The Eleventh Circuit ruled that a debtor is entitled to recovery of attorneys’ fees incurred in upholding a judgment for violation of the automatic stay, siding with the Ninth Circuit’s decision in In re Schwartz-Tallard, 803 F.3d 1095 (9th Cir. 2015) (en banc).
The Dec. 5 opinion for the Eleventh Circuit by District Judge Leigh Martin May, sitting by designation, held that the debtor could recover counsel fees for pursuing a monetary award and appellate counsel fees resulting from the stay violation, plus fees incurred in litigation precipitated by the stay violation.
Although the debtors had filed a chapter 7 petition, an attorney filed suit against them in state court on behalf of a client. The lawyer repeatedly refused to dismiss the suit, Judge May said. The bankruptcy court awarded the debtors about $80,000 in damages for willful violation of the automatic stay under Section 362(k), including some $40,000 in attorneys’ fees.
When the lawyer appealed and lost, the district judge awarded the debtors an additional $35,000 in counsel fees.
The lawyer then moved in bankruptcy court to recuse the bankruptcy judge. The lawyer lost in bankruptcy court and again on appeal, but the district court declined to award counsel fees to the debtors.
On the cross appeal that followed, the Eleventh Circuit upheld denial of the recusal motion but remanded for the district court either to award counsel fees under the “mandatory fees provision in Section 362(k), or explain why the recusal motion did not involve litigation over the stay violation.”
On remand, the district awarded the debtors another $15,000 in counsel fees.
Undeterred, the lawyer filed a petition for certiorari which the Supreme Court denied. Referred by the Circuit Court, the district court awarded the debtors appellate fees and costs totaling more than $90,000.
In the Ninth Circuit, the lawyer relied on Baker Botts LLP v. ASARCO LLC, 135 S. Ct. 2158, 192 L. Ed. 2d 208, 83 U.S.L.W. 4428 (2015), to argue that departures from the American Rule must be strictly construed. She contended that the debtors were only entitled to recover attorneys’ fees for halting the stay violation, but not for pursuing damages and not for appellate counsel fees.
Judge May said that the Eleventh Circuit had never before ruled on the issues raised by the lawyer under Section 362(k). That section says that an individual injured by a willful stay violation “shall recover actual damages, including costs and attorneys’ fees.” In “appropriate circumstances,” the statute allows punitive damages.
The word “including” in Section 362(k), Judge May said, serves “as a word of enlargement” to broaden “the notion of actual damages beyond the immediate injury incurred in ending the violation of a stay.” Similarly, she said, nothing in the text of Section 362(k) “limits the scope of attorneys’ fees to solely ending the stay violation.”
The explicitly broad language, Judge May held, “permits recovery of attorneys’ fees incurred in stopping the stay violation, prosecuting a damages action, and defending those judgments on appeal.”
Driving the point home about awarding appellate counsel fees for pursing damages from a stay violation and the related recusal motion, Judge May gave the debtors another $30,000 for defending the appeal in the Ninth Circuit.