The Ninth Circuit Permits Award of Appeal Fees to a Debtor Defending a Creditor's Appeal of a Finding that the Creditor Violated the Automatic Stay

The Ninth Circuit recently issued the opinion, America's Servicing Co. v. Schwartz-Tallard (In re Schwartz-Tallard), Case No. 12-60052 (9th Cir. April 16, 2014), which held that in spite of the Ninth Circuit's holding in Sternberg v. Johnson, a debtor is not precluded from recovering, as damages, attorneys' fees for defending against a creditor's appeal of a finding that the creditor violated the automatic stay. Sternberg had held that a debtor could not recover attorney's fees for services performed in an adversary proceeding seeking damages for a stay violation. Sternberg v. Johnson, 595 F.3d 937, 947 (9th Cir. 2010)(finding that "the proven injury is the injury resulting from the stay violation itself. Once the violation has ended, any fees the debtor incurs after that point in pursuit of a damage award would not be compensate for 'actual damages' under ยง 362(k)(1).").

In Schwartz-Tallard, the Ninth Circuit found that the fees at issue were "actual damages" pursuant to Section 362(k)(1) of the Bankruptcy Code. Contrary to their decision in Sternberg, the Ninth Circuit found that the debtor in this case sought attorneys' fees incurred in defense of the creditor's appeal of a bankruptcy court's determination that it had violated the automatic stay. In Sternberg, the Debtor had filed an adversary proceeding in pursuant of damages. In Schwartz-Tallard, the creditor's appeal challenged both a fee award and a substantive stay violation ruling. Therefore, the Ninth Circuit held that because the debtor was not pursuing a damages award, but rather defending the creditor's appeal of a previous finding of a stay violation, Sternberg does not prohibit the award of attorneys' fees. To see the full opinion, please click here.

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