In re: Annie Kim Le ( 2023 )

FILED
MAY 11 2023
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK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. NC-22-1033-BGF
ANNIE KIM LE,
Debtor. Bk. No. 21-50179
SPARTAN TANK LINES, INC., Adv. No. 21-05022
Appellant,
v. MEMORANDUM∗
ANNIE KIM LE,
Appellee.
Appeal from the United States Bankruptcy Court
for the Northern District of California
Stephen L. Johnson, Chief Bankruptcy Judge, Presiding
Before: BRAND, GAN, and FARIS, Bankruptcy Judges.
INTRODUCTION
Appellant Spartan Tank Lines, Inc. ("Spartan") appeals an order
denying its attorney's fees for a dischargeability proceeding it successfully
prosecuted against the debtor, Annie Kim Le, for fraud under § 523(a)(2)(A).1
Le's entity, American Gas & Oil Corp. ("American"), was a customer of
Spartan's. As part of their business relationship, Le executed a personal
∗ 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.
1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532.
1
guaranty of American's debts to Spartan. The personal guaranty contained an
attorney's fee clause. 2
The bankruptcy court determined that Spartan could not recover
attorney's fees under Cal. Civ. Code ("CCC") § 1717 because the fraud
dischargeability proceeding was not an "action on a contract." We agree. We
also conclude that Spartan could not recover attorney's fees for its fraud claim
under Cal. Code Civ. P. ("CCP") § 1021, which Spartan raised as a basis for
fees but the bankruptcy court did not consider. Accordingly, we AFFIRM.
FACTS
The facts are undisputed because Spartan's requests for admission were
deemed admitted after Le failed to respond to them. Spartan sold and
delivered gasoline to a gas station owned by American. Le was the CEO of
American and operated the gas station.
On December 30, 2009, Le, as CEO of American, submitted a credit
application with Spartan for the purpose of gasoline sale and delivery.
Spartan approved the application and extended credit privileges to
American, conditioned upon the receipt of a personal guaranty from Le. In
the credit application, Le promised to pay American's debts to Spartan (the
"Credit Application Guarantee"). The Credit Application Guarantee
contained an attorney's fee clause which states:
The undersigned further agrees to pay any and all reasonable
attorney fees and collection costs whether or not action is
2
As explained more below, Le signed two personal guaranties on the same date
which both contain an attorney's fee clause but with different language.
2
instituted for collection thereof, and if action is instituted [sic]
collection, such reasonable attorney fees as the court may award.
Le also signed a separate document attached to the credit application called
"Personal Guaranty" which contained the same promise to pay American's
debts to Spartan. The Personal Guaranty contained a different attorney's fee
clause which states:
Guarantors agree to pay reasonable attorney's fees and all other
costs and expenses which may be incurred by Seller in the
enforcement of this guaranty and the enforcement of any
judgement [sic] thereafter entered against Guarantors.
American stopped paying Spartan for delivered gasoline sometime in
2019. As of December 31, 2019, American owed Spartan $31,945.19. Neither
American nor Le paid the debt owed to Spartan.
Spartan sued American and Le in state court for breach of contract and
personal guaranty, seeking to recover the $31,945.19, plus interest and
reasonable attorney's fees. The case went no further than the complaint stage
due to Le's chapter 13 bankruptcy filing. A few days after her chapter 13 case
was involuntarily dismissed, Le filed the instant chapter 7 case.
Spartan filed an adversary complaint against Le under § 523(a)(2)(A),
alleging that its debt was nondischargeable based on her personal guaranty 3
and subsequent fraudulent transfers of assets intended to deprive Spartan of
payment for gasoline sold and delivered to American.
3
When we use the term "personal guaranty" (in lower case), we mean both
guaranties to the extent Le agreed to pay American's debts to Spartan.
3
Le moved to dismiss the complaint, arguing that Spartan's claim under
§ 523(a)(2)(A) failed because she could not have "obtained" the debt
corresponding to her personal guaranty by way of the fraudulent transfer
scheme. The court rejected this argument, observing that the personal
guaranty debt was not the relevant debt; rather, it was the debt Le incurred
by engaging in the fraudulent transfers under CCP § 3439 et seq. Under
California law, a creditor can obtain a fraudulent transfer judgment against
not only the transferee but also the person for whose benefit the transfer was
made. See CCC § 3439.08(b)(1)(A). Though Le was not the transferee, she
benefitted from the transfers she orchestrated. The court reasoned that this
could support a § 523(a)(2)(A) claim absent a misrepresentation under Husky
International Electronics, Inc. v. Ritz, 578 U.S. 356 (2016).
After Le failed to respond to Spartan's requests for admission, Spartan
moved for summary judgment, which the bankruptcy court granted. The
deemed admitted facts established that Le had engaged in actual fraud as to
Spartan. The details of the fraudulent transfers are not important here. Suffice
it to say, Le admitted that her transfers of American's assets and a home titled
in the name of an LLC she controlled were done for the sole purpose of
avoiding payment to Spartan and other creditors of American. In the
summary judgment order, the bankruptcy court concluded that Spartan's
claim for $47,278.88 (including interest) was excepted from Le's discharge
under § 523(a)(2)(A), and that Spartan was entitled to reasonable attorney's
fees and costs upon proof.
4
In its first motion for attorney's fees and costs, Spartan argued that it
was entitled to fees per the fee provision in the Credit Application
Guarantee.4 Other than cursory citations to CCP § 1021 and CCC § 1717,
Spartan did not argue what authority provided the basis for its fee award.
Spartan requested $160,725.50 for fees and $10,090.99 for costs incurred in
both the state court contract action and the dischargeability proceeding.
After reviewing Spartan's first fee motion and discerning a notice
defect, the bankruptcy court directed Spartan to refile and renotice the
motion. Further, and changing course on the fee issue, the court observed that
fees might not be recoverable. While it did not articulate its reasoning, the
court appeared to question whether the dischargeability proceeding was an
"action on a contract" within the meaning of CCC § 1717. The court directed
Spartan to address the following cases in its second fee motion: Bos v. Board of
Trustees, 818 F.3d 486 (9th Cir. 2016); American Express Travel Related Services
Co. v. Hashemi (In re Hashemi), 104 F.3d 1122 (9th Cir. 1996); Grove v. Fulwiler
(In re Fulwiler), 624 F.2d 908 (9th Cir. 1980); and Hsu v. Abbara, 9 Cal. 4th 863(Cal. 1995).
Spartan's second motion for attorney's fees and costs addressed and
attempted to distinguish the above cases as inapposite. Spartan argued that
4
In its § 523 complaint, Spartan referenced only the Personal Guaranty. In her
motion to dismiss the complaint, Le referenced only the Credit Application Guarantee but
attached copies of both guaranties to her motion. In its opposition to Le's motion to
dismiss, Spartan discussed only the Personal Guaranty but also attached copies of both
guaranties. For purposes of attorney's fees, Spartan relied on the attorney's fee clause in
the Credit Application Guarantee. The bankruptcy court did not state which attorney's fee
5
the dischargeability complaint was based on its breach of contract/personal
guaranty claim against Le and that the bankruptcy court necessarily decided
that claim in granting summary judgment. Thus, argued Spartan, the
dischargeability proceeding was an "action on a contract" because the Credit
Application Guarantee was the basis for its fraudulent transfer claim against
Le, which in turn supported a claim for actual fraud within the meaning of
§ 523(a)(2)(A) and Husky. Spartan again cited CCP § 1021 but did not argue
that attorney's fees were recoverable for a tort action under the Credit
Application Guarantee. Spartan was now requesting $178,362.25 in attorney's
fees (up $18,000 from the first fee motion) and $10,746.55 in costs.
After a hearing, the bankruptcy court denied Spartan's request for
attorney's fees and awarded only $5,825.60 for costs, after deducting certain
unauthorized expenses.5 While the personal guaranty was the underpinning
of Spartan's fee request, the court reasoned that the dischargeability
proceeding was not an "action on a contract" because neither breach nor
enforceability of the personal guaranty had to be determined to establish that
Spartan's fraud claim (based on California fraudulent transfer law) was
nondischargeable under § 523(a)(2)(A). Le admitted that she signed an
enforceable personal guaranty of American's debts, that it was in effect when
American defaulted on its obligation to Spartan, and that she was personally
liable for the default. Accordingly, the court found that under Bos and similar
clause it considered for its ruling.
5 Spartan does not challenge the bankruptcy court's decision to award a reduced
amount for its costs.
6
case law, CCC § 1717 did not apply, and therefore Spartan could not recover
its attorney's fees. Spartan timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court abuse its discretion in denying Spartan its
attorney's fees on its § 523(a)(2)(A) claim?
STANDARDS OF REVIEW
Generally, the denial of an award of attorney's fees is reviewed for
abuse of discretion. FDIC v. Lugli, 813 F.2d 1030, 1034 (9th Cir. 1987). A
bankruptcy court abuses its discretion if it applies the wrong legal standard,
or misapplies the correct legal standard, or makes factual findings that are
illogical, implausible, or without support in the record. United States v.
Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc).
However, if the propriety of a fee award depends on contractual
interpretation or other questions of law, we review the fee ruling de novo.
Lugli, 813 F.2d at 1034. "De novo review requires that we consider a matter
anew, as if no decision had been made previously." Francis v. Wallace (In re
Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014).
We may affirm on any ground supported by the record, whether or not
the bankruptcy court relied upon, rejected, or even considered that ground.
Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir.
7
2014).
DISCUSSION
A. The bankruptcy court did not err in ruling that the dischargeability
proceeding was not an "action on a contract."
There is no general right to attorney's fees in adversary proceedings
and contested matters in bankruptcy. See Travelers Cas. & Sur. Co. of Am. v.
Pac. Gas & Elec. Co., 549 U.S. 443, 447-48 (2007); Heritage Ford v. Baroff (In re
Baroff), 105 F.3d 439, 441 (9th Cir. 1997). Bankruptcy courts, however, may
award fees in § 523 actions where authorized by state law. See Travelers, 549
U.S. at 451-52; Cohen v. de la Cruz, 523 U.S. 213, 223 (1998); AT&T Universal
Card Servs., Corp. v. Pham (In re Pham), 250 B.R. 93, 99 (9th Cir. BAP 2000)
(post-Cohen, the determinative question in a § 523(a)(2)(A) action is whether
the successful plaintiff could recover attorney's fees in a nonbankruptcy
court).
The applicable provisions of California law governing the award of
attorney's fees are CCC § 1717 and CCP § 1021. CCC § 1717(a) 6 allows a party
to recover attorney's fees incurred in the litigation of a contract claim. Bos, 818
F.3d at 489; Redwood Theaters, Inc. v. Davison (In re Davison), 289 B.R. 716, 722
6 CCC § 1717(a) provides:
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.
8
(9th Cir. BAP 2003); Santisas v. Goodin, 17 Cal. 4th 599, 615 (1998). Three
conditions must be met for CCC § 1717 to apply. First, the action generating
the fees must have been an "action on a contract." Second, the contract must
provide that attorney's fees incurred to enforce it shall be awarded either to
one of the parties or to the prevailing party. Finally, the party seeking fees
must have prevailed in the underlying action. Bos, 818 F.3d at 489 (citing
Penrod v. AmeriCredit Fin. Servs., Inc., (In re Penrod), 802 F.3d 1084, 1087-88 (9th
Cir. 2015)).
The only condition at issue here is whether the dischargeability
proceeding was an "action on a contract." A dischargeability proceeding is an
action on a contract under CCC § 1717 if the bankruptcy court needed to
determine the enforceability of the contract to determine dischargeability. Id.
(citing In re Baroff, 105 F.3d at 442). Put another way, "if the bankruptcy court
did not need to determine whether the contract was enforceable, then the
dischargeability claim is not an action on the contract within the meaning of
CCC § 1717." Id. (cleaned up); In re Hashemi, 104 F.3d at 1126; In re Davison,
289 B.R. at 723.
Relying primarily on Bos, the bankruptcy court concluded that the
dischargeability proceeding was not an action on a contract because the court
did not have to determine the breach or enforceability of Le's personal
guaranty to rule that Spartan's fraud claim against her was excepted from
discharge under § 523(a)(2)(A). Spartan argues that this was error; the
bankruptcy court did have to adjudicate the existence, enforceability, and
9
breach of Le's personal guaranty. Spartan argues that prevailing on the
allegations of breach of the personal guaranty against Le was a precondition
to its allegations of her fraudulent transfers constituting "actual fraud" within
the meaning of § 523(a)(2)(A). In other words, but for the personal guaranty
and Le's subsequent breach, there would be no debt, and thus there could
have been no nondischargeable debt for fraud under § 523(a)(2)(A). We
disagree.
Whether the bankruptcy court considered the Credit Application
Guarantee or the Personal Guaranty attached to the credit application, the
dischargeability proceeding was not an action on a contract. The court did not
"enforce" the contract as that phrase is used in CCC § 1717. It did not have to
interpret or determine the validity of Le's personal guaranty; there was no
dispute regarding Le's liability under the guaranty or the amount owed to
Spartan; and Le's breach of the personal guaranty did not determine the
outcome of the summary judgment, which was that the debt was excepted
from Le's discharge for fraud under § 523(a)(2)(A). The personal guaranty
provided the context out of which this dispute arose, but it did not play an
integral role in the dischargeability proceeding. Compare Barrientos v. 1801-
1825 Morton LLC, 583 F.3d 1197, 1216 (9th Cir. 2009) (CCC § 1717 applied
because the contract played an integral role in defining the rights of the
parties), In re Baroff, 105 F.3d at 442-43 (CCC § 1717 applied in § 523 action
where outcome turned on the interpretation of an agreement), and Arciniega v.
Clark (In re Arciniega), BAP No. CC-15-1123-KiGD, 2016 WL 455428, at *14 (9th
10
Cir. BAP Feb. 3, 2016) (CCC § 1717 applied to one claim in § 523 action where
California law governed the interpretation of a key phrase in the agreement
and proof of both breach and dischargeability was required), with In re
Fulwiler, 624 F.2d at 909-10 (CCC § 1717 did not apply because the contract
was collateral to the dischargeability proceeding).
While the preexisting personal guaranty determined the amount of the
debt Le owed to Spartan, the bankruptcy court found that Le "obtained" the
nondischargeable fraud debt to Spartan by her later transfers of assets in a
manner which constituted actual fraud under § 523(a)(2)(A). Le's liability to
Spartan was not based on her breach of the personal guaranty; rather, it was
based on the fact that she benefitted from the fraudulent transfers she
orchestrated to avoid payment to Spartan. See e.g., SE Prop. Holdings, LLC v.
Gaddy (In re Gaddy), 977 F.3d 1051, 1057-58 (11th Cir. 2020) (reasoning that
Husky does not suggest a debtor's fraudulent transfers render a preexisting
breach of contract debt exempt from discharge under § 523(a)(2)(A) and
holding that the contract debt which preexisted the fraudulent transfers did
not arise from fraud); Kwong v. Aykiran (In re Aykiran), BAP No. NC-21-1134-
TFG, 2022 WL 214816, at *4 (9th Cir. BAP Jan. 25, 2022) (noting that in Husky,
the "fraudulent acts potentially created the debt at issue" and rejecting the
argument that debtor's fraudulent transfer of property "somehow transformed
[debtor's] preexisting Loan debt into a nondischargeable debt.") (emphases in
original).
Accordingly, because the dischargeability proceeding was not an action
11
on a contract, the bankruptcy court did not err in determining that CCC
§ 1717 did not apply and that Spartan could not recover attorney's fees under
that statute.
B. The bankruptcy court erred by not considering Spartan's fee request
under CCP § 1021, but such error was harmless because attorney's
fees were not recoverable under that provision either.
CCC § 1717 is not the only statutory basis for recovery of attorney's fees
in California. Asphalt Pros., Inc. v. Davis (In re Davis), BAP No. CC-18-1326-
FLKu, 2019 WL 2931668, at *7 (9th Cir. BAP July 3, 2019), aff'd, 809 F. App'x
415 (9th Cir. 2020). Spartan also cited CCP § 1021 as a basis for recovering
fees, but the bankruptcy court did not consider Spartan's request under that
provision and instead analyzed it only under CCC § 1717.
CCP § 1021 permits recovery of attorney's fees by agreement between
the parties and is not limited to actions on a contract. Specifically, it provides:
"Except as attorney's fees are specifically provided for by statute, the measure
and mode of compensation of attorneys and counselors at law is left to the
agreement, express or implied, of the parties; but parties to actions or
proceedings are entitled to their costs, as hereinafter provided." CCP § 1021
must be read in conjunction with CCP §§ 1032 and 1033.5, which together
provide that a prevailing party is entitled to recover costs in any action or
proceeding, and attorney's fees authorized by contract are allowable as
"costs." CCP §§ 1032(b), 1033.5(a)(10)(A).
CCP § 1021 allows the parties to agree that the prevailing party may
recover attorney's fees whether the litigation sounds in contract or in tort.
12
3250 Wilshire Boulevard Bldg. v. W.R. Grace & Co., 990 F.2d 487, 489 (9th Cir.
1993) (where attorney's fees are not recoverable for a noncontract action
under CCC § 1717, they may be recoverable under CCP § 1021); Hamilton v.
Charalambous (In re Charalambous), BAP No. CC-13-1042-PaDKi, 2013 WL
3369299, at *6 (9th Cir. BAP July 3, 2013) (CCP §§ 1021, 1032 and 1033 "make
clear" that attorney's fees may be recoverable by a prevailing party in
disputes sounding in tort or contract); In re Davison, 289 B.R. at 724; Santisas,
17 Cal. 4th at 608; Xuereb v. Marcus & Millichap, Inc., 3 Cal. App. 4th 1338, 1341
(1992). Here, the bankruptcy court's ruling in favor of Spartan for its fraud
claim against Le under § 523(a)(2)(A) effectively resolved a tort dispute. The
court erred by considering Spartan's fee request only under CCC § 1717. It
should have also considered it under CCP § 1021. However, the court's
failure to do so under the circumstances was harmless error. Neither the
Personal Guaranty nor the Credit Application Guaranty is broad enough to
cover tort claims.
To determine whether a prevailing party may recover attorney's fees
under CCP § 1021 for tort claims like fraud, courts look to the language of the
agreement between the parties to determine the extent of attorney's fees
covered. 3250 Wilshire Boulevard Bldg., 990 F.2d at 489; In re Arciniega, 2016 WL
455428, at *12 (attorney's fees for fraud claims may be recoverable under CCP
§ 1021 if the contract so provides); In re Davison, 289 B.R. at 724 ("If there is an
attorney's fees provision in an agreement between the parties, we look to the
language of the agreement to determine whether an award of attorney's fees
13
is warranted in a tort action."); Santisas, 17 Cal. 4th at 608; Brown Bark III, L.P.
v. Haver, 219 Cal. App. 4th 809, 827-28 (2013) (fee clause must be broad
enough to cover tort claims and must identify the party seeking fees as the
beneficiary of it); Xuereb, 3 Cal. App. 4th at 1342.
As noted above, the Credit Application Guarantee and the Personal
Guaranty attached to the credit application contain different attorney's fee
clauses. The clause in the Personal Guaranty provides:
Guarantors agree to pay reasonable attorney's fees and all other
costs and expenses which may be incurred by Seller in the
enforcement of this guaranty and the enforcement of any
judgement [sic] thereafter entered against Guarantors.
By its terms, this fee provision is limited to the enforcement of the guaranty
and the enforcement of any judgment therefrom.
Courts have held that clauses which authorize attorney's fees to
"enforce" or "interpret" a contract do not include tort claims for fraud. See
Sharma v. Salcido (In re Sharma), BAP Nos. CC-12-1302-MkTaMo & CC-12-
1520-MkTaMo, 2013 WL 1987351, at *18 (9th Cir. BAP 2013), aff'd, 607 F.
App'x 713 (9th Cir. 2015) (suit to "enforce or interpret" a settlement agreement
was not broad enough to cover fees in a § 523(a)(2)(A) case involving fraud in
the inducement of a settlement agreement); Exxess Electronixx v. Heger Realty
Corp., 64 Cal. App. 4th 698, 708-09 (1998) (action or proceeding to "enforce the
terms or declare rights" under a lease did not cover fraud claims); Xuereb, 3
Cal. App. 4th at 1342-43 (party cannot recover fees on tort claims under a
contractual provision authorizing fees incurred in an action to "interpret" or
14
"enforce" the contract). The attorney's fee clause in the Personal Guaranty did
not provide a basis for Spartan to recover fees against Le for its fraud claim
under § 523(a)(2)(A) because it is limited to the enforcement of the guaranty
and any related judgment.
On the other hand, clauses with broader language can extend to fees
incurred in litigating tort claims. 3250 Wilshire Boulevard Bldg., 990 F.2d at 489(attorney's fee clause applied in tort action because it allowed fees to
prevailing party for "any suit" or other proceeding with respect to the "subject
matter or enforcement" of the agreement); Santisas, 17 Cal. 4th at 608(agreement for fees for any "litigation arising out of the execution" of
agreement or sale of property covered tort claims); Gonzales v. Personal
Storage, Inc., 56 Cal. App. 4th 464, 480 (1997) (clause calling for attorney's fees
in "any legal action" applied to tort action); Xuereb, 3 Cal. App. 4th at 1341
(agreement providing for prevailing party fees in "any lawsuit or other legal
proceeding to which it gives rise" was broad enough to cover tort claims).
While the attorney's fee clause in the Credit Application Guarantee is
not as limiting as the one in the Personal Guaranty, it is also not as broad as
those noted above. It states:
The undersigned further agrees to pay any and all reasonable
attorney fees and collection costs whether or not action is
instituted for collection thereof, and if action is instituted [sic]
collection, such reasonable attorney fees as the court may award.
The Credit Application Guaranty is somewhat unintelligible with its poor
grammar and typographical errors. Nonetheless, we interpret it to mean that
15
if a collection action was instituted, Spartan could recover reasonable
attorney's fees as awarded by the court. This is very similar to the Personal
Guaranty and is not broad enough to cover attorney's fees for a tort action.
Therefore, like the Personal Guaranty, the attorney's fee clause in the Credit
Application Guaranty did not provide a basis for Spartan to recover fees
against Le for its fraud claim under § 523(a)(2)(A).
CONCLUSION
Because Spartan's attorney's fees for its fraud claim under § 523(a)(2)(A)
were not recoverable under either CCC § 1717 or CCP § 1021, the bankruptcy
court did not abuse its discretion in denying fees. We AFFIRM.
16