America's Servicing Co. v. Schwartz-Tallard (In re Schwartz-Tallard)

• Decision Date: 14 October 2015
• Docket Number: No. 12–60052.,12–60052.
• Citation: 803 F.3d 1095
• Parties: In re Irene Michelle SCHWARTZ–TALLARD, Debtor, America's Servicing Company, Appellant, v. Irene Michelle Schwartz–Tallard, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

803 F.3d 1095

In re Irene Michelle SCHWARTZ–TALLARD, DebtorAmerica's Servicing Company, Appellant

v.Irene Michelle Schwartz–Tallard, Appellee.

No. 12–60052.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted En Banc June 17, 2015.

Filed Oct. 14, 2015.

Andrew Jacobs (argued), Snell & Wilmer, Tucson, AR; Kelly H. Dove, Snell & Wilmer, Las Vegas, NV, for Appellant.

Christopher P. Burke (argued), Law Office of Christopher P. Burke, Las Vegas, NV, for Appellee.

Daniel L. Geyser (argued), Stris & Maher LLP, Los Angeles, CA; Tara Twomey, National Association of Consumer Bankruptcy Attorneys, San Jose, CA, for Amicus Curiae National Association of Consumer Bankruptcy Attorneys.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Kirscher, Pappas, and Dunn, Bankruptcy Judges, Presiding. BAP No. 11–1429.

Before: SIDNEY R. THOMAS, Chief Judge, and STEPHEN REINHARDT, DIARMUID F. O'SCANNLAIN, M. MARGARET McKEOWN, WILLIAM A. FLETCHER, RICHARD C. TALLMAN, CARLOS T. BEA, MILAN D. SMITH, JR., SANDRA S. IKUTA, PAUL J. WATFORD, and ANDREW D. HURWITZ, Circuit Judges.

Opinion by Judge WATFORD

; Concurrence by Judge BEA ; Dissent by Judge IKUTA.

OPINION

WATFORD, Circuit Judge:

When a debtor files for bankruptcy, the Bankruptcy Code imposes an automatic stay on virtually all actions against the debtor to collect pre-petition debts. 11 U.S.C. § 362(a). To deter violations of the automatic stay and to provide redress for those that do occur, the Code permits injured debtors to sue for “actual damages, including costs and attorneys' fees.” § 362(k). With one exception, courts have uniformly held that this provision authorizes an award of all attorney's fees reasonably incurred to remedy a stay violation, including fees incurred in prosecuting the damages action that § 362(k) authorizes. See, e.g., In re Repine, 536 F.3d 512, 522 (5th Cir.2008) ; In re Duby, 451 B.R. 664, 674–77 (1st Cir. BAP 2011).

The one exception is our decision in Sternberg v. Johnston, 595 F.3d 937 (9th Cir.2010). There, we held that § 362(k) allows a debtor to recover only those fees incurred to end the stay violation itself, not the fees incurred to prosecute a damages action. Id. at 947. Thus, under Sternberg, once the stay violation has ended, no fees incurred after that point may be recovered. That holding has been the subject of widespread criticism. Having reconsidered the matter, we conclude that Sternberg misconstrued the plain meaning of § 362(k). To the extent it is inconsistent with this opinion, Sternberg is overruled.

I

This case has a convoluted procedural history, which for our purposes can be briefly summarized. The debtor, Irene Schwartz–Tallard, took out a mortgage on her home in Henderson, Nevada. After filing a Chapter 13 bankruptcy petition, she continued to make her monthly mortgage payments to America's Servicing Company (ASC), the company servicing her loan. Due to a mistake on its part, ASC wrongfully foreclosed on Schwartz–Tallard's home. ASC purchased the home at the foreclosure sale and promptly served Schwartz–Tallard with an eviction notice. Schwartz–Tallard filed a motion in the bankruptcy court requesting relief under 11 U.S.C. § 362(k). She sought an order requiring ASC to reconvey title to the home as well as an award of actual damages, punitive damages, and attorney's fees. The bankruptcy court found that ASC's actions constituted a willful violation of the automatic stay and ordered ASC to reconvey title to Schwartz–Tallard. The court also awarded Schwartz–Tallard $40,000 in economic and emotional distress damages, $20,000 in punitive damages, and $20,000 in attorney's fees.

None of that relief is now at issue. ASC did not challenge the reconveyance order; soon after the bankruptcy court issued the order, ASC complied with it. While ASC did challenge the damages award by pursuing an appeal in the district court, the district court ultimately upheld the award, and ASC chose not to seek further review in this court.

After successfully defending the damages award on appeal, Schwartz–Tallard returned to the bankruptcy court and asked it to award her, under § 362(k), the roughly $10,000 in additional attorney's fees she had incurred in the district court opposing ASC's appeal. The bankruptcy court denied the motion. The court stated that although it thought Schwartz–Tallard should be entitled to recover her fees on appeal, it could not award them under Sternberg. The stay violation ended, the court explained, once ASC reconveyed title to Schwartz–Tallard. Because Schwartz–Tallard incurred all of her fees on appeal after that point, the court held that Sternberg barred their recovery.

Schwartz–Tallard appealed, and the Bankruptcy Appellate Panel (BAP) reversed. It concluded that Sternberg does not bar an award of attorney's fees to a debtor who successfully defends a § 362(k) damages award on appeal. In re Schwartz–Tallard, 473 B.R. 340, 350 (9th Cir. BAP 2012). A divided three-judge panel of this court affirmed. In re Schwartz–Tallard, 765 F.3d 1096 (9th Cir.2014). The majority concluded that ASC's reconveyance of title did not end the stay violation because, on appeal, ASC continued to challenge the bankruptcy court's determination that the automatic stay had been violated in the first place. Id. at 1102. Judge Wallace dissented. In his view, the stay violation ended once ASC reconveyed title to the home and chose not to challenge the validity of the reconveyance order on appeal. Because Schwartz–Tallard incurred all of her attorney's fees on appeal after that point, Judge Wallace concluded that under Sternberg those fees could not be awarded. Id. at 1106 (Wallace, J., dissenting).

II

We find it unnecessary to resolve the issue that divided the three-judge panel. Rather than decide whether Sternberg 's holding extends to the facts of this case, we think the better course is to jettison Sternberg 's erroneous interpretation of § 362(k) altogether.

A

When Congress enacted the Bankruptcy Code in 1978, it included the automatic stay provision now found in § 362. At the time, the Code did not contain a provision specifically authorizing imposition of sanctions for violations of the automatic stay. Nonetheless, courts treated the automatic stay as akin to a court order and relied on their civil contempt powers to impose compensatory sanctions on creditors who knowingly violated the stay. Those sanctions sometimes included an award of the attorney's fees the debtor incurred in prosecuting the contempt proceeding. See, e.g., In re Roman, 283 B.R. 1, 14 (9th Cir. BAP 2002) ; In re Zartun, 30 B.R. 543, 546 (9th Cir. BAP 1983). Although the “American Rule” usually requires parties to bear their own attorney's fees, a common-law exception to the rule permits fee awards in litigation brought to remedy willful violations of court orders. Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 717–18, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967).

Perhaps to eliminate any doubt about the source of a court's authority to remedy violations of the automatic stay, Congress enacted § 362(h) in 1984. Act of July 10, 1984, Pub.L. No. 98–353, 98 Stat. 333, 352. Congress redesignated the statute § 362(k) in 2005 and added the exception now found in paragraph (2), but its text has otherwise remained unchanged. Act of Apr. 20, 2005, Pub.L. No. 109–8, 119 Stat. 23, 114. It provides in full:

(1) Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.

(2) If such violation is based on an action taken by an entity in the good faith belief that subsection (h) applies to the debtor, the recovery under paragraph (1) of this subsection against such entity shall be limited to actual damages.

11 U.S.C. § 362(k).

In some respects the statute strengthened the remedies previously available to debtors injured by willful stay violations. It makes an award of actual damages and attorney's fees mandatory, and grants bankruptcy courts the discretion to impose punitive damages in appropriate cases.

B

Both parties agree that § 362(k) authorizes an award of attorney's fees incurred in ending a violation of the automatic stay. Those fees can be incurred out of court, as when a debtor retains an attorney to call or write a creditor to demand that it end its stay-violating conduct. When those efforts fail, a debtor can also incur attorney's fees in court by pursuing injunctive relief aimed at ending the stay violation. No one disputes that, given the statute's explicit reference to “costs” as well as “attorneys' fees,” at least some fees incurred in litigation are recoverable.

If that much is true, and we agree that it is, the question becomes: Did Congress intend to authorize recovery of attorney's fees incurred in litigation for one purpose (ending the stay violation) but not for another (recovering damages)? We see nothing in the statute that suggests Congress intended to cleave litigation-related fees into two categories, one recoverable by the debtor, the other not. The statute says “including costs and attorneys' fees,” with no limitation on the remedy for which the fees were incurred. To uphold Sternberg 's interpretation of § 362(k), we would have to read into the statute limiting language—something like, “including costs and attorneys' fees incurred to end the stay violation ”—that is simply not present.

Sternberg concluded that such a limitation should be inferred because the statute makes attorney's fees recoverable only as a component of the debtor's “actual damages,” not as attorney's fees as such. Section 362(k) is somewhat unusual in that regard. Most statutes that deviate from the American Rule authorize the award of “a reasonable attorney's fee” to a “prevailing party,” usually in the context of the action as a whole rather than a discrete proceeding. Baker Botts L.L.P. v....