8 UNITED STATES DISTRICT COURT
9 FOR THE EASTERN DISTRICT OF CALIFORNIA
10 RESIDENTIAL FUNDING District Case No. 2:23-cv-02543-DJC 11 CORPORATION, et al., [master]
12 Appellants, Bankr. Case No. 16-26531-C-13G
13 v. Bankr. Adversary Case No. 22-02015-C
14 HAL EDWIN BUETTNER, III, et al.,
15 Appellees.
16 DEUTSCHE BANK NATIONAL TRUST District Case No. 2:23-cv-02544-DAD 17 COMPANY, et al., [closed]
18 Appellants, Bankr. Case No. 15-21528-A-13C
19 v. Bankr. Adversary Case No. 22-02038-C
20 KEVIN RANDALL KRONE,
21 Appellee. ORDER
22 23 24 This appeal arises from consolidated bankruptcy adversary proceedings in 25 which the Bankruptcy Court granted summary judgment in favor of Appellees on their 26 claims that Appellants failed to properly reconvey void deeds of trust following 27 Appellees’ completion of their Chapter 13 bankruptcy plans and awarded Appellees 28 attorneys’ fees under California Civil Code section 1717. Appellants claim that the 1 Bankruptcy Court erred in awarding Appellees attorneys’ fees under section 1717
2 because they were not the prevailing parties in the adversary proceedings for the
3 purposes of section 1717, and because California courts have held that section 1717
4 is inapplicable to the fee provisions in the deeds of trust at issue here.
5 Having considered the Parties briefings, the Court agrees that California
6 precedent precludes an award of attorneys’ fees based on Civil Code section 1717 in
7 this case. Accordingly, the Court will reverse the Bankruptcy Court’s grant of summary
8 judgment insofar as the Bankruptcy Court awarded attorneys’ fees under that code
9 section, and will remand this matter for further proceedings consistent with this order.
10 BACKGROUND
11 I. The Bankruptcy Adversary Proceeding
12 Appellees Hal Edwin Buettner, III and Michele Kay Elkins (the “Buettners”) and
13 Appellee Kevin Randall Krone (“Krone”) (collectively, “Appellees”) each allege that
14 they applied for, and received, second mortgages on their homes in 2006. (Buettner
15 Appellants’ Opening Br. (ECF No. 11) at 1; Krone Appellants’ Opening Br. (ECF No.
16 17) at 1.) Appellees allege their secondary mortgages were evidenced by a note and
17 deed of trust. (Buettner Appellants’ Opening Br. at 1; Krone Appellants’ Opening Br.
18 at 1.) The Buettners and Krone subsequently filed for Chapter 13 bankruptcy in the
19 U.S. District Court for the Eastern District of California in 2016 and 2015 respectively,
20 thereafter completing payments under their bankruptcy plans and receiving a
21 bankruptcy discharge on January 24, 2022, and February 8, 2021, respectively.
22 (Buettner Appellants’ Opening Br. at 2; Krone Appellants’ Opening Br. at 1.)
23 The Buettners’ and Krone’s bankruptcy plans each provided that the deeds of
24 trust securing their second mortgages would be deemed void, i.e., “stripped,” at the
25 completion of their plans and thereafter reconveyed to Appellees under the terms of
26 the deeds.1 (Am. Resp’ts’ Br. (ECF No. 20) at 1; Buettner Appellants’ Opening Br. at 2;
27 1 Wholly unsecured junior mortgages may be “stripped off” and rendered “void” in Chapter 13 cases by 28 virtue of 11 U.S.C. §§ 506(d) and 1322(b)(2) once plan payments are complete. 1 Krone Appellants’ Opening Br. at 1.) Accordingly, counsel for the Buettners and
2 Krone contacted their creditors at the completion of their plans to inform them of their
3 duty to reconvey the void deeds. (Am. Resp’ts’ Br. at 1–2; Bankr. Ct. Op. (ECF No. 17-
4 1) at ER_0435–36.2)
5 After receiving no response, on March 4, 2022, the Buettners filed an adversary
6 complaint against Appellants Residential Funding Corporation, Ocwen Loan
7 Servicing, LLC, and PHH Mortgage Corporation (collectively, the “Buettner
8 Appellants”) alleging their deed of trust was “stripped” upon completion of their
9 Chapter 13 plan, but that the Buettner Appellants failed to release the associated lien.
10 (Buettner Appellants’ Opening Br. at 2.) In particular, the Buettners brought five
11 causes of actions for (1) declaratory relief concerning the validity and value of the
12 deed of trust; (2) extinguishment of the deed of trust; (3) violation of California Civil
13 Code section 2941(d); (4) breach of contract; and (5) attorneys’ fees. (Id.; see also
14 Buettner Adversary Compl. (ECF No. 11-1) at ER0013–22.) Krone likewise received no
15 response from his creditors and filed an adversary complaint against Appellants
16 Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, and PHH
17 Mortgage Corporation (collectively, the “Krone Appellants”) on June 22, 2022,
18 alleging the same causes of action as the Buettners. (Krone Appellants’ Opening Br.
19 at 2; see also Krone Adversary Compl. (ECF No. 17-1) at ER_0009–19.)
20 In response to these adversary complaints, PHH Mortgage Corporation
21 recorded a full reconveyance of the Buettners’ deed of trust on March 23, 2022.
22 (Buettner Appellants’ Opening Br. at 2; see also Buettner Reconveyance (ECF No. 11-
23 1) at ER0211.) PHH Mortgage Corporation also recorded a full reconveyance of
24 Krone’s deed of trust on August 2, 2022. (Krone Appellants’ Opening Br. at 2; see
25 also Krone Reconveyance (ECF No. 17-1) at ER_0068–69.) The Parties subsequently
26 discussed settling the adversary proceedings, as Appellants contended these
27 2 Citations to Appellants’ Records refer to the page number in the Excerpts of Record, not original page 28 numbers. 1 reconveyances mooted Appellees’ claims, but no agreement was reached. (Buettner
2 Appellants’ Opening Br. at 2; Krone Appellants’ Opening Br. at 2.) The Buettners’ and
3 Krone’s adversary proceedings were consolidated on February 11, 2023, because of
4 their cases’ similarities. (Buettner Appellants’ Opening Br. at 2; Krone Appellants’
5 Opening Br. at 2.)
6 II. The Bankruptcy Court’s Order
7 On December 2, 2022, the Buettner Appellants moved for summary judgment,
8 arguing the reconveyance mooted the Buettners’ claims, the Buettners were not
9 entitled to attorneys’ fees, and the Buettners failed to establish any damages.
10 (Buettner Appellants’ Opening Br. at 2.) The Krone Appellants moved for summary
11 judgment on May 17, 2023, on the same basis. (Krone Appellants’ Opening Br. at 2.)
12 On October 11, 2023, as amended October 17, 2023, the Bankruptcy Court
13 issued an opinion granting summary judgment in favor of the Buettners and Krone
14 and awarding them attorneys’ fees. (Bankr. Ct. Op. at ER_0431–56.) Notably, the
15 Bankruptcy Court held that Appellees were the “prevailing parties” on their federal
16 causes of action for declaratory relief and extinguishment of their liens, and that
17 Appellees’ actions qualified as “on the contract” for purposes of their demand for
18 attorneys’ fees under California Civil Code section 1717, entitling Appellees to invoke
19 the attorneys’ fee provisions in their underlying notes and deeds of trust. (Id. at
20 ER_0433.)
21 Specifically, concerning Appellees’ claim for declaratory relief, the Bankruptcy
22 Court found that Appellees’ deeds of trust were void because:
23 The values of the subject junior liens, effective on completion of plan payments, were conclusively fixed as $0.00 in the 24 plan confirmation orders. The values matured to $0.00 and becam e final upon completion of plan payments and the 25 filings of the Chapter 13 Trustee’s Notice of Completed Plan
26 Payments. It follows that there is nothing left to declare regarding value in a declaratory judgment. The only 27 remaining step is to clear the cloud on title by removing the lien. 28 1 (Id. at ER_0447.)
2 Concerning Appellees’ claim for extinguishment of the deeds of trust, the
3 Bankruptcy Court observed that Appellees’ “lender[s], by virtue of the contractual
4 terms of the deeds of trust, ha[d] a contractual duty to request that the trustee
5 reconvey upon payment of all sums secured by the deeds of trust.” (Id. at ER_0448 &
6 n.9 (citing Buettner Deed of Trust (ECF No. 11-1) at ER0175 (Section 20); Krone Deed
7 of Trust (ECF No. 17-1) at ER_0043 (Section 22)).) As the Bankruptcy Court explained:
8 Completion of chapter 13 plan payments on a plan in which the subject debt has been valued by the court at $0.00 9 satisfies the performance contingency inherent in the plan. At that point, the debt, beyond cavil, is $0.00. It follows that 10 all sums secured by the affected deeds of trust have been
11 paid . . . [and] [t]he lender thereupon has a federal duty to request that the trustee reconvey the deed of trust on the 12 void debt. If voluntary reconveyance does not timely occur following completion of chapter 13 plan payments, then the 13 debtor is entitled to invoke the federal lien removal power in
14 an adversary proceeding seeking involuntary reconveyance.
15 (Id. at ER_0448.) The Bankruptcy Court also noted that California imposes a statutory
16 duty to reconvey under California Civil Code section 2941. (Id.)
17 The Bankruptcy Court next considered whether Appellees could collect
18 attorneys’ fees for their efforts to force reconveyance. The Bankruptcy Court found
19 that Appellees could under Civil Code section 1717(a), which provides:
20 In any action on a contact, where the contract specifically
21 provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the 22 parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, 23 whether he or she is the party specified in the contract or not,
24 shall be entitled to reasonable attorney’s fees in addition to other c osts. 25
26 Applying this section, the Bankruptcy Court found that Appellees’ adversary
27 proceedings to enforce the judicial determinations that their deeds of trust were void
28 and force reconveyance of the deeds qualified as “action[s] on a contract,” and that 1 the Appellants reconveyance of the deeds of trust in response to Appellees filing their
2 adversary proceedings made Appellees the “prevailing parties” for the purposes of
3 section 1717. (Id. at ER_0452.) The Bankruptcy Court further found that the Buettners’
4 deed of trust provided for attorneys’ fees in Sections 7, 17, and 18, while Krone’s deed
5 of trust provided for attorneys’ fees in Sections 8, 18, and 21. (Id. at ER_0451 n.12; see
6 also Buettner Deed of Trust at ER0173–74; Krone Deed of Trust at ER_0039, ER_0041–
7 43.) The Bankruptcy Court also noted that Buettners’ and Krone’s notes likewise
8 contained attorneys’ fee provisions in Sections 10 and 6 respectively. (Bankr. Ct. Op.
9 at ER_0451 n.13; see also Buettner Note (ECF No. 11-1) at ER0165; Krone Note (ECF
10 No. 17-1) at ER_0028.) Accordingly, the Bankruptcy Court concluded that Appellees
11 were “entitled to attorneys’ fees and costs pursuant to the fee provisions in the
12 respective deeds of trust” under Civil Code section 1717. (Bankr. Ct. Op. at ER_0456.)
13 III. The Pending Appeal
14 Appellants appealed the Bankruptcy Court’s summary judgment order on
15 November 2, 2023. (Notice Appeal (ECF No. 1).) In short, Appellants argue that the
16 Bankruptcy Court erred in holding Appellees were entitled to attorneys’ fees under
17 Civil Code section 1717 because California courts have declined to apply section
18 1717 to attorneys’ fee provisions in similar deeds of trust. (Buettner Appellants’
19 Opening Br. at 4–12; Krone Appellants’ Opening Br. at 4–11.) Appellants also argue
20 that the Bankruptcy Court erred in holding Appellees were the prevailing parties for
21 the purposes of section 1717 because Appellants voluntarily released Appellees
22 deeds of trust at the outset of the adversary proceedings such that Appellees received
23 none of the relief sought on their actual contract claims (i.e., extinguishment and
24 damages) in the Bankruptcy Court’s final judgment. (Buettner Appellants’ Opening
25 Br. at 12–15; Krone Appellants’ Opening Br. at 11–13.) The appeals were submitted
26 without oral argument pursuant to the Parties’ request on March 12, 2024. (ECF No.
27 23.)
28 //// 1 ISSUES ON APPEAL
2 1. Whether the Bankruptcy Court erred in holding California Civil Code section
3 1717 applies to Appellees’ notes and deeds of trust; and
4 2. Whether the Bankruptcy Court erred in holding the release of Appellees’
5 deeds of trust rendered Appellees the prevailing parties for purposes of California
6 Civil Code section 1717.
7 LEGAL STANDARD
8 A bankruptcy court’s decision granting summary judgment is subject to de
9 novo review. See AFI Holding, Inc. v. Mackenzie (In re AFI Holding, Inc.), 525 F.3d 700,
10 702 (9th Cir. 2008). Under de novo review, district courts must “consider a matter
11 anew, as if no decision had been made previously.” Francis v. Wallace (In re Francis),
12 505 B.R. 914, 917 (9th Cir. BAP 2014). The district court “may affirm, modify, or
13 reverse a bankruptcy’s judge’s judgment, order, or decree or remand with instructions
14 for further proceedings.” Kelly v. J.A.W. Land & Trading, LLC (In re Kelly), 499 B.R. 844,
15 852–53 (S.D. Cal. 2013) (quoting former Fed. R. Bankr. P. 8013).
16 ANALYSIS
17 I. Whether Civil Code section 1717 Applies to the Attorneys’ Fee Provisions
18 in Appellees’ Notes and Deeds of Trust
19 Appellants argue that the Bankruptcy Court erred in awarding Appellees
20 attorneys’ fees under Civil Code section 1717 because California precedent forecloses
21 the application of section 1717 to Appellees’ respective notes and deeds of trust. The
22 Court agrees.
23 “Under the American Rule, the prevailing litigant is ordinarily not entitled to
24 collect a reasonable attorneys’ fee from the loser[;] [t]his default rule can, of course, be
25 overcome by statute.” Travelers Cas. and Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549
26 U.S. 443, 448 (2007) (citations and quotations omitted). Under California law, unless
27 an award of attorneys’ fees is expressly permitted by statute, “the measure and mode
28 of compensation of attorneys and counselors at law is left to the agreement, express 1 or implied, of the parties.” Cal. Code Civ. Proc. § 1021. State law governs the
2 interpretation and application of a provision in a contract that permits an award of
3 attorneys’ fees. Resolution Tr. Corp. v. Midwest Fed. Sav. Bank of Minot, 36 F.3d 785,
4 800 (9th Cir. 1993).
5 In relevant part, California’s Civil Code provides:
6 In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to 7 enforce that contract, shall be awarded either to one of the
8 parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, 9 whether he or she is the party specified in the contract or not, 10 shall be entitled to reasonable attorney’s fees in addition to other costs.
12 Civ. Code § 1717(a). “The primary purpose of section 1717 is to ensure mutuality of
13 remedy for attorney fee claims under contractual attorney fee provisions.” Santisas v.
14 Goodin, 17 Cal. 4th 599, 610 (1998). Otherwise stated, “[w]hen parties contractually
15 allocate attorneys’ fees, California Civil Code [section] 1717 ensures that such
16 attorneys’ fees provisions apply reciprocally such that if a party to an action would be
17 entitled to fees under the contract’s attorneys’ fees provision if successful, the adverse
18 party must also be eligible for fees if it prevails.” Pac. Fuel Co., LLC v. Shell Oil Co.,
19 416 F. App’x 607, 609 (9th Cir. 2011).
20 Three (sometimes four) conditions must be met before fees may be awarded
21 pursuant to section 1717(a). “First, the action in which the fees are incurred must be
22 an action ‘on a contract,’ a phrase that is liberally construed.” Penrod v. AmeriCredit
23 Fin. Servs. (In re Penrod), 802 F.3d 1084, 1087 (9th Cir. 2015). “Under California law,
24 an action is ‘on a contract’ when a party seeks to enforce, or avoid enforcement of, the
25 provisions of the contract.” Id. at 1088. “Second, the contract must contain a
26 provision stating that attorney’s fees incurred to enforce the contract shall be awarded
27 either to one of the parties or to the prevailing party.” Id. at 1087. Third, the party
28 seeking fees must be the prevailing party. Id. at 1087–88. And fourth, where the 1 prevailing party is not the party specified in the contract, the party that is specified in
2 the contract would have been entitled to recover their fees had they prevailed. Civ.
3 Code § 1717(a).
4 Here, Appellants contend that the second condition is not met because “[t]he
5 California Court of Appeals has recognized Section 1717 does not apply to a standard
6 form deed of trust that merely allows a lender to incur reasonable attorneys’ fees to
7 protect its interest in the property or rights under the security instrument.” (Buettner
8 Appellants’ Opening Br. at 5; Krone Appellants’ Opening Br. at 5.) In particular,
9 Appellants rely on Hart v. Clear Recon Corp., 27 Cal. App. 5th 322 (2018) and Chacker
10 v. JPMorgan Chase Bank, N.A., 27 Cal. App. 5th 351 (2018), as modified on denial of
11 reh’g (Oct. 17, 2018). In Chacker and Hart, the courts considered whether a clause in
12 a deed of trust providing that any amount, including attorneys’ fees, disbursed by the
13 lender to protect their rights in the secured property or the deed “shall become
14 additional debt of Borrower secured by this Security Instrument” qualified as an
15 attorneys’ fee provision under section 1717(a). Hart, 27 Cal. App. 5th at 325–29;
16 Chacker, 27 Cal. App. 5th at 354–59. The courts concluded that they did not. As
17 reasoned in Hart,
18 [S]ection 1717 applies only where a “contract specifically provides that attorney’s fees . . . shall be awarded” to one 19 party or the prevailing party. We must consider whether paragraph 9 of the deed of trust specifically so provides. By 20 its plain language, it does not. The paragraph allows the
21 lender to take numerous actions, including incurring attorney’s fees, to protect its interest. It then provides, in the 22 language we emphasized above, that [“][a]ny amounts disbursed by Lender under this Section 9 shall become 23 additional debt of Borrower secured by this Security
24 Instrument.” This is not a provision that attorney’s fees “shall be awa rded”; it is, instead, a provision that attorney’s fees, 25 like any other expenses the lender may incur to protect its 26 interest, will be added to the secured debt.
27 ////
28 //// 1 27 Cal. App. 5th at 327 (emphasis added). Thus, the court held that the deed of trust
2 did not permit the “recover[y] of attorneys’ fees as an award pursuant to the instant
3 litigation.” Id.
4 The Chacker court reached a similar outcome, holding “[t]he Deed of Trust
5 Authorizes the Addition of Attorney Fees to the Loan Amount, Not a Separate Award
6 To Pay Fees.” 27 Cal. App. 5th at 356. Chacker also recognized that “multiple federal
7 district courts have held trust deed provisions similar or identical to those here do not
8 authorize a separate fee award and instead only allow the fees to be added to the
9 outstanding balance due under the promissory note.” Id. at 358 (citing Dufour v.
10 Allen, No. 14-cv-05616-CAS(SSx), 2017 WL 1433303, at *5–8 (C.D. Cal. Apr. 20, 2017);
11 Barba v. Flagstar Bank FSB, No. CV108023VBFVBKX, 2011 WL 13217562, at *1–2 (C.D.
12 Cal. Sept. 19, 2011); Valencia v. Carrington Mortg. Servs., LLC, No. CIV. 10-00558 LEK,
13 2013 WL 3223628, at *9–11 (D. Haw. June 25, 2013)).
14 Here, Appellees argue that their deeds of trust have unilateral attorneys’ fee
15 provisions which the Bankruptcy Court properly relied on when granting them
16 attorneys’ fees under Civil Code section 1717. (Am. Resp’ts’ Br. at 11–13.) In
17 particular, the Bankruptcy Court cited Sections 7, 17, and 18 in the Buettners’ deed of
18 trust, along with Sections 8, 18, and 21 in Krone’s deed of trust, as a basis for the
19 attorneys’ fee award. (Bankr. Ct. Op. at ER_0451 n.12.)
20 Having reviewed those sections, the Court finds that the most applicable
21 provisions appear in Section 7 of the Buettners’ deed of trust, and Section 8 of Krone’s
22 deed of trust, which permit lenders to recover attorneys’ fees from borrowers in the
23 event that the borrowers fail to perform any covenants contained in the deeds.
24 Assuming Civil Code section 1717 applied to make those fee provisions reciprocal,
25 Appellees (the borrowers) would likewise be able to recover attorneys’ fees from
26 Appellants (the lenders) for their breach of the covenants contained in the deeds of
27 trust, notably the covenants to reconvey contained in Section 20 of the Buettners’
28 1 deed of trust and Section 22 of Krone’s deed of trust. (See Buettner Deed of Trust at
2 ER0175; Krone Deed of Trust at ER_0043.)
3 However, these attorneys’ fee provisions bear significant similarities to the
4 clauses at issue in Chacker and Hart. Notably, the Buettners’ deed of trust states in
5 Section 7:
6 If Borrower fails to perform the covenants and agreements contained in this Deed of Trust or if any action or proceeding 7 is commenced which materially affects Lender’s interest in the Property, then Lender, at Lender’s option, upon notice to 8 Borrower, may make such appearances, disburse such sums,
9 including reasonable attorneys’ fees, and take such action as is necessary to protect Lender’s interest . . . . . Any amounts 10 disbursed by Lender pursuant to this paragraph 7, with interest thereon, at the Note rate, shall become additional 11 indebtedness of Borrower secured by this Deed of Trust.
12 13 (Buettner Deed of Trust at ER0173 (emphasis added).) 14 Krone’s deed of trust similarly provides in Section 8: If (a) Borrow er fails to perform the covenants and 15 agreements contained in this Security Instrument, (b) there is
16 a legal proceeding that might significantly affect Lender’s interest in the Property and/or rights under this Security 17 Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which 18 has or may attain priority over this Security Instrument or to
19 enforce laws or regulations), or (c) Borrower has abandoned the Property, then Lender may do and pay for whatever is 20 reasonable or appropriate to protect Lender’s interest in the 21 Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and
22 securing and/or repairing the Property. Lender’s actions can include, but are not limited to: (a) paying any sums secured 23 by a lien which has or may attain priority over this Security 24 Instrument; (b) appearing in court; and (c) paying reasonable attorne ys' fees to protect its interest in the Property and/or 25 rights under this Security Instrument, including its secured position in a bankruptcy proceeding . . . . Any amounts 26 disbursed by Lender under this Section 8 shall become
27 additional debt of Borrower secured by this Security Instrument if allowed under Applicable Law. 28 1 (Krone Deed of Trust at ER_0039 (emphasis added).)
2 Much like the clauses in Chacker and Hart, the clauses here do not state that
3 attorneys’ fees “shall be awarded” to either party. Rather, the clauses provide that the
4 fees and costs shall “become additional debt of Borrower” secured by the deeds of
5 trust. Thus, these clauses do not provide for a separate award of attorneys’ fees, and
6 the Bankruptcy Court erred in awarding attorneys’ fees under section 1717(a) based
7 on these provisions.
8 Sections 17 and 18 in the Buettners’ deed of trust and Sections 18 and 21 in
9 Krone’s deed of trust similarly do not support an award of attorneys’ fees here. Those
10 sections govern the lender’s right to accelerate payment of the sums secured by the
11 deed of trust and foreclose on the secured property in the event of the borrower’s
12 breach of their covenants under the deed, and provide that the lender may “collect all
13 reasonable costs and expenses incurred in pursuing” acceleration and sale of the
14 property, including reasonable attorneys’ fees. (See Buettner Deed of Trust at
15 ER0174; Krone Deed of Trust at ER_0041–43.) Those sections also provide that if the
16 lender invokes the power of sale and the property is sold, the trustee shall apply sale
17 proceeds first to sale expenses, “including, but not limited to, reasonable Trustee’s
18 and attorneys’ fees.” (See Buettner Deed of Trust at ER0174; Krone Deed of Trust at
19 ER_0043.) Much like Sections 7 and 8 discussed above, these sections do not
20 authorize an award of attorneys’ fees to the prevailing party in a lawsuit. Rather, they
21 authorize lenders to “collect” attorneys’ fees in connection with a foreclosure and
22 provide a method for collecting them, by applying the proceeds of the trustee’s sale.
23 These provisions are also inapplicable to the relief sought by Appellees in their
24 adversary proceeding, as Appellees do not contest the payment of any sums under
25 the deeds of trust but rather seek reconveyance of the deeds. Thus, the Bankruptcy
26 Court erred in awarding attorneys’ fees under those provisions.
27 Finally, while Section 10 in Buettners’ note and Section 6 in Krone’s note also
28 contain attorneys’ fee provisions, those sections are likewise inapplicable, as they 1 provide that the note holder may seek repayment of attorneys’ fees spent in enforcing
2 the note. (See Buettner Note at ER0165; Krone Note at ER_0028.) Appellees here
3 seek to enforce the terms of their deeds of trust, not their notes. Thus, the Bankruptcy
4 Court erred in awarding attorneys’ fees based on those note provisions.
5 Appellees cite several cases in support of their argument that the Bankruptcy
6 Court correctly awarded fees here as bankruptcy courts have previously awarded
7 attorneys’ fees under Civil Code section 1717 in similar federal lien removal cases.
8 (See Am. Resp’ts’ Br. at 10 (citing Blendheim v. Note Holder (In re Blendheim), No. 09-
9 10283-MLB, 2016 WL 4264058 (Bankr. W.D. Wash. Aug. 11, 2016); Luchini v.
10 JPMorgan Chase Bank, N.A. (In re Luchini), 511 B.R. 664 (Bankr. E.D. Cal. 2014); Martin
11 v. CitiFinancial Services, Inc. (In re Martin), 491 B.R. 122 (Bankr. E.D. Cal. 2013).) These
12 cases are inapposite. Blendheim, for its part, applied Washington State’s reciprocal
13 attorneys’ fee statute and is thus largely irrelevant to this Court’s consideration of
14 California law. See 2016 WL 4264058, at *4–6, 13. Martin and Luchini, meanwhile,
15 granted attorneys’ fees under Civil Code section 1717 without analyzing whether
16 application of that code section was correct, and so are unhelpful here. See Luchini,
17 511 B.R. at 679–81; Martin, 491 B.R. at 130. Those cases also pre-date Chacker and
18 Hart. Thus, to the extent Martin and Luchini conflict with Chacker and Hart, this Court
19 is required to follow the more recent decisions of the California Court of Appeals.
20 Spear v. Wells Fargo Bank, N.A. (In re Bartoni-Corsi Produce, Inc.), 130 F.3d 857, 861
21 (9th Cir. 1997) (“When interpreting state law, federal courts are bound by decisions of
22 the state’s highest court” unless there is no relevant decision by the state’s highest
23 court, in which case federal courts are “obligated to follow the decisions of the state’s
24 intermediate appellate courts” unless there is “convincing evidence that the state
25 supreme court would decide differently.” (quoting Lewis v. Tel. Emps. Credit Union, 87
26 F.3d 1537, 1545 (9th Cir. 1996)).)
27 In sum, the Court holds that the Bankruptcy Court erred in awarding Appellees
28 attorneys’ fees under Civil Code section 1717 as no clause in the deeds of trust or 1 | notes at issue here provide that attorneys’ fees “shall be awarded” for the relief sought 2 | by Appellees, i.e., enforcement of their contractual right to reconveyance. Thus, the 3 | Court will overturn the Bankruptcy Court's summary judgment ruling on this point. 4] I. Whether Appellees Were the Prevailing Parties in the Bankruptcy 5 Adversary Proceeding for the Purposes of Civil Code section 1717 6 As discussed above, the Bankruptcy Court erred in granting Appellees 7 | attorneys’ fees under Civil Code section 1717 because the applicable attorneys’ fee 8 | provisions do not “award” attorneys’ fees as required under the plain language of 9 | section 1717. Thus, the Court need not reach the question of whether Appellees were 10 | the prevailing parties for the purposes of section 1717. 11 CONCLUSION 12 For the reasons set forth above, the Court hereby: 13 1. REVERSES the Bankruptcy Court's grant of summary judgment in favor of 14 Appellees on the award of attorneys’ fees under California Civil Code 15 section 1717; 16 2. REMANDS this matter to the Bankruptcy Court for further proceedings 17 consistent with this order; and 18 3. DIRECTS the Clerk of Court to close this case. 19 50 IT IS SO ORDERED. 21 | Dated: _August 27, 2025 “Daniel CoD tto— Hon. Daniel □□ |. od 22 UNITED STATES DISTRICT JUDGE 23 24 | pJca - Buettner23cv2543.BankrAppeal 25 26 27 28
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