Opinion
Case No. 3:14-bk-4766-PMG Adv. No. 3:15-ap-393-PMG
03-08-2018
In re: John Riley O'Steen, d/b/a Riley O'Steen Dairy, Ashley Koon O'Steen, Debtors. Lafayette State Bank, Plaintiff, v. John Riley O'Steen, d/b/a Riley O'Steen Dairy, Ashley Koon O'Steen, Defendants.
Chapter 7
ORDER ON AMENDED MOTION TO AWARD ATTORNEY'S FEES AND COSTS PURSUANT TO CONTRACT TERMS
THIS CASE came before the Court for hearing to consider the Amended Motion to Award Attorney's Fees and Costs Pursuant to Contract Terms filed by the Debtors, John Riley O'Steen and Ashley Koon O'Steen. (Doc. 83).
Lafayette State Bank (the Bank) commenced this proceeding by filing a Complaint Objecting to the Entry of the Debtors' Discharge and to Determine Dischargeability of Debt. After a two-day trial, the Court entered a Final Judgment in favor of the Debtors, and a Discharge of Joint Debtors was entered in their main bankruptcy case.
The Debtors now assert that they incurred attorney's fees and costs of $45,030.14 in their defense of the action, and seek to recover that amount from the Bank.
Generally, attorney's fees may be awarded to a prevailing debtor in a dischargeability proceeding, if the fees were allowed pursuant to an underlying contract and §57.105(7) of the Florida Statutes. Additionally, costs may be awarded to a prevailing party in a bankruptcy proceeding under Rule 7054(b)(1) of the Federal Rules of Bankruptcy Procedure.
The decision to award attorney's fees and costs to a prevailing party, however, is within the discretion of the Bankruptcy Court. In this case, the Bank held a legitimate claim to deny the Debtors' discharge based on the Debtors' conduct in their bankruptcy case. Under the circumstances of this proceeding, the Debtors' Motion for Attorney's Fees and Costs should be denied.
A. Fees under §57.105(7) of the Florida Statutes
The Eleventh Circuit Court of Appeals has held that a prevailing debtor in a dischargeability action may recover the attorney's fees that he incurred in the proceeding, if an award of fees is authorized under an enforceable contract. In re Martinez, 416 F.3d 1286 (11 Cir. 2005). "In Martinez, the 11 Circuit ruled that a debtor successful in defending a dischargeability action may be entitled to an award of attorney's fees under Fla. Stat. §57.105." In re Allen, 2012 WL 1999532, at 2 (Bankr. S.D. Fla.).
Section 57.105(7) of the Florida Statutes, which is known as Florida's "attorney's fee reciprocity statute," provides:
57.105. Attorney's fee; sanctions for raising unsupported claims or defenses; exceptions; service of motions; damages for delay of litigationFla. Stat. §57.105(7). The purpose of the statute is to provide mutuality of the attorney's fee remedy in cases based on a contract, and to "level the playing field" in contract cases between parties of unequal resources. Port-A-Weld, Inc. v. Padula & Wadsworth Construction, Inc., 984 So.2d 564, 570 (Fla. 4 DCA 2008).
. . .
(7) If a contract contains a provision allowing attorney's fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney's fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract.
Section 57.105(7) "is clearly discretionary providing that the court 'may' allow attorney fees to the prevailing party in a contractual dispute." In re Estrada, 2004 WL 3202201, at 2 (Bankr. M.D. Fla.). The section "leave[s] the determination as to whether to award attorney's fees to the court's discretion." In re Bower, 2010 WL 3959614, at 7 (Bankr. M.D. Fla.).
B. Costs under the Rule 7054(b)(1) of the Federal Rules of Bankruptcy Procedure
With respect to costs, Rule 54(d) of the Federal Rules of Civil Procedure, as cited in the Debtors' Motion, is not a subsection of Rule 54 that applies in bankruptcy adversary proceedings. See F.R.Bankr.P. 7054(a)("Rule 54(a)-(c) FR Civ P applies in adversary proceedings.").
Rule 7054(b)(1) of the Federal Rules of Bankruptcy Procedure applies in bankruptcy proceedings, however, and provides that the Court "may allow costs to the prevailing party except when a statute of the United States or these rules otherwise provides." F.R.Bankr.P. 7054(b)(1).
In discussing Bankruptcy Rule 7054(b)(1), the Court in In re Whitaker, 2017 WL 354314 (Bankr. D.N.Mex.) recently stated:
An award of costs under this rule is discretionary. See In re Borges, 2014 WL 1364956, *1 (10 Cir. BAP Apr. 8, 2014)(unpublished)(observing that "unlike civil cases, there is no presumption for an award of costs to the prevailing party" and stating further that "Bankruptcy courts have broad discretion when faced with a motion for costs . . .").In re Whitaker, 2017 WL 354314, at 11. See also In re Ruhland, 492 B.R. 92, 95 (Bankr. D. Mass. 2013)(It is "well-established that the allowance of costs under Rule 7054(b) is within the discretion of the Bankruptcy Court.")(quoting In re O'Callaghan, 304 B.R. 887, 889 (Bankr. M.D. Fla. 2003)).
C. The Debtors' Motion for Attorney's Fees and Costs
In this case, the Debtors seek an award of the attorney's fees and costs that they incurred in defending a Complaint filed by the Bank to deny their discharge and to determine the dischargeability of a debt owed to the Bank.
The Debtors assert that the Bank's Complaint was based on a number of contracts between the Debtors as borrowers and the Bank as lender. As an example, they attached a Promissory Note to their Motion, and the attached Note included the following provision for attorney's fees and expenses:
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender the amount of these costs and expenses, which includes, subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction) and appeals, if not prohibited by applicable law. Borrower also will pay any court costs, in addition to all other sums provided by law.(Exhibit 2 to Doc. 83, Promissory Note, p. 2). According to the Debtors, this is the type of contractual allowance for attorney's fees that is subject to the reciprocity provision of §57.105(7).
Following a two-day trial on the Bank's Complaint, the Court entered a Final Judgment in favor of the Debtors, and a Discharge of Joint Debtors was entered in their main bankruptcy case.
Based on the contract and Final Judgment, therefore, the Debtors contend in their Motion for Attorney's Fees and Costs that (1) they were the prevailing parties in the adversary proceeding, (2) that they are entitled to an award of attorney's fees under their contract with the Bank and the reciprocity provisions of §57.105(7) of the Florida Statutes, and (3) that they are entitled to an award of costs under Rule 7054(b)(1) of the Federal Rules of Bankruptcy Procedure. (Doc. 83).
D. Denial of the Debtors' Motion
The Court has considered the record, and determines that the Debtors' request for an award of attorney's fees and costs should be denied.
Both parties presented considerable written evidence and oral testimony at the two-day trial in the adversary proceeding. Although the Debtors ultimately obtained their discharge, the judgment in the Debtors' favor was based on the well-settled principles that (1) an exception to discharge should be construed in favor of the debtor, and that (2) the objecting party bears the burden of proof. (Doc. 76).
At trial, the totality of the evidence showed that the Bank did not file the adversary proceeding in bad faith or without a legitimate claim under §727 and §523 of the Bankruptcy Code. See In re Bower, 2010 WL 3959614, at 7; and In re Estrada, 2004 WL 3202201, at 2.
It appeared from the evidence, for example, that the Debtors' livestock and proceeds were significantly reduced during the Debtors' post-petition operation of their dairy. In response to the evidence, the Debtors did not dispute the decrease in the Bank's collateral, but only explained their view that the reduction was consistent with their prepetition course of business with the Bank. (Doc. 76, pp. 3-8).
Additionally, the evidence showed a number of inaccurate or misleading representations made by the Debtors in their bankruptcy papers. The inaccuracies in their schedules included (1) the listing of certain equipment as belonging to the Debtors, even though it was leased or encumbered by third parties, (2) the omission of certain real property located in Clay County, Georgia, even though Mr. O'Steen owned the property, and (3) the failure to properly disclose two substantial restitution claims owed by Mrs. O'Steen. (Doc. 76, pp. 8-14).
In other words, the Final Judgment in favor of the Debtors was based on a balancing of all of the evidence presented by the parties, including evidence that assets of the estate had been diminished during the bankruptcy case, and evidence that the Debtors' bankruptcy papers contained materially inaccurate information.
Under these circumstances, where a legitimate basis existed for the causes of action under §727 and §523 of the Bankruptcy Code, it "would be unjust" to require the Bank to pay the Debtors' attorney's fees and costs. In re Estrada, 2004 WL 3202201, at 2. Instead, in the absence of bad faith or overreaching by the Bank in filing the Complaint, the Court finds that the Debtors and the Bank should each bear their own costs and attorney's fees. In re Bower, 2010 WL 3959614, at 7.
Accordingly:
IT IS ORDERED that the Debtors' Amended Motion to Award Attorney's Fees and Costs Pursuant to Contract Terms is denied.
DATED this 8 day of March, 2018.
BY THE COURT
Paul M. Glenn
PAUL M. GLENN
United States Bankruptcy Judge