In re Gilgan

634 B.R. 96

IN RE: Michelle Y. GILGAN, Debtor.

Bankruptcy Case No. 19-32009-pcm13

United States Bankruptcy Court, D. Oregon.

Filed September 03, 2021

Michael D. O'Brien, Michael D. O'Brien & Associates, P.C., Portland, OR, for Debtor.

OPINION

PETER C. McKITTRICK, United States Bankruptcy Judge

This matter comes before the court on a Motion for Attorney Fees (the Motion) filed by Michelle Gilgan (Gilgan), the debtor in this chapter 13¹ case. Doc. 50. The Motion requires the court to decide whether a debtor may recover attorney fees for successfully defending a relief from stay motion under Oregon's reciprocal fee statute. Under the particular facts of this case, the answer is yes. For the reasons set forth below, Gilgan is entitled to her reasonable attorney fees.

FACTS AND PROCEDURAL BACKGROUND

Gilgan filed a chapter 13 petition on May 31, 2019. Doc. 1. Among the claims in Gilgan's case, is a claim arising from an auto lease (the Lease) with Infiniti Financial Services of Beaverton, Oregon, a subsidiary of Nissan Motor Acceptance Corporation (Nissan). P.O.C. 13.

The Lease addresses default and payments in paragraph 24, which provides, in relevant part:

In the event of default, [Nissan] may terminate this Lease and, after giving any legally required notice: ... charge you for our costs of collection, any court costs and attorneys’ fees to the extent permitted by applicable law....

P.O.C. 13.

The court confirmed Gilgan's chapter 13 plan on July 26, 2019. In the plan, Gilgan assumed the Lease and represented that there was no arrearage. Shortly thereafter, Gilgan filed a First Amended Plan, which the court confirmed on November 22, 2019. The amended plan did not alter the treatment of Nissan's claim.

Nissan filed a motion for relief from the automatic stay (the MFR) on October 21, 2020, alleging that Gilgan had defaulted on the Lease by missing three monthly payments from August through October 2020, in the total amount of $2,013.48. Doc. 36. Gilgan filed a response to the MFR, disputing the amount of the default alleged by Nissan and stating that she could cure any default that existed. Doc. 38. Shortly after Nissan filed the MFR, Gilgan, through counsel, acknowledged that she had missed one monthly payment but disputed that the monthly payment amount had increased as alleged by Nissan. Declaration of O'Brien in support of the Motion, Doc. 51, ¶ 4. Nissan refused to accept payments from Gilgan after it filed the MFR. Id.

The court held two preliminary hearings on the MFR, at which the parties reported they were attempting to resolve the MFR. Gilgan also reported that she was waiting for more information from Nissan regarding the alleged default, which Nissan had not yet provided.

The court set the MFR for an evidentiary hearing on February 16, 2021. Gilgan's counsel made numerous attempts to obtain information necessary to respond to the MFR during the pendency of the motion. He even went to the unusual step of serving a formal request for production on Nissan. Nissan did not respond to the informal requests for information or the formal request for production. In preparation for the evidentiary hearing, Gilgan filed an exhibit list, a witness list, and a copy of the one exhibit she intended to introduce at the hearing. Nissan did not file any documents.

At the evidentiary hearing, Nissan's counsel reported he did not have any witnesses available to testify and had no documents to offer into evidence. Gilgan reported frustration at Nissan's failure to provide information, but said she was ready to proceed with the evidentiary hearing.

Gilgan's counsel made an offer of proof at the evidentiary hearing that Gilgan had tendered sufficient funds into counsel's trust account to cure the alleged default. Gilgan also obtained admission of Exhibit A, which is a document, prepared by Nissan, that includes Gilgan's payments on the Lease and a running balance of the remaining amount due after each payment. Exhibit A shows that the Lease payment amount increased from $623.90 to $683.17 per month after Gilgan filed her bankruptcy petition. Gilgan explained that Nissan never sent her any statements showing that the monthly payment amount had increased or provided any explanation for the increase.

At the evidentiary hearing, Nissan's counsel explained, for the first time, that the monthly payment amount increased because Gilgan moved from Oregon to California postpetition, thereby making the Lease subject to California sales tax. Nissan did not, however, provide any evidence to support counsel's statements. In summary, Nissan did nothing to prosecute the MFR after Gilgan challenged it, forcing Gilgan to incur attorney fees that could have been avoided.²

The court determined that Nissan failed to provide any evidence that the payment amount due under the Lease had, in fact, increased, and thus that Gilgan was in default on that basis. In the context of a motion for relief from stay, the moving party bears the burden of coming forward with evidence to establish its prima facie case. 3 Collier on Bankruptcy ¶ 362.10 (Richard Levin & Henry J. Sommer eds., 16th ed.). "If the movant fails to make an initial showing of cause, ... the court should deny relief without requiring any showing from the debtor that it is entitled to continued protection." In re Sonnax Indus., 907 F.2d 1280, 1285 (2d Cir. 1990). The court entered an order providing, in pertinent part, that the MFR "is denied for failure of [Nissan] to carry its burden of proof and failure to prosecute its Motion." Doc. 48. The court's order denying the MFR also required Nissan to provide payment instructions to Gilgan and provided that absent such instructions, she would be deemed current on the Lease by tendering payment to Nissan's counsel.

After entry of the order denying the MFR, Gilgan filed the Motion, requesting $4,123.50³ in attorney fees pursuant to Fed. R. Civ. P. 54(d), made applicable to contested matters by Fed. R. Bank. P. 9014(c). A motion for relief from stay gives rise to a contested matter. In re Anderson, 390 B.R. 812, 814 (Bankr. D. S.C. 2007). Gilgan argued in the Motion that she was entitled to an attorney fee award because she was the prevailing party on the MFR and the attorney fee clause in the Lease should be enforced reciprocally under Oregon law. Doc. 50.

Nissan failed to respond or object to the Motion within the 14 days required by LBR 9013-1(c). The court gave Nissan a second bite at the apple, and entered an order setting a hearing and giving Nissan 14 additional days to file a response. Nissan then filed its objection to the Motion, Doc. 58, asserting that Gilgan was not entitled to fees as the prevailing party, because the MFR was denied for failure to prosecute, not on its merits.

LEGAL STANDARD AND ANALYSIS

A court looks to state law to determine whether a party is entitled to attorney fees as the prevailing party on a contract. In re Penrod, 802 F.3d 1084, 1087-90 (9th Cir. 2015) (holding that the debtor, as the prevailing party on a contract, was entitled to recover her reasonable attorney fees under California's reciprocal fee statute).

Oregon law controls this dispute. ORS 20.096 provides, in pertinent part:

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). Under subsection (3) of ORS 20.096, a " ‘contract’ includes any instrument or document evidencing a debt." The Lease evidences a debt, and therefore is a contract under ORS 20.096.

As a threshold matter, the court rejects Nissan's argument that Gilgan is not entitled to attorney fees because she was not the prevailing party. The "prevailing party" is "the party who receives a favorable judgment ... on [a] claim." ORS 20.077(2). Gilgan received a favorable judgment when the court denied the MFR. Therefore, Gilgan is the prevailing party. There is no requirement that a court must render a decision on the merits of a dispute for a party to qualify as the prevailing party under ORS 20.077. See Northwest Country Place, Inc. v. NCS Healthcare of Or., Inc., 201 Or. App. 448, 119 P.3d 272, (2005) (defendant was prevailing party where plaintiff failed to make out prima facie case for judgment on its behalf).

To determine whether a party is entitled to prevailing party fees under ORS 20.096, the relevant inquiries are: (1) "whether the action at issue [is] based on a contract providing for prevailing party attorney fees[,]" and, if so, (2) whether the fees requested are reasonable. U.S. Bank Nat'l Assoc. v. Edwards, Case No. 3:16-cv-01307-AC, 2019 WL 2331704 at *2-3 (D. Or. Mar. 14, 2019). In determining whether an action in a bankruptcy case is one to enforce a contract, "substance should prevail over form." In re Hawkeye Entm't, LLC, 625 B.R. 745, 757 (Bankr. C.D. Cal. 2021).

I. The MFR WAS AN ACTION BASED ON A CONTRACT UNDER ORS 20.096

Federal bankruptcy law does not preclude the recovery of contractual attorney fees solely because the fees were incurred in bankruptcy litigation. Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 448-49, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007). "[A]n otherwise enforceable contract allocating attorney's fees (i.e., one that is enforceable under substantive, nonbankruptcy law) is allowable in bankruptcy except where the Bankruptcy Code provides otherwise." Id. at 448, 127 S.Ct. 1199.

The Ninth Circuit Court of Appeals held, in In re Johnson, 756 F.2d 738, 740-41 (9th Cir. 1985), that a creditor's motion for relief from stay brought under § 362(d)(4) was not an "action on a contract" under...