FILED JAN 06 2014 1 SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-12-1516-DKiTa ) 6 SEYED SHAHRAM HOSSEINI, ) Bk. No. SV 10-66228-WA ) 7 Debtor. ) Adv. No. SV 10-01385-WA ______________________________) 8 ) SEYED SHAHRAM HOSSEINI, ) 9 ) Appellant, ) 10 ) v. ) O P I N I O N 11 ) KEY BANK, N.A., ) 12 ) Appellee. ) 13 ______________________________) 14 15 Argued and Submitted at Pasadena, California on November 21, 2013 16 Filed - December 19, 2013 17 Ordered Published - January 6, 2014 18 Appeal from the United States Bankruptcy Court for the Central District of California 19 Hon. William V. Altenberger, Bankruptcy Judge, Presiding. 20 21 Appearances: Denise M. Fitzpatrick, Esq. for Appellant, Seyed Shahram Hosseini; and Holly J. Nolan, Esq. for Appellee, Key 22 Bank, N.A. 23 24 25 Before: DUNN, KIRSCHER, and TAYLOR, Bankruptcy Judges. 26 27 28 1 DUNN, Bankruptcy Judge: 2 3 The debtor, Seyed Shahram Hosseini, appeals the bankruptcy 4 court’s order 1) denying his motion for attorney’s fees and 2) 5 allowing only costs for service of process requested in his bill 6 of costs.1 We AFFIRM. 7 FACTS 8 Prepetition, the debtor obtained a total of $280,046.34 in 9 student loans (“student loan debt”) from Key Bank, N.A. (“Key 10 Bank”) to fund his medical school education. Despite several 11 attempts, he was unable to pass the medical licensing exam. The 12 debtor did not become a physician, as he had hoped, but instead 13 became a night security guard earning only $13.50 per hour. He 14 also was beset with various physical and mental ailments, 15 including diabetes and depression. 16 The debtor filed a chapter 7 bankruptcy petition on May 24, 17 2010. He initiated an adversary proceeding to discharge the 18 student loan debt under § 523(a)(8). Two years after Key Bank 19 filed its answer in the adversary proceeding, the bankruptcy 20 court held a trial. It granted judgment in the debtor’s favor, 21 discharging his entire student loan debt to Key Bank (“Discharge 22 Order”). 23 1 Unless otherwise indicated, all chapter and section 24 references are to the federal Bankruptcy Code, 11 U.S.C. §§ 101- 25 1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of 26 Civil Procedure are referred to as “Civil Rules.” 27 The Local Bankruptcy Rules for the United States Bankruptcy Court for the Central District of California are referred to as 28 “LBR.”
2 1 Shortly after the bankruptcy court entered the Discharge 2 Order, the debtor filed a bill of costs (“Cost Bill”) seeking a 3 total of $4,960.39 in expenses incurred by his attorney, Denise 4 Fitzpatrick, in the adversary proceeding.2 Along with the Cost 5 Bill, he submitted a declaration by Ms. Fitzpatrick (“Cost Bill 6 Declaration”), which included an itemization of each cost sought 7 to be recovered by him (“Cost Bill Itemization”). 8 According to the Cost Bill Itemization, the debtor sought 9 $101.20 for copying and printing (mostly for documents served 10 electronically), $20.90 for faxing (all for evidentiary documents 11 from the debtor to Ms. Fitzpatrick), $107.74 for “service of 12 process” (postage for service of summons, status reports and 13 other documents mailed by Ms. Fitzpatrick), and $4,730.55 for 14 miscellaneous costs (consisting of messenger service fees, online 15 software purchases, exhibit preparation costs, transportation 16 costs for Ms. Fitzpatrick’s meetings with co-counsel and/or the 17 debtor, “research and document retrieval” costs, phone charges 18 for a status conference through Court Call, a $2,500 “consultant 19 fee” to Charles Murray3 (“Murray consultation fee”), and a $500 20 21 2 The debtor initially sought $6,210.39 in costs. 22 3 Ms. Fitzpatrick employed Mr. Murray as a “consultant” to 23 help her during trial. She filed a notice of association of counsel on July 17, 2012, indicating that Mr. Murrary was co- 24 counsel in the adversary proceeding. According to Ms. 25 Fitzpatrick, Mr. Murray “did the oral arguments” at trial. The bankruptcy court determined that Mr. Murray was not a 26 consultant but an attorney as he “[had] tried the case.” Tr. of 27 September 10, 2012 Hr’g, 29:4. The bankruptcy court therefore found that the $2,500 “consultant fee” for Mr. Murray actually 28 (continued...)
3 1 fee to Hector Vega for “[consultation] and appearance – necessary 2 to obtain trial continuance and prevent dismissal”).4 3 The debtor also filed a motion for allowance of attorney’s 4 fees (“Attorney Fee Motion”), seeking a total of $110,701.50 “for 5 reasonable and necessary fees incurred [by Ms. Fitzpatrick] in 6 [the adversary proceeding].”5 7 In support of the Attorney Fee Motion, the debtor relied on 8 a provision (“fee provision”) in the promissory note for the 9 student loans (“promissory note”), which he claimed authorized 10 him to seek attorney’s fees as the prevailing party in the 11 adversary proceeding.6 The fee provision stated: 12 3 13 (...continued) was an attorney’s fee to be included in the Attorney Fee Motion. 14 4 Ms. Fitzpatrick failed to appear at the trial set for 15 April 25, 2012. She had Mr. Vega specially appear to represent 16 the debtor in her stead. It seems that the $500 fee to Mr. Vega was for his special appearance at the April 25, 2012 hearing. 17 5 In her declaration filed in support of the Attorney Fee 18 Motion (“Attorney Fee Declaration”), Ms. Fitzpatrick claimed that 19 she spent a total of 316.29 hours litigating the adversary proceeding. She attached to her declaration an “attorney time 20 log” that described the various tasks she performed, the time spent on each task and the amount due. 21 6 22 The debtor also referenced LBR 7054-1(g)(1), which allows a prevailing party to file a motion for an award of attorney’s 23 fees where such fees may be awarded, within 30 days after entry of judgment. 24 LBR 7054-1(g) provides: 25 (1) If not previously determined at trial or other hearing, a party seeking an award of attorneys’ fees where such 26 fees may be awarded must file and serve a motion not 27 later than 30 days after the entry of judgment or other final order, unless otherwise ordered by the court. 28 (continued...)
4 1 When and as permitted by applicable law, I [the borrower] agree to pay your [the lender] reasonable 2 amounts, including reasonable attorney’s fees for any attorney who is not your regularly salaried employee and 3 court and other collection costs, that you incur in enforcing the terms of the [promissory] Note if I am in 4 default. 5 He further relied on California Civil Code (“Civil Code”) 6 § 1717, arguing that Civil Code § 1717 reinforced the fee 7 provision through reciprocity.7 According to the debtor, Civil 8 Code § 1717 “requires payment of attorney fees to prevailing 9 10 6 (...continued) 11 (2) The requirements of LBR 9013-1 through LBR 9013-4 apply to a motion for attorneys’ fees under this rule. 12 7 Civil Code § 1717 provides, in relevant part: 13 14 (a) In any action on a contract, where the contract specifically provides that attorney’s fees and costs, 15 which are incurred to enforce that contract, shall be awarded either to one of the parties or to the 16 prevailing party, then the party who is determined to 17 be the party prevailing on the contract, whether he or she is the party specified in the contract or not, 18 shall be entitled to reasonable attorney’s fees in 19 addition to other costs.
20 Where a contract provides for attorney’s fees, as set forth above, that provision shall be construed as 21 applying to the entire contract, unless each party was 22 represented by counsel in the negotiation and execution of the contract, and the fact of that representation is 23 specified in the contract. 24 Reasonable attorney’s fees shall be fixed by the court, 25 and shall be an element of the costs of suit. 26 Attorney’s fees provided for by this section shall not 27 be subject to waiver by the parties to any contract which is entered into after the effective date of this 28 section. Any provision in any such contract which provides for a waiver of attorney’s fees is void.
5 1 parties when attorney fees are afforded to any contracting 2 party.” 3 Key Bank opposed the Cost Bill, contending that the debtor 4 could not recover certain costs because they were not allowed 5 under LBR 7054-1. Specifically, it opposed the debtor’s request 6 for recovery of costs for every copy ever made in the adversary 7 proceeding because LBR 7054-1 allowed recovery of costs of copies 8 of documents admitted into evidence only if the original 9 documents were not available. It further opposed recovery for 10 postage, Court Call charges, fax charges, messenger and delivery 11 charges, software costs, transportation costs, PACER research 12 charges and the Murray consultation fee because LBR 7054-1 did 13 not include such expenses as recoverable costs. 14 Key Bank also opposed the Attorney Fee Motion, arguing that 15 there was no statutory basis for an award of attorney’s fees 16 under § 523(a)(8) as required under the American Rule. 17 Key Bank also contended that the fee provision only applied 18 to actions seeking to enforce the terms of the promissory note. 19 Here, the debtor had initiated the adversary proceeding to 20 discharge his student loan debt under § 523(a)(8), not to enforce 21 the promissory note’s terms. The debtor therefore could not seek 22 attorney’s fees because he prevailed on a claim to relieve 23 himself from his debts under federal law, not on a Key Bank claim 24 to recover following a default under the promissory note. 25 Key Bank further asserted that Civil Code § 1717 did not 26 apply because the promissory note contained a provision stating 27 that Ohio law, not California law, governed the prevailing 28 party’s recovery of attorney’s fees (“governing law provision”).
6 1 Specifically, the governing law provision stated: 2 I understand and agree that (i) you are located in Ohio, (ii) that this Note will be entered into in Ohio 3 and (iii) that your decision on whether to lend me money will be made in Ohio. CONSEQUENTLY, THE 4 PROVISIONS OF THIS NOTE WILL BE GOVERNED BY FEDERAL LAWS AND THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD 5 TO CONFLICT OF LAW RULES. I agree that any suit I bring against you (or against any subsequent holder of 6 this Note) must be brought in a court of competent jurisdiction in the county in which you maintain your 7 (or the county in which the subsequent holder maintains its) principal place of business. 8 9 On September 10, 2012, the bankruptcy court held a hearing 10 on the Cost Bill and the Attorney Fee Motion. 11 After hearing extensive argument from counsel, the 12 bankruptcy court first addressed the Cost Bill. The bankruptcy 13 court agreed with Key Bank that LBR 7054-1 allowed for the 14 recovery of filing fees and certain of the service of process 15 fees, but not for the other fees requested by the debtor. 16 The bankruptcy court then turned to the Attorney Fee Motion. 17 It began by recognizing that, under the American Rule, a 18 prevailing party may not recover attorney’s fees unless there was 19 a statute or a contract authorizing such recovery. The 20 bankruptcy court acknowledged that the fee provision allowed Key 21 Bank to recover any attorney’s fees incurred in enforcing the 22 terms of the promissory note if the debtor defaulted. It also 23 acknowledged that Civil Code § 1717 provided that, in any action 24 on a contract where the contract specifically provided for the 25 recovery of attorney’s fees incurred by the prevailing party to 26 enforce the contract, the prevailing party was entitled to 27 recover reasonable attorney’s fees. The bankruptcy court noted 28 that Key Bank did not dispute that if it could recover attorney’s
7 1 fees as the prevailing party, the debtor also could recover 2 attorney’s fees if he were the prevailing party.8 3 The bankruptcy court ultimately decided that the debtor was 4 not entitled to recover attorney’s fees under the American Rule. 5 In making its determination, the bankruptcy court focused on the 6 purpose of the adversary proceeding. It emphasized that the 7 debtor initiated the adversary proceeding to discharge his 8 student loan debt to Key Bank, not to enforce the terms of the 9 promissory note or contest the amount of the debt to Key Bank. 10 Because the sole legal basis for recovery of attorney’s fees did 11 not apply – i.e., the fee provision – the bankruptcy court denied 12 the Attorney Fee Motion. 13 On September 26, 2012, the bankruptcy court entered an order 14 on both the Cost Bill and the Attorney Fee Motion (“Cost and Fee 15 Order”). In the Cost and Fee Order, the bankruptcy court allowed 16 the debtor $10.82 in costs for service of process but denied all 17 other costs.9 It denied the Attorney Fee Motion in its entirety. 18 8 19 The bankruptcy court also observed:
20 No matter how you look at this or how you cut it, [the amount was] way too much in the way of attorney’s 21 fees in a case for hardship, to have his student loans 22 declared to be a hardship, and therefore, dischargeable. 23 It’s either a case of over-lawyering, or a case 24 where the lawyer was not familiar with bankruptcy law or bankruptcy trials, because there’s no way that a 25 two-hour trial or three-hour trial, should require preparation time and trial time that totals $125,000. 26 27 Tr. of September 10, 2012 Hr’g, 30:23-25, 31:1-6. 9 28 Although it allowed the debtor to recover filing fees and (continued...)
8 1 The debtor timely appealed the Cost and Fee Order. 2 JURISDICTION 3 The bankruptcy court had jurisdiction under 28 U.S.C. 4 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. 5 § 158. 6 ISSUES 7 (1) Did the bankruptcy court abuse its discretion in 8 allowing $10.82 in costs for service of process only? 9 (2) Did the bankruptcy court abuse its discretion in 10 denying the Attorney Fee Motion in its entirety? 11 STANDARDS OF REVIEW 12 We review a bankruptcy court’s refusal to award attorney’s 13 fees for an abuse of discretion. Renfrow v. Draper, 232 F.3d 14 688, 693 (9th Cir. 2000); Dinan v. Fry (In re Dinan), 448 B.R. 15 775, 783 (9th Cir. BAP 2011). We also review a bankruptcy 16 court’s allowance or disallowance of costs for abuse of 17 discretion. Kalitta Air LLC v. Cent. Tex. Airborne Sys. Inc., 18 --- F.3d ---, 2013 WL 6670795 at *2 (9th Cir. 2013); Young v. 19 Aviva Gelato, Inc. (In re Aviva Gelato, Inc.), 94 B.R. 622, 624 20 (9th Cir. BAP 1988), aff’d, 930 F.2d 26 (9th Cir. 1991)(table). 21 We also review its rulings regarding the local rules for abuse of 22 discretion. Kalitta Air LLC, 2013 WL 6670795 at *2. 23 We apply a two-part test to determine objectively whether 24 the bankruptcy court abused its discretion. United States v. 25 26 9 (...continued) 27 costs for service of process, the bankruptcy court noted that the debtor was not required to pay the filing fee for the adversary 28 proceeding. It therefore determined the amount for filing fees to be zero.
9 1 Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009)(en banc). First, 2 we “determine de novo whether the bankruptcy court identified the 3 correct legal rule to apply to the relief requested.” Id. 4 Second, we examine the bankruptcy court’s factual findings under 5 the clearly erroneous standard. Id. at 1262 & n.20. A 6 bankruptcy court abuses its discretion if it applied the wrong 7 legal standard or its factual findings were illogical, 8 implausible or without support in the record. TrafficSchool.com, 9 Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). 10 We review de novo the bankruptcy court’s decision to deny 11 attorney’s fees under state law. See Dinan, 448 B.R. at 783 12 (citing Bertola v. N. Wis. Produce Co., Inc. (In re Bertola), 317 13 B.R. 95, 99 (9th Cir. BAP 2004)). 14 We may affirm on any ground supported by the record. Shanks 15 v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008). 16 DISCUSSION 17 A. Cost Bill 18 Rule 7054(b) provides in relevant part: “The court may allow 19 costs to the prevailing party except when a statute of the United 20 States or these rules otherwise provides.” Rule 7054(b) arises 21 from Civil Rule 54(d)(1), which provides in relevant part: 22 “Unless a federal statute, these rules, or a court order provides 23 otherwise, costs – other than attorney’s fees – should be allowed 24 to the prevailing party.” 25 Civil Rule 54(d)(1) appears mandatory in nature, as it 26 states that costs “should be allowed,” unless it or federal 27 statute or rule otherwise directs. See 10 Collier on Bankruptcy 28 ¶ 7054.05 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. rev.
10 1 2013)(“[A]lthough ultimately leaving the question of costs to the 2 discretion of the court, [Civil Rule 54(d)] provides that the 3 court ‘should’ allow costs to the prevailing party unless it, a 4 federal statute or a Civil Rule otherwise directs.”)(hereinafter 5 referred to as “Collier on Bankruptcy”). Nonetheless, Civil Rule 6 54(d)(1) generally grants a federal court discretion to refuse to 7 tax costs in the prevailing party’s favor. Crawford Fitting Co. 8 v. J.T. Gibbons, Inc., 482 U.S. 437, 442 (1987). 9 On the other hand, Rule 7054(b) is permissive in nature, as 10 it states that the bankruptcy court “may allow costs.” (Emphasis 11 added.) See In re Aviva Gelato, Inc., 94 B.R. at 624 (“Although 12 [Civil] Rule 54(d) appears to be more mandatory in nature than 13 [Rule] 7054(b), the Ninth Circuit has consistently recognized 14 that the trial court has discretion as to what costs to 15 allow.”)(citation omitted). See also 10 Collier on Bankruptcy 16 ¶ 7054.05. Although it has broad discretion in determining 17 whether to deny costs, the bankruptcy court must state its 18 reasons for denying them. In re Aviva Gelato, Inc., 94 B.R. at 19 624. 20 The debtor contends that the bankruptcy court erred in 21 limiting recoverable costs to those listed in the Court Manual 22 pursuant to LBR 7054-1(d). Instead, according to the debtor, the 23 bankruptcy court should have referenced 28 U.S.C. § 1920, which 24 permits recovery of reasonable out-of-pocket expenses typically 25 charged to clients by their attorneys. 26 We decline to consider the debtor’s argument regarding 28 27 U.S.C. § 1920, as he did not raise it before the bankruptcy 28
11 1 court.10 See Enewally v. Wash. Mut. Bank (In re Enewally), 368 2 F.3d 1165, 1173 (9th Cir. 2004)(“As a general rule, issues not 3 presented to the trial court cannot generally be raised for the 4 first time on appeal,” unless one of the four recognized 5 exceptions apply.)(quoting United States v. Flores-Payon, 942 6 F.2d 556, 558 (9th Cir. 1991)(internal quotation marks omitted)). 7 As for the bankruptcy court’s reliance on LBR 7054-1, we 8 conclude there was no error. The general rule is that the 9 bankruptcy court’s authority to tax a cost must come from “a 10 federal statute or rule of court, or in the custom, practice and 11 usage applicable in a particular district, and in some instances 12 by the exercise of the court’s general equitable discretion.” 10 13 Collier on Bankruptcy ¶ 7054.05. According to LBR 1001-1(b)(2), 14 the Local Bankruptcy Rules “apply to all bankruptcy cases and 15 proceedings . . . pending in the United States Bankruptcy Court 16 for the Central District of California.” 17 Here, the bankruptcy court’s authority to allow or deny 18 costs arose from the local rules of its district. It therefore 19 could allow such costs within the parameters of the local rules – 20 specifically, those costs listed in the Court Manual pursuant to 21 LBR 7054-1(d). 22 LBR 7054-1 provides, in relevant part: 23 a. Who May Be Awarded Costs. When costs are allowed by the FRBP or other applicable law, the court may 24 25 10 Moreover, considering 28 U.S.C. § 1920, the Ninth 26 Circuit recently held that “the better course is to hew closely 27 to the statute’s language, scheme and context, recognizing that § 1920 is narrow, limited and modest in scope.” Kalitta Air LLC, - 28 --- F.3d ----, 2013 WL 6670795 at *3 (citing Taniguchi v. Kan Pacific Saipan, Ltd., 132 S.Ct. 1997, 2006 (2012)).
12 1 award costs to the prevailing party. No costs will be allowed unless a party qualifies as, or is 2 determined by the court to be, the prevailing party under this rule. Counsel are advised to 3 review 28 U.S.C. § 1927 regarding counsel’s liability for excessive costs. 4 . . . . 5 d. Items Taxable as Costs. A list of the items taxable as costs is contained in the Court Manual 6 available from the clerk and on the court’s website. 7 . . . . 8 Section 2.8 of the Court Manual for the United States 9 Bankruptcy Court for the Central District of California provides, 10 in relevant part: 11 2.8 Miscellaneous 12 . . . 13 (d) Bill of Costs [LBR 7054-1]. 14 A bill of costs filed electronically or non- electronically must comply with LBR 7054-1. 15 The prevailing party who is awarded costs must file and serve a bill of costs not later 16 than 30 days after entry of judgment. Each item claimed must be set forth separately in 17 the bill of costs. 18 (e) Items Taxable as Costs. Pursuant to LBR 7054-1, the following items are taxable as 19 costs: (1) Filing Fees. The clerk’s filing fees; 20 (2) Fees for Service of Process. Fees for service of process (whether served by 21 the United States Marshal or in any other manner authorized by FRBP 7004); 22 (3) United States Marshal’s Fees. Fees of the United States Marshal collected and taxed 23 as costs pursuant to 28 U.S.C. § 1921; 24 (4) Clerk’s Fees. Fees for certification of documents necessary for preparation for 25 a hearing or trial; and (5) Transcripts and Digital Recordings. The 26 costs of the original and one copy of all or any part of a trial transcript, 27 daily transcript, or a transcript of matters occurring before or after trial, 28 if requested by the court or prepared pursuant to stipulation. The cost of a
13 1 digital recording, if requested by the court or obtained pursuant to 2 stipulation. (6) Depositions. Costs incurred in 3 connection with taking depositions, including: 4 . . . (7) Witness Fees. Fees paid to witnesses 5 . . . (8) Interpreter’s and Translator’s Fees. 6 Fees paid to interpreters and translators . . . 7 (9) Docket Fees. Docket fees as provided by 28 U.S.C. § 1923. 8 (10) Certification, Exemplication, and Reproduction of Documents. Document 9 preparation costs, including: (A) The cost of copies of an exhibit 10 attached to a document necessarily filed and served; 11 (B) The cost of copies of a document admitted into evidence when the 12 original is not available or the copy is substituted for the 13 original at the request of an opposing party; 14 (C) Fees for an official certification of proof respecting the non- 15 existence of a document or record; (D) Patent Office charges for the 16 patent file wrappers and prior art patents necessary to the 17 prosecution or defense of a proceeding involving a patent; 18 (E) Notary fees incurred in notarizing a document when the cost of the 19 document is taxable; and (F) Fees for necessary certification or 20 exemplication of any document. . . . 21 (12) Other Costs. Upon order of the court, additional items, including the 22 following, may be taxed as costs: (A) Summaries, computations, polls, 23 surveys, statistical comparisons, maps, charts, diagrams, and other 24 visual aids reasonably necessary to assist the court or jury in 25 understanding the issues at the trial; 26 (B) Photographs, if admitted in evidence or attached to documents 27 necessarily filed and served upon the opposing party; and 28 (C) The cost of models if ordered by the court in advance of or during trial. . . . .
14 1 Reviewing the Cost Bill Itemization, we conclude that only 2 one of the requested costs – the certified mail postage for 3 service of the alias summons and notice of the status conference 4 – was recoverable under LBR 7054-1(d). 5 Ms. Fitzpatrick listed costs for printing status reports, 6 summons, orders, notices, responses to interrogatories, 7 stipulations, briefs, declarations and exhibit lists, none of 8 which qualify as document preparation costs under Section 9 2.8(e)(10) of the Court Manual. She also listed costs for 10 numerous faxes from the debtor, explaining that these faxes were 11 “evidentiary documents.” Ms. Fitzpatrick failed to specify these 12 “evidentiary documents” and to explain their purpose. Given her 13 lack of explanation, we only can assume that she printed 14 documents and had documents faxed to her for her convenience or 15 her records. See, e.g., Fressell v. AT&T Tech., Inc., 103 F.R.D. 16 111, 116 (N.D. Ga. 1984)(denying successful defendant’s request 17 for photocopying charges “for the convenience, preparation, 18 research, or records of counsel” under 28 U.S.C. § 1920). 19 She also listed postage for the service of various 20 documents. Section 2.8(e)(2) of the Court Manual allows for the 21 recovery of postage fees for documents served in the manner 22 required by Rule 7004. Ms. Fitzpatrick included postage, not 23 only for the alias summons, but for scheduling orders, responses 24 to interrogatories, status reports, trial briefs and 25 stipulations. Rule 7004 only requires a particular manner of 26 service for the summons and complaints. See 10 Collier on 27 Bankruptcy ¶ 7004.01. The other postage costs are not covered 28 under Section 2.8(e)(2) of the Court Manual.
15 1 Ms. Fitzpatrick further listed various miscellaneous costs, 2 such as telephone charges, messenger services, transportation, 3 online software purchases, research and document retrieval 4 charges and fees for two attorneys. Again, none of these costs 5 are listed in Section 2.8(e) of the Court Manual. 6 Based on the foregoing, we conclude that the bankruptcy 7 court did not abuse its discretion in denying all but the service 8 costs requested in the Cost Bill. 9 B. Attorney’s Fee Motion11 10 11 11 The debtor challenges the bankruptcy court’s ruling on several grounds, which we’ve distilled down to two. 12 First, he argues that the bankruptcy court unfairly and 13 erroneously relied on Krasinski v. Goldstein (In re Goldstein), 2011 WL 3608243 (Bankr. D. Ariz. 2011), an unpublished decision. 14 According to the debtor, the bankruptcy court denied the Attorney Fee Motion based on the reasoning set forth in the Goldstein 15 decision. The debtor claims that he could not effectively refute 16 the reasoning in the Goldstein decision because he could not obtain a copy of the Goldstein decision. He further asserts that 17 Goldstein was legally and factually distinguishable from the 18 underlying matter. Contrary to the debtor’s assertion, the bankruptcy court did 19 not rely on the Goldstein decision in denying the Attorney Fee Motion. Because Key Bank cited the Goldstein decision, the 20 bankruptcy court believed it “[was] going to have to read this 21 Goldstein opinion.” Tr. of September 10, 2012 Hr’g, 27:16-17. Upon reading it, the bankruptcy court acknowledged that “in this 22 case, we have a little slightly different situation [than that in the Goldstein decision].” Tr. of September 10, 2012 Hr’g, 34:1- 23 2. The bankruptcy court took care to distinguish the instant 24 matter from Goldstein, stressing that Key Bank did not “sue [the debtor]. It was [the debtor] who sought to have the debt 25 declared [dischargeable]. There was no dispute under the 26 contract as to whether he owed any sums or not. The dispute was whether this should be discharged as a hardship debt or not.” 27 Tr. of September 10, 2012 Hr’g, 34:3-8. Second, the debtor contends that the bankruptcy court should 28 have allowed his attorney’s fees in full unless Key Bank (continued...)
16 1 On appeal, the debtor mainly contends that the bankruptcy 2 court erred in denying the Attorney Fee Motion by ignoring Civil 3 Code § 1717.12 He insists that Civil Code § 1717 applies.13 4 11 5 (...continued) demonstrated, through evidence, that they were unreasonable. 6 However, the bankruptcy court would not get to reasonableness, 7 unless it first determined that there was a statutory or contractual basis for an award of fees. 8 12 The debtor also relies on Civil Code § 1021 in support 9 of his argument. Because the debtor did not raise Civil Code § 10 1021 as an issue before the bankruptcy court, we decline to address it here. See Enewally, 368 F.3d at 1173. 11 13 The debtor also claims that the bankruptcy court 12 acknowledged the applicability of Civil Code § 1717 but 13 misapplied it. At the hearing, the bankruptcy court mentioned that the 14 debtor relied on Civil Code § 1717. It also stated that it had “the California statute that says, okay, what’s good for the 15 goose is good for the gander, so to speak.” Tr. of September 12, 16 2012 Hr’g, 32:18-20. Given the bankruptcy court’s reasoning as stated on the 17 record at the hearing, we do not believe that the bankruptcy 18 court applied Civil Code § 1717 at all. The bankruptcy court denied the Attorney Fee Motion because the legal basis for 19 recovery of attorney’s fees, the fee provision, did not apply as the adversary proceeding arose from a federal claim (i.e., 20 § 523(a)(8)), not a contract claim. 21 Moreover, California courts uniformly have ruled that Civil Code § 1717 is to be narrowly applied, and is available to a 22 party only if the dispute involves litigation of a contract claim. Santisas v. Goodin, 17 Cal. 4th 599 (Cal. 1998) 23 (“[S]ection 1717 applies only to attorney fees incurred to 24 litigate contract claims.”). The BAP previously has relied upon Santisas on this specific issue. Redwood Theaters, Inc. v. 25 Davison (In re Davison), 289 B.R. 716, 723 (9th Cir. BAP 26 2003)(“[W]e will follow [the Santisas] holding and narrowly apply [Civil Code] § 1717 and approve attorney’s fees only if the 27 action involves a contract claim.”). Based on California controlling law and BAP authority, we have held that Civil Code 28 § 1717 only can be applied to attorney’s fees disputes based on (continued...)
17 1 We disagree. There simply is no statutory or contractual 2 basis allowing the debtor to recover his attorney’s fees here. 3 Ordinarily, under the American Rule, a prevailing party may not 4 recover attorney’s fees except as provided for by contract or by 5 statute. Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec., 6 Co., 549 U.S. 443, 448 (2007); Dinan, 448 B.R. at 784. 7 No general right to recover attorney’s fees exists under the 8 Bankruptcy Code. Dinan, 448 B.R. at 784. Also, nothing in 9 § 523(a)(8) authorizes a debtor to recover attorney’s fees when 10 he or she prevails in discharging his or her student loan debt.14 11 Interestingly, Ohio law has established that a contractual 12 provision allowing for the recovery of attorney’s fees to enforce 13 a defaulted debt obligation is unenforceable as against public 14 15 13 16 (...continued) contract claims. Hamilton v. Charalambous (In re Charalambous), 17 2013 WL 3369299 at *5 (9th Cir. BAP 2013). We follow that 18 holding here. 14 19 In contrast, § 523(d) provides: 20 If a creditor requests a determination of 21 dischargeability of a consumer debt under subsection [523(a)(2)], and such debt is discharged, the court 22 shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney’s fee for, the 23 proceeding if the court finds that the position of the 24 creditor was not substantially justified, except that the court shall not award such costs and fees if 25 special circumstances would make the award unjust. 26 Accordingly, it appears that Congress considered when it 27 would be appropriate to award costs and attorney’s fees to a prevailing debtor in dischargeability litigation and did not 28 expressly allow for an award of fees to the prevailing debtor in § 523(a)(8) adversary proceedings.
18 1 policy.15 See Simons v. Higher Educ. Assistance Found., 119 B.R. 2 589, 593-94 (Bankr. S.D. Ohio 1990)(denying a student loan 3 lender’s request for attorney’s fees incurred in litigating a 4 debtor’s § 523(a)(8) claim because, in Ohio, “stipulations in 5 promissory notes providing for the payment of attorney’s fees, 6 arising in connection with the failure to pay the principal and 7 interest balance at maturity, are contrary to public policy and 8 are void,” and “[n]o provision exists for the granting of 9 attorneys’ fees in proceedings brought pursuant to 11 U.S.C. 10 § 523(a)(8)(B).”)(citation omitted). See also McLeod v. 11 Diversified Collection Servs. (In re McLeod), 176 B.R. 455, 458 12 (Bankr. N.D. Ohio 1994)(quoting Simons, 119 B.R. at 593-94). 13 14 15 According to the Ohio Supreme Court, although Ohio generally follows the American Rule, attorney’s fees “may be 15 awarded when a statute or an enforceable contract specifically 16 provides for the losing party to pay the prevailing party’s attorney fees . . . or when the prevailing party demonstrates bad 17 faith on the part of the unsuccessful litigant . . . .” Wilborn 18 v. Bank One Corp., 121 Ohio St. 3d 546, 548 (Ohio 2009)(citations omitted). Contracts providing for payment of attorney’s fees 19 “are generally enforceable and not void as against public policy,” so long as the parties to the contract entered into it 20 freely (i.e., equal bargaining power was present and no indicia 21 of compulsion or duress were present) and the fees awarded were fair, just and reasonable. Id. at 548-49. 22 However, “contracts for the payment of attorney fees upon the default of a debt obligation are void and unenforceable.” 23 Id. at 549. “‘It is the settled law of this state that 24 stipulations incorporated in promissory notes for the payment of attorney fees, if the principal and interest be not paid at 25 maturity, are contrary to public policy and void.’” Id. (quoting 26 Leavans v. Ohio Nat’l Bank, 50 Ohio St. 591 (Ohio 1893)(addressing foreclosure actions)). That is, “a provision in 27 a mortgage or promissory note that awards attorney fees upon the enforcement of the lender’s rights when the borrower defaults, 28 such as a foreclosure action that has proceeded to judgment, is unenforceable.” Id. at 550.
19 1 Moreover, as the bankruptcy court pointed out, the fee 2 provision did not come into play here. The fee provision 3 specifically states that Key Bank has the right to recover 4 attorney’s fees incurred in enforcing the promissory note’s 5 terms. However, the debtor had initiated the adversary 6 proceeding under § 523(a)(8) to discharge the student loan debt, 7 not to contest its terms or amount. As the bankruptcy court 8 explained, the adversary proceeding was not “a contract dispute 9 arising out of the borrowing on the [promissory] note,” but “an 10 action brought by the Debtor to have the debt declared 11 [discharged].” Tr. of September 10, 2012 Hr’g, 34:12-13, 34:11- 12 12. 13 Neither federal nor Ohio or California law authorizes the 14 debtor to recover the attorney’s fees he incurred in discharging 15 his student loan debt under § 523(a)(8). Moreover, the fee 16 provision did not come into effect as the thrust of the adversary 17 proceeding was to discharge a student loan debt, not to enforce 18 the promissory note’s terms. Because the debtor has no statutory 19 or contractual basis on which to recover attorney’s fees, the 20 bankruptcy court did not abuse its discretion in denying the 21 Attorney Fee Motion. 22 CONCLUSION 23 For the foregoing reasons, we conclude that the bankruptcy 24 court did not abuse its discretion in allowing recovery of only 25 the debtor’s service costs and in denying recovery of the 26 debtor’s attorney’s fees. We AFFIRM. 27 28