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Recovering Fees for a Stay Violation

January 5, 2019 by Shannon Doyle

Did the Bankruptcy Judge deny your fees for defending a stay violation? Relax, appeal and bill more! Well, assuming you have good facts of course.  The good news is that the Ninth Circuit extended the ruling in Schwartz-Tallard, 803 F.3d 1095, 1101 (9th Cir.2015) to include recovery of legal fees and costs incurred when a debtor successfully challenges an inadequate judgment on appeal (not just when the debtor successfully defends a judgment on appeal). In Re Easley, No 17-16506 (9th Cir. 2018) presents a case where the Bankruptcy Court granted debtors’ motion for violation of the stay but awarded only a fraction of the attorneys’ fees and costs. Debtors appealed the order granting fees. The District Court remanded back to the Bankruptcy Court to review in light of the newly decided Schwartz-Tallard.  The Bankruptcy Court then granted the full claim of attorney’s fees and costs incurred to stop the stay violation; however it denied the fees and costs incurred for the appeal. Debtors appealed to the District Court who affirmed the Bankruptcy Court’s decision on the grounds that Schwartz-Tallard only allows attorneys’ fees for an appeal when the debtor is the successful defending party.

Prior to Schwartz-Tallard, the Courts limited recovery of attorneys’ fees and costs under 11 U.S.C. §362(k)(1) to those incurred solely in stopping the stay violation (Sternberg v. Johnson, 595 F.3d 937, 947 (9th Cir.2010)).  Schwartz-Tallard overruled Sternberg and said that a debtor may recover attorneys’ fees and costs for successfully defending an appeal. In Schwartz-Tallard, however, it was the creditor who appealed an award of damages incurred by a stay violation, whereas in Easley it was the debtors bringing the appeal.  The District Court then made the inference that Schwartz-Tallard only allows fees when the debtor is the defending party.  Ultimately, debtors appealed to the Ninth Circuit which reversed the District Court and determined that 11 U.S.C. §362(k) reasonably includes awarding attorneys’ fees and costs to a debtor who successfully appeals an ineffective judgment rendered by the Bankruptcy Court. “Section 362(k) seeks to make debtors whole when a creditor willfully violates an automatic stay. This requires creditors to pay debtors’ reasonable damages and attorneys’ fees and costs incurred in remedying the violation. When an appeal is necessary to secure such damages and attorneys’ fees and costs, appellate attorneys’ fees and costs should also be granted to a successful debtor, regardless of which party brings the appeal”. In re Easley, 13.

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