Concurring Decision Believes Sternberg Opinion Wrongfully Decided, But Still Follows It.
In the Matter of Snowden, No. 13-35291 (9th Cir. Sept. 12, 2014) (published) is a decision arising from 11 U.S.C. § 362(k)(1), which allows a bankruptcy petitioner to obtain attorney’s fees and damages incurred in litigating over a stay violation.
Bankruptcy petitioner obtained a $575 payday loan and then listed the loaning bank as an unsecured creditor. However, bank engaged in “self help” and electronically debited bankrupt’s checking funds so as to cause an overdraft, which produced a lot of emotional distress because bankrupt’s finances spiraled downward and she could not buy tennis shoes or pay for a haircut for her daughter. In fairly protracted litigation over the stay violation, bankrupt eventually won $12,000 emotional distress damages, $12,000 punitive damages, and $2,538.55 in section 362(k)(1) attorney’s fees. The district court, in two appeals of bankruptcy decisions, denied bankrupt fees in the first successful appeal before the district court, reasoning that many of the fees were incurred to obtain damages rather than remedy the stay violation—in accord with the “bright line” Ninth Circuit rule enunciated in Sternberg v. Johnston, 595 F.3d 937, 940 (9th Cir. 2010) [fees obtained to remedy the stay compensable, but fees obtained in pursuing damages not compensable]. The district court essentially ruled that a May 2009 conditional settlement offer from bank to pay $1,495 back to debtor “ended” the stay violation, although debtor did not accept it, litigated further, and obtained a December 2009 bankruptcy court order directing the bank to return the $575 earlier seized.
The Ninth Circuit reversed and remanded the fee award. All three judges on the panel found that the stay violation was not ended in May 2009, with the bank not being able to circumvent 362(k)(1) fees by making a conditional settlement offer rejected by the debtor who had to litigate further to actually obtain an order directing return of the seized funds. Instead, the stay violation continued until the December 2009 restore funds order. The panel found that debtor had used the stay protections as a shield such that fees incurred on appeal on stay violation issues were compensable, although ordering a remand to determine which fees were for the stay violation versus damages pursuit.
In a concurring opinion, Circuit Judge Watford disagreed with Sternberg’s reading of 362(k)(1), preferring instead the Fifth Circuit’s analysis in In re Repine, 536 F.3d 512, 522 (5th Cir. 2008) [holding that fees were recoverable for both the stay violation and damages pursuit phases]. However, the concurring judge was bound by Sternberg and followed its demarcating rule in Snowden.
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