Court Opinion

ID: 9489976
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:29:27.974732+00
Date Added: 2024-06-11T17:53:49.835906
License: Public Domain

ILANA DIAMOND ROVNER, Circuit Judge.
City National Bank of Florida (“City National”) obtained a judgment against Robert Sheridan in Florida state court for the amount due on a series of commercial loans. Sheridan initiated this Chapter 11 bankruptcy proceeding shortly thereafter, and City National responded by filing a multi-count adversary complaint alleging that its debt was non-dischargeable. The bank asserted that the debt should not be discharged because Sheridan had procured the loans under false pretenses and by submitting false financial statements. See 11 U.S.C. § 523(a)(2)(A), (B). After City National presented its case at trial, the bankruptcy court directed a verdict for Sheridan on all four of the bank’s claims. The district court and another panel of this court affirmed. In re Sheridan, 57 F.3d 627 (7th Cir.1995). Sheridan then sought to recover the $266,774.86 in attorney's fees and non-taxable costs he incurred in defending the bank’s disehargeabil*1166ity action. The bankruptcy court denied his request for attorney’s fees, and the district court affirmed. Sheridan now appeals to this court, and we have jurisdiction over his appeal pursuant to 28 U.S.C. § 158(d).
Generally, under the “American Rule” applied in federal litigation, a prevailing litigant may not collect a reasonable attorney’s fee from his opponent unless authorized by federal statute or an enforceable contract between the parties. Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 247, 257, 95 S.Ct. 1612, 1616-17, 1621, 44 L.Ed.2d 141 (1975); F.D. Rich Co. v. United States, Indus. Lumber Co., 417 U.S. 116, 126, 94 S.Ct. 2157, 2163-64, 40 L.Ed.2d 703 (1974). This general rule applies to litigation in the bankruptcy courts. In re Reid, 854 F.2d 156, 161-62 (7th Cir.1988); In re Fox, 725 F.2d 661, 662 (11th Cir.1984). The only statutory authorization for an award of attorney’s fees in a dischargeability proceeding under section 523(a)(2) appears at section 523(d), which provides as follows:
If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney’s fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust.
Yet Sheridan concedes that this provision has no application here because his debt to the bank was a commercial rather than a consumer debt. See, e.g., In re Maestrelli, 172 B.R. 368, 870 (Bankr.M.D.Fla.1994).
In the absence of any statutory authority for an award of fees, Sheridan must focus on the contracts underlying his debt to City National, all of which entitle the bank to recover the “reasonable attorney’s fees and costs” incurred in collecting the debt. Sheridan argues that because the parties’ contracts are governed by Florida law, he may rely on the following Florida statute, which makes the contractual fee provision reciprocally binding:
If a contract contains a provision allowing attorney’s fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract.
Fla. Stat. § 57.105(2). Sheridan believes that the present dischargeability action qualifies as “any action ... with respect to the contract” under this statute, and he therefore asserts that as the prevailing party, he is entitled to recover attorney’s fees.
It is clear in this circuit, as Sheridan points out, that a contractual provision entitling a creditor to recover attorney’s fees may be enforced in a dischargeability action if the provision is valid under state law. In re Mayer, 51 F.3d 670, 677 (7th Cir.1995), cert. denied, — U.S. -, 116 S.Ct. 563, 133 L.Ed.2d 488 (1995). Thus, if City National had established that the underlying debt was non-dischargeable, it would have been entitled to recover its attorney’s fees pursuant to the contracts. If the underlying debt was non-dischargeable, in other words, the contractual fee obligation would be nondis-chargeable as well. Id. A number of other circuits have come to the same conclusion in similar cases. See In re Jordan, 927 F.2d 221, 227-28 (5th Cir.1991), overruled on other grounds, In re Coston, 991 F.2d 257 (5th Cir.1993); In re Martin, 761 F.2d 1163, 1168 (6th Cir.1985); In re Hunter, 771 F.2d 1126, 1131 (8th Cir.1985); TranSouth Fin. Corp. v. Johnson, 931 F.2d 1505 (11th Cir.1991); but cf. In re Fulwiler, 624 F.2d 908, 910 (9th Cir.1980); In re Itule, 114 B.R. 206, 213 (B.A.P. 9th Cir.1990). Sheridan argues that under Mayer, the Florida reciprocity statute would also entitle a prevailing debtor to its fees in a dischargeability action. We disagree.
In Mayer, we allowed a prevailing creditor to recover the fees it incurred in a discharge-ability action pursuant to the parties’ contract because we considered the “[ajttorney’s fees provided by contract [to be] part of the debt” for purposes of 11 U.S.C. § 523(a)(2). 51 F.3d at 677. We explained that “if a *1167debtor agrees by contract to pay legal expenses, this is no different in principle from agreeing to a higher rate of interest, or a balloon payment, or any other contractual element of compensation to the lender.” Id.; see also Roberts v. Glenn Roberts and WIP, Inc., 199 B.R. 393, 395-96 (S.D.Ind.1996) (discussing Mayer). Other circuits have similarly characterized contractually-authorized attorney’s fees as part of the underlying “debt” deemed non-dischargeable under section 523(a)(2), and have enforced such fee obligations in dischargeability actions so long as they are valid under governing state law. See In re Jordan, 927 F.2d at 227-28; In re Martin, 761 F.2d at 1168; TranSouth, 931 F.2d at 1507-08; see also Security Mortgage Co. v. Powers, 278 U.S. 149, 154, 49 S.Ct. 84, 85-86, 73 L.Ed. 236 (1928) (“The construction of [a] contract for attorney’s fees presents ... a question of local law.”).
Although the validity of a creditor’s claim in bankruptcy is assessed by looking to relevant state law rules (see, e.g., Grogan v. Garner, 498 U.S. 279, 283, 111 S.Ct. 654, 657, 112 L.Ed.2d 755 (1991); Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 161, 67 S.Ct. 237, 239, 91 L.Ed. 162 (1946)), the alleged non-dischargeability of that debt presents an issue “of federal law independent of the issue of the validity of the underlying claim.” Grogan, 498 U.S. at 289, 111 S.Ct. at 661; see also Brown v. Felsen, 442 U.S. 127, 129-30, 99 S.Ct. 2205, 2208-09, 60 L.Ed.2d 767 (1979). In this case, for example, City National obtained a judgment on the contracts in Florida state court and then asserted a claim based on the judgment in Sheridan’s bankruptcy. Although the validity of City National’s claim is governed by state law, the non-dischargeability question still is “a matter of federal law governed by the terms of the Bankruptcy Code.” Grogan, 498 U.S. at 284, 111 S.Ct. at 658. In our view, then, this federal action does not qualify as one “with respect to the contract” under the Florida statute.
When a cause of action is federal, moreover, we ordinarily do not look to state law in considering whether to award attorney’s fees. See Alyeska, 421 U.S. at 259 n. 31, 95 S.Ct. at 1622 n. 31 (contrasting American Rule applicable in federal cases with the “very different situation ... presented when a federal court sits in a diversity case”);' F.D. Rich Co., 417 U.S. at 127, 94 S.Ct. at 2164 (where cause of action is federal, the scope of the available remedies, including the availability of attorney’s fees, is a matter of federal and not state law). State law was relevant in Mayer only for the purpose of assessing whether the contractual attorney’s fee obligation was valid and enforceable. Because it was, that obligation became part of the “debt” deemed non-dischargeable under section 523(a)(2). See Mayer, 51 F.3d at 677; see also, e.g., TranSouth, 931 F.2d at 1507. In Mayer, then, there was a basis under federal law for recognizing the creditor’s contractual right to recover fees. There is no similar basis under the Bankruptcy Code for incorporating the Florida reciprocity statute on which Sheridan relies. Instead, the Bankruptcy Code specifies a single instance in which a prevailing debtor may recover the fees incurred in á dischargeability action— where the creditor’s challenge to the dischargeability of a consumer debt was not substantially justified. 11 U.S.C. § 523(d). Sheridan concedes that section 523(d) has no application here, and because he can point to no other authority for an award of attorney’s fees to a prevailing debtor in a federal dischargeability action, we must agree with the lower courts that he is not entitled to an award of fees.
Affirmed.