Although Plaintiff’s Claim Arose Pre-Petition, Plaintiff’s Post-Discharge Litigation Conduct Was Within The Discharge “Fair Contemplation” Of The Parties.
In Picerne Construction Corp. v. Castellino Villas, A.K.F., LLC, Case No. 12-57186 (9th Cir. Sept. 6, 2016) (published), the Ninth Circuit confronted whether the bankruptcy court properly concluded that attorney’s fees incurred by plaintiff incurred during litigation after the confirmation of a Chapter 11 bankruptcy plan were discharged by that bankruptcy. Both the bankruptcy and appellate courts determined that they were under the circumstances.
What happened was that Debtor failed to pay general contractor for work on an apartment complex project, with the parties’ contracts containing a fees clause. Contractor obtained a favorable arbitration award, with Debtor filing a Chapter 11 bankruptcy petition the day of the arbitration award. The bankruptcy court lifted the stay so that the parties could continue to litigate the mechanic’s lien claim in state court. Contractor filed an objection to confirmation of the Debtor’s Chapter 11 plan, with the parties reaching a settlement about contractor’s lien priority but not agreeing to anything about attorney’s fees and costs. The bankruptcy court approved the settlement and agreement and confirmed the Chapter 11 plan per the settlement agreement, resulting in a discharge of Debtor. However, the bankruptcy court denied contractor’s motion for fees based on the plan confirmation discharge.
Contractor did not get any more relief on appeal. The principal thrust of the decision was that the continued post-petition litigation of a pre-petition claim did not fall outside the fair contemplation of the parties that fees might be incurred in the future and thus fall within the bankruptcy discharge. Here, Debtor did not commence new litigation or return to a new fray, but only litigated in line with what the parties agreed to under the settlement agreement.
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