Burns v. Great Lakes Higher Education Corp. , 3 F. App'x 689 ( 2001 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
JAN 10 2001
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
In re: WILEY LESTER BURNS;
HELEN BURNS,
Debtors.
____________________________ No. 00-6045
(D.C. No. 99-CV-1174-C)
WILEY LESTER BURNS; HELEN (W.D. Okla.)
BURNS,
Appellants,
v.
GREAT LAKES HIGHER
EDUCATION CORP.;
PENNSYLVANIA HIGHER
EDUCATION ASSISTANCE
AGENCY; HEMAR INSURANCE
CORPORATION OF AMERICA;
OKLAHOMA STATE REGENTS FOR
HIGHER EDUCATION,
Appellees.
ORDER AND JUDGMENT *
Before EBEL, KELLY, and LUCERO , Circuit Judges.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
Debtors Wiley Lester and Helen Burns appeal from the district court’s
order affirming the bankruptcy court ’s decision not to award them attorney’s fees
after they prevailed in their adversary actions to have their student loans declared
dischargable. We affirm.
After Mr. and Mrs. Burns commenced their bankruptcy action, th ey filed
adversary proceedings against four student lenders to determine the
dischargeability of their student loans. Three of the lenders filed counterclaims
for money judgments on their promissory notes. The bankruptcy court granted
discharge pursuant to 11 U.S.C. § 523(a)(8) which permits the discharge of
otherwise non-dischargable debts on the grounds of undue hardship. The
bankruptcy court did not award Mr. and Mrs. Burns attorney’s fees holding that
federal bankruptcy law did not permit that award. The court dismissed the
lenders’ counterclaims without prejudice. The district court affirmed.
On appeal, Mr. and Mrs. Burns argue that the bankruptcy court erred in its
ruling because the court should have awarded them fees in accordance with
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Oklahoma state law. They point out that Okla. Stat. tit. 12, § 936 provides that
attorney’s fees should be awarded to prevailing parties in a civil action on a
contract. Mr. and Mrs. Burns further assert that policy concerns counsel for the
award as furthering the bankruptcy aim of giving debtors a fresh start.
“We review de novo any statutory interpretation or other legal analysis
underlying the district court’s decision concerning attorney’s fees. The decision
whether fees are warranted, however, is reviewed only for an abuse of
discretion.” Daleske v. Fairfield Cmties, Inc. , 17 F.3d 321, 323 (10th Cir. 1994)
(citation omitted).
The “American Rule,” which applies in federal litigation, including
bankruptcy proceedings, permits a prevailing litigant attorney’s fees only if they
are authorized by federal statute or provided for in the contract. In re Sheridan ,
105 F.3d 1164, 1166 (7th Cir. 1997). “[A] prevailing party in a bankruptcy
proceeding may be entitled to an award of attorney’s fees in accordance with
applicable state law if state law governs the substantive issues raised in the
proceedings.” Ford v. Baroff (In re Baroff) , 105 F.3d 439, 441 (9th Cir. 1997).
Mr. and Mrs. Burns admit that “there is no basis in federal law for the
fees.” Reply br. at 2, 3. Nor do they contend that the terms of the loans provide
that they may recover fees in an action on the loan contract. Thus, we consider
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only whether there is a basis in Oklahoma state law for awarding attorney’s fees.
Mr. and Mrs. Burns maintain that section 936 provides such authority.
Section 936 states that
[i]n any civil action to recover on an open account, a statement of
account, account stated, note, bill, negotiable instrument, or contract
relating to the purchase or sale of goods, wares, or merchandise, or
for labor or services, unless otherwise provided by law or the
contract which is the subject [of] 1 the action, the prevailing party
shall be allowed a reasonable attorney fee to be set by the court, to be
taxed and collected as costs.
Oklahoma has strictly construed section 936. See Octagon Res., Inc. v.
Bonnett Res. Corp. (In re Meridian Reserve, Inc.) , 87 F.3d 406, 410, 411-12 (10th
Cir. 1996). Therefore, section 936 does not apply here. Mr. and Mrs. Burns
commenced their action solely to determine whether their student loans should be
discharged, a substantive issue to be decided independently of the terms of the
loan contracts. See Baroff , 105 F.3d at 441. As “the substantive litigation raised
federal bankruptcy law issues rather than basic contract enforcement questions,”
id. , (quotation omitted) state law was not involved. See Grogan v. Garner , 498
U.S. 279, 289 (1991) (dischargeability of a debt presents an issue “of federal law
independent of the issue of the validity of the underlying claim.”); see e.g. ,
1
The statute reads “to,” but a footnote in the annotated code indicates “to”
should read “of.” We have made the appropriate alteration.
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Sheridan , 105 F.3d at 1167 2
(as bankruptcy court did not address the contract or
its terms and only bankruptcy law was involved, state law is inapplicable); Fobian
v. W. Farm Credit Bank (In re Fobian) , 951 F.2d 1149, 1153 (9th Cir. 1991)
(refusing to award attorney’s fees because the substantive litigation raised only
federal bankruptcy law issues, not basic contract enforcement issues); Sunclipse,
Inc. v. Butcher (In re Butcher) , 200 B.R. 675, 677 (Bankr. C.D. Cal. 1996) (“An
action in dischargeability is a federal cause of action.”), aff’d 226 B.R. 283 (9th
Cir. BAP 1998).
2
Mr. and Mrs. Burns argue that the dissent in Sheridan presents the better
reasoned argument. We disagree. While agreeing that the dischargeability of a
debt is a matter of federal law, the dissent in Sheridan relied on an earlier Seventh
Circuit case, Mayer v. Spanel Int’l Ltd. , 51 F.3d 670 (7th Cir. 1995), in which the
court held that an action seeking to deny the discharge of a debt was in actuality
an action taken in the process of collection, thus permitting the prevailing creditor
to recover attorney’s fees, which were part of the debt and, hence, also
non-dischargeable. In Sheridan , the debtor prevailed in having his debt
discharged and the dissent proposed that, in accordance with Mayer and under
Florida law which provides that if the contract provides for attorney’s fees for a
prevailing creditor, a prevailing debtor may also be awarded fees, the debtor in
Sheridan should be permitted fees. We do not agree that a debtor prevailing
under § 523(a)(8) is in the same position as a creditor seeking the denial of a
statutorily sanctioned discharge. A § 523(a)(8) proceeding is not one taken in the
process of collection of a debt and, thus, does not invoke state contract law.
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The judgment of the United States District Court for the Western District of
Oklahoma is AFFIRMED.
Entered for the Court
David M. Ebel
Circuit Judge
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