I
3 bring against you (or against any subsequent holder of
this Note) must be brought in a court of competent
4 jurisdiction in the county in which you maintain your
(or the county in which the subsequent holder maintains
5 its) principal place of business.
6 On September 10, 2012, the bankruptcy court held a hearing
7 on the Cost Bill and the Attorney Fee Motion.
8 After hearing extensive argument from counsel, the
9 bankruptcy court first addressed the Cost Bill. The bankruptcy
10 court agreed with Key Bank that LBR 7054-1 allowed for the
11 recovery of filing fees and certain of the service of process
12 fees, but not for the other fees requested by the debtor.
13 The bankruptcy court then turned to the Attorney Fee Motion.
14 It began by recognizing that, under the American Rule, a
15 prevailing party may not recover attorney’s fees unless there was
16 a statute or a contract authorizing such recovery. The
17 bankruptcy court acknowledged that the fee provision allowed Key
18 Bank to recover any attorney’s fees incurred in enforcing the
19 terms of the promissory note if the debtor defaulted. It also
20 acknowledged that Civil Code § 1717 provided that, in any action
21 on a contract where the contract specifically provided for the
22 recovery of attorney’s fees incurred by the prevailing party to
23 enforce the contract, the prevailing party was entitled to
24 recover reasonable attorney’s fees. The bankruptcy court noted
25 that Key Bank did not dispute that if it could recover attorney’s
26 fees as the prevailing party, the debtor also could recover
27
28
7
1 attorney’s fees if he were the prevailing party.9
2 The bankruptcy court ultimately decided that the debtor was
3 not entitled to recover attorney’s fees under the American Rule.
4 In making its determination, the bankruptcy court focused on the
5 purpose of the adversary proceeding. It emphasized that the
6 debtor initiated the adversary proceeding to discharge his
7 student loan debt to Key Bank, not to enforce the terms of the
8 promissory note or contest the amount of the debt to Key Bank.
9 Because the sole legal basis for recovery of attorney’s fees did
10 not apply – i.e., the fee provision – the bankruptcy court denied
11 the Attorney Fee Motion.
12 On September 26, 2012, the bankruptcy court entered an order
13 on both the Cost Bill and the Attorney Fee Motion (“Cost and Fee
14 Order”). In the Cost and Fee Order, the bankruptcy court allowed
15 the debtor $10.82 in costs for service of process but denied all
16 other costs.10 It denied the Attorney Fee Motion in its
17
18 9
The bankruptcy court also observed:
19
No matter how you look at this or how you cut it,
20 [the amount was] way too much in the way of attorney’s
fees in a case for hardship, to have his student loans
21
declared to be a hardship, and therefore,
22 dischargeable.
It’s either a case of over-lawyering, or a case
23 where the lawyer was not familiar with bankruptcy law
24 or bankruptcy trials, because there’s no way that a
two-hour trial or three-hour trial, should require
25 preparation time and trial time that totals $125,000.
26 Tr. of September 10, 2012 hr’g, 30:23-25, 31:1-6.
27 10
Although it allowed the debtor to recover filing fees and
28 (continued...)
8
1 entirety.
2 The debtor timely appealed the Cost and Fee Order.
3 JURISDICTION
4 The bankruptcy court had jurisdiction under 28 U.S.C.
5 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.
6 § 158.
7 ISSUES
8 (1) Did the bankruptcy court abuse its discretion in
9 allowing $10.82 in costs for service of process only?
10 (2) Did the bankruptcy court abuse its discretion in
11 denying the Attorney Fee Motion in its entirety?
12 STANDARDS OF REVIEW
13 We review a bankruptcy court’s refusal to award attorney’s
14 fees for an abuse of discretion. Renfrow v. Draper, 232 F.3d
15 688, 693 (9th Cir. 2000); Dinan v. Fry (In re Dinan), 448 B.R.
16 775, 782 (9th Cir. BAP 2011). We also review a bankruptcy
17 court’s allowance or disallowance of costs for abuse of
18 discretion. Young v. Aviva Gelato, Inc. (In re Aviva Gelato,
19 Inc.), 94 B.R. 622, 624 (9th Cir. BAP 1988), aff’d, 930 F.2d 26
20 (9th Cir. 1991)(table).
21 We apply a two-part test to determine objectively whether
22 the bankruptcy court abused its discretion. United States v.
23 Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009)(en banc). First,
24
25
10
(...continued)
26 costs for service of process, the bankruptcy court noted that the
27 debtor was not required to pay the filing fee for the adversary
proceeding. It therefore determined the amount for filing fees
28 to be zero.
9
1 we “determine de novo whether the bankruptcy court identified the
2 correct legal rule to apply to the relief requested.” Id.
3 Second, we examine the bankruptcy court’s factual findings under
4 the clearly erroneous standard. Id. at 1262 & n.20. A
5 bankruptcy court abuses its discretion if it applied the wrong
6 legal standard or its factual findings were illogical,
7 implausible or without support in the record. TrafficSchool.com
8 v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).
9 We review de novo the bankruptcy court’s decision to deny
10 attorney’s fees under state law. See Dinan, 448 B.R. at 783
11 (citing Bertola v. N. Wis. Produce Co., Inc. (In re Bertola),
12 317 B.R. 95, 99 (9th Cir. BAP 2004)).
13 We may affirm on any ground supported by the record. Shanks
14 v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008).
15 DISCUSSION
16 A. Cost Bill
17 Rule 7054(b) provides in relevant part: “The court may allow
18 costs to the prevailing party except when a statute of the United
19 States or these rules otherwise provides.” Rule 7054(b) arises
20 from Civil Rule 54(d)(1), which provides in relevant part:
21 “Unless a federal statute, these rules, or a court order provides
22 otherwise, costs – other than attorney’s fees – should be allowed
23 to the prevailing party.”
24 Civil Rule 54(d)(1) appears mandatory in nature, as it
25 states that costs “should be allowed,” unless it or federal
26 statute or rule otherwise directs. See 10 Collier on Bankruptcy
27 ¶ 7054.05 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. rev.
28 2013)(“[A]lthough ultimately leaving the question of costs to the
10
1 discretion of the court, [Civil Rule 54(d)] provides that the
2 court ‘should’ allow costs to the prevailing party unless it, a
3 federal statute or a Civil Rule otherwise directs.”)(hereinafter
4 referred to as “Collier on Bankruptcy”). Nonetheless, Civil
5 Rule 54(d)(1) generally grants a federal court discretion to
6 refuse to tax costs in the prevailing party’s favor. Crawford
7 Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 442 (1987).
8 On the other hand, Rule 7054(b) is permissive in nature, as
9 it states that the bankruptcy court “may allow costs.” See
10 In re Aviva Gelato, Inc., 94 B.R. at 624 (“Although [Civil]
11 Rule 54(d) appears to be more mandatory in nature than
12 [Rule] 7054(b), the Ninth Circuit has consistently recognized
13 that the trial court has discretion as to what costs to allow.”)
14 (citation omitted). See also 10 Collier on Bankruptcy ¶ 7054.05.
15 Although it has broad discretion in determining whether to deny
16 costs, the bankruptcy court must state its reasons for denying
17 them. In re Aviva Gelato, Inc., 94 B.R. at 624.
18 The debtor contends that the bankruptcy court erred in
19 limiting recoverable costs to those listed in the Court Manual
20 pursuant to LBR 7054-1(d). Instead, according to the debtor, the
21 bankruptcy court should have referenced 28 U.S.C. § 1920, which
22 permits recovery of reasonable out-of-pocket expenses typically
23 charged to clients by their attorneys.
24 We decline to consider the debtor’s argument regarding
25 28 U.S.C. § 1920, as he did not raise it before the bankruptcy
26 court. See Enewally v. Wash. Mut. Bank (In re Enewally),
27 368 F.3d 1165, 1173 (9th Cir. 2004)(“As a general rule, issues
28 not presented to the trial court cannot generally be raised for
11
1 the first time on appeal,” unless one of the four recognized
2 exceptions apply.)(quoting United States v. Flores-Payon,
3 942 F.2d 556, 558 (9th Cir. 1991)(internal quotation marks
4 omitted)).
5 As for the bankruptcy court’s reliance on LBR 7054-1, we
6 conclude there was no error. The general rule is that the
7 bankruptcy court’s authority to tax a cost must come from “a
8 federal statute or rule of court, or in the custom, practice and
9 usage applicable in a particular district, and in some instances
10 by the exercise of the court’s general equitable discretion.”
11 10 Collier on Bankruptcy ¶ 7054.05. According to
12 LBR 1001-1(b)(2), the Local Bankruptcy Rules “apply to all
13 bankruptcy cases and proceedings . . . pending in the United
14 States Bankruptcy Court for the Central District of California.”
15 Here, the bankruptcy court’s authority to allow or deny
16 costs arose from the local rules of its district. It therefore
17 could allow such costs within the parameters of the local rules –
18 specifically, those costs listed in the Court Manual pursuant to
19 LBR 7054-1(d).
20 LBR 7054-1 provides, in relevant part:
21 i. Who May Be Awarded Costs. When costs are allowed
by the FRBP or other applicable law, the court may
22 award costs to the prevailing party. No costs
will be allowed unless a party qualifies as, or is
23 determined by the court to be, the prevailing
party under this rule. Counsel are advised to
24 review 28 U.S.C. § 1927 regarding counsel’s
liability for excessive costs.
25 . . . .
26 iv. Items Taxable as Costs. A list of the items
taxable as costs is contained in the Court Manual
27 available from the clerk and on the court’s
website.
28 . . . .
12
1 Section 2.8 of the Court Manual for the United States
2 Bankruptcy Court for the Central District of California provides,
3 in relevant part:
4 2.8 Miscellaneous
5 . . .
6 (d) Bill of Costs [LBR 7054-1].
7 A bill of costs filed electronically or non-
electronically must comply with LBR 7054-1.
8 The prevailing party who is awarded costs
must file and serve a bill of costs not later
9 than 30 days after entry of judgment. Each
item claimed must be set forth separately in
10 the bill of costs.
(e) Items Taxable as Costs. Pursuant to LBR
11 7054-1, the following items are taxable as
costs:
12 (1) Filing Fees. The clerk’s filing fees;
(2) Fees for Service of Process. Fees for
13 service of process (whether served by
the United States Marshal or in any
14 other manner authorized by FRBP 7004);
(3) United States Marshal’s Fees. Fees of
15 the United States Marshal collected and
taxed as costs pursuant to 28 U.S.C.
16 § 1921;
(4) Clerk’s Fees. Fees for certification of
17 documents necessary for preparation for
a hearing or trial; and
18 (5) Transcripts and Digital Recordings. The
costs of the original and one copy of
19 all or any part of a trial transcript,
daily transcript, or a transcript of
20 matters occurring before or after trial,
if requested by the court or prepared
21 pursuant to stipulation. The cost of a
digital recording, if requested by the
22 court or obtained pursuant to
stipulation.
23 (6) Depositions. Costs incurred in
connection with taking depositions,
24 including:
. . .
25 (7) Witness Fees. Fees paid to witnesses
. . .
26 (8) Interpreter’s and Translator’s Fees.
Fees paid to interpreters and
27 translators . . .
(9) Docket Fees. Docket fees as provided by
28 28 U.S.C. § 1923.
13
1 (10) Certification, Exemplication, and
Reproduction of Documents. Document
2 preparation costs, including:
(A) The cost of copies of an exhibit
3 attached to a document necessarily
filed and served;
4 (B) The cost of copies of a document
admitted into evidence when the
5 original is not available or the
copy is substituted for the
6 original at the request of an
opposing party;
7 (C) Fees for an official certification
of proof respecting the non-
8 existence of a document or record;
(D) Patent Office charges for the
9 patent file wrappers and prior art
patents necessary to the
10 prosecution or defense of a
proceeding involving a patent;
11 (E) Notary fees incurred in notarizing
a document when the cost of the
12 document is taxable; and
(F) Fees for necessary certification or
13 exemplication of any document.
. . .
14 (12) Other Costs. Upon order of the court,
additional items, including the
15 following, may be taxed as costs:
(A) Summaries, computations, polls,
16 surveys, statistical comparisons,
maps, charts, diagrams, and other
17 visual aids reasonably necessary to
assist the court or jury in
18 understanding the issues at the
trial;
19 (B) Photographs, if admitted in
evidence or attached to documents
20 necessarily filed and served upon
the opposing party; and
21 (C) The cost of models if ordered by
the court in advance of or during
22 trial.
. . . .
23
Reviewing the Cost Bill Itemization, we conclude that only
24
one of the requested costs – the certified mail postage for
25
service of the alias summons and notice of the status conference
26
– was recoverable under LBR 7054-1(d).
27
Ms. Fitzpatrick listed costs for printing status reports,
28
14
1 summons, orders, notices, responses to interrogatories,
2 stipulations, briefs, declarations and exhibit lists, none of
3 which qualify as document preparation costs under
4 Section 2.8(e)(10) of the Court Manual. She also listed costs
5 for numerous faxes from the debtor, explaining that these faxes
6 were “evidentiary documents.” Ms. Fitzpatrick failed to specify
7 these “evidentiary documents” and to explain their purpose.
8 Given her lack of explanation, we only can assume that she
9 printed documents and had documents faxed to her for her
10 convenience or her records. See, e.g., Fressell v. AT&T Tech.,
11 Inc., 103 F.R.D. 111, 115 (N.D. Ga. 1984)(denying successful
12 defendant’s request for photocopying charges “for the
13 convenience, preparation, research, or records of counsel” under
14 28 U.S.C. § 1920).
15 She also listed postage for the service of various
16 documents. Section 2.8(e)(2) of the Court Manual allows for the
17 recovery of postage fees for documents served in the manner
18 required by Rule 7004. Ms. Fitzpatrick included postage, not
19 only for the alias summons, but for scheduling orders, responses
20 to interrogatories, status reports, trial briefs and
21 stipulations. Rule 7004 only requires a particular manner of
22 service for the summons and complaints. See 10 Collier on
23 Bankruptcy ¶ 7004.01. The other postage costs are not covered
24 under Section 2.8(e)(2) of the Court Manual.
25 Ms. Fitzpatrick further listed various miscellaneous costs,
26 such as telephone charges, messenger services, transportation,
27 online software purchases, research and document retrieval
28 charges and fees for two attorneys. Again, none of these costs
15
1 are listed in Section 2.8(e) of the Court Manual.
2 Based on the foregoing, we conclude that the bankruptcy
3 court did not abuse its discretion in denying all but the service
4 costs requested in the Cost Bill.
5 B. Attorney’s Fee Motion11
6 On appeal, the debtor mainly contends that the bankruptcy
7
8 11
The debtor challenges the bankruptcy court’s ruling on
9 several grounds, which we’ve distilled down to two.
First, he argues that the bankruptcy court unfairly and
10 erroneously relied on Krasinski v. Goldstein (In re Goldstein),
11 2011 WL 3608243 (Bankr. D. Ariz. 2011), an unpublished decision.
According to the debtor, the bankruptcy court denied the Attorney
12 Fee Motion based on the reasoning set forth in the Goldstein
decision. The debtor claims that he could not effectively refute
13 the reasoning in the Goldstein decision because he could not
14 obtain a copy of the Goldstein decision. He further asserts that
Goldstein was legally and factually distinguishable from the
15 underlying matter.
Contrary to the debtor’s assertion, the bankruptcy court did
16
not rely on the Goldstein decision in denying the Attorney Fee
17 Motion. Because Key Bank cited the Goldstein decision, the
bankruptcy court believed it “[was] going to have to read this
18 Goldstein opinion.” Tr. of September 10, 2012 hr’g, 27:16-17.
19 Upon reading it, the bankruptcy court acknowledged that “in this
case, we have a little slightly different situation [than that in
20 the Goldstein decision].” Tr. of September 10, 2012 hr’g,
34:1-2. The bankruptcy court took care to distinguish the
21 instant matter from Goldstein, stressing that Key Bank did not
22 “sue [the debtor]. It was [the debtor] who sought to have the
debt declared [dischargeable]. There was no dispute under the
23 contract as to whether he owed any sums or not. The dispute was
whether this should be discharged as a hardship debt or not.”
24
Tr. of September 10, 2012 hr’g, 34:3-8.
25 Second, the debtor contends that the bankruptcy court should
have allowed his attorney’s fees in full unless Key Bank
26 demonstrated, through evidence, that they were unreasonable.
27 However, the bankruptcy court would not get to reasonableness,
unless it first determined that there was a statutory or
28 contractual basis for an award of fees.
16
1 court erred in denying the Attorney Fee Motion by ignoring Civil
2 Code § 1717.12 He insists that Civil Code § 1717 applies.13
3 We disagree. There simply is no statutory or contractual
4 basis allowing the debtor to recover his attorney’s fees here.
5
6
12
The debtor also relies on Civil Code § 1021 in support of
7 his argument. Because the debtor did not raise Civil Code § 1021
8 as an issue before the bankruptcy court, we decline to address it
here. See Enewally, 368 F.3d at 1173.
9
13
The debtor also claims that the bankruptcy court
10 acknowledged the applicability of Civil Code § 1717 but
11 misapplied it.
At the hearing, the bankruptcy court mentioned that the
12 debtor relied on Civil Code § 1717. It also stated that it had
“the California statute that says, okay, what’s good for the
13 goose is good for the gander, so to speak.” Tr. of September 12,
14 2012 hr’g, 32:18-20.
Given the bankruptcy court’s reasoning as stated on the
15 record at the hearing, we do not believe that the bankruptcy
court applied Civil Code § 1717 at all. The bankruptcy court
16
denied the Attorney Fee Motion because the legal basis for
17 recovery of attorney’s fees, the fee provision, did not apply as
the adversary proceeding arose from a federal claim (i.e.,
18 § 523(a)(8)), not a contract claim.
19 Moreover, California courts uniformly have ruled that Civil
Code § 1717 is to be narrowly applied, and is available to a
20 party only if the dispute involves litigation of a contract
claim. Santisas v. Goodin, 951 P.2d 399, 409 (Cal. 1998)
21 (“[S]ection 1717 applies only to attorney fees incurred to
22 litigate contract claims.”). The BAP previously has relied upon
Santisas on this specific issue. Redwood Theaters, Inc. v.
23 Davison (In re Davison), 289 B.R. 716, 723 (9th Cir. BAP 2003)
(“[W]e will follow [the Santisas] holding and narrowly apply
24
[Civil Code] § 1717 and approve attorney’s fees only if the
25 action involves a contract claim.”). Based on California
controlling law and BAP authority, we have held that Civil Code
26 § 1717 only can be applied to attorney’s fees disputes based on
27 contract claims. Hamilton v. Charalambous (In re Charalambous),
2013 WL 3369299 at 5 (9th Cir. BAP 2013). We follow that holding
28 here.
17
1 Ordinarily, under the American Rule, a prevailing party may not
2 recover attorney’s fees except as provided for by contract or by
3 statute. Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec.,
4 Co., 549 U.S. 443, 448 (2007); Dinan, 448 B.R. at 784.
5 No general right to recover attorney’s fees exists under the
6 Bankruptcy Code. Dinan, 448 B.R. at 784. Also, nothing in
7 § 523(a)(8) authorizes a debtor to recover attorney’s fees when
8 he or she prevails in discharging his or her student loan debt.14
9 Interestingly, Ohio law has established that a contractual
10 provision allowing for the recovery of attorney’s fees to enforce
11 a defaulted debt obligation is unenforceable as against public
12 policy.15 See Simons v. Higher Educ. Assistance Found., 119 B.R.
13
14
14 In contrast, § 523(d) provides:
15 If a creditor requests a determination of
16 dischargeability of a consumer debt under subsection
[523(a)(2)], and such debt is discharged, the court
17 shall grant judgment in favor of the debtor for the
costs of, and a reasonable attorney’s fee for, the
18 proceeding if the court finds that the position of the
19 creditor was not substantially justified, except that
the court shall not award such costs and fees if
20 special circumstances would make the award unjust.
21
Accordingly, it appears that Congress considered when it
22 would be appropriate to award costs and attorney’s fees to a
prevailing debtor in dischargeability litigation and did not
23 expressly allow for an award of fees to the prevailing debtor in
24 § 523(a)(8) adversary proceedings.
15
25 According to the Ohio Supreme Court, although Ohio
generally follows the American Rule, attorney’s fees “may be
26 awarded when a statute or an enforceable contract specifically
27 provides for the losing party to pay the prevailing party’s
attorney fees . . . or when the prevailing party demonstrates bad
28 (continued...)
18
1 589, 593-94 (Bankr. S.D. Ohio 1990)(denying a student loan
2 lender’s request for attorney’s fees incurred in litigating a
3 debtor’s § 523(a)(8) claim because, in Ohio, “stipulations in
4 promissory notes providing for the payment of attorney’s fees,
5 arising in connection with the failure to pay the principal and
6 interest balance at maturity, are contrary to public policy and
7 are void,” and “[n]o provision exists for the granting of
8 attorneys’ fees in proceedings brought pursuant to 11 U.S.C.
9 § 523(a)(8)(B).”)(citation omitted). See also McLeod v.
10 Diversified Collection Servs. (In re McLeod), 176 B.R. 455, 458
11 (Bankr. N.D. Ohio 1994)(quoting Simons, 119 B.R. at 593-94).
12 Moreover, as the bankruptcy court pointed out, the fee
13 provision did not come into play here. The fee provision
14 specifically states that Key Bank has the right to recover
15
15
(...continued)
16
faith on the part of the unsuccessful litigant . . . .” Wilborn
17 v. Bank One Corp., 121 Ohio St. 3d 546, 548 (Ohio 2009)(citations
omitted). Contracts providing for payment of attorney’s fees
18 “are generally enforceable and not void as against public
19 policy,” so long as the parties to the contract entered into it
freely (i.e., equal bargaining power was present and no indicia
20 of compulsion or duress were present) and the fees awarded were
fair, just and reasonable. Id. at 548-49.
21 However, “contracts for the payment of attorney fees upon
22 the default of a debt obligation are void and unenforceable.”
Id. at 549. “‘It is the settled law of this state that
23 stipulations incorporated in promissory notes for the payment of
attorney fees, if the principal and interest be not paid at
24
maturity, are contrary to public policy and void.’” Id. (quoting
25 Leavans v. Ohio Nat’l Bank, 50 Ohio St. 591 (Ohio 1893)
(addressing foreclosure actions)). That is, “a provision in a
26 mortgage or promissory note that awards attorney fees upon the
27 enforcement of the lender’s rights when the borrower defaults,
such as a foreclosure action that has proceeded to judgment, is
28 unenforceable.” Id. at 550.
19
1 attorney’s fees incurred in enforcing the promissory note’s
2 terms. However, the debtor had initiated the adversary
3 proceeding under § 523(a)(8) to discharge the student loan debt,
4 not to contest its terms or amount. As the bankruptcy court
5 explained, the adversary proceeding was not “a contract dispute
6 arising out of the borrowing on the [promissory] note,” but “an
7 action brought by the Debtor to have the debt declared
8 [discharged].” Tr. of September 10, 2012 hr’g, 34:12-13,
9 34:11-12.
10 Neither federal nor Ohio or California law authorizes the
11 debtor to recover the attorney’s fees he incurred in discharging
12 his student loan debt under § 523(a)(8). Moreover, the fee
13 provision did not come into effect as the thrust of the adversary
14 proceeding was to discharge a student loan debt, not to enforce
15 the promissory note’s terms. Because the debtor has no statutory
16 or contractual basis on which to recover attorney’s fees, the
17 bankruptcy court did not abuse its discretion in denying the
18 Attorney Fee Motion.
19 CONCLUSION
20 For the foregoing reasons, we conclude that the bankruptcy
21 court did not abuse its discretion in allowing recovery of only
22 the debtor’s service costs and in denying recovery of the
23 debtor’s attorney’s fees. We AFFIRM.
24
25
26
27
28
20