Bankruptcy/Section 1717: Bankruptcy Judge Erroneously Denied Debtor’s Requests For Recovery Of Fees After Defeating Car Lender’s “Hanging Paragraph” Secured Interest Claim In Chapter 13 Plan Confirmation Battle

 

“Hanging Paragraph” Claim Was “On The Contract” Under A Fees Clause.

     In In re Penrod, No. 13-16097 (9^th Cir. Oct. 1, 2015) (unpublished), debtor was successful against a car lender in a “hanging paragraph” dispute under 11 U.S.C. § 1325(a)(*) [no typo here – because this subsection was not numbered after (a)(9) by the legislation] where lender argued the whole claim should be secured while debtor argued it should only be partially secured, with debtor beating lender’s objection to confirmation of the Chapter 13 plan. Debtor then moved to recover $245,000 in attorney’s fees based on a fees clause in the auto loan documents, which was unilaterally worded in favor of lender. The bankruptcy judge denied the fee request.

     The Ninth Circuit reversed. It found that the “hanging paragraph” dispute did arise from enforcement of the auto loan contract, such that it was compensable under Civil Code section 1717 given that the unilateral fees clause is construed reciprocally under California law. There is a nice discussion of why this matter was not one solely based on bankruptcy law, but involved nonbankruptcy/contractual interpretation allowing for recovery of fees. Reversed and remanded to entertain debtor’s fee request.