Appeal from the United States Bankruptcy Court for the Eastern District of California Honorable Christopher Klein, Bankruptcy Judge, Presiding. Bk. No. 09-31861
The opinion of the court was delivered by: Dunn, Bankruptcy Judge:
U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on February 17, 2011 at Sacramento, California
Before: DUNN, HOLLOWELL, and KIRSCHER, Bankruptcy Judges.
Following trial of an adversary proceeding ("Adversary Proceeding"), the bankruptcy court excepted from discharge Charlie Y., Inc.'s ("Appellant") claim against Robert J. Carey ("Debtor") for breach of a guarantee obligation in circumstances in which Appellant alleged that the Debtor had made written misrepresentations regarding his financial condition. After a judgment was entered in Appellant's favor for $35,000, Appellant moved for an award of attorney's fees in the amount of $43,155.25. Debtor opposed the motion. After a hearing, the bankruptcy court denied Appellant's motion for attorney's fees based on its conclusion that Appellant's complaint in the Adversary Proceeding did not state a claim for attorney's fees consistent with the requirements of Federal Rule of Bankruptcy Procedure 7008(b).*fn1 For the reasons set forth below, we VACATE the bankruptcy court's dismissal of Appellant's Fee Motion and REMAND to the bankruptcy court to determine an appropriate award of attorney's fees in Appellant's favor.
This appeal results from collection efforts concerning defaults on a restaurant purchase obligation. In 2003, Appellant sold its restaurant business to SGBD Restaurant I LLC, a Delaware limited liability company ("SGBD"). The unpaid balance of the purchase price was to be paid pursuant to a promissory note ("Promissory Note") in the principal amount of $90,000, bearing interest at 8% per annum, signed on behalf of SGBD by David A. Zebny ("Zebny") and Virginia Ann George ("George") as its Member Managers. The Promissory Note provided that,
If any action be instituted on this Promissory Note, the undersigned agree to pay such sums as the Court may fix as attorney's fees, costs and expenses associated therewith.
Payment of the Promissory Note was supported by the personal guarantees ("Guarantee") "jointly and severally, unconditionally and irrevocably" of Zebny and George. The Guarantee provided that,
The undersigned jointly and severally agree to pay on demand . . . all expenses of collecting and enforcing this guarantee including, without limitation, expenses and fees of legal counsel, court costs and the cost of appellate proceedings.
In February 2005, the Debtor replaced George as a personal guarantor of payment of the Promissory Note. The Debtor's acceptance of guarantee obligations was documented by a First Addendum to Promissory Note and Personal Guaranty (the "Replacement Guarantee"), dated February 18, 2005, and signed by the Debtor "as an Individual and Member of SGBD . . . and Guarantor." Appellant and SGBD agreed in the Replacement Guarantee that the Promissory Note and Guarantee would "remain in full effect" subject to the modifications set forth in the Replacement Guarantee. The Replacement Guarantee further provided that,
[The Debtor and Zebny] agree to act as responsible parties for all liability under the [Promissory] Note as members of [SGBD] and under the [Guarantee] as individuals. [The Debtor] has been a member of [SGBD] since its inception.
Following a default by SGBD of its payment obligations under the Promissory Note, Appellant began collection efforts against SGBD and Zebny, resulting in collection of part of the balance owed on the Promissory Note. However, by late 2008, Zebny ceased communicating with Appellant, and Appellant received notice that SGBD had filed for bankruptcy protection. At that point, Appellant contacted the Debtor to collect under the Replacement Guarantee, without success. On or about May 6, 2009, Appellant filed a complaint in Marin County, California Superior Court against the Debtor for collection of the outstanding balance under the Promissory Note. The Debtor filed his chapter 7 bankruptcy petition on or about June 10, 2009.
On or about August 17, 2009, Appellant filed its complaint ("Complaint") to except the Debtor's debt to Appellant under the Replacement Guarantee from discharge pursuant to § 523(a)(2)(B). In the preamble to the Complaint, Appellant stated:
Plaintiff requests entry of a non-dischargeable judgment against the Debtor for the full amount of any debt (including, but not limited to principal, interest, costs, and attorney's fees) determined to be owing to Plaintiff by the Debtor and determined to be non-dischargeable pursuant to 11 U.S.C. § 523. (Emphasis added.)
In Paragraph 1 of the Complaint, Appellant alleged that,
Plaintiff received a promissory note guaranteed by Defendant, and on May 6, 2009, Plaintiff filed a complaint in Marin County Superior Court to collect from ...