Court Opinion

ID: 3029399
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:42:44.730902+00
Date Added: 2024-06-11T11:48:02.631390
License: Public Domain

United States Bankruptcy Appellate Panel
                                  FOR THE EIGHTH CIRCUIT
                                          _____________
                                          No. 02-6015EM
                                          _____________

In re:                                           *
                                                 *
Donald Nangle,                                   *
                                                 *
         Debtor.                                 *
                                                 * Appeal from the United States
Patricia A. Seimer,                              * Bankruptcy Court for the
                                                 * Eastern District of Missouri
         Plaintiff-Appellee,                     *
                                                 *
                   v.                            *
                                                 *
Donald Nangle,                                   *
                                                 *
         Defendant-Appellant.                    *
                                          _____________

                                      Submitted: July 9, 2002
                                      Filed: August 13, 2002
                                          _____________

Before KRESSEL, DREHER, and FEDERMAN, Bankruptcy Judges.
                             _____________

FEDERMAN, Bankruptcy Judge.

         We previously remanded the issue of Patricia Siemer’s request for attorney’s fees. 1
On February 26, 2002, the bankruptcy court entered an order granting her request in the
amount of $14,700.00 and declaring the judgment awarding such fees to be
nondischargeable. Donald Nangle appeals from that judgment. We reverse.

         1
             Siemer v. Nangle (In re Nangle), 257 B.R. 276, 289 (8th Cir. B.A.P. 2001).
                                       BACKGROUND
       On February 17, 2000, debtor-appellant Donald Nangle filed a Chapter 7 bankruptcy
petition. On March 31, 2000, plaintiff-appellee Patricia Siemer filed an adversary proceeding
alleging Nangle’s obligations to her to be nondischargeable pursuant to 11 U.S.C. § 523(a)(6)
and (a)(7). Nangle’s obligations to Ms. Siemer arise from an Illinois state court judgment for
Nangle’s violations of the Fair Debt Collection Practices Act and the Illinois Consumer
Fraud and Deceptive Business Practices Act. The original judgment was entered on July 15,
1992. In a motion for summary judgment in this bankruptcy case, Ms. Siemer alleged that
the amount of the Illinois state court judgment was $42,841.69.2 That sum included the
following: (1) Mental Distress, Embarrassment, Shame, & Humiliation: $6,000.00; (2)
Deprivation of the Use of Property: $1,000.00; (3) Exemplary Damages: $20,000.00; (4)
Attorney’s Fees: $12,410.00; (5) Costs: $1,313.32; and (6) Attorney’s Fees on Appeal:
$2,118.37.
       In order to collect that judgment, Ms. Siemer attempted to discover Nangle’s assets
in Missouri. To that end she noticed a deposition for October 29, 1999, and demanded that
Nangle produce certain documents, which he failed to produce. On January 4, 2000, the
Missouri court entered an order granting Ms. Siemer’s motion to compel production and
ordering Nangle to produce the withheld information within ten days. Instead, Nangle asked
for a continuance, which the state court denied. Nangle did not comply with the motion to
compel and Ms. Siemer filed a motion for contempt. Nangle failed to appear at the hearing
on Ms. Siemer’s contempt motion, and on February 17, 2000, the Missouri state court entered
an order holding Nangle in contempt. The contempt order imposed a “compensatory fine”
against Nangle in the amount of $40,723.32, plus interest at the rate of 9 percent per annum
from July 16, 1992, until paid in full. While not clear from the documents submitted on this
appeal, the compensatory fine imposed by the Missouri state court appears to eliminate the

       2
           Appellant’s Appendix, Ex. T, pg. 4.

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$2,118.37 in attorney’s fees for the appeal of the Illinois judgment ($42,841.69 minus
$2,118.37 equals $40,723.32). And, the Missouri court did not award additional attorney’s
fees incurred in the contempt proceeding itself. At the time the Missouri court entered the
contempt order it calculated the fine to be $68,547.95. Nangle filed his bankruptcy petition
two hours after the Missouri court issued its order holding him in contempt of court.
       On June 16, 2000, the bankruptcy court entered an order granting Ms. Seimer’s
motion for summary judgment, giving collateral estoppel effect to both the Illinois judgment
and the contempt order. The bankruptcy court, thus, found that the debts were
nondischargeable pursuant to 11 U.S.C. § 523(a)(6). The bankruptcy court did not address
the 11 U.S.C. § 523(a)(7) claim. Nangle appealed that order. We affirmed the bankruptcy
court’s finding that Nangle was collaterally estopped from relitigating the matters that led to
the Illinois judgment. We reversed, however, the grant of summary judgment as to the
dischargeability of the Missouri judgment and remanded for trial on that issue and on Ms.
Siemer’s request for attorney’s fees incurred in the bankruptcy proceeding. In so doing, we
stated as follows:
       Siemer also requested that we remand the issue of her request for attorney’s
       fees and costs, in the adversary proceeding, back to the bankruptcy court since
       the court did not rule on that request. We are unclear of the basis for her
       request, but the bankruptcy court may consider it on remand.3

       Nangle appealed , to the Eighth Circuit Court of Appeals, the portion of our opinion
that affirmed the bankruptcy court. On January 14, 2002, the Eighth Circuit affirmed the
bankruptcy court’s finding that both the Illinois judgment and the Missouri judgment were
nondischargeable, thus reversing our finding as to the contempt judgment. The Eighth
Circuit, however, did not disturb our order to the extent that it remanded for consideration
of Ms. Siemer’s request for attorney’s fees. Ms. Siemer filed a motion for attorney’s fees and
a memorandum in support thereof. Following a hearing on February 4, 2002, the bankruptcy

       3
           Siemer v. Nangle (In re Nangle), 257 B.R. 276, 289 (8th Cir. B.A.P. 2001).

                                               3
court granted Ms. Siemer’s motion and entered judgment in her favor in the amount of
$14,700.00. This appeal followed.
                                          DISCUSSION
         A bankruptcy appellate panel shall not set aside findings of fact unless clearly
erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge
the credibility of the witness.4 We review the legal conclusions of the bankruptcy court de
novo.5
         In the United States the parties to litigation generally bear the cost of their own
attorney’s fees.6 Under this “American Rule” it is improper to award attorney’s fees incurred
in litigation unless the right to such fees is set by statute or awarded by contract.7 As Justice
White wrote in Alyeska Pipeline Service Company v. Wilderness Society:
         Since the approach taken by Congress to [the] issue [of fee splitting] has been
         to carve out specific exceptions to a general rule that federal courts cannot
         award attorney’s fees . . . those courts are not free to fashion drastic new rules
         with respect to the allowance of attorneys’ fees to the prevailing party in
         federal litigation or to pick and choose among plaintiffs and the statutes under

       Gourley v. Usery (In re Usery), 123 F.3d 1089, 1093 (8th Cir. 1997); O'Neal v.
         4

Southwest Mo. Bank (In re Broadview Lumber Co., Inc.), 118 F.3d 1246, 1250 (8th Cir.
1997) (citing First Nat'l Bank of Olathe, Kansas v. Pontow (In re Pontow), 111 F.3d 604,
609 (8th Cir.1997)); Fed. R. Bankr. P. 8013.

       First Nat’l Bank of Olathe, Kansas v. Pontow (In re Pontow), 111 F.3d at 609;
         5

Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997).

     Buckhannon Board and Care Home, Inc. v. West Virginia Dept. of Health and
         6

Human Resources, 532 U.S. 598, 602, 121 S. Ct. 1835, 1839, 149 L. Ed. 2d 855 (2001).

        Key Tronic Corp. v. United States, 511 U.S. 809, 819, 114 S. Ct. 1960, 128 L. Ed.
7

2d 797 (1994); United States v. Mexico Feed and Seed Co., 980 F.2d 478, 490 (8th Cir.
1992); Gaskill v. Gordon, 942 F. Supp. 382, 384 (N.D. Ill. 1996); Reed v. Reed, 10 S.W.
3d 173, 181 (Mo. Ct. App. 1999). See also Maxwell v. Maxwell, 775 S.W.2d 576 (Mo. Ct.
App. 1989) (holding that the party to a settlement agreement, who was forced to go to
court to secure performance of the agreement, was entitled to attorney’s fees if the
agreement so provided).

                                                 4
       which they sue and to award fees in some cases but not in others, depending
       upon the courts’ assessment of the importance of the public policies involved
       in particular cases.8

The Bankruptcy Code, likewise, recognizes that attorney’s fees incurred in litigating
dischargeability issues are generally not recoverable in the absence of a contractual or
statutory provision.9
       In this case, Ms. Siemer obtained an award of attorney’s fees as part of her Illinois
court judgment. Both the Fair Debt Collection Practices Act10 and the Illinois Consumer
Fraud and Deceptive Practices Act11 permit an award of attorney’s fees and costs. And,
according to Ms. Siemer’s motion for summary judgment, the Illinois court did award her
attorney’s fees in the amount of $12,410.00, plus costs in the amount of $1,313.32.12
Attorney’s fees so awarded become part of the judgment and are, thus, nondischargeable, if
the judgment is found to be nondischargeable.13 But the amount of the fees must, of
necessity, be calculated as of the time the judgment is entered in the state court.14

       8
        All American of Ashburn, Inc. v. Fox (In re Fox), 725 F.2d 661, 662 (11th Cir.
1984) (quoting Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 269, 95
S. Ct. 1612, 1627, 44 L. Ed. 2d 141 (1975)).
       9
           Sherman v. Reilly (In re Reilly), 244 B.R. 46, 50 (Bankr. D. Conn. 2000).
       10
            15 U.S.C. § 1692k(a)(3).
       11
            Ill. Rev. Stat., Ch. 121 ½ (current version: 815 Ill. Comp. St. Ann. § 505/10(a)
(1993)).
       12
            Appellant’s Appendix, Ex. U.
       13
          See Cohen v. De La Cruz, 523 U.S. 213, 218, 118 S. Ct. 1212, 1216, 140 L. Ed.
2d 341 (1998) (holding that the discharge exception for fraud prevented discharge of all
liability that arises from the fraud, including punitive damages and attorney’s fees, if the
damages and fees are provided for by statute in the underlying fraud action).
       14
         Claude A. Hinton, Jr., Inc. v. Institutional Investors Trust, 211 S.E.2d 169, 171
(Ga. Ct. App. 1974).

                                                5
       In Missouri there is both statutory and case precedent to award attorney’s fees in
contempt proceedings. For example, a Missouri statute provides that the court may assess
attorney’s fees and costs against the offending party in a contempt proceeding to enforce
visitation rights.15 Missouri law also provides for attorney’s fees and costs incurred in any
suit brought to enforce a child support obligation,16 or in a proceeding to enforce a judgment
rendered in an adult abuse action.17 In each of these statutes, it is within the discretion of the
court to award attorney’s fees and costs. And, even without statutory authority, Missouri
courts have on occasion awarded attorney’s fees in contempt proceedings.18 The basis for that
authority is the inherent power of courts to “do all things that are reasonably necessary for
the administration of justice.”19 The fees at issue in this appeal, however, were not incurred
in pursuing the contempt judgment, as the Missouri trial court chose not to award such fees.
Instead, as the bankruptcy court found in its Memorandum Opinion, Ms. Siemer’s request
for attorney’s fees in the amount of $14,700 was for “costs that she incurred in pursuing the
dischargeability complaint in the Bankruptcy Court, the BAP, and the Court of Appeals.”20
Thus, we must look exclusively to bankruptcy law for the authority to award attorney’s fees.

       15
            Mo. Stat. Ann. § 452.400.7 (Supp. 2002).
       16
            Id. at 452.355.2 (Supp. 2002).
       17
            Id. at 455.075 (1997).

        See, e.g., Missouri Hospital Assoc. v. Air Conservation Commission of the State
       18

of Missouri, 900 S.W.2d 263, 267 (Mo. Ct. App. 1995); St. Louis University v. Cantor,
720 S.W.2d 382, 385 (Mo. Ct. App. 1986); Frankel v. Moskovitz, 503 S.W.2d 428, 434
(Mo. Ct. App. 1973).
       19
            State ex rel. Gentry v. Becker, 174 S.W.2d 181, 183 (Mo. 1943).
       20
            Appellant’s Appendix, Ex. F.

                                                6
         Bankruptcy law is loath to award attorney’s fees absent some basis in statute or
contract.21 There are four specific statutory provisions for the award of attorney’s fees in the
Bankruptcy Code. Section 506(b) permits an oversecured creditor its attorney’s fees if the
contract so provides.22 Section 303(i) grants the bankruptcy court the discretion to award
attorney’s fees to the debtor in the event an involuntary petition is dismissed without the
consent of the debtor.23 Section 362(h) allows the court to award attorney’s fees to a party
injured by a willful violation of the automatic stay.24 And section 523(d) provides that a
debtor may recover its attorney’s fees if a creditor brings a dischargeability proceeding that
the court finds was not substantially justified.25Aside from these statutory provisions, there
are two limited exceptions to the American Rule that, likewise, apply in bankruptcy
proceedings. The first permits recovery of attorney’s fees for a litigant who has bestowed a
common benefit on a class or protected a common fund.26 That exception is not relevant here.
The second exception uses fee shifting as an equitable remedy to further the interest of
justice and rectify certain aggravated conduct amounting to abusive or bad faith litigation
practices.27 Those bad faith litigation practices are more fully described as the willful

        All American of Ashburn, Inc. v. Fox (In re Fox), 725 F.2d 661, 662 (11th Cir.
         21

1984); Sherman v. Reilly (In re Reilly), 244 B.R. 46, 51 (Bankr. D. Conn. 2000); Lee v.
American Student Assistance Agency (In re Lee), 239 B.R. 9, 12 (Bankr. D. Conn. 1999);
Members Credit Union v. Kellar (In re Kellar), 125 B.R. 716, 719 (Bankr. N.D. N.Y.
1989).
         22
              11 U.S.C. § 506(b).
         23
              Id. at § 303(i).
         24
              Id. at § 363(h).
         25
              Id. at § 523(d).
         26
              All American of Ashburn, Inc. v. Fox (In re Fox), 725 F.2d 661, 663 (11th Cir.
1984).
         27
              Id.

                                                  7
disobedience of a court order, bad faith, or vexatious, wanton, or oppressive behavior.28
There is nothing in the order before us to indicate that the bankruptcy court found Nangle’s
conduct during these dischargeability proceedings to be vexatious, wanton, or oppressive.
And, there is no finding that he disobeyed an order of the bankruptcy court.
       The bankruptcy court, in reliance on Buffalo GYN Womenservices, Inc. v. Behn (In re
Behn),29 held that “attorney’s fees incurred in the successful prosecution of a dischargeability
complaint under Section 523(a)(6) for a contempt proceeding fully litigated in state court pre-
petition should be held nondischargeable.”30 In Behn the creditor had obtained an award in
federal district court for civil contempt damages and attorney’s fees based on debtor’s
violations of a temporary restraining order prohibiting abortion protestors from blockading
a women’s health clinic.31 When debtor later filed a bankruptcy petition, the creditor filed an
adversary proceeding to have the contempt sanction declared nondischargeable. The
bankruptcy court granted the creditor’s motion for summary judgment, holding that the
creditor could rest on the district court’s finding that debtor’s actions were willful and
malicious.32 In holding the debt to be nondischargeable, the bankruptcy judge also found that
the attorney’s fees incurred in connection with the dischargeability proceeding were,
likewise, nondischargeable.33The bankruptcy court based its finding on the fact that the debt
involved in Behn arose from the willful violation of a federal court order, and that the court

        Reilly, 244 B.R. at 51 (citing Lee v. American Student Assistance Agency (In re
       28

Lee), 239 B.R. 9, 12 (Bankr. D. Conn. 1999).
       29
            245 B.R. 444 (Bankr. W.D. N.Y. 2000).
       30
            Appellant’s Appendix, Ex. A.

        See Buffalo GYN Womenservices, Inc. v. Behn (In re Behn), 242 B.R. 229, 231
       31

n.1 (Bankr. W.D. N.Y. 1991).
       32
            Id. at 242.
       33
            Id.

                                               8
issuing such an order of contempt had awarded attorney’s fees as part of its contempt
judgment.34 Therefore, the Behn court seemed to hold that a bankruptcy court could enhance
the contempt court’s award of attorney’s fees to include those incurred when a debtor ends
up in bankruptcy, but “does not concede dischargeability.”35
       In this case, however, the Missouri court chose not to award attorney’s fees as part of
its contempt judgment. Thus, the apparent rationale of Behn is not applicable. And, the
bankruptcy court did not find that Nangle’s actions in the bankruptcy court constituted the
willful disobedience of a court order, or bad faith, or vexatious, wanton, or oppressive
behavior. Therefore, there is no basis for abrogating the American Rule.
       Finally, we note that the Federal Rules of Bankruptcy Procedure do provide a specific
procedure for awarding attorney’s fees against a party that files a pleading for an improper
purpose such as harassment, to cause unnecessary delay, or to needlessly increase the cost
of litigation.36 That rule contains procedural safeguards to insure that fees are not awarded
unless a party, and its counsel, are given notice of the specific pleadings and actions that the
movant contends are sanctionable.37 Ms. Siemer, however, did not file her motion pursuant
to Rule 9011, and did not provide the notice required, therefore, we need not consider its
applicability here.
       For all of these reasons, we reverse the bankruptcy court’s award of attorney’s fees.

       34
            Id.
       35
            Id. at 242.
       36
            Fed. R. Bankr. P. 9011.
       37
         See, e.g., In re Deville, 2002 WL 1489397 * 11 (9th Cir. B.A.P. June 25, 2002)
(stating that there must be a separate notice for sanctions, and that the notice must specify
the authority for the sanctions, as well as the sanctionable conduct); Halverson v. Funaro
(In re Funaro), 263 B.R. 892, 901 (8th Cir. B.A.P. 2001) (holding that Rule 9011 requires
the court to find that specific procedural requirements have been met).

                                               9
A true copy.

      Attest:

                CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
                EIGHTH CIRCUIT

                                 10