Jones v. Cheplick

Filing 11

MEMORANDUM AND ORDER signed by District Judge Morrison C. England, Jr., on 9/22/16 ORDERING that the bankruptcy court's decision in this matter is hereby AFFIRMED. (Kastilahn, A) Modified on 9/22/2016 (Kastilahn, A).

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 DAVID C. JONES, 12 Appellant, 13 14 No. 2:15-cv-02148-MCE v. MEMORANDUM AND ORDER WALLY CHEPLICK, 15 Appellee. 16 Appellant David C. Jones (hereinafter “Jones”) appeals the Bankruptcy Court’s 17 18 refusal to award him attorneys’ fees after it otherwise found in his favor in an adversary 19 proceeding initiated by Appellee Wally Cheplick (hereinafter “Cheplick”). For the 20 reasons set forth below, the Bankruptcy Court’s decision is AFFIRMED. 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 1 BACKGROUND1 1 2 3 Jones initiated a Chapter 7 bankruptcy proceeding on March 13, 2014. A month 4 earlier, Telecomm Engineering, Inc. (hereafter “Telecomm”), a corporation for which 5 Jones was the majority shareholder and President, had also filed for Chapter 7 6 bankruptcy protection. 7 Cheplick was a creditor in the Telecomm bankruptcy proceeding regarding a 8 lease he had entered with Telecomm. Telecomm had defaulted on its lease obligations, 9 after which the parties proceeded to arbitration. Cheplick prevailed in the arbitration, 10 resulting in an award ordering Telecomm to pay both increased rent prospectively and 11 $55,695 plus 10% interest in back rent. Telecomm refused to pay either the increased 12 rent or the back rent and forfeited the property, after which Cheplick effected a judgment 13 as to the $55,695 in back rent due and declined to pursue any claims as to the future 14 rental payments. 15 When Jones filed his own bankruptcy action, Cheplick then filed an adversary 16 proceeding in that matter eventually pursuing fraud claims under both 11 U.S.C. §§ 523 17 and 747. According to Cheplick, Jones, acting as President of Telecomm, had 18 fraudulently transferred all of Telecomm’s assets to another entity to avoid paying 19 creditors. Given that conduct, Cheplick asserted Jones should be precluded from 20 discharging any debt related to the Telecomm judgment. 21 The Bankruptcy Court presided over a trial on the adversary proceeding and 22 found insufficient evidence to support Cheplick’s 11 U.S.C. §§ 523 and 727 fraud claims. 23 The trial court issued the Findings of Facts and Conclusions of Law on the record and 24 entered a final judgment in favor of Jones on July 15, 2015. 25 26 Jones subsequently moved for attorneys’ fees as the prevailing party based on a fee provision in the lease between Cheplick and Telecomm. After a hearing on the 27 1 28 Unless otherwise specified, the factual assertions in this section are derived from statements made in Jones’ Opening Brief. ECF No. 7 at 2-5. 2 1 matter, the trial court denied Jones’ Motion. Presently before the Court is Jones’ appeal 2 from that decision. 3 4 ANALYSIS 5 6 An appellant may petition the district court for review of a bankruptcy court’s 7 decision. Fed. R. Bankr. P. 8013. The applicable standard of review is identical to that 8 which circuit courts of appeal apply when reviewing district court decisions. See In re 9 Baroff, 105 F.3d 439, 441 (9th Cir. 1997). Accordingly, legal conclusions are reviewed 10 de novo, and factual determinations are assessed pursuant to a clearly erroneous 11 standard. In re Bammer, 131 F.3d 788, 792 (9th Cir. 1997) (en banc). 12 The viability of Jones’ appeal turns on a single issue: whether the Bankruptcy 13 Court erred in determining that Jones was not entitled to attorneys’ fees because the 14 adversary proceeding was not an action on a contract. Under California law: 15 16 17 18 19 In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs. 20 Cal. Civ. Code § 1717. “[A]n action is “on a contract” when a party seeks to enforce, or 21 avoid enforcement of, the provisions of the contract.” In re Penrod, 802 F.3d 1084, 1088 22 (9th Cir. 2015). 23 According to the Bankruptcy Court in this case, “the adversary proceeding had 24 virtually nothing to do with the lease; it had to do with whether the defendant, by his 25 actions, wrongfully deprived the plaintiff of the ability to collect on his judgment against 26 Telecomm.” AR 412. “In the adversary proceeding, the plaintiff did not seek a 27 determination of amount due under the lease, of the validity of the lease, as to the terms 28 of the lease, as to whether the lease was breached, or anything else having to do with 3 1 the lease.” Id. “The court did not make any findings or reach any conclusions about the 2 lease, and it is doubtful, in light of principles of preclusion, it would have had the power 3 to do so.” Id. Given the Bankruptcy Court’s conclusion that the adversary action was 4 not “on a contract,” it thus followed that Jones was not entitled to attorney’s fees 5 pursuant to California Civil Code § 1717(a). 6 This Court agrees for all of the reasons set forth by that court. Indeed, the 7 bankruptcy proceedings in this case had nothing to do with the lease and everything to 8 with Jones’, who was not even a party to the original contract, alleged fraudulent 9 attempts to avoid a judgment. 10 Jones’ reliance on In re Penrod, 802 F.3d 1084 (9th Cir. 2015), which was 11 decided after the bankruptcy court issued its decision, does not persuade the Court 12 otherwise. In that case, “[the debtor] proposed a Chapter 13 plan that bifurcated [the 13 creditor’s] claim into a secured claim for $16,000 . . . and an unsecured claim for the 14 remaining $10,000.” Id. at 1086. The creditor objected, claiming that a provision of the 15 bankruptcy law “carve[d] an exception to the usual rule governing how secured claims 16 are treated in bankruptcy,” and that the full amount of the claim should be secured. Id. 17 The debtor ultimately prevailed and sought to recover her attorneys’ fees. Id. at 1087. 18 The Ninth Circuit held that the bankruptcy proceedings constituted an “action on a 19 contract” because “[the creditor] sought to enforce the provisions of its contract with [the 20 debtor] when it objected to confirmation of her proposed Chapter 13 plan . . . . The only 21 possible source of that asserted right was the contract – in particular, the provision in 22 which [debtor] granted a security interest in the car[.]” Id. at 1088. 23 That case is distinguishable because the parties there were expressly litigating 24 their rights under a contract to determine the amounts of secured versus unsecured debt 25 for which the debtor would remain liable. The contract terms, albeit in relation to the 26 bankruptcy laws, were directly at issue. In this case, on the other hand, the only issue at 27 trial was whether Jones fraudulently transferred assets as an individual to avoid a 28 judgment against the corporation. 4 1 The other cases Jones relies upon are equally inapposite. In Circle Star Center 2 Associates, L.P. v. Liberate Technologies, 147 Cal. App. 4th 1203, 1208-09 (2002), the 3 court held that a lessor was contractually entitled to pursue attorney’s fees it had 4 incurred in securing the dismissal of the lessee’s bankruptcy case, which restored the 5 parties’ preexisting rights and remedies under the lease. Dismissal of the bankruptcy 6 case was thus necessary for the lessor to pursue its rights under the lease, and 7 restoration of those rights, of course, included restoration of the prevailing party’s right to 8 fees. Here, on the other hand, the rights under the lease had already been adjudicated 9 and the adversary action concerned tortious conduct having nothing to do with the 10 underlying contract. Chinese Yellow Pages Company v. Chinese Overseas Marketing 11 Service Corporation, 170 Cal. App. 4th 868, 882 (Cal. Ct. App. 2009), is likewise 12 distinguishable. In that case the court determined a prevailing party could seek to 13 recover fees incurred in trying to enforce a judgment in a bankruptcy proceeding. The 14 difference between that case and this one, however, is that the contract containing the 15 attorneys’ fee provision in Chinese Yellow Pages was a settlement agreement, which 16 was incorporated into the judgment itself. Seeking to enforce the judgment thus required 17 interpretation and enforcement of the parties’ agreement. Once again, then, that 18 bankruptcy litigation directly concerned the parties’ rights under a settlement agreement 19 as opposed to the fraudulent attempts to avoid a judgment alleged here. 20 In sum, Jones has cited to no authority, nor has the Court found any, indicating 21 that he is entitled to fees in this case. Accordingly, because the adversary action was 22 not “on a contract,” Jones has not shown he is entitled to recover fees, and the 23 Bankruptcy Court’s decision is AFFIRMED.2 24 /// 25 /// 26 /// 27 28 2 By the same preceding logic, Cheplick would also have been precluded from recovering fees. The fact that Cheplick included a prayer for attorneys’ fees in his pleadings does not change this conclusion or constitute some sort of an admission binding on this Court that a fee award would be proper. 5 1 CONCLUSION 2 3 4 For the reasons stated above, the bankruptcy court’s decision in this matter is hereby AFFIRMED. 5 IT IS SO ORDERED. 6 Dated: September 22, 2016 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6

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