Friday, January 2, 2009
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Court Rules Creditors’ Attorney Fees in Bankruptcy Proceedings Are Recoverable
By SHERRI M. OKAMOTO, Staff Writer
A judgment creditor may recover reasonable and necessary attorney fees and costs incurred in post-judgment bankruptcy proceedings, this district’s Court of Appeal has ruled.
A divided panel of Div. Five reversed Los Angeles Superior Court Judge Elizabeth A. Grimes’ denial of Chinese Yellow Pages Company’s request for fees and costs associated with litigation in bankruptcy court against Chinese Overseas Marketing Service Corporation in its decision on Tuesday.
Overseas initially filed suit against Chinese Yellow Pages for false advertising and unfair competition in Superior Court. The parties settled the suit pursuant to an agreement which provided for an award of attorney fees to the prevailing party in any action to enforce or interpret the agreement.
Subsequently, Chinese Yellow Pages filed suit, also in Superior Court, against Overseas for allegedly misrepresenting the nature of the settlement agreement to potential customers.
It asserted causes of action for breach of contract, intentional interference with contractual relations, and intentional interference with prospective economic advantage, unfair competition, libel and slander.
A jury returned a verdict in favor of Chinese Yellow Pages and awarded $4.25 million in compensatory damages against Overseas and its owner, Alan Kao, as well as punitive damages.
Overseas later filed for Chapter 11 bankruptcy so that any effort to collect on the judgment was subject to an automatic stay preventing creditors from taking any action against it to enforce a debt while bankruptcy proceedings were pending.
The bankruptcy court entered an order granting partial relief from the automatic stay pursuant to stipulation which allowed post-trial motions on a motion to tax costs and attorney fees. Overseas was also allowed to appeal the adverse Superior Court judgment.
Overseas appealed, and the appellate court affirmed the trial court’s entry of judgment against Overseas for its tortious conduct, but reversed on the breach of contract cause of action.
Eventually Overseas moved to dismiss its bankruptcy case. Chinese Yellow Pages filed a non-opposition, conditioned on its being paid in full. The bankruptcy trustee joined in the dismissal request, and indicated that sufficient funds would be borrowed against Overseas’ assets to reserve payment of Chinese Yellow Pages’ claim for post-judgment enforcement attorney fees, if allowed by the superior court.
As these events were transpiring in the bankruptcy court, Chinese Yellow Pages filed a motion seeking post-judgment attorney fees and costs of $553,21l.56. Overseas moved to tax costs and fees, and asserted that Chinese Yellow Pages was required to file a noticed motion to seek fees.
Chinese Yellow Pages opposed the motion to tax costs and filed a noticed motion seeking attorney fees and costs of $582,787.44. Chinese Yellow Pages argued that it was entitled to its fees and costs in enforcing the state court judgment against Overseas in both the state and bankruptcy courts under Code of Civil Procedure Sec. 685.040, which permits a judgment creditor to recover “the reasonable and necessary costs of enforcing a judgment.”
In opposition, Overseas and the bankruptcy trustee maintained that the attorney fee issue should be resolved by the bankruptcy court.
While the attorney fees motion was pending in the superior court, the bankruptcy court entered an order allowing the bankruptcy trustee to take out a loan against Overseas’ assets to pay creditors. The bankruptcy court order provided for $517,000 to be held in reserve to pay any additional fees or costs which might be awarded by the trial court.
The bankruptcy court then entered a formal order dismissing the bankruptcy case and refused the superior court’s request for an advisory opinion regarding the merits of Chinese Yellow Pages’ attorney fee motion on the grounds that there was no live case or controversy within its jurisdiction.
The superior court later ruled that it lacked authority to award attorney fees incurred during the pendency of the bankruptcy proceeding and granted Overseas’ motion to tax costs.
Writing for the appellate court, Presiding Justice Paul Turner concluded that recovery of reasonable attorney fees and costs was permitted under Sec. 685.040 after a bankruptcy proceeding has been dismissed at the debtor’s request and the automatic stay has expired.
Citing Travelers Casualty & Surety Co. v. Pacific Gas & Elec. Co. (2007) 549 U.S. 443, Turner explained that “absent a federal interest or textual basis found in the Bankruptcy Code, the present attorney fees and costs issue must be resolved under California law.”
Turner reasoned that any federal interest in the post-judgment attorney fee dispute was lessened once the automatic stay had been lifted and the insolvency proceedings dismissed and that nothing in the Bankruptcy Code affects a state trial court’s ability to impose fees and costs after the expiration of the stay.
He noted that the bankruptcy court had set aside monies in the event that the superior court awarded post-judgment fees and costs and thereby implicitly agreed with his conclusion.
Justice Sandy R. Kriegler joined Turner in his opinion directing the trial court to rule on the merits of the attorney fees and costs motion, but Justice Orville A. Armstrong dissented.
Armstrong argued that Sec. 685.040 only allows recovery of attorney fees incurred in enforcing a judgment if the underlying judgment included an award of contractual attorney fees.
Because the underlying judgment was modified by the appellate court’s decision that Overseas was not in breach of the parties’ contract, Armstrong contended that Sec. 685.040 did not apply.
Calabasas attorney Lewis R. Landau represented Chinese Yellow Pages along with James T. Grant of the Law Offices of James T. Grant and Paul G. Murtagh of Murtagh & Associates.
Hall R. Marston and Douglas J. Collodel of Sedgwick, Detert, Moran & Arnold represented Chinese Overseas Marketing Service Corporation.
The case is Chinese Yellow Pages v. Chinese Overseas Marketing Service Corporation, B197234.
Copyright 2009, Metropolitan News Company