Opinion ID: 204483
Heading Depth: 2
Heading Rank: 2

Heading: The Imposition of Collection Costs and Attorney's Fees

Text: We now turn to Busson-Sokolik's argument that the bankruptcy court improperly allowed MSOE to recover costs and attorney's fees in this case. Under the American Rule, a litigant who prevails in a lawsuit is not ordinarily allowed to collect attorney's fees from the losing side. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). However, this rule can be overcome by statute or by an enforceable contract with a provision regarding the allocation of attorney's fees. See Travelers Cas. and Sur. Co. of America v. Pacific Gas and Elec. Co., 549 U.S. 443, 448, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007). Busson-Sokolik is correct that there was no statutory basis for an award of attorney's fees during the bankruptcy proceedings. However, the basis for the bankruptcy court's award of fees was contractual, not statutory. Under the promissory note for the MSOE loan, Busson-Sokolik agreed in writing to pay all reasonable collection costs, including attorney's fees and other charges, necessary for the collection of any amount not paid when due. The bankruptcy court found a valid contract existed between the parties that allowed MSOE to recover its fees based on the above-referenced language in the promissory note. This was not error. As the Supreme Court held in the Travelers case, it remains true that an otherwise enforceable contract allocating attorney's fees (i.e. one that is enforceable under substantive, nonbankruptcy law) is allowable in bankruptcy except where the Bankruptcy Code provides otherwise. Travelers, 549 U.S. at 448, 127 S.Ct. 1199. The fact that the fees were incurred litigating a bankruptcy case does not disallow MSOE's contract based claim for attorney's fees under Travelers. Since the promissory note was an enforceable contract, the fees were separately recoverable under the substantive law of contracts. Furthermore, Busson-Sokolik has not argued that any portion of the Bankruptcy Code specifically prohibits a court from awarding such fees under a contract theory. Finding no applicable exception in the Bankruptcy Code and no barrier to formation of a valid contract between MSOE and Busson-Sokolik, we affirm the award of costs and attorney's fees to MSOE pursuant to the terms of the promissory note. In concluding our discussion of Busson-Sokolik's claim that fees were improperly awarded, we note his argument that the district court erred in striking portions of his reply brief that related to the merger doctrine. The district court found that Busson-Sokolik failed to raise the merger doctrine in his initial brief at the district court level. Chief Judge Clevert therefore held that Busson-Sokolik had waived any argument that the fee award was improper based on the merger doctrine. We agree with the district court that the merger issues were waived and decline to apply an exception to waiver for the reasons set forth below. Waiver occurs when an appellant attempts to raise an issue on appeal that was not adequately raised below. This court has held that when an issue was not raised in the bankruptcy court, a finding that the issue is waived at the district court level is the correct result, since to find otherwise would permit a litigant simply to bypass the bankruptcy court. Matter of Weber, 25 F.3d 413, 415 (7th Cir.1994). When asked at oral argument what her best effort was to raise the doctrine of merger before the bankruptcy court, Busson-Sokolik's counsel was unable to present any evidence that the issue was addressed in that court. Instead she indicated that her focus had been on the American rule and the lack of a statutory basis for awarding the fees. Since we find no evidence in the record or from Busson-Sokolik's counsel that the issue was raised in the bankruptcy court, we hold that any argument related to the merger doctrine was waived before it reached the district court. Though it is within this court's discretion to find an exception to waiver and to consider an appellant's argument despite the appellant having waived it, the circumstances here hardly justify an exception. It is only under exceptional circumstances that we will hear an argument not adequately presented below. Matter of Weber, 25 F.3d at 416. Busson-Sokolik argues that we should consider the merger issue because an award by the bankruptcy court of close to $9,000 in attorney's fees to the Milwaukee School of Engineering based on an unenforceable contract is inherently unfair. As we have already discussed above, there was a valid contract between the parties which provided for the allocation of attorney's fees. Busson-Sokolik's characterization of the contract as unenforceable is therefore incorrect. As to the amount of the fees awarded, Busson-Sokolik's characterization is similarly misguided. Busson-Sokolik provides no support for his proposition that a $9,000 fee in a case such as this is inherently unreasonable or unfair. The bankruptcy court explicitly found that MSOE attorney's fees in the amount of $8,955 were reasonable. Absent any meaningful challenge to the award by Busson-Sokolik, we see no reason to disturb that finding. The district court first became aware of Busson-Sokolik's merger argument in a reply brief. At that point the issue was waived twice over: first, because the argument was never raised in the bankruptcy court; and second, because arguments raised for the first time in a reply brief as opposed to the appellant's opening brief are deemed waived. See, e.g., Nelson v. La Crosse County Dist. Atty., 301 F.3d 820, 836 (7th Cir.2002); James v. Sheahan, 137 F.3d 1003, 1008 (7th Cir.1998). The proper response to an argument improperly raised in such a brief is to move to strike the offending portion of the brief. Cleveland v. Porca Co., 38 F.3d 289, 297 (7th Cir.1994). MSOE timely filed a motion to strike the relevant portions of Busson-Sokolik's reply brief and the district court properly granted the motion. Since Busson-Sokolik has failed to show exceptional circumstances that would make this case a favorable candidate for an exception to waiver, we decline to discuss the merits of those portions of his argument that relate to the merger doctrine.