FILED

NOT FOR PUBLICATION

JAN 08 2019

UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: JAY W. JOHNSON; DEBRA F. No. 17-55220

JOHNSON,

DC No. CV 16-01257 BRO Debtors, ______________________________

MEMORANDUM*

ROSENDO GONZALEZ, Trustee of the Bankruptcy Estate of Jay W. Johnson and Debra F. Johnson,

Plaintiff-Appellee,

v.

DEBRA F. JOHNSON; JAY W.

JOHNSON; JAY JOHNSON A.I.A. AND

ASSOCIATES, INC.; RANDAL A.

JOHNSON; ROBIN L. JOHNSON; JJ

AND A ARCHITECTS, INC.; Q

FINANCIAL GROUP, LLC,

Defendants-Appellants.

Appeal from the United States District Court for the Central District of California Beverly Reid O’Connell, District Judge, Presiding

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Argued and Submitted December 6, 2018 Pasadena, California

Before: TASHIMA and WARDLAW, Circuit Judges, and PRATT,** District Judge.

Defendants-Appellants appeal the district court’s affirmance of the

bankruptcy court’s denial of their motion for attorneys’ fees. We affirm.

1. Defendants-Appellants contend that the bankruptcy court should have

awarded fees as a sanction for bad faith conduct by the Trustee, Plaintiff-Appellee

Rosendo Gonzalez, and his counsel. The denial of sanctions under a court’s

inherent p;owers is reviewed for abuse of discretion. See Chambers v. NASCO,

Inc., 501 U.S. 32, 55 (1991). “Findings of fact that underlie a court’s legal

conclusions are reviewed for clear error.” United Computer Sys., Inc. v. AT&T

Corp., 298 F.3d 256, 260 (9th Cir. 2002)/ A court may, under its inherent powers,

assess attorneys’ fees as a sanction when a party has “acted in bad faith,

vexatiously, wantonly, and for oppressive reasons.” Chambers, 501 U.S. at 45–46.

Here, the bankruptcy court made a factual finding that, although the case had been

vigorously litigated and Defendants-Appellants ultimately prevailed, no party had

acted in bad faith. On this lengthy record, the bankruptcy court’s factual

** The Honorable Robert W. Pratt, United States District Judge for the Southern District of Iowa, sitting by designation. 2 determination regarding lack of bad faith is not clearly erroneous. See Primus

Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir. 1997) (noting that a

trial court “has ‘broad fact-finding powers’ with respect to sanctions, and its

findings warrant ‘great deference’” (quoting Townsend v. Holman Consulting

Corp., 929 F.2d 1358, 1366 (9th Cir. 1990) (en banc))). In addition, the

bankruptcy court applied the correct legal standard, and its ultimate conclusion,

that sanctions were not warranted under Chambers, was not “illogical, implausible,

or without support from inference that may be drawn from the record.” United

States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc) (footnote

omitted); see also Primus Auto., 115 F.3d at 649 (emphasizing that “sanctions

should be reserved for the ‘rare and exceptional case where the action is clearly

frivolous, legally unreasonable or without legal foundation, or brought for an

improper purpose’”).

2. Defendants-Appellants next argue that the bankruptcy court

should have allowed them to present additional evidence of bad faith at an

evidentiary hearing or in supplemental briefing. The record, however, belies

Defendants-Appellants’ suggestion that the bankruptcy court declined to consider

all of the relevant evidence simply because it was not properly submitted with the

fees motion. The bankruptcy judge carefully considered “the record presented at

3 trial,” her “161 pages of trial notes,” the docket, her “experience with this case over

the last ten years,” and Defendants-Appellants’ arguments at the lengthy hearing

on the fees motion. After “turn[ing] to the evidence,” the bankruptcy judge

concluded that she “just could not make” a finding that the Trustee or his counsel

had acted in bad faith.

Moreover, the bankruptcy court was not required to hold an evidentiary

hearing under Federal Rule of Civil Procedure 43(a). The only authorities that

Defendants-Appellants cite in support of their argument to the contrary are two

cases, both of which predate Chambers and concern contempt proceedings.1 They

do not control here. In the circumstances of this case, because the bankruptcy

court’s conclusion that an evidentiary hearing was unwarranted is not illogical,

implausible, or without support, its decision to deny the request for an evidentiary

hearing under Rule 43(c) was not an abuse of discretion.

3. Defendants-Appellants also argue that, pursuant to California Civil

Code § 1717 and an attorneys’ fee provision in the 2005 Settlement Agreement,

they are entitled to attorneys’ fees for services incurred in opposing the Trustee’s

efforts to enforce the 2005 Settlement Agreement. However, § 1717 is limited in

1 See Sanders v. Monsato Co., 574 F.2d 198, 199–200 (5th Cir. 1978); Hoffman v. Beer Drivers & Salesmen, 536 F.2d 1268, 1277 (9th Cir. 1976). 4 scope – it applies only to “any action on a contract.” Cal. Civ. Code § 1717(a).

“[A]ction” in this context is “synonymous with ‘suit,’” that is, a judicial

proceeding that terminates with the entry of judgment. Roberts v. Packard,

Packard & Johnson, 159 Cal. Rptr. 3d 180, 186 (Ct. App. 2013); see also Gil v.

Mansano, 17 Cal. Rptr. 3d 420, 424 (Ct. App. 2004). “[S]teps taken during

pending litigation are not an ‘action’ within the meaning of section 1717.”

Roberts, 159 Cal. Rptr. 3d at 186 (holding that under the “plain meaning of section

1717 . . . a petition to compel arbitration filed in a pending lawsuit is not an

‘action’”); see also Gil, 17 Cal. Rptr. 3d at 423–24 (explaining that while “a

defense to a tort action based on a provision of the contract may have the effect of

enforcing the provisions of the contract, . . . the assertion of a defense does not

constitute the bringing of an action to accomplish that goal”). Here, the

bankruptcy case and adversary proceedings were not actions “on” the 2005

Settlement Agreement. Accordingly, the bankruptcy and district courts correctly

concluded that Defendants-Appellants are not entitled to attorneys’ fees under §

1717.

Nor can Defendants-Appellants, separate and apart from § 1717, recover

attorneys’ fees based purely on a contractual right under the 2005 Settlement

Agreement, because the bankruptcy court held that Agreement to be unenforceable.

5 See Santisas v. Goodin, 951 P.2d 399, 406 (Cal. 1998) (explaining that because

arguments that a contract is unenforceable or nonexistent “are inconsistent with a

contractual claim for attorney fees under the same agreement, a party prevailing on

any of these bases usually cannot claim attorney fees as a contractual right”).

AFFIRMED.

6