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Schwartz-Tallard v. America's Servicing Co

America’s Servicing Company v. Schwartz-Tallard (In re Schwartz-Tallard), Case No. 11-1429 (9th Cir. Apr. 16, 2014).
The Court of Appeals for the Ninth Circuit (the "Ninth Circuit") affirmed the decision of the Bankruptcy Appellate Panel for the Ninth Circuit (the "B.A.P."), holding that 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. Such fees fall under the meaning of “actual damages” set forth in section 362(k)(1) of the Bankruptcy Code (11 U.S.C. §§ 101 et seq.), because they relate to the debtor’s enforcement of the automatic stay (through defense of the decision that a violation occurred) and remedying of a stay violation. Section 362(k)(1) of the Bankruptcy Code provides that “an individual injured by any willful violation of a stay . . . shall recover actual damages, including costs and attorneys’ fees.” 11 U.S.C. 362(k)(1). The Ninth Circuit, in Sternberg v. Johnston, 595 F.3d 937, 948 (9th Cir. 2010) held that a debtor’s attorneys’ fees for work on an adversary proceeding seeking damages for a stay violation were not actual damages under section 362 of the Bankruptcy Code, because the injury (and, thus, damages) occurred from the violation itself and any fees incurred after the violation ended were not “actual damages” under section 362(k)(1). In this case, the Ninth Circuit distinguished Sternberg, stating that, because the facts are different—i.e. that the attorneys’ fees were incurred in defense of the creditor’s appeal of the order determining that the creditor had violated the automatic stay)—Sternberg did not apply and even if the violation was remedied (the property was returned to the debtor) the appeal jeopardized the debtor’s damages award and the finding that the stay had been violated. The debtor was forced to defend the appeal, and thus, is entitled to attorneys’ fees as “actual damages” under section 362(k)(1) of the Bankruptcy Code. DISSENT: Judge Wallace opined that Sternberg controlled and that reversal of the B.A.P. decision is required. The B.A.P.’s reliance upon on of its own cases (contrary to Sternberg), notwithstanding the Ninth Circuit’s rejection of such statements of the law at issue, was an attack on Article III of the Constitution.
Procedural context:
Appeal to the Court of Appeals for the Ninth Circuit from a decision by the Bankruptcy Appellate Panel for the Ninth Circuit, which reversed the decision by the United States Bankruptcy Court for the Northern District of California.
America’s Servicing Company (“ASC”) serviced a mortgage on the debtor’s home. The debtor commenced its chapter 13 case, but continued to make mortgage payments. After determining that the debtor fell behind on her payments, ASC sought and was granted relief from the automatic stay to foreclose on the property. The debtor subsequently sought, and was orally granted a reinstatement of the automatic stay. ASC did not appear at that hearing. A week later, ASC caused the debtor’s home to be sold at a trustee’s sale. Almost two weeks after the sale, the bankruptcy court entered the written order reinstating the stay. The debtor filed a motion asserting that ASC violated the automatic stay, seeking sanctions, and providing evidence that the debtor was current on her mortgage payments despite written notices from ASC to the contrary. The bankruptcy court ruled that ASC had violated the automatic stay and awarded the debtor damages and directed the return of the property to the debtor. ASC appealed to the United States District Court for the District of Nevada, but also returned the property to the debtor. The district court affirmed, inter alia, the bankruptcy court’s finding that ASC violated the automatic stay. The debtor then sought attorneys’ fees incurred in litigating the ASC appeal to the district court. The bankruptcy court denied the motion for attorneys’ fees, and the debtor appealed to the B.A.P. The B.A.P. held that the debtor’s attorneys’ fees in defending the ASC appeal were “actual damages” recoverable under section 362(k)(1) of the Bankruptcy Code. ASC appealed to the Ninth Circuit.
J. Clifford Wallace and Ronald M. Gould, Circuit Judges and Paul C. Huck, Senior District Judge (sitting by designation).

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