Bank of the West v. Tenderloin Health

Northern District of California, cand-4:2015-cv-01173

ORDER AFFIRMING BANKRUPTCY APPEAL. Signed by Judge Jeffrey S. White on 11/12/15.

Interested in this case?

Current View

Full Text

2 1 2 3 4 NOT FOR PUBLICATION 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 IN RE: 8 Case No. 15-cv-01173-JSW TENDERLOIN HEALTH, 9 Debtors. ORDER AFFIRMING BANKRUPTCY 10 COURT 11 12 Northern District of California United States District Court 13 BANK OF THE WEST, 14 Appellant, 15 v. 16 E. LYNN SCHOENMANN, 17 Appelle. 18 19 20 Now before the Court for consideration is the appeal filed by Bank of the West's 21 ("BOTW") of the Bankruptcy Court's Order denying its motion for attorneys' fees in an adversary 22 proceeding brought by Appellee, E. Lynn Schoenmann ("Trustee"), Schoenmann v. Bank of the 23 West, AP No. 12-03171-HLB (the "Adversary Proceeding"). Pursuant to Civil Local Rule 16-4, 24 the Court deems this case submitted on the papers without oral argument. 25 The Court has reviewed the parties' papers, the record on appeal, and relevant legal 26 authority. For the reasons set forth in this Order, the Court hereby AFFIRMS the Bankruptcy 27 Court. 28 // 2 1 BACKGROUND1 2 The Court previously set forth the facts underlying this dispute in Orders issued in two 3 related cases: In re Tenderloin Health: E. Lynn Schoenmann v. Bank of the West, 13-cv-03992- 4 JSW and In re Tenderloin Health: Bank of the West v. E. Lynn Schoenmann, 13-cv-04585-JSW. 5 (See Appellant's Excerpts of Record ("BOTW EOR") Tab W, Order Affirming Bankruptcy Court 6 ("Affirmance Order") at 1:27-3:12; BOTW EOR Tab DD, Order Remanding to Bankruptcy Court 7 for Further Proceedings ("Remand Order") at 2:2-4:3.) 8 In brief, the Trustee filed suit, pursuant to 11 U.S.C. section 547, to recover what she 9 alleged was a preferential transfer (the "Debt Payment") from the debtor, Tenderloin Health 10 ("Debtor") to BOTW. On July 31, 2013, the Bankruptcy Court granted BOTW's motion for 11 summary judgment. (BOTW EOR, Tab F, Tentative Ruling on Motion for Summary Judgment 12 ("SJ Tentative"); BOTW EOR Tab G, Order Granting Motion for Summary Judgment ("SJ Northern District of California United States District Court 13 Order").) The Bankruptcy Court found that the Trustee could not meet her burden on her 14 preference claim, because BOTW was able to show that it had an independent right of set-off. 15 Thus, the Trustee could not show BOTW received more on account of the Debt Payment than it 16 would have received in a hypothetical Chapter 7 liquidation, in which the Debt Payment had not 17 occurred. (SJ Tentative at 3:16-6:9.)2 18 On August 15, 2013, BOTW filed a motion for attorneys' fees, which the Trustee opposed. 19 (BOTW EOR, Tabs J-M.) In support of its motion, BOTW asserted that it had a contractual right 20 to attorneys' fees based on clauses contained in two Promissory Notes, a Commercial Security 21 Agreement ("CSA"), and a Business Loan Agreement ("BLA") (collectively the "Governing 22 Agreements"), which provide as follows: 23 Promissory Notes: ATTORNEYS' FEES; EXPENSES. Lender 24 1 25 In re Tenderloin Health: E. Lynn Schoenmann v. Bank of the West, 13-cv-03992-JSW and In re Tenderloin Health: Bank of the West v. E. Lynn Schoenmann, 13-cv-04585-JSW. 26 2 The Trustee filed a timely notice of appeal and elected to proceed before this Court. 27 (BOTW EOR, Tabs I, K.) On September 26, 2014, this Court affirmed the Bankruptcy Court's ruling on summary judgment. (Affirmance Order at 4:10-5:28.) The Trustee appealed the 28 Affirmance Order to the United States Court of Appeals for the Ninth Circuit, and it remains pending before that court. 2 2 1 may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This 2 includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is 3 a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic 4 stay or injunction), and appeals. Borrower also will pay any court costs, in addition to all other sums provided by law. 5 Commercial Security Agreement: Attorneys' Fees; Expenses. 6 Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal 7 expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce 8 this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' 9 fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), 10 appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as 11 may be directed by the court. 12 Business Loan Agreement: Attorneys' Fees, Expenses. Borrower Northern District of California agrees to pay upon demand all of Lender's costs and expenses, United States District Court 13 including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. 14 Lender may hire or pay someone else to help enforce this Agreement, and Borrow shall pay the costs and expenses of such 15 enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including 16 attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or 17 injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such 18 additional fees as may be directed by the court. 19 (BOTW EOR, Tab N, Tentative Ruling on Motion for Attorneys' Fees ("Fee Tentative") at 2:5- 20 3:4 (emphasis added))3 21 Applying California law, the Bankruptcy Court determined that BOTW could not rely on 22 the Promissory Notes to support its request for fees, because the Debtor had paid and because 23 BOTW had not hired someone to collect the debt. The Bankruptcy Court also determined that the 24 reference to bankruptcy proceedings in the fee clause defined "the scope of actions for which 25 [BOTW] would be entitled to attorney's fees when 'collecting' on the note." The clause did not 26 27 3 The Governing Agreements can be found at BOTW EOR Tab C, Declaration of Lisa 28 Lenherr, ¶¶ 3-4, Ex. A, BOTW Requests for Admissions 1-8 and exhibits A-D, Ex. B, Trustee Responses to Requests for Admissions 1-8. 2 1 create an independent basis on which to recover fees. (Fee Tentative at 4:21-5:19.) 2 The Bankruptcy Court also concluded that BOTW was not entitled to attorneys' fees based 3 on the CSA or the BLA, because the "plain meaning" of the fee clause in those agreements 4 implied "that it applies to actions brought to challenge, invalidate, or otherwise contest 5 Defendant's security interest." (Id. at 5:25-27.) Because the Trustee had not "dipuste[d] the 6 nature, extent, or validity of [BOTW's] security interest in Debtor's personal property" and had 7 not "dispute[d] the amount or validity of" BOTW's claim, the Bankruptcy Court found that the 8 Adversary Proceeding "was not an action to enforce" either the CSA or the BLA. (Id. at 5:27- 9 6:16.) As with the Promissory Notes, the Bankruptcy Court found that the bankruptcy 10 proceedings clause served to define the scope of actions for which BOTW would be entitled to 11 fees incurred for enforcement of those two agreements. (Id. at 5:20-6:11.) 12 Finally, the Bankruptcy Court stated that it did not believe any of the Governing Northern District of California United States District Court 13 Agreements were ambiguous. However, it found, in the alternative, that if the terms "collect" or 14 "enforce" were ambiguous, it would resolve any ambiguities against BOTW as the drafter of the 15 Governing Agreements. (Id. at 6:12-7:4.) 16 BOTW filed a timely notice of appeal and elected to proceed before this Court. (BOTW 17 EOR, Tabs P, Q.) On appeal, BOTW argued that the Bankruptcy Court failed to recognize that its 18 affirmative defenses were "inextricably intertwined" with "enforcement" and "collection" and, 19 thus, gave rise to its right to attorneys' fees under the Governing Agreements. The Court 20 remanded to the Bankruptcy Court for further proceedings because: (1) BOTW had not raised that 21 argument below; (2) the argument did not appear to be a settled proposition under California law; 22 and (3) the outcome of the motion could depend on how the broadly the Bankruptcy Court 23 construed the Governing Agreements. (Remand Order at 5:9-27.) 24 On February 25, 2015, the Bankruptcy Court denied BOTW's motion for attorney's fees. 25 (BOTW EOR, Tab S, Order Following Remand.) The Bankruptcy Court held that the assertion of 26 an affirmative defense could give rise to a claim for attorneys. (Order Following Remand at 6:19- 27 7:3.) It also held that BOTW's successful affirmative defense: 28 did not require "enforcement" of the [G]overning [A]greements, 2 1 but rather, enforcement of its right to setoff, which existed independent of the relevant contracts. The Promissory Notes 2 provide for attorneys' fees where Bank of the West hired counsel to "help collect [the notes] if [Debtor] does not pay." This did not 3 occur, as the Debtor paid Bank of the West in full prior to the commencement of its bankruptcy case. 4 The outcome of this action does not turn upon the fact that Bank of 5 the West prevailed upon an affirmative defense as opposed to a claim raised in a complaint. Rather, it depends upon whether the 6 relevant attorneys' fees provisions were drafted broadly enough to permit an award of fees where the successful defense had nothing 7 to do with enforcement of the governing agreement(s). This Court finds they were not. 8 9 (Id. at 7:27-8:14.) 10 BOTW filed a timely notice of appeal, and elected to proceed before this Court. (BOTW 11 EOR, Tabs T, U.) 12 The Court shall address additional facts as necessary in its analysis. Northern District of California United States District Court 13 ANALYSIS 14 A. Standard of Review. 15 [A district court may] affirm, modify, or reverse a bankruptcy judge's judgment, order or decree or remand with instructions for 16 further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly 17 erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses. 18 19 Fed. R. Bankr. P. 8013. 20 The Court reviews the Bankruptcy Court's findings of fact for clear error, and it reviews 21 the Bankruptcy Court's conclusions of law de novo. See In re Part-Helena-Corp., 63 F.3d 877, 22 880 (9th Cir. 1995); see also In re Chen, 345 B.R. 197, 200 (N.D. Cal. 2006) (citing In re Jan 23 Weilert RV, Inc., 315 F.3d 1192, 1196 (9th Cir. 2003)). The Court will not "disturb [the] 24 bankruptcy court's award of attorneys' fees unless the bankruptcy court abused its discretion or 25 erroneously applied the law." In re Kord Enterprises, II, 139 F.3d 684 (9th Cir. 1998). 26 B. The Court Affirms the Decision. 27 BOTW argues that the Bankruptcy Court erred when it found that BOTW was not entitled 28 to attorneys' fees. It is well established that, under the "American Rule," a prevailing party is not 2 1 entitled to an award of attorney's fees, unless those fees are provided for by statute or contract. 2 See Travelers Casualty & Surety Company of America v. Pacific Gas & Electric Company, 549 3 U.S. 443, 448 (2007). Similarly, under California law, "[e]xcept as attorney's fees are specifically 4 provided for by statute, the measure and mode of compensation of attorneys and counselors at law 5 is left to the agreement, express or implied, of the parties[.]" Cal. Code Civ. P. § 1021; see also 6 Santisas v. Goodwin, 17 Cal. 4th 599, 607 n.4 (1998) (noting that Section 1021 codifies the 7 "American Rule" regarding attorney's fees).4 8 1. The Affirmative Defense Issue. 9 As a preliminary matter, the Court remanded, in part, because BOTW sought to invoke the 10 attorneys' fees clauses based on its assertion of an affirmative defense, an issue not addressed 11 below. On remand, the Bankruptcy Court concluded that BOTW could rely on an affirmative 12 defense to invoke its rights to attorneys' fees. In doing so, the court followed the reasoning of Northern District of California United States District Court 13 Windsor Pacific LLC v. Samwood Co., Inc., 213 Cal. App. 4th 263 (2013), Mountain Air 14 Enterprises, LLC v. Sundowner Towers, LLC, 231 Cal. App. 4th 805 (2014), review granted, 185 15 Cal. Rptr. 3rd 6, 344 P.3d 292 (2015), and Justice Armstrong's dissenting opinion in Gil v. 16 Mansano, 121 Cal. App. 4th 739 (2004). 17 In Windsor, the court held that "an attorney fee clause providing for a fee award to the 18 prevailing party in 'any action or proceeding to enforce or interpret' a contract applies not only 19 where the plaintiff's allegations in the complaint seek to enforce or interpret the contract, but also 20 where the defendant seeks to do so by asserting an affirmative defense raised in its answer." 21 Windsor Pacific, 213 Cal. App. 4th at 266 (emphasis added); see also id., 213 Cal. App. 4th at 22 275. That is, when an attorney fee clause permits recovery of fees in an action to "enforce or 23 24 4 California Civil Code section 1717 provides for a reciprocal right to attorney's fees and 25 allows a party to recover fees in an action on a contract. However, BOTW does not rely on Section 1717 to support its request for fees. BOTW argues that the Bankruptcy Court applied 26 Section 1717, rather than Section 1021, but the Court is not persuaded. Rather, it concludes that the Bankruptcy Court's decision hinges on the finding that the Adversary Proceeding did not serve 27 to "enforce" the Governing Agreements. This Court's conclusion is reinforced by the Bankruptcy Court's tentative ruling on the original fee motion, in which it clearly analyzed whether fees were 28 proper under Section 1021. (Fee Tentative at 3:14-4:2.) 2 1 interpret" a contract, if a defendant raises an affirmative defense that also seeks to "enforce or 2 interpret" the contract, the defendant will be entitled to fees. 3 Although neither party has challenged this aspect of the Bankruptcy Court's decision, 4 given the manner in which the fee clauses are drafted, the Court finds the reasoning in Windsor 5 persuasive. Therefore, to the extent the Bankruptcy Court's decision rests on the conclusion that 6 the assertion of an affirmative defense may, in some instances, support a request for attorney fees, 7 the Court AFFIRMS, IN PART, on that basis. 8 2. Interpretation of the Attorneys' Fee Clauses. 9 The Bankruptcy Court framed the issue on remand as follows: "[W]hether relevant case 10 law requires this Court to interpret the attorneys' fee clauses at issue here broadly enough to 11 justify an award of fees even where reference to the underlying contract is entirely unnecessary to 12 resolve the action." (Order on Remand at 5:5-8.) BOTW argues that the Bankruptcy Court's Northern District of California United States District Court 13 decision is erroneous, because it failed to interpret the Governing Agreements. The Court finds 14 this argument unpersuasive. 15 The BLA and the CSA each provide for attorney fees "incurred in connection with the 16 enforcement of this Agreement[.]"5 As set forth by the Bankruptcy Court, in order to determine if 17 BOTW was entitled to fees, it was required to determine whether the affirmative defense of set-off 18 served to enforce any of the Governing Agreements. In order to interpret the terms of the 19 Governing Agreements, the Court applies general principles of contract interpretation. Santisas, 20 17 Cal. 4th at 608; Windsor Pacific, 213 Cal. App. 4th at 273. 21 Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs 22 interpretation. Such intent is to be inferred, if possible, solely from the written provisions of the contract. The clear and explicit 23 meaning of these provisions, interpreted in their ordinary and popular sense, unless used by the parties in a technical sense or a 24 special meaning is given to them by usage, controls judicial 25 5 26 The Promissory Notes provide for attorney fees if BOTW hired someone "to help collect this Note if [Debtor] does not pay." BOTW does not seriously press that its affirmative defense 27 would fall within the scope of this clause. Because it is undisputed that the Debtor did pay its debt under the Note, the Court concludes that the Bankruptcy Court correctly found that BOTW could 28 not seek fees based on the fee clauses contained in the Promissory Notes, and it AFFIRMS, in part, on that basis as well. 7 2 1 interpretation. Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning. 2 3 Santisas, 17 Cal. 4th at 608 (internal citations and quotations omitted); see also Cal. Civ. Code §§ 4 1636, 1638, 1639, 1644. 5 BOTW argues that, if the Trustee had succeeded on the preference claim to avoid the 6 Escrow Payment, the result would have been to "unwind the Debtor's contractual performance of 7 payment of the Notes." (BOTW Brief at 17:7-9.) Thus, according to BOTW, the practical effect 8 of its affirmative defense is "a contention that the Debtor's contractual performance was proper, 9 the debt owed was valid, and the Escrow Payment cannot be 'undone' by the Bankruptcy Code's 10 strong arm powers," i.e., it sought to "enforce" the Governing Agreements. (Id. at 17:12-15.) 11 In support of this argument, BOTW relies, in part, on In re Mac-Go, No. 14-44181 CN, 12 2015 WL 1372717 (N.D. Br. Mar. 20, 2015). In In re Mac-Go, the trustee sought relief under 11 Northern District of California United States District Court 13 U.S.C. sections 547, 548 and 549, to recover payments made by the debtor to First National Bank 14 ("FNB"). Id., 2015 WL 1372717, at *1. After it prevailed in the adversary proceeding, FNB filed 15 a proof of claim, which included attorneys' fees incurred in the adversary proceeding. Id. To 16 support its request, FNB relied on its loan agreements with the debtor, each of which contained 17 attorneys' fee clauses that are identical to the attorneys' fee clauses in the Governing Agreements. 18 Id., 2015 WL 1372717, at *2.6 19 The bankruptcy court concluded that the trustee's fraudulent conveyance claims "did not 20 directly question the validity of the" agreements. However, it found that FNB's defense against 21 those claims "was premised" on their validity. Specifically, FNB argued that its promissory note 22 and business loan agreement with the debtor, of which the trustee appeared to be unaware, were 23 valid and enforceable and required the debtor to make the payments at issue. Id., 2015 WL 24 1372717, at *4. A "transfer [that] constitutes repayment of the debtor's antecedent or present 25 debt" is not constructively fraudulent." Id. The In re Mac-Go court reasoned that FNB's defense, 26 27 6 The Trustee argues that the In re Mac-Go "decision is based on cases which are clearly 28 distinguishable from the fee provisions and claims at issue here," although she has not attempted to distinguish the case itself. (Trustee Brief at 14 n.1.) 2 1 which utilized the agreements "in order to retain [the allegedly preferential] payments is the 2 functional equivalent of relying on these documents to pursue a collection action. Both should 3 qualify as the 'enforcement' of the [agreements]." Id., 2015 WL 1372717, at *4. 4 The court also concluded that FNB could recover fees for defending against the preference 5 claims, because in order to show it was fully secured when it received the disputed payments, 6 FNB had to "establish that it had (at the relevant times) a perfected security interest in [the 7 debtor's] collateral, the value of which was equal to or exceeded the amount due under the 8 [debtor's] loan." Id., 2015 WL 1372717, at *6. Again, because FNB had to rely on the 9 agreements to establish "the bonafides of its secured claim," the court concluded that its defense to 10 the preference claim was the functional equivalent of "enforcing" the agreements. Id. 11 To support its reasoning, the In re Mac-Go court relied on a number of cases which it 12 interpreted as standing for the proposition that "using a contract provision as a defense to a tort Northern District of California United States District Court 13 litigation is akin to enforcing the contract's terms." See In re Mac-Go, 2015 WL 1372717, at *5 14 (citing Finalco, Inc. v. Roosevelt, 235 Cal. App. 3d 1301 (1991)). For example, the court relied on 15 the Windsor case, supra, in which the plaintiff filed suit to establish a prescriptive easement on the 16 defendant's property. The court found that the plaintiff was equitably estopped from asserting a 17 prescriptive easement, because the parties had executed an "Agreement Regarding Easement," 18 which prevented the plaintiff from demonstrating that its use of the property was adverse. 19 Windsor, 213 Cal. App. 4th at 272-73. The court also found that the defendant was contractually 20 entitled to attorneys' fees, because it "was necessary" to interpret the agreement to rule on the 21 equitable estoppel issue. Id. at 274. 22 In the Finalco case, the plaintiff sued the defendant to obtain the balance due on a 23 promissory note, and the defendant filed a cross-complaint based on alleged violations of federal 24 and state securities law, the Racketeering Influenced and Corrupt Organizations Act, common law 25 fraud, and misrepresentation. Id. The trial court awarded the plaintiff attorneys' fees for 26 prosecuting its action on the promissory note and for the fees it incurred in defending against the 27 counterclaim. That ruling was based on a clause in the promissory note that provided that the 28 defendant agreed "to pay all costs of collection … including, without limitation, all attorney's fees 2 1 and expenses and court costs." Id. at 1306 (ellipses in original). 2 The court of appeal rejected the defendant's argument that the fee clause should be limited 3 to costs that the plaintiff incurred in proving up its case and affirmed the fee award. It stated that 4 "California law is settled that a borrower's obligation to pay attorneys' fees incurred in the 5 collection of the note includes attorneys' fees incurred in defending against a challenge to the 6 underlying validity of the obligation." Id. at 1308 (emphasis added). The court reasoned that the 7 plaintiff's defenses to the cross-complaint were "not 'incidental' to the prosecution … to recover 8 on the note." Id. at 1307. Rather, because the defendant sought to rescind his obligation to the 9 plaintiff, "[n]ot only was [the plaintiff] obligated to file a complaint to recover on the note, it was 10 obliged to defend against [defendant's] allegations of securities fraud in order to succeed on its 11 complaint." Id. at 1307. 12 The In re Mac-Go court also cited to and relied on Siligo v. Castellucci, 21 Cal. App. 4th Northern District of California United States District Court 13 873 (1994). In that case, the parties settled a dispute over the sale of property, which included a 14 general release. The defendant subsequently stopped performing obligations under the parties' 15 renegotiated agreement, and the plaintiff filed suit. The defendant asserted fraud as an affirmative 16 defense and filed a counterclaim premised on fraud. The plaintiff defeated the affirmative defense 17 and the counterclaim by way of the release in the prior settlement. Id. at 876. The plaintiff sought 18 to recover his attorneys' fees for both the prosecution of the breach of contract action and his 19 defense of the fraud claim. According to the Siligo court, "the pivotal point in the analysis 20 whether a prevailing party is entitled to recover contractual attorney fees for defending against a 21 competing noncontractual claim. . . is. . . whether a defense against the noncontractual claim is 22 necessary to succeed on the contractual claim." Id. at 879 (emphasis added). 23 The court rejected the defendant's argument that the cross-complaint did not seek to 24 rescind "or otherwise attack the enforceability" of the agreements as "superficial." Id. Rather, it 25 found that the plaintiff "was required to defend against fraud in order to succeed on his complaint 26 to enforce the agreements. The practical success of [plaintiff's] defense was the enforceability of 27 the agreements." Id. at 880; see also Wagner v. Benson, 101 Cal. App. 3d 27, 37 (1980) (court 28 deemed defense against claim of fraud "necessary" to efforts to collect on notes and fees should 10 2 1 have been awarded for those efforts). 2 BOTW also relies on MRW, Inc. v. Big-O-Tires, LLC, 684 F. Supp. 2d at 1205 (E.D. Cal. 3 2010). There, the court found that the plaintiffs' claims for fraud in the inducement "sought, in 4 essence, to escape the contract." Id. at 1205. As in the Finalco and Siligo cases, the court found 5 that the "defense of these claims was necessary to enforcement of" an agreement that contained an 6 attorney fee clause providing for fees that a party incurred "to enforce this Guarantee." Id., at 7 1203, 1205 (emphasis added). 8 As in the In re Mac-Go case, the Trustee did not directly dispute the validity of any of the 9 Governing Agreements. However, it does not appear that FNB relied on a set-off defense to 10 prevail on the preference claim, which distinguishes this case from In re Mac-Go. BOTW argues 11 that the Court should follow the reasoning in In re Mac-Go, because the Governing Agreements, 12 specifically the CSA, establish its right to a set-off. However, the lesson this Court draws from Northern District of California United States District Court 13 each of the cases on which the In re Mac-Go court relied is that the prevailing party did not simply 14 refer to the fact that a contract containing a fee clause existed, in order to prevail on an affirmative 15 defense. Rather, either it was necessary to prevail on the affirmative defense to show the 16 underlying agreement or obligation was valid or the prevailing party sought to enforce a particular 17 term of the agreement containing the fee clause. 18 As the Bankruptcy Court recognized, that is not the case here, where BOTW's right of set- 19 off is a right that it is independent of the Governing Agreements. To the extent the In re Mac-Go 20 court found that the existence of the security agreement was sufficient to give FNB the right to 21 attorneys' fees, the Court finds its reasoning unpersuasive. Cf. In re Davison, 289 B.R. 716, 725 22 (9th Cir. B.A.P. 2003) (holding that debtor was not entitled to receive fees under Section 1021, 23 where "in finding no fraud by Debtor, the bankruptcy court was not enforcing or interpreting the 24 terms" of contract that contained fee clause). 25 Accordingly, the Court affirms the decision. 26 CONCLUSION 27 For the foregoing reasons, the Court AFFIRMS the Bankruptcy Court's decision to deny 28 BOTW's motion for attorneys' fees. 11 2 1 The Co ourt shall entter a separatee judgment, and the Clerrk shall closee the file. 2 IT IS SO S ORDER RED. 3 Daated: Novemb ber 12, 2015 5 4 5 ___________________________ JE EFFREY S. W WHITE 6 Unnited States D District Judgge 7 8 9 10 11 12 Northern District of California United States District Court 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 122