Summary
concluding that a debt owed to a creditor, which was previously determined to be nondischargeable, may include nondischargeable attorney fees where the creditor had a valid contractual right to attorney fees under state law
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Case No. 14-30647 Adv. No. 14-3078
05-23-2018
In re: ROBERT L. GROVE JR. Debtor RONALD P. SLATES, ET AL., Plaintiffs v. ROBERT L. GROVE, JR., Defendant
Copies to: Dianne F. Marx (Counsel for the Plaintiffs) John Paul Rieser (Counsel for the Plaintiffs) Brian E. Lusardi (Counsel for the Defendant)
Chapter 7
Decision Granting Plaintiffs' Motion for Summary Judgment
On March 22, 2018 this court granted the motion for sanctions under Federal Rule of Bankruptcy Procedure 7037 ("Sanctions Order"), filed by plaintiffs Ronald P. Slates, and Ronald P. Slates P.C. (collectively, "Slates"). (Doc. 45). The Sanctions Order decreed that the debt owed by Grove to Slates was non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(2)(B), (a)(4), and (a)(6). With non-dischargeability having been established, Slates subsequently filed a motion for summary judgment to determine damages. ("Motion") (Doc. 50). Grove has not responded to this motion. The only legal question before the court is whether Slates is entitled to reimbursement of attorney fees.
Jurisdiction
This court has jurisdiction pursuant to 28 U.S.C. § 1334, this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) and this court has constitutional authority to enter a final judgment.
Summary Judgment Standard
Federal Rule of Civil Procedure 56(a), made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7056, sets forth the standard to address the Motion. The court shall grant summary judgment if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "To meet such a burden on a motion for summary judgment, the moving party may 'point[] out to the district court that there is an absence of evidence to support the nonmoving party's case.'" Connolly v. Deutsche Bank Nat'l Trust Co., 581 Fed. App'x 500, 503 (6th Cir. 2014) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).
Findings of Fact
The court finds that there is no genuine dispute as to the following facts. In 2013, Slates and Groves entered into the Stipulation Re Entry of Judgment and Stay of Execution. ("Stipulation") (Doc. 51, Ex. A). Under the terms of the Stipulation, Groves agreed to pay Slates $160,000 at 5% interest, until paid in full. (Stipulation ¶9). A total of $39,601.95 in interest accrued on this debt since April 1, 2013. (Affidavit of Ronald P. Slates, Doc. 51, Ex. A ¶¶11, 13). And a total of $164,719.78 in payments were made on account of this debt. (Slates aff. ¶¶10, 12). Thus, of the original $160,000 owed under the Stipulation, $34,882.17 remains owing.
The Stipulation also contains a fee-shifting provision which, if valid, would make Groves responsible for "all actual attorney's fees . . . undertaken to effect collection of the amounts owing . . . ." (Stipulation ¶16). Slates incurred $68,291.20 in legal fees in his effort to collect on the debt, (Slates aff. ¶11.), which the court finds represents a reasonable, necessary, and customary fee for the work completed. (Affidavit of Walter Reynolds, Doc. 51, Ex. B at ¶5).
Analysis
The American Rule requires litigants to bear their own litigation costs, "absent statute or enforceable contract." Alyeska Pipeline Serv. Co. v. Wilderness Soc., 421 U.S. 240, 257 (1975) (citation omitted). In certain dischargeability proceedings, the Bankruptcy Code allows victorious debtors to shift their attorney fees to the creditor; however, no reciprocal remedy is provided to victorious creditors. 11 U.S.C. § 523(d). However, the Supreme Court has found that non-bankruptcy law can provide for such fee shifting.
In Cohen v. de la Cruz, 523 U.S. 213, 215 (1998), the plaintiffs brought an adversary proceeding against a debtor arguing that the debt owed to them were non-dischargeable by reason of actual fraud, and sought treble damages and attorney fees authorized by state law. Id. The bankruptcy court awarded the treble damages and attorney fees and held that the entire amount was non-dischargeable. The Supreme Court upheld the award and finding of non-dischargeability holding that "[o]nce it is established that specific money or property has been obtained by fraud . . . 'any debt' arising therefrom is excepted from discharge.' Id. at 218.
In Martin v. Bank of Germantown (In re Martin), the Sixth Circuit held that in a non-dischargeability proceeding "creditors remain entitled to attorneys' fees, costs and expenses if they have a contractual right to such fees valid under state law." Official Comm. of Unsecured Creditors v. Dow Corning Corp. (In re Dow Corning Corp.), 456 F.3d 668, 683 (6th Cir. 2006) (citing Martin, 761 F.2d 1163, 1167 (6th Cir. 1985)).
In Paragraph 28 of the Stipulation the parties agreed that stipulation shall be interpreted under the laws of California. California Code of Civil Procedure § 1021 provides that "[e]xcept as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties . . . ." Charlie Y., Inc. v. Carey (In re Carey), 446 B.R. 384, 391 (B.A.P. 9th Cir. 2011). California courts have interpreted this section to mean that while California law generally requires parties to bear their own attorney fees, this burden can be shifted if there is "a statute or agreement that provides otherwise." Aozora Bank, Ltd. v. 1333 N. California Blvd., 15 Cal. Rptr. 3d 340, 341 (Cal. Ct. App. 2004). Stated more broadly, "[u]nder California law, contractual attorneys' fee provisions are generally enforceable." Port of Stockton v. W. Bulk Carrier KS, 371 F.3d 1119, 1121 (9th Cir. 2004).
The parties agreed to just such a contractual attorney fee provision:
upon an uncured and incurable default hereunder and execution procedures pursuant hereto, Plaintiff shall be entitled to recover all actual attorney's fees and costs incurred for the filing and prosecution of all proceedings related thereto, and in addition, for the preparation of any required declaration, motion, or other documents of any type and/or for any appearance relating to an application for Entry of Judgment, Writ of Execution, ORAP or any other lawful action (with or without further recourse to the Courts) without limitation undertaken to effect collection of the amounts owing hereunder.(Stipulation ¶16). The broad fee-shifting language agreed to in the Stipulation—"Plaintiff shall be entitled to recover all actual attorney's fees and costs incurred for . . . any other lawful action (with or without further recourse to the Courts) without limitation undertaken to effect collection of the amounts owing hereunder."—is a valid contractual right under the laws of California that entitles Slates to attorney fees and costs undertaken to effect collection of the amounts owing under the Stipulation. This non-dischargeability proceeding is such an action, so Slates is entitled to attorney fees. Because these attorney fees are a debt arising from the fraud, they are non-dischargeable.
Conclusion
For the reasons stated, Plaintiffs' motion for summary judgment is granted. Groves' non-dischargeable debt to Plaintiffs' consists $34,882.17 still owing under the Stipulation and $68,291.20 in legal fees for a total of $103,173.37. The court will enter a separate order.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Guy R. Humphrey
United States Bankruptcy Judge Dated: May 23, 2018 Copies to: Dianne F. Marx (Counsel for the Plaintiffs) John Paul Rieser (Counsel for the Plaintiffs) Brian E. Lusardi (Counsel for the Defendant)