Bank of the West v. Tenderloin Health
Filing
11
ORDER AFFIRMING BANKRUPTCY APPEAL. Signed by Judge Jeffrey S. White on 11/12/15. (jjoS, COURT STAFF) (Filed on 11/12/2015)
1
2
3
4
NOT FOR PUBLICATION
5
UNITED STATES DISTRICT COURT
6
NORTHERN DISTRICT OF CALIFORNIA
7
8
9
IN RE:
Case No. 15-cv-01173-JSW
TENDERLOIN HEALTH,
Debtors.
10
ORDER AFFIRMING BANKRUPTCY
COURT
United States District Court
Northern District of California
11
12
13
BANK OF THE WEST,
14
Appellant,
15
v.
16
E. LYNN SCHOENMANN,
17
Appelle.
18
19
20
Now before the Court for consideration is the appeal filed by Bank of the West’s
21
(“BOTW”) of the Bankruptcy Court’s Order denying its motion for attorneys’ fees in an adversary
22
proceeding brought by Appellee, E. Lynn Schoenmann (“Trustee”), Schoenmann v. Bank of the
23
West, AP No. 12-03171-HLB (the “Adversary Proceeding”). Pursuant to Civil Local Rule 16-4,
24
the Court deems this case submitted on the papers without oral argument.
25
The Court has reviewed the parties’ papers, the record on appeal, and relevant legal
26
authority. For the reasons set forth in this Order, the Court hereby AFFIRMS the Bankruptcy
27
Court.
28
//
BACKGROUND1
1
The Court previously set forth the facts underlying this dispute in Orders issued in two
2
3
related cases: In re Tenderloin Health: E. Lynn Schoenmann v. Bank of the West, 13-cv-03992-
4
JSW and In re Tenderloin Health: Bank of the West v. E. Lynn Schoenmann, 13-cv-04585-JSW.
5
(See Appellant’s Excerpts of Record (“BOTW EOR”) Tab W, Order Affirming Bankruptcy Court
6
(“Affirmance Order”) at 1:27-3:12; BOTW EOR Tab DD, Order Remanding to Bankruptcy Court
7
for Further Proceedings (“Remand Order”) at 2:2-4:3.)
In brief, the Trustee filed suit, pursuant to 11 U.S.C. section 547, to recover what she
9
alleged was a preferential transfer (the “Debt Payment”) from the debtor, Tenderloin Health
10
(“Debtor”) to BOTW. On July 31, 2013, the Bankruptcy Court granted BOTW’s motion for
11
United States District Court
Northern District of California
8
summary judgment. (BOTW EOR, Tab F, Tentative Ruling on Motion for Summary Judgment
12
(“SJ Tentative”); BOTW EOR Tab G, Order Granting Motion for Summary Judgment (“SJ
13
Order”).) The Bankruptcy Court found that the Trustee could not meet her burden on her
14
preference claim, because BOTW was able to show that it had an independent right of set-off.
15
Thus, the Trustee could not show BOTW received more on account of the Debt Payment than it
16
would have received in a hypothetical Chapter 7 liquidation, in which the Debt Payment had not
17
occurred. (SJ Tentative at 3:16-6:9.)2
On August 15, 2013, BOTW filed a motion for attorneys’ fees, which the Trustee opposed.
18
19
(BOTW EOR, Tabs J-M.) In support of its motion, BOTW asserted that it had a contractual right
20
to attorneys’ fees based on clauses contained in two Promissory Notes, a Commercial Security
21
Agreement (“CSA”), and a Business Loan Agreement (“BLA”) (collectively the “Governing
22
Agreements”), which provide as follows:
23
Promissory Notes: ATTORNEYS’ FEES; EXPENSES. Lender
24
1
25
In re Tenderloin Health: E. Lynn Schoenmann v. Bank of the West, 13-cv-03992-JSW and
In re Tenderloin Health: Bank of the West v. E. Lynn Schoenmann, 13-cv-04585-JSW.
26
2
27
28
The Trustee filed a timely notice of appeal and elected to proceed before this Court.
(BOTW EOR, Tabs I, K.) On September 26, 2014, this Court affirmed the Bankruptcy Court’s
ruling on summary judgment. (Affirmance Order at 4:10-5:28.) The Trustee appealed the
Affirmance Order to the United States Court of Appeals for the Ninth Circuit, and it remains
pending before that court.
2
may hire or pay someone else to help collect this Note if Borrower
does not pay. Borrower will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender’s
attorneys’ fees and Lender’s legal expenses, whether or not there is
a lawsuit, including attorneys’ fees, expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic
stay or injunction), and appeals. Borrower also will pay any court
costs, in addition to all other sums provided by law.
1
2
3
4
5
Commercial Security Agreement: Attorneys’ Fees; Expenses.
Grantor agrees to pay upon demand all of Lender’s costs and
expenses, including Lender’s attorneys’ fees and Lender’s legal
expenses, incurred in connection with the enforcement of this
Agreement. Lender may hire or pay someone else to help enforce
this Agreement, and Grantor shall pay the costs and expenses of
such enforcement. Costs and expenses include Lender’s attorneys’
fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
Borrower also shall pay all court costs and such additional fees as
may be directed by the court.
6
7
8
9
10
United States District Court
Northern District of California
11
Business Loan Agreement: Attorneys’ Fees, Expenses. Borrower
agrees to pay upon demand all of Lender’s costs and expenses,
including Lender’s attorneys’ fees and Lender’s legal expenses,
incurred in connection with the enforcement of this Agreement.
Lender may hire or pay someone else to help enforce this
Agreement, and Borrow shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender’s attorneys’ fees
and legal expenses whether or not there is a lawsuit, including
attorneys’ fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. Borrower also shall pay all court costs and such
additional fees as may be directed by the court.
12
13
14
15
16
17
18
19
(BOTW EOR, Tab N, Tentative Ruling on Motion for Attorneys’ Fees (“Fee Tentative”) at 2:5-
20
3:4 (emphasis added))3
Applying California law, the Bankruptcy Court determined that BOTW could not rely on
21
22
the Promissory Notes to support its request for fees, because the Debtor had paid and because
23
BOTW had not hired someone to collect the debt. The Bankruptcy Court also determined that the
24
reference to bankruptcy proceedings in the fee clause defined “the scope of actions for which
25
[BOTW] would be entitled to attorney’s fees when ‘collecting’ on the note.” The clause did not
26
27
28
3
The Governing Agreements can be found at BOTW EOR Tab C, Declaration of Lisa
Lenherr, ¶¶ 3-4, Ex. A, BOTW Requests for Admissions 1-8 and exhibits A-D, Ex. B, Trustee
Responses to Requests for Admissions 1-8.
1
2
create an independent basis on which to recover fees. (Fee Tentative at 4:21-5:19.)
The Bankruptcy Court also concluded that BOTW was not entitled to attorneys’ fees based
3
on the CSA or the BLA, because the “plain meaning” of the fee clause in those agreements
4
implied “that it applies to actions brought to challenge, invalidate, or otherwise contest
5
Defendant’s security interest.” (Id. at 5:25-27.) Because the Trustee had not “dipuste[d] the
6
nature, extent, or validity of [BOTW’s] security interest in Debtor’s personal property” and had
7
not “dispute[d] the amount or validity of” BOTW’s claim, the Bankruptcy Court found that the
8
Adversary Proceeding “was not an action to enforce” either the CSA or the BLA. (Id. at 5:27-
9
6:16.) As with the Promissory Notes, the Bankruptcy Court found that the bankruptcy
proceedings clause served to define the scope of actions for which BOTW would be entitled to
11
United States District Court
Northern District of California
10
fees incurred for enforcement of those two agreements. (Id. at 5:20-6:11.)
12
Finally, the Bankruptcy Court stated that it did not believe any of the Governing
13
Agreements were ambiguous. However, it found, in the alternative, that if the terms “collect” or
14
“enforce” were ambiguous, it would resolve any ambiguities against BOTW as the drafter of the
15
Governing Agreements. (Id. at 6:12-7:4.)
16
BOTW filed a timely notice of appeal and elected to proceed before this Court. (BOTW
17
EOR, Tabs P, Q.) On appeal, BOTW argued that the Bankruptcy Court failed to recognize that its
18
affirmative defenses were “inextricably intertwined” with “enforcement” and “collection” and,
19
thus, gave rise to its right to attorneys’ fees under the Governing Agreements. The Court
20
remanded to the Bankruptcy Court for further proceedings because: (1) BOTW had not raised that
21
argument below; (2) the argument did not appear to be a settled proposition under California law;
22
and (3) the outcome of the motion could depend on how the broadly the Bankruptcy Court
23
construed the Governing Agreements. (Remand Order at 5:9-27.)
24
On February 25, 2015, the Bankruptcy Court denied BOTW’s motion for attorney’s fees.
25
(BOTW EOR, Tab S, Order Following Remand.) The Bankruptcy Court held that the assertion of
26
an affirmative defense could give rise to a claim for attorneys. (Order Following Remand at 6:19-
27
7:3.) It also held that BOTW’s successful affirmative defense:
28
did not require “enforcement” of the [G]overning [A]greements,
but rather, enforcement of its right to setoff, which existed
independent of the relevant contracts. The Promissory Notes
provide for attorneys’ fees where Bank of the West hired counsel
to “help collect [the notes] if [Debtor] does not pay.” This did not
occur, as the Debtor paid Bank of the West in full prior to the
commencement of its bankruptcy case.
1
2
3
4
The outcome of this action does not turn upon the fact that Bank of
the West prevailed upon an affirmative defense as opposed to a
claim raised in a complaint. Rather, it depends upon whether the
relevant attorneys’ fees provisions were drafted broadly enough to
permit an award of fees where the successful defense had nothing
to do with enforcement of the governing agreement(s). This Court
finds they were not.
5
6
7
8
9
(Id. at 7:27-8:14.)
BOTW filed a timely notice of appeal, and elected to proceed before this Court. (BOTW
10
United States District Court
Northern District of California
11
EOR, Tabs T, U.)
The Court shall address additional facts as necessary in its analysis.
12
ANALYSIS
13
14
A.
15
[A district court may] affirm, modify, or reverse a bankruptcy
judge’s judgment, order or decree or remand with instructions for
further proceedings. Findings of fact, whether based on oral or
documentary evidence, shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of the
bankruptcy court to judge the credibility of witnesses.
16
17
18
19
Standard of Review.
Fed. R. Bankr. P. 8013.
20
The Court reviews the Bankruptcy Court’s findings of fact for clear error, and it reviews
21
the Bankruptcy Court’s conclusions of law de novo. See In re Part-Helena-Corp., 63 F.3d 877,
22
880 (9th Cir. 1995); see also In re Chen, 345 B.R. 197, 200 (N.D. Cal. 2006) (citing In re Jan
23
Weilert RV, Inc., 315 F.3d 1192, 1196 (9th Cir. 2003)). The Court will not “disturb [the]
24
bankruptcy court’s award of attorneys’ fees unless the bankruptcy court abused its discretion or
25
erroneously applied the law.” In re Kord Enterprises, II, 139 F.3d 684 (9th Cir. 1998).
26
B.
The Court Affirms the Decision.
27
BOTW argues that the Bankruptcy Court erred when it found that BOTW was not entitled
28
to attorneys’ fees. It is well established that, under the “American Rule,” a prevailing party is not
1
entitled to an award of attorney’s fees, unless those fees are provided for by statute or contract.
2
See Travelers Casualty & Surety Company of America v. Pacific Gas & Electric Company, 549
3
U.S. 443, 448 (2007). Similarly, under California law, “[e]xcept as attorney’s fees are specifically
4
provided for by statute, the measure and mode of compensation of attorneys and counselors at law
5
is left to the agreement, express or implied, of the parties[.]” Cal. Code Civ. P. § 1021; see also
6
Santisas v. Goodwin, 17 Cal. 4th 599, 607 n.4 (1998) (noting that Section 1021 codifies the
7
“American Rule” regarding attorney’s fees).4
8
1.
The Affirmative Defense Issue.
9
As a preliminary matter, the Court remanded, in part, because BOTW sought to invoke the
attorneys’ fees clauses based on its assertion of an affirmative defense, an issue not addressed
11
United States District Court
Northern District of California
10
below. On remand, the Bankruptcy Court concluded that BOTW could rely on an affirmative
12
defense to invoke its rights to attorneys’ fees. In doing so, the court followed the reasoning of
13
Windsor Pacific LLC v. Samwood Co., Inc., 213 Cal. App. 4th 263 (2013), Mountain Air
14
Enterprises, LLC v. Sundowner Towers, LLC, 231 Cal. App. 4th 805 (2014), review granted, 185
15
Cal. Rptr. 3rd 6, 344 P.3d 292 (2015), and Justice Armstrong’s dissenting opinion in Gil v.
16
Mansano, 121 Cal. App. 4th 739 (2004).
In Windsor, the court held that “an attorney fee clause providing for a fee award to the
17
18
prevailing party in ‘any action or proceeding to enforce or interpret’ a contract applies not only
19
where the plaintiff’s allegations in the complaint seek to enforce or interpret the contract, but also
20
where the defendant seeks to do so by asserting an affirmative defense raised in its answer.”
21
Windsor Pacific, 213 Cal. App. 4th at 266 (emphasis added); see also id., 213 Cal. App. 4th at
22
275. That is, when an attorney fee clause permits recovery of fees in an action to “enforce or
23
24
25
26
27
28
4
California Civil Code section 1717 provides for a reciprocal right to attorney’s fees and
allows a party to recover fees in an action on a contract. However, BOTW does not rely on
Section 1717 to support its request for fees. BOTW argues that the Bankruptcy Court applied
Section 1717, rather than Section 1021, but the Court is not persuaded. Rather, it concludes that
the Bankruptcy Court’s decision hinges on the finding that the Adversary Proceeding did not serve
to “enforce” the Governing Agreements. This Court’s conclusion is reinforced by the Bankruptcy
Court’s tentative ruling on the original fee motion, in which it clearly analyzed whether fees were
proper under Section 1021. (Fee Tentative at 3:14-4:2.)
1
interpret” a contract, if a defendant raises an affirmative defense that also seeks to “enforce or
2
interpret” the contract, the defendant will be entitled to fees.
Although neither party has challenged this aspect of the Bankruptcy Court’s decision,
3
4
given the manner in which the fee clauses are drafted, the Court finds the reasoning in Windsor
5
persuasive. Therefore, to the extent the Bankruptcy Court’s decision rests on the conclusion that
6
the assertion of an affirmative defense may, in some instances, support a request for attorney fees,
7
the Court AFFIRMS, IN PART, on that basis.
8
2.
Interpretation of the Attorneys’ Fee Clauses.
9
The Bankruptcy Court framed the issue on remand as follows: “[W]hether relevant case
law requires this Court to interpret the attorneys’ fee clauses at issue here broadly enough to
11
United States District Court
Northern District of California
10
justify an award of fees even where reference to the underlying contract is entirely unnecessary to
12
resolve the action.” (Order on Remand at 5:5-8.) BOTW argues that the Bankruptcy Court’s
13
decision is erroneous, because it failed to interpret the Governing Agreements. The Court finds
14
this argument unpersuasive.
The BLA and the CSA each provide for attorney fees “incurred in connection with the
15
16
enforcement of this Agreement[.]”5 As set forth by the Bankruptcy Court, in order to determine if
17
BOTW was entitled to fees, it was required to determine whether the affirmative defense of set-off
18
served to enforce any of the Governing Agreements. In order to interpret the terms of the
19
Governing Agreements, the Court applies general principles of contract interpretation. Santisas,
20
17 Cal. 4th at 608; Windsor Pacific, 213 Cal. App. 4th at 273.
21
Under statutory rules of contract interpretation, the mutual
intention of the parties at the time the contract is formed governs
interpretation. Such intent is to be inferred, if possible, solely from
the written provisions of the contract. The clear and explicit
meaning of these provisions, interpreted in their ordinary and
popular sense, unless used by the parties in a technical sense or a
special meaning is given to them by usage, controls judicial
22
23
24
25
5
26
27
28
The Promissory Notes provide for attorney fees if BOTW hired someone “to help collect
this Note if [Debtor] does not pay.” BOTW does not seriously press that its affirmative defense
would fall within the scope of this clause. Because it is undisputed that the Debtor did pay its debt
under the Note, the Court concludes that the Bankruptcy Court correctly found that BOTW could
not seek fees based on the fee clauses contained in the Promissory Notes, and it AFFIRMS, in
part, on that basis as well.
7
interpretation. Thus, if the meaning a layperson would ascribe to
contract language is not ambiguous, we apply that meaning.
1
2
3
Santisas, 17 Cal. 4th at 608 (internal citations and quotations omitted); see also Cal. Civ. Code §§
4
1636, 1638, 1639, 1644.
BOTW argues that, if the Trustee had succeeded on the preference claim to avoid the
5
6
Escrow Payment, the result would have been to “unwind the Debtor’s contractual performance of
7
payment of the Notes.” (BOTW Brief at 17:7-9.) Thus, according to BOTW, the practical effect
8
of its affirmative defense is “a contention that the Debtor’s contractual performance was proper,
9
the debt owed was valid, and the Escrow Payment cannot be ‘undone’ by the Bankruptcy Code’s
10
strong arm powers,” i.e., it sought to “enforce” the Governing Agreements. (Id. at 17:12-15.)
In support of this argument, BOTW relies, in part, on In re Mac-Go, No. 14-44181 CN,
United States District Court
Northern District of California
11
12
2015 WL 1372717 (N.D. Br. Mar. 20, 2015). In In re Mac-Go, the trustee sought relief under 11
13
U.S.C. sections 547, 548 and 549, to recover payments made by the debtor to First National Bank
14
(“FNB”). Id., 2015 WL 1372717, at *1. After it prevailed in the adversary proceeding, FNB filed
15
a proof of claim, which included attorneys’ fees incurred in the adversary proceeding. Id. To
16
support its request, FNB relied on its loan agreements with the debtor, each of which contained
17
attorneys’ fee clauses that are identical to the attorneys’ fee clauses in the Governing Agreements.
18
Id., 2015 WL 1372717, at *2.6
19
The bankruptcy court concluded that the trustee’s fraudulent conveyance claims “did not
20
directly question the validity of the” agreements. However, it found that FNB’s defense against
21
those claims “was premised” on their validity. Specifically, FNB argued that its promissory note
22
and business loan agreement with the debtor, of which the trustee appeared to be unaware, were
23
valid and enforceable and required the debtor to make the payments at issue. Id., 2015 WL
24
1372717, at *4. A “transfer [that] constitutes repayment of the debtor’s antecedent or present
25
debt” is not constructively fraudulent.” Id. The In re Mac-Go court reasoned that FNB’s defense,
26
27
28
6
The Trustee argues that the In re Mac-Go “decision is based on cases which are clearly
distinguishable from the fee provisions and claims at issue here,” although she has not attempted
to distinguish the case itself. (Trustee Brief at 14 n.1.)
1
which utilized the agreements “in order to retain [the allegedly preferential] payments is the
2
functional equivalent of relying on these documents to pursue a collection action. Both should
3
qualify as the ‘enforcement’ of the [agreements].” Id., 2015 WL 1372717, at *4.
4
The court also concluded that FNB could recover fees for defending against the preference
5
claims, because in order to show it was fully secured when it received the disputed payments,
6
FNB had to “establish that it had (at the relevant times) a perfected security interest in [the
7
debtor’s] collateral, the value of which was equal to or exceeded the amount due under the
8
[debtor’s] loan.” Id., 2015 WL 1372717, at *6. Again, because FNB had to rely on the
9
agreements to establish “the bonafides of its secured claim,” the court concluded that its defense to
10
United States District Court
Northern District of California
11
the preference claim was the functional equivalent of “enforcing” the agreements. Id.
To support its reasoning, the In re Mac-Go court relied on a number of cases which it
12
interpreted as standing for the proposition that “using a contract provision as a defense to a tort
13
litigation is akin to enforcing the contract’s terms.” See In re Mac-Go, 2015 WL 1372717, at *5
14
(citing Finalco, Inc. v. Roosevelt, 235 Cal. App. 3d 1301 (1991)). For example, the court relied on
15
the Windsor case, supra, in which the plaintiff filed suit to establish a prescriptive easement on the
16
defendant’s property. The court found that the plaintiff was equitably estopped from asserting a
17
prescriptive easement, because the parties had executed an “Agreement Regarding Easement,”
18
which prevented the plaintiff from demonstrating that its use of the property was adverse.
19
Windsor, 213 Cal. App. 4th at 272-73. The court also found that the defendant was contractually
20
entitled to attorneys’ fees, because it “was necessary” to interpret the agreement to rule on the
21
equitable estoppel issue. Id. at 274.
22
In the Finalco case, the plaintiff sued the defendant to obtain the balance due on a
23
promissory note, and the defendant filed a cross-complaint based on alleged violations of federal
24
and state securities law, the Racketeering Influenced and Corrupt Organizations Act, common law
25
fraud, and misrepresentation. Id. The trial court awarded the plaintiff attorneys’ fees for
26
prosecuting its action on the promissory note and for the fees it incurred in defending against the
27
counterclaim. That ruling was based on a clause in the promissory note that provided that the
28
defendant agreed “to pay all costs of collection … including, without limitation, all attorney’s fees
1
2
and expenses and court costs.” Id. at 1306 (ellipses in original).
The court of appeal rejected the defendant’s argument that the fee clause should be limited
3
to costs that the plaintiff incurred in proving up its case and affirmed the fee award. It stated that
4
“California law is settled that a borrower’s obligation to pay attorneys’ fees incurred in the
5
collection of the note includes attorneys’ fees incurred in defending against a challenge to the
6
underlying validity of the obligation.” Id. at 1308 (emphasis added). The court reasoned that the
7
plaintiff’s defenses to the cross-complaint were “not ‘incidental’ to the prosecution … to recover
8
on the note.” Id. at 1307. Rather, because the defendant sought to rescind his obligation to the
9
plaintiff, “[n]ot only was [the plaintiff] obligated to file a complaint to recover on the note, it was
obliged to defend against [defendant’s] allegations of securities fraud in order to succeed on its
11
United States District Court
Northern District of California
10
complaint.” Id. at 1307.
12
The In re Mac-Go court also cited to and relied on Siligo v. Castellucci, 21 Cal. App. 4th
13
873 (1994). In that case, the parties settled a dispute over the sale of property, which included a
14
general release. The defendant subsequently stopped performing obligations under the parties’
15
renegotiated agreement, and the plaintiff filed suit. The defendant asserted fraud as an affirmative
16
defense and filed a counterclaim premised on fraud. The plaintiff defeated the affirmative defense
17
and the counterclaim by way of the release in the prior settlement. Id. at 876. The plaintiff sought
18
to recover his attorneys’ fees for both the prosecution of the breach of contract action and his
19
defense of the fraud claim. According to the Siligo court, “the pivotal point in the analysis
20
whether a prevailing party is entitled to recover contractual attorney fees for defending against a
21
competing noncontractual claim . . . is . . . whether a defense against the noncontractual claim is
22
necessary to succeed on the contractual claim.” Id. at 879 (emphasis added).
23
The court rejected the defendant’s argument that the cross-complaint did not seek to
24
rescind “or otherwise attack the enforceability” of the agreements as “superficial.” Id. Rather, it
25
found that the plaintiff “was required to defend against fraud in order to succeed on his complaint
26
to enforce the agreements. The practical success of [plaintiff’s] defense was the enforceability of
27
the agreements.” Id. at 880; see also Wagner v. Benson, 101 Cal. App. 3d 27, 37 (1980) (court
28
deemed defense against claim of fraud “necessary” to efforts to collect on notes and fees should
10
1
2
have been awarded for those efforts).
BOTW also relies on MRW, Inc. v. Big-O-Tires, LLC, 684 F. Supp. 2d at 1205 (E.D. Cal.
3
2010). There, the court found that the plaintiffs’ claims for fraud in the inducement “sought, in
4
essence, to escape the contract.” Id. at 1205. As in the Finalco and Siligo cases, the court found
5
that the “defense of these claims was necessary to enforcement of” an agreement that contained an
6
attorney fee clause providing for fees that a party incurred “to enforce this Guarantee.” Id., at
7
1203, 1205 (emphasis added).
8
9
As in the In re Mac-Go case, the Trustee did not directly dispute the validity of any of the
Governing Agreements. However, it does not appear that FNB relied on a set-off defense to
prevail on the preference claim, which distinguishes this case from In re Mac-Go. BOTW argues
11
United States District Court
Northern District of California
10
that the Court should follow the reasoning in In re Mac-Go, because the Governing Agreements,
12
specifically the CSA, establish its right to a set-off. However, the lesson this Court draws from
13
each of the cases on which the In re Mac-Go court relied is that the prevailing party did not simply
14
refer to the fact that a contract containing a fee clause existed, in order to prevail on an affirmative
15
defense. Rather, either it was necessary to prevail on the affirmative defense to show the
16
underlying agreement or obligation was valid or the prevailing party sought to enforce a particular
17
term of the agreement containing the fee clause.
18
As the Bankruptcy Court recognized, that is not the case here, where BOTW’s right of set-
19
off is a right that it is independent of the Governing Agreements. To the extent the In re Mac-Go
20
court found that the existence of the security agreement was sufficient to give FNB the right to
21
attorneys’ fees, the Court finds its reasoning unpersuasive. Cf. In re Davison, 289 B.R. 716, 725
22
(9th Cir. B.A.P. 2003) (holding that debtor was not entitled to receive fees under Section 1021,
23
where “in finding no fraud by Debtor, the bankruptcy court was not enforcing or interpreting the
24
terms” of contract that contained fee clause).
25
Accordingly, the Court affirms the decision.
CONCLUSION
26
27
28
For the foregoing reasons, the Court AFFIRMS the Bankruptcy Court’s decision to deny
BOTW’s motion for attorneys’ fees.
11
1
The Co shall ent a separate judgment, and the Cler shall close the file.
ourt
ter
e
rk
e
2
IT IS SO ORDER
S
RED.
3
Da
ated: Novemb 12, 2015
ber
5
4
__
___________
__________
____
JE
EFFREY S. W
WHITE
Un
nited States D
District Judg
ge
5
6
7
8
9
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
12
2
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?