Order on Stay Violation Final despite Pending Issue as to Attorney Fee Award

Posted by NCBRC - April 17, 2015

Where the only issue left to be determined was whether the debtor had incurred attorney fees and costs in connection with the creditor’s stay violation, the order finding liability and determining actual damages was a final, appealable order. USDA v. Sexton (In re Sexton), No. 14-453 (W.D. Va. March 31, 2015).

Adina Sexton owed a deficiency judgment to the United States Department of Agriculture after her home was foreclosed upon. As a setoff for the “non-tax federal debt” the IRS withheld the debtor’s tax refund. When the USDA failed to turn over the refund to the chapter 7 bankruptcy trustee, Sexton brought an adversary proceeding seeking damages for violation of the automatic stay. On April 1, 2014, the bankruptcy court found that the USDA had violated the automatic stay entitling the debtor to actual damages consisting of the withheld funds. The order left open the option for the debtor to submit a request for attorney fees and costs relating to the stay violation. Sexton failed to do so and the court closed the adversary proceeding. On July 21, the court denied USDA’s motion to reopen the adversary proceeding and found that the April 1st order was a final appealable order. The USDA appealed from both the April 1 and the July 21 orders.

Dealing first with the motion to reopen, the USDA argued that section 350(b), which provides that a “case may be reopened . . . to administer assets, to accord relief to the debtor, or for other cause,” does not apply to adversary proceedings and that the bankruptcy court abused its discretion in relying on that section when it denied USDA’s motion. Noting that the applicability of section 350 to motions to reopen adversary proceedings is open to debate within the Fourth Circuit, the district court found the bankruptcy court’s reliance on that section was not an error of law. Further, the bankruptcy judge’s articulation of her reasoning for the denial permitted the appellate court to determine that she did not abuse her discretion. The court, therefore, affirmed the decision not to reopen the adversary proceeding.

The next issue was whether the April 1 order was final and appealable despite leaving open the issue of whether and to what extent attorney’s fees and costs would be ordered. USDA argued that the debtor’s adversary complaint contained two claims, one seeking a finding of liability, the other seeking damages. By ruling on only the first claim, the court failed to enter a final, appealable. order.

The court disagreed. Rather, the two counts of the complaint were for violation of the stay and a finding of willfulness. The prayer for relief could not be cast as a cause of action as advocated by the USDA. The court distinguished In re Atlas, 210 F.3d 1305 (11th Cir. 2000), which found that, where the court left open the damages award and the possibility that punitive damages would be awarded, the finding with respect to liability was not a final, appealable, order. In contrast, in Sexton, actual damages were determined at the adversary hearing and the only aspect of the relief left to be determined after the court’s April 1 order concerned attorney fees despite the bankruptcy court’s interchangeable use of the terms “damages” and “fees and costs.”

Because the order was final, the USDA’s attempt to appeal it 120 days after it was entered was untimely and the district court had no jurisdiction to hear the appeal.

Sexton WD Va opinion

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