California
Appeals
Standard of Review
Attorney Fees
 

Standard of Review Attorney Fees authority to award Jaffe v. Pacelli

A.  Standard of review

            The usual standard of review for an award of attorney fees is abuse of discretion.  (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1176; Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142; Olson v. Cohen (2003) 106 Cal.App.4th 1209, 1213.)  Here, however, the issue is whether the trial court had the authority pursuant to Section 685.040 to issue such an award for efforts Jaffe expended in the bankruptcy proceedings.  This is a legal issue which we review de novo.  (Ibid.)    

B.  Discussion

            Generally, when a judgment is rendered on a case involving a contract that includes an attorney fees and costs provision, the “judgment extinguishes all further contractual rights, including the contractual attorney fees clause.  [Citation.]  Thus, in the absence of express statutory authorization, . . . postjudgment attorney fees cannot be recovered.”  (Berti v. Santa Barbara Beach Properties (2006) 145 Cal.App.4th 70, 77 (Berti).)  However, “[f]ees authorized by statute do not present the same problem.  A judgment does not act as a merger and a bar to statutory fees.  [Citation.]”  (Ibid.)

            Section 685.040 is intended to address the “problem unique to a claim for postjudgment fees in actions based on contract.”  (Berti, supra, 145 Cal.App.4th at p. 77.)  Section 685.040 is part of the Enforcements of Judgments Law (EJL).

            The former version of Section 685.040 provided that attorney fees were not collectible as costs of enforcing a judgment and the prevailing party could not collect attorney fees incurred in postjudgment enforcement efforts.  (Imperial Bank v. Pim Electric, Inc. (1995) 33 Cal.App.4th 540, 556; see Chelios v. Kaye (1990) 219 Cal.App.3d 75, 80; Hambrose Reserve, Ltd. v. Faitz (1992) 9 Cal.App.4th 129, 132, disapproved on other grounds in Trope v. Katz (1995) 11 Cal.4th 274, 292.)  In 1992, the Legislature amended Section 685.040 to provide that if the underlying judgment included an award of contractually-based attorney fees, the party seeking to enforce the judgment may obtain post‑trial attorney fees incurred to enforce the judgment.  (Stats. 1992, ch. 1348, § 3, p. 6707; Miller v. Givens (1994) 30 Cal.App.4th 18, 21.)  Pursuant to the current version of the statute, the award of postjudgment attorney fees is not based on the survival of the contract, but is instead based on the award of attorney fees and costs in the trial judgment.  (Imperial Bank v. Pim Electric, Inc., supra, at pp. 557‑558 & fn. 13.)  This is in accord with the extinction by merger analysis providing that postjudgment rights are governed by the rights in the judgment and not by any rights arising from the contract.  (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1766, 1770.)

            The last sentence of Section 685.040 provides the authorization for trial courts to award postjudgment attorney fees as costs according to the following criteria:  “Attorney’s fees incurred in enforcing a judgment are included as costs collectible . . . if the underlying judgment includes an award of attorney’s fees to the judgment creditor pursuant to subparagraph (A) of paragraph (10) of subdivision (a) of Section 1033.5.”[6]

            Thus, there are two requirements before a motion for an award of postjudgment attorney fees may be awarded as costs:  (1) the fees must have been incurred to “enforce” a judgment; and (2) the underlying judgment had to include an award for attorney fees pursuant to Code of Civil Procedure section 1033.5, subdivision (a)(10)(A), which provides that attorney fees may be awarded when authorized by contract.[7]

            Jaffe’s request for attorney fees and costs is based upon the actions he took in the bankruptcy proceedings.[8]  The determination of whether Section 685.040 entitles Jaffe to attorney fees and costs incurred in the bankruptcy proceedings is not dependent upon the forum in which the expenses were incurred.

            Circle Star Center, supra, 147 Cal.App.4th 1203, provides guidance to the issue before us even though it addressed a request for attorney fees expended in the bankruptcy court, but did not rely upon Section 685.040.  In Circle Star Center, a commercial tenant stopped paying rent and filed for bankruptcy.  The landlord successfully moved to dismiss the bankruptcy case.  Then, the landlord sued the tenant for breach of lease, defamation, and conversion and sought attorney fees based upon a provision in the lease.  (Circle Star Center, supra, at pp. 1206-1207.)  The trial court sustained the commercial tenant’s demurrer to one cause of action and upon the tenant’s motion, struck the landlord’s claim for attorney fees expended in the bankruptcy court, concluding that the fees were expended in litigating primarily federal law issues.  Eventually, most of the issues were resolved through settlement.  The landlord appealed from the judgment challenging the rulings on the demurrer and motion to strike.  (Id. at p. 1208.)

            Circle Star Center agreed with the landlord’s argument that it had a “right to pursue the bankruptcy‑related fees in state court as a matter of contract because dismissal of the bankruptcy case restored to the parties their preexisting rights and remedies.”  (Circle Star Center, supra, 147 Cal.App.4th at p. 1208.)  Circle Star Center reasoned as follows:  “When a case remains within the jurisdiction of the bankruptcy court, the rule is well settled:  A party may not recover attorney fees incurred in litigating purely bankruptcy law issues unless the fees are under a specific provision of the Bankruptcy Code.  [Citation.]”  (Id. at pp. 1208-1209, fn. omitted.)  However, this principle does not preclude a party from pursuing the fees incurred in obtaining the dismissal of a bankruptcy proceeding in postbankruptcy, state court contract actions.  (Id. at p. 1209.)  The landlord’s case was not against a bankruptcy estate and the commercial tenant’s bankruptcy petition had been dismissed.  After the bankruptcy was dismissed, the bankruptcy case was undone and the tenant’s debts “restored to the status they were in before it filed for bankruptcy. . . .”  (Ibid.)  The state court contract action could proceed, the issue was “ ‘subject to the general laws, unaffected by bankruptcy concepts.’  [Citation.]”  (Ibid., italics omitted.)  Permitting the landlord “to seek contractual attorney fees incurred in securing the dismissal of [the commercial tenant’s] bankruptcy proceeding does not interfere with the uniformity required by federal bankruptcy law or risk conflating federal procedural remedies with state tort lawsuits.  Nor does permitting the recovery of contractual attorney fees interfere with the bankruptcy court’s control of its proceedings.”  (Id. at p. 1210.)

            Circle Star Center also rejected the argument that “the threat of a state court award of contract-based attorney fees incurred in bankruptcy litigation might discourage some from seeking the protection of the bankruptcy court.”  (Circle Star Center, supra, 147 Cal.App.4th at p. 1210.)  The appellate court stated that when fees incidental to a bankruptcy are awarded by a state court following a dismissal of a bankruptcy “or with the bankruptcy court’s acquiescence that a lawsuit outside of bankruptcy may proceed[,]” “they are awarded as a matter of contract to a party who prevails in the state litigation, and they are awarded as an item of costs, not as a penalty.  (Civ. Code, § 1717.)”  (Circle Star Center, supra, at p. 1210, fn. omitted.)  Thus, “potential liability for contract-based attorney fees does not have the same disincentive specter that tort liability and damages for misuse of bankruptcy processes would have.”  (Ibid.)

            Circle Star Center then addressed the bankruptcy court’s discretion to issue awards for attorney fees as sanction orders.  (10 Collier on Bankruptcy (15th ed. rev. 2008) ¶ 9011.07, p. 9011-18 [bankruptcy court has discretion to impose sanctions pursuant to Fed. Rules Bankr.Proc., rule 9011].)  The appellate court stated, “At oral argument [the commercial tenant] asserted that if [the landlord] wished to obtain attorney fees for its effort in securing dismissal of [the tenant’s] bankruptcy it could have sought them in the bankruptcy court as a penalty or sanction pursuant to Federal Rules of Bankruptcy, rule 9011.  But such an award is predicated on a showing that the assessed party has engaged in frivolous, unnecessary or meritless litigation, and such fees are awarded for the primary purpose of deterring future conduct rather than as compensation to the moving party.  [Citation.]”  (Circle Star Center, supra, 147 Cal.App.4th at p. 1210 & fn. 7.)

            The rationale of Circle Star Center is applicable to a request of an award pursuant to Section 685.040.  Once Pacelli’s bankruptcy petition has been dismissed, Pacelli’s debt is restored to the status it had before the filing of the bankruptcy petition.  Jaffe’s claims for attorney fees and costs are not against Pacelli’s bankruptcy estate and Pacelli’s debts are subject to state law unaffected by bankruptcy concepts.  Jaffe’s enforcement proceedings may proceed.  Jaffe is entitled to request in state court an award of attorney fees and costs for those efforts exerted in the bankruptcy proceedings, even if the bankruptcy court had the discretion to make such an award as a penalty or sanction.  Jaffe is seeking an award as a matter of statutory right as conferred by Section 685.040, and not as a penalty.  (Fed. Rules Bankr.Proc., rule 9011; Circle Star Center, supra, at p. 1210, fn. 7; 10 Collier on Bankruptcy, supra, ¶ 9011.07, p. 9011-18 [bankruptcy court has discretion to impose sanctions pursuant to Fed. Rules. Bankr.Proc., rule 9011].)

            Further, Jaffe met the two requisite requirements of Section 685.040.

            First, the entire purpose of Pacelli’s bankruptcy filing, and her related appeals, was to avoid paying the judgment which Jaffe sought to enforce.  Pacelli sought to sabotage Jaffe’s collection efforts.  Jaffe filed the adversary proceeding seeking a determination that Pacelli was not entitled to have her debts discharged in bankruptcy.  Had Pacelli been successful in the bankruptcy proceedings, the judgment in the superior court would have been extinguished and unenforceable by the bankruptcy court’s discharge order.  (See fn. 4.)  Jaffe’s preventive measures were directly related to the continued enforceability of the superior court’s judgment entered on October 7, 1996, as renewed on March 4, 2003.  Jaffe’s actions in the bankruptcy proceedings were necessary in order to maintain, preserve, and protect the enforceability of the judgment.  Jaffe successfully blocked Pacelli’s efforts to have the debt discharged by the bankruptcy court and Jaffe protected the judgment.  Jaffe’s actions in the bankruptcy proceedings are enforcement proceedings pursuant to Section 685.040.

            Second, the promissory note which gave rise to the underlying case and to the resulting judgment rendered against Pacelli included an attorney fees provision.  The October 7, 1996, judgment contained an attorney fees award based on the contractual provision in the promissory note, pursuant to Code of Civil Procedure section 1033.5, subdivision (a)(10)(A).

            Thus, Jaffe is entitled pursuant to Section 685.040 to recover reasonable attorney fees and necessary costs incurred in the bankruptcy proceedings to enforce the judgment.  To conclude otherwise would encourage judgment debtors to file bogus bankruptcy petitions and potentially escape paying for the attorney fees and costs incurred by the creditors in combating those petitions.[9]

            The trial court erred in denying Jaffe’s request for attorney fees and costs expended in litigating the bankruptcy proceedings.