Marlene Penrod v. Americredit Financial Services

We are asked to decide whether a debt- or who prevails in a contract dispute on the basis of federal bankruptcy law may recover reasonable attorney’s fees under California Civil Code § 1717.

I

The appellant in this case, Marlene Pen-rod, bought a new Ford Taurus from a car dealership in California. Although the Taurus cost $25,000, Penrod borrowed a total of $32,000 to purchase it. (For simplicity’s sake, we will use round numbers throughout.) The extra $7,000 represented the “negative equity” in Penrod’s old vehicle — a Ford Explorer worth $6,000 on which she still owed $13,000. Because Penrod wanted to trade in the Explorer at the same time she purchased the Taurus, the dealer gave her a $6,000 credit for the Explorer, paid off the $13,000 loan balance, and agreed to roll the $7,000 in negative equity into Penrod’s new loan for the Taurus. The loan was subsequently assigned to the appellee, AmeriCredit Financial Services, Inc.

Less than two years later, Penrod filed a Chapter 13 bankruptcy petition, listing as one of her liabilities the roughly $26,000 she still owed on the loan for the Taurus. AmeriCredit filed a proof of claim asserting a secured claim for the…