CCP § 1021, Not Civil Code § 1717, Afforded Relief.
In re Charalambous (Hamilton v. Charalambous), BAP No. CC-13-1042-PDKi (BAP 9th Cir. Mem. Decision July 3, 2013) (unpublished) is an illustration of how one needs to carefully pick the basis for fee entitlement. Although Civil Code section 1717 is an attractive first impulse ground, it may need to yield to other statutory bases, especially where noncontractual claims are at issue.
Here, creditor prevailed in non-discharging a debt under 11 U.S.C. § 523(a)(4), which deals with a trust fiduciary relationship. Based on a broadly worded fees clause in the agreement with debtor, creditor moved to recover attorney’s fees of $254,291.25 for prevailing in the nondischargeability action. The bankruptcy judge said “no,” reasoning that the claim was not based “on the contract” under Civil Code section 1717 and no one prevailed given that creditor did not obtain relief based on other nondischargeability grounds.
The Ninth Circuit BAP panel reversed.
Unlike section 1717, CCP § 1021 applies to tort actions as well as contract disputes. Because the debtor-creditor dispute was essentially a tort dispute according to the reviewing court, the broadly worded fees clause gave rise to an independent basis for a fees award. To make things clear, the BAP panel dropped a footnote indicating that the “prevailing party” discretionary process under section 1021 is much more restricted than that under Civil Code section 1717 for purposes of guiding the bankruptcy judge on remand (hint! hint!).
BLOG OBSERVATION AND HAT TIP--The key here is whether you buy that section 523(a)(4) nondischargeability relief is akin to defalcation, a tort. We “hat tip” blog follower Andrew L. Fagan, Esq. of Santa Rosa for alerting us to this opinion.
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