[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JULY 13, 2005
No. 04-11760
THOMAS K. KAHN
________________________
CLERK
D. C. Docket Nos. 03-21963-CV-JEM & 02-10858-BKC-RA
In Re: CARLOS JULIO MARTINEZ,
Debtor.
____________________________________________________
CADLE COMPANY,
Plaintiff-Appellee,
versus
CARLOS JULIO MARTINEZ,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(July 13, 2005)
Before DUBINA, PRYOR and RONEY, Circuit Judges.
RONEY, Circuit Judge:
Carlos Martinez filed a Chapter 7 bankruptcy petition listing the Cadle
Company as a creditor on a $50,000 commercial loan originally made by Barnett
Bank to Martinez and assigned to Cadle. Cadle had filed suit against Martinez in
state court, but the bankruptcy petition preceded the resolution of that case. Cadle
opposed the discharge of the debt in bankruptcy by filing an Adversary Complaint
in the bankruptcy court arguing that the debt should not be dischargeable under 11
U.S.C. § 523(a)(2) and (6), because Martinez had made oral and written
misrepresentations in obtaining the loan by representing that the purpose of the
loan was to help his own business, when in fact the proceeds went to assist his
brother.
After a full trial, the bankruptcy court held that Cadle failed to prove that
Martinez had made any false representations that were relied upon in approving
the loan and that the loan was indeed dischargeable. Martinez then moved for
attorney’s fees against Cadle. Fees were granted by the bankruptcy court. The
district court reversed. We reverse and hold that, under the facts and the law in
this case, the judgment of the bankruptcy court relating to attorney’s fees and costs
should have been affirmed by the district court.
The district court adopted the holding of In re Sheridan, 105 F.3d 1164 (7th
Cir. 1997), and held that Florida’s reciprocal attorney’s fee statute, Florida Statute
§ 57.105(6) did not apply, and that there was no precedential support for an award
of fees to a prevailing debtor, such as Martinez, in non-consumer debt cases under
federal law. In a case of first impression in this Circuit, we hold that a prevailing
2
debtor in a dischargeability action brought by his creditor can recover his
attorney’s fees and costs incurred in those dischargeability proceedings if recovery
of such are due under an enforceable contractual right, such as a statutory
reciprocal attorney’s fee provision, provided for by state law.
Generally, in federal litigation, including bankruptcy litigation, a prevailing
litigant may not collect an attorney’s fee from his opponent unless authorized by
either a federal statute or an enforceable contract between the parties. See Alyseka
Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247 (1975); In re Fox, 725
F.2d 661, 662 (11th Cir. 1984). The sole federal statutory authority for an award
of attorney’s fees and costs in a dischargeability proceeding under section
523(a)(2) appears at section 523(d), which provides attorney’s fees and costs for a
prevailing debtor if a creditor “requests a determination of dischargeability of
consumer debtor under subsection (a)(2) of this section, and such debt is
discharged . . ..” 11 U.S.C. § 523(d). Here, it is undisputed that Martinez’s debt
involved commercial rather than consumer debt so that federal statutory provision
thus does not apply.
As to the contract between the parties, the “Business Note and Security
Agreement” between Martinez and Barnett Bank, which was executed in Florida,
expressly stated that it was to be “governed by and construed in accordance with”
3
Florida law. The contract contained an “Attorneys’ Fees” and “Expenses”
provision that stated the following in relevant part:
Borrower agrees to pay upon demand all of Lender’s
costs and expenses, including reasonable attorney’s fees
and Lender’s legal expenses, incurred in connection with
the enforcement of this Agreement. . . . Costs and
expenses include Lender’s reasonable attorney’s fees and
legal expenses whether or not there is a lawsuit,
including reasonable attorney’s fees and legal expenses
for bankruptcy proceedings (and including efforts to
modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection
services.
In sum, the contract provided that Barnett, the creditor, would be entitled to
attorney’s fees in enforcing the contract against Martinez if it had won. Florida
law, however, guarantees that contractual provisions for attorney’s fees cannot be
one-sided. Florida Statute § 57.105(6), which has been recodified into several
varying subsections of the Florida Statutes but is identical to the subsection
analyzed by the district and bankruptcy courts here, contains the following
reciprocal attorney’s fees provision:
If a contract contains a provision allowing attorney’s
fees to a party when he or she is required to take any
action to enforce the contract, the court may also allow
reasonable attorney’s fees to the other party when that
party prevails in any action, whether as plaintiff or
defendant, with respect to the contract. This subsection
applies to any contract entered into on or after October 1,
1988.
4
Fla. Stat. § 57.105(6).
TranSouth Fin. Corp. v. Johnson, 931 F.2d 1505 (11th Cir. 1991), involved a
claim for attorney’s fees by a creditor who had successfully opposed the
dischargeability of the debt in bankruptcy. This Court held that, although § 523 of
the Bankruptcy Code did not expressly provide for attorney’s fees, “a creditor
successful in a dischargeability proceeding may recover attorney’s fees when such
fees are provided for by an enforceable contract between the creditor and debtor.”
931 F.2d at 1509. This Court reasoned that the “debt” excused from discharge in a
successful bankruptcy action included a debtor’s contractual obligation to pay a
creditor’s attorney’s fees if the agreement to pay those fees was indeed enforceable,
which was governed by local law. 931 F.2d at 1507. We then looked to Florida
law and reasoned as follows:
The Note clearly and unambiguously provides that the
[debtors] would be liable for [the creditor’s] attorney’s
fees in the event [they] defaulted and [the creditor] had to
hire an attorney to collect the balance due on the Note.
Florida law validates and enforces such contractual
provisions for reasonable attorney’s fees. See, e.g., Cheek
v. McGowan Elec. Supply Co., 511 So. 2d 977 (Fla.
1987); Sybert v. Combs, 555 So. 2d 1313, 1313-14 (Fla.
Dist. Ct. App. 1990).
931 F.2d at 1508.
After determining that the contract for attorney’s fees between the debtor and
creditor was enforceable under Florida law, we noted, “One of the primary
5
purposes of the bankruptcy act is to relieve the honest debtor from the weight of
oppressive indebtedness and permit him to start afresh.” 931 F.2d at 1508
(citations and quotations omitted). We determined, however, that because the
debtor in TranSouth had attempted to defraud the creditor, “allowing [the creditor]
to recover attorney’s fees under circumstances of this case will not contravene the
‘fresh start’ policy of the Bankruptcy Code, which was designed to protect the
honest debtor.” 931 F.2d at 1508.
The facts of the TranSouth case did not address the converse situation, as we
have here, where a prevailing debtor in a dischargeability proceeding seeks
attorney’s fees.
Most of the bankruptcy courts interpreting our TranSouth decision have
extended its reasoning to include debtors who have prevailed in dischargeability
proceedings. See In re Hunter, 243 B.R. 824, 826 (Bankr. M.D. Fla. 1999)
(awarding fees to prevailing debtor in dischargeability proceeding brought by
creditor); In re Mowji, 228 B.R. 321, 323-24 (Bankr. M.D. Fla. 1999); In re Eckert,
221 B.R. 40, 45-46 (Bankr. S.D. Fla. 1998); In re Woollacott, 211 B.R. 83, 87
(Bankr. M.D. Fla. 1997); Pichardo v. United Student Aid Funds, Inc., 186 B.R.
279, 283 (Bankr. M.D. Fla. 1995); but see In re Maestrelli, 172 B.R. 368, 371
(Bankr. M.D. Fla. 1994) (holding that “it would be stretching the holding of
TranSouth to conclude that it equally applies to debtors in litigation which is not a
6
civil suit in the orthodox sense but merely a determination of dischargeability, vel
non, of a debt pursuant to § 523(c) of the Bankruptcy Code in which the only
provision which permits the award of attorney’s fees to a debtor is pursuant to §
523(d), a Section not applicable . . .. Thus, the mutuality of remedy provisions of
Fla. Stat. § 57.105(2) does not apply in the present instance notwithstanding
TranSouth.”).
In a 2-1 decision, the Seventh Circuit, which the district court here adopted,
held to the contrary. See In re Sheridan, 105 F.3d 1164 (7th Cir. 1997). There, the
court held that a prevailing debtor in a dischargeability proceeding could not
receive attorney’s fees under federal bankruptcy law absent an expressed
contractual provision stating that the debtor was entitled to those fees. 105 F.3d at
1167. The Sheridan court refused to look to Florida law and declined to
incorporate its reciprocal attorney’s fees statute, reasoning, “Although the validity
of a creditor’s claim in bankruptcy is assessed by looking to relevant state law rules
. . ., the alleged non-dischargeability of that debt presents an issue of federal law
independent of the issue of the validity of the underlying claim.” 105 F.3d at 1167
(internal quotation and citation omitted). The “basis under federal law” for
recognizing the creditor’s contractual right to recover claim was, the Sheridan
court opined, under Seventh Circuit precedent and to decisions similar to our
TranSouth decision, that the attorneys’ fee contract between the debtor and creditor
7
became part of the “debt” deemed non-dischargeable under section 523(a)(2). 105
F.3d at 1167. The court then reasoned that there “is no similar basis under the
Bankruptcy Code for incorporating the Florida reciprocity statute on which [the
debtor] relies.” 105 F.3d at 1167.
Judge Cudahy’s dissent in Sheridan, however, recognized that Florida law,
which applies to Florida contracts, does not permit one-sided attorney’s fees
provisions in enforcing a contract. Here, Cadle, in an attempt to increase its
likelihood of getting paid on Martinez’s note – i.e., in an attempt to enforce that
contract, which would have been substantially diminished had the bankruptcy court
discharged that debt – , filed an adversary complaint questioning the usage of those
loaned funds. Had Cadle prevailed at the adversary proceedings, then TranSouth
would dictate that Cadle get its attorney’s fees under the contract provision, so long
as it was valid under Florida law. Florida law says that you cannot have one-sided
attorney’s fee contract provision. It is as if the contract between Barnett Bank and
Martinez “contained a clause reciting the language of Florida Statutes §57.105(2).”
In re Sheridan, 105 F.3d at 1168 (Cudahy, J., dissenting); see also City of
Homestead v. Beard, 600 So. 2d 450, 454-55 (Fla. 1992) (noting that “the laws
existing at the time and place of the making of the contract where it is to be
performed which may affect its validity, construction, discharge, and enforcement,
8
enter into and become part of the contract as if they were expressly referred to or
actually copied or incorporated therein”) (quotation and citation omitted).
Here, the debtor prevailed, and there was a contractual right to attorney’s
fees under the “Business Note and Security Agreement” contract between the
debtor and creditor when it was read in light of the Florida’s attorney’s fee
reciprocity statute, which was incorporated into the contract by operation of law.
This award of attorney’s fees is without regard to whether “state law issues” were
“actually litigated” in the bankruptcy dischargeability proceedings because the
recoverability of attorney’s fees and costs under the facts and circumstances of this
case is afforded by a matter of contract. But see, Renfrow v. Draper, 232 F.3d 688,
694 (9th Cir. 2000) (reversing award of attorney’s fees to creditor in
dischargeability proceedings because “attorney’s fees should be awarded solely to
the extent that they were incurred in litigating state law issues”). To deny a debtor
attorney’s fees and costs for prevailing in a dischargeability proceeding brought by
a creditor, where those same fees would have been available under state contract
law for the creditor had it prevailed, would contravene the primary purpose of the
bankruptcy statute, which is “to relieve the honest debtor from the weight of
oppressive indebtedness and permit him to start afresh.” TranSouth Fin. Corp.,
931 F.2d at 1508 (quotation and citation omitted).
9
The district court’s order reversing judgment of the bankruptcy court is
reversed, and the judgment of the bankruptcy court relating to attorney’s fees and
costs is reinstated.
REVERSED AND REMANDED.
10