Court Opinion

ID: 160621
Source: CourtListenerOpinion
Date Created: 2010-08-14 06:48:16+00
Date Added: 2024-06-11T17:15:28.763135
License: Public Domain

F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                   UNITED STATES COURT OF APPEALS
                                                                         JAN 10 2001
                            FOR THE TENTH CIRCUIT
                                                                    PATRICK FISHER
                                                                             Clerk

    In re: WILEY LESTER BURNS;
    HELEN BURNS,

              Debtors.
    ____________________________                       No. 00-6045
                                                 (D.C. No. 99-CV-1174-C)
    WILEY LESTER BURNS; HELEN                          (W.D. Okla.)
    BURNS,

              Appellants,

    v.

    GREAT LAKES HIGHER
    EDUCATION CORP.;
    PENNSYLVANIA HIGHER
    EDUCATION ASSISTANCE
    AGENCY; HEMAR INSURANCE
    CORPORATION OF AMERICA;
    OKLAHOMA STATE REGENTS FOR
    HIGHER EDUCATION,

              Appellees.

                            ORDER AND JUDGMENT          *

Before EBEL, KELLY, and LUCERO , Circuit Judges.

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.

      Debtors Wiley Lester and Helen Burns appeal from the district court’s

order affirming the bankruptcy court ’s decision not to award them attorney’s fees

after they prevailed in their adversary actions to have their student loans declared

dischargable. We affirm.

      After Mr. and Mrs. Burns commenced their bankruptcy action, th     ey filed

adversary proceedings against four student lenders to determine the

dischargeability of their student loans. Three of the lenders filed counterclaims

for money judgments on their promissory notes. The bankruptcy court granted

discharge pursuant to 11 U.S.C. § 523(a)(8) which permits the discharge of

otherwise non-dischargable debts on the grounds of undue hardship. The

bankruptcy court did not award Mr. and Mrs. Burns attorney’s fees holding that

federal bankruptcy law did not permit that award. The court dismissed the

lenders’ counterclaims without prejudice. The district court affirmed.

      On appeal, Mr. and Mrs. Burns argue that the    bankruptcy court erred in its

ruling because the court should have awarded them fees in accordance with

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Oklahoma state law. They point out that       Okla. Stat. tit. 12, § 936 provides that

attorney’s fees should be awarded to prevailing parties in a civil action on a

contract. Mr. and Mrs. Burns further assert that policy concerns counsel for the

award as furthering the bankruptcy aim of giving debtors a fresh start.

       “We review de novo any statutory interpretation or other legal analysis

underlying the district court’s decision concerning attorney’s fees. The decision

whether fees are warranted, however, is reviewed only for an abuse of

discretion.” Daleske v. Fairfield Cmties, Inc.     , 17 F.3d 321, 323 (10th Cir. 1994)

(citation omitted).

       The “American Rule,” which applies in federal litigation, including

bankruptcy proceedings, permits a prevailing litigant attorney’s fees only if they

are authorized by federal statute or provided for in the contract.    In re Sheridan ,

105 F.3d 1164, 1166 (7th Cir. 1997). “[A] prevailing party in a bankruptcy

proceeding may be entitled to an award of attorney’s fees in accordance with

applicable state law if state law governs the substantive issues raised in the

proceedings.” Ford v. Baroff (In re Baroff) , 105 F.3d 439, 441 (9th Cir. 1997).

       Mr. and Mrs. Burns admit that “there is no basis in federal law for the

fees.” Reply br. at 2, 3. Nor do they contend that the terms of the loans provide

that they may recover fees in an action on the loan contract. Thus, we consider

                                             -3-
only whether there is a basis in Oklahoma state law for awarding attorney’s fees.

Mr. and Mrs. Burns maintain that     section 936 provides such authority.

       Section 936 states that

       [i]n any civil action to recover on an open account, a statement of
       account, account stated, note, bill, negotiable instrument, or contract
       relating to the purchase or sale of goods, wares, or merchandise, or
       for labor or services, unless otherwise provided by law or the
       contract which is the subject [of] 1 the action, the prevailing party
       shall be allowed a reasonable attorney fee to be set by the court, to be
       taxed and collected as costs.

       Oklahoma has strictly construed section 936.        See Octagon Res., Inc. v.

Bonnett Res. Corp. (In re Meridian Reserve, Inc.)       , 87 F.3d 406, 410, 411-12 (10th

Cir. 1996). Therefore, section 936 does not apply here. Mr. and Mrs. Burns

commenced their action solely to determine whether their student loans should be

discharged, a substantive issue to be decided independently of the terms of the

loan contracts.   See Baroff , 105 F.3d at 441. As “the substantive litigation raised

federal bankruptcy law issues rather than basic contract enforcement questions,”

id. , (quotation omitted) state law was not involved.      See Grogan v. Garner , 498

U.S. 279, 289 (1991) (dischargeability of a debt presents an issue “of federal law

independent of the issue of the validity of the underlying claim.”);     see e.g. ,

1
      The statute reads “to,” but a footnote in the annotated code indicates “to”
should read “of.” We have made the appropriate alteration.

                                             -4-
Sheridan , 105 F.3d at 1167   2
                                  (as bankruptcy court did not address the contract or

its terms and only bankruptcy law was involved, state law is inapplicable);       Fobian

v. W. Farm Credit Bank (In re Fobian)       , 951 F.2d 1149, 1153 (9th Cir. 1991)

(refusing to award attorney’s fees because the substantive litigation raised only

federal bankruptcy law issues, not basic contract enforcement issues);        Sunclipse,

Inc. v. Butcher (In re Butcher)     , 200 B.R. 675, 677 (Bankr. C.D. Cal. 1996) (“An

action in dischargeability is a federal cause of action.”),   aff’d 226 B.R. 283 (9th

Cir. BAP 1998).

2
        Mr. and Mrs. Burns argue that the dissent in      Sheridan presents the better
reasoned argument. We disagree. While           agreeing that the dischargeability of a
debt is a matter of federal law, the dissent in    Sheridan relied on an earlier Seventh
Circuit case, Mayer v. Spanel Int’l Ltd. , 51 F.3d 670 (7th Cir. 1995), in which the
court held that an action seeking to deny the discharge of a debt was in actuality
an action taken in the process of collection, thus permitting the prevailing creditor
to recover attorney’s fees, which were part of the debt and, hence, also
non-dischargeable. In Sheridan , the debtor prevailed in having his debt
discharged and the dissent proposed that, in accordance with        Mayer and under
Florida law which provides that if the contract provides for attorney’s fees for a
prevailing creditor, a prevailing debtor may also be awarded fees, the debtor in
Sheridan should be permitted fees. We do not agree that a debtor prevailing
under § 523(a)(8) is in the same position as a creditor seeking the      denial of a
statutorily sanctioned discharge. A       § 523(a)(8) proceeding is not one taken in the
process of collection of a debt and, thus, does not invoke state contract law.

                                              -5-
     The judgment of the United States District Court for the Western District of

Oklahoma is AFFIRMED.

                                                  Entered for the Court

                                                  David M. Ebel
                                                  Circuit Judge

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