In re: Leticia Joy Arciniega
CC-17-1154-SAKu
| 9th Cir. BAP | Dec 11, 2017Background
- Leticia Arciniega and James Clark settled a state-court property dispute by agreement (May 11, 2009) with two key provisions: (A) Clark pays Arciniega $50,000 (with $1,000/day liquidated damages for late payment) and (B) Arciniega must remove Clark from a VA loan on her Verona property by May 13, 2010 (with $1,000/day liquidated damages for delay). The agreement includes a prevailing‑party attorneys’ fees clause invoking Cal. Civ. Code § 1717.
- Arciniega did not remove Clark from the VA loan; she later filed bankruptcy (Feb. 18, 2011). Clark sued in bankruptcy court under 11 U.S.C. § 523(a)(2)(A) and (a)(6) (fraud/nondischargeability) and sought the liquidated damages and fees.
- The bankruptcy court found nondischargeable fraud and awarded $281,000 in liquidated damages (281 days at $1,000/day) plus attorneys’ fees and costs; it denied relief on § 727 claims and awarded no $50,000 return of settlement payment.
- On first appeal the BAP affirmed nondischargeability but vacated the $50,000 award (no proximate cause) and remanded the liquidated‑damages question for determination under Cal. Civ. Code § 1671(b) (reasonableness) and for proper treatment of attorneys’ fees (apportionment or finding of inextricable overlap).
- On remand the bankruptcy court refused to reopen the trial record, found Arciniega failed to prove the clause unreasonable, enforced the $1,000/day clause (limited by Clark’s elected 281‑day claim), and awarded $244,586.50 in attorneys’ fees after limited deductions.
- The BAP on this appeal reversed the bankruptcy court’s enforceability finding for the liquidated damages clause (clause was an unenforceable penalty given lack of relationship to anticipated harm and unlimited duration), vacated the fee award (prevailing‑party status unresolved), and remanded to reopen the record on proximate cause and actual damages.
Issues
| Issue | Plaintiff's Argument (Clark) | Defendant's Argument (Arciniega) | Held |
|---|---|---|---|
| Enforceability of $1,000/day liquidated damages clause under Cal. Civ. Code § 1671(b) | Clause is valid; liquidated damages should apply (and Clark limited claim to 281 days) | Clause is unreasonable and disproportionate to anticipated harm; $1,000/day with no termination is punitive | Clause is unenforceable as a penalty; reverse enforcement and remand for actual damages/proximate cause |
| Burden of proof on reasonableness of liquidated damages | N/A – argues clause valid | Burden on Arciniega to show unreasonableness; she did so via contract terms and loan balance | Although statute places burden on challenger, the contract and loan balance suffice to show clause unreasonable; court reversal stands |
| Whether record should have been reopened on remand to take more evidence on reasonableness | N/A – sought enforcement without reopening | Arciniega argued remand didn’t permit reopening; later submitted evidence and argued clause itself showed unreasonableness | BAP held bankruptcy court did not abuse discretion in declining reopening, but nonetheless found existing record (contract and $75k loan balance) supported reversal of enforceability |
| Attorneys’ fees award under settlement agreement and Cal. Civ. Code § 1717 | Fees compensable because claims arose from common core and were inextricably intertwined; bankruptcy court correctly refused apportionment | Fees excessive, not apportioned to contract claims; should be reduced or denied | Fees award vacated pending final resolution of contract damages because prevailing‑party status unsettled; bankruptcy court may reinstate fees if Clark proves actual damages and is prevailing party on remand |
Key Cases Cited
- Ridgley v. Topa Thrift & Loan Ass'n, 17 Cal.4th 970 (1998) (liquidated damages unenforceable if not reasonably related to range of harm reasonably anticipated at contracting)
- Traxler v. Multnomah Cty., 596 F.3d 1007 (9th Cir. 2010) (abuse of discretion standard for liquidated damages review)
- Cohen v. de la Cruz, 523 U.S. 213 (1998) (§ 523(a)(2)(A) bars discharge of all liability arising from fraud)
- Hsu v. Abbara, 9 Cal.4th 863 (1995) (definition of prevailing party under Cal. Civ. Code § 1717 when contract claim yields no recovery)
- Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal.App.4th 1332 (2015) (compare value forfeited to range of anticipated harm when evaluating liquidated damages)