Attorneys’ Fees Alone — Without Actual Damages or Ongoing Stay Violation — Do Not Warrant Sanctions for Violations of the Automatic Stay

A debtor cannot recover sanctions or attorneys’ fees under 11 U.S.C. § 362(k) when the debtor admits to having suffered no actual damages and the filing of a motion for sanctions was not necessary to remedy a stay violation.[1] Denying the debtor’s motion for sanctions, the U.S. Bankruptcy Court for the Western District of New York reached this conclusion and, in its opinion, colorfully addressed the potential for encouraging wasteful litigation that would arise from a contrary conclusion.[2]

Background

The debtor, whose case started “quite unremarkably,” according to the court, argued in the motion that the creditor violated the automatic stay by sending written collection letters to the debtor and by repossessing the debtor’s vehicle post-petition.[3] However, the motion, filed shortly after the repossession, did not seek the return of the vehicle and did not seek to end an ongoing stay violation.[4] Debtor’s counsel also conceded that the motion did not allege any actual damage or pecuniary loss because the debtor suffered none.[5] Instead, the motion only sought recovery of the attorneys’ fees associated with the motion itself, which, according to debtor’s counsel, was brought “so as to protect the honor and sanctity of the automatic stay.”[6] In response to this position, the court, quoting Charles Dickens, opined that perhaps the motion provided “a modern day illustration of the reason for a long-held view of some skeptics” that “[t]he one great principle of the English law is[] to make business for itself.”[7]

Analysis

A debtor must prove three elements under 11 U.S.C. § 362(k) in order to obtain damages, including attorneys’ fees, for a willful violation of the automatic stay: (1) the offending party violated the automatic stay; (2) the violation was willful; and (3) the willful violation caused the debtor an injury.[8] Attorneys’ fees only qualify as actual damages under § 362(k) if they are “necessary to stop an ongoing stay violation, undo the effects of a stay violation, or recover pre-litigation actual damages,” and in any event must be reasonable and necessary to remedy such a willful violation.[9] In determining whether the fees are reasonable and necessary, “it is important to look to see whether the debtor took steps to mitigate any potential for injury arising out of the stay violation.”[10]

Applying these principles to the matter before them, the court first concluded that it did not need to determine whether the creditor willfully violated the automatic stay because the debtor admittedly did not suffer any cognizable injury as a result of the creditor’s actions.[11] The court then analyzed whether the requested attorneys’ fees were reasonable and necessary.[12]

Citing to several factors (and interjecting colorful language along the way), the court ultimately concluded that the requested attorneys’ fees were not reasonable and necessary because the violations could have easily been resolved without the motion.[13] Specifically, the court noted that the debtor had “a couple of chances to simply tell” the creditor that he filed for bankruptcy, including at least one post-petition phone call in which the debtor and creditor discussed the surrender of the vehicle.[14] The court reasoned that had the debtor told the creditor about his bankruptcy, the litigation would have been avoided “before the breech was ever loaded” and could have been resolved with “far less costly and much less time-consuming alternatives.”[15] The court also admonished debtor’s counsel for his lack of effort in addressing the violations, noting that “Counsel also missed the chance to mitigate any potential for damage by failing to return a post-petition pre-repossession telephone call from [the creditor]” and that a “short telephone call would have done the trick.”[16]

Finally, the court also appeared to send a message to debtors’ counsel that some “minimal effort” is required before resorting to a sanctions motion.[17] The court explained that a “brief phone call or letter is usually enough to stop creditor contacts or to undo the effects of a violation — returning garnished wages, for example,” and that an “ounce of mitigation effort by debtors’ counsel may work more quickly and effectively than a barrel of litigation.”[18]

Conclusion

For the reasons discussed above, the court denied the motion and ended the litigation “in large measure because of the way it began — unremarkably.”[19] This case shows that a debtor and counsel must make some effort to resolve alleged stay violations prior to filing a motion seeking relief under § 362(k). Further, if the debtor has not suffered any actual damages as a result of such violations, then attorneys’ fees incurred for the sole purpose of bringing a stay violation motion are not recoverable.