Case Type:
Case Status:
22-1033 (9th Circuit, May 11,2023) Not Published
The U.S. Bankruptcy Appellate Panel of the Ninth Circuit (BAP) affirmed the decision of the U.S. Bankruptcy Court for the Northern District of California (BC) denying a creditor's motion for attorneys' fees incurred in its successful suit to exempt its debt from discharge under § 523(a)(2)(A), as the proceeding was not an "action on a contract," as required for recovery under § 1717 of the Civil Code of California (CCC), and further found no basis for such fees in § 1021 of the California Code of Civil Procedure (CCP), an argument raised by but not considered by the BC.
Procedural context:
Having fumbled once, Annie Kim Lee (DR) filed the instant chapter 7 case. Soon afterward, Spartan Tank Lines, Inc. (Spartan) filed an adversary complaint against the DR under § 523(a)(2)(A). While Spartan's prepetition actions implicated two separate guaranties--the guarantee included in the DR's credit application to Spartan (the Credit Application Guarantee). and a separate document attached to the DR's credit application (Personal Guaranty), both of which contained their own attorney's fees clause--it referenced only the Personal Guaranty in its § 523 complaint. The DR countered with a motion to dismiss (MTD); therein, she referenced the Credit Application Guarantee but attached copies of both contracts to her motion. In its opposition, Spartan discussed only the Personal Guaranty, but, like the DR, appended copies of both. Ultimately, the BC denied the MTD. Thereafter, though served with requests for admission, the DR failed to respond. Spartan subsequently filed a motion for summary judgment, and because the deemed admitted facts established that the DR had engaged in actual fraud as to Spartan, the BC granted its motion and held that Spartan was entitled to reasonable attorney's fees and costs upon their proof. Spartan's first motion was bounced due to a notice defect; in so deciding, the BC noted that, despite its prior ruling, attorney's fees might not be recoverable. In its refiled and re-noticed version, Spartan once more argued that it was entitled to attorney's fees per the fee provision in the guaranty under § 1717 of the CCC and § 1021 of the CCP, and sought to distinguish the cases brought to its attention by the BC regarding its right to fees under these provisions. Though Spartan tried to do so, the BC rejected its request, awarding only $5,825.60 for costs (after deducting certain unauthorized expenses). As it reasoned, neither the breach nor enforceability of the personal guaranty had to be determined to establish that Spartan's fraud claim under California fraudulent transfer law was non-dischargeable under § 523(a)(2)(A). Thus, the suit was not "an action on a contract," as mandated by § 1717. It did not consider Spartan's § 1021 argument, as the mere cite to it was not accompanied with any argument that attorney's fees were recoverable for a tort action under the Credit Application Guarantee.
On December 30, 2009, the DR, in her role as CEO, submitted a credit application with Spartan. Spartan approved the application and extended credit privileges to America, but subject to the receipt of a personal guaranty from the DR. As part of the credit application, the DR had already signed the Credit Application Guarantee; per this condition, she followed it up with the executed Personal Guaranty. (Both contained attorney’s fees provisions, their language differed.) Sometime in 2019, American stopped paying for gas deliveries. Eventually, American sued the DR and American in in state court for breach of contract and personal guaranty. This case never went beyond the complaint stage due to the DR’s filing of a chapter 13 petition. That first effort’s unvoluntary dismissal set the stage for the instant case and appeal.
Julia W. Brand; Scott H. Gan; and Robert J. Faris

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