Court Opinion

ID: 4528374
Source: CourtListenerOpinion
Date Created: 2020-04-23 22:01:15.359899+00
Date Added: 2024-06-11T09:26:42.849066
License: Public Domain

FILED
                                                                          APR 23 2020

                                                                    SUSAN M. SPRAUL, CLERK
                                                                        U.S. BKCY. APP. PANEL
                                                                        OF THE NINTH CIRCUIT

                            ORDERED PUBLISHED
            UNITED STATES BANKRUPTCY APPELLATE PANEL
                      OF THE NINTH CIRCUIT

In re:                                          BAP No. NC-19-1178-TaFB

DAVID WILLIAM BARTENWERFER and                  Bk. No. 3:13-bk-30827
KATE MARIE BARTENWERFER,
                                                Adv. No. 3:13-ap-03185
              Debtors.

DAVID WILLIAM BARTENWERFER;
KATE MARIE BARTENWERFER ,

              Appellants,

v.                                              OPINION

KIERAN BUCKLEY,

              Appellee.

                   Argued and Submitted on March 26, 2020

                              Filed – April 23, 2020

                Appeal from the United States Bankruptcy Court
                    for the Northern District of California

         Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding
Appearances:        Iain A. Macdonald, Reno F.R. Fernandez III, and Matthew
                    J. Olson of Macdonald Fernandez LLP on brief for
                    appellants; Janet Marie Brayer argued on behalf of
                    appellee.

Before: TAYLOR, FARIS, and BRAND, Bankruptcy Judges.

TAYLOR, Bankruptcy Judge:

                                INTRODUCTION

      In earlier cross-appeals,1 we reviewed a judgment in which the

bankruptcy court: (1) determined that appellee Kieran Buckley’s state court

judgment and attorneys’ fees award against appellants David and Kate

Bartenwerfer (“Debtors”) were excepted from Debtors’ discharge under

§ 523(a)(2)(A);2 (2) denied Mr. Buckley attorneys’ fees incurred in his

nondischargeability action; and (3) awarded Mr. Buckley interest at the

California judgment rate of 10%. We affirmed the bankruptcy court in all

but two respects. First, we vacated its judgment as against

Mrs. Bartenwerfer and remanded for further findings regarding her intent

      1
       Bartenwerfer v. Buckley (In re Bartenwerfer), BAP Nos. NC-16-1277-BJuF,
NC-16-1299-BJuF, 2017 WL 6553392 (9th Cir. BAP Dec. 22, 2017).
      2
       Unless specified otherwise, chapter and section references are to the Bankruptcy
Code, 11 U.S.C. §§ 101–1532.

                                           2
to defraud.3 And second, as relevant to this appeal, we vacated its

judgment and two related orders to the extent that it determined that

Mr. Buckley’s state court attorneys’ fees were nondischargeable. The then-

existing record was inadequate to assess which fees, if any, flowed from

Mr. Bartenwerfer’s nondischargeable fraudulent conduct. We therefore

remanded the issue for further determination and with instructions to

reopen the record.

       On remand, the bankruptcy court did a searching analysis of the state

court record and found that Mr. Buckley’s state court fraud and non-fraud

claims were inextricably intertwined, thus making fee apportionment

impossible. It then entered judgment once again determining that his fees

were wholly nondischargeable. Debtors appealed. We determine that the

judgment is well-supported by the record developed on remand, and we

AFFIRM.

                                         FACTS

A. Prepetition Events

       1. The Sale of the Property

       Prepetition, Debtors purchased a home in San Francisco, California

(“Property”), which they remodeled and sold to Mr. Buckley. Before the

sale, Debtors signed a Cal. Civ. Code § 1102 et seq. transfer disclosure

       3
        On remand, the bankruptcy court entered judgment in Mrs. Bartenwerfer’s
favor after finding that she lacked the requisite fraudulent intent. The parties cross-
appealed the judgment. See BAP Nos. NC-19-1016-TaFB and NC-19-1025-TaFB.

                                             3
statement and a supplement thereto (collectively, the “TDS”), which

contained false representations regarding, inter alia, water leaks, defective

window conditions, open permit issues, and fire escape non-compliance

(“Defects”).

      2. The State Court Action

      Mr. Buckley discovered the Defects after the sale and sued the

Debtors in state court. His complaint included eight claims: (1) strict

liability; (2) breach of express warranty; (3) breach of implied warranty;

(4) negligence; (5) breach of contract; (6) negligent misrepresentation;

(7) fraud/deceit; and (8) rescission. The complaint also named various

contractors as defendants in the negligence claim.

      All of the claims relied on and incorporated the core factual

allegations set forth in paragraphs nine through fourteen of the complaint.

These paragraphs alleged that: Debtors engaged in the business of

remodeling and selling residences to the general public (¶9); Debtors failed

to construct the Property in accordance with proper and approved

techniques and failed to hire and adequately manage capable contractors,

subcontractors, and material suppliers (¶10); Debtors failed to perform

work at the Property in compliance with California building code

standards (¶11); Mr. Buckley discovered the Defects after the Property was

transferred to him (¶12); the Property may have additional as yet

undiscovered defects (¶13); and Debtors’ remodeling, construction, and

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sale of the Property in a defective condition damaged Mr. Buckley (¶14).

      Debtors answered the complaint and cross-complained against

Mr. Buckley and their contractors. Their answer included a general denial

and affirmative defenses, including fault of a third party, indemnity by the

contractors, and damages caused by another party, wear, or tear. Their

cross-complaint asserted breach of contract claims against Mr. Buckley and

the contractors and implied indemnity and contribution claims against the

contractors.

      In answering the complaint and cross-complaint, some contractors

asserted affirmative defenses of indemnification and contributory or

comparative negligence of the other parties to the action. At least one

contractor also filed its own cross-complaint.

      Extensive discovery and motion practice followed for three years.

The parties did not parse discovery among Mr. Buckley’s claims against

Debtors and the contractors, and the nature of the indemnity claims

resulted in a finger-pointing blame game relative to Mr. Bartenwerfer’s

defense that he lacked knowledge of, and responsibility for, the Defects.

      After a 19-day trial, the jury found in Mr. Buckley’s favor on his

breach of contract, negligence, and failure to disclose information

(denominated as the “Seller’s Nondisclosure” claim in the verdict form)

claims, but in Debtors’ favor on his intentional and negligent

misrepresentation claims. The jury found against Debtors on their breach of

                                      5
contract claim. And the jury awarded Mr. Buckley $444,671 in damages,

which the state court reduced in an amended judgment (“State Court

Judgment”) to $234,671, plus 10% interest, attorneys’ fees, and costs,

pursuant to a noticed motion. Mr. Buckley then filed a motion seeking

attorneys’ fees, but the Debtors filed their chapter 7 bankruptcy before the

state court could hear it.

B. Postpetition Events

      1. The Nondischargeability Judgment

      Mr. Buckley responded with an adversary complaint to except the

State Court Judgment and his fees from Debtors’ discharge. After trial, the

bankruptcy court entered judgment excepting the entire State Court

Judgment from discharge pursuant to § 523(a)(2)(A).

      2. The Post-Trial Attorneys’ Fees Proceedings

      Mr. Buckley then moved for the attorneys’ fees he incurred in the

State Court Action, among other relief (“Fee Motion”). Debtors opposed.

Initially, the bankruptcy court granted Mr. Buckley $378,491 in state court

fees and costs, subject to a reasonableness determination.

      Mr. Buckley contended his fees were reasonable given the modest

hourly rate charged, a 19-day jury trial, and the five-year duration of the

State Court Action. Debtors countered that 521 hours (i.e., $182,566) of time

was excessive because such time arose from the allegedly unrelated

contractor litigation. They further objected to alleged block-billing and

                                      6
billing for clerical and travel activities.

      Eventually, the bankruptcy court reduced the fees to $348,483.53 to

eliminate clerical and travel fees lumped in with substantive legal work.

But it declined to further reduce the fees for time spent on allegedly

unrelated matters because Debtors had failed to introduce the complaint

into evidence and explain why such time was unrelated to the claims

giving rise to the nondischargeable debt.

      Thus, the bankruptcy court entered its final order on the Fee Motion

and an amended § 523(a)(2)(A) judgment to award Mr. Buckley $348,483.53

of nondischargeable fees. It later entered a further amended judgment

(“523 Judgment”) to add relief not relevant to this appeal.

      3. The Cross-Appeals

      Both Mr. Buckley and Debtors appealed the fee award. We concluded

that because the state court never liquidated Mr. Buckley’s fees or

determined their reasonableness, the bankruptcy court must determine

what portion of the fees, if any, flowed from Mr. Bartenwerfer’s fraudulent

conduct. We noted that neither we nor the bankruptcy court could make

that determination from the thin record. Accordingly, we vacated the

bankruptcy court’s fee orders and 523 Judgment and directed it to reopen

the record to make that determination.

      4. The Remand Proceedings

      On remand, the parties agreed that Mr. Buckley bears the initial

                                         7
burden of establishing that his fees are traceable to his nondischargeable

claim, and thereafter the burden shifts to Debtors to identify or explain the

extent to which those fees are not attributable to Mr. Bartenwerfer’s fraud.

To determine the fee issue, the bankruptcy court authorized the parties to

brief the apportionment issue and Debtors to depose and review the time

sheets of Mr. Buckley’s counsel, Janet Brayer.

      Citing Ms. Brayer’s testimony and the state court docket report,

Mr. Buckley argued that his state court claims were both factually and

legally intertwined, making fee apportionment impossible. The bankruptcy

court found that he met his initial burden of tracing his fees to his

nondischargeable claim and that the burden shifted to Debtors.

      Debtors argued that the bankruptcy court should deny the fees

because Mr. Buckley failed to trace the fees to the claim upon which his

§ 523(a)(2)(A) claim is premised—the nondisclosure claim. But Debtors

failed to specify any particular time entry or category that was not

traceable to Mr. Bartenwerfer’s fraud. And while they annexed copies of

the complaint and jury instructions for the bankruptcy court’s

consideration, they failed to analyze such documents.

      Mr. Buckley argued that Debtors failed to meet their burden to

provide the bankruptcy court with specific reasons for disallowing fees.

And he again argued that his state court claims against Debtors were

interrelated and premised on the same set of operative facts, pointing to

                                       8
specific examples in the jury instructions. He argued that time spent

litigating with the contractors was also traceable to his nondisclosure claim

as it related to Debtors’ attempts to shift liability for the Defects.

      The bankruptcy court agreed with Mr. Buckley and entered judgment

awarding him $348,483.53 of nondischargeable fees, plus interest at a rate

of 10% from entry of the State Court Judgment forward. Debtors timely

appealed.

                                JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

                                      ISSUE

      Did the bankruptcy court err in determining that all of Mr. Buckley

state court attorneys’ fees were nondischargeable on remand?

                          STANDARDS OF REVIEW

      We review the bankruptcy court’s award of attorneys’ fees for an

abuse of discretion or erroneous application of the law. Dinan v. Fry (In re

Dinan), 448 B.R. 775, 783 (9th Cir. BAP 2011). The bankruptcy court abuses

its discretion if it applies the wrong legal standard or its factual findings

are illogical, implausible, or without support in the record.

TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).

      To the extent the issue is whether California law allows the award of

attorneys’ fees, our review is de novo. See In re Dinan, 448 B.R. at 783.

                                         9
      We may affirm on any basis supported by the record. Shanks v.

Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008).

                                 DISCUSSION

A. The bankruptcy court applied the correct legal standard regarding

apportionment of fees.

      Debtors acknowledge that § 523(a)(2)(A) excepts from discharge

attorneys’ fees that are traceable to fraud. See Cohen v. De La Cruz, 523 U.S.
213, 218-19 & 223 (1998). But they contend that the bankruptcy court erred

by not requiring Mr. Buckley to apportion his attorneys’ fees between those

attributable to his nondischargeable fraud claim and those that are not.

      While it is true that as the prevailing party Mr. Buckley bore the

burden of establishing that the fees stemmed from the nondischargeable

fraud liability, see Plikaytis v. Roth (In re Roth), 662 F. App’x 540, 544 (9th

Cir. 2016), fee apportionment is not required if the issues in the various

claims are “so inextricably intertwined that it would be impractical or

impossible to separate the attorney’s time into compensable and

noncompensable units,” Harman v. City & Cty. of S.F., 158 Cal. App. 4th 407,

417 (2007) (citation and internal quotation marks omitted). Whether

compensable and noncompensable claims are inextricably intertwined to

excuse apportionment is a factual question. See id. at 424.

      Mr. Buckley argued, and the bankruptcy court agreed, that his state

court claims were premised on a common core of facts and, thus, were

                                        10
inextricably intertwined, excusing the apportionment of fees. We find

sufficient support in the record for the bankruptcy court’s finding.

      Specifically, the State Court Action and the adversary proceeding

focused on the issue of Debtors’ nondisclosure of material facts relating to

the Defects to induce Mr. Buckley to buy the Property. The complaint’s

eight claims all incorporated the same core operative facts. And the jury

instructions reflected the interrelatedness of the claims. For example,

damages for each claim required similar analyses of the costs to repair the

Property and the differential value of the Property as represented versus its

actual condition. Further, both the jury instructions and verdict form

instructed the jury that, if it found in Mr. Buckley’s favor on multiple

claims, it could only award damages once. This indicates that the same set

of core facts connected all claims. And resolution of Debtors’ cross-

complaint and the contractors’ cross-claims similarly centered on whether

Mr. Bartenwerfer or the contractors were responsible for, and

knowledgeable of, the Defects.

      While the nondisclosure claim is premised on only four of twelve

alleged defects in the complaint, Debtors were required to disclose all

twelve defects in the TDS, to the extent the defects existed. And while the

claims and scope of damages narrowed through the course of litigation, a

significant overlap of facts and issues between the claims in the State Court

Action and the adversary proceeding existed in all other respects. The

                                      11
bankruptcy court painstakingly articulated the overlapping factual

predicates and issues in the claims asserted by and among Mr. Buckley,

Debtors, and the contractors to conclude that Mr. Buckley need not

apportion his fees. We discern no error in its factually supported and

thoroughly reasoned conclusion.

B. Debtors failed to make specific objections to fees.

      As Mr. Buckley established that fee apportionment was unnecessary,

Debtors were required to object to specific time entries to obtain a

reduction or disallowance of fees. Cotton v. City of Eureka, 889 F. Supp. 2d
1154, 1176 (N.D. Cal. 2012). This entailed “specifically identify[ing] defects

or deficiencies in the hours requested. Conclusory and unsubstantiated

objections are insufficient to warrant a reduction in fees.” Id.; see also

Moreno v. City of Sacramento, 534 F.3d 1106, 1116 (9th Cir. 2008) (“If

opposing counsel cannot come up with specific reasons for reducing the fee

request that the district court finds persuasive, it should normally grant the

award in full, or with no more than a haircut.”); Premier Med. Mgmt. Sys.,

Inc. v. Cal. Ins. Guarantee Ass’n, 163 Cal. App. 4th 550, 564 (2008) (holding

that objecting party bears the burden of specifying items challenged with

sufficient evidence and argument and “[g]eneral arguments that fees

claimed are excessive, duplicative, or unrelated do not suffice”). They

failed to do so.

      They did not make sufficiently specific objections to Ms. Brayer’s

                                        12
time entries. Rather, they objected to the fee request on the basis that the

time entries contained block-billing. While block-billing may result in

reductions for specific entries, it does not require disallowance of all fees.

See Garcia v. Resurgent Capital Servs., L.P., No. C-11-1253 EMC, 2012 WL
3778852, at *8 (N.D. Cal. Aug. 30, 2012) (citing Fischer v. SJP–P.D. Inc., 214
F.3d 1115, 1121 (9th Cir. 2000) and Hensley v. Eckerhart, 461 U.S. 424, 433

(1983)); Sunstone Behavioral Health, Inc. v. Alameda Cty. Med. Ctr., 646 F.

Supp. 2d 1206, 1216–17 (E.D. Cal. 2009); cf. Welch v. Metro. Life Ins. Co., 480
F.3d 942, 948 (9th Cir. 2007) (holding that the use of block-billing does not

justify an across-the-board reduction or rejection of all hours). A party

objecting to fees on the basis of block-billing should specifically identify

problematic entries. But here, Debtors simply requested that the

bankruptcy court exercise its general discretion to disallow broad

categories of block-billed time. The bankruptcy court appropriately denied

the request.

      It likewise appropriately overruled Debtors’ objection to broad

categories of fees that were allegedly extraneous to the nondisclosure claim

because Debtors failed to provide specific reasons why these categories

were objectionable. They declined to meaningfully analyze the state court

pleadings and jury instructions to aid the bankruptcy court in determining

what portion of the fees, if any, flowed from Mr. Bartenwerfer’s fraudulent

conduct. Without their input, the bankruptcy court determined that the

                                       13
pleadings and instructions revealed that the claims, cross-claims, and

affirmative defenses between the parties—including claims by and against

the contractors—were wholly intertwined. This was not an abuse of

discretion.

      Among other generalized complaints, Debtors took issue with fees

incurred to address an interpleader action. But these fees sufficiently

related to Mr. Buckley’s nondisclosure claim given that they were incurred

to combat Debtors’ assertion that Mr. Buckley had waived and released his

claims by accepting interpled funds. Debtors also asserted a blanket

objection to a hodgepodge of time related to mediation, experts, and

research on claims without highlighting specific entries and without

providing clear argument for disallowing such fees. Again, the bankruptcy

court did not abuse its discretion in awarding these fees in light of Debtors’

failure to meet their burden to show that any particular category of fees

should be reduced or disallowed. See Ryan v. Editions Ltd. W., Inc., 786 F.3d
754, 764-65 (9th Cir. 2015).

      Neither did it abuse its discretion in allowing fees incurred in

responding to a motion in limine brought by one of Debtors’ subcontractors

concerning prior litigation. While Debtors cited to specific objectionable

time entries in that regard, the bankruptcy court found that the time related

to Mr. Bartenwerfer’s potential liability for negligently hiring and

supervising contractors, some of whom were allegedly involved in the

                                      14
undisclosed permitting issues.

     Debtors also urge that fees incurred in discovery relating to defects

not specifically included in the nondisclosure claim should be disallowed.

But the complaint indicated that Mr. Buckley’s claims cover undiscovered

defects. Any defects unknown to Mr. Buckley should have been disclosed

by Debtors in the TDS. Accordingly, fees incurred in such discovery related

to Mr. Buckley’s fraud claim. Again, the bankruptcy court appropriately

overruled Debtors’ objection to such fees.

     It also did not abuse its discretion by overruling Debtors’ objections

to fees incurred regarding: (1) the exploration of Mr. Bartenwerfer’s status

as a contractor; and (2) lay opinion concerning contract interpretation. Such

fees related to Mr. Bartenwerfer’s knowledge and awareness of the

condition of the Property and his understanding of his obligations under

the sale contract, which incorporated the TDS.

                              CONCLUSION

     The bankruptcy court properly excused fee apportionment and found

that Debtors failed to identify or explain why Mr. Buckley’s fees were

unrelated to his nondischargeable fraud claim. It also properly overruled

other inadequately or wholly unsupported objections to the fee request. We

AFFIRM.

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