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Ninth Circuit Considers Whether Debtor’s Attorney’s Fees Are “Actual Damages” when Creditor Violates Automatic Stay

By Glentamara (Own work) [Public domain], via Wikimedia CommonsA debtor sought to recover attorney’s fees from a creditor after successfully defending against its appeal of a ruling that it violated the automatic stay in the debtor’s Chapter 13 bankruptcy case. The bankruptcy court denied her motion, but the Bankruptcy Appellate Panel (BAP) reversed the ruling, holding that she was entitled to attorney’s fees as “actual damages” under 11 U.S.C. § 362(k)(1). The creditor appealed to the Ninth Circuit Court of Appeals, which affirmed the BAP’s ruling. In re Schwartz-Tallard, No. 12-60052, slip op. (9th Cir., Aug. 29, 2014). The court distinguished the case from a precedent case, Sternberg v. Johnson, 595 F.3d 937 (9th Cir. 2010), which held that attorney’s fees in similar circumstances were not “actual damages” under § 362.

The debtor filed for Chapter 13 bankruptcy in March 2007. The creditor, America’s Servicing Company (ASC), serviced the mortgage on the debtor’s home. It moved for relief from the automatic stay in April 2009 after it believed the debtor had fallen behind on mortgage payments. The debtor moved to reinstate the stay. At a hearing on May 13, 2009, at which ASC did not appear, the bankruptcy court granted the debtor’s motion. ASC proceeded with a foreclosure, however, and the home was sold at a trustee’s sale on May 20.

The court ruled in February 2010 that ASC had violated the automatic stay. It ordered ASC to put the property back in the debtor’s name, and to pay punitive damages and attorney’s fees. ASC appealed the ruling to the district court, which affirmed the bankruptcy court’s ruling. It remanded the question of attorney’s fees to the bankruptcy court, with instructions that the debtor prove the amount she spent or was charged. Schwartz-Tallard, slip op. at 6, n. 1, citing America’s Servicing Co. v. Schwartz-Tallard, 438 B.R. 313, 321 (D. Nev. 2010).

The bankruptcy court denied the debtor’s motion to recover the attorney’s fees it had originally awarded to her. The BAP reversed this order, and ASC appealed to the Ninth Circuit.

Section 362 of the Bankruptcy Code allows a debtor to recover “actual damages, including costs and attorney’s fees,” for violations of the automatic stay. In Sternberg, the Ninth Circuit held that attorney’s fees incurred by the debtor to enforce the automatic stay were not “actual damages” within the meaning of § 362. “Actual damages,” it held, consisted solely of damages caused directly by the violation of the stay.

The court distinguished the present debtor’s case from Sternberg, noting that Sternberg involved a debtor’s “independent damages action.” Schwartz-Tallard, slip op. at 9. The debtor in the present case was not, by the time of the order under appeal, pursuing an action for damages. Instead, she was attempting to collect damages that had already been awarded. The court therefore affirmed the BAP’s ruling, which remanded the case to the bankruptcy court to enter an order awarding attorney’s fees. One judge dissented, writing that Sternberg was controlling authority over the case.

Bankruptcy attorney Devin Sawdayi has represented individuals and families in the Los Angeles area since 1997, helping them repair their finances through Chapter 7 or Chapter 13 bankruptcies with dignity and respect. To schedule a free and confidential consultation to see how we may can assist you, please contact us today online or at (310) 475-9399.

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Photo credit: By Glentamara (Own work) [Public domain], via Wikimedia Commons.