Monday, December 11, 2017

FYI: 11th Cir Rejects Challenge to Debtors' Ability to Recover Attorney's Fees in Stay Violation Actions

The U.S. Court of Appeals for the Eleventh Circuit recently held, in a case of first impression, that "the Bankruptcy Code authorizes payment of attorney's fees and costs incurred by debtors in successfully pursuing an action for damages resulting from the violation of the automatic stay and in defending the damages award on appeal."


A copy of the opinion is available at:  Link to Opinion


Husband and wife filed for Chapter 7 bankruptcy in 2011 and received a discharge 5 months later. The husband passed-away and his daughter was substituted as personal representative of his estate.


While the bankruptcy was pending, an attorney representing the decedent's creditor filed suit in state court, despite the automatic stay, and refused to voluntarily dismiss the case despite demand. That case was eventually dismissed in November of 2011.


The debtors filed a motion in bankruptcy court under Bankruptcy Code section 362(K)(1) seeking damages for the violation of the automatic stay by the creditor's attorney. The bankruptcy court awarded the debtors just under $82,000 in damages, which included almost $42,000 in attorney's fees. The creditor's attorney appealed to the district court, which affirmed and awarded an additional approximately $34,500 in attorney's fees incurred during the appeal of the damages award.


The creditor's attorney then filed motions to recuse the bankruptcy judge in the district and bankruptcy courts. The bankruptcy court denied the recusal motion and the attorney appealed to the district court, which affirmed, but denied the debtors' motion for attorney's fees to defend the appeal of the recusal order.


Both sides appealed to the Eleventh Circuit, which affirmed in part and remanded the case to district court "to either award the [debtor's] attorneys' fees under the mandatory fees provision of Section 362(k), or explain why the recusal motion did not involve litigation over the stay violation and thus did not entitle the [debtors] to attorneys' fees."


On remand, the district court awarded an additional almost $15,000 in attorneys' fees to the debtors.


In the interim, the creditor's attorney filed a petition for writ of certiorari with the Supreme Court, seeking review of the Eleventh Circuit's order affirming the denial of her recusal motion. The Supreme Court denied the petition in June of 2016.


The debtors then moved in the Eleventh Circuit to recover their attorney's fees incurred in defending the attorney's appeal and her petition for writ of certiorari. The Eleventh Circuit transferred the motions to the district court to decide whether debtors were entitled to recover such fees and, if so, whether they were reasonable.


The district court found that the debtors were entitled to recover their appellate fees, and that the fees sought by the debtor were reasonable in amount, awarding almost $92,500 in appellate fees and costs. The creditor's attorney again appealed to the Eleventh Circuit.


On appeal, the Eleventh Circuit first addressed the appellant's argument that the debtors were not entitled to appellate fees under section 362(k(1) because "the statute provides mandatory fees for damages and attorneys' fees incurred in ending a stay violation, but not attorneys' fees incurred in pursuing a damages award nor fees incurred in defendant that award on appeal."


The Court explained that there was no dispute the creditor's attorney violated the automatic stay, and that section 362(k)(1) provides that when willful violations occur, the individual injured "shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages."


The Eleventh Circuit rejected the creditor's reliance on the Supreme Court's 2015 decision in Baker Botts L.L.P. v. Asarco LLC, which held that an attorney that rendered services to the estate could not recover fees incurred in litigating a fee application against an administrator of the bankruptcy estate. The Court reasoned that that case involved Bankruptcy Code section 330, "which required service rendered to the estate[,]' unlike section 362(k)(1), which "specifically and explicitly contemplates at least some departure from the American Rule by including 'costs and attorneys' fees' in the damages due to an individual injured by a willful violation of an automatic bankruptcy stay."


Adhering to the principle of statutory interpretation that it is the court's "duty to give effect, if possible, to every clause and word of a statute," the Eleventh Circuit "read the phrase 'including costs and attorneys' fees' as broadening the notion of actual damages beyond the immediate injury incurred in ending the violation of a stay."


Relying on its own precedent in the form of a 2015 case that addressed another fee-shifting provision of the Bankruptcy Code and held that a debtor wrongly forced into bankruptcy involuntarily could recover appellate fees, the Eleventh Circuit held here that "nothing in the text of Section 362(k)(1) limits the scope of attorneys' fees to solely ending the stay violation." Congress' "explicit, specific, and broad language permits the recovery of attorneys' fees incurred in stopping the stay violation, prosecuting a damages action, and defending those judgments on appeal."


Having concluded that "Section 362(k)(1)'s award of attorneys' fees apply to prosecuting damages actions," the Eleventh Circuit had "no trouble concluding that defending that judgment on appeal is also within the statute's  fee-shifting authorization… [because] [t]his Court has held many times that fee-shifting statutes—which Section 362(k) undoubtedly is—entitle parties not only to fees in the court of first instance, but also to appellate fees incurred in defending the judgment."


The Court then rejected creditor's technical argument that the debtors improperly filed an amended motion for appellate fees without first asking leave of court, finding they suffered no prejudice.


The Eleventh Circuit next rejected creditor's argument that the debtors did not prove damages by a preponderance of the evidence because they never filed a copy of their retainer agreement with their lawyer or "any affidavit stating that the fee statements attached to their motions were actual owed to their counsel.


The Court found that because each of the subject motions contained affidavits from the debtors' counsel attesting to the services rendered, the billing statements itemized the services and costs and the motions incorporated by reference earlier experts' affidavits attesting to the reasonableness of the hourly rates, the district court did not abuse its discretion.


Finally, the Eleventh Circuit rejected the creditor's argument that the amount of the fee award was unreasonable, concluding that "[b]ased on our review of the record, we cannot say that the district court's findings were clearly erroneous, nor did the court employ an incorrect legal standard or fail to follow proper procedures. … The district court therefore did not abuse its discretion."




Ralph T. Wutscher
Maurice Wutscher LLP
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