Penrod v. AmeriCredit Fin. Serv., No. 13-16097 (9th Cir. 2015)
Annotate this CaseDebtor filed a motion in the bankruptcy court seeking to recover from AmeriCredit all of the attorney’s fees she incurred in opposing AmeriCredit’s objection to confirmation of her Chapter 13 plan. The court noted that a claim secured by property worth less than the amount of the claim is “bifurcated” into two claims: a secured claim equal to the value of the property and an unsecured claim for the balance. The hanging paragraph creates a special rule for auto lenders by prohibiting bifurcation of claims that are secured by a “purchase money security interest” in a motor vehicle recently acquired for the debtor’s personal use. The bankruptcy court ruled that the purchase money security interest protected by the hanging paragraph does not include amounts attributable to the negative equity from a trade-in vehicle. The bankruptcy court denied debtor’s motion for attorney’s fees on the ground that she did not prevail “on the contract” because her success in the litigation with AmeriCredit turned on a question of federal bankruptcy law. The district court affirmed. California Civil Code 1717 makes reciprocal an otherwise unilateral contractual obligation to pay attorney’s fees. The court held that the hanging-paragraph litigation was an “action on a contract” in which debtor prevailed. The court concluded that, as the “party prevailing on the contract,” debtor is entitled to recover reasonable attorney’s fees under section 1717. Accordingly, the court reversed and remanded.
Court Description: Bankruptcy. The panel reversed the district court’s affirmance of the bankruptcy court’s denial of a debtor’s motion for attorney’s fees following the confirmation of her Chapter 13 plan over the objection of the assignee of the debtor’s car loan. Ordinarily, a claim secured by property worth less than the amount of the claim is “bifurcated” into two claims: a secured claim equal to the value of the property and an unsecured claim for the balance. The “hanging paragraph” of 11 U.S.C. § 1325(a)(*) creates a special rule for auto lenders by prohibiting bifurcation of claims that are secured by a “purchase money security interest” in a motor vehicle recently acquired for the debtor’s personal use. The bankruptcy court, affirmed by the Bankruptcy Appellate Panel and by the Ninth Circuit, held that the purchase money security interest protected by the hanging paragraph does not include amounts attributable to the negative equity from a trade-in vehicle. The bankruptcy court denied the debtor’s subsequent motion seeking to recover from the lender all of the attorney’s fees she incurred in opposing the lender’s objection to confirmation of her Chapter 13 plan. The parties’ contract provided for attorney’s fees for the lender in the event of the debtor’s default. The debtor sought attorney’s fees pursuant to California Civil Code § 1717, which makes reciprocal an otherwise unilateral contractual IN RE PENROD 3 obligation to pay attorneys’ fees if certain conditions are met. Reversing the district court, the panel held that the litigation over the applicability of the hanging paragraph was an action “on a contract” because the lender sought to enforce the provisions of its contract when it objected to confirmation of the Chapter 13 plan. By prevailing in the litigation, the debtor obtained a ruling that precluded the lender from fully enforcing the terms of the contract. Accordingly, the conditions of § 1717 were satisfied. In addition, the lender would have been entitled to recover attorney’s fees had it prevailed. The panel remanded for either the district court or the bankruptcy court to determine a reasonable fee award.
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