Ninth Circuit Allows Counsel Fees when Debtor Successfully Appeals a Stay Violation

The Ninth Circuit became the first court of appeals to rule that a debtor is entitled to appellate counsel fees for successfully overturning a lower court’s order and winning larger damages for a willful violation of the automatic stay.

The creditor had committed a willful violation of the automatic stay. The chapter 13 debtor sought damages and attorneys’ fees under Section 362(k). The section provides that “an individual injured by any willful violation of [the automatic stay] shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”

Initially, the bankruptcy court awarded about $2,500, split roughly in half between damages and attorneys’ fees incurred in halting the stay violation. The debtor appealed to the district court, believing the award of fees was inadequate.

While the appeal was pending, the Ninth Circuit sat en banc and handed down In re Schwartz-Tallard, 803 F.3d 1095 (9th Cir. 2015). Overruling its prior holding, the Ninth Circuit resolved a split among the circuits by holding that an individual debtor can recover attorneys’ fees in pursuit of damages for a willful violation of the automatic stay. Previously, the Ninth Circuit had held that attorneys’ fees were only available for halting the stay violation, but not for the cost of obtaining a damage award.

Based on Schwartz-Tallard, the district court reversed. On remand, the bankruptcy court awarded almost $16,500 in attorneys’ fees on top of the previously granted $1,250 in damages. To read ABI’s report on Schwartz-Tallard, click here.

However, the bankruptcy court refused to award appellate attorneys’ fees. The district court affirmed, reasoning that Schwartz-Tallard allows appellate attorneys’ fees only when the debtor is defending an appeal, not prosecuting an appeal.

In a December 20 opinion, Circuit Judge Milan D. Smith, Jr. reversed and allowed appellate attorneys’ fees for a debtor’s successful prosecution of an appeal. He said that Section 362(k) “serves a deterrent function much like many fee-shifting statutes.”

Judge Smith said he was “not aware of any authority suggesting that [fees] . . . are not available [under a fee-shifting statute] for successfully challenging a judgment as inadequate.” He said that “the purpose of Section 362(k) strongly favors” an award of appellate counsel fees for increasing a damage award.

The “provision of attorneys’ fees,” Judge Smith said, “is critically important” because debtors, “by definition,” will otherwise not have resources to hire private counsel.

Explaining why appellate counsel fees are allowable when the debtor is the appellant, Judge Smith said that Section 362(k) “seeks to make debtors whole, as if the violation never happened, to the degree possible.”