Marino II: Ninth Circuit Lacked Jurisdiction to Review BAP’s Decision on Contempt Sanctions For Discharge Injunction Violation and Affirmed Bap’s Denial of Appellate Fees


Marino II: Ninth Circuit Lacked Jurisdiction to Review BAP’s Decision on Contempt Sanctions For Discharge Injunction Violation and Affirmed Bap’s Denial of Appellate Fees

Leonard L. Gumport1

Leonard L. Gumport is a lawyer and mediator at Gumport Law Firm, PC, in Pasadena, California. He has served as a provisional director, bankruptcy examiner, and bankruptcy and SIPC trustee. He is admitted to practice in Alaska, California, the District of Columbia, and New York.

In Ocwen Loan Servicing, LLC v. Marino (In re Marino) ("Marino II"),2 the United States Court of Appeals for the Ninth Circuit ruled that it lacked jurisdiction under 28 U.S.C. § 158(d)(1) of an appeal from the decision of the United States Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") in Ocwen Loan Servicing, LLC v. Marino (In re Marino) ("Marino I").3 The BAP’s decision in Marino I, concerning emotional distress and punitive damages for violations of the discharge injunction, was not a final decision as required by § 158(d)(1). The BAP’s post-decision order denying appellate attorneys’ fees was, however, a final decision. Marino II affirmed the fee denial order because the appeal in Marino I was non-frivolous; a contractual fee provision did not apply; and 11 U.S.C. § 105 did not permit an award of appellate attorneys’ fees.

FACTS: On March 15, 2013, Christopher and Valerie Marino ("Debtors") filed a chapter 7 petition in the United States Bankruptcy Court for the District of Nevada in No. 13-bk-50461. In their schedules, Debtors represented that they owned and planned to surrender a residence in Verdi, California (the "Property"). Prior to filing bankruptcy, Debtors vacated the Property.

The Property was encumbered by a deed of trust securing a promissory note (the "Loan") held by Deutsche Bank National Trust Company ("Deutsche Bank") as trustee of a mortgage loan trust. The Loan was serviced by Ocwen Mortgage Loan Servicing, LLC ("Ocwen").

On June 18, 2013, the bankruptcy court entered an order granting Debtors a discharge. On July 19, 2013, the court terminated the automatic stay to permit Deutsche Bank to enforce its rights in the Property. On September 23, 2013, the court closed Debtors’ case.

During June 2013 to April 2015, while knowing of Debtors’ discharge, Ocwen mailed correspondence to Debtors. Some items of correspondence included payment demands with small-print generic disclaimers, which stated that Ocwen did not seek repayment of any debt that was discharged in bankruptcy.

On November 19, 2015, Debtors filed a motion to reopen their case and to hold Ocwen in civil contempt for seeking to collect the Loan from Debtors personally in violation of the discharge injunction of 11 U.S.C. § 524(a)(2).

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On June 20, 2016, following an evidentiary hearing, the bankruptcy court ruled that Ocwen violated the discharge injunction. The court stated that Ocwen waited two years to foreclose on the Property while "hoping that if they sent enough letters and gave enough phone calls, that the debtor would ultimately pay them some money for something." The court found that, in light of Ocwen’s actual knowledge of Debtors’ discharge, the small-print generic disclaimers in Ocwen’s correspondence did not insulate Ocwen from liability for seeking to collect a discharged debt from Debtors personally.4

As sanctions, the bankruptcy court awarded $119,000 to Debtors in emotional distress damages, consisting of $1,000 for each of nineteen items of correspondence and an estimated 100 telephone calls by Ocwen to Debtors. As additional sanctions, the court awarded attorneys’ fees and costs against Ocwen, and subsequently determined them to be $34,955. The court declined to award punitive damages, ruling that it would "probably" award them but lacked legal authority to do so.5

In a reconsideration motion, Ocwen argued that it did not receive adequate notice that Debtors sought sanctions for any phone calls. Ocwen also argued that its records showed only thirty-five phone calls to Debtors. The motion was denied.

During July to August 2016, Ocwen appealed to the BAP from the contempt sanctions and reconsideration denial, and Debtors cross-appealed to the BAP from the bankruptcy court’s denial of punitive damages.

On December 22, 2017, the BAP affirmed the award of emotional distress damages against Ocwen. Emotional distress damages were recoverable for violations of the discharge injunction, and the $1,000-per-violation award was a reasonable compensatory award.6 The disclaimers were not a defense because "Ocwen could and should prepare notices that are consistent with the known legal status of its borrowers."7

The BAP reversed and remanded the bankruptcy court’s denial of punitive damages. The bankruptcy court had authority to award (or to recommend to the district court that it award) punitive damages, provided that they were "relatively mild." On remand, the bankruptcy court was not required to award punitive damages. Any award of punitive damages in excess of $5,000 ("presumably in 1989 dollars") would be considered "serious" under Ninth Circuit precedent.8

In January 2018, Ocwen appealed to the Ninth Circuit, and Debtors filed a motion in the BAP for $16,950 in appellate attorneys’ fees. The BAP denied this motion on July 3, 2018 in an unpublished order, and Debtors appealed from that order. On February 10, 2020, the Ninth Circuit filed its decision in Marino II, dismissing Ocwen’s appeal and affirming the fee denial.

During the appeals, the United States Supreme Court decided Taggart v. Lorenzen ("Taggart")9 (overruling Ninth Circuit precedent on civil contempt liability for violating the discharge injunction) and Ritzen Group, Inc. v. Jackson Masonry, LLC ("Ritzen")10 (reaffirming the test for finality stated in Bullard v. Blue Hills Bank ("Bullard")).11

REASONING: Marino II dismissed Ocwen’s appeal for lack of jurisdiction because the BAP’s decision was not final. Under 28 U.S.C. § 158(d)(1), the appellate jurisdiction of circuit courts is limited to appeals from final decisions, judgments, orders, and decrees, except for interlocutory orders under specified conditions. For three reasons, Marino I was not a final decision of the BAP:

1. BAP orders lack finality unless they "finally dispose of discrete disputes within the larger case."12"Orders in bankruptcy cases qualify as ‘final’ when they definitively dispose of discrete disputes within the overarching bankruptcy case."13 The discrete dispute was the contempt proceeding, and the BAP’s decision did not terminate that dispute or conclusively determine the Debtors’ entitlement to all the relief they sought.14

2. An order from the BAP is not final if it remands for factual determinations on a central issue, unless the BAP remands for "purely mechanical or computational" tasks that are highly unlikely to generate a new appeal.15Marino I was not final because the BAP remanded for a non-ministerial decision on punitive damages.16

3. The Ninth Circuit applies a four-part test (the "4-Part Test") to determine whether there is circuit court jurisdiction of an appeal from a BAP decision that remands to the bankruptcy court.17 The 4-Part Test balances: "(1) the need to avoid piecemeal litigation; (2) judicial efficiency; (3) the systemic interest in preserving the bankruptcy court’s role as the finder of fact; and (4) whether delaying review would cause either party irreparable harm."18

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Marino I was not final under the 4-Part Test. Dismissing Ocwen’s appeal would avoid piecemeal litigation and promote judicial efficiency while permitting the bankruptcy court to make findings on punitive damages issues. The cost of further litigation did not constitute irreparable harm. "Litigation costs generally do not qualify as irreparable harm."19

The Ninth Circuit had jurisdiction of Debtors’ appeal from the fee denial, because their appeal "only raise[d] the frivolousness of Ocwen’s appeal to the BAP, an issue that is both final and discrete."20

The Ninth Circuit affirmed the BAP’s denial of Debtors’ motion for appellate attorneys’ fees. First, Debtors were not entitled to appellate fees under rule 38 of the Federal Rules of Appellate Procedure or rule 8020(a) of the Federal Rules of Bankruptcy Procedure. Rules 38 and 8020(a) authorize sanctions for frivolous appeals. "The BAP did not clearly err in finding that the appeal was not frivolous and did not abuse its discretion by declining to sanction Ocwen."21

Second, Debtors were not entitled to an award of appellate fees under the attorneys’ fee provision in the Loan’s deed of trust. By its terms, made reciprocal by California Civil Code section 1717(a), fees were recoverable when either party sought to enforce or avoid enforcement of the deed of trust. The contempt proceeding did neither; it sought to enforce the discharge injunction.22

Third, Debtors were not entitled to an award of appellate fees under § 105(a) of the Bankruptcy Code. Awarding appellate fees under § 105(a) would conflict with California Employment Development Department v. Taxel (In re Del Mission) ("Del Mission"),23 which held "that section 105(a) does not authorize an award of attorney’s fees."24


Finality: The month before Marino II, the Supreme Court warned: "An erroneous identification of an interlocutory order as a final decision may yield an appeal over which the appellate forum lacks jurisdiction. Conversely, an erroneous identification of a final order as interlocutory may cause a party to miss the appellate deadline."25 The docket in Marino II shows the delay that can result when a party takes an appeal from a non-final decision of the BAP. Ocwen’s appeal was pending for two years in the Ninth Circuit, and the parties incurred the expense of briefing and arguing the merits of Ocwen’s appeal before the Ninth Circuit dismissed for lack of jurisdiction.

A prompt motion to dismiss can dispose of a jurisdictionally defective appeal at its outset, but not in Marino II. In January 2018, Ocwen’s appeal was docketed in the Ninth Circuit. In February 2018, Debtors promptly filed a motion to dismiss for lack of jurisdiction. In April 2018, a Ninth Circuit motions panel denied that motion without prejudice to Debtors’ renewing their argument in their brief on the merits.

The Ninth Circuit’s inconclusive denial of Debtors’ motion to dismiss reflects that even judges may have difficulty determining whether a decision is final. As noted, Marino II applied three different tests of finality. In Congrejo Investments, LLC v. Mann (In re Bender) ("Bender"),26 the Ninth Circuit described how lawyers may react when finality is unclear: "Afraid of guessing wrong to the possible detriment of their client’s interests, lawyers appeal to find the answer with its attendant financial costs to litigants and added burden to an already over-burdened appellate judiciary."27

Proceed with caution in relying on the Ninth Circuit’s 4-Part Test, one of the three tests of finality applied in Marino II. That test may only apply to remands for further proceedings.28 For other appeals, the Ninth Circuit generally applies a test that aligns with the two-part test stated in Bullard.29

As reflected by Marino II and the Ninth Circuit’s 2017 decision in Gugliuzza v. FTC (In re Gugliuzza),30 the 4-Part Test currently lacks much force as an independent test of finality under 28 U.S.C. § 158. The 4-Part Test does not permit the appellate court "to peek at the merits" to ascertain whether deciding the appeal would dispose of the case.31 For example, in deciding whether Marino I was final, the Ninth Circuit could not (and did not) decide whether it would promote efficiency and avoid a further appeal if the Ninth Circuit decided that Taggart required a reversal. In considering the fourth factor, the risk of irreparable harm, Marino II rejected treating "protracted litigation costs" as irreparable harm. In other words, a decision is not final just because it is erroneous and an appeal will spare everyone time and money.

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Consider the limits on Bullard‘s assertion that the "rules are different in bankruptcy."32 Interpreting Bullard, the Ninth Circuit in Gugliuzza explained "our analysis of whether an order is a ‘final’ is different in bankruptcy only to the extent a ‘final’ order under [§] 158 may terminate a discrete proceeding in bankruptcy rather than the entire case."33

Marino II shows the continuing importance of defining the discrete dispute for purposes of finality. Marino II concluded that there were two discrete disputes, only one of which was definitively decided. The discrete dispute involved in Ocwen’s appeal was the contempt proceeding in the bankruptcy court. Because the BAP’s decision did not definitively decide that dispute, there was no final decision. The discrete dispute involved in Debtors’ appeal to the Ninth Circuit was their fee motion in the BAP, whose order definitively decided that dispute.

In analyzing and briefing appellate jurisdiction, do not rely on the line of precedent overruled by Gugliuzza. That overruled line of precedent, which includes the Ninth Circuit’s 1993 decision in Bonner Mall, permitted an appeal from a remand decision so long as: (1) the appeal raised a purely legal question, or (2) the decision of the appeal would materially aid the bankruptcy court’s decision-making process.34

The overruling by Gugliuzza of Bonner Mall‘s broad test of finality does not end the ability of litigants to obtain, on a discretionary basis, the interlocutory review in effect permitted by Bonner Mall. Statutes authorizing discretionary review of interlocutory decisions "serve as useful safety valves for promptly correcting serious errors and addressing important legal questions."35

A district court or BAP can grant leave to hear an appeal from an interlocutory order of the bankruptcy court under 28 U.S.C. § 158(a)(3). A debtor who appeals to the district court and loses there can seek certification to the circuit court under 28 U.S.C. § 1292(b). A bankruptcy court, district court, BAP, or the parties acting jointly may certify a bankruptcy court’s order to the circuit court, which then has discretion to hear the matter under 28 U.S.C. § 158(d)(2), provided any one of several factors exists as specified in that statute.36

Contempt: Marino II left intact and unreviewed Marino I‘s significant rulings on civil contempt for violations of the discharge injunction: (1) post-discharge efforts to enforce a valid secured debt may violate the discharge injunction when they exceed what is necessary to enforce the lien; (2) emotional distress damages are recoverable as compensatory damages for violations of the discharge injunction; (3) a $1,000-per-violation emotional distress damages formula can be a valid compensatory award; (4) a small-print generic disclaimer of any intent to collect a discharged debt may not provide immunity; and (5) "relatively mild" punitive damages may be awarded for violations of the discharge injunction.

On October 22, 2019, during oral argument of Marino II, one judge on the panel questioned whether Taggart‘s contempt standard conflicted with the analysis in Marino I. Another judge asked whether the emotional distress damages were compensatory. These questions on the merits may be renewed, either in the bankruptcy court or in another round of appeals.

In affirming the bankruptcy court’s award of $119,000 in emotional distress damages, Marino I relied upon Ninth Circuit precedent holding that emotional distress damages are available for violations of the automatic stay.37 Further, bankruptcy courts have written diverse decisions regarding their authority to award punitive damages.38

Fees: In affirming the BAP’s order denying Debtors’ appellate attorneys’ fees, Marino II states that "section 105(a) does not authorize an award of attorney’s fees." The Ninth Circuit made that assertion in the context of discussing Debtors’ right to fees "incurred defending against the appeal before the BAP."39 Attorneys’ fees are recoverable under 11 U.S.C. § 105(a) as civil contempt sanctions.40 A takeaway from Marino II is that, in the Ninth Circuit, a party injured by a violation of the discharge injunction may not recover attorneys’ fees for defending the contempt sanctions on appeal.

Marino II relied on Del Mission, in which the Ninth Circuit ruled that a bankruptcy court does not have authority under § 105(a) to award fees incurred in a prior appeal.41 Del Mission further ruled that rule 38 of the Federal Rules of Appellate Procedure is the sole vehicle for obtaining appellate fees for opposing a frivolous appeal, because: "it would be superfluous to treat § 105(a) as another vehicle to award appellate fees."42This reasoning is debatable, because statutory overlap (as opposed to total superfluity) does not dictate that one statute supplants another.43

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Marino II regarded Del Mission as binding precedent on the issue of awarding appellate attorneys’ fees under § 105(a). On January 14, 2021, in City of Chicago v. Fulton, the Supreme Court overruled the part of Del Mission that interpreted 11 U.S.C. § 362(a)(3), but not the part of Del Mission that interpreted 11 U.S.C. § 105(a).44 Absent further judicial or legislative developments, Del Mission‘s interpretation of § 105(a) continues to apply in the Ninth Circuit. In Marino III, Debtors petitioned for certiorari on Marino II‘s interpretation of § 105(a), but the Court denied the petition on March 22, 2021.45

Del Mission‘s restriction on appellate fees does not apply when the statutory injunction violated is the automatic stay, instead of the discharge injunction. Under 11 U.S.C. § 362(k), an individual injured by a willful violation of the automatic stay has a statutory right to recover "actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages." In American Servicing Co. v. Schwartz-Tallard (In re Schwartz-Tallard),46 the Ninth Circuit ruled that § 362(k) authorizes an award of attorneys’ fees reasonably incurred in opposing an appeal. In 2016, a Minnesota bankruptcy court relied on Del Mission, rather than Schwartz-Tallard, in declining to award appellate fees for a violation of the discharge injunction.47 Previously, a Texas bankruptcy court declined to follow Del Mission.48

Marino I and II reflect significant developments in the law of remedies for violations of the discharge injunction. In Marino I, the BAP decided that emotional distress damages are permissible for violations of the discharge injunction. In Marino II, the Ninth Circuit affirmed the BAP’s unpublished decision that the available remedies do not include appellate attorneys’ fees. The two-year delay that occurred in Marino II, despite the filing by counsel of a prompt motion to dismiss, shows that the complex rules of appellate jurisdiction can perplex courts as much as counsel.

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1. Leonard L. Gumport is a lawyer and mediator at Gumport Law Firm, PC, in Pasadena, California. He has served as a provisional director, bankruptcy examiner, and bankruptcy and SIPC trustee. He is admitted to practice in Alaska, California, the District of Columbia, and New York.

For their editorial contributions, Mr. Gumport thanks Jessica Bagdanov of Brutzkus Gubner and M. Jonathan Hayes of Resnik Hayes Moradi LLP. Mr. Gumport also thanks the Insolvency Law Committee and the CLA’s Business Law Section, which hosted a Zoom seminar on Marino I and II on November 17, 2020. The panelists included Jon Hayes and Christopher P. Burke, trial and appellate counsel for the Marinos.

2. 949 F.3d 483 (9th Cir. 2020). On September 29, 2020, a petition for certiorari was filed in Marino v. Ocwen Loan Servicing, LLC, No. 20-409 ("Marino III"). The petition sought review of Marino II‘s ruling that 11 U.S.C. § 105(a) does not authorize an award of appellate attorneys’ fees. On March 22, 2021, the Supreme Court denied the petition.

3. 577 B.R. 772 (B.A.P. 9th Cir. 2017).

4. Marino I, 577 B.R. at 780.

5. Id.

6. Id. at 787-88.

7. Id. at 785.

8. Id. at 788-89 & n.12 (citing and quoting from Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1193 (9th Cir. 2003) ("Dyer")).

9. 139 S. Ct. 1795 (2019).

10. 140 S. Ct. 582 (2020).

11. 575 U.S. 496 (2015).

12. Marino II, 949 F.3d at 487 (quoting Gugliuzza v. FTC (In re Gugliuzza), 852 F.3d 884, 892 (9th Cir. 2017) ("Gugliuzza") (quoting Bullard, 135 S. Ct. at 1692)).

13. Ritzen, 140 S. Ct. at 586.

14. Marino II, 949 F.3d at 488.

15. Id. at 487 (quoting Sahagun v. Landmark Fence, Inc. (In re Landmark Fence Co., Inc.), 801 F.3d 1099, 1103 (9th Cir. 2015)).

16. Marino II, 949 F.3d at 488.

17. Id. at 487.

18. Id. (quoting Gugliuzza, 852 F.3d at 894 (internal quotation omitted)).

19. Marino II, 949 F.3d at 487.

20. Id. at 488.

21. Id. at 489.

22. Id.

23. 98 F.3d 1147 (9th Cir. 1996).

24. Marino II, 949 F.3d at 489. The quoted sentence refers only to an award under § 105(a) of appellate attorneys’ fees. In general, attorneys’ fees are a permissible component of civil contempt sanctions under Dyer, 322 F.3d at 1195. Sections 105(a) and 524(a)(2) permit civil contempt sanctions for violations of the discharge injunction. See Taggart, 139 S. Ct. at 1801.

25. Ritzen, 140 S. Ct. at 587.

26. 586 F.3d 1159, 1165 (9th Cir. 2009).

27. Id.

28. See Gugliuzza, 852 F.3d at 894 ("By contrast, when an appeal is taken from a district court or BAP ruling that remands the case for further proceedings, we have applied a four-part test[.]"); Eden Place, LLC v. Perl (In re Perl), 811 F.3d 1120, 1126 (9th Cir. 2016) ("A survey of our precedent reveals that the four-part finality test articulated in In re Landmark Fence is utilized almost exclusively when determining the finality of a case involving a remand to the bankruptcy court.").

29. Gugliuzza, 852 F.3d at 894 ("[W]e have looked to whether the bankruptcy court’s decision 1) resolves and seriously affects substantive rights and 2) finally determines the discrete issue to which it is addressed in determining whether a particular bankruptcy court order is final.") (internal quotations and citations omitted).

30. Id. at 892.

31. Id. at 897.

32. 135 S. Ct. at 1692.

33. Gugliuzza, 852 F.3d at 898 (emphasis added). In this quoted sentence, Gugliuzza answered a question that had lingered since 1992. See Bender, 586 F.3d at 1163 ("In Connecticut National Bank v. Germain, [503 U.S. 249, 253 (1992) ("Germain"),] the Supreme Court cast doubt on our application of a flexible standard to section 158(d), by reasoning that sections 158(d) and 1291 were coextensive in their application to district courts acting as bankruptcy appellate courts.").

34. Gugliuzza., 852 F.3d at 895-96. The overruled cases in that line of precedent include Bonner Mall Partners v. U.S. Bancorp Mortgage Co. (In re Bonner Mall Partnership), 2 F.3d 899, 903 (9th Cir. 1993) (stating that a "pragmatic approach" applies to the finality of bankruptcy appeals and that § 158(d) has a "more liberal finality standard than does 28 U.S.C. section 1291"), dismissed on other grounds, 513 U.S. 18 (1994).

35. Bullard, 135 S. Ct. 1696 (internal quotations and citation omitted).

36. See Weber v. U.S. Tr., 484 F.3d 154, 157 (2d Cir. 2007); In re Gravel, 2019 Bankr. LEXIS 2576 (Bankr. D. Vt. 2019) (granting motion of chapter 13 trustee to certify decision on punitive sanctions against mortgage servicer for direct appeal to Second Circuit under 28 U.S.C. § 158(d)(2)), appeal granted sub nom., Sensinich v. PHH Mortg. Corp., No. 20-1 (2d Cir., Jan. 2, 2020) ("Sensinich").

37. Marino I, 577 B.R. at 787 ("The same rule should apply to violations of the discharge injunction."). Ninth Circuit precedent authorizing an award of emotional distress damages for a willful violation of the automatic stay under 11 U.S.C. § 362(h) (the statutory predecessor of 11 U.S.C. § 362(k)(1)) includes Dawson v. Washington Mutual Bank, F.A. (In re Dawson), 390 F.3d 1139, 1149 (9th Cir. 2004), abrogated on other grounds in Gugliuzza, 852 F.3d at 895-98.

38. Diverse decisions on a bankruptcy court’s authority to award punitive sanctions are discussed in In re Gravel, 601 B.R. 873, 890-903 (Bankr. D. Vt. 2019), and the certified direct appeal from that decision is fully briefed and pending in Sensinich. As of July 11, 2021, the Second Circuit has not filed a decision.

39. Marino II, 949 F.3d at 488-89.

40. Dyer, 322 F. 3d at 1195 ("We emphasize that attorneys’ fees are an appropriate component of a civil contempt award.").

41. Del Mission, 98 F.3d at 1152-54.

42. Id. at 1154.

43. Germain, 503 U.S. at 253 ("Redundancies across statutes are not unusual events in drafting, and so long as there is no positive repugnancy between two laws, a court must give effect to both.") (internal quotation and citation omitted)).

44. City of Chi. v. Fulton, 141 S. Ct. 585, 592 (2021); see id. at 590 n.1 (citing Del Mission).

45. See supra note 2.

46. 803 F.3d 1095, 1101 (9th Cir. 2015) (en banc).

47. Venture Bank v. Lapides (In re Lapides), 2016 Bankr. LEXIS 75, at *6 (D. Minn. 2016) ("The Court is reluctant to extend Schwartz-Tallard‘s reasoning regarding an appellate fee award, even in a corollary sense, to the facts underlying a discharge violation.") (footnote omitted).

48. Rodriguez v. Countrywide Home Loans, Inc. (In re Rodriguez), 517 B.R. 724, 738 (Bankr. S.D. Tex. 2014) ("The Court respectfully disagrees with courts that have held that appellate fees cannot be awarded under § 105."). In the Ninth Circuit Court of Appeals, a party seeking appellate attorney’s fees on any basis must comply with Ninth Circuit rule 39-1. Circuit rule 39-1.8 provides: "Any party who is or may be eligible for attorneys [sic] fees on appeal to this Court may, within the time permitted in Circuit Rule 39-1.6, file a motion to transfer consideration of attorneys fees on appeal to the district court . . . from which the appeal was taken."