Florida court determines Ohio law precludes successful defendant/debtor from an award of prevailing party fees on §727 complaint, but awards costs under Federal law

In Feldy Boys, LLC v. Polasky (In re Polasky), 221 Bankr. LEXIS 927, Adv No. 2:18-ap-594-FMD (7 April 2021) Judge Delano denied the Debtor-Defendant’s request for attorneys fees, but allowed costs of $4,261.03 against the plaintiff.  The adversary proceeding involved a personal guaranty of a lease, and  included counts under §727(c)(d) and (e) as well as §523(a)(5).  Upon prevailing in the adversary itself, the Debtor sought taxation of fees in the amount of $95,970 under §57.105(7) of the Florida Statutes, as the guaranty provided for reimbursement to plaintiff of fees and expenses.

The Court first examined which state’s law applies as to taxation of fees to prevailing parties.    The guaranty did not include a choice of law provision.  In determining which state’s choice of law provisions to apply, court’s use the choice of law rules of the state where the court sits, absent a compelling or significant federal interest.¹  Florida’s choice of law rule in contract cases is, in the absence of a choice of law provision in the contract, and excluding contracts for performance of services, the law of the state where the contract is made applies.  As to tort cases, the rule is the ‘significant relationship’ test, the state which has the most significant relationship to the occurrence and the parties.  As the lease at issue was executed in Ohio, the property at issue is located in Ohio, Debtor resided in Ohio when she entered the lease, and the relevant corporations which were parties to the lease were Ohio corporations, and the lease that was guaranteed provided that it would be construed under Ohio law.  Thus the court found that Florida choice of law provisions would determine that Ohio law would apply in determining the right to prevailing party fees.

Under Ohio law parties to litigation are responsible to pay their own fees absent a statutory provision to the contrary, where there has been a finding of bad faith, or where the contract provides for fee shifting.  As there was no provision in the lease or guaranty providing for the losing party to pay the prevailing party’s fees, and Defendant did not cite any fee-shifting statute or allege bad faith, the Court denied the request for taxation of fees.

However the court found that the Debtor was entitled to reimbursement of costs under Rule 7054(b)(1) of the Fed. R. of Bankr. Proc.  This rule allows costs to the prevailing party except where a statute of the United States or the Rules provide to the contrary.  The costs allowed under such rule are listed in 28 U.S.C. §1920.  The court noted a ‘strong presumption’ in favor of awarding costs to the prevailing party in such suits, unless such costs are not within those allowed under §1920, were not reasonably necessary to the litigator, or the losing party is unable to pay.²

The costs sought by the Debtor included fees paid to transcribe the meeting of creditors, the Rule 2004 examinations of Debtor and her spouse, the deposition of Plaintiff’s representative, the depositions of two real estate agents, and the two day trial.  Debtor attached invoices for each of these transcripts.  Fees for transcripts is an allowed expense under §1920.  While some of the transcripts were obtained prior to the filing of the complaint, the court found that such transcripts were obtained with a view to defending Plaintiff’s claims against her.

The court denied the request for fees but allowed the request for costs in the amount of $4,261.03.

Parties need to be aware that they may well be required to pay the debtor for their costs if they fail to prove their case, either under 11 U.S.C. 523(d) in the case of a complaint filed under §523(a)(2); or §57.105(7) for cases where Florida law determines taxation of fees to prevailing parties; or costs under the statutes cited in this case; and factor this risk into any decision to file an adversary proceeding against a Debtor.

1 In re Palm Beach Finance Partners, L.P., 2014 Bankr. LEXIS 5418, 2014 WL 12498025 (Bankr. S.D. Fla. 2014).^↩

2 In re Amodeo, 2019 Bankr. LEXIS 4108, 2019 WL 10734046, at *4 (Bankr. M.D. Fla. 2019).^↩