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When a debtor is forced to defend both the ruling that the creditor violated the automatic stay and the award of sanctions for that violation, the debtor may recover her appellate attorney fees under section 362(k). Schwartz-Tallard v. America’s Servicing Co., No. 11-1429 (B.A.P. 9th Cir. June 28, 2012).
The case evolved out of ASC’s wrongful foreclosure of the debtor’s home after the automatic stay had been reinstated. The bankruptcy court awarded attorney fees and damages for the stay violation and ASC appealed both rulings to the district court which affirmed the stay violation ruling and remanded for further findings with respect to the damages award. Back in bankruptcy court, Debtor sought an award of attorney fees incurred in the district court appeal. The issue was whether, under the reasoning set forth in Sternberg v. Johnston, 595 F.3d 937 (9th Cir.), cert. denied, 131 S. Ct. 102 (2010) (finding attorney fees incurred in separate action for sanctions not “actual damages”), section 362(k) permits an award of attorney fees for costs incurred by a creditor’s appeal of the bankruptcy court’s sanctions order.
In finding that the debtor was entitled, under section 362(k), to attorney fees incurred in defense of the stay, the BAP, following Sternberg, drew a distinction between an action for enforcement of the stay, for which attorney fees may be recovered, and an action for sanctions as a result of violation of the stay, for which attorney fees are not “actual damages” and therefore not recoverable. The court reasoned that the automatic stay was intended to be a shield to further the goals of giving debtors the opportunity to organize their finances free from creditor interference and to protect creditors from having the debtor’s estate depleted by other quick acting creditors, rather than a sword wielded by debtors to obtain damages. Because, in this case, “Debtor’s defense of the bankruptcy court’s decision was an extension of her efforts to enforce her automatic stay,” the court found that she was entitled to recover the appellate attorney fees necessarily expended to protect that right even though the sanctions award was part and parcel of that appeal.