Proposals for settlement in Florida bankruptcy cases: Will a bankruptcy court enforce them and award attorneys' fees and costs?

by Alfred Villoch, III, with Savage, Combs & Villoch, PLLC In Florida, settlement of legal disputes is strongly encouraged. To encourage settlement, the Florida legislature enacted Section 768.79 of the Florida Statutes. Section 768.79 creates a substantive right to collect reasonable attorneys’ fees and costs as “penalties” when a party declines to accept a reasonable proposal to settle. Rule 1.442, Florida Rule of Civil Procedure, provides the method to enforce the proposal for settlement and sets forth the parameters for implementing Section 768.79. Specifically, Section 768.79 allows a defendant to recover reasonable costs and attorney’s fees if the defendant proposes settlement which is not accepted within 30 days and the defendant obtains a judgment that is at least 25% less than the proposal. Likewise, a plaintiff can recover reasonable costs and attorneys’ fees if the plaintiff proposes settlement which is not accepted within 30 days and the plaintiff obtains a judgment that is more than 25% of his or her offer. Of course, it is clear that parties can file and enforce proposals for settlement in Florida state court, but can a debtor, creditor, or trustee file an enforceable proposal for settlement in federal bankruptcy court in Florida? The answer is “yes,” but only when the matter involves money damages and Florida state law claims. Let me explain. As an initial matter, courts have held that Section 768.69 applies in certain non-core bankruptcy proceedings. Menchise v. Senterfitt, 532 F.3d 1146, 1150 (11th Cir. 2008). This is because Section 768.69 is substantive law in diversity cases, and substantive law of the forum state (in this instance, Florida) governs issues of state law that arise in federal and bankruptcy cases. Id. citing Jones v. United Space Alliance, L.L.C., 494 F.3d 1306, 1309 (11th Cir. 2007) and Colwell v. Royal Int’l Trading Corp. (In re Colwell), 196 F.3d 1225, 1226 (11th Cir. 1999); Fruehauf Corp. v. Revitz (In re Transystems, Inc.), 569 F.2d 1364, 1366 (5th Cir. 1978). Accordingly, proposals for settlement can be filed and enforced in bankruptcy court when the non-core matter involves the application of Florida state law, like a breach of contract or a malpractice action. But beware. If the bankruptcy court is solely deciding an issue of federal law, Section 768.79 is inapplicable because, in that particular case, Section 768.79 is preempted by federal law. Design Pallets, Inc. v. Gray Robinson, P.A., 583 F. Supp. 2d 1282, 1285 (M.D. Fla. 2008). So a party has a state law issue in bankruptcy court. Section 768.79 applies, and he or she can file a proposal for settlement, right? Not so fast. Section 768.79 applies but only when the matter involves money damages, not equitable relief. Section 768.79 is inapplicable where a party seeks either equitable relief alone or both equitable relief and money damages,. Diamond Aircraft Industries, Inc. v. Horowitch, 107 So. 3d 362 (Fla. 2013). See also Winter Park Imports, Inc. v. JM Family Enters., 66 So. 3d 336, 340 (Fla. 5th DCA 2011); and Palm Beach Polo Holdings, Inc. v. Equestrian Club Estates Prop. Owners Ass’n, Inc., 22 So. 3d 140, 143-44 (Fla. 4th DCA 2009). The reasoning behind these decisions is based on strict construction of the phrase “any civil action for damages” in Section 769.79 and the fact that the statutory language does not include equitable relief or claims for both monetary and equitable relief. CONCLUSION A party can file and enforce a proposal for settlement pursuant to Section 768.79, Florida Statutes, in non-core bankruptcy matters when the matter is based on Florida state law and only money damages are sought.