The automatic stay and attorneys' fees

Am.’s Servicing Co. v. Schwartz-Tallard (In re Schwartz-Tallard), No. 12-60052 (9th Cir. Oct. 14, 2015) (en banc). 

When a debtor files a bankruptcy petition, the bankruptcy code automatically stays pretty much all lawsuits against the debtor. The automatic stay is strong medicine, but for good reason. It’s designed to protect property that’s exempt from collection (a debtor’s home, for example) and to ensure that one creditor doesn’t get an unfair advantage over others. These goals—a fresh start for the debtor and equal treatment among creditors—are at the heart of bankruptcy law.

It’s presumably for these reasons that the bankruptcy code provides that anyone “injured by” a willful violation of an automatic stay “shall recover actual damages, including costs and attorneys’ fees.” The Ninth Circuit, alone among the federal appellate courts, has interpreted this provision to allow an injured debtor to collect only those attorney fees incurred in ending the willful stay violation itself. It hasn’t allowed any fees incurred after the violation is ended. Most significantly, it hasn’t allowed a debtor to recover any attorney fees that it may have incurred in asking a court to award actual damages under this provision.

As a nearly unanimous en banc Ninth Circuit points out today, this reading conflicts with the statutory language, which doesn’t limit recoverable attorney fees to those incurred in ending the willful stay violation. It also doesn’t square with the evident purpose behind the statute, which is to provide robust remedies to injured debtors as a deterrent to creditors who might violate the automatic stay. The Ninth Circuit therefore overturns its earlier reading of the statute and allows a debtor to recover the attorney fees it incurred in seeking damages for a willful automatic-stay violation.