UNITED STATES BANKRUPTCY COURT
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
NORTHERN DISTRICT OF CALIFORNIA
BEYOND WORDS CORPORATION, No. 92-11176
On November 10, 1992, debtor Beyond Words Corporation filed a complaint for damages
against Samna Corporation in district court. The complaint alleged breach of contract, breach of
confidence, implied contract and fraud. The action was still pending on May 8, 1992, when Beyond
Words filed its Chapter 11 petition.
The bankruptcy was converted to Chapter 7 on August 6, 1993, with the action still pending.
Pursuant to FRBP 6009, the Chapter 7 trustee elected to pursue the litigation.
In July, 1994, the court denied Samna's motion that the trustee be required a bond in order to be
allowed to continue to prosecute the action. The court denied the motion for three reasons, one of
which was that an improper priority would be created be requiring a bond. The court cited as support
for this proposition In re Hemingway Transport, Inc.
, 954 F.2d 1, 5 (1st Cir.1992).
Samna appealed the denial of the bond. The district court affirmed the decision. However, in its
written decision, relying on In re Madden
, 185 B.R. 815 (9th
Cir.BAP 1995), the district court expressed
the opinion that Samna would in fact be entitled to priority for its costs of suit if it prevailed.
The date of the district court decision was February 23, 1996.
On March 24, 1998, the Court of Appeals issued its decision in In re Abercrombie
, 139 F.3d
Cir. 1998). In that decision, the court expressly approved Hemingway Transport
. 139 F.3d at 759.
Samna eventually prevailed in the litigation, and was awarded $125,210.49 in costs. Its motion
for an allowed administrative priority claim pursuant to section 503(b)(1)(A) of the Bankruptcy Code is
now before the court. Samna makes two arguments in support of its motion: that the district court
decision consitutes the "law of the case" and mandated priority status for the costs, and that
only applies to attorneys' fees, not other awarded costs. The court finds neither argument
II. Law of the Case
The district court affirmed
this court's ruling that Samna was not entitled to a bond. The law of
this case is therefore that Samna is not entitled to a bond. The mere fact that the district court opined
that one of the three reasons given by the court was incorrect does not rise to the level of law. That
part of the opinion was not necessary to the court's decision, and was only dicta. Dicta does not create
the law of the case. Rebel Oil Co., Inc., v. Atlantic Richfield Co.
, 146 F.3d 1088, 1093 (9th
Milgard Tempering, Inc. v. Selas Corp.
, 902 F.2d 703, 715 (9th
Cir. 1990). This court is obligated to
follow the Court of Appeals decision in Abercrombie
, and is not bound by the dicta in the district court
decision issued two years before Abercrombie
The court finds no support in Abercrombie
for Samna's argument that it applies only to
attorneys' fees and not costs. The court specifically noted that "[p]ostpetition contracts may qualify for
administrative expense priority, but costs and expenses
arising out of prepetition contracts are treated
under the Bankruptcy Code as nonprioritized unsecured claims." 139 F.3d at 757 (emphasis added).
There is no rational basis for treating attorneys' fees and other costs of litigation differently.
Samna argues that the costs at issue were incurred after the bankruptcy, but so were a portion of the
attorneys' fees. Abercrombie
makes it clear that if the act which gave rise to the litigation occurred
prepetition, then any costs associated with litigation over those acts is treated as a prepetition debt. 139
F.3d at 758-9.
IV. Trustee's Position
In his response, the trustee did not dispute Samna's claim to priority. The court suspects that
this is due to an understandable misapprehension as to the state of the law, which has changed three
times in this circuit from Hemmingway
. To the extent that the trustee
understands the law but feels it is in the best interests of the estate not to opposes the motion, he should
notify all of the creditors of his intent to abandon any defenses to the motion pursuant to FRBP 6007 or,
if he intends to compromise part of the defense, FRBP 9019.
applies to costs of litigation as well as attorney's fees. Dicta in the district court
decision, rendered before Abercrombie
, does not compel the court to ignore Abercrombie.
Accordingly, Samna is not entitled to an administrative priority claim. The court will therefore deny
Samna's motion, without prejudice to the trustee's right to abandon or compromise. Counsel for the
trustee shall submit an appropriate form of order forthwith.
Dated: March 12, 1999 ____________________________
United States Bankruptcy