Case Type:
Case Status:
Affirmed in part and Reversed in part
21-1078 (9th Circuit, Nov 18,2021) Published
In an opinion most of the bankruptcy court's judgment as to a creditor's violation of the automatic stay, but vacating its denial of attorneys' fees based on the "technical" nature of these contraventions, the Bankruptcy Appellate Panel of the Ninth Circuit (BAP) published to confirm three precepts: postpetition prosecution of a fraudulent transfer claim against nondebtor parties violates § 362(a)(1), a bankruptcy court may not deny all § 362(k) sanctions merely because the stay violation was "technical," and a bankruptcy court may find that a reasonable attorneys’ fee under § 362(k) is zero.
Procedural context:
The United States Bankruptcy Court for the Northern District of California (BC) found the California Bank of Commerce (Bank) to have violated the automatic stay by taking certain postpetition steps in a prepetition action--specifically, the filing of a Notice of Trial--against two chapter 7 debtors--Bradley Edward Koeberer (Bradley) and Nancy Louise Koeberer (Nancy, and with Bradly, DRs)--as well as several others related to this duo. The BC, however, declined to sanction the Bank as the DRs did not prove any demonstrable injury. Thus, the appeal presented four distinct issues: whether the BC had correctly rule that (1) the Bank had violated stay, (2) the DRs did not prove any entitlement to actual or punitive damages, (3) the DRs' lacked standing to pursue a claim for violation of the stay predicated on a cause of action owned by the estate, and (4) the DRs were not entitled to attorneys' fees because the purported stay violation was merely technical, the last of these conclusion reached without the BC making any findings as to the reasonableness of any of the claimed fees and costs.
It began, as these cases tend to, with hopes and a loan. Along with their adult son, Bryan Koeberer (Bryan), the DRs were the owners of Northern Pacific Corporation (Northern). In 2017, the Bank loaned Northern a total of $2.75 million. Northern offered the Bank security interests in all of its personal property, and the DRs and their son personally guaranteed the loans. In mid-2019, Northern defaulted on the loans, and the Bank demanded full payment of the loan balance. In the midst of these troubles, the DRs created the Koeberer Irrevocable Trust dated May 17, 2019. According to the chapter 7 trustee, Timothy W. Hoffman (TR), the DRs transferred $125,000 and their residence in Sonoma, California to the trust via gift deed for no consideration. John Koeberer, a relative of Bradley's, was named as trustee of the trust, and the DRs' two adult children were named as the beneficiaries of the trust. Naturally, the Bank sued the DRs, John, and another unnamed individual in California state court. The state court complaint asserted various causes of action against the defendants. The sixth cause of action was for fraudulent conveyance under California’s Uniform Voidable Transactions Act (UVTA), against the DRs and John in his capacity as trustee. It was then that the DRs turned to bankruptcy. On September 20, 2020, they filed a chapter 7 petition. In that case, they acknowledged that they transferred their Sonoma residence and $125,000 cash to the Koeberer Irrevocable Trust. They further noted the pending state court litigation, scheduled the Bank’s nonpriority unsecured claim, and listed the Bank on the creditors matrix. A few days later, the Bank filed a notice of appearance and request for electronic notice in their bankruptcy case. Post-petition, the state court case continued. The Bank first filed a Notice of Trial that was not limited to any specific causes of action, suggesting that trial would be held on all claims against all defendants. On the same day, the Bank also filed a Notice of Stay informing the state court that the action was stayed as to “Bradley and Nancy Louise Koeberer only,” which the state court "apparently rejected the Notice of Stay because it was not filed by the party requesting the stay. On October 23, John’s attorney filed a notice of stay in the state court, based on the DRs' bankruptcy filing. Three days later, John’s attorney filed an ex parte application to continue the trial date; the Bank did not oppose this motion to continue. According to the BAP, "[a]t the hearing on that motion, the Bank apparently informed the state court that it did not intend to proceed against the ... [DRs] but intended to continue litigation against the remaining defendants." Within two days, the DRs' bankruptcy counsel emailed the Bank, contending that it had violated the automatic stay by continuing to move forward on the complaint's sixth cause of action. In response, the Bank's counsel stated that his client was not pursuing claims against the DRs and was entitled to pursue the separate claims against the trustee of the irrevocable trust, who is a named party, as the property is not property of estate. On November 21, 2020, the DRs filed a motion for contempt against the Bank. The motion pointed to the filing of the Notice of Trial, its service on the DRs' counsel, and the commitment to continued prosecution of the fraudulent transfer claim expressed by the Bank's counsel. For this, they requested $5,000, plus attorneys' fees and costs. The Bank replied, emphasizing that it had served the Notice of Trial on the DRs' counsel because he was still their counsel of record and had informed both the state court and the DRs' bankruptcy counsel of its intent not to proceed against the DRs. In their rejoinder, the DRs noted that, even if the Bank was pursuing relief against John alone, the DRs were indispensable parties likely to be dragged into that prepetition state court adjudication.
Robert J. Faris; Julia W. Brand; and Gary A. Spraker

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