Filed: Apr. 23, 2020
Latest Update: Apr. 23, 2020
Summary: FILED APR 23 2020 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT ORDERED PUBLISHED UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT In re: BAP No. NC-19-1178-TaFB DAVID WILLIAM BARTENWERFER and Bk. No. 3:13-bk-30827 KATE MARIE BARTENWERFER, Adv. No. 3:13-ap-03185 Debtors. DAVID WILLIAM BARTENWERFER; KATE MARIE BARTENWERFER , Appellants, v. OPINION KIERAN BUCKLEY, Appellee. Argued and Submitted on March 26, 2020 Filed – April 23, 2020 Appeal from the United States
Summary: FILED APR 23 2020 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT ORDERED PUBLISHED UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT In re: BAP No. NC-19-1178-TaFB DAVID WILLIAM BARTENWERFER and Bk. No. 3:13-bk-30827 KATE MARIE BARTENWERFER, Adv. No. 3:13-ap-03185 Debtors. DAVID WILLIAM BARTENWERFER; KATE MARIE BARTENWERFER , Appellants, v. OPINION KIERAN BUCKLEY, Appellee. Argued and Submitted on March 26, 2020 Filed – April 23, 2020 Appeal from the United States B..
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FILED
APR 23 2020
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
ORDERED PUBLISHED
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. NC-19-1178-TaFB
DAVID WILLIAM BARTENWERFER and Bk. No. 3:13-bk-30827
KATE MARIE BARTENWERFER,
Adv. No. 3:13-ap-03185
Debtors.
DAVID WILLIAM BARTENWERFER;
KATE MARIE BARTENWERFER ,
Appellants,
v. OPINION
KIERAN BUCKLEY,
Appellee.
Argued and Submitted on March 26, 2020
Filed – April 23, 2020
Appeal from the United States Bankruptcy Court
for the Northern District of California
Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding
Appearances: Iain A. Macdonald, Reno F.R. Fernandez III, and Matthew
J. Olson of Macdonald Fernandez LLP on brief for
appellants; Janet Marie Brayer argued on behalf of
appellee.
Before: TAYLOR, FARIS, and BRAND, Bankruptcy Judges.
TAYLOR, Bankruptcy Judge:
INTRODUCTION
In earlier cross-appeals,1 we reviewed a judgment in which the
bankruptcy court: (1) determined that appellee Kieran Buckley’s state court
judgment and attorneys’ fees award against appellants David and Kate
Bartenwerfer (“Debtors”) were excepted from Debtors’ discharge under
§ 523(a)(2)(A);2 (2) denied Mr. Buckley attorneys’ fees incurred in his
nondischargeability action; and (3) awarded Mr. Buckley interest at the
California judgment rate of 10%. We affirmed the bankruptcy court in all
but two respects. First, we vacated its judgment as against
Mrs. Bartenwerfer and remanded for further findings regarding her intent
1
Bartenwerfer v. Buckley (In re Bartenwerfer), BAP Nos. NC-16-1277-BJuF,
NC-16-1299-BJuF,
2017 WL 6553392 (9th Cir. BAP Dec. 22, 2017).
2
Unless specified otherwise, chapter and section references are to the Bankruptcy
Code, 11 U.S.C. §§ 101–1532.
2
to defraud.3 And second, as relevant to this appeal, we vacated its
judgment and two related orders to the extent that it determined that
Mr. Buckley’s state court attorneys’ fees were nondischargeable. The then-
existing record was inadequate to assess which fees, if any, flowed from
Mr. Bartenwerfer’s nondischargeable fraudulent conduct. We therefore
remanded the issue for further determination and with instructions to
reopen the record.
On remand, the bankruptcy court did a searching analysis of the state
court record and found that Mr. Buckley’s state court fraud and non-fraud
claims were inextricably intertwined, thus making fee apportionment
impossible. It then entered judgment once again determining that his fees
were wholly nondischargeable. Debtors appealed. We determine that the
judgment is well-supported by the record developed on remand, and we
AFFIRM.
FACTS
A. Prepetition Events
1. The Sale of the Property
Prepetition, Debtors purchased a home in San Francisco, California
(“Property”), which they remodeled and sold to Mr. Buckley. Before the
sale, Debtors signed a Cal. Civ. Code § 1102 et seq. transfer disclosure
3
On remand, the bankruptcy court entered judgment in Mrs. Bartenwerfer’s
favor after finding that she lacked the requisite fraudulent intent. The parties cross-
appealed the judgment. See BAP Nos. NC-19-1016-TaFB and NC-19-1025-TaFB.
3
statement and a supplement thereto (collectively, the “TDS”), which
contained false representations regarding, inter alia, water leaks, defective
window conditions, open permit issues, and fire escape non-compliance
(“Defects”).
2. The State Court Action
Mr. Buckley discovered the Defects after the sale and sued the
Debtors in state court. His complaint included eight claims: (1) strict
liability; (2) breach of express warranty; (3) breach of implied warranty;
(4) negligence; (5) breach of contract; (6) negligent misrepresentation;
(7) fraud/deceit; and (8) rescission. The complaint also named various
contractors as defendants in the negligence claim.
All of the claims relied on and incorporated the core factual
allegations set forth in paragraphs nine through fourteen of the complaint.
These paragraphs alleged that: Debtors engaged in the business of
remodeling and selling residences to the general public (¶9); Debtors failed
to construct the Property in accordance with proper and approved
techniques and failed to hire and adequately manage capable contractors,
subcontractors, and material suppliers (¶10); Debtors failed to perform
work at the Property in compliance with California building code
standards (¶11); Mr. Buckley discovered the Defects after the Property was
transferred to him (¶12); the Property may have additional as yet
undiscovered defects (¶13); and Debtors’ remodeling, construction, and
4
sale of the Property in a defective condition damaged Mr. Buckley (¶14).
Debtors answered the complaint and cross-complained against
Mr. Buckley and their contractors. Their answer included a general denial
and affirmative defenses, including fault of a third party, indemnity by the
contractors, and damages caused by another party, wear, or tear. Their
cross-complaint asserted breach of contract claims against Mr. Buckley and
the contractors and implied indemnity and contribution claims against the
contractors.
In answering the complaint and cross-complaint, some contractors
asserted affirmative defenses of indemnification and contributory or
comparative negligence of the other parties to the action. At least one
contractor also filed its own cross-complaint.
Extensive discovery and motion practice followed for three years.
The parties did not parse discovery among Mr. Buckley’s claims against
Debtors and the contractors, and the nature of the indemnity claims
resulted in a finger-pointing blame game relative to Mr. Bartenwerfer’s
defense that he lacked knowledge of, and responsibility for, the Defects.
After a 19-day trial, the jury found in Mr. Buckley’s favor on his
breach of contract, negligence, and failure to disclose information
(denominated as the “Seller’s Nondisclosure” claim in the verdict form)
claims, but in Debtors’ favor on his intentional and negligent
misrepresentation claims. The jury found against Debtors on their breach of
5
contract claim. And the jury awarded Mr. Buckley $444,671 in damages,
which the state court reduced in an amended judgment (“State Court
Judgment”) to $234,671, plus 10% interest, attorneys’ fees, and costs,
pursuant to a noticed motion. Mr. Buckley then filed a motion seeking
attorneys’ fees, but the Debtors filed their chapter 7 bankruptcy before the
state court could hear it.
B. Postpetition Events
1. The Nondischargeability Judgment
Mr. Buckley responded with an adversary complaint to except the
State Court Judgment and his fees from Debtors’ discharge. After trial, the
bankruptcy court entered judgment excepting the entire State Court
Judgment from discharge pursuant to § 523(a)(2)(A).
2. The Post-Trial Attorneys’ Fees Proceedings
Mr. Buckley then moved for the attorneys’ fees he incurred in the
State Court Action, among other relief (“Fee Motion”). Debtors opposed.
Initially, the bankruptcy court granted Mr. Buckley $378,491 in state court
fees and costs, subject to a reasonableness determination.
Mr. Buckley contended his fees were reasonable given the modest
hourly rate charged, a 19-day jury trial, and the five-year duration of the
State Court Action. Debtors countered that 521 hours (i.e., $182,566) of time
was excessive because such time arose from the allegedly unrelated
contractor litigation. They further objected to alleged block-billing and
6
billing for clerical and travel activities.
Eventually, the bankruptcy court reduced the fees to $348,483.53 to
eliminate clerical and travel fees lumped in with substantive legal work.
But it declined to further reduce the fees for time spent on allegedly
unrelated matters because Debtors had failed to introduce the complaint
into evidence and explain why such time was unrelated to the claims
giving rise to the nondischargeable debt.
Thus, the bankruptcy court entered its final order on the Fee Motion
and an amended § 523(a)(2)(A) judgment to award Mr. Buckley $348,483.53
of nondischargeable fees. It later entered a further amended judgment
(“523 Judgment”) to add relief not relevant to this appeal.
3. The Cross-Appeals
Both Mr. Buckley and Debtors appealed the fee award. We concluded
that because the state court never liquidated Mr. Buckley’s fees or
determined their reasonableness, the bankruptcy court must determine
what portion of the fees, if any, flowed from Mr. Bartenwerfer’s fraudulent
conduct. We noted that neither we nor the bankruptcy court could make
that determination from the thin record. Accordingly, we vacated the
bankruptcy court’s fee orders and 523 Judgment and directed it to reopen
the record to make that determination.
4. The Remand Proceedings
On remand, the parties agreed that Mr. Buckley bears the initial
7
burden of establishing that his fees are traceable to his nondischargeable
claim, and thereafter the burden shifts to Debtors to identify or explain the
extent to which those fees are not attributable to Mr. Bartenwerfer’s fraud.
To determine the fee issue, the bankruptcy court authorized the parties to
brief the apportionment issue and Debtors to depose and review the time
sheets of Mr. Buckley’s counsel, Janet Brayer.
Citing Ms. Brayer’s testimony and the state court docket report,
Mr. Buckley argued that his state court claims were both factually and
legally intertwined, making fee apportionment impossible. The bankruptcy
court found that he met his initial burden of tracing his fees to his
nondischargeable claim and that the burden shifted to Debtors.
Debtors argued that the bankruptcy court should deny the fees
because Mr. Buckley failed to trace the fees to the claim upon which his
§ 523(a)(2)(A) claim is premised—the nondisclosure claim. But Debtors
failed to specify any particular time entry or category that was not
traceable to Mr. Bartenwerfer’s fraud. And while they annexed copies of
the complaint and jury instructions for the bankruptcy court’s
consideration, they failed to analyze such documents.
Mr. Buckley argued that Debtors failed to meet their burden to
provide the bankruptcy court with specific reasons for disallowing fees.
And he again argued that his state court claims against Debtors were
interrelated and premised on the same set of operative facts, pointing to
8
specific examples in the jury instructions. He argued that time spent
litigating with the contractors was also traceable to his nondisclosure claim
as it related to Debtors’ attempts to shift liability for the Defects.
The bankruptcy court agreed with Mr. Buckley and entered judgment
awarding him $348,483.53 of nondischargeable fees, plus interest at a rate
of 10% from entry of the State Court Judgment forward. Debtors timely
appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court err in determining that all of Mr. Buckley
state court attorneys’ fees were nondischargeable on remand?
STANDARDS OF REVIEW
We review the bankruptcy court’s award of attorneys’ fees for an
abuse of discretion or erroneous application of the law. Dinan v. Fry (In re
Dinan),
448 B.R. 775, 783 (9th Cir. BAP 2011). The bankruptcy court abuses
its discretion if it applies the wrong legal standard or its factual findings
are illogical, implausible, or without support in the record.
TrafficSchool.com, Inc. v. Edriver Inc.,
653 F.3d 820, 832 (9th Cir. 2011).
To the extent the issue is whether California law allows the award of
attorneys’ fees, our review is de novo. See In re
Dinan, 448 B.R. at 783.
9
We may affirm on any basis supported by the record. Shanks v.
Dressel,
540 F.3d 1082, 1086 (9th Cir. 2008).
DISCUSSION
A. The bankruptcy court applied the correct legal standard regarding
apportionment of fees.
Debtors acknowledge that § 523(a)(2)(A) excepts from discharge
attorneys’ fees that are traceable to fraud. See Cohen v. De La Cruz,
523 U.S.
213, 218-19 & 223 (1998). But they contend that the bankruptcy court erred
by not requiring Mr. Buckley to apportion his attorneys’ fees between those
attributable to his nondischargeable fraud claim and those that are not.
While it is true that as the prevailing party Mr. Buckley bore the
burden of establishing that the fees stemmed from the nondischargeable
fraud liability, see Plikaytis v. Roth (In re Roth), 662 F. App’x 540, 544 (9th
Cir. 2016), fee apportionment is not required if the issues in the various
claims are “so inextricably intertwined that it would be impractical or
impossible to separate the attorney’s time into compensable and
noncompensable units,” Harman v. City & Cty. of S.F.,
158 Cal. App. 4th 407,
417 (2007) (citation and internal quotation marks omitted). Whether
compensable and noncompensable claims are inextricably intertwined to
excuse apportionment is a factual question. See
id. at 424.
Mr. Buckley argued, and the bankruptcy court agreed, that his state
court claims were premised on a common core of facts and, thus, were
10
inextricably intertwined, excusing the apportionment of fees. We find
sufficient support in the record for the bankruptcy court’s finding.
Specifically, the State Court Action and the adversary proceeding
focused on the issue of Debtors’ nondisclosure of material facts relating to
the Defects to induce Mr. Buckley to buy the Property. The complaint’s
eight claims all incorporated the same core operative facts. And the jury
instructions reflected the interrelatedness of the claims. For example,
damages for each claim required similar analyses of the costs to repair the
Property and the differential value of the Property as represented versus its
actual condition. Further, both the jury instructions and verdict form
instructed the jury that, if it found in Mr. Buckley’s favor on multiple
claims, it could only award damages once. This indicates that the same set
of core facts connected all claims. And resolution of Debtors’ cross-
complaint and the contractors’ cross-claims similarly centered on whether
Mr. Bartenwerfer or the contractors were responsible for, and
knowledgeable of, the Defects.
While the nondisclosure claim is premised on only four of twelve
alleged defects in the complaint, Debtors were required to disclose all
twelve defects in the TDS, to the extent the defects existed. And while the
claims and scope of damages narrowed through the course of litigation, a
significant overlap of facts and issues between the claims in the State Court
Action and the adversary proceeding existed in all other respects. The
11
bankruptcy court painstakingly articulated the overlapping factual
predicates and issues in the claims asserted by and among Mr. Buckley,
Debtors, and the contractors to conclude that Mr. Buckley need not
apportion his fees. We discern no error in its factually supported and
thoroughly reasoned conclusion.
B. Debtors failed to make specific objections to fees.
As Mr. Buckley established that fee apportionment was unnecessary,
Debtors were required to object to specific time entries to obtain a
reduction or disallowance of fees. Cotton v. City of Eureka,
889 F. Supp. 2d
1154, 1176 (N.D. Cal. 2012). This entailed “specifically identify[ing] defects
or deficiencies in the hours requested. Conclusory and unsubstantiated
objections are insufficient to warrant a reduction in fees.” Id.; see also
Moreno v. City of Sacramento,
534 F.3d 1106, 1116 (9th Cir. 2008) (“If
opposing counsel cannot come up with specific reasons for reducing the fee
request that the district court finds persuasive, it should normally grant the
award in full, or with no more than a haircut.”); Premier Med. Mgmt. Sys.,
Inc. v. Cal. Ins. Guarantee Ass’n,
163 Cal. App. 4th 550, 564 (2008) (holding
that objecting party bears the burden of specifying items challenged with
sufficient evidence and argument and “[g]eneral arguments that fees
claimed are excessive, duplicative, or unrelated do not suffice”). They
failed to do so.
They did not make sufficiently specific objections to Ms. Brayer’s
12
time entries. Rather, they objected to the fee request on the basis that the
time entries contained block-billing. While block-billing may result in
reductions for specific entries, it does not require disallowance of all fees.
See Garcia v. Resurgent Capital Servs., L.P., No. C-11-1253 EMC,
2012 WL
3778852, at *8 (N.D. Cal. Aug. 30, 2012) (citing Fischer v. SJP–P.D. Inc.,
214
F.3d 1115, 1121 (9th Cir. 2000) and Hensley v. Eckerhart,
461 U.S. 424, 433
(1983)); Sunstone Behavioral Health, Inc. v. Alameda Cty. Med. Ctr., 646 F.
Supp. 2d 1206, 1216–17 (E.D. Cal. 2009); cf. Welch v. Metro. Life Ins. Co.,
480
F.3d 942, 948 (9th Cir. 2007) (holding that the use of block-billing does not
justify an across-the-board reduction or rejection of all hours). A party
objecting to fees on the basis of block-billing should specifically identify
problematic entries. But here, Debtors simply requested that the
bankruptcy court exercise its general discretion to disallow broad
categories of block-billed time. The bankruptcy court appropriately denied
the request.
It likewise appropriately overruled Debtors’ objection to broad
categories of fees that were allegedly extraneous to the nondisclosure claim
because Debtors failed to provide specific reasons why these categories
were objectionable. They declined to meaningfully analyze the state court
pleadings and jury instructions to aid the bankruptcy court in determining
what portion of the fees, if any, flowed from Mr. Bartenwerfer’s fraudulent
conduct. Without their input, the bankruptcy court determined that the
13
pleadings and instructions revealed that the claims, cross-claims, and
affirmative defenses between the parties—including claims by and against
the contractors—were wholly intertwined. This was not an abuse of
discretion.
Among other generalized complaints, Debtors took issue with fees
incurred to address an interpleader action. But these fees sufficiently
related to Mr. Buckley’s nondisclosure claim given that they were incurred
to combat Debtors’ assertion that Mr. Buckley had waived and released his
claims by accepting interpled funds. Debtors also asserted a blanket
objection to a hodgepodge of time related to mediation, experts, and
research on claims without highlighting specific entries and without
providing clear argument for disallowing such fees. Again, the bankruptcy
court did not abuse its discretion in awarding these fees in light of Debtors’
failure to meet their burden to show that any particular category of fees
should be reduced or disallowed. See Ryan v. Editions Ltd. W., Inc.,
786 F.3d
754, 764-65 (9th Cir. 2015).
Neither did it abuse its discretion in allowing fees incurred in
responding to a motion in limine brought by one of Debtors’ subcontractors
concerning prior litigation. While Debtors cited to specific objectionable
time entries in that regard, the bankruptcy court found that the time related
to Mr. Bartenwerfer’s potential liability for negligently hiring and
supervising contractors, some of whom were allegedly involved in the
14
undisclosed permitting issues.
Debtors also urge that fees incurred in discovery relating to defects
not specifically included in the nondisclosure claim should be disallowed.
But the complaint indicated that Mr. Buckley’s claims cover undiscovered
defects. Any defects unknown to Mr. Buckley should have been disclosed
by Debtors in the TDS. Accordingly, fees incurred in such discovery related
to Mr. Buckley’s fraud claim. Again, the bankruptcy court appropriately
overruled Debtors’ objection to such fees.
It also did not abuse its discretion by overruling Debtors’ objections
to fees incurred regarding: (1) the exploration of Mr. Bartenwerfer’s status
as a contractor; and (2) lay opinion concerning contract interpretation. Such
fees related to Mr. Bartenwerfer’s knowledge and awareness of the
condition of the Property and his understanding of his obligations under
the sale contract, which incorporated the TDS.
CONCLUSION
The bankruptcy court properly excused fee apportionment and found
that Debtors failed to identify or explain why Mr. Buckley’s fees were
unrelated to his nondischargeable fraud claim. It also properly overruled
other inadequately or wholly unsupported objections to the fee request. We
AFFIRM.
15