541 B.R. 706
Bankr. N.D. Cal.2015Background
- Debtor Mac-Go (owned by Michael & Elizabeth Macchia) borrowed from First National Bank (FNB): SSF Loan (Feb 2006), Woodland Loan (Sept 2006), and Mac‑Go Loan ($250,000, Dec 2009) secured by all Mac‑Go assets (Collateral) and evidenced by loan documents including a Guaranty. FNB perfected via UCC filing.
- Involuntary bankruptcy petition against Mac‑Go filed Jan 2012; Chapter 7 Trustee (Poonja) filed an adversary action (July 2012) seeking to avoid/prefer various pre‑ and post‑petition payments under §§ 547, 548, 549.
- Court granted partial summary judgment for FNB on the Mac‑Go Loan claims (avoiding Trustee’s attempts to recover ~ $814,214) but after trial ruled for Trustee on certain § 549 claims and entered judgment for $25,300.24 (Nov 2014).
- FNB filed a $346,745.24 proof of claim (Nov 26, 2014) consisting mainly of $293,811 in litigation attorneys’ fees/costs (including Mac‑Go, SSF, Woodland defenses), $27,634.08 in fees from Michael Macchia’s individual bankruptcy, and $25,300.24 under § 502(h) for the judgment it paid.
- Earlier (Jan 2012) Mac‑Go paid off the Mac‑Go Loan and FNB filed a UCC termination (Financing Amendment); Trustee also obtained turnover of a Mac‑Go bank account and sold personal property collateral. The court found the UCC termination and payoff extinguished FNB’s lien on the Collateral.
Issues
| Issue | FNB's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Are Mac‑Go Loan fees secured under § 506? | Fees arise from pre‑petition loan documents; Collateral value exceeded fees so fees are secured. | Lien was terminated by payoff and UCC termination; no lien exists, so fees are unsecured. | Lien terminated by payoff and UCC termination; Mac‑Go fees are unsecured. |
| Was there a "prevailing party" for fee entitlement under California law? | FNB prevailed on many avoidance claims and its contracts authorize fees; thus FNB prevailed. | Trustee obtained a monetary judgment and prevailed on some claims; mixed results mean no single prevailing party. | No prevailing party under § 1717 after comparing relief obtained—both sides had significant wins/losses. |
| Were FNB’s post‑petition litigation fees timely filed as claims? | Fees were incurred postpetition; SNTL allows postpetition fees tied to prepetition contracts to be treated as claims and thus not subject to bar date. | FNB had prepetition rights to fees (loan/guaranty) and fair‑contemplation put FNB on notice to file by the bar date. | Even if claim arose prepetition, FNB failed to timely file by the claims bar date; late fee claims disallowed (except § 502(h) judgment claim). |
| Are fees incurred in Michael Macchia’s individual bankruptcy recoverable under the Guaranty? | Fees in Macchia’s individual case enforced bank’s rights tied to the Guaranty. | Macchia was not a guarantor under the Guaranty; those fees are not recoverable under it. | Fees/costs from Macchia’s case disallowed—Macchia was not a guarantor, so Guaranty does not cover those fees. |
Key Cases Cited
- Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443 (2007) (prepetition contractual fee rights can give rise to allowed bankruptcy claims even if fees are incurred postpetition)
- In re SNTL Corp., 571 F.3d 826 (9th Cir. 2009) (creditor’s prepetition contractual right to attorneys’ fees creates a contingent prepetition claim that may be asserted in bankruptcy)
- Hsu v. Abbara, 9 Cal.4th 863 (1995) (California § 1717 prevailing‑party analysis compares relief awarded on contract claims to the parties’ demands/objectives)
- In re Penrod, 802 F.3d 1084 (9th Cir.) (California § 1717 broadly construed to apply to disputes involving written agreements)
Outcome: Court sustained Trustee’s objections and disallowed FNB’s attorneys’ fees and costs ($293,811) and the Macchia‑case fees ($26,707 and $927.08), but allowed a general unsecured claim for $25,300.24 under § 502(h).