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In re O'Steen

United States District Court, M.D. Florida, Jacksonville Division

November 14, 2019

In re John Riley O'Steen and Ashley Koon O'Steen, Debtors,
v.
LAFAYETTE STATE BANK, Appellee. JOHN RILEY O'STEEN and ASHLEY KOON O'STEEN, Appellants,

          ORDER

          TIMOTHY J. CORRIGAN, UNITED STATES DISTRICT JUDGE.

         Under Florida's reciprocal attorney's fee statute, Fla. St. § 57.105(7), is an award of attorney's fees to the prevailing party mandatory or discretionary? This bankruptcy appeal is before the Court on the O'Steen debtors' appeal of the Bankruptcy Court's Order denying the O'Steens' amended motion for attorney's fees and costs following the entry of judgment in their favor in an adversary proceeding brought by appellee, Lafayette State Bank (“the Bank”). The parties filed briefs and numerous record excerpts and state they do not wish to mediate. See Docs. 3, 4, 5, 10, 11, 12.[1] The Court held oral argument on October 15, 2019, the record of which is incorporated by reference.

         I. Standard of Review

         The Court is sitting in an appellate capacity and reviews the Bankruptcy Court's legal conclusions de novo and its factual findings for clear error. In re Hood, 727 F.3d 1360, 1363 (11th Cir. 2013) (citation omitted).

         II. Background [2]

         The O'Steens were dairy farmers in Lafayette County, Florida, who filed a Chapter 12 bankruptcy petition in 2014. The Bank was a long-time creditor of the O'Steens. The Bank's $3.6 million claim was secured by the O'Steen's real property, equipment, and livestock, valued at $1, 996, 451.00, with the remaining debt unsecured. At the Bank's urging, the Court converted the O'Steens' Chapter 12 case to a Chapter 11 and later to a Chapter 7, from which the O'Steens sought a discharge.[3]

         In December 2015, the Bank filed an adversary proceeding objecting to the O'Steens' Chapter 7 discharge and seeking to determine the dischargeability of the O'Steens' debt to the Bank. The parties litigated for over two years, culminating in a two-day trial in which the Bank sought to demonstrate that the O'Steens had transferred or concealed cattle and other property during their bankruptcy case, they had manipulated the claims in the case, and they had not provided required financial information.

         In its nineteen page Memorandum Opinion, the Bankruptcy Court weighed the evidence as to each claim, and, noting that the “denial of a debtor's discharge is an extraordinary remedy, ” with exceptions “construed in favor of the debtor and against the objecting party, ” found the Bank failed to demonstrate by a preponderance of the evidence the elements of any of their claims, all of which required proof of willful, fraudulent, intentional, or malicious conduct. Doc. 4-165 at 2. The Bankruptcy Court entered Final Judgment in favor of the O'Steens and against the Bank on the Bank's adversary complaint, and directed the entry of the O'Steens' discharge in their Chapter 7 case.

         Thereafter, the O'Steens timely moved to recover $38, 800.00 in attorney's fees and $6, 230.14 in costs pursuant to the parties' contractual attorney's fees provisions and Florida law, and the bankruptcy costs rule.[4] The Bankruptcy Court conducted a hearing and denied the motion, finding “it ‘would be unjust' to require the Bank to pay the [O'Steens'] attorneys' fees and costs.” Doc. 4-2 at 6 (citation omitted).

         The O'Steens take this timely appeal, arguing that because the parties' contract included an attorney's fee provision by which the Bank could recover its fees from the O'Steens, [5] Florida's reciprocal attorney's fee statute, Fla. St. § 57.105(7), mandates that they recover their fees as the prevailing party, and the Bankruptcy Court erred as a matter of law by holding otherwise. The O'Steens alternatively argue that if fees are not mandated under the reciprocal attorney's fee statute, the Bankruptcy Court abused its discretion in declining to award them their fees.[6]

         III. Analysis

         Under the “bedrock principle known as the ‘American rule, '” “[e]ach litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise.” Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 253 (2010) (citations omitted). Although this is an appeal of a federal bankruptcy case, the underlying source of the possible fee is a contract (the promissory note) which states on its face that it is governed by federal laws applicable to the lender (the Bank) and, to the extent not pre-empted by federal law, by Florida law. See Doc. 4-172 at 16 (CM/ECF PageID 2257). The parties agree that Florida law governs the fee issue arising out of this contract.

         The contract language provides that the Bank may recover its fees for bankruptcy proceedings if it prevails. However, Florida has a reciprocal attorney's fee statute, Florida Statute § 57.105(7), which “aims to even the playing field” by “engraft[ing] a reciprocity condition onto contractual attorneys' fees provisions” such that either side may benefit from a contract's otherwise one-sided attorney's fee provision. Pier 1 Cruise Experts v. Revelex Corp., 929 F.3d 1334, 1344 (11th Cir. 2019) (quoting Fla. Hurricane Prot. & Awning, Inc. v. Pastina, 43 So.3d 893, 895 (Fla. 4th DCA 2010)). In relevant part, Florida Statute § 57.105(7) provides-

If a contract contains a provision allowing attorney's fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney's fees to the other party when that party prevails in any action, ...

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