Plaintiff obtained a Stipulated Judgment in state court that said the Defendant committed fraud. Defendant filed Chapter 7. In the bankruptcy, plaintiff filed a §523(a) non-dischargeability action to except the judgment from discharge.
Plaintiff filed a motion for summary judgment (MSJ), and it was granted. The BAP reversed and remanded because there was insufficient evidence to show that there was no genuine issue of material fact.
On remand, Plaintiff filed his second MSJ, Debtor opposed it. Then Plaintiff withdrew the MSJ under FRBP 9011(c)(1)(A) safe harbor provision. Few weeks later, Plaintiff filed a Motion to Dismiss (MTD), court granted it with prejudice.
Defendant asked for an award for attorney’s fees and costs and $150,000 in sanctions that he incurred during the litigation because he was the prevailing party since the Plaintiff voluntarily dismissed after the BAP vacated the earlier MSJ.
HOLDING:
Attorney’s fees may be awarded and declared nondischargeable under the 1998 Supreme Court case Cohen v. De La Cruz, 523 U.S. 213, 223 (1998), which has two prongs: (a) an underlying contract or nonbankrutptcy law must provide a right to recover attorneys’ fees, and (b) the issues litigated in the dischargeability action must fall within the scope of the contractual or statutory attorneys’ fees provision. See Fry v. Dinan (In re Dinan), 448 B.R. 776, 785 (9th Cir. BAP 2011).
In this case, Court said that even if we assume the Defendant was the prevailing party, he would still not be entitled to attorney’s fees because his attorney’s fees in this action were not incurred to enforce the Stipulated Judgment. The settlement agreement which resolved the state court case authorized attorney’s fees “if there is litigation or a request that the [state] court enforce any terms of the agreement or performance...” The adversary complaint sought to determine dischargeability of the Stipulaed Judgment, not na enforcement of the settlement. The settlement agreement was not at issue in this bankruptcy court – it was merely the basis of non-dischargeability but not enforcement.
Also, Debtor cannot get attorneys fees under §523(d) because the debt in issue was not a consumer debt. Under §523(d), a Court can award attorneys fees to the Debtor if it finds that the position of the creditor seeking nondischargeability was for consumer debt and the debt was found to be discharged.
Debtor also sought sanctions under §105(a) and FRBP 9011(b), but the Court did not find the Plaintiff’s actions to be egregious or baseless, and moreover, the Court found the Debtor did not follow the proper procedure for sanctions under FRBP 9011.
As such, given there is no contractual basis for attorney’s fees, the Court denied Debtor’s motion for attorney’s fees.