In re: Tower Park Properties, LLC ( 2021 )

NOT FOR PUBLICATION FILED
FEB 26 2021
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-20-1223-GFL
TOWER PARK PROPERTIES, LLC,
Debtor. Bk. No. 2:08-bk-20298-BR
SUNSET COAST HOLDINGS, LLC, Adv. No. 2:20-ap-01010-BR
Appellant,
v. MEMORANDUM 1
HUGHES INVESTMENT
PARTNERSHIP, LLC, ET. AL.,
Appellees.
Appeal from the United States Bankruptcy Court
for the Central District of California
Barry Russell, Bankruptcy Judge, Presiding
Before: GAN, FARIS, and LAFFERTY, Bankruptcy Judges.
INTRODUCTION
This appeal arises out of litigation involving the foreclosure of the
157-acre parcel of residential real estate (the “Property”) at issue in In re
Tower Park Properties LLC, Case No. 2:08-bk-20298-BR (“Tower Park
1 This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
2
Bankruptcy Case”), and a purported right of redemption provided for by
the confirmed chapter 11 2 plan.
Appellant Sunset Coast Holdings, LLC (“Sunset”) filed an action in
state court seeking to enforce the right of redemption against Appellees
Hughes Investment Partnership, LLC, MH Holdings II H, LLC, MH Land
Holdings I-A, LLC, MH Land Holdings I-B, LLC, MH Land Holdings I-C,
LLC, and MH Land Holdings I-D, LLC (collectively “Hughes”). Sunset also
filed and recorded a Notice of Pendency of Action (Lis Pendens) (the “Lis
Pendens”) regarding the Property.
After Hughes removed the action to the bankruptcy court, it filed a
motion to dismiss the complaint and a motion to expunge the Lis Pendens.
The bankruptcy court granted both motions and awarded Hughes its
reasonable attorneys’ fees and costs incurred in connection with the motion
to expunge the Lis Pendens, pursuant to California Code of Civil Procedure
(“CCP”) § 405.38.
Sunset opposed Hughes’s requested fees of $54,877 and argued that
both the hourly rates and the time spent were unreasonable. The
bankruptcy court disagreed and awarded Hughes the full requested
amount. Sunset has not demonstrated that the bankruptcy court abused its
discretion by approving the application. We AFFIRM.
2Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532.
3
FACTS
A. The Tower Park Bankruptcy
In April 2010, the bankruptcy court confirmed the plan in the Tower
Park Bankruptcy Case. Under the plan, Hughes agreed to modify the terms
of its existing liens and provide additional exit financing. The plan
provided that Tower Park Properties, LLC (“Tower Park”), Hughes, and
creditor La Jolla Capital Investors, LLC (“LJCI”) would enter into an
Intercreditor and Subordination Agreement, under which LJCI would
subordinate its existing lien to the Hughes liens and receive partial
payment from the exit financing and a right of redemption if certain
conditions were satisfied.
After Tower Park defaulted in January 2011, LJCI assigned its rights
to Secured Capital Partners, LLC (“SCP”). Tower Park later transferred the
Property to SCP, which filed a chapter 11 petition to stay foreclosure. After
SCP’s case was dismissed as a bad faith filing, it transferred the property
back to Tower Park. Ultimately, the bankruptcy court permitted Hughes to
foreclose on the Property in August 2019.
B. The State Court Case And Adversary Proceeding
In December 2019, Sunset filed suit in the California Superior Court
against Hughes, seeking to enforce a right of redemption. Sunset asserted
that it acquired LJCI’s right of redemption from SCP in December 2019.
Within a few days of filing the complaint, Sunset filed and recorded the Lis
Pendens regarding the Property.
4
In January 2020, Hughes removed the action to the bankruptcy court.
It then filed a motion to dismiss the complaint with prejudice and a motion
to expunge the Lis Pendens under state law.
Sunset filed a motion to remand the proceeding to state court in
February 2020. After a hearing, the bankruptcy court denied Sunset’s
motion to remand and scheduled a hearing on Hughes’s motion to dismiss
and motion to expunge.
Hughes argued that Sunset did not file or serve the Lis Pendens in
compliance with CCP § 405.22 and the complaint did not establish the
probable validity of a real property claim pursuant to CCP § 405.31.
Hughes further argued that pursuant to CCP § 405.38, it was entitled to
attorneys’ fees and costs in bringing the motion to expunge and Sunset
could not demonstrate that it was substantially justified in recording the Lis
Pendens.
Sunset did not oppose the motion to expunge. However, prior to the
hearing on the motion to expunge in July 2020, Sunset attempted to
withdraw the Lis Pendens. At the hearing, Hughes argued that the
attempted withdrawal was ineffective under California law.
The bankruptcy court reasoned that even if Sunset did voluntarily
withdraw the Lis Pendens, an award of attorneys’ fees was still possible.
The court entered an order granting the motion to expunge, awarding
Hughes its reasonable attorneys’ fees and costs, and setting a hearing on
the amount and reasonableness of fees and costs.
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C. The Fee Application
Hughes filed an application for attorneys’ fees incurred in connection
with the motion to expunge the Lis Pendens in the total amount of $54,877.
Hughes argued that the extent of the work performed by counsel was
largely a consequence of the multiple ways in which the Lis Pendens was
improperly served, improperly filed, and improperly attempted to be
withdrawn. Hughes asserted that Sunset’s failures to comply with service
and recording requirements forced it to spend time and resources finding
the Lis Pendens, then identifying the various defects and determining how
to address those defects in the motion to expunge.
Hughes contended that its counsel’s hourly rates were commensurate
with similar law firms in the market. It supported its application with a
declaration of attorney Rolf Woolner, who attached time entries for work
performed in connection with the Lis Pendens. Mr. Woolner stated that time
entries which included both activities related to the Lis Pendens and tasks
related to other aspects of the case, such as removal or the motion to
dismiss, were not included in the application. He asserted that his firm set
hourly rates annually based on employee experience and legal industry
information of rates charged by peer firms, including the 2020
PricewaterhouseCoopers Survey of Los Angeles Legal Rates. Although Mr.
Woolner was not permitted to make the survey public, he attached a
publicly available brochure indicating hourly rates and a recent case in
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which the district court determined that his firm’s rates were consistent
with the prevailing market rates.
Sunset opposed the application and argued no fees should be
awarded because it acted with substantial justification, and an award of
fees would be unjust under the circumstances because it did not oppose the
motion to expunge and attempted to withdraw the Lis Pendens. Sunset also
maintained that the requested fees were unreasonable and excessive for a
simple motion to expunge. It argued that the hourly rates were excessive
and cited Barkett v. Sentosa Properties LLC, No. 1:14-cv-01698-LJO, 2015 WL
5797828 (E.D. Cal. Sep. 30, 2015) for the proposition that the prevailing
market rate should be $285 per hour.
Sunset further argued that the requested fees included work
performed by partners which should have been delegated to associates or
non-billable assistants. It also claimed that several entries were for
conferences or communications between attorneys involved in the case
without any explanation of why the motion to expunge would require such
extensive communication and strategizing. Sunset asserted that counsel
spent between 20 and 28 hours drafting the motion, which was
substantially more time than was required. Finally, Sunset objected to
block billing by one partner and $12,444 in fees incurred after the motion to
expunge was filed.
Hughes filed a reply and argued that Sunset waived any argument
that it was substantially justified in recording the Lis Pendens or that an
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award of fees would be unjust under the circumstances because Hughes
asserted its right to an award of fees in the motion to expunge and Sunset
did not oppose the motion. Hughes reiterated that the motion to expunge
was not a typical motion given the history of the case, the significance of
the Property, and the multiple defects involved in the Lis Pendens. It argued
that it was reasonable to hire a national law firm with experience with the
Property and its history, and the cases cited by Sunset did not involve rates
at the high end of the Los Angeles legal market. Hughes noted that the
bankruptcy court routinely reviews fee applications in Los Angeles
bankruptcy cases and is familiar with the legal market there.
The bankruptcy court held a hearing on the application for fees in
August 2020. Neither party made an argument at the hearing and each
relied on the written pleadings. The bankruptcy court approved the fee
request and stated:
I’ve read the papers and so forth, but . . . I am satisfied. This is
not your usual motion to expunge a lis pendens given the
history of this case, so it’s a little unusual but I’m going to grant
the application in full . . . . And basically I just stated on the
record that I agree with all the arguments of the applicant and
the order should just state for the reasons stated on the record
that . . . good cause has been shown. The application will be
approved.
Hr’g Tr. 4:15-19; 4:25-5:3, Aug. 11, 2020. The court entered a written order
on August 24, 2020 and Sunset timely appealed.
8
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court abuse its discretion by awarding Hughes
reasonable fees under CCP § 405.38 in the amount of $54,877?
STANDARDS OF REVIEW
We review a bankruptcy court’s award of attorneys’ fees to a
prevailing party for an abuse of discretion. Fry v. Dinan (In re Dinan), 448
B.R. 775, 783 (9th Cir. BAP 2011). A bankruptcy court abuses its discretion
if it applies an incorrect legal standard or if its factual findings are illogical,
implausible, or without support in the record. TrafficSchool.com v. Edriver
Inc., 653 F.3d 820, 832 (9th Cir. 2011).
“We review the factual determinations underlying an award of
attorneys’ fees for clear error.” Ferland v. Conrad Credit Corp., 244 F.3d 1145,
1147-48 (9th Cir. 2001) (per curiam).
DISCUSSION
Sunset argues that the bankruptcy court erred by failing to provide
its reasoning for approving the fees and by determining that the requested
fees were reasonable.
In a bankruptcy proceeding, a prevailing party may be entitled to
fees under applicable state law if state law governs the substantive issues
in the proceeding. Bertola v. N. Wis. Produce Co., Inc. (In re Bertola), 317 B.R.
9
95, 99 (9th Cir. BAP 2004). The Lis Pendens was expunged pursuant to state
law, so attorneys’ fees were awardable under state law.
Under CCP § 405.38, 3 “a prevailing party on a motion to expunge a
lis pendens is entitled to recover attorney fees.” Castro v. Super. Ct., 116
Cal. App. 4th 1010, 1018 (2004). The attorneys’ fee provision was originally
enacted to “mitigate against and control misuse of the lis pendens
procedure.” Trapasso v. Super. Ct., 73 Cal. App. 3d 561, 569 (1977). The
statute was later revised to make an award of fees mandatory unless the
court finds that the other party acted with “substantial justification” or
circumstances would make the award of fees unjust. Castro, 116 Cal. App.
4th at 1018. The party opposing expungement bears the burden of proving
it acted with substantial justification or that an award of fees would be
unjust. See Sharp v. Nationstar Mortg. LLC, Case No. 14-cv-00831-LHK, 2016
WL 6696134, *8 (N.D. Cal. Nov. 15, 2016); Doan v. Singh, No. 1:13-cv-531-
LJO-SMS, 2014 WL 3867418, *3 (E.D. Cal. Aug. 4, 2014).
Hughes sought an award of attorneys’ fees as part of its motion to
expunge and argued that Sunset was not substantially justified in
3 CCP § 405.38 provides:
The court shall direct that the prevailing party on any motion
under this chapter be awarded the reasonable attorney’s fees and costs of
making or opposing the motion unless the court finds that the other party
acted with substantial justification or that other circumstances make the
imposition of attorney’s fees and costs unjust.
10
recording the Lis Pendens. After the bankruptcy court granted the motion to
expunge, CCP § 405.38 required it to award fees unless Sunset provided
sufficient evidence that it acted with substantial justification and that an
award of fees would be unjust. However, Sunset did not oppose the
motion.
Although Sunset suggests that we should determine that no fees
should be awarded, it waived the issue of whether an award of fees was
required under the statute. See In re Mercury Interactive Corp. Sec. Litig., 618
F.3d 988, 992 (9th Cir. 2010) (“[A]n issue will generally be deemed waived
on appeal if the argument was not raised sufficiently for the trial court to
rule on it.” (citation and quotations marks omitted)). Additionally, we see
nothing in the record that indicates Sunset was substantially justified or
that an award of fees would be unjust. Sunset did not attempt to withdraw
the Lis Pendens until the week of the hearing on the motion to expunge, and
the record does not indicate that the attempted withdrawal was effective.
The order granting the motion to expunge established Hughes’s
entitlement to fees under CCP § 405.38. The court set a further hearing to
determine only the amount and reasonableness of the award, and we
review only whether the bankruptcy court erred in determining whether
the amount of fees requested was reasonable.
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A. The Bankruptcy Court Provided A Sufficient Explanation For Its
Award Of Fees
CCP § 405.38 does not specify the method to determine “reasonable
attorney’s fees” but “the fee setting inquiry in California ordinarily begins
with the ‘lodestar,’ i.e., the number of hours reasonably expended
multiplied by the reasonable hourly rate.” PLCM Grp. v. Drexler, 22 Cal. 4th
1084, 1095 (2000). This is consistent with awards of reasonable attorneys’
fees in federal court.
There is a “strong presumption” that the lodestar figure represents a
reasonable fee. Jordan v. Multnomah Cty., 815 F.2d 1258, 1262 (9th Cir. 1987).
Despite its presumptive reasonableness, the bankruptcy court may adjust
the lodestar figure if circumstances warrant. Camacho v. Bridgeport Fin., Inc.,
523 F.3d 973, 978 (9th Cir. 2008) (citing Ferland, 244 F.3d at 1149 n.4).
The fee applicant bears the burden of submitting evidence
supporting the hours expended. Gates v. Deukmejian, 987 F.2d 1392, 1397
(9th Cir. 1992) (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)). In
determining the reasonable hours expended, the court “must examine
detailed time records to determine whether the hours claimed are
adequately documented and whether any of them are unnecessary,
duplicative, or excessive.” Gonzalez v. Aurora Loan Servs. LLC, No. EDCV
11-00143 VAP (FFMx), 2011 WL 13224852, *2 (C.D. Cal. Feb. 25, 2011)
(citing Chalmers v. City of L.A., 796 F.2d 1205, 1210 (9th Cir. 1986), amended
on other grounds, 808 F.2d 1373 (9th Cir. 1987)). The party opposing the fee
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application “has a burden of rebuttal that requires submission of
evidence . . . challenging the accuracy and reasonableness of the hours
charged.” Gates, 987 F.2d at 1397-98 (citing Blum v. Stenson, 465 U.S. 886,
892 n.2 (1984)).
Reasonable hourly rates should be determined according to “the
prevailing market rates in the relevant community.” Sam K. ex rel Diane C.
v. Haw. Dep’t of Educ., 788 F.3d 1033, 1041 (9th Cir. 2015) (quoting Van Skike
v. Dir., Office of Workers’ Comp. Programs, 557 F.3d 1041, 1046 (9th Cir.
2009)). The fee applicant has the burden to produce evidence of the
prevailing market rates, but the court may consider fees awarded by others
in the same locality for similar cases and may rely on its “own knowledge
of customary rates and [its] experience concerning reasonable and proper
fees.” Id. (quoting Ingram v. Oroudjian, 647 F.3d 925, 928 (9th Cir. 2011)).
“Affidavits of the [party’s] attorney and other attorneys regarding
prevailing fees in the community . . . are satisfactory evidence of the
prevailing market rate.” United Steelworkers of Am. v. Phelps Dodge Corp., 896
F.2d 403, 407 (9th Cir. 1990).
The bankruptcy court has “a great deal of discretion” in its decision
about the reasonableness of the fee. Gates, 987 F.2d at 1398 (citing Hensley,
461 U.S. at 437). However, the court must give “some indication of how it
arrived at the amount . . . to allow for meaningful appellate review.” Id.; see
also Hensley, 461 U.S. at 437 (the court must provide a “concise but clear
explanation of its reasons for the fee award.”).
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The bankruptcy court is not required to provide “an elaborately
reasoned, calculated, or worded order . . . [and] a brief explanation of how
the court arrived at its figures will do.” Gates, 987 F.2d at 1398 (quoting
Chalmers, 796 F.2d at 1211 n.3). If there is a large difference between the
amount requested and the bankruptcy court’s award, “a more specific
articulation of the court’s reasoning is expected,” but where the difference
is relatively small, “a somewhat cursory explanation will suffice.” Moreno
v. City of Sacramento, 534 F.3d 1106, 1111 (9th Cir. 2008).
Here, the bankruptcy court gave a very cursory explanation for its
decision. It merely stated that it agreed with Hughes’s arguments and after
reviewing the papers, it would grant the full amount requested based on
the history of the case. But under these circumstances, the bankruptcy
court’s explanation is sufficient to permit meaningful appellate review.
The bankruptcy court awarded the full amount requested by Hughes
without making any adjustment. When the court accepts the lodestar
amount without adjustment, it need only determine that the hourly rates
and the hours expended by counsel were reasonable. See Pennsylvania v.
Del. Valley Citizens’ Council for Clear Air, 478 U.S. 546, 564 (1986) (“[The
lodestar] is more than a mere ‘rough guess’ or initial approximation of the
final award to be made . . . . ‘[w]hen . . . the applicant for a fee has carried
his burden of showing that the claimed rate and number of hours are
reasonable, the resulting product is presumed to be the reasonable fee’ to
which counsel is entitled.” (quoting Blum, 465 U.S. at 897)).
14
By awarding the full amount requested in the application, the
bankruptcy court satisfied the minimum requirement that it “set forth the
number of hours compensated and the hourly rate applied.” Chalmers, 796
F.2d at 1211 n.3. Although it did not state on the record that the rates and
hours were reasonable, it necessarily concluded so by considering
Hughes’s time entries and evidence of the prevailing market rate and by
stating that it agreed with Hughes’s arguments.
B. The Bankruptcy Court Did Not Clearly Err By Determining The
Fees Were Reasonable
Sunset argues that the hours spent by Hughes’s attorneys were
excessive based on several decisions in which courts determined that a
motion to expunge a lis pendens is not a complex matter. We agree that a
typical motion to expunge a lis pendens should not require substantial
attorney time. But in an exceptional case, a bankruptcy court may find
substantial attorney time to be reasonable. See Baptiste v. Spizzirri, No.
SACV 18-00084 AG, 2018 WL 6074525, *1-2 (C.D. Cal. May 31, 2018)
(awarding approximately two thirds of requested fees of $80,182 for 156
hours billed by multiple attorneys based on “exceptional features” of the
case); see also Perdue v. Kenny A. ex rel Winn, 559 U.S. 542, 553 (2010)
(“novelty and complexity of a case . . . presumably [are] fully reflected in
the number of billable hours recorded by counsel.” (citation and quotation
marks omitted)).
15
If we were determining what fee would be reasonable in the first
instance, our calculation might differ from that of the bankruptcy court,
“but that does not mean that the court abused its discretion.” Vargas v.
Howell, 949 F.3d 1188, 1198 (9th Cir. 2020). “Reasonable people may differ
as to what number of hours was reasonable to spend on this case. But once
we are satisfied that the [bankruptcy] court has considered the appropriate
factors for the appropriate reasons, our reviewing function is finished.”
Cunningham v. Cty. of L.A., 879 F.2d 481, 486 (9th Cir. 1988).
The bankruptcy court reviewed the time entries submitted by
Hughes and considered Sunset’s objections. It determined that the motion
was not a usual motion to expunge given the history of the case. In
awarding fees, “trial courts may take into account their overall sense of a
suit . . . [a]nd appellate courts must give substantial deference to these
determinations, in light of ‘the [bankruptcy] court’s superior
understanding of the litigation.’” Fox v. Vice, 563 U.S. 826, 838 (2011)
(quoting Hensley, 461 U.S. at 437).
Finally, Sunset argues that the evidence submitted by Hughes was
not relevant to support the prevailing market rate in the relevant
community because the fee survey involved only large firms engaged in
complex litigation. But, in addition to the evidence submitted by Hughes,
the bankruptcy court can rely on its own knowledge and experience in
determining the prevailing market rate. Sam K. ex rel. Diane C., 788 F.3d at
1041. Sunset cites several cases in which a court determined a lesser hourly
16
rate, but these cases arose in the Eastern District of California and none
involved the relevant community at issue in this case.
Sunset has not demonstrated that the bankruptcy court clearly erred
in finding the hours expended and the hourly rate reasonable. The court
did not abuse its discretion in approving the attorneys’ fees awarded to
Hughes.
CONCLUSION
Based on the foregoing, we AFFIRM the bankruptcy court’s order
approving Hughes’s application for attorneys’ fees.
17