In America’s Servicing Co. v. Schwartz‑Tallard, 2014 DJDAR 12063, the United States Court of Appeal for the Ninth Circuit decided an interesting case arising from allegations that a debt servicing entity violated the Bankruptcy Code’s automatic stay provisions.
A debt servicing entity entered into a contract to service a debtor’s home mortgage. The debtor subsequently filed for bankruptcy, but continued to make mortgage payments to the entity. However, the servicing entity contended that there was a default, and moved to lift the automatic stay, allowing it to foreclose on the debtor’s home. The court granted the motion to lift the stay.
The Bankruptcy Court subsequently reinstated the stay orally at a hearing at which the debt servicer did not make an appearance. The court did not render a written order reinstating the stay until after the debtor’s home was sold at a trustee’s sale at the behest of the debt servicing entity. In response, the debtor filed a motion for violation of the automatic stay, seeking sanctions and other relief. Subsequently, the bankruptcy court found in favor of the debtor and awarded damages against the debt servicer. The court also ordered a return of the home back to the debtor.
The debt servicer appealed the lower court’s order. The district court upheld the Bankruptcy Court’s decision. The debtor then moved to recover the attorney fees incurred in the appeal by the debt servicer to the district court. The Bankruptcy Court denied the request for fees, concluding that the fees were not incurred in “enforcing” the automatic stay provisions of the Bankruptcy Code. The Bankruptcy Appellate Panel (BAP) overturned that decision.
The Ninth Circuit affirmed the ruling of the BAP, noting that under Bankruptcy Code Section 362, a party injured by any willful violation of a stay is entitled to recover actual damages, including costs and attorney fees. The Ninth Circuit reasoned that because the debtor was not pursuing a damage award, but was defending against the debt servicer’s appeal of the Bankruptcy Court’s ruling, the fees should have been awarded.