In Easley v. Collection Service of Nevada,[1] the U.S. Court of Appeals for the Ninth Circuit permitted the debtors to recover attorneys’ fees and costs incurred while appealing fees awarded for a willful violation of the automatic stay pursuant to 11 U.S.C. § 362(k)(1).
Charles and Patricia Easley (the debtors) filed a chapter 13 petition and listed Bennett Medical Services as an unsecured creditor. However, pre-petition, Bennett assigned its debt to Collection Service of Nevada (CSN). CSN was unaware of the Easleys’ bankruptcy and instituted a post-petition collection action against Patricia. The parties entered into a payment plan that Patricia did not fulfill, which resulted in CSN garnishing her wages for several months.
The bankruptcy court found that CSN willfully violated the automatic stay and awarded the debtors damages plus $1,277 in attorneys’ fees and costs. The debtors appealed the award to the district court, arguing that the bankruptcy court did not include in the fee award the work their attorneys performed to end CSN’s stay violation. The district court affirmed the damages award but remanded the attorneys’ fees portion to allow the bankruptcy court to consider Schwartz-Tallard, which was decided after the debtors’ appeal. On remand, the bankruptcy court granted the debtors an additional $16,324.40 in attorneys’ fees, but declined to award any fees incurred from the appeal. The district court affirmed, holding that § 362(k) “does not allow for recovery of appellate work when a party is prosecuting, and not defending, the judgment on appeal.”[2] The debtors appealed on the aspect of appellate counsel fees, and the Ninth Circuit reversed.
In Sternberg v. Johnson, the Ninth Circuit interpreted § 362(k)(1) to only permit attorneys’ fees incurred to stop a stay violation.[3] Then, in In re Schwartz-Tallard, the Ninth Circuit overruled Sternberg to hold that § 362(k) “is best read as authorizing an award of attorneys’ fees [and costs] incurred in prosecuting an action for damages.”[4]
Judge Milan Smith, writing for the Ninth Circuit in Easley, focused on the purpose of § 362(k)(1) as a fee-shifting statute: It provides a remedy for debtors and serves as a deterrent to creditors from violating the automatic stay. Moreover, “[m]ost fee-shifting statute cases that award appellate attorneys’ fees do so for successfully defending a judgment on appeal.... If a creditor unsuccessfully appeals ... it stands to reason that the party who violated the stay should continue to pay for its harmful behavior by compensating the debtor” on appeal.[5] Further, although the Ninth Circuit found that courts have granted appellate counsel fees where a fee-shifting statute applied and the appellant successfully challenged the initial judgment, Judge Smith could not find authority that applied this rationale to a situation where the initial judgment was challenged as inadequate.
Nonetheless, Judge Smith held that § 362(k)’s purpose favors awarding appellate counsel fees — regardless of who files the appeal — to a prevailing debtor. The court again emphasized § 362(k)’s importance for individual debtors who lack resources to hire private counsel and viewed this section as a compensatory-damages provision to be able “to make debtors whole” as if the automatic stay was never violated.
“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.”[6] By allowing debtors to recover fees sustained while challenging the sufficiency of fee awards, the Ninth Circuit expanded its prior holding in In re Schwartz-Tallard, which permitted a debtor to recover appellate counsel fees sustained while defending an award under § 362(k). In the wake of Easley, debtors that are aggrieved by § 362(k) violations will be more encouraged to appeal initial judgments to seek greater fee awards.
[1] 910 F.3d 1286 (9th Cir. 2018).
[2] Easley, 910 F.3d at 1289. In addition, the district court also declined to award appellate costs due to the debtors’ failure to comply with a local rule that requires points and authorities to be filed with a motion. Id. (citing D. Nev. Civ. R. 7-2(d)). Although the debtors successfully appealed this issue, this article only addresses the Ninth Circuit’s decision as it relies on § 362(k)(1).
[3] 595 F.3d 937, 947 (9th Cir. 2010), overruled by In re Schwartz-Tallard, 803 F.3d 1095 (9th Cir. 2015) (en banc).
[4] Easley, 910 F.3d at 1291 (alteration in original) (quoting Schwartz-Tallard, 803 F.3d at 1101).
[5] Id. at 1292.
[6] “Ninth Circuit Allows Counsel Fees When Debtor Successfully Appeals a Stay Violation,” Am. Bankr. Inst., Rochelle’s Daily Wire (Dec. 28, 2018), available at www.abi.org/newsroom/daily-wire/ninth-circuit-allows-counsel-fees-when-….