NACBA Weighs in on Sternberg Issue

The NACBA membership has filed an amicus brief in the Ninth Circuit case of America’s Servicing Co. v. Schwartz-Tallard (In re Schwartz-Tallard), No. 12-60052 (filed Jan. 23, 2015). The brief seeks reconsideration of that court’s 2010 decision in Sternberg v. Johnston, 595 F.3d 937 which limited the right to recover attorney fees to those incurred in the effort to terminate a stay violation, but not to the fees incurred prosecuting section 362(k) damage claims. The brief states that Sternberg “openly split with the Fifth Circuit, Young v. Repine (In re Repine), 536 F.3d 512 (5th Cir. 2008), and has been emphatically rejected by every decision outside this Circuit confronting the question. Its ‘unnecessarily complicated’ application continues to confound the courts and parties, Snowden v. Check Into Cash of Wash. Inc. (In re Snowden), 769 F.3d 651, 661 (9th Cir. 2014) (Watford, J., concurring).” Courts outside the Ninth Circuit have uniformly found that fees are available to recoup expenses necessitated by the stay violation.

Section 362(k) provides in part: “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.” Sternberg found ambiguity in the phrase “actual damages” without reference to Congress’s explanatory phrase “including costs and attorneys’ fees.” Amicus argues that Sternberg’s distinction between fees incurred in ending the violation, and those incurred collecting damages for that violation, is contrary to both pre-BAPCPA law and to the plain language of section 362(k).

The brief points to Sternberg’s rigid application of the “American Rule” against fee shifting as contrary to traditional treatment of stay violations as contempt actions which are typically exceptions to the American Rule. The language of section 362(k) merely codifies the pre-BAPCPA interpretation courts have consistently given fee shifting in stay violation cases. The Sternberg decision renders enforcement of the prohibition against stay violations financially impracticable, to the detriment of other creditors as well as the debtor.

Where Section 362(k) has the dual purpose of forcing compliance with the automatic stay and permitting damages for injury resulting from non-compliance, the Ninth Circuit’s decision weakens or eliminates both objectives by creating a strong disincentive to pursuing an action under 362(k). Contrary to returning the debtor to the status quo, Sternberg leaves the debtor in the position of being unable to afford litigation to enforce compliance.

Finally, from a judicial perspective, the practical application of Sternberg presents its own problems by creating highly fact-based inquiries into the allocation of resources leading to “odd” and inconsistent results.

En banc oral argument is scheduled to take place during the week of June 15, 2015.

Daniel L. Geyser authored NACBA’s brief.

Schwartz-tallard NACBA 9th Jan 2015