Court Opinion

ID: 3035791
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:53:13.116205+00
Date Added: 2024-06-11T12:32:58.827499
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

In re: MARY DEROCHE; In re: ERIC            
DEROCHE,
                        Debtors,
                                                   No. 04-15258

MARY DEROCHE; ERIC DEROCHE,                         D.C. No.
                                                 CV-03-00463-EHC
                      Appellants,
                                                    OPINION
               v.
ARIZONA INDUSTRIAL COMMISSION,
                       Appellee.
                                            
         Appeal from the United States District Court
                  for the District of Arizona
          Earl H. Carroll, District Judge, Presiding

                   Argued and Submitted
         October 17, 2005—San Francisco, California

                      Filed January 17, 2006

      Before: Stephen Reinhardt and Sidney R. Thomas,
      Circuit Judges, and Jane A. Restani,* Chief Judge,
                 Court of International Trade.

                    Opinion by Judge Thomas

   *The Honorable Jane A. Restani, Judge, United States Court of Interna-
tional Trade, sitting by designation.

                                  747
                      IN RE: DEROCHE                    749

                        COUNSEL

Allan D. NewDelman, Esq., Roberta J. Sunkin, Esq., Allan D.
NewDelman, P.C., Phoenix, Arizona, for the appellant.

James S. Samuelson, Assistant Attorney General, Terry God-
dard, Attorney General, Phoenix, Arizona, for the appellee.

                        OPINION

THOMAS, Circuit Judge:

  This case presents the question of whether Chapter 7 debt-
ors may recover, pursuant to state statute, attorneys’ fees
750                     IN RE: DEROCHE
incurred in bankruptcy discharge litigation. We conclude that
attorneys’ fees are not available for litigating federal bank-
ruptcy issues, and we affirm the decision of the district court.

                               I

   Eric and Mary DeRoche (collectively “DeRoche”) filed a
joint Chapter 7 bankruptcy petition on November 28, 1994, in
the District of Arizona. On December 30, 1994, the Arizona
Industrial Commission (“the Commission”) filed what it
termed a priority proof of claim, to which DeRoche promptly
objected. The Commission sought to recover sums paid to an
injured DeRoche employee from the state’s Special Fund,
which provides workers compensation benefits to workers
who are not covered by workers compensation insurance
when they are injured. The amount of the Commission’s
claim, initially only $22,421.52, has increased as the injured
worker has continued to receive benefits.

   On March 17, 1995, the bankruptcy court discharged
DeRoche’s debts, except for the pending dispute with the
Commission. For the next seven years, the parties litigated
various issues related to whether or not the Commission’s
claim was also subject to discharge. The parties first disputed
whether the Commission’s claim qualified as an “excise tax”
— and thus potentially a priority, nondischargeable claim —
within the meaning of 11 U.S.C. § 507(a)(8)(E). In the end,
the bankruptcy court found that the claim was an excise tax
based on Camilli v. Industrial Commission of Arizona, 94
F.3d 1330 (9th Cir. 1996), issued while the DeRoche dispute
was pending. The bankruptcy court next inquired what “trans-
action” had triggered the tax. To qualify as a priority excise
tax, a tax must be based on “a transaction occurring during the
three years immediately preceding the date of the filing of the
petition.” 11 U.S.C. § 507(a)(8)(E)(ii). The Commission’s
claim did not depend on a single event easily identifiable as
the relevant “transaction”, but could arguably be linked to the
continuing series of benefit payments, the injury itself, or
                        IN RE: DEROCHE                      751
even the injured worker’s application for benefits. Eventually,
after the dispute reached this Court, we held that the transac-
tion date was the date of injury, more than three years before
the bankruptcy petition. DeRoche v. Ariz. Indus. Comm’n (In
re DeRoche), 287 F.3d 751 (9th Cir. 2002). Thus, the Com-
mission’s claim had no priority status, and was subject to dis-
charge. Ultimately, on remand, the bankruptcy court entered
an order sustaining DeRoche’s objection to the Commission’s
proof of claim and finding that the claim was a general claim
subject to the general discharge order entered seven years
before.

   On August 7, 2002, DeRoche filed an application for over
$30,000 in attorney’s fees incurred opposing the Commis-
sion’s priority claim. The bankruptcy court denied the appli-
cation, after holding hearings on November 14, 2002, and
January 22, 2003. After DeRoche filed a Notice of Appeal
and Referral to the Bankruptcy Appellate Panel on February
5, 2003, the Commission elected to have the appeal heard by
the District Court. The District Court denied the appeal on
January 30, 2004, without argument, and DeRoche timely
filed this appeal.

                               II

   “It is the general rule in the United States that in the
absence of legislation providing otherwise, litigants must pay
their own attorney’s fees.” Christiansburg Garment Co. v.
EEOC, 434 U.S. 412, 415 (1978). “Congress has provided
only limited exceptions to this rule ‘under selected statutes
granting or protecting various federal rights.’ ” Id. (quoting
Alyeska Pipeline Co. v. Wilderness Soc’y., 421 U.S. 240, 260
(1975)). Thus, the Supreme Court has observed that “it would
be inappropriate for the Judiciary, without legislative guid-
ance, to reallocate the burdens of litigation.” Alyeska Pipeline
Co., 421 U.S. at 247.

  [1] Consistent with this philosophy, we have held that,
absent bad faith or harassment, attorney’s fees are not recov-
752                     IN RE: DEROCHE
erable in bankruptcy for litigating issues “peculiar to federal
bankruptcy law.” Fobian v. Western Farm Credit Bank (In re
Fobian), 951 F.2d 1149, 1153 (9th Cir. 1991). The Bank-
ruptcy Code does contain some fee provisions. See, e.g.,
Lamie v. United States, 540 U.S. 526, 529 (2004) (discussing
the statutory limitation on awards of professional fees). How-
ever, it does not contain any provisions that create a general
right for the prevailing party to be awarded attorney’s fees in
federal bankruptcy litigation. Thus, we have held that “[t]here
is no general right to recover attorney’s fees under the Bank-
ruptcy Code.” Renfrew v. Draper (In re Renfrew), 232 F.3d
688, 693 (9th Cir. 2000).

   [2] One of the exceptions to the general rule is proceedings
based on a contract enforceable under state law or statute.
Fobian, 951 F.2d at 1153. As we have explained, “a prevail-
ing party in a bankruptcy proceeding may be entitled to an
award of attorney fees in accordance with applicable state law
if state law governs the substantive issues raised in the pro-
ceedings.” Ford v. Baroff (In re Baroff), 105 F.3d 439, 441
(9th Cir. 1997). Thus, in Christison v. Norm Ross Co. (In re
Eastview Estates II), 713 F.2d 443, 451 (9th Cir. 1983), we
awarded fees because the substantive legal question — the
legitimacy of the claim — was governed by California law,
which also authorized collection of attorney fees pursuant to
the contract at issue. However, we consistently have refused
to award fees when the substantive legal question was gov-
erned by federal bankruptcy law, rather than “basic contract
enforcement questions,” even when the underlying contract
contains an attorney fee provision enforceable under state
law. Fobian, 951 F.2d at 1153; see also Johnson v. Righetti
(In re Johnson), 756 F.2d 738, 740 (9th Cir. 1985) (denying
fees based on state contract provisions when the bankruptcy
proceeding “was predicated solely upon a federal statute and
California state law was not applied to any of the substantive
issues involved.”); Renfrew, 232 F.3d at 694 (“[I]f a divorce
decree provides for the payment of attorney’s fees, and state
law issues are litigated in the bankruptcy proceedings, attor-
                                IN RE: DEROCHE                                  753
ney’s fees are available, but only to the extent that they were
incurred litigating the state law issues.”).

                                       III

   [3] Given that background, we turn to the case at hand. In
this case, DeRoche properly concedes that the bankruptcy liti-
gation here addressed only issues of federal law, namely
whether or not the Commission’s claim was entitled to prior-
ity under federal bankruptcy law. A close review of the record
indicates that there were no substantive state law questions
involved in the litigation; only substantive federal law was at
issue.

  With that finding, application of our clear and consistent
case law would seem to end the matter. However, DeRoche
contends that our precedent barring attorney’s fees does not
apply, because DeRoche seeks fees under an Arizona statute,
A.R.S. § 12-348, rather than a contract.1 DeRoche argues that
  1
   The statute provides in relevant part as follows:
         § 12-348. Award of fees and other expenses against the
      state or a city, town or county; reduction or denial of award;
      application; basis for amount of award; source of award; def-
      initions
        A. In addition to any costs which are awarded as prescribed
      by statute, a court shall award fees and other expenses to any
      party other than this state or a city, town or county which prevails
      by an adjudication on the merits in any of the following:
        1. A civil action brought by the state or a city, town or
      county against the party.
         2. A court proceeding to review a state agency decision pur-
      suant to chapter 7, article 6 of this title or any other statute autho-
      rizing judicial review of agency decisions.
        3.   A proceeding pursuant to § 41-1034.
         4. A special action proceeding brought by the party to chal-
      lenge an action by the state against the party.
754                           IN RE: DEROCHE
because the statute protects individual citizens against unwar-
ranted litigation pursued by the state, it represents an impor-
tant state public policy that deserves more respect than
private-party contract arrangements for fee payments.

   [4] The district court and bankruptcy court correctly
rejected this argument. As we have discussed, it is the sub-
stantive nature of the bankruptcy proceeding that controls.
Here, the Commission was seeking to vindicate what it

        5. An appeal by the state to a court of law from a decision
      of the personnel board under title 41, chapter 4, article 6.
        6. A civil action brought by the party to challenge the seizure
      and sale of personal property by the state or a city, town or
      county.
        B. In addition to any costs which are awarded as prescribed
      by statute, a court may award fees and other expenses to any
      party, other than this state or a city, town or county, which pre-
      vails by an adjudication on the merits in an action brought by the
      party against this state or a city, town or county challenging:
         1. The assessment or collection of taxes or in an action
      brought by this state or a city, town or county against the party
      to enforce the assessment or collection of taxes.
        2.   The adequacy or regularity of notice of delinquent taxes.
        3.   The regularity of sales of property for delinquent taxes.
         C. The court in its discretion may deny the award provided
      for in this section or may reduce the award if it finds that any of
      the following applies:
        1. During the course of the proceeding the prevailing party
      unduly and unreasonably protracted the final resolution of the
      matter.
        2. The reason that the party other than the state or a city,
      town or county has prevailed is an intervening change in the
      applicable law.
        3. The prevailing party refused an offer of civil settlement
      which was at least as favorable to the party as the relief ulti-
      mately granted.
                         IN RE: DEROCHE                       755
thought was its substantive federal bankruptcy right, and all
of the legal fees incurred by both sides were accrued in either
pursuit or defense of that action. State law does not, and can-
not, create a new federal right of attorney fee recovery in this
context.

   We considered a similar issue in Johnson. In Johnson, the
debtor sought fees not under the parties’ contractual fee
agreement, which provided only that the creditor could
recover its fees, but under a California statute that equalized
the effect of such one-sided fee agreements by allowing either
party to recover fees if it prevailed in a subsequent lawsuit.
Despite this statutory expression of state public policy, we
found that “[w]hen, as here, federal and not state law gov-
erned the substantive issues involved in the [creditors’]
motion, the bankruptcy court should not have awarded attor-
ney’s fees pursuant to a state statute.” Johnson, 756 F.2d at
741.

   [5] The character of the particular state statute is irrelevant
to this analysis. Our clear rule is that no fees are available
under state law for litigation of substantive federal bankruptcy
issues in bankruptcy court. There is no principled distinction
to be drawn from this rule for sui generis treatment of fee
claims based on fee-shifting statutes directed at state govern-
ments.

  For these reasons, we affirm the judgment of the district
court.

  AFFIRMED.