Heritage Pacific Financial, LLC v. Machuca (In re Machuca)
- Citation:
- Heritage Pacific Financial, LLC v. Machuca (In re Machuca), -- B.R. -- (B.A.P. 9th Cir. Dec. 14, 2012)
- Tag(s):
-
- Ruling:
- The Bankruptcy Appellate Panel for the Ninth Circuit affirmed the decision of the Bankruptcy Court awarding the debtor Raul Machuca, Jr. ("Machuca") attorneys' fees under 11 U.S.C. § 523(d).
Section 523(d) directs the Court to grant judgment in favor of the debtor for the cost of a reasonable attorney's fee incurred by the debtor if the Court finds that the creditor's position in requesting exception from discharge under section 523(a)(2) was not substantially justified, unless particular circumstances of the case would make the award unjust.
In a decision written by Judge Markell, the B.A.P. examined the legislative history of section 523(d) and emphasized its intent as a consumer protection statute to deter unsupported nondischargeability actions against honest consumer debtors, while providing assurance that creditors would not be unduly prejudiced from bringing well supported nondischargeability actions.
The B.A.P. ruled that the debtor met his initial burden of proof by showing that: (1) Heritage Pacific Financial, LLC ("HPF") sought to except debtor's debt from discharge under section 523(a)(2); (2) the underlying debt was consumer debt; and (3) the underlying debt was discharged. Once Machuca has met his burden of proof, the burden shifted to HPF to show that its actions were substantially justified.
The Panel confirmed that there is no presumption of lack of substantial justification simply because the debtor prevailed on summary judgment. However, HPF failed to establish substantial justification because HPF could not demonstrate factual and legal basis for its claim for exception from discharge under section 523(a)(2). Instead, HPF attempted to collaterally attack the order of summary judgment in favor of Machuca. The B.A.P. concluded that summary judgment has issue preclusive effect after the appeal time had run out.
Additionally, the Panel found that even if HPF was not collaterally estopped, it would nevertheless lose under the abuse of discretion appellate review standard applicable to section 523(d) orders.
- Procedural context:
- Appeal from the United States Bankruptcy Court for the Northern District of California granting an award of attorneys' fees under 11 U.S.C. § 523(d). Affirmed.
- Facts:
- In May 2010, the debtor filed a chapter 13 bankruptcy. HPF filed an adversary proceeding seeking a determination that its loan was excepted from discharge under section 523(a)(2)(A) and (B). Machuca responded by filing a motion to dismiss, which was granted. After that, Machuca filed a motion for summary judgment on the remaining section 523(a)(2)(B) claim asserting lack of reliance on the loan application. HPF filed an opposition. The Bankruptcy Court granted summary judgement in favor of the debtor. HPF did not appeal the order for summary judgement.
After that, Machuca filed a motion to recover his attorney's fees under section 523(d). HPF opposed. The Bankruptcy Court granted Machuca's fees motion. HPF appealed.
- Judge(s):
- The Honorable Bruce A. Markel, the Honorable Eileen W. Hollowell, and the Honorable Jim D. Pappas, Bankruptcy Judges.
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