Bankruptcy Court Empowered to Award Appellate Attorney’s Fees

Posted by NCBRC - June 1, 2022

A “bankruptcy court’s traditional power to impose contempt sanctions carries with it the authority to award damages and attorneys’ fees – including appellate attorneys’ fees.” Law Offices of Francis J. O’Reilly, Esq. v. Selene Finance L.P. (In re DiBattista), No. 20-4067 (2d Cir. May 17, 2022).

After the debtor received his chapter 7 discharge, his mortgagee, Selene, continued to hound him for mortgage payments. The debtor’s bankruptcy attorney, O’Reilly, moved to reopen the debtor’s bankruptcy in order to seek contempt sanctions against Selene for violation of the discharge injunction. The bankruptcy court granted the motions and sanctioned Selene in the amount of $9,046.60 in legal fees and expenses, and $17,500.00 in damages. Selene appealed to the district court which affirmed but noted discrepancies in the bankruptcy court’s description of the damage award.

On remand, the bankruptcy court clarified its earlier order of compensatory damages, and O’Reilly sought an additional $28,215 in attorney’s fees based on the costs incurred in Selene’s appeal. The bankruptcy court found that the appeal was not itself a violation of the discharge injunction and denied O’Reilly’s additional fee request, stating that O’Reilly’s only avenue for obtaining appellate fees would have been through the district court. The district court affirmed, holding that a bankruptcy court lacks the authority to award attorney’s fees for the costs of an appeal. O’Reilly appealed to the Second Circuit.

The circuit court began its analysis with section 524(a)(2), the discharge injunction, and section 105(a), which gives the bankruptcy court broad authority to enforce the Code. Taken together, the provisions empower a court to award contempt sanctions for the purpose of coercing compliance with the Code or compensating the injured party for the misconduct of the contemnor.

The court cited the non-bankruptcy case of Weitzman v. Stein, 98 F.3d 717 (2d Cir. 1996), for the proposition that when a party violates a court injunction, that court “would need to articulate persuasive grounds for any denial of compensation for the reasonable legal costs” including costs of appeal. In that case, the circuit court disagreed with the district court’s finding that the appeal was not caused by the misconduct itself, concluding rather that no appeal costs would have been incurred absent the contemnor’s misconduct.

Contrary to the bankruptcy court’s first reason for denial of appellate fees, therefore, the court here stated: “Put plainly, DiBattista’s appellate fees were ‘caused by’ Selene’s contempt.” It observed that to find otherwise could leave the victim of the violation of the discharge injunction worse off for pursuing his rights.

The court likewise disagreed with the bankruptcy court’s conclusion that only the appellate court had the power to award fees. Again, the court cited Weitzman for the conclusion that appellate fees are among the damages a court may award to enforce its orders.

Selene attempted to distinguish Weitzman by arguing that in this case, O’Reilly was not entirely successful on appeal because the district court remanded for clarification of the damages category. The circuit court was unpersuaded, finding that because the bankruptcy court’s contempt order was affirmed, O’Reilly was successful in all material respects.

The court also found that, because the issue of appellate fees was not before the district court, the bankruptcy court was not limited by the scope of the remand to address only the issue of damages. Nor was the bankruptcy court constrained by Rule 8020 to award damages only if the appeal were deemed frivolous. Again, the court noted that the “old soil” brought to bear on the court’s contempt authority permits it to enforce its orders in appropriate circumstances.

To the extent Selene’s challenge went to the reasonableness of O’Reilly’s fee application, the court found the question best addressed by the bankruptcy court.

“At this juncture, we express no view on the reasonableness of the appellate fees sought by O’Reilly. We hold only that the bankruptcy court’s denial of O’Reilly’s request for appellate fees was based on an erroneous view of the law and was therefore an abuse of discretion.” The court vacated and remanded with a note to the bankruptcy court to determine whether O’Reilly was entitled to additional fees for the current appeal.

DiBattista 2d Cir May 2022

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