Tennessee bankruptcy court examines standards for taxation of fees under §523(d)
In Dr. Gil Center for Back, Neck and Chronic Pain Relief v. Rigney (In re Rigney), 2021 Bankr. LEXIS 2824, Case no 4:20-bk-12437-NWW, Adv No 4:21-ap-01002-NWW (Bankr. E.D. Tenn. 12 Oct 2021) the court denied a request for taxation of fees in a complaint filed under §§523(a)(2)(A), (a)(4), and (a)(6). The case arose from a prepetition auto accident and an assignment of insurance benefits to the plaintiff. The defendant received $25,000 from insurance, but failed to pay the $4,835 owed to the doctor’s office. The defendant then filed for relief under chapter 7, and on 14 September 2020 the plaintiff filed a complaint for nondischargeability under the above sections. The §523(a)(2)(A) count was dismissed by summary judgment on 8 July 2021, and the remaining issues tried on 16 August 2021, resulting in a judgment for the defendant. A request for taxation of fees was then timely filed on 27 August 2021.
The court first examined the language of §523(d).
If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney’s fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust.
11 U.S.C. 523(d). This section requires satisfaction of four elements: 1) the creditor requests a determination of dischargeability under 11 U.S.C. 523(a)(2), 2) the debt is a consumer debt, 3) the debt is discharged, and 4) the creditor’s position lacks substantial justification.1 While the debtor bears the burden of proof on the the first 3 elements, the creditor must show that it’s position was substantially justified.2 If the creditor fails this showing, then the court considers whether special circumstances would make an award of fees unjust.3