Eleventh Circuit Follows Ninth Circuit in Awarding Appellate Fees for Automatic Stay Violation

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By its recent decision in In re Horne, 876 F.3d 1076 (11th Cir. 2017), the United States Court of Appeals for the Eleventh Circuit broadened the scope of attorney’s fees that are recoverable pursuant to section 362(k) of the Bankruptcy Code.  In doing so, the Eleventh Circuit adopted the Ninth Circuit’s interpretation of fee awards under section 362(k) in In re Schwartz-Tallard, 803 F.3d 1095 (9th Cir. 2015).

The Eleventh Circuit’s decision highlights the need for attorneys representing both debtors and creditors to be aware of the broad application of section 362(k)(1), and the possibility that violations of the “automatic stay” may result in awards of substantial attorney’s fees for responding to, and stopping, any stay violation of the “automatic stay” and, additionally, for related proceedings such as appeals.

Facts
The Hornes filed for chapter 7 bankruptcy in 2011.  The filing of the Hornes’ bankruptcy triggered an automatic stay of any litigation against them pursuant to section 362(a)(1) of the Bankruptcy Code.  Despite the automatic stay, however, Mary Mantiply, an attorney, filed a civil action on behalf of her clients against Mr. Horne in Alabama state court.  After being informed of the automatic stay by the Hornes, Ms. Mantiply repeatedly refused to voluntarily dismiss the action she had filed.

The Hornes filed a motion in the bankruptcy court seeking damages for Ms. Mantiply’s violation of the automatic stay.  The bankruptcy court awarded the Hornes $81,714.31 in damages, of which $41,714.31 were attorney’s fees.  Ms. Mantiply appealed that decision to the district court, which affirmed the bankruptcy court’s decision and awarded the Hornes an additional $34,551.28 in attorney’s fees incurred in the appeal of the damages award.

Ms. Mantiply then filed motions in the bankruptcy court and district court seeking the bankruptcy judge’s recusal.  After the bankruptcy court denied the motion for recusal, Ms. Mantiply appealed that decision to the district court, which affirmed the bankruptcy court’s decision.

Ms. Mantiply then appealed the district court’s affirmance of her denied recusal motion.  The Eleventh Circuit affirmed the denial of the recusal motion and remanded the case to district court to determine whether the Hornes were entitled to the attorney’s fees incurred in defending the appeal.  On remand, the district court found that the Hornes were entitled to an additional $14,918.60 in attorney’s fees.

Meanwhile, Ms. Mantiply petitioned for a writ of certiorari with the Supreme Court to review the Eleventh Circuit’s decision affirming the denial of her recusal motion.  The Supreme Court denied the petition.

The Hornes then filed motions with the Eleventh Circuit for attorney’s fees incurred in defending against Ms. Mantiply’s appeal to the Eleventh Circuit as well as her petition for certiorari.  The Eleventh Circuit sua sponte transferred those motions to the district court to determine whether the Hornes were entitled to their requested attorney’s fees and, if so, whether the fees were reasonable.  The district court held that the Hornes were entitled to the fees requested, and that the fees requested were reasonable.

Ms. Mantiply appealed the district court’s decision to the Eleventh Circuit.

The Decision
The principal issue addressed by the Eleventh Circuit was whether the Hornes were entitled to appellate fees as a matter of law under section 362(k)(1).  While it was undisputed that Ms. Mantiply willfully violated the automatic stay, Ms. Mantiply argued that section 362(k)(1) is limited to recovery of fees in ending a violation of the automatic stay, and not those incurred in pursuing a damages award or in related appellate proceedings.

Ms. Mantiply based her argument on the Supreme Court’s decision in Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. ___, 135 S. Ct. 2158 (2015), wherein the Supreme Court, in warning other courts not to depart from the American Rule that each side must pay its own attorney’s fees, held that attorney’s fees incurred in defending an award of fees under section 330(a)(1) are not incurred in a service benefitting a bankruptcy estate, and thus fall outside Section 330(a)(1).  Ms. Mantiply argued that, based on ASARCO, courts must read section 362(k) narrowly against the background of the presumption of the American Rule and allow attorney’s fees only when they are incurred in ending the stay violation, and not for any related proceedings.

The Eleventh Circuit rejected Ms. Mantiply’s argument.  The Eleventh Circuit, relying on the Ninth Circuit decision in In re Schwartz-Tallard, 803 F.3d 1095 (9th Cir. 2015), held that the “American Rule” applies only in the absence of explicit statutory authority to shift fees.  The Eleventh Circuit held that section 362(k)(l) specifically shifted fees to the party that violates the stay, reasoning that “nothing in [section 362(k)(1)] suggests that Congress intended to cleave litigation-related fees into two categories, one recoverable by the debtor and one not.”  Id. at 1081.  Instead, the Eleventh Circuit held that phrase “including costs and attorney’s fees” in section 362(k)(1) contains no limitation on the remedy for which the fees were incurred.  Accordingly, neither ASARCO or the “American Rule” did not apply to section 362(k)(1).

Based on the above, the Eleventh Circuit held that section 362(k)(1) permits recovery of attorney’s fees incurred, not just in stopping the stay violation, but in prosecuting a damages action and defending a damages judgment on appeal. The court noted that this result makes sense in context of bankruptcy litigation, because “rather than draining limited funds in the bankruptcy estate and jeopardizing creditors’ recoveries, the party wrongfully violating the automatic stay and causing the resulting damage awards is the one required to shoulder these fees.”

Practical Considerations:
Combined with the Ninth Circuit’s decision in In re Schwartz-Tallard, 803 F.3d 1095 (9th Cir. 2015), the Eleventh Circuit’s decision in In re Horne decision represents a growing trend of courts interpreting attorney’s fees under section 362(k)(1) broadly.  Attorneys representing both debtors and creditors should be aware of the broad interpretation of section 362(k)(1), and the possibility that violations of the automatic stay will include awards of attorney’s fees for stopping the stay violation, and also for related proceedings such as prosecuting a damages action and defending a damages judgment on appeal.