9th Circuit Clarifies Awards of Appellate Attorney’s Fees in Sanctions Case

Posted by NACBA - January 8, 2019

The Ninth Circuit recently ruled that Section 362(k) of the Bankruptcy Code allows an award of attorney’s fees when the debtor successfully defends or challenges a judgment for violation of the automatic stay.  In Easley v. Collection Serv. of Nev., No. 17-16506, 2018 U.S. App. LEXIS 35857, at *3 (9th Cir. Dec. 20, 2018), the Ninth Circuit Court of Appeals reversed the judgment of the District Court.

In this case the creditor filed a collection action in state court for $3,535.00 after the filing of the bankruptcy petition and began garnishing Ms. Easley’s wages.  The Easleys filed a motion for contempt.  After an uncontested evidentiary hearing, the bankruptcy court found the violation was willful and awarded the Easleys $1,295.00 in damages and $1,277.00 for attorney’s fees and costs.

In a twist, the Easleys appealed the bankruptcy court’s decision and argued that the bankruptcy court did not properly compensate them for all the attorney’s fees incurred.  On appeal, the Easleys asked for a remand to the bankruptcy court and to be awarded additional attorney’s fees for prosecuting the appeal.

The district court remanded the case to the bankruptcy court for a new determination of the missing fees but denied attorney’s fees incurred on appeal pursuant to a previous Ninth Circuit decision of In re Schwartz-Tallard, 803 F.3d 1095, 1101 (9th Cir.2015) (en banc). In the Schwartz-Tallard case the Ninth Circuit held that Section 362(k) authorizes the court to award reasonable attorney’s fees for defending a sanction award entered pursuant to Section 362(k).  The district court reasoned that because the Easleys appealed the bankruptcy court’s award of fees and costs, not the creditor, the Easleys could not recover their fees pursuant to § 362(k).

The Ninth Circuit reversed the district court’s interpretation.  The court reasoned that §362(k)(1) operates as a fee-shifting statute where only one party, the debtor, can collect attorney’s fees and costs. Section 362(k)(1) serves a deterrent function and is “especially critical in the bankruptcy context where debtors lack the means to otherwise pursue their damages.” Easley v. Collection Serv. of Nev., No. 17-16506, 2018 U.S. App. LEXIS 35857, at 11-12 (9th Cir. 2018).  The court noted that courts routinely grant appellate attorney’s fees in other fee shifting statutes.  The court concluded by stating that §362(d) “seeks to make debtors whole, as if the violation never happened…” Id. at 14, and therefore appellate attorney’s fees should be awarded to a successful debtor, regardless of which party appeals the decision.

Practice Pointers:

  • Bankruptcy Courts are particularly reluctant to grant large attorney fee awards in sanction cases.  Use this case to appeal those judgments to be fairly compensated for the work performed.
  • Keep a good record of all time and expenses spent in enforcing the automatic stay.

In re Easley Opinion

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