Sternberg Does Not Preclude Attorney Fee Award

Posted by NCBRC - April 15, 2015

Where the creditor had not returned garnished funds at the time of the hearing for damages for the stay violation, the debtor was entitled to recovery of attorney fees incurred in connection with that hearing. In re Eeds, No. 14-61005 (Bankr. Mont. March 16, 2015). After David Eeds filed for chapter 7 bankruptcy his wages were garnished as a result of a pre-bankruptcy judgment in favor of CF Capital. CFC refused the debtor’s request to stop the garnishment and return the garnished funds. The debtor moved for sanctions alleging willful violation of the automatic stay under section 362(k)(1). CFC failed to respond and the court found in favor of the debtor on liability. At the hearing for damages, the debtor sought actual damages for travel expenses, lost wages, and attorney fees incurred in connection with the hearing, plus treble damages as a punitive award. At the time of the damages hearing CF Capital had still not returned the garnished funds.

Under section 362(a)(2), a creditor’s knowledge of bankruptcy gives rise to an obligation to stop garnishment and return improperly garnished funds. Failure to do so constitutes a willful violation when the creditor knows of the stay and the actions violating the stay are intentional. A finding of willfulness entitles the debtor to damages under section 362(k).

The court awarded actual damages in the amount of the garnished funds, as well as lost wages and expenses incurred in connection with the hearing for damages. As to punitive damages, the court found that CFC’s failure to rectify the stay violation was sufficient evidence of callous or reckless conduct to support a punitive damage award, though not sufficiently egregious to justify the treble damages sought by the debtor. Instead, the court awarded $1,000 in punitive damages.

Finally, the court turned to the question of what attorney fees should be awarded. It looked at what fees resulted from the violation and whether those fees were reasonable. The court noted that Sternberg v. Johnston, 595 F.3d 937 (9th Cir. 2010), prohibits recovery of attorney fees for those fees incurred once the violation has ended. In this case, though the garnishments ended as a result of the debtor’s contacting the employer, CFC still retained the garnished funds as of the date of the damages hearing. Therefore the stay violation was ongoing and the debtor was entitled to all the fees he sought in connection with the violation and the hearing. The court awarded fees in the amount of $1,440.00 for a total sanction award of $5,183.30.

Eeds Bankr Mont opinion

Though application of the Ninth Circuit’s holding in Sternberg did not negatively impact the debtor’s attorney fee award in this case, the Sternberg decision remains a significant hurdle to pursuing stay violation damages in many cases in the Ninth Circuit. The issue is currently before the Ninth Circuit in the case of America’s Servicing Co. v. Schwartz-Tallard (In re Schwartz-Tallard), No. 12-60052 (9th Cir.). There, the creditor requested reconsideration of the court’s decision that the debtor was entitled to attorney fees based on the creditor’s appeal of a finding of stay violation litigation. In so holding, the court distinguished Sternberg on the basis that the creditor’s appeal challenged both the fee award and the substantive stay violation ruling, therefore, the debtor’s fees were incurred in defending both the damage award and the finding of stay violation. NACBA has weighed in with an amicus brief specifically seeking reversal of the decision in Sternberg.


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