Penrod v. AmeriCredit Financial Services, Inc. (In re Penrod)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
10 years 5 months ago

Citation:

In re Penrod, No. 13-16097 (9th Cir. Oct 1, 2015).

Tag(s):

Ruling:

Under California’s reciprocal attorney-fee statute, a chapter 13 debtor who prevailed in litigation regarding the § 1325(a) hanging paragraph may recover attorney fees from the creditor.

Procedural context:

The chapter 13 debtor proposed a plan to bifurcate her car loan into a secured claim for the car’s value and an additional amount reflecting negative equity in her prior car, which she financed as part of the current car loan. The bankruptcy court ruled that the purchase-money security interest protected by the hanging paragraph does not include amounts attributable to the negative equity from a trade-in vehicle. The debtor amended her plan to reflect that ruling, and the bankruptcy court confirmed the plan. The creditor appealed to the BAP and the Ninth Circuit, which both affirmed. 392 B.R. 835 (9th Cir. B.A.P. 2008), aff’d, 611 F.3d 1158 (9th Cir. 2010). The creditor unsuccessfully petitioned for rehearing en banc, over the dissent of four judges, 636 F.3d 1175 (9th Cir. 2011). The debtor then moved in the bankruptcy court to recover from the creditor $245,000 in attorney fees that she incurred in opposing the creditor’s objection to plan confirmation. The bankruptcy court denied the debtor’s request on the ground that the debtor did not prevail on the contract because her success in litigation turned on a question of federal bankruptcy law. On appeal, the district court affirmed, and the Ninth Circuit reversed and remanded for either the district court or bankruptcy court to determinate a reasonable fee award.

Facts:

The debtor based her request for attorney fees and costs on California Civil Code § 1717(a). Under that statute, in any action on a contract that specifically provides that attorney fees and costs incurred to enforce the contract will be awarded to one of the parties or to the prevailing party, the prevailing party is entitled to fees and costs, whether or not the prevailing party is specified in the contract. The hanging-paragraph litigation constituted an action “on a contract” under § 1717. The creditor sought to enforce the provisions of its contract with the debtor when the creditor objected to plan confirmation. The creditor insisted that it was entitled to have its claim treated as fully secured, based on the provision of the contract in which the debtor granted a security interest in her car to secure “payment of all you owe on this contract.” After Travelers Casualty & Surety Co. v. Pacific Gas & Electric Co., 549 U.S. 443 (2007), a reciprocity statute such as § 1717 does not categorically preclude an award of attorney fees when a party successfully limits enforcement of a contract solely on the basis of federal bankruptcy law. The creditor would have been entitled to recover attorney fees had it prevailed, a prerequisite for the debtor to recover her own fees. The creditor had no reason to litigate the hanging-paragraph issue other than as part of an attempt to collect from the debtor what she owed.

Judge(s):

Susan P. Graber and Paul J. Watford, Circuit Judges, and Ronald Lee Gilman, Senior Circuit Judge for the U.S. Court of Appeals for the Sixth Circuit, sitting by designation.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!