Ashkenazi v. Farrell et al

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1The court denied the Farrells recovery of their costs when they failed to submit an timely form of
judgment as directed. The court intended this as a nominal sanction of a few hundred dollars at most, and did
not intend it to extend to attorney’s fees. The court accordingly does not interpret its sanction as applying to
attorney’s fees.
1
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
MICHAEL and CHRISTINE FARRELL, No. 06-10863
Debtor(s).
______________________________________/
ROGER ASHKENAZI,
Plaintiff(s),
v. A.P. No. 07-1038
MICHAEL and CHRISTINE FARRELL,
Defendant(s).
_______________________________________/
Memorandum on Motion for Attorney’s Fees
_________________
In this dischargeability proceeding, the court found that plaintiff Roger Ashkenazi did not prove actual
fraud on the part of defendants Michael and Christine Farrell and accordingly entered judgment for
defendants, who now seek an award of attorneys’ fees based on California Civil Code § 1021.1
There is an inherent unfairness to plaintiffs in applying the state statute to federal nondischargeability
actions. In most cases, and certainly in this case, the debtor owes a large debt to the plaintiff but the issue in a
Entered on Docket
January 12, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 07-01038 Doc# 75 Filed: 01/11/09 Entered: 01/12/09 10:26:00 Page 1 of 3

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2There was also a small matter relating to a postdated check. This had nothing to do with the notes or
the settlement agreement.
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dischargeability proceeding is not, as it would be in state court, whether there is a debt owed but rather
whether the debtor’s conduct has rendered the debt nondischargeable. Thus, the plaintiff would be entitled to
attorney’s fees in state court but in bankruptcy court the same statute gives debtors a chance to recover their
attorneys’ fees. At the very least, it would seem fair to allow plaintiffs to set off their total claim against the
debtor’s fee award.
However, the court’s responsibility here is to follow the law as set forth by higher courts, not indulge
its own sense of fairness. The law is that a debtor may recover attorney’s fees for successfully defending a
nondischargeability proceeding based on state law and an applicable contract provision. However, the
contract provision is to be read narrowly. In re Chen, 345 B.R, 197, 200-201 (N.D. Cal. 2006)(Alsup,
D.J.); In re Davidson, 289 B.R. 716, 725 (9th Cir.BAP 2003).
In this case, there was a settlement agreement before bankruptcy and the Farrells had given
Ashkenazi two notes. The Farrells argue that “the notes were an integral part of the plaintiff’s case.” The
court finds no merit to this assertion. In its written findings, the court did not even mention the notes. The
integral part of the case was Ashkenazi’s allegations that the Farrells induced him to invest in their failed
business by making false representations. The court found no merit to these allegations. The notes were
entirely irrelevant.
The only other basis for attorney’s fees is Paragraph 12 of the 2003 settlement agreement meant by
the parties to undo their business relations. That paragraph provides that “in any action or proceeding
brought to enforce this Agreement, the prevailing party shall be entitled to reasonable attorneys fees . . . .”
[emphasis added]. This adversary proceeding was not an action or proceeding brought to enforce the
settlement. Far from it, this action related only to actions which were alleged to have taken place before the
agreement was reached.2 The terms of Paragraph 12 are far to narrow to permit an award of attorneys fees
in this dischargeability proceeding.
Case: 07-01038 Doc# 75 Filed: 01/11/09 Entered: 01/12/09 10:26:00 Page 2 of 3

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For the foregoing reasons, defendants’ motion for attorney’s fees will be denied. Counsel for
Ashkenazi shall submit an appropriate form of order.
Dated: January 11, 2009
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 07-01038 Doc# 75 Filed: 01/11/09 Entered: 01/12/09 10:26:00 Page 3 of 3