Gregory Bos v. Board of Trustees , 818 F.3d 486 ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
GREGORY BOS, No. 13-15604
Appellant,
D.C. No.
v. 2:12-cv-02026-
MCE
BOARD OF TRUSTEES, in their
capacities as Trustees of the
Carpenters Health and Welfare Fund ORDER
of California; Carpenters Vacation-
Holiday Trust Fund for Northern
California; Carpenters Pension Trust
Fund for Northern California;
Carpenters Annuity Trust for
Northern California; Carpenters
Training Trust Fund for Northern
California; Northern California
Carpenters Regional Council,
Appellee.
Filed March 24, 2016
Before: Diarmuid F. O’Scannlain and Sandra S. Ikuta,
Circuit Judges and Larry A. Burns,* District Judge.
*
The Honorable Larry A. Burns, District Judge for the U.S. District
Court for the Southern District of California, sitting by designation.
2 BOS V. BOARD OF TRUSTEES
SUMMARY**
Bankruptcy / Attorney’s Fees
The panel denied a bankruptcy debtor’s motion to recover
attorney’s fees after he prevailed on the merits on appeal in
a nondischargeability proceeding.
In its opinion on appeal from the district court’s
affirmance of the bankruptcy court, the panel held that the
debtor was not a fiduciary under the Employee Retirement
Income Security Act, and thus the Bankruptcy Code’s
“fiduciary” exception to discharge could not be applied to
him. Accordingly, his judgment debt for failure to make
payments to employee pension funds could be discharged in
bankruptcy.
Denying the debtor’s motion for attorney’s fees, the panel
held that the debtor was not entitled to fees under the fee-
shifting provision of California Civil Code § 1717, which
makes reciprocal an otherwise unilateral contractual
obligation to pay attorney’s fees. Adopting the Bankruptcy
Appellate Panel’s construction of section 1717, the panel held
that the dischargeability claim was not an action “on a
contract,” but rather was collateral to a contract.
The panel held that the debtor also was not eligible to
recover fees under ERISA because the nondischargeability
proceeding did not meet the test for “arising under”
jurisdiction set forth in 29 U.S.C. § 1132(e).
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
BOS V. BOARD OF TRUSTEES 3
ORDER
We consider Gregory Bos’s motion to recover attorney’s
fees under California Civil Code § 1717, and the fee-shifting
provisions of the Employee Retirement Income Security Act
of 1974.
I
The facts giving rise to the present request for attorney’s
fees are more fully set forth in our underlying opinion on the
merits. See Bos v. Bd. of Trs., 795 F.3d 1006 (9th Cir. 2015).
We offer a brief summary here.
Bos was an employer who was bound by a handful of
Trust Agreements to make payments to certain employee
pension Funds, which were administered by the Board of
Trustees. Id. at 1007. Bos struggled to meet his obligation,
and in March 2009 he signed a Promissory Note pledging to
make monthly contributions and personally guaranteeing
payment to the Funds of $359,592.09. He mostly fell short.
In August 2009 the Board brought a grievance against Bos,
and an arbitrator ruled that he had violated such obligations,
awarding the Funds $504,282.59. A California Superior
Court confirmed the Board’s arbitration award and later
entered a judgment against Bos in the same amount.1
Around the same time, Bos filed for Chapter 7
bankruptcy. Id. at 1008. When Bos tried to discharge the
half-million-dollar debt he owed the Funds, the Board
objected, and brought an adversary proceeding in bankruptcy
1
We grant the Board’s unopposed request and supplemental request for
judicial notice.
4 BOS V. BOARD OF TRUSTEES
court in an effort to have Bos’s debt declared
nondischargeable under the Bankruptcy Code. Id. The Board
sought relief under three different provisions of the Code.
One of those provisions, 11 U.S.C. § 523(a)(4), provides that
a debtor may not discharge a debt he incurred through “fraud
or defalcation while acting in a fiduciary capacity,
embezzlement, or larceny.”
Bos conceded that the Trust Agreements and the
Promissory Note were fully enforceable, conceded that he
had breached them, and conceded that his debt to the Funds
was valid. Bos argued, however, that the Bankruptcy Code’s
exceptions to discharge simply did not apply to him.
The bankruptcy court sided with the Board, ultimately
ruling that Bos’s debt could not be discharged because he was
a “fiduciary” within the meaning of 11 U.S.C. § 523(a)(4).
The district court affirmed. Both courts decided that Bos was
a fiduciary under the Bankruptcy Code because they
determined that he was a fiduciary under the Employee
Retirement Income Security Act (“ERISA”), 29 U.S.C.
§ 1002.
Bos then appealed to this Court and we concluded that he
was not a fiduciary under ERISA, and thus the Bankruptcy
Code’s “fiduciary” exception to discharge could not be
applied to him. Bos, 795 F.3d at 1008–12. Having prevailed
on the merits, Bos now seeks to recover attorney’s fees
expended litigating the nondischargeability action from the
bankruptcy court up through our court on appeal.
BOS V. BOARD OF TRUSTEES 5
II
Bos’s motion rests on two bases. First, he invokes a
certain fee-shifting provision under California law, California
Civil Code § 1717. Alternatively, he argues that ERISA
authorizes us to award him fees in our discretion, see
29 U.S.C. § 1132(g)(1), and he asks us to do so.
A
Section 1717 provides, in relevant part:
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.
Cal. Civ. Code § 1717(a). The effect of section 1717 is to
make reciprocal an otherwise unilateral contractual obligation
to pay attorney’s fees. Santisas v. Goodin, 17 Cal. 4th 599,
610–11 (1998).
As we recently explained, “[t]hree conditions must be met
before [section 1717] applies.” In re Penrod, 802 F.3d 1084,
1087 (9th Cir. 2015). First, the action generating the fees
must have been an action “on a contract.” Id. 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
6 BOS V. BOARD OF TRUSTEES
prevailing party. Id. And third, the party seeking fees must
have prevailed in the underlying action. Id. at 1087–88.
The California Supreme Court has explained that “section
1717 applies only to actions that contain at least one contract
claim,” and that “[i]f an action asserts both contract and tort
or other noncontract claims, section 1717 applies only to
attorney fees incurred to litigate the contract claims.”
Santisas, 17 Cal. 4th at 615. Consistent with Santisas, we
have previously held that a nondischargeability action is “on
a contract” within section 1717 if “the bankruptcy court
needed to determine the enforceability of the . . . agreement
to determine dischargeability.” In re Baroff, 105 F.3d 439,
442 (9th Cir. 1997).
The Bankruptcy Appellate Panel of the Ninth Circuit has
held that Santisas and relevant Ninth Circuit cases establish
not just a rule of inclusion, but also a rule of exclusion: that
“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
[California Civil Code] § 1717.” In re Davison, 289 B.R.
716, 723 (B.A.P. 9th Cir. 2003) (emphasis added).
1
We adopt the BAP’s construction of section 1717. It
accords with the common sense meaning of the phrase “on a
contract” and finds ample support in our precedents. For
instance, we have held that an adversary proceeding in
bankruptcy court was not “on a contract” within the meaning
of section 1717 where the action neither litigated the validity
of the contract nor required the bankruptcy court to consider
“the state law governing contractual relationships.” In re
BOS V. BOARD OF TRUSTEES 7
Johnson, 756 F.2d 738, 740 (9th Cir. 1985). More broadly,
we instructed that when “federal and not state law govern[s]
the substantive issues involved in the [adversary
proceeding],” we may not “award[] attorney’s fees pursuant
to a state statute.” Id. at 741.
Likewise, in In re Fulwiler, 624 F.2d 908 (9th Cir. 1980),
we held that a non-dischargeability action in bankruptcy was
not “on a contract” under an Oregon fee-shifting statute
identical to section 1717. Id. at 909 (citing Or. Rev. Stat.
§ 20.096). The reason, we later explained, was that “the
bankruptcy court did not adjudicate the validity of the note in
determining whether the debt was dischargeable,” and so the
note was merely “collateral to the non-dischargeability
proceeding.” Baroff, 105 F.3d at 442 (citing Fulwiler,
624 F.2d at 909–10).
Similarly, in In re Hashemi, 104 F.3d 1122 (9th Cir.
1996), we cited Baroff in holding that a creditor’s
“dischargeability claim [was] not an action on the contract,”
within the meaning of the contract itself, because “the
bankruptcy court did not need to ‘determine the enforceability
of the . . . agreement to determine dischargeability.’” Id. at
1126 (quoting Baroff, 105 F.3d at 442).
In light of our precedents, we are persuaded that the
action underlying Bos’s fee request—the nondischargeability
proceeding that began in bankruptcy court—was not an action
“on a contract” within the meaning of section 1717. As the
parties agree, “[t]here was no ‘breach of contract’ claim in the
Trust Funds’ adversary complaint.” The nondischargeability
proceeding arose entirely under the federal Bankruptcy Code,
and in no way required the bankruptcy court to determine
whether or to what extent the Trust Agreements or the Note
8 BOS V. BOARD OF TRUSTEES
were enforceable against Bos, or whether Bos had violated
their terms. Those questions had been answered in
arbitration, and confirmed by a State Court; indeed, in the
nondischargeability action Bos conceded that such contracts
were valid and that he had breached them. The litigation
from that point forward asked only whether federal
bankruptcy law forbade Bos from discharging the debts
everyone agreed he owed to the Funds. Such litigation is
collateral to a contract rather than “on a contract,” and as a
consequence Bos may not use section 1717 to recover the
fees he incurred in pursuing it.
2
Bos’s principal counterargument relies on our recent
decision in Penrod, 802 F.3d 1084. There, Penrod incurred
her attorney’s fees in an action that sought “to enforce, or
avoid enforcement of, the provisions of the contract” between
herself and one of her creditors. Id. at 1088. Specifically, the
action underlying Penrod’s motion for fees had asked
“whether [a] provision of the contract should be enforced
according to its terms, or whether its enforceability was
limited by bankruptcy law to exclude [a particular] portion of
the loan. By prevailing in that litigation, Penrod obtained a
ruling that precluded [her creditor] from fully enforcing the
terms of the contract.” Id. (internal citations omitted).
Penrod’s action, in other words, required “the bankruptcy
court . . . to determine the enforceability of the . . .
agreement,” and so it was comfortably an action “on a
contract” within section 1717’s previously recognized reach.
Baroff, 105 F.3d at 442. In Bos’s case, by contrast, the
relevant action did not raise any question about the
enforceability of the Trust Agreements or the Note. Such
BOS V. BOARD OF TRUSTEES 9
action was therefore not “on a contract,” and the attorney’s
fees Bos incurred are not recoverable under section 1717.2
B
Nor is Bos entitled to attorney’s fees under ERISA.
ERISA’s fee-shifting provision provides that “[i]n any action
under this subchapter . . . by a participant, beneficiary, or
fiduciary, the court in its discretion may allow a reasonable
attorney’s fee and costs of action to either party.” 29 U.S.C.
§ 1132(g)(1). Bos’s attempt to invoke ERISA fails because
the nondischargeability action—the action giving rise to his
fee request—was not an “action under” ERISA, and therefore
§ 1132(g)(1) does not make Bos eligible to recover fees.
1
Indeed, a party is eligible to recover fees under ERISA
only if the action giving rise to his fee request meets the test
for “arising under” jurisdiction set forth in ERISA’s
jurisdictional provision, 29 U.S.C. § 1132(e). Such rule
should not be surprising; it comes directly from the
straightforward language of the statute itself. In particular,
§ 1132(g)(1) follows immediately after ERISA’s
jurisdictional provisions, §§ 1132(e)(1) and (2), and the
statute uses the same operative language to define both the
scope of ERISA’s jurisdiction and the scope of ERISA’s fee
2
The Board argues in the alternative that Bos cannot recover fees under
section 1717 because in this case section 1717 is preempted by § 301 of
the Labor Management Relations Act, 29 U.S.C. § 185, and even if not,
in this case section 1717 is preempted by ERISA, 29 U.S.C. § 1144(a).
Because we conclude that Bos’s fee request fails under section 1717, we
express no view on the Board’s preemption arguments.
10 BOS V. BOARD OF TRUSTEES
shifting. That is, § 1132(e)(1) allocates federal and state
court jurisdiction over “actions under subsection (a)(1)(B) of
this section,” “actions under this subchapter,” and “actions
under paragraphs (1)(B) and (7) of subsection (a),” while
§ 1132(e)(2) specifies venue and related requirements for
“action[s] under this subchapter.” Id. §§ 1132(e)(1)–(2)
(emphases added). Immediately thereafter, § 1132(g)(1)
opens the door to fee shifting in “action[s] under this
subchapter.” Id. § 1132(g)(1) (emphasis added).
ERISA’s statutory structure and “[l]inguistic consistency”
make plain that ERISA’s jurisdictional and fee-shifting
provisions are inextricably linked: the scope of the statute’s
jurisdictional reach sets the outer bound of the scope of its fee
shifting. Cf. Christianson v. Colt Indus. Operating Corp.,
486 U.S. 800, 808 (1988). Thus, § 1132(g)(1) makes a party
eligible to recover fees if and only if the action that generated
his fees meets the test for “arising under” jurisdiction
incorporated into § 1132(e).
Such test is well established. Decades ago, in Franchise
Tax Board v. Construction Laborers Vacation Trust, 463 U.S.
1 (1983), the Supreme Court held that an action “arises
under” a particular federal law—there, the law was in fact
ERISA—only if such law “creates the [plaintiff’s] cause of
action” or, potentially at least, if “the plaintiff’s right to relief
necessarily depends on resolution of a substantial question”
under such law. Id. at 27–28.
Here, there is no dispute that the Bankruptcy Code, not
ERISA, grounds the Board’s cause of action. See 28 U.S.C.
§§ 157(b)(2)(I)–(J). Indeed, the Board’s adversary complaint
neither cited ERISA nor alleged any violation of an ERISA
BOS V. BOARD OF TRUSTEES 11
plan; instead, the Board sought relief exclusively under the
Bankruptcy Code.
2
Furthermore, because the nondischargeability claim in the
Board’s adversary complaint did not “necessarily depend[]”
upon resolution of any question under ERISA, let alone a
“substantial” question, no relief is available under such
theory. The Board’s nondischargeability complaint invoked
three different provisions of the Bankruptcy Code, any one of
which would have been sufficient to render Bos’s debts
nondischargeable. See Bos, 795 F.3d at 1012 (noting “the
other nondischargeability exceptions put forth by the Board”).
Only § 523(a)(4) potentially implicated ERISA, but even then
not necessarily, because the bankruptcy court could have
found Bos’s debts to be nondischargeable under that section’s
“embezzlement” or “larceny” exceptions rather than its
“fiduciary” exception, 11 U.S.C. § 523(a)(4), or the court
could have found Bos to be a fiduciary due to some statute
other than ERISA, see In re Hemmeter, 242 F.3d 1186, 1190
(9th Cir. 2001). In other words, the Board could have won
the relief it sought without any court ever needing to invoke
ERISA. Such was also the case in Franchise Tax Board,
where “on the face of a well-pleaded complaint there are
many reasons completely unrelated to the provisions and
purposes of ERISA why the State may or may not be entitled
to the relief it seeks.” 463 U.S. at 26. As in that case, so too
in this one: the relevant proceeding did not arise under
ERISA. See id. at 25–26.
Of course, Bos is right that, as this litigation unfolded, the
meaning of an ERISA term came to assume a central role.
After all, the only question we reviewed on appeal was
12 BOS V. BOARD OF TRUSTEES
whether Bos qualified as a “fiduciary” under the Bankruptcy
Code, on the specific theory that Bos was a “fiduciary” under
ERISA. Bos, 795 F.3d at 1008–09. But the Board’s well-
pleaded complaint did not require us to construe an ERISA
term; that we wound up doing so is not enough to make the
nondischargeability proceeding an “action under” ERISA for
jurisdictional purposes. Indeed, in Franchise Tax Board the
Supreme Court explicitly rejected the proposition that “any
. . . action which would require the interpretation or
application of ERISA to a plan document ‘arises under’”
ERISA. 463 U.S. at 24. The Court also made clear that
ERISA “does not purport to reach every question relating to
plans covered by ERISA.” Id. at 25. Hence, the mere fact
that the parties spent time debating the meaning of an ERISA
term is not enough to make the nondischargeability
proceeding an “action under” ERISA for fee-shifting
purposes.
We reject Bos’s invitation to take a more liberal approach
to fee-shifting under ERISA. First, and most important, the
text of the statute is simply not flexible enough to allow the
interpretation Bos proposes. Second, we are concerned about
the mischief that would result if we were to allow fee shifting
under ERISA even for actions that cannot be said to arise
specifically under that statute. Doing so would “undermine
the clarity and ease of administration” that § 1132(g)(1)
would enjoy insofar as its application is tied to the
jurisdictional requirements of the “well-pleaded-complaint
doctrine.” See Holmes Grp. v. Vornado Air Circulation Sys.,
535 U.S. 826, 832 (2002) (citing Franchise Tax Bd., 463 U.S.
at 11). Additionally, Bos’s more expansive interpretation
would incentivize plaintiffs to plead non-ERISA causes of
action that incorporate ingredients drawn from ERISA, if for
no other reason than to render themselves eligible to recover
BOS V. BOARD OF TRUSTEES 13
attorney’s fees under § 1132(g)(1). We think neither
consequence is desirable.
In sum, the Board’s nondischargeability proceeding was
not an “action under” ERISA within the meaning of
§ 1132(g)(1), and therefore ERISA does not provide Bos
grounds to recover the attorney’s fees he generated litigating
it.
III
Bos’s application for attorney’s fees is DENIED.