Tag Archives: Sanctions

The Ninth Circuit Court of Appeals Finally Provides Debtor’s the True Ability to Enforce Their Rights When the Automatic Stay is Violated

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The Ninth Circuit Court of Appeals held on October 14, 2015, see In re Schwartz-Tallard Case No. 12-60052, that debtors can recover attorneys’ fees and costs reasonably incurred when seeking sanctions and damages for the willful violation of the automatic stay pursuant to Section 362(k) of the Bankruptcy Code. This is a huge decision and was badly needed. How can anyone enforce their rights if they cannot afford to hire representation and that representation cannot even recover their fees for correctly and successfully prosecuting the award of damages? They cannot and it created vast injustices for those damaged by the willful violation of the automatic stay. This holding by the Ninth Circuit Court of Appeals properly makes the party, creditors; bare the cost of their bad behavior, willfully violating the automatic stay. I previously wrote way back in December 2010 about how the backbone of the bankruptcy process is the automatic stay.

Previously debtors could only recover attorneys’ fees and costs up to when the violation of the stay was remedied. Not attorneys’ fees and cost associated with seeking sanctions and damages when remedying the automatic stay violation. This structure of recovery of fees was a huge problem for debtors and their bankruptcy attorneys. For some reason the system time and time again has policies that do not allow attorneys for debtors to be paid for their time when advocating on behalf of their clients. Enforcing the violation of the automatic stay used to be a prime example. A client would come to us with evidence a creditor is violating the automatic stay even though they were served with notice of the bankruptcy case. Some violations of the automatic stay are innocent and can be remedied by sending an email or letter to the creditor or their counsel. The damages are not significant.

In other circumstances creditors actually sue debtors post-discharge for a discharged debt and then refuse to dismiss the state court lawsuit. If you have ever been sued for any reason it does not feel good. Under the prior fee structure if their bankruptcy lawyer filed a motion for sanctions in bankruptcy court for the willful violation of the automatic stay the creditor could then just seek dismissal of the state court lawsuit as soon as possible after the filing of the motion for sanctions. Then all the time and effort to seek damages for the creditor’s willful violation of the automatic could not awarded to the debtor’s attorney. That would include the time to appear at the hearing for sanctions and any time after the violation was cured when continuing to prove damages that in some cases are very significant. What a horrible structure. It encouraged violations of the automatic stay and discouraged debtors from enforcing their rights for the violation of the automatic stay and seeking damages. In my opinion it went against everything filing for bankruptcy PROTECTION is supposed to be about.

Now creditors will properly weigh the consequences of their willful choice to violate the automatic stay properly given they will have to pay for the debtors attorney’s fees and costs from day one to the end of the process of proving damages. There will therefore be less violations of the automatic stay and debtors can obtain the relief they originally sought when filing a petition for bankruptcy. It will also eliminate the need to litigate exactly when the violation of the automatic stay ended and how much time and money was spent by the debtor’s attorney up to when the violation of the automatic stay ended. The focus can now be on the willful violation of the automatic stay that should never have happened and the resulting damages. Attorneys for debtors will also no longer fear, at least in this area of representing debtors, that they will get left holding the bag financially for properly advocating on behalf of their clients. Now if we could only get this kind of treatment in other areas of bankruptcy practice regarding the time we spend advocating for our clients there would be even more justice to be had by debtors. After all, filing for bankruptcy protection is following the law.

In the Schwartz-Tallard case the facts are actually far worse. The debtor’s house was improperly foreclosed on and the debtor had to fight to get the house back. The debtor then sought sanctions and damages. The creditor in this case appealed the rulings of the lower bankruptcy court and lost. In this case the debtor’s attorney could not recover all the time and money spent defending the appeals? The Ninth Circuit Court of Appeals remedied the prior strange result in the Steinberg case limiting recovery of attorneys’ fees and cost to when the automatic stay violation ceased and now include recovery of attorneys’ fees and cost seeking damages, including any appeals.

What Can I Do If A Frivolous Appeal Was Filed Against Me After I Won?

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It is not uncommon for daily news channels to report on the Supreme Court of the United States holdings or decisions on cases they choose to hear and rule on. Of course SCOTUS holdings effect all of the United States of America. In the lower district courts throughout the United States and bankruptcy appellate panels there are many appeals each heard and decided each month. These decisions do not always get a lot of attention. Appeals of decisions, judgments or orders issued by lower courts are absolutely a necessary part of our legal system and in bankruptcy law under the Federal Rules of Procedure. It is how laws are interpreted under immense scrutiny and appeals provide all us a better understanding about when and what laws apply to. But are all appeals necessary or well intentioned? No, they certainly are not. Appealing a lower court’s final order or judgment should be considered very carefully. Some appeals are frivolous and are only designed to delay the inevitable or try and inflict one last punch to the gut to incur additional attorneys’ fees and costs. What can I do if a frivolous appeal is filed after I won?

First, discuss with your bankruptcy lawyers whether the appeal is frivolous or if there truly is a reason to file a motion to award damages. Federal Rule of Appellate Procedure 38 provides: If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee. 28 U.S. Code § 1912 is a little different, it provides for damages and costs on affirmance where a judgment is affirmed by the Supreme Court or a court of appeals, the court in its discretion may adjudge to the prevailing party just damages for his delay, and single or double costs. FRAP 38 can provide damages without the showing of delay, just frivolousness.

So what is a frivolous appeal that warrants damages and attorneys’ fees and costs? What is delay that warrants damages and attorneys’ fees and costs?

A court of appeals has the discretion to impose damages against litigants as a sanction for bringing a frivolous appeal. See Maisano v. United States, 908 F.2d 408, 411 (9th Cir. 1990). Okay, so what is a frivolous appeal? According to the Maison case, an appeal is frivolous if the results are obvious, or the arguments of error are wholly without merit. More or less you did not have a short of overturning the lower court’s decision and you should have known it from the start. To receive damages for the filing of a frivolous appeal a motion or notice from the court with a reasonable amount of time to respond must be provided. See Gabor v. Frazer, 78 F.3d 459, 459-60 (9th Cir.1996).

A court of appeals may on its own accord issue an order to show cause why the court should not award attorneys’ fees and double costs if the arguments in the appeal are without merit. Moreover, the court of appeals can impose the award of damages jointly and severally against the client and their attorney. See Int’l Union of Bricklayers Local 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1407 & n. 8 (9th Cir.1985). Joint and several liability means the party that is awarded damages may collect the full amount of the damages from either party no matter what their share of the liability for the damages is. Damages for frivolous appeals can be imposed joint and severally given that the client and attorney are in the best position to determine who caused the appeal to be filed and fairly apportion who is at fault.

In a published opinion from the Ninth Circuit Court of Appeals on July 13, 2010, In Re: THOMAS V. GIRARDI, Esq.; WALTER J. LACK, Esq.; PAUL A. TRAINA, Esq., et al., Nos. 08-80090. These Los Angeles attorneys were significantly sanctioned for a frivolous appeal. The sanctions were imposed as follows:

– Respondents Thomas V. Girardi and the Girardi Firm shall reimburse Defendants Dow Chemical Company, Dole Food Company, and Shell Chemical Company (collectively, “Defendants”) their attorneys’ fees and costs, but not to exceed the aggregate sum of $125,000.00.

– Respondents Walter J. Lack and the Lack Firm shall reimburse Defendants their attorneys’ fees and costs, but Lack’s individual liability shall not exceed the aggregate sum of $250,000.00.

– Respondent Paul A. Traina shall reimburse Defendants their attorneys’ fees and costs, but not to exceed the aggregate sum of $10,000.00

– Respondent [the young associate] shall reimburse Defendants their attorneys’ fees and costs, but not to exceed the aggregate sum of $5,000.00.

– Respondent the Lack Firm shall be jointly and severally liable for the sanctions imposed on Respondents Traina and the young associate so that its aggregate liability shall not exceed $265,000.00.

– Respondents aggregate liability to each Defendant shall not exceed $130,000.00, or said Defendants’ actual attorneys’ fees and costs, whichever is less.