Second District Remands For Fee Determination in Split Opinion.
Under our category “Judgment Enforcement,” we have discussed prior cases construing Code of Civil Procedure section 685.040, which allows a judgment creditor to recover reasonable and necessary attorney’s fees incurred in “enforcing” a judgment if the underlying judgment includes an award of fees to the judgment creditor. The Second District, as 2008 drew to an end, has now considered this anew in a familiar setting—bankruptcy proceedings that intertwine with state court litigation—but with a divergence in opinion as to the proper result.
Chinese Yellow Pages Co. v. Chinese Overseas Marketing Service Corp., Case No. B197234 (2d Dist., Div. 5 Dec. 30, 2008) (certified for publication) involves a very convoluted set of procedural facts, boiling down to a motion for attorney’s fees by a judgment creditor in a state court case that was stayed at various points due to a chapter 11 bankruptcy filed by one of the judgment debtors. (Earlier, a judgment had been entered on a stipulated settlement containing a fees clause.) Eventually, the state trial judge awarded creditor $1,216,414.65 in attorney’s fees, while chapter 11 bankruptcy battles proceeded (even though these larger fees were satisfied by one of the judgment debtors). Creditor then moved for $582,787.44 in supplemental fees and costs incurred in enforcing the judgment for most of 2006. The bankruptcy court then entered a bankruptcy dismissal order conditioned on escrowing $517,000 for fees and costs that might be awarded by the trial court. Because the bankruptcy was still brewing, the trial court wanted some advisory rulings from the bankruptcy court about whether the automatic stay was in effect and what law applied (bankruptcy or California). The bankruptcy court refused to issue an advisory opinion, and the trial court refused to award supplemental fees to creditor based on the automatic stay and because the creditor was not entitled to receive section 685.040 postjudgment costs and fees during the pendency of the chapter 11 bankruptcy proceeding. Creditor appealed and, in a prior opinion, the Second District affirmed the underlying judgment sans the fee denial, determining that the breach of contract claim was not supported by the evidence. Creditor then appealed the trial court’s denial of supplemental fees and costs.
In a 2-1 opinion written for the majority by Presiding Justice Turner, the Second District, Division Five reversed the fee denial and remanded so the merits of the motion could be addressed.
The majority’s key determination was that nothing in bankruptcy law prevented creditor from seeking supplemental fees under section 685.040. Reasoning to the contrary in In re Fobian, 951 F.2d 1149, 1153 (1991) has been supplanted by the U.S. Supreme Court’s decision in Travelers Casualty & Surety Co. v. Pacific Gas & Elec. Co., 549 U.S. 443, 127 S.Ct. 1199, 1203-1204 (2007), which determined that an enforceable contract allocating attorney’s fees under state law is fully allowable in bankruptcy unless the Code provides otherwise. Because creditor sought to recover fees after dismissal of the bankruptcy and expiration of the automatic stay, no federal interest was violated such that it was erroneous for the lower court to decide it was without jurisdiction to rule on the fees request.
In dissent, Justice Armstrong believed that the Second District’s prior opinion had determined that the underlying judgment did not provide for “contractual attorney’s fees,” such that the trial court was correct to deny fees given that section 685.040 requires that “the underlying judgment include an award of attorney’s fees to the judgment creditor.” Because this element of the statute was missing, the trial court correctly denied creditor’s request, although doing so for a mistaken lack-of-jurisdiction basis.