FILED
JUL 14 2017
1 NOT FOR PUBLICATION
2 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP Nos. CC-16-1345-TaKuL
) CC-16-1383-TaKuL
6 ALLANA BARONI, ) (Cross Appeals)
)
7 Debtor. ) Bk. No. 12-10986-MB
______________________________)
8 ) Adv. No. 13-01071-MB
ALLANA BARONI, )
9 )
Appellant/Cross-Appellee,)
10 )
v. ) MEMORANDUM*
11 )
WELLS FARGO BANK, N.A., as )
12 Trustee for Structured )
Adjustable Rate Mortgage Loan )
13 Trust Mortgage Pass-Through )
Certificates, Series 2005-17, )
14 )
Appellee/Cross-Appellant.)
15 ______________________________)
16 Argued and Submitted on June 22, 2017
at Pasadena, California
17
Filed – July 14, 2017
18
Appeal from the United States Bankruptcy Court
19 for the Central District of California
20 Honorable Martin R. Barash, Bankruptcy Judge, Presiding
21
Appearances: Richard Lawrence Antognini argued for appellant
22 and cross-appellee Allana Baroni; Bernard
Kornberg of Severson & Werson argued for appellee
23 and cross-appellant Wells Fargo Bank, N.A.
24
Before: TAYLOR, KURTZ, and LAFFERTY, Bankruptcy Judges.
25
26 *
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 8024-1(c)(2).
1
INTRODUCTION
2
The bankruptcy court determined that Wells Fargo Bank, N.A.
3
(“Wells Fargo”) was entitled to an award of $50,620.76 in
4
attorneys’ fees. Chapter 111 debtor Allana Baroni disagrees and
5
appeals from this decision. For Wells Fargo, however, this was
6
a short-lived victory: the bankruptcy court also determined that
7
these attorneys’ fees should be added to its allowed claim and
8
were subject to treatment — and discharge — under Debtor’s
9
confirmed chapter 11 plan. Wells Fargo cross-appeals from this
10
determination. We conclude that the bankruptcy court was
11
correct in both respects; accordingly, we AFFIRM.
12
FACTS2
13
In November 2015, we affirmed the bankruptcy court’s
14
decision granting Wells Fargo summary judgment in the underlying
15
dispute. Baroni v. Wells Fargo Bank, N.A. (In re Baroni)
16
(“Baroni I”), BAP No. CC-14-1578-KuDTa, 2015 WL 6941625 (9th
17
Cir. BAP Nov. 10, 2015). Where relevant, we borrow liberally
18
from our earlier opinion’s factual recitation.
19
20
21
22 1
Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
23
All “Rule” references are to the Federal Rules of Bankruptcy
24 Procedure. All “Civil Rule” references are to the Federal Rules
of Civil Procedure.
25
2
We exercise our discretion to take judicial notice of
26 documents electronically filed in the adversary proceeding and
27 in the underlying bankruptcy case. See Atwood v. Chase
Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9
28 (9th Cir. BAP 2003).
2
1 Background facts, Debtor’s bankruptcy, and the earlier
2 appeal In May 2005, Debtor and her husband purchased a
3 condominium in Henderson, Nevada (the “Condo”). They executed a
4 note and a deed of trust securing repayment of the Condo note
5 through a first lien on the Condo. Debtor has never denied
6 liability for repayment of the Condo note; instead, she claims
7 that Wells Fargo is neither the holder of the Condo note nor the
8 successor beneficiary of the Condo trust deed.
9 Debtor filed a voluntary chapter 13 petition in February
10 2012; she then converted to chapter 11. Wells Fargo timely
11 filed a proof of secured claim.
12 The bankruptcy court later confirmed Debtor’s second
13 amended reorganization plan. As relevant here, Debtor’s
14 disclosure statement explained that Debtor owned rental
15 properties, including the Condo, and that all of the first trust
16 deed holders were partially unsecured; the plan bifurcated these
17 claims into secured and unsecured claims. As to Wells Fargo,
18 however, Debtor disputed that it held a claim secured by the
19 Condo. Thus, her plan provided for payment to the holder of the
20 Condo note and required the bankruptcy court to determine if
21 Wells Fargo was the party entitled to this payment.
22 Consistent with the assertions in her plan, Debtor filed a
23 complaint against Wells Fargo seeking a judicial determination
24 regarding the allowability and secured status of Wells Fargo’s
25 proof of claim.
26 The bankruptcy court eventually granted summary judgment
27 for Wells Fargo; it concluded that either: (1) Wells Fargo was a
28 “holder” of the Condo note with the resulting right to enforce
3
1 it and to file a proof of claim; or (2) if Wells Fargo was not
2 the holder of the Condo note, it was “a nonholder in possession
3 of the [Condo Note] who has the rights of a holder” under
4 Uniform Commercial Code § 3-301.
5 Debtor appealed. We affirmed. Debtor appealed to the
6 Ninth Circuit; oral argument in that appeal is scheduled for
7 August 30, 2017.
8 The attorneys’ fee motion Shortly after it obtained
9 summary judgment, Wells Fargo filed a motion for an award of
10 attorneys’ fees based on the attorneys’ fees provision in the
11 Condo deed of trust and California law.
12 The bankruptcy court granted the fee motion. But, it also
13 required briefing on whether the fees should be added to the
14 unsecured part of Wells Fargo’s bifurcated claim and treated
15 under the plan and on a choice of law question.
16 In Debtor’s second supplemental brief, Debtor argued, for
17 the first time, that the 2010 assignment of the deed of trust to
18 Wells Fargo was not the operative assignment. She asserted that
19 Wells Fargo’s predecessor in interest assigned the trust deed to
20 a different entity in 2013. She argued that “[t]his material
21 fact was concealed” from the Panel and bankruptcy court. As
22 directed, Debtor also submitted a brief on choice of law. She
23 stated that she researched whether there were any material
24 differences between California and Nevada law on the issue;
25 there were none. Thus, she “agrees the Court should apply
26 California law where relevant.”
27 On September 30, 2016, the bankruptcy court issued its
28 decision. In re Baroni (“Baroni II”), 558 B.R. 916 (Bankr. C.D.
4
1 Cal. 2016). The bankruptcy court concluded: “Wells Fargo’s
2 attorneys’ fee award should be treated as an unsecured,
3 prepetition claim against [Debtor], subject to treatment and
4 discharge under the plan.” Id. at 918.
5 That same day, the bankruptcy court entered an order
6 granting Wells Fargo’s motion, awarding Wells Fargo $50,620.76
7 in fees and costs, and determining that the award should be
8 added to the allowed proof of claim and subject to treatment and
9 discharge under Debtor’s chapter 11 plan.
10 Debtor timely appealed; Wells Fargo timely cross-appealed.
11 JURISDICTION
12 The bankruptcy court had jurisdiction under 28 U.S.C.
13 §§ 1334 and 157(b)(2)(B) and (C). We have jurisdiction under
14 28 U.S.C. § 158.
15 ISSUES
16 Whether the bankruptcy court erred in awarding Wells Fargo
17 its attorneys’ fees.
18 Whether the bankruptcy court erred in determining that the
19 awarded attorneys’ fees should be added to Wells Fargo’s claim
20 and subject to treatment and possible discharge under Debtor’s
21 confirmed chapter 11 plan.
22 STANDARDS OF REVIEW
23 We review the bankruptcy court’s factual findings for clear
24 error and its conclusions of law de novo. Picerne Constr. Corp.
25 v. Castellino Villas, A.K.F. LLC (In re Castellino Villas,
26 A.K.F. LLC), 836 F.3d 1028, 1033 (9th Cir. 2016); Boeing North
27 American, Inc. v. Ybarra (In re Ybarra) 424 F.3d 1018, 1021
28 (2005).
5
1 DISCUSSION3
2 A. CC-16-1345: The bankruptcy court properly awarded
Wells Fargo its attorneys’ fees.
3
4 The bankruptcy court determined that Wells Fargo was the
5 prevailing party in the adversary proceeding and, under
6 California law, entitled to attorneys’ fees. It incorporated
7 this finding into its final opinion. 558 B.R. at 917.
8 On appeal, Debtor first argues that if the Ninth Circuit
9 reverses as to Wells Fargo’s summary judgment, then Wells Fargo
10 will not be the prevailing party and, thus, the fee award must
11 be reversed. A potential reversal in regard to summary
12 judgment, however, does not provide an independent basis for
13 reversal; nor is it a basis for an appeal from a post-summary
14 judgment fee award. See Fed. R. Civ. P. 60(b)(5) (court may
15 relieve a party from a final order if it “is based on an earlier
16 judgment that has been reversed or vacated”); Fed. R. Bankr.
17 P. 9024 (applying Civil Rule 60 in bankruptcy cases).4
18 Debtor next contends that the bankruptcy court clearly
19 erred in awarding Wells Fargo its attorneys’ fees because it was
20 not a party to the deed of trust. Wells Fargo, Debtor says,
21 only sought fees under section 9 of the deed of trust; but the
22
3
We address each appeal separately.
23
4
24 At oral argument, Debtor’s counsel informed us that the
Ninth Circuit had set her appeal for oral argument; we
25 considered whether to defer submission of this appeal until
after the Ninth Circuit issues its decision. We see no reason
26 to do so. If the Ninth Circuit reverses and determines that
27 Wells Fargo was not entitled to summary judgment, then
Wells Fargo will not be entitled to the award of fees at issue
28 here absent a future court order following a final judgment.
6
1 trust deed, Debtor argues, only allowed the “Lender” to request
2 fees. Wells Fargo, Debtor argues, “had a right to demand fees
3 only if it succeeded Countrywide as ‘Lender’ by acquiring the
4 Baroni deed of trust through an assignment.” Debtor’s Opening
5 Br. at 18. Debtor appears to concede that, if Wells Fargo
6 acquired the trust deed through an assignment, it had the right
7 to demand attorneys’ fees. Cf. Debtor’s Reply Br. at 4 (“The
8 2013 assignment transferred the deed of trust and promissory
9 note to Nationstar Mortgage, LLC. It became a party to those
10 contracts because it succeeded to the rights of the ‘Lender’.”).
11 Debtor asserts that Bank of America (successor in interest to
12 Countrywide Home Loans, the original lender) assigned the trust
13 deed to Nationstar Mortgage on July 19, 2013.
14 Wells Fargo responded with numerous arguments; we focus on
15 two: (1) that the bankruptcy court determined on summary
16 judgment that Wells Fargo was the noteholder, was entitled to
17 enforce the note, and was entitled to initiate foreclosure under
18 the trust deed; and (2) that the 2013 assignment was ineffective
19 because the previous assignment in 2010 controls.
20 Wells Fargo’s arguments are convincing; the bankruptcy
21 court granted Wells Fargo summary judgment, and we affirmed. We
22 concluded that the “uncontroverted evidence in the record
23 establish[ed] that Wells Fargo is the creditor for the proof of
24 claim, is entitled to enforce the Henderson note[,] and is the
25 successor beneficiary under the Henderson deed of trust.”
26 Baroni I, 2015 WL 5941625, at *8.
27 In our first opinion, we also addressed Debtor’s arguments
28 that the 2010 assignment was somehow invalid; we concluded that
7
1 none “of [Debtor’s] contentions justify reversal.” Id. at *7.
2 Debtor now again attacks the 2010 assignment, this time
3 indirectly by arguing that Wells Fargo concealed a material
4 fact: the existence of a later assignment. But to raise this
5 argument, Debtor needed to bring an appropriate reconsideration
6 motion; Debtor did not do so.
7 Wells Fargo also rightly points out the logical
8 untenability of Debtor’s position: if the 2010 assignment to
9 Wells Fargo was effective, as implicitly determined in this case
10 on summary judgment, then only Wells Fargo could assign rights
11 thereafter to another entity; the original assignor had no
12 interests left to assign. Cf. California Bank & Trust v.
13 Piedmont Operating P’ship, 218 Cal. App. 4th 1322, 1347 (2013)
14 (“[U]nless a contrary intention is shown, an assignment vests in
15 the assignee the assigned contract . . . and all rights and
16 remedies incidental thereto.” (quotation marks omitted)); Achrem
17 v. Expressway Plaza Ltd. P’ship, 112 Nev. 737, 740 (1996)
18 (“Specifically, when a tort action is assigned, the assignor
19 loses the right to pursue the action.”); Law v. Fed. Nat’l
20 Mortg. Ass’n, 2016 WL 7626578, at *2 (Nev. App. Dec. 28, 2016).
21 Debtor rejoinds that Wells Fargo bore the burden to establish an
22 unbroken chain of title; part of that burden, Debtor asserts, is
23 to eliminate any doubts created by the 2013 assignment. But
24 Wells Fargo met this burden; the 2013 assignment does not raise
25 a reasonable doubt.
26 Accordingly, we reject Debtor’s challenge to the bankruptcy
27 court’s decision that Wells Fargo was entitled to recover its
28 reasonable attorneys’ fees.
8
1 B. CC-1383: The bankruptcy court properly determined that
Wells Fargo’s attorneys’ fee award should be added to
2 its claim and is subject to treatment under Debtor’s
plan.
3
4 Wells Fargo cross-appeals from the bankruptcy court’s
5 determination that the fee award should be added to
6 Wells Fargo’s unsecured claim and, thus, treated under Debtor’s
7 plan and subject to the discharge.
8 1. The Ninth Circuit’s “fair contemplation” test
9 “Federal law determines when a claim arises under the
10 Bankruptcy Code.” In re Castellino Villas, 836 F.3d at 1034
11 (quotation marks and alterations omitted). In some
12 circumstances, a “creditor may have a claim against a debtor for
13 attorneys’ fees, even though the creditor has not yet incurred
14 those fees.” Id. These circumstances include a situation
15 “where the debtor and creditor have entered into a contract that
16 includes an attorneys’ fees agreement.” Id. In such a case,
17 “the creditor may be deemed to have a contingent claim for
18 payment of attorneys’ fees even before any fees are incurred.”
19 Id. That contingent claim “would then include attorneys’ fees
20 incurred during and after the bankruptcy case.” Id. Indeed,
21 “[i]n general, if the creditor incurs the attorneys’ fees
22 postpetition [in a Chapter 7 case] in connection with exercising
23 or protecting a prepetition claim that included a right to
24 recover attorneys’ fees, the fees will be prepetition in nature,
25 constituting a contingent prepetition obligation that became
26 fixed postpetition when the fees were incurred.” Id.
27 (quotations marks omitted) (alterations in original). Put
28 differently, a debtor typically may discharge a creditor’s claim
9
1 for attorneys’ fees based on a pre-petition contract even when
2 those attorneys’ fees are incurred postpetition. Id.
3 In the Ninth Circuit, when determining when a claim arose,
4 we use the “fair contemplation” test. Id.; ZiLOG, Inc. v.
5 Corning (In re ZiLOG, Inc.), 450 F.3d 996, 1000 (9th Cir. 2006).
6 Under it, “a claim arises when a claimant can fairly or
7 reasonably contemplate the claim’s existence even if a cause of
8 action has not yet accrued under nonbankruptcy law.”
9 In re Castellino Villas, 836 F.3d at 1034 (quotation marks
10 omitted). The exact contours of the fair contemplation test are
11 not precise. See id. (“Despite the breadth of this rule,
12 attorneys’ fees incurred by a creditor pursuant to an agreement
13 will not always be in the ‘fair contemplation of the parties.’
14 ”). For this appeal, three Ninth Circuit cases are relevant
15 when considering the contours of the fair contemplation test.5
16 The first is Siegel v. Federal Home Loan Mortgage
17 Corporation (In re Siegel), 143 F.3d 525 (9th Cir. 1998). In
18 Siegel, the debtor and his partner defaulted on two real estate
19
20 5
The parties and bankruptcy court discuss SNTL Holdings
21 Corp. v. Centre Insurance Company (In re SNTL Corp.), 571 F.3d
826 (2009). We do not find it particularly on point. In it,
22 the Ninth Circuit (adopting the BAP’s opinion as its own) held
that attorneys’ fees arising out of a prepetition contract but
23 incurred postpetition fell within the Code’s definition of
24 “claim”; accordingly, it rejected the position that § 502(b)
compelled the disallowance of the claim simply because it was
25 contingent. 571 F.3d at 843-44. “Because [claimant] is
entitled to claim postpetition attorneys’ fees as part of its
26 unsecured claim under section 502, we remand for the bankruptcy
27 court to determine whether Centre has satisfied the requisites
for allowance of that portion of its claim under the relevant
28 contracts and state law.” Id. at 845.
10
1 loans. Id. at 527-28. He filed a chapter 7 petition. Id. The
2 lender filed two proofs of claim; neither Debtor nor the
3 chapter 7 trustee objected to them. Id. at 528. The debtor
4 received his discharge, the matter closed, and the lender (who
5 had earlier been granted stay relief) foreclosed on the
6 property. Id. Postpetition and post stay relief, but pre-
7 discharge, the debtor and his partner sued the lender in
8 superior court; the lender removed the lawsuit to federal court
9 and eventually prevailed on summary judgment. Id. The lender
10 also recovered its attorneys’ fees. Id.
11 On appeal, the Ninth Circuit affirmed. Id. at 534. As
12 characterized later by the Ninth Circuit, Siegel reasoned that
13 an attorneys’ fee claim is a contingent claim “only where the
14 potential for incurring post-discharge liability was contingent
15 ‘upon what others might do’ and ‘entirely out of [the debtor’s]
16 hands before he entered bankruptcy.’ ” In re Castellino Villas,
17 836 F.3d at 1035 (quoting Siegel, 143 F.3d at 533). “But where
18 the debtor voluntarily undertook a new course of litigation,
19 which we described as a decision ‘to return to the fray,’ any
20 new liability for attorneys’ fees constituted a post-discharge
21 cost.” Id. (quoting and citing Siegel, 143 F.3d at 533).
22 The second relevant case is In re Ybarra, 424 F.3d 1018.
23 There, the debtor sued her employer in state court. Id.
24 at 1020. She later filed a chapter 11 petition, which was even
25 later converted to chapter 7. Id. The chapter 7 trustee
26 settled the lawsuit and received bankruptcy court approval of
27 that settlement over debtor’s objection; the state court
28 dismissed the suit. Id. The debtor then amended her bankruptcy
11
1 schedules to exempt the lawsuit. Id. The bankruptcy court
2 sustained the employer’s objection to the exemption, but the BAP
3 reversed and the Ninth Circuit affirmed the BAP. Id. The
4 bankruptcy court then gave debtor the option of accepting a sum
5 certain to satisfy and release the claim or taking ownership of
6 the suit. Id. Debtor chose the latter; she then persuaded the
7 state court to set aside the dismissal. Id. Her victory was
8 short-lived; her employer obtained summary judgment and an award
9 of its attorneys’ fees. Id. at 1020-21. The bankruptcy court
10 subsequently determined that the fees incurred postpetition were
11 not discharged. Id. at 1021. On appeal, the Ninth Circuit
12 affirmed. Id.
13 In Ybarra, the Ninth Circuit reaffirmed the following
14 holding: “claims for attorney fees and costs incurred post-
15 petition are not discharged where post-petition, the debtor
16 voluntarily commences litigation or otherwise voluntarily
17 returns to the fray.” Id. at 1026 (quotation marks and
18 alterations omitted). It continued: “[w]hether attorney fees
19 and costs incurred through the continued prosecution of
20 litigation initiated pre-petition may be discharged depends on
21 whether the debtor has taken affirmative post-petition action to
22 litigate a prepetition claim and has thereby risked the
23 liability of these litigation expenses.” Id. The Ninth Circuit
24 then considered the relevant facts: the debtor had exempted the
25 state suit; she chose to pursue the suit rather than accept the
26 trustee’s settlement; and she persuaded the state court to set
27 aside the dismissal. Id. at 1026-27. Her actions in reviving
28 the state suit were “sufficiently voluntary and affirmative” to
12
1 be considered “returning to the fray.” Id. at 1028. The
2 attorneys’ fees claim, thus, was not discharged.
3 The third, and final, relevant case is In re Castellino
4 Villas, 836 F.3d 1028. After a contractor obtained superior
5 court confirmation of an arbitration award against the debtor,
6 the debtor filed a chapter 11 petition. Id. at 1030-31. To
7 secure confirmation of its chapter 11 plan, the debtor entered
8 into a settlement agreement with the contractor; it provided, in
9 essence, that if the contractor prevailed in its foreclosure
10 action in state court, then the contractor “would receive
11 specified payments from the trust account” that the debtor would
12 fund. Id. at 1032. It also provided that if the settlement
13 were approved, the debtor’s plan would be modified to include
14 those terms and that the contractor would withdraw its plan
15 objection. Id. The bankruptcy court approved the agreement and
16 confirmed the plan as modified. Id. “As a result, [the debtor]
17 was discharged from bankruptcy.” Id. The contractor prevailed
18 in its foreclosure action and sought fees. Id.
19 On appeal, the Ninth Circuit affirmed the district court’s
20 conclusion that the attorneys’ fee claim was discharged in the
21 chapter 11 plan. Id. at 1037. It reasoned that neither Ybarra
22 nor Siegel were implicated: the debtor was not relieved of
23 liability and given a fresh start by a discharge; instead, the
24 parties agreed the action would continue post-discharge; and
25 indeed, the terms of the reorganization plan were conditioned on
26 the results of the litigation. Id. at 1036. The Ninth Circuit
27 further reasoned that the debtor did not pursue a new course of
28 litigation but rather continued the prepetition legal action.
13
1 Id. In sum: “The pertinent question is whether the right to
2 obtain attorneys’ fees in the litigation is within the fair
3 contemplation of the parties, and [contractor] provides no
4 reason why it would not have fairly contemplated that the
5 parties would proceed with litigation that had not been resolved
6 in bankruptcy.” Id. at 1037. Thus, the Ninth Circuit held that
7 the attorneys’ fee claim was discharged because post-discharge
8 conduct did not amount to a whole new course of litigation. Id.
9 at 1031.
10 Although neither Siegel nor Ybarra discuss the fair
11 contemplation test, the Ninth Circuit, in In re Castellino
12 Villas, concluded that the “analysis in these cases is
13 consistent with our fair contemplation test.” 836 F.3d at 1035.
14 It explained:
15 When parties engaged in prepetition litigation that
could lead to an award of attorneys’ fees, they may
16 fairly contemplate that the prevailing party will be
awarded those fees. Therefore, a creditor’s
17 contingent claim to such fees is discharged in
bankruptcy, even if some fees are incurred post-
18 petition. But when the prepetition litigation is
resolved in bankruptcy so that any claim (including a
19 contingent claim for attorneys’ fees) against the
debtor would be discharged, we cannot say that the
20 debtor’s affirmative action to commence what amounts
to a whole new course of litigation was in the fair
21 contemplation of the parties when the debtor filed a
bankruptcy petition. Rather, the debtor’s decision to
22 eschew the fresh start provided by the bankruptcy and
engage in new litigation is more akin to post-petition
23 conduct that, by definition, was not in the fair
contemplation of the parties prepetition.
24
25 Id. at 1035-36 (citation and quotation marks omitted).
26 2. The bankruptcy court correctly found that
Wells Fargo’s attorneys’ fees were treatable
27 under the plan.
28 Distilled to its essentials, the issue is simple: When did
14
1 Wells Fargo’s claim for attorneys’ fees arise? Put in the
2 language of the Ninth Circuit’s test: when could Wells Fargo
3 fairly contemplate that it would have a claim for attorneys’
4 fees? The bankruptcy court found that Wells Fargo could fairly
5 and reasonably contemplate before plan confirmation that it
6 would incur post-confirmation attorneys’ fees. On appeal,
7 Wells Fargo contends this was error.
8 One prefatory comment is important. This is an individual
9 chapter 11 case; Debtor has not yet received her discharge. In
10 individual chapter 11 cases, “confirmation of the plan does not
11 discharge any debt provided for in the plan until the court
12 grants a discharge on completion of all payments under the plan”
13 unless the court orders otherwise. 11 U.S.C. § 1141(d)(5)(A).6
14 Neither party disputes that the relevant contract and deed
15 of trust were signed prepetition. What’s more, Wells Fargo
16 strenuously argues that it was entitled to its attorneys’ fees
17 by virtue of the trust deed — a prepetition contract. And
18 “[p]ostpetition fees can be fairly contemplated when the parties
19
20 6
This statutory language is slightly different than
21 § 1141(d)(1), which provides that confirmation of a plan
“discharges the debtor from any debt that arose before the date
22 of such confirmation . . . .” 11 U.S.C. § 1141(d)(1). As the
Ninth Circuit recognized in In re Castellino Villas, it has
23 “sometimes referred to pre-petition claims in discussing whether
24 claims discharged in a Chapter 11 bankruptcy have subsequently
been revived.” 836 F.3d at 1033 n.3. It declined to resolve
25 the inconsistency between its use of “prepetition” and the
Code’s use of “pre-confirmation” because the claim at issue
26 necessarily arose prepetition; for simplicity, it referred to
27 prepetition claims throughout. Id. In any event, the parties
and the bankruptcy court all recognize that, in this case, the
28 question is whether the claim arose pre-confirmation.
15
1 have provided for them in their contracts and they, thus, are
2 contingent claims as of the petition date.” In re SNTL Corp.,
3 571 F.3d at 844. Wells Fargo further concedes that “Baroni’s
4 Chapter 11 plan threatened post-confirmation litigation . . . .”
5 Wells Fargo’s Br. at 20. Wells Fargo thus rightly recognizes
6 that it needs to re-characterize Debtor’s threatened post-
7 confirmation litigation as not within the parties’ fair
8 contemplation.
9 Accordingly, Wells Fargo frames the issue as “whether a
10 debtor’s pre-confirmation threat of future litigation, ipso
11 facto, renders any claim for attorney fees in the threatened
12 suit a pre-confirmation claim.” Wells Fargo’s Br. at 20. And
13 it asks us to hold “that an attorney fee claim arising from
14 post-petition or post-confirmation litigation, initiated by the
15 debtor, is fairly contemplated by the creditor only when the
16 creditor is or should be aware of some objectively reasonable
17 ground for the threatened future litigation.” Wells Fargo’s Br.
18 at 26.7
19 We decline to do so.
20 First, the bankruptcy court rightly concluded that this
21 case is more factually similar to In re Castellino Villas than
22 Siegel or In re Ybarra. We will quote its well-reasoned
23 analysis at some length.
24 The bankruptcy court started by considering what type of
25 claim Wells Fargo held. It determined that, similar to the
26
7
27 At oral argument, Wells Fargo’s counsel said that it was
not asking for a “frivolous and malicious” exception to the fair
28 contemplation test.
16
1 creditors in In re SNTL Corp. and In re Castellino, Wells Fargo:
2 held a contingent and unliquidated claim for
attorneys’ fees under its prepetition loan documents
3 with [Debtor], at the time she filed her chapter 11
petition. Wells Fargo’s claim for attorneys’ fees
4 became liquidated and non-contingent following
confirmation of her plan, which is when the attorneys’
5 fees were incurred and a fee award granted. But this
does not alter the fact that the claim arose from a
6 prepetition agreement and existed before confirmation
of the Plan (albeit contingent and unliquidated).
7
8 Baroni II, 558 B.R. at 927. Next, the bankruptcy court reasoned
9 that Wells Fargo could fairly and reasonably contemplate that it
10 would incur attorneys’ fees related to this claim in Debtor’s
11 bankruptcy and that it would, correspondingly, have an
12 attorneys’ fees claim for those fees:
13 That [Debtor]’s objection to the Wells Fargo proof of
claim was litigated largely after entry of the order
14 confirming the Plan is of no moment. The Plan (and
the accompanying disclosure statement) put Wells Fargo
15 on notice that [Debtor] objected to the Wells Fargo
claim, indicated that the claim would be litigated
16 after confirmation of the Plan, and specifically
provided for alternative treatment under the Plan,
17 depending on the outcome of the litigation. Under the
Plan, [Debtor] must make payments into a trust account
18 in amounts specified in the Plan. If the Court
sustained [Debtor]’s objection, and disallowed the
19 Wells Fargo claim, the Plan provides that the money
would be returned to [Debtor]. If the Court denied
20 the objection, and allowed the Wells Fargo claim, the
money would go to Wells Fargo, as would future
21 payments in accordance with the terms of the Plan.
22 Id. at 927.
23 What’s more, Wells Fargo could “fairly and reasonably
24 contemplate” before plan confirmation that it would incur post-
25 confirmation fees “because the Plan: (i) advised of [Debtor’s]
26 objection to the Wells Fargo claim, (ii) contemplated that the
27 allowance of the claim would be litigated after plan
28 confirmation, and (iii) provided for alternative treatment
17
1 depending on the outcome of that litigation.” Id.
2 The bankruptcy court reasoned that this treatment under the
3 Plan was analogous to In re Castellino Villas, where “the plan
4 contemplated that the parties would litigate the priority of the
5 creditor’s lien in a state court action and provided for
6 alternative treatment depending on the outcome of the
7 litigation.” Id. at 928. In that case, the Ninth Circuit
8 concluded that the attorneys’ fees could be fairly and
9 reasonably contemplated before plan confirmation. Id. The same
10 result, the bankruptcy court concluded, “should obtain here,
11 where the plan put Wells Fargo on notice that the litigation
12 over claim allowance would occur post-confirmation.” Id.
13 True, the bankruptcy court acknowledged, in
14 In re Castellino Villas, the parties entered into a settlement
15 agreement and agreed that the litigation would occur post-
16 confirmation. Id. Here, by contrast, the “procedure for
17 litigating allowance of the claim is simply baked into the
18 Plan.” Id. But we agree with the bankruptcy court that this
19 difference is not significant. See id. First, a chapter 11
20 plan is a contract between the debtor and its creditors. Hillis
21 Motors, Inc. v. Hawaii Auto. Dealers’ Ass’n, 997 F.2d 581, 588
22 (9th Cir. 1993); Knupfer v. Wolfberg (In re Wolfberg), 255 B.R.
23 879, 883 (9th Cir. BAP 2000), aff’d, 37 F. App’x 891 (9th Cir.
24 2002). Second, it is binding on all creditors. 11 U.S.C.
25 § 1141(a). Third, in any event, the “Plan undeniably put
26 Wells Fargo on notice that allowance of its claim would be
27 adjudicated after confirmation of the Plan.” Baroni II,
28 558 B.R. at 928.
18
1 Wells Fargo argues that “[s]ound bankruptcy policy counsels
2 against the bankruptcy court’s overly simplistic test.”
3 Wells Fargo’s Br. at 22. It explains that, under the bankruptcy
4 court’s holding, a “debtor can easily manipulate a bankruptcy
5 case” because all “the debtor need do is send each creditor
6 . . . an ‘I intend to sue you’ letter . . . before confirmation
7 of a Chapter 11 plan.” Id. This, Wells Fargo suggests, would
8 let debtors use the discharge as a sword “no matter how
9 frivolous the claim on which it sues.” Id.
10 But this is not persuasive for at least two reasons.
11 First, Wells Fargo did (and still does) not seem to apprehend
12 the importance of the plan confirmation process. It had an
13 opportunity to object to its treatment under the Plan. As the
14 bankruptcy court put it: “Indeed, because these fees were
15 foreseeable, it was incumbent on Wells Fargo to raise any
16 concerns it had about the treatment and discharge of that claim
17 under the Plan at the time the Plan was confirmed.” Baroni II,
18 558 B.R. at 929. Based on the record before us, Wells Fargo did
19 not so object to the Plan; now, faced with the consequences of
20 that failure, it seeks an end-run around the terms of the
21 confirmed plan.
22 Wells Fargo contends that this approach is counter-
23 productive to the reorganization process because it would
24 require any party “that has even the faintest notion that post-
25 petition litigation may ensue” to object to the plan and require
26 the bankruptcy court to make speculative rulings about possible
27 litigation. Wells Fargo Br. at 25-26. We disagree; this is an
28 unfounded concern. Wells Fargo tries to generalize beyond the
19
1 present facts: Debtor’s plan promised further litigation.
2 Second, the bankruptcy court identified sound bankruptcy
3 policy supporting its reasoning. This is a chapter 11 case,
4 similar to In re SNTL Corp. and In re Castellino Villas and
5 dissimilar to Siegel and In re Ybarra, which are chapter 7
6 cases. Baroni II, 558 B.R. at 928 n.8. There are structural
7 differences between the chapters. Id. In chapter 11, a plan
8 may authorize the debtor to retain and enforce a claim or
9 interest. Id. (citing 11 U.S.C. § 1123(b)(3)(B)). “Thus it is
10 not uncommon for a chapter 11 plan to defer the process of
11 objecting to proofs of claim or pursuing affirmative causes of
12 action until the post-confirmation period, in order to expedite
13 the Debtor’s emergence from chapter 11 and minimize
14 administrative fees and costs.” Id. There is no analogue in
15 chapter 7. Id.
16 Wells Fargo unsuccessfully attempts to distinguish
17 In re SNTL Corp. and In re Castellino Villas. In In re SNTL
18 Corp., Wells Fargo explains, “[f]urther litigation was certain
19 to occur and there was a reasonable basis for pursuing it.”
20 Wells Fargo’s Br. at 21. So also, Wells Fargo asserts, in
21 In re SNTL Corp.: “litigation of that claim was not just
22 threatened, it was virtually certain . . . .” Id. at 21-22.
23 Here, the bankruptcy court found, and we agree, that Debtor’s
24 further litigation was all but guaranteed. Debtor’s confirmed
25 plan required it.
26 Wells Fargo argues that this case is similar to Siegel
27 because in both instances the debtor initiated a new round of
28 litigation postpetition and eschewed the fresh start.
20
1 Wells Fargo contends that, under the bankruptcy court’s
2 analysis, all the Siegel debtor would have needed to do is send
3 a threatening letter. We disagree. The bankruptcy court
4 properly distinguished Siegel:
5 The court in Siegel held that the debtor “returned to
the fray” after (i) the debtor failed to object to the
6 lender’s claim during his chapter 7 case, (ii) the
claim was deemed allowed, (iii) the debtor obtained a
7 discharge of all liabilities under his agreements with
the lender, but (iv) then “returned to the fray” by
8 initiating new litigation against the lender based on
those documents. Here, the litigation generating
9 attorneys’ fees was not initiated after the claims of
the creditor were allowed and thereafter discharged in
10 the bankruptcy case. The litigation generating the
fees is over the very allowance of the creditor’s
11 claim in the bankruptcy case and, as a result, the
treatment to which it is entitled under [Debtor]’s
12 confirmed chapter 11 plan. Moreover, because this is
an individual chapter 11 case, there was no discharge
13 upon confirmation and a discharge has yet to issue.
These circumstances do not raise the sort of fairness
14 concerns that the circumstances did in Siegel.
15 Id. at 928-29. Again, the structural differences between
16 Siegel’s chapter 7 debtor and the present chapter 11 debtor are
17 important; Wells Fargo does not appropriately address them.
18 Wells Fargo next argues that the case is similar to Ybarra
19 because in Ybarra “the debtor was literally in the middle of a
20 lawsuit both when the debtor filed her bankruptcy petition and
21 when her case was converted to Chapter 7. Accordingly, the
22 creditor was clearly on notice that the lawsuit could continue
23 post-discharge.” Wells Fargo Br. at 24 (citation and footnote
24 omitted). But Wells Fargo’s reading of Ybarra misses that the
25 lawsuit had been fully resolved and that the Ybarra debtor
26 revived the lawsuit after it was fully resolved. Here, Debtor’s
27 objection to Wells Fargo’s claim had not been fully resolved.
28 As the bankruptcy court explained:
21
1 The facts of the instant case are even farther afield
of In re Ybarra. In that case the debtor took
2 affirmative steps postpetition to revive a prepetition
cause of action against her employer, after (i) the
3 chapter 7 trustee for her estate had negotiated a
settlement of it, (ii) the court had approved the
4 settlement, and (iii) the state court had dismissed
the debtor’s prepetition lawsuit. Under those
5 circumstances, the postpetition attorneys’ fees
incurred by the employer defending the suit were
6 simply not within the fair contemplation of the
parties at the time the case was filed (i.e., the
7 cleavage point for claims subject to discharge under
chapter 7), and permitting the discharge of those fees
8 would have been unfair. Nothing approaching those
circumstances is present in the instant case. Prior
9 to pursuing her litigation against Wells Fargo,
[Debtor] did nothing (nor allowed anything to happen)
10 amounting to a resolution or adjudication of
Wells Fargo’s claims.
11
12 Baroni II, 558 B.R. at 929 (citation omitted). We agree.
13 Wells Fargo has not shown that the facts of the present case
14 come close to those of In re Ybarra.
15 Broadly, central to Wells Fargo’s argument is its
16 suggestion that baseless litigation is “not within the
17 creditor’s ‘fair contemplation’ even if threatened.”
18 Wells Fargo Br. at 27. It argues that the relevant caselaw does
19 not state that a creditor “fairly contemplates” an attorneys’
20 fee claim whenever a debtor threatens suit no matter how
21 baseless the suit is. We reject Wells Fargo’s reasoning for the
22 reasons stated above. We have further concerns.
23 First, Wells Fargo does not point to any finding that
24 Debtor’s suit was, in fact, baseless. Instead, it simply
25 asserts that because Debtor lost at summary judgment she “lacked
26 any reasonable, objective basis for the threatened litigation.”
27 Wells Fargo Br. at 27. True, we affirmed the bankruptcy court’s
28 grant of summary judgment and concluded that “the uncontroverted
22
1 evidence in the record establish[ed] that Wells Fargo is the
2 creditor for the proof of claim, is entitled to enforce the
3 Henderson note[,] and is the successor beneficiary under the
4 Henderson deed of trust.” Baroni I, 2015 WL 6941625, at *8.
5 But this does not rise to the level of a finding that Debtor’s
6 suit was baseless. Thus, even if we were inclined to adopt
7 Wells Fargo’s proposed holding, it has not shown that it would
8 apply to this case.
9 Second, Wells Fargo cites no caselaw or other authority
10 suggesting that we need to create a “baseless litigation”
11 exception to the fair contemplation test. To the contrary, in
12 Siegel, the Ninth Circuit stated that “[a]ny doubts regarding
13 the dischargeability of a claim should be resolved in favor of
14 finding that a contingent claim existed.” 143 F.3d at 532.
15 Third, nor are we convinced this exception is otherwise
16 necessary; litigants have other procedural mechanisms to combat
17 frivolous suits or bad-faith acts. See, e.g., Fed. R. Bankr. P.
18 9011; Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052, 1058
19 (9th Cir. 2009) (“A bankruptcy court’s inherent power allows it
20 to sanction ‘bad faith’ or ‘willful misconduct,’ even in the
21 absence of express statutory authority to do so. It also allows
22 a bankruptcy court to deter and provide compensation for a broad
23 range of improper litigation tactics.” (citation and quotation
24 marks omitted)), abrogated on other grounds by Bullard v. Blue
25 Hills Bank, 135 S. Ct. 1864 (2015), as recognized by Gugliuzza
26 v. Fed. Trade Comm’n (In re Gugliuzza), 852 F.3d 884, 898
27 (9th Cir. 2017).
28
23
1 CONCLUSION
2 In sum, the bankruptcy court properly awarded Wells Fargo
3 its attorneys’ fees and determined that those fees arose pre-
4 confirmation. Accordingly, we AFFIRM.
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