Bankruptcy Debtors Can Recover Attorneys’ Fees Spent in Enforcing Stay and Seeking Damages, Including for Appeals

Richard and Patricia Horne filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. After the bankruptcy was filed and the automatic stay imposed by Section 362(a)(1) went into effect, Mary Mantiply, an attorney, filed a state court action against the Hornes on behalf of Mantiply’s client. Mantiply repeatedly refused to dismiss the case, even after being informed of the bankruptcy and the stay. The Hornes filed a motion in the bankruptcy court seeking damages for Mantiply’s violation of the automatic stay, relying on 11 U.S.C. § 362(k)(1), which provides (subject to an inapplicable exception) that “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” The bankruptcy court granted the Hornes’ motion and awarded them damages, including attorneys’ fees. Mantiply appealed to the district court, which affirmed and added additional fees incurred by the Hornes on appeal. Then Mantiply appealed to the Eleventh Circuit, sought the bankruptcy judge’s recusal, and ultimately filed a petition for certiorari in the Supreme Court, all without success. During the initial trip to the Eleventh Circuit, the Hornes filed a motion seeking to recover the additional fees they incurred in the appellate proceedings. The court transferred the motion to the district court, which granted it. Mantiply (you’ll never guess) appealed. Mantiply v. Horne (In re Horne), 2017 WL 6002508 (11th Cir. Dec. 5, 2017).

Mantiply argued that § 362(k)(1) allows recovery only of fees incurred in ending a violation of the automatic stay, and not those incurred in pursuing a damages award or in related appellate proceedings. She cited Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. ___, 135 S. Ct. 2158 (2015), in which the Court held that Section 330(a)(1) of the Bankruptcy Code, which allows attorneys performing work for a bankruptcy estate to apply for reasonable compensation, does not permit those attorneys to recover fees they incur in defending a fee award on appeal. Fees incurred in defending a Section 330(a)(1) award are not incurred in service rendered to a bankruptcy estate, and thus fall outside Section 330(a)(1) (which is not, the Court observed, a “fee-shifting” statute). So in ASARCO, the usual “American Rule”—under which each side pays its own fees—applied.

Mantiply argued that the American Rule and ASARCO required the Hornes’ fee award to include only fees incurred to end the stay violation, not those incurred in seeking damages for the violation or on appeal. The Eleventh Circuit, in an opinion written by Judge May visiting from the Northern District of Georgia and joined by Judge Black and Chief Judge Carnes, noted that it was an issue of first impression for the court and rejected Mantiply’s argument. The American Rule, the court noted, applies only in the absence of “explicit statutory authority” to shift fees—authority provided, in Mantiply’s case, by Section 362(k)(1). That provision, unlike the provision at issue in ASARCO, “specifically and explicitly contemplates at least some departure from the American Rule by including ‘costs and attorneys’ fees’ in the damages due to an individual injured by a willful violation of an automatic bankruptcy stay”—costs which otherwise would be drawn from the limited fund available to the debtor’s creditors.

The text of Section 362(k)(1) provides no basis to exclude fees expended in seeking damages or on appeal; indeed, the Eleventh Circuit had already held, in In re Rosenberg, 779 F.3d 1254 (11th Cir. 2015), that another fee-shifting provision in the Bankruptcy Code, Section 303(i)(1), applies to fees incurred on appeal. Thus the court joined the Ninth Circuit in holding that the fees recoverable under Section 362(k)(1) are not limited to those incurred in stopping a stay violation—“[t]his explicit, specific, and broad language permits the recovery of attorneys’ fees incurred in stopping the stay violation, prosecuting a damages action, and defending those judgments on appeal.”

The Eleventh Circuit also rejected Mantiply’s claims that the Hornes were not entitled to recover their fees because of an alleged failure to comply with appellate rules (by incorporating arguments and documents by reference) and by their failure to file their retainer agreement along with their attorney’s billing statements.

Posted by Valerie Sanders.

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