Opinion
Case No. 94-00392, Adversary Proceeding No. 94-10119.
July 13, 2007
MEMORANDUM DECISION RE PETITION FOR ATTORNEY'S FEES AND MOTION TO STRIKE NOTICE OF SATISFACTION OF JUDGMENT
Two motions were filed with respect to this adversary proceeding that were previously docketed in Miscellaneous Proceeding No. 07-20002 and that have now been re-docketed in this adversary proceeding.
I
The first motion is a Motion to Strike Notice of Satisfaction of Judgment filed by Commonwealth Land Title Insurance Company ("Commonwealth"), the assignee of the plaintiffs' judgment. Because the holder of the judgment is the proper party to file a notice of satisfaction of a judgment, the defendant's notice of satisfaction of the judgment will be stricken.
II
The second motion is Commonwealth's Petition for Attorneys' Fees which seeks to recover fees for enforcing the judgment. To recover attorney's fees, Commonwealth must point to an exception to the American rule that a prevailing party must bear its own attorney's fees. Moreover, Commonwealth's motion raises an obvious issue regarding the doctrine of merger (which treats a plaintiff's claims as merging into a judgment, with the plaintiff then having only such rights as are conferred by the judgment).
A.
Commonwealth complains that Hudson is obligated to indemnify it because he falsely represented in a sale of real property owned by him, for which Commonwealth acted as the purchaser's title insurance company, that no judgments were outstanding against him. If Commonwealth is entitled to indemnification, and if such indemnification includes a right to recover attorney's fees, that claim for indemnification may be a basis for seeking a recovery of attorney's fees, but it has nothing to do with this bankruptcy case. That claim did not arise in the bankruptcy case, or under the Bankruptcy Code and is not related to the bankruptcy case because it will have no impact on the administration of the estate. Accordingly, if indemnification is the only basis Commonwealth has for seeking a recovery of attorney's fees, no jurisdiction would exist for this court to consider Commonwealth's claim.
Commonwealth has not addressed whether, if the district court has jurisdiction under 28 U.S.C. § 1334(b) over some other claim for recovery of Commonwealth's attorney's fees, the district court has supplemental jurisdiction over the indemnification claim. See Premium of Am., LLC v. Sanchez (In re Premium Escrow Servs., Inc.), 342 B.R. 390, 403-404 (Bankr. D.D.C. 2006). Even if such supplemental jurisdiction existed in the district court over the indemnification claim, that court has not, and could not, refer Commonwealth's claim for indemnification to this court. Id. at 404 ( 28 U.S.C. § 1367 cannot be invoked before the bankruptcy court) and at 404-406 (supplemental jurisdiction does not exist under § 1334(b) by treating the "related to" proceedings as including matters over which the district court has § 1367 jurisdiction). Commonwealth has not sought to withdraw the reference in order to assert supplemental jurisdiction in the district court.
As discussed later, part of Commonwealth's attorney's fee claims arose before the plaintiffs assigned their judgment to Commonwealth. To the extent that the attorney's fees covered by the indemnification claim cover the period preceding the assignment of the judgment, the indemnification claim does not relate to the same fees as sought by Commonwealth on the basis that it is entitled to recover fees incurred after it became the holder of the judgment. That lack of congruence would be a factor in deciding under § 1367(c) whether to decline to exercise any supplemental jurisdiction found to exist under § 1367(a).
B.
Commonwealth further claims that Hudson obstructed efforts to collect the judgment, but while this paints Hudson in an unsympathetic light, Commonwealth has not pointed to any exception to the American rule that permits Commonwealth to recover fees arising from a judgment-debtor's obstruction of judgment collection efforts. If Commonwealth were to identify such an exception, the court would then have to decide whether that type of claim is an independent claim to which the doctrine of merger is inapplicable. But if the claim is an independent claim and not part of the claims upon which the plaintiffs sued, then, as in the case of Commonwealth's indemnification claim, it is doubtful that this court would have jurisdiction over the claim.
The court has jurisdiction to enforce the fee award already made under Federal Rule of Civil Procedure 37 regarding fees incurred in compelling answers to post-judgment collection interrogatories, a claim independent of the claims that led to the judgment. But those are not the fees at issue here. Until Commonwealth identifies the source of its right to attorney's fees based on Hudson having been obstructive, the court is without a concrete set of facts upon which to address the issue of jurisdiction. Some of the fees Commonwealth seeks to recover were incurred in litigation elsewhere.
C.
Commonwealth then asserts that the judgment itself held Hudson liable for attorney's fees incurred in enforcing the judgment. The judgment declared nondischargeable "[r]easonable attorney's fees incurred in successfully prosecuting already or in the future any of the other [debts declared to be nondischargeable]." Judgment ¶ 1(E). A close examination of the judgment, however, reveals that the aforementioned provision did not preserve any right the plaintiffs had to recover attorney's fees incurred in the enforcement of the judgment.
Among the debts declared to be nondischargeable were various alimony and support obligations. Judgment ¶¶ 1(A), 1(B), and 1(D). The judgment provided that as to the amount of such nondischargeable debts coming due after August 15, 1995, "the parties remain free outside of this adversary proceeding to pursue their rights in that regard." Accordingly, the provision making nondischargeable any attorney's fees incurred in successfully prosecuting "in the future" any of the nondischargeable debts can be read as addressing attorney's fees incurred in prosecuting amounts coming due after August 15, 1995. Although it might also include any fees that were hypothetically recovered in enforcing the nondischargeable amounts for which judgment was entered, the judgment did not purport to address whether such fees would be recoverable. The provision addressed only nondischargeability and did not purport to preserve (or even to identify) any right that the plaintiffs had to recover fees incurred in enforcing the judgment.
D.
Commonwealth points to the Separation Agreement between Hudson and Salata as a source for recovering attorney's fees. Even disregarding the issue of the doctrine of merger, Commonwealth has not demonstrated that, as a matter of law, the Separation Agreement entitles it to recover fees.
1.
The judgment awarded attorney's fees in the amount of $16,045.90 to both Salata and the other plaintiff, Kathleen Jeschke, without allocating those fees between them. Kathleen Jeschke, however, was not a party to the Separation Agreement and that agreement did not address Jeschke's right to recover attorney's fees. Thus, Commonwealth has not demonstrated that attorney's fees are recoverable for enforcing the $16,045.90 part of the judgment.
2.
The Separation Agreement was for the protection of Salata who has relinquished any rights under the monetary portion of the judgment and assigned those rights to Commonwealth. Commonwealth has not cited case law to demonstrate that, in acquiring the judgment, it steps into the shoes of Salata with respect to her right to recover fees in securing Hudson's compliance with the Separation Agreement. Salata no longer needs the protection of the Separation Agreement's attorney fee provision to assure that Hudson complies with the obligations the judgment reduced to a monetary amount. Commonwealth, a stranger to the Separation Agreement, has not demonstrated that it is entitled to step into the shoes of Salata and invoke the Separation Agreement as a basis for recovering fees. Commonwealth stepped into the shoes of Salata under the judgment itself, but it was Salata, not Commonwealth, who (if the doctrine of merger did not bar her from doing so) was entitled to invoke the Separation Agreement and recover additional attorney's fees in enforcing the Separation Agreement. The judgment itself did not confer such a right on Salata, and Commonwealth succeeded only to Salata's rights under the judgment.
3.
In any event, some (and perhaps most) of Commonwealth's attorney's fees were incurred before the plaintiffs assigned the judgment to Commonwealth on June 19, 2006. It is difficult to see how Commonwealth can treat that part of its fees as incurred in enforcing the judgment. Commonwealth should supplement its motion to indicate the amount of attorney's fees it maintains were incurred after June 19, 2006. Moreover, Commonwealth has failed to show that the litigation in the Superior Court after June 19, 2006, can be treated as giving rise to reasonable attorney's fees incurred in enforcing the judgment: that proceeding principally involved quiet title issues and was voluntarily dismissed after the assignment of the judgment mooted those issues. In any event, Commonwealth should submit its attorney's time records for work performed after the June 19, 2006 assignment.
4.
Another issue presented by Commonwealth's motion is whether the Separation Agreement contemplated that Salata would be entitled to recover attorney's fees incurred in pursuing the recovery of attorney's fees awarded by the judgment for enforcing the Separation Agreement. The Separation Agreement refers to an entitlement to "suit money, including reasonable attorney's fees, incurred in securing the defaulting party's compliance with the provisions of this Agreement," and provides that "[s]uch rights shall be in addition to any and all other damages arising from the conduct of the defaulting party." This may be a moot issue if Hudson never paid the parts of the judgment that were for child support and medical expenses: attorney's fees incurred in pursuing the recovery of those amounts after they were reduced to judgment, unless the doctrine of merger applies, would constitute fees incurred in securing Hudson's compliance with the Separation Agreement. If payments were made, there is an issue of how those payments were applied.
E.
Whether any right the plaintiffs had under the claims they held in pursuing the judgment to recover attorney's fees in enforcing the judgment survived entry of the judgment turns on the doctrine of merger. My limited research suggests that courts take four different approaches to this question.
Some courts hold that a contract merges into a judgment, and a provision in the contract for recovery of attorney's fees in enforcing the contract is no longer enforceable after entry of the judgment. See, e.g., In re A P Diversified Technologies Realty, Inc., 467 F.3d 337 (3d Cir. 2006); In re Schwartz, 77 B.R. 177, 180 (Bankr. S.D. Ohio 1987) ("Once the [state] court entered its final judgment, any right which [the creditor] may have had to attorneys' fees under the note was extinguished.");In re Schlecht, 36 B.R. 236, 241 (Bankr. D. Alaska 1983) ("[T]he bank's note containing the provision for attorney's fees has merged with its Alaska Superior Court judgment. There is no longer an agreement pursuant to which attorney's fees can be awarded under § 506(b)."); Woodcraft Constr. v. Hamilton, 786 P.2d 307, 308 (Wash.Ct.App. 1990) (attorney fee provision of note merged into the judgment on the note and ceased to exist, and in subsequent action there was thus no contractual basis for recovering fees); Roe v. Smyth, 16 N.E.2d 366 (N.Y. 1938) (plaintiff could not bring a separate suit for costs of collecting judgment entered in a separate action on note that provided for the recovery of costs of collection).
By contrast, at least one court held that the doctrine applied to a promissory note providing for recovery of attorney's fees incurred after default because the note did not expressly provide that the obligation to pay attorney's fees would not merge into the judgment. Prod. Credit Ass'n v. Laufenberg, 420 N.W.2d 778, 779 (Wis.Ct.App. 1988). The language Commonwealth quotes from the Separation Agreement did not expressly provide that the right to recover attorney's fees would survive the entry of a judgment.
Other courts have allowed the recovery of postjudgment attorney's fees if the matter is pursued before the court that issued the judgment. In Stein v. Spainhour, 553 N.E.2d 73, 76 (Ill.App.Ct. 1990), after the appellate court affirmed its judgment, the trial court awarded additional attorney's fees, incurred in the appeal, under a lease provision calling for attorney's fees arising from a default causing the lessors to hire counsel. In the appeal from that supplemental award, the appellate court held that the lessors' postjudgment motion:
did not seek to relitigate any of defendant's liability regarding the breach of the lease but rather sought attorney fees which are ancillary to the primary cause of action. Further, . . . no judgment regarding any attorney fees incurred on appeal was rendered in the trial court before the first appeal was filed. . . .")
See also Solution Source v. LPR Assocs., 652 N.W.2d 474, 479-80 (Mich.Ct.App. 2002) ("We believe that the doctrine of merger did not preclude plaintiff's 1998 request for postjudgment and appellate attorney fees, because the action was simply a continuation of the same suit. It was not a separate lawsuit, but rather a motion in the ongoing dispute between the parties.") Commonwealth will encounter various issues under this approach:
In a footnote, the court appeared to limit its holding to proceedings after a remand from an appellate court, by noting another decision in which the trial court addressed the issue of res judicata "as a defense to further proceedings following the entry of a final judgment." Solution Source, 652 N.W.2d at 480 n. 2 (citing Harvey v. Harvey, 603 N.W.2d 302 (Mich.Ct.App. 1999)).
• First, Commonwealth would be required to be substituted for the plaintiffs as the real party in interest and then move to amend the judgment to include additional attorney's fees.
• Second, ultimately the right to recover postjudgment attorney's fees requires pointing to the Separation Agreement, as the judgment was silent on the point. That raises the issue of whether Commonwealth is entitled to step into the plaintiffs' shoes as discussed in part D(2), above.
• Finally, there must be some limit on when the judgment can be supplemented as occurred in the two cited decisions. The relief is properly viewed as relief under Fed.R.Civ.P. 60, and Commonwealth's motion does not address Rule 60 and the standards that apply to a Rule 60 motion.
If a plaintiff could return to the court more than ten years later and request attorney's fees incurred shortly after entry of the judgment this arguably would frustrate the policy underlying statutes of limitations that a party ought not be allowed to pursue stale claims. Here, Commonwealth incurred attorney's fees beginning in 2001.
Similar issues arise under the fourth and final approach taken by courts. Under this approach, at least one court has suggested that future attorney's fees ought to be recoverable because such a claim to fees is not a matured claim when the original suit is pursued to judgment. Agri Credit Corp. v. Liedman, 337 N.W.2d 384 (Minn. 1983) (future attorney's fees ought not be included in monetary judgment because not yet paid or incurred as required by the notes, but could be sought if future attorney's fees were incurred). Under this approach, Salata would be entitled to recover the fees she incurred after entry of the judgment in enforcing the Separation Agreement. Commonwealth, however, was assigned the judgment, not Salata's rights under the Separation Agreement, and would therefore be a stranger to Salata's rights under the Separation Agreement. Moreover, if the obligation to pay attorney's fees is treated as a separate obligation, Commonwealth would be permitted to sue elsewhere on the obligation, which presents an obvious issue of whether this court has jurisdiction to award Commonwealth attorney's fees pursuant to that separate obligation.
III
Separate orders follow disposing of the first motion and requiring supplementation of the second motion.