There is no truth to the rumor that Bankruptcy Judge Craig T. Goldblatt of Delaware begs us to write stories frequently about his opinions. No, we take notice when any judge gives a debtor $665,000 for rectifying a violation of the automatic stay plus another $75,000 for defeating a defective involuntary petition.
The case has been knocking around since 2015. The debtor was a manager of investment funds. Several investors filed an involuntary chapter 7 petition but didn’t serve the debtor. Unaware of the petition, the debtor did not respond, allowing the bankruptcy court to enter an order for relief on default.
After the order for relief, but without obtaining a modification of the automatic stay, the involuntary petitioners removed the debtor as the fund’s manager and inserted a new manager.
Finally responding to the involuntary bankruptcy, the debtor prevailed on the bankruptcy judge to set aside the order for relief. The involuntary petitioners then consented to dismissal, but the debtor preserved the right to seek damages under Section 303(i) for dismissal of the involuntary petition and under Section 362(k) for violating the automatic stay.
Years of litigation followed, including a trip to the Third Circuit. Back in bankruptcy court recently, Judge Goldblatt held a trial to fix the amount of the debtor’s damages resulting from the dismissed involuntary and from the stay violation.
The debtor sought almost $130,000 in attorney’s fees for defeating the involuntary petition under Section 303(i). However, the debtor admitted that the fees would have been only $50,000 had it moved more quickly against the involuntary petition. As a result, Judge Goldblatt’s November 14 opinion allowed the debtor $50,000 for defeating the involuntary and $25,000 for fees in mounting the Section 303(i) motion.
The big bone of contention was the debtor’s request for reimbursement of attorneys’ fees in pursuit of damages for violating the automatic stay. Judge Goldblatt couldn’t grant actual damages, because the debtor would not have been earning income since the business was essentially defunct at the time of the involuntary petition.
We will avoid a mind-numbing recantation of the grounds on which Judge Goldblatt allowed $665,000 in reimbursement of attorneys’ fees arising from violation of the automatic stay. However, we will recount several noteworthy legal conclusions in the opinion.
Attorneys’ Fees Always Recoverable
Because the debtor had no “actual” damages from the stay violation, the involuntary petitioners contended that the debtor was not entitled to recovery of attorneys’ fees.
Judge Goldblatt disagreed, based on the language of Section 362(k)(1). It says:
[A]n individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
The “statute makes clear,” Judge Goldblatt said, that “a party that incurred such fees cannot be denied recovery for failing to have suffered actual damages” because “attorneys’ fees and costs are included among the debtor’s ‘actual damages’” in the “context of the automatic stay.”
Judge Goldblatt “respectfully” disagreed with several cases that denied attorneys’ fees when there were no actual damages. While he was “not unsympathetic to the policy view,” he said, “this Court does not believe that it may displace Congress’ policy judgment with its own.”
Next, the involuntary petitioners argued that the amount of fees was “unreasonable” when compared to the lack of injury. Noting that the debtor had been seeking millions of dollars in damages for the loss of management’s fees, Judge Goldblatt said that “the reasonableness of one’s conduct must be assessed at the time of the conduct and based on the information that was known or knowable at the time.”
“Life,” Judge Goldblatt said, “is lived forward not backwards,” and the involuntary petitioner’s defense was made “with the benefit of hindsight.”
Section 362(k) and Corporate Debtors
Section 362(k) awards damages for “an individual injured by any willful violation of a stay.” [Emphasis added.] How can it be that Judge Goldblatt awarded $665,000 in damages to a corporation under Section 362(k)?
In a prior opinion in the same case on May 12, Judge Goldblatt cited the Third Circuit’s opinion in In re Atlantic Bus. & Cmty. Corp., 901 F.2d 325, 328-329 (3d Cir. 1990), and said:
While the majority view is that the term “individual” is limited to flesh-and-blood human beings, the Third Circuit has found that the statute nevertheless applies to a corporate debtor. Whether it might make sense to reconsider that precedent in light of subsequent decisions from other courts is a matter committed to the sole discretion of the Third Circuit. That court’s existing precedent is controlling here and permits the debtor to assert a damages claim for alleged violations of the automatic stay.
There is no truth to the rumor that Bankruptcy Judge Craig T. Goldblatt of Delaware begs us to write stories frequently about his opinions. No, we take notice when any judge gives a debtor $665,000 for rectifying a violation of the automatic stay plus another $75,000 for defeating a defective involuntary petition.
The case has been knocking around since 2015. The debtor was a manager of investment funds. Several investors filed an involuntary chapter 7 petition but didn’t serve the debtor. Unaware of the petition, the debtor did not respond, allowing the bankruptcy court to enter an order for relief on default.
After the order for relief, but without obtaining a modification of the automatic stay, the involuntary petitioners removed the debtor as the fund’s manager and inserted a new manager.
Finally responding to the involuntary bankruptcy, the debtor prevailed on the bankruptcy judge to set aside the order for relief. The involuntary petitioners then consented to dismissal, but the debtor preserved the right to seek damages under Section 303(i) for dismissal of the involuntary petition and under Section 362(k) for violating the automatic stay.