Brandt Agency, Inc v. Lehman et al

MEMORANDUM OF DECISION - 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
_______________________________________________________
In Re:
Bankruptcy Case
TRACY LEHMAN and 	No. 04-00078
NANETTE LEHMAN, husband
and wife,
Debtors.
______________________________________________________
BRANDT AGENCY, INC., an
Idaho corporation,
Plaintiff, 	Adv. Proceeding No. 04-6137
vs.
TRACY LEHMAN and
NANETTE LEHMAN, husband
and wife,
Defendants.
_____________________________________________________________
MEMORANDUM OF DECISION
________________________________________________________
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1 To the extent required by applicable rule, this memorandum incorporates the
Court’s findings of fact and conclusions of law. Fed. R. Bankr. P. 7052; 9014.
MEMORANDUM OF DECISION - 2
Appearances:
D. Blair Clark, RINGERT, CLARK, CHTD., Boise, Idaho, Attorney
for Plaintiff.
Howard Foley, FOLEY, FREEMAN, BORTON & STERN,
Meridian, Idaho, Attorney for Defendants.
Background and Introduction
Plaintiff, Creditor Brandt Agency, Inc., commenced an adversary
proceeding asking that its claims against Defendants, Chapter 7 Debtors Tracy and
Nanette Lehman, be excepted from discharge under 11 U.S.C. §§ 523(a)(4) and
(a)(6), and that Defendants be denied a discharge under 11 U.S.C. § 727(a)(5). On
March 8, 2005, the Court granted Defendants’ motion for summary judgment,
resulting in dismissal of the action. Docket No. 23. Defendants now move for an
award of attorney fees and costs incurred in defending the action, arguing that the
award is proper under state law and because Plaintiff pursued this action in bad
faith. Mot. for Attorney Fees, Docket No. 25. Plaintiff objects. Obj., Docket No.
28. The Court conducted a hearing on Defendants’ motion on April 14, 2005, and
took the issues under advisement. Docket No. 30. 1
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MEMORANDUM OF DECISION - 3
Disposition
There is no general right to recover attorney fees and costs incurred
in litigation under the Bankruptcy Code. Jenkins v. Sroufe (In re Sroufe), 01.1
I.B.C.R. 35, 38 (Bankr. D. Idaho 2001). However, “a prevailing party in a
bankruptcy case may be entitled to an award of attorney fees in accordance with
applicable state law if state law governs the substantive issues raised in the
proceedings.” Ford v. Baroff (In re Baroff), 105 F.3d 439, 441 (9 th Cir. 1997).
Conversely, when the litigated issues involve matters “peculiar to federal
bankruptcy law, attorney’s fees will not be awarded absent bad faith or harassment
by the losing party.” Sroufe, 01.1 I.B.C.R. at 38 (quoting Fobian v. Western Farm
Credit Bank (In re Fobian), 951 F.2d 1149, 1153 (9 th Cir. 1991)). See also Itule v.
Metlease, Inc. (In re Itule), 114 B.R. 206, 213 (B.A.P. 9 th Cir. 1990)(holding that
11 U.S.C. § 523(a)(6) does not provide for attorneys fees).
Defendants contend that Idaho Code § 12-120, § 12-121, and Idaho
R. Civ. P. 54 allow them to recover fees in this case as the prevailing party. Idaho
R. Civ. P. 54(e)(1) authorizes an award of attorney’s fees to a prevailing party
when such an award is provided by statute or contract. Idaho Code § 12-121
provides:
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2 In their brief, Defendants did not specify which subsection of Idaho Code § 12-
120 applies to their request for fees. The Court presumes Defendants rely upon
subsection three, since Plaintiff’s claims against them were based upon Defendants’
alleged breach of crop lease agreements. However, there are also other subsections
pertaining to actions in which the amount claimed is $25,000 or less. See Idaho Code
§ 12-120(1), (4). 	Under Idaho case law, the failure to plead a specific section of Idaho
Code § 12-120 is grounds to deny a claim for attorney fees. Bingham v. Montane
Resource Assocs., 987 P.2d 1035, 1041 (Idaho 1999) (denying a request for attorney fees
asserted generally under Idaho Code § 12-120 because the subsections required different
showings). Defendants’ failure to specify which subsection of the statute applies is of no
moment here because, as explained below, the Court concludes state law does not apply.
MEMORANDUM OF DECISION - 4
In any civil action, the judge may award reasonable
attorney’s fees to the prevailing party or parties,
provided that this section shall not alter, repeal or
amend any statute which otherwise provides for the
award of attorney's fees. The term “party” or “parties”
is defined to include any person, partnership,
corporation, association, private organization, the state
of Idaho or political subdivision thereof.
Idaho Code § 12-121 (2004). 	But, Idaho R. Civ. P. 54(e)(1) limits the availability
of attorney fees under Idaho Code § 12-121 to actions that were “brought, pursued
or defended frivolously, unreasonably or without foundation[.]” Alternatively,
under Idaho Code § 12-120, the prevailing party in a civil action concerning a
contract relating to the purchase or sale of goods, or arising out of any commercial
transaction, is allowed reasonable attorney fees to be taxed as costs. Idaho Code
§ 12-120(3) (2004). 2
But here, state law does not control. This litigation involved issues
of federal bankruptcy law: whether the debts Defendants owed Plaintiff were
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MEMORANDUM OF DECISION - 5
excepted from discharge in bankruptcy, and whether Defendants should be denied
any discharge of their debts. Indeed, Defendants never challenged that they owed
Plaintiff damages for breaching their lease agreements, and the Court decided no
issues related to the enforcement of those contracts.
Admittedly, the Court was asked to determine whether Defendants
were guilty of conversion under state law. But that decision was ancillary to
Plaintiff’s argument that the debt it was owed should be excepted from discharge
as a willful tort under 11 U.S.C. § 523(a)(6). Even had the Court concluded that
Defendants converted Plaintiff’s property (which it did not), the other elements of
§ 523(a)(6) would have had to be proven for Plaintiff to prevail. 	Because
resolving Plaintiff’s claims against Defendants in this action involved issues
peculiar to federal bankruptcy law, the state law attorney fee provisions
Defendants cited do not apply. See Idaho First Nat’l Bank v. LeMaster (In re
LeMaster), 147 B.R. 52, 53 (Bankr. D. Idaho 1992) (holding that Idaho Code
§ 12-120 and § 12-121 did not apply if the question involved the applicability of
the bankruptcy laws to particular contracts).
Defendants could also be awarded attorney fees if Plaintiff exhibited
bad faith, or engaged in harassing behavior, in prosecuting this action. Fobian,
951 F.2d at 1153. Defendants contend that the holdings in Roadway Express, Inc.
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MEMORANDUM OF DECISION - 6
v. Piper, 447 U.S. 752 (1980), and Hall v. Cole, 412 U.S. 1 (1973), support their
contention that the Court possesses the inherent power to award attorney fees
when a plaintiff files and pursues its complaint without support from the facts or
legal authority.
The Supreme Court in Roadway concluded that federal courts have
inherent power to assess attorney fees for the “‘willful disobedience of a court
order . . . as part of the fine to be levied on the defendant[,] . . . or when the losing
party has acted in bad faith, vexatiously, wantonly, or for oppressive reason
. . . .’” Roadway, 447 U.S. at 766 (internal citations omitted). Some years earlier
in Hall, the Court recognized a district court’s ability to award fees to a successful
party when an opponent had acted “in bad faith, vexatiously, wantonly, or for
oppressive reasons” as a punitive sanction for such conduct. Hall, 412 U.S. at 5.
The Court declines in this case to find that Plaintiff acted in bad
faith. While in deciding the summary judgment motion it appeared Plaintiff’s
claims lacked an adequate legal or factual basis, a very different picture was
presented to Plaintiff at the inception of the action. It seems a considerable
quantity of hay Defendants raised on Plaintiff’s ground was “missing.” In its
complaint, Plaintiff alleged Defendants had failed to properly account for the hay
as required by the leases. Through discovery, Plaintiff sought an explanation from
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MEMORANDUM OF DECISION - 7
Defendants about what had happened to the hay. Defendants insisted they fed the
“missing hay” to their livestock as authorized by the leases and the parties’ past
practices. Defendants were then unable to pay Plaintiff for the hay as required by
their deal.
Absent proof that Defendants’ account of the facts was untrue, and
over Plaintiff’s insistence that it should not do so, the Court accepted Defendants’
explanation. As a result, Plaintiff suffered entry of a summary judgment against it.
There is nothing in the record to show that Plaintiff was either vexatious or
conducted this litigation in other than a civil, ethical manner in attempting to
resolve the parties’ dispute. Lacking evidence, Plaintiff’s case was not
particularly strong. But even so, the Court can not conclude on these facts that
Plaintiff should be sanctioned by awarding fees to Defendants.
Defendants also request reimbursement from Plaintiff of their
litigation costs totaling $15.25. Fed. R. Bankr. P. 7054(b) provides that the
prevailing party may recover certain types of costs, and the Court’s Local Rules
define a “prevailing party” to include “one who successfully prosecutes the action
or successfully defends against it, prevails on the merits of the main issue, and the
one in whose favor the decision or verdict is rendered and judgment entered.”
L.B.R. 7054.1(b).
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3 Regarding the copying charges, L.B.R. 7054.1(c)(5) does allow for
reimbursement for copies of exhibits attached to documents required to be filed and
served. However, Defendants have not shown that the charges they claim were incurred
were for copying exhibits used in prosecuting their summary judgment motion. Absent
that showing, reimbursement of those costs is not allowed.
MEMORANDUM OF DECISION - 8
Though Defendants were the “prevailing party” in this action, the
items of costs they seek to recover from Plaintiff (photocopying, postage, and long
distance telephone charges) are not allowed under the Rule. L.B.R. 7054.1(c).
Therefore, Defendants are not entitled to an award of costs in this action. See
Sroufe, 261 B.R. at 40 (denying reimbursement for the cost of faxes, telephone
charges, and postage).3
Conclusion
For these reasons, Defendants’ motion will be denied by separate
order.
Dated: May 16, 2005
Honorable Jim D. Pappas
United States Bankruptcy Judge
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