Opinion
Case No. 10-10860-PB11
04-02-2013
In re CAROL KARLOVICH, Debtor.
WRITTEN DECISION - NOT FOR PUBLICATION
ORDER ON MOTION FOR APPROVAL
OF ATTORNEYS' FEES AND
EXPENSES RELATED TO MOTION
TO COMPEL
Creditor 2010-1 CRE Venture, LLC brought a "Motion to Compel Enforcement of Plan of Reorganization and Stipulation." The Stipulation referred to was approved by the Court, and an Order was entered on December 15, 2010. The Stipulation provided for ;the use of 2010-1's cash collateral, modification of the loan terms for both the Vista and Poway properties, and provided that the terms of the Stipulation were to be incorporated into debtor's Plan of Reorganization. Among those terms were debtor's responsibility to cure any past due real property taxes on the Vista property before the effective date of the plan, and also provided:
(f) At Debtor's election, the Debtor may choose to surrender the Vista property to 2010-1 at any time prior to the 37th month of the loan in full satisfaction of the New Vista Loan Amount. The surrender would be achieved in the manner determined by 2010-1, including but not limited to a Deed in Lieu of Foreclosure.
Debtor subsequently proposed a plan and disclosure statement. Ultimately, debtor's Second Amended Plan was confirmed by Order entered on November 7, 2011. Subsequently, 2010-1 filed its Motion to Compel Enforcement of the Plan and Stipulation, contending that debtor had not complied with some of her obligations under the Stipulation and confirmed Plan. More specifically, 2010-1 contended debtor was obligated to pay its attorneys' fees and expenses incurred in reaching the loan modification, and was obligated to pay certain expenses on the Vista property. Debtor had provided a deed-in-lieu to 2010-1, but the latter had not executed or recorded it because of the alleged breaches.
In June 2012, the parties reached a partial Stipulation, which provided that debtor would pay 2010-1 $15,000 in "full satisfaction of Lender's claim for attorneys' fees and expenses related to the loan modification." In addition, debtor would transfer to 2010-1 all net rents from the Vista property by cashier's check. Upon receipt of those rents, 2010-1 would execute the deed-in-lieu. The Stipulation also provided: "Lender's receipt of the Settlement Payment shall be without prejudice to either Party's right to seek recovery of fees and expenses related to the Motion or defense thereof."
In December, 2012, 2010-1 filed its Motion for Approval of Attorneys' Fees and Expenses Related to Motion to Compel. 2010-1 seeks attorneys' fees of $77,539 and expenses of $605.97. As authority for the motion, 2 010-1 invoked the seemingly all-purpose provisions of 11 U.S.C. § 105(a), which provides in relevant part: "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Debtor opposes 2010-1's motion. Following oral argument on the motion, the Court requested supplemental briefing on the applicability of the "American Rule," and what authority, if any, the Court has to award attorneys' fees in this matter". Both sides have filed supplemental pleadings.
A threshold question is impliedly raised by debtor about who is the prevailing party on 2010-1's Motion to Compel. Debtor argues that in a practical sense she is because she has reduced by her arguments and agreements the amount claimed by 2010-1 by roughly 75%. To the extent that is debtor's position, it is easily addressed. In Saint John's Organic Farm v. Gem County Mosquito Abatement District, 574 F. 3d 1053 (9th Cir. 2009), the court explained:
A litigant qualifies as a prevailing party if it has obtained a "court-ordered 'chang[e] [in] the legal relationship between [the plaintiff] and the defendant.'"574 F.3d at 1058. Then the court observed:
The threshold for sufficient relief to confer prevailing party status is not high. "If the plaintiff has succeeded on any significant issue in litigation which achieve[d] some of the benefit the parties sought in bringing suit, the plaintiff has crossed the threshold to a fee award of some kind." [citation omitted.] In Farrar v. Hobby, 506 U.S. 103 ... (1992), the Supreme Court made clear how little actual relief is necessary. Plaintiffs had received only nominal damages at trial, even though in the complaint they had sought substantial actual damages. The Court nonetheless held that the plaintiffs were eligible for attorneys' fees as prevailing parties, explaining that "a plaintiff who wins nominal damages is a prevailing party" because a "judgment for damages in any amount, whether compensatory or nominal, modifies the defendant's behavior for the plaintiff's benefit by forcing the- defendant to pay an amount of money he otherwise would not pay." ... Thus, while the nature and quality of relief may affect the amount of fees awarded, an extremely small amount of relief is sufficient to confer prevailing party status.574 F.3d at 1059-60.
In their supplemental pleadings, both sides acknowledge the "American Rule", and both recognize the Supreme Court's decision in Alyeska Pipeline Service Company v. The Wilderness Society. 421 U.S. 240 (1975) as the seminal authority on the subject. In Alyeska, the Court of Appeals had awarded attorneys' fees to the prevailing party "based upon the court's equitable powers and the 'theory that respondents were entitled to fees because they were performing the services of a 'private attorney general.'" 421 U.S. at 241. The Supreme Court explained:
Since there was no applicable statutory authorization for such an award, the court proceeded to consider whether the requested fee award fell within any of the exceptions to the general 'American Rule' that the prevailing party may not recover attorneys' fees as costs or otherwise.421 U.S. at 245.
In Alyeska, the Supreme Court prefaced its review of the history of fee awards with this statement:
In the United States, the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys' fee from the loser. We are asked to fashion a far-reaching exception to this 'American Rule'; but having considered its origin and development, we are convinced that it would be inappropriate for the Judiciary, without legislative guidance, to reallocate the burdens of litigation in the manner and to the extent urged by respondents and approved by the Court of Appeals.421 U.S. at 247.
Then, after conducting a detailed review of the history of allowance of costs and disallowance of attorneys' fees in the United States, the Supreme Court majority stated:
We need labor the matter no further. It appears to us that the rule suggested here and adopted by the Court of Appeals would make major inroads on a policy matter that Congress has reserved for itself. Since the approach taken by Congress to this issue has been to carve out specific exceptions to a general rule that federal courts cannot award attorney fees beyond the limits of 2 8 U.S.C. § 1923, those courts are not free to fashion drastic new rules with respect to the allowance of attorneys' fees to the prevailing party in federal litigation or to pick and choose among plaintiffs and the statutes under which they sue and to award fees in some cases but not in others, depending on the courts' assessment of the importance of the public policies involved in particular cases.421 U.S. at 269. The Supreme Court concluded:
But the rule followed in our courts with respect to attorneys' fees has survived. It is deeply rooted in our history and in congressional policy; and it is not for us to invade the legislature's province by redistributing litigation costs in the manner suggested by respondents and followed by the Court of Appeals.421 U.S. at 270.
The constraints of Alyeska have been adhered to in this Circuit, as recognized by the Bankruptcy Appellate Panel in In re LCO Enterprises, Inc., 180 B.R. 567 (1995). There, the court noted:
The currently recognized exceptions include bad faith, common benefit, or the vindication of important statutory rights of all citizens... "Also, a court may assess attorneys' fees for the 'wilful disobedience of a court order'... or when the losing party has 'acted in bad faith, vexatiously, wantonly, or for oppressive reasons...'"180 B.R. at 570. While this Court is not as sanguine as the BAP was about including "common benefit" and "vindication of important statutory rights of all citizens", neither are at issue in this case.
2010-1 invokes as exceptions to the American Rule 1) bad faith; 2) disobedience of a court order; and 3) express contractual agreement between the parties. Taking the latter first, the Court generally agrees that parties may agree by contract to allocate liability for attorneys' fees to one side or another in the event of a breach of the agreement. See, e.g., In re Petrou, 2007 WL 7216521 (Bankr. S.D. CA 2007). However, this Court finds and concludes that 2010-1 brought the instant proceedings to enforce its asserted rights under the Stipulation and the Confirmed Plan of Reorganization, neither of which contain a fee-shifting provision. Instead, 2010-1 seeks to invoke earlier loan documents to support their contractual claim. The Court disagrees.
The Court also disagrees with 2010-1's assertion that debtor's bad faith conduct necessitated 2010-1's Motion to Compel. Apparently, in 2010-1's view, any disagreement between the parties which required the court's resolution is a bad faith position for the non-prevailing party. That is nonsense. To the contrary, there can be, and are good faith disputes, such as the date of surrender of the Vista property. In this Court's view, 2010-1 has failed to show that debtor's conduct with respect to the issues that were the subject of the Motion to Compel was undertaken in bad faith by debtor. As another example, in addition to the surrender date, 2 010-1 appears to argue that debtor's failure to pay the full amount of fees demanded by 2010-1 for its work on the loan modification, was an act of bad faith. The Court disagrees.
The findings and conclusions stated above as to bad faith also apply to 2010-1's claim that debtor violated court orders by not complying with the Stipulation of the parties (approved by the Court at the request of the parties), and by not "timely" performing certain provisions of the Plan, such as payment of 2010-1's fees for its work on the loan modification. The Court disagrees with 2010-1's assertions that debtor's conduct on the several claims of 2010-1 rise to the level of a breach of an express court order sufficient to justify fee-shifting in derogation of the American Rule. Indeed, adopting 2010-1's position would have the exception swallow the Rule. If that is to be the result, it is for Congress to say, as the Supreme Court made clear in Alyeska.
That leaves the issue of costs of $605.97 which 2010-1 seeks to have reimbursed. Those have not been challenged by debtor and, as made clear in Alyeska, costs separate and apart from attorneys' fees may be allowed. Rule 7054, Fed. R. Bankr. P., provides in relevant part: "(b) The Court may allow costs to the prevailing party except when a statute of the United States or these rules otherwise provides."
The Court has already concluded that 2010-1 is the prevailing party in these proceedings, and the amount of costs sought has not been challenged.
For all the foregoing reasons, the Court finds and concludes that 2010-1's motion to approve an award of attorneys' fees shall be, and hereby is denied. Further, 2010-1's request for an award of costs of $605.97 shall be granted.
IT IS SO ORDERED.
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PETER W. BOWIE, Judge
United States Bankruptcy Court