Debtor Entitled to Attorney Fees from Defense of Motion for Relief from Stay

Posted by NCBRC - December 20, 2021

The chapter 13 debtor was entitled, under Oregon’s reciprocal fee statute, to recover attorney fees for successfully defending a motion for relief from stay where the motion required interpretation of the terms of the motor vehicle lease. In re Gilgan, 2021 WL 4047463 (Bankr. D. Or. Sept. 3, 2021) (case no. 19-32009).

The debtor filed for chapter 13 bankruptcy with a current vehicle lease from Nissan Motor Acceptance Corporation. She committed to maintaining the lease payments outside the plan. After her plan was confirmed, Nissan filed a motion for relief from stay claiming that the debtor had missed three lease payments. The terms of the leasing contract provided that Nissan could collect attorneys’ fees incurred in an action to enforce its rights upon default.

The court held a hearing on the motion at which Nissan claimed the default was a result of the debtor’s lease rates going up post-petition when she moved from Oregon to California. Generally, Nissan failed to support its motion with any evidence of the debtor’s default and the court denied the motion. The debtor then sought to recover the $4,123.50 in attorney fees she incurred in defending against the motion.

Oregon law provides:

“In any action or suit in which a claim is made based on a contract that specifically provides that attorney fees and costs incurred to enforce the provisions of the contract shall be awarded to one of the parties, the party that prevails on the claim shall be entitled to reasonable attorney fees in addition to costs and disbursements, without regard to whether the prevailing party is the party specified in the contract and without regard to whether the prevailing party is a party to the contract.” ORS 20.096(1).

The court rejected Nissan’s argument that because the motion for relief from stay was denied due to Nissan’s failure to prosecute, the debtor was not the “prevailing party.” The court found that, under Oregon law, a prevailing party is one who receives a favorable judgment on a claim. It further found that attorney fees are recoverable when 1) the contract under which the claim arose provides for any party to recover such fees, and 2) the fees are reasonable.

The court observed that in In re Johnson, 756 F.2d 738, 740-41 (9th Cir. 1985), the Ninth Circuit, relying on In re Fobian, 951 F.2d 1149, 1153 (9th Cir. 1991), held that, under California law, motions for relief from stay are not typically considered actions on a contract. In that case, the court reversed the bankruptcy court’s award of attorney fees to the debtor, reasoning that the motion was governed by federal bankruptcy law rather than state contract law. Fobian was later abrogated by Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 448-49 (2007), where the Court held that an award of attorney fees under a contract dispute is not precluded simply because the issue arose in the context of bankruptcy. The court in Green Tree Servicing LLC v. Giusto, 553 B.R. 778 (N.D. Cal 2016), held that Travelers did not abrogate Johnson. There, the court found the debtor could not recover attorney fees where the motion for relief from stay was a summary proceeding not based on contract and the debtor’s defense to the motion relied on standing.

The court here distinguished Johnson and Giusto, finding that, in this case, “Nissan moved for relief from stay to enforce the terms of the Lease by asserting it had the right to collect a higher payment amount based on a substantive provision of that contract. Nissan failed to prove its case and Gilgan prevailed. After this court’s decision regarding the scope of the default, there was no contractual dispute left to litigate in state court. Nissan sought to enforce its rights to charge a higher monthly payment amount under the Lease, and it lost.”

In so finding, the court agreed that Johnson was still good law, but found that its scope was limited and did not entirely preclude an award of attorney fees for defense of a motion for relief from stay. In this case, in order to resolve the motion for relief from stay the court had to interpret a provision of the contract which Nissan claimed raised the debtor’s lease payment obligations and was the basis for her default. Unlike in Johnson, the court here did not address purely bankruptcy issues of adequate protection or the debtor’s equity in the property.

The court noted that in In re Penrod, 802 F.3d 1084 (9th Cir. 2015), the Ninth Circuit rejected an overly narrow reading of California’s fee-shifting statute in a case where the creditor objected to confirmation of the debtor’s plan which bifurcated its claim into secured and unsecured portions on the grounds that the bifurcation was prohibited by contract. The Penrod court found that “[u]nder California law, an action is ‘on a contract’ when a party seeks to enforce, or avoid enforcement of, the provisions of the contract.”

The court concluded that the debtor “was the prevailing party on the MFR and that the MFR was an action based on a contract under ORS 20.096.”

The court found the fees to be reasonable and granted the debtor’s motion.

Gilgan Bankr Or Sept 2021


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