Court Opinion

ID: 4193017
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:03:48.115337+00
Date Added: 2024-06-11T14:40:22.342125
License: Public Domain

FILED
                                                          JUL 31 2014
 1                         NOT FOR PUBLICATION
                                                     SUSAN M. SPRAUL, CLERK
 2                                                      U.S. BKCY. APP. PANEL
                                                        OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP Nos.   CC-13-1513-KuBlPa
                                   )                 CC-13-1514-KuBlPa
 6   JOAN BORSTEN VIDOV and OLEG   )                 (related appeals)
     VIDOV,                        )
 7                  Debtors.       )      Bk. No.    12-22121
     ______________________________)
 8                                 )      Adv. No.   12-01017
     SOFIA MARSHAK,                )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )      MEMORANDUM*
11                                 )
     JOAN BORSTEN VIDOV; OLEG      )
12   VIDOV,                        )
                                   )
13                  Appellees.     )
     ______________________________)
14
                     Argued and Submitted on June 26, 2014
15                          at Pasadena, California
16                           Filed – July 31, 2014
17             Appeal from the United States Bankruptcy Court
                   for the Central District of California
18
          Honorable Maureen A. Tighe, Bankruptcy Judge, Presiding
19
20   Appearances:     Marc Y. Lazo of Wilson Harvey Browndorf LLP argued
                      for appellant Sofia Marshak; Carlos Singer argued
21                    for appellees Joan Borsten Vidov and Oleg Vidov.
22
     Before: KURTZ, BLUMENSTIEL** and PAPPAS, Bankruptcy Judges.
23
24
          *
25         This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may
26   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8013-1.
27
          **
           The Honorable Hannah L. Blumenstiel, Bankruptcy Judge for
28   the Northern District of California, sitting by designation.
 1                               INTRODUCTION
 2        Sofia Marshak filed a nondischargeability complaint against
 3   debtors Joan Borsten-Vidov and Oleg Vidov under 11 U.S.C.
 4   §§ 523(a)(2)(A) and (a)(6).1   The bankruptcy court granted
 5   summary judgment against Marshak.     After the court entered
 6   judgment, the Vidovs filed two separate motions, one seeking to
 7   recover the attorney’s fees they incurred in defending against
 8   the complaint and the other seeking an order pursuant to
 9   Appellate Rule 7 requiring Marshak to post a bond sufficient to
10   cover their costs and fees on appeal if the Vidovs happened to
11   prevail on appeal.
12        The bankruptcy court granted both motions, and Marshak
13   appealed.   Because the court’s ruling on both motions is based on
14   the erroneous legal premise that the Vidovs were entitled to
15   recover their fees in accordance with a contractual fees
16   provision, we REVERSE.
17                                   FACTS
18        The two appeals disposed of in this decision are related to
19   two other appeals, both filed by Marshak, from the bankruptcy
20   court’s summary judgment ruling (BAP Nos. CC-13-1421 &
21   CC-13-1466).   In a separate decision filed concurrently herewith,
22   we have disposed of those summary judgment appeals by affirming
23   the bankruptcy court.    The background leading up to Marshak’s
24
25        1
           Unless specified otherwise, all chapter and section
26   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     all Rule references are to the Federal Rules of Bankruptcy
27   Procedure. All Civil Rule references are to the Federal Rules of
     Civil Procedure, and all Appellate Rule references are to the
28   Federal Rules of Appellate Procedure.

                                       2
 1   adversary proceeding and the bankruptcy court’s summary judgment
 2   ruling is recited in that separate decision.
 3        Two weeks after the bankruptcy court entered summary
 4   judgment against Marshak, the Vidovs filed their attorney’s fees
 5   motion.     The fees motion sought recovery of roughly $68,000 in
 6   fees and expenses.     The Vidovs claimed they were entitled to
 7   recover their fees and expenses under the terms of a settlement
 8   agreement they entered into with Marshak in February 2009.2       The
 9   settlement agreement provided in relevant part:
10        Attorneys' Fees. Should a lawsuit or arbitration be
          commenced to interpret or enforce the terms of this
11        Agreement, the prevailing party shall be entitled to
          recover reasonable costs, reasonable attorney’s fees
12        and reasonable expenses in addition to any other
          recovery to which the party may be entitled.
13
14   Settlement Agreement (Feb. 6, 2009) at ¶ 17.7.
15        A few days after they filed their fees motion, the Vidovs
16   filed their motion asking the bankruptcy court to require Marshak
17   to post a bond pursuant to Appellate Rule 7.3     The Vidovs asked
18
          2
19         The Vidovs argued in the alternative that they were
     entitled to recover their fees under Rule 9011. The bankruptcy
20   court did not award the Vidovs their fees on this alternate
     ground. On this record, it is apparent that the Vidovs did not
21   comply with the “safe harbor” requirements set forth in
22   Rule 9011(c)(1)(A). Absent compliance with these requirements,
     it would have been improper for the bankruptcy court to permit
23   the Vidovs to recover their fees based on Rule 9011. See Barber
     v. Miller, 146 F.3d 707, 710-11 (9th Cir. 1998); Polo Bldg. Grp.,
24   Inc. v. Rakita (In re Shubov), 253 B.R. 540, 545-46 (9th Cir. BAP
     2000), partially disapproved of on other grounds, Mount Hope
25   Church v. Bash Back!, 705 F.3d 418, 427 (9th Cir. 2012).
26        3
              Appellate Rule 7 provides in relevant part:
27
          In a civil case, the district court may require an
28                                                         continue...

                                        3
 1   the bankruptcy court to impose a bond requirement sufficient to
 2   cover their anticipated attorney’s fees and expenses on appeal in
 3   the estimated amount of $40,000, as well as to secure payment of
 4   the $68,000 in fees already incurred in defending against
 5   Marshak’s exception to discharge complaint.   The Vidovs further
 6   claimed that, in accordance with Appellate Rule 38,4 the
 7   bankruptcy court should then double the sum of these two amounts
 8   for a total of $216,000.
 9        The imposition of this bond requirement, the Vidovs
10   contended, was appropriate because of the large amount of
11   attorney’s fees Marshak had forced the Vidovs to incur in
12   defending against Marshak’s meritless litigation.   In particular,
13   the Vidovs pointed to the bankruptcy court’s determination in its
14   summary judgment ruling that Marshak had produced little or no
15   evidence to support any of her nondischargeability claims.
16        Marshak filed a short response opposing both motions.    In
17   essence, Marshak asserted that both motions should be denied
18   because the contractual fees provision the Vidovs were relying
19   upon did not cover either her nondischargeability lawsuit or her
20   appeal from the summary judgment ruling.
21
          3
22         ...continue
          appellant to file a bond or provide other security in
23        any form and amount necessary to ensure payment of
          costs on appeal.
24
          4
              Appellate Rule 38 provides:
25
26        If a court of appeals determines that an appeal is
          frivolous, it may, after a separately filed motion or
27        notice from the court and reasonable opportunity to
          respond, award just damages and single or double costs
28        to the appellee.

                                        4
 1        The Vidovs then filed a reply, in which they pointed out
 2   that attorney’s fees can be included in costs for purposes of
 3   imposing an Appellate Rule 7 bond if there is some applicable
 4   fee-shifting statute making such fees recoverable as costs.
 5   According to the Vidovs, § 1717 of California’s Civil Code (“Cal.
 6   Civ. Code § 1717") applied to Marshak’s exception to discharge
 7   action and explicitly provided for the taxation of attorney’s
 8   fees as costs.5
 9        The bankruptcy court held a hearing and ruled on each motion
10   in favor of the Vidovs.     Even though Marshak’s exception to
11   discharge complaint alleged claims sounding in fraud and
12   conversion, the bankruptcy court held that the Vidovs were
13   entitled to recover their fees in accordance with the settlement
14   agreement’s fee provision because the underlying dispute between
15   the parties arose out of the settlement agreement and because, in
16   the court’s view, Marshak’s grievances could be properly
17
18        5
              Cal. Civ. Code § 1717(a) provides in part:
19
          In any action on a contract, where the contract
20        specifically provides that attorney's fees and costs,
          which are incurred to enforce that contract, shall be
21        awarded either to one of the parties or to the
          prevailing party, then the party who is determined to
22
          be the party prevailing on the contract, whether he or
23        she is the party specified in the contract or not,
          shall be entitled to reasonable attorney's fees in
24        addition to other costs.
25        * * *
26
          Reasonable attorney's fees shall be fixed by the court,
27        and shall be an element of the costs of suit.

28   (Emphasis added.)

                                        5
 1   characterized as breach-of-contract type grievances.
 2        As for the bond motion, the bankruptcy court held that it
 3   could impose a bond requirement to cover attorney’s fees as long
 4   as there was an applicable fee shifting provision permitting the
 5   recovery of fees as costs.    The bankruptcy court opined that it
 6   was appropriate in this instance to require Marshak to post a
 7   $60,000 bond.    The bankruptcy court did not identify which fee
 8   shifting statute was applicable, nor did it explain how it
 9   calculated the bond amount.
10        The bankruptcy court also did not identify what specific
11   criteria it had considered in imposing the bond requirement.
12   However, it did hold that the bond was necessary in order to
13   ensure that the Vidovs would not be further harmed in their
14   reorganization efforts by having to incur additional attorney’s
15   fees defending against Marshak’s serious but wholly unsupported
16   accusations.    Furthermore, the court characterized the $60,000
17   bond amount as “minor” and stated that Marshak’s (or her
18   counsel’s) actions in the litigation had been “very abusive and
19   harassing.”
20        The bankruptcy court signed and filed on October 2, 2013,
21   “notices of tentative ruling” pursuant to which the bankruptcy
22   court manifested its intent to fully and finally dispose of both
23   the fees motion and the bond motion.    See Brown v. Wilshire
24   Credit Corp. (In re Brown), 484 F.3d 1116, 1120 (9th Cir. 2007)
25   (holding that a bankruptcy court disposition is final for appeal
26   purposes if it fully adjudicates the issues at bar and clearly
27   manifests the judge’s intent that it be the court’s final act in
28   the matter; Mullen v. Hamlin (In re Hamlin), 465 B.R. 863, 868

                                       6
 1   (9th Cir. BAP 2012) (same).    On October 16, 2013, Marshak timely
 2   filed notices of appeal from both orders.
 3                                JURISDICTION
 4        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 5   §§ 1334 and 157(b)(2)(I), and we have appellate jurisdiction
 6   under 28 U.S.C. § 158.
 7                                   ISSUES
 8   1.   Did the bankruptcy court abuse its discretion in granting
 9        the Vidovs’ fees motion?
10   2.   Did the bankruptcy court abuse its discretion in granting
11        the Vidovs’ bond motion?
12                             STANDARDS OF REVIEW
13        We review the bankruptcy court’s determination regarding an
14   award of attorney’s fees for an abuse of discretion.    Fry v.
15   Dinan (In re Dinan), 448 B.R. 775, 783 (9th Cir. BAP 2011).      We
16   similarly review the bankruptcy court’s decision to impose a bond
17   under Appellate Rule 7.    See Azizian v. Federated Dep’t Stores,
18   Inc., 499 F.3d 950, 955 (9th Cir. 2007).
19        Under the abuse of discretion standard of review, we first
20   “determine de novo whether the [bankruptcy] court identified the
21   correct legal rule to apply to the relief requested.”    United
22   States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).
23   And if the bankruptcy court applied the correct legal rule, we
24   then determine whether the court's factual findings were:
25   “(1) illogical, (2) implausible, or (3) without support in
26   inferences that may be drawn from the facts in the record.”      Id.
27   (internal quotation marks omitted).
28

                                        7
 1                                 DISCUSSION
 2          Ordinarily, absent an applicable statutory or contractual
 3   provision providing for fees, each litigant must pay their own
 4   attorney’s fees regardless of who prevails.     Traveler's Cas. &
 5   Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 448
 6   (2007).    This is known as the “American Rule” and it applies in
 7   bankruptcy cases.    Id.   Absent a contrary provision in the
 8   Bankruptcy Code, we look to applicable non-bankruptcy law to
 9   determine whether a prevailing party has any right to recover its
10   attorney’s fees.    See id. at 450-51; In re Dinan, 448 B.R. at
11   785.
12          Here, it is undisputed that the applicable non-bankruptcy
13   law is California law.     California similarly follows the American
14   Rule.    See Santisas v. Goodin, 17 Cal. 4th 599, 607 n.4 (1998).
15   But California also permits parties to depart from the American
16   Rule by contractual provision.     Id.   In California, no less than
17   three distinct statutes govern contractual fees provisions.
18   California Code of Civil Procedure § 1021 (“CCP § 1021")
19   acknowledges the parties’ right to contract for the recovery of
20   attorney’s fees.    Meanwhile, California Code of Civil Procedure
21   § 1033.5 (“CCP § 1033.5") dictates that attorney's fees are
22   treated as an element of costs when a statute or contract
23   provides for their recovery.     And finally, in contract actions,
24   Cal. Civ. Code § 1717 entitles the prevailing party to recover
25   its fees based on a contractual fees provision even if that
26   provision on its face only entitles the other party to the
27   contract to recover its fees.     Santisas, 17 Cal. 4th at 602.   In
28   other words, Cal. Civ. Code § 1717 turns unilateral fees

                                        8
 1   provisions into reciprocal fees provisions by operation of law.
 2        Under California law, just because a contract has an
 3   attorney’s fees provision does not mean that the prevailing party
 4   in litigation automatically is entitled to recover its fees in
 5   any type of legal action.   Rather, the contractual fees provision
 6   must be construed like any other contract term.    See Santisas,
 7   17 Cal.4th at 608.   Accord, Exxess Electronixx v. Heger Realty
 8   Corp., 64 Cal. App. 4th 698, 708-09 (1998); Patterson v. Rogers
 9   (In re Rogers), 2011 WL 7145722, at **11-12 (9th Cir. BAP 2011).
10   As explained in Santisas, the specific language of the
11   contractual fees provision typically controls the scope and reach
12   of the entitlement to recover fees, and that language ordinarily
13   must be interpreted in accordance with its plain and unambiguous
14   meaning.   Santisas, 17 Cal. 4th at 608.
15        Here, the contractual fees provision upon which the Vidovs
16   and the bankruptcy court relied is not broad enough to support
17   the bankruptcy court’s fee award.    A number of courts already
18   have held that, under California law, a contractual fees
19   provision like the one here entitling the prevailing party to
20   recover fees in an action to “interpret” or “enforce” a contract
21   does not cover tort claims.   See, e.g., Casella v. SouthWest
22   Dealer Servs., Inc., 157 Cal. App. 4th 1127, 1161-62 (2007);
23   Redwood Theaters, Inc. v. Davison (In re Davison), 289 B.R. 716,
24   724-25 (9th Cir. BAP 2003); Exxess Electronixx, 64 Cal. App. 4th
25   at 708-09 (1998).
26        The bankruptcy court characterized Marshak’s exception to
27   discharge claims as breach of contract claims.    We cannot agree
28   with this characterization.   In her nondischargeability action,

                                      9
 1   Marshak alleged several different species of fraud by way of her
 2   § 523(a)(2)(A) claim.    As we explained in In re Davison,
 3   § 523(a)(2)(A) fraud claims sound in tort and not in contract
 4   under California law.    Id. at 724.   The same is true of Marshak’s
 5   § 523(a)(6) conversion claim.    Section 523(a)(6) claims for
 6   willful and malicious injury sound in tort and not in contract.
 7   See Kawaauhau v. Geiger, 523 U.S. 57, 60-61 (1998) (holding that
 8   § 523(a)(6)'s discharge exception is confined to debts based on
 9   intentional tort); Lockerby v. Sierra, 535 F.3d 1038, 1041 & n.2
10   (9th Cir. 2008) (stating that tortious conduct is required for
11   § 523(a)(6) to apply).
12        California law further supports our characterization of
13   Marshak’s § 523(a)(6) conversion claim as a tort claim.      In
14   California, conversion actions may arise from contractual
15   obligations, but an action for conversion nonetheless still
16   sounds in tort and not in contract.    See Del Bino v. Bailey
17   (In re Bailey), 197 F.3d 997, 1000–01 (9th Cir. 1999)
18   (interpreting California law); see also Hillco Inc. v. Stein,
19   82 Cal. App. 3d 322, 327 (1978) (“It is obvious that the first
20   two causes of action in the original complaint, namely those for
21   fraud and conversion, sound only in tort.”).
22        If there had been broader language in the settlement
23   agreement’s fees provision, something indicating an entitlement
24   to recover fees in actions “arising out of” or “related to” the
25   settlement agreement, then at least some of Marshak’s fraud and
26   conversion allegations may have implicated the fees provision.
27   See Santisas, 17 Cal. 4th at 608 (holding that fees provision
28   with “arising out of” language was broad enough to cover both

                                      10
 1   tort and contract claims).   For instance, Marshak alleged that
 2   the Vidovs falsely promised in the settlement agreement, with no
 3   intent to perform, the timely payment of certain mortgage debt.
 4   This allegation properly could be characterized as a fraud claim
 5   “arising out of” the contract.   However, this allegation is still
 6   fraud-based, sounds in tort, and hence is beyond the scope of the
 7   narrower “interpret” or “enforce” language actually used in the
 8   settlement agreement’s fees provision.
 9        At bottom, Marshak’s exception to discharge claims were all
10   based on tort, and the fees provision in the settlement agreement
11   was not broad enough to cover tort claims.   Furthermore, the
12   relevant California statutes (Cal. Civ. Code § 1717, CCP § 1021
13   and CCP § 1033.5) do not allow the recovery or shifting of fees
14   absent an explicit statutory or contractual provision.     Put
15   another way, none of these statutes permit a prevailing party to
16   recover fees incurred in an action that is beyond the scope of
17   the unambiguous terms of a contractual fees provision.
18        Under these circumstances, the bankruptcy court abused its
19   discretion by awarding the Vidovs attorney’s fees.   The
20   bankruptcy court, as a matter of law, misconstrued the plain
21   language of the settlement agreement’s fees provision.     See
22   United States v. 1.377 Acres of Land, 352 F.3d 1259, 1264 (9th
23   Cir. 2003) (citing California law and stating that the
24   interpretation of a contract is a question of law when that
25   interpretation is based on the clear and explicit language of the
26   contract itself).   This error of law directly led to the
27   bankruptcy court’s erroneous fee award and must be reversed.
28        The bankruptcy court’s order requiring Marshak to post a

                                      11
 1   bond suffers from the same legal defect.    That order was based on
 2   the same erroneous legal determination that the Vidovs were
 3   entitled under the settlement agreement’s fees provision to
 4   recover their attorney’s fees.    In the absence of applicable
 5   contractual or statutory provisions entitling the appellee to
 6   recover its fees as costs, a bond pursuant to Appellate Rule 7
 7   may not provide for the recovery of attorney’s fees.    See
 8   Azizian, 499 F.3d at 959-60.
 9          The bankruptcy court's bond ruling has a second legal
10   defect.    The bankruptcy court relied on Appellate Rule 7, but
11   this rule only applies to appeals from a district court to the
12   court of appeals and only authorizes a district court to order
13   the posting of such a bond.    There is no bankruptcy rule making
14   Appellate Rule 7 applicable to bankruptcy courts presiding over
15   adversary proceedings.
16          The bankruptcy court did not identify any legal grounds
17   authorizing it to invoke Appellate Rule 7 nor are we aware of
18   any.    We have searched for precedent indicating that a bankruptcy
19   court has authority under Appellate Rule 7 to impose a bond, and
20   we only found one decision.    See In re Miller, 325 B.R. 178, 180
21   (Bankr. W.D. Ky. 2005).    We do not consider In re Miller
22   persuasive.    That decision did not offer any analysis explaining
23   why a bankruptcy court might be able to apply Appellate Rule 7.
24   Moreover, In re Miller’s application of Appellate Rule 7 seems
25   inconsistent with Ninth Circuit law.    See Vasseli v. Wells Fargo
26   Bank, N.A. (In re Vasseli), 5 F.3d 351, 353 (9th Cir. 1993).
27   Vasseli stands for the proposition that an Appellate Rule
28   authorizing a federal court of appeals to take certain action

                                      12
 1   does not permit the bankruptcy court to take that action.   See
 2   id.; see also In re T. R. Acquisition Corp v. Marx Realty &
 3   Improvement Co. (In re T. R. Acquisition Corp.), 1997 WL 528156,
 4   at *1 n.1 (S.D.N.Y. 1997) (stating that Appellate Rule 7 only
 5   permits the imposition of a bond pending an appeal to the court
 6   of appeals).
 7        Based on both of the above-referenced legal defects, the
 8   bankruptcy court’s bond order was erroneous and must be reversed.
 9                              CONCLUSION
10        For the reasons set forth above, we REVERSE both the
11   bankruptcy court’s fees order as well as its bond order.
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