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Green Tree Servicing, LLC v. Giusto

United States District Court, N.D. California

June 20, 2016

GREEN TREE SERVICING LLC Appellant,
v.
JACQUELINE N. GIUSTO, Appellee.

          ORDER REVERSING BANKRUPTCY COURT'S AWARD OF ATTORNEYS' FEES AND COSTS

          HAYWOOD S. GILLIAM, JR., United States District Judge

         Creditor-Appellant Ditech Financial LLC's ("Appellant")[1] appeals the bankruptcy court's order granting Debtor-Appellee Jacqueline Giusto's ("Appellee") motion for attorneys' fees and costs. Dkt. No. 7 ("OB"). Appellee's motion was filed in the wake of Appellant's unsuccessful motion for relief from an automatic stay of debt collection under 11 U.S.C. § 362(d). Appellee filed an answering brief, Dkt. No. 9 ("AB"), and Appellant has filed a reply, Dkt. No. 9 ("RB").

         Under Federal Rule of Civil Procedure 78(b) and Bankruptcy Local Rule 8019-1, the Court finds that this matter is suitable for decision without oral argument. For the reasons set forth below, the order of the bankruptcy court is REVERSED.

         I. BANKRUPTCY PROCEEDINGS

         On October 21, 2013, Appellee filed a petition for bankruptcy under Chapter 13 of the United States Bankruptcy Code, 13 U.S.C. § 1321, et seq. Dkt. No. 4 ("ER"), Ex. 16 at 1.[2] In her petition, Appellee listed the real property located at 3971 Arbuckle Drive, San Jose, California as an asset. Id. Appellee had inherited the property, which was encumbered by a note ("Note") and deed of trust ("Deed") in favor of Bank of America, N.A. Id. at 2. Appellee stopped paying the debt after she filed for bankruptcy, as enforcement of the Note and Deed was automatically stayed under 11 U.S.C. § 362(a) upon initiation of the bankruptcy action. ER, Ex. 1 at 2-3.

         On December 30, 2013, Appellant, acting under a limited power of attorney authorized by Bank of America, filed a motion for relief from the automatic stay under 11 U.S.C. § 362(d) to foreclose upon the Deed. ER, Ex. 1 at 3. Appellee opposed the motion on the grounds that Appellant had not shown it had standing to enforce the Note or Deed. ER, Ex. 2. The bankruptcy court agreed and ordered Appellant to file a declaration that established a colorable claim of standing. ER, Ex. 6. When Appellant failed to file a proper declaration, the Bankruptcy Court denied its motion without prejudice. ER, Ex. 7. Appellant did not attempt to refile the motion.

         On November 3, 2015, Appellee moved for an award of attorneys' fees and costs incurred in connection with opposing Appellant's unsuccessful motion for relief from the automatic stay. ER, Ex. 8. Appellee contended it was entitled to an award on the grounds that the Note contained a provision entitling Bank of America to recoup its own fees and costs it incurred from any debt collection efforts that was made reciprocal by operation of California Civil Code § 1717.[3] Id. at 1-2. Appellant responded that § 1717 makes unilateral attorneys' fees provisions reciprocal only if the fees motion is brought "[i]n an action on the contract." ER, Ex. 9 at 3-4. Appellant argued that because a motion for relief from an automatic stay was not an action "on the contract, " per In re Johnson, 756 F.2d 738 (9th Cir. 1985), a fees award was inappropriate. Id. Appellee replied that In re Johnson, while on all fours, was of "highly questionable" precedential value in light of the Supreme Court's decision in Travelers Casualty & Surety Co. of America v. PG&E, 549 U.S. 443 (2007). ER, Ex. 10 at 6-10. The Bankruptcy Court ordered supplemental briefing on the fees motion, asking in part how it could "get around" In re Johnson. ER, Ex. 13 at 2. Appellant maintained that Travelers had not overruled or abrogated In re Johnson, but only distinguished it from the case that it did overrule, In re Fobian, 951 F.2d 1149 (9th Cir. 1991). Id. Appellee did not discuss the issue. ER, Ex. 11.

         In a lengthy, reasoned decision, the bankruptcy court held that Travelers had overruled In re Johnson. ER, Ex. 16 at 6-9. The court proceeded to consider afresh whether, under California law, a motion for relief from automatic stay in federal bankruptcy proceedings was an action "on the contract" that could trigger fees reciprocity under California Civil Code § 1717(a). Id. at 10-15. The court began by finding that California courts liberally apply § 1717(a) to any proceeding that "involves" a contract or is brought to "enforce" a contract provision. Id. at 10-14. Because the "only relationship" between the parties was "contractual, " the court concluded that Appellant's motion to lift the stay was an action on the contract within the meaning of § 1717(a). Id. at 14-15. And the court held that even if Travelers did not overrule In re Johnson, the facts of this case were distinguishable because Appellee had opposed the motion on standing grounds. Id. at 15-16. The bankruptcy court then awarded Appellee its attorneys' fees and costs. Id. at 20-25.

         Appellant filed a notice of appeal under 28 U.S.C. § 158(a) and its election for the appeal to be heard by a district court under 28 U.S.C. § 158(c)(1)(A). ER, Exs. 18-19.

         II. JURISDICTION

         District courts have jurisdiction to hear appeals from the final orders of bankruptcy judges. 28 U.S.C. § 158(a). The Ninth Circuit has adopted a "pragmatic approach" for determining what constitutes a final order in a bankruptcy proceeding. Eden Place, LLC v. Perl, 811 F.3d 1120, 1125 (9th Cir. 2016). Bankruptcy orders are final and immediately appealable if they "finally dispose of discrete disputes within the larger case." Id. (quoting Bullard v. Blue Hills Bank, __U.S.__, 135 S.Ct. 1686, 1692 (2015)). An order finally disposes of a discrete dispute if it: (1) "resolves and seriously affects substantive rights" and (2) "finally determines the discrete issue to which it is addressed." See Id. at 1126-27 (citation omitted).

         Applying this framework, the Court finds that the bankruptcy court's order awarding attorneys' fees and costs in this case is final and immediately appealable because it substantively affected Appellant's rights in a discrete and final manner. No further proceedings can affect the total amount of this award regarding the motion to lift the stay. That fact likens this case to the one presented in In re Yermakov, 718 F.2d 1465, 1471 (9th Cir. 1983), in which the Ninth Circuit found the interim fees award to be final, and distinguishes it from In re Four Seas Center, Ltd., 754 F.2d 1416, 1418-19 (9th Cir. 1985), in which the Ninth Circuit found the interim fees award to be interlocutory because the total amount of the fees award was subject to potential revision. To the extent that this fees award is not final, [4] the Court exercises its discretion to grant leave to hear the interlocutory appeal under 28 U.S.C. § 158(a)(3). See Perl, 811 F.3d at 1131.

         III. STANDARD OF REVIEW

         District courts generally review a bankruptcy court's findings of fact for clear error and conclusions of law de novo. Northbay Wellness Grp., Inc. v. Beyries, 789 F.3d 956, 959 (9th Cir. 2015). But a bankruptcy court's award of attorneys' fees will not be disturbed unless it abused its discretion or erroneously applied the law. Galam v. Carmel, 249 F.3d 832, 836 (9th Cir. 2001).

         IV. ...


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