Court Opinion

ID: 4649863
Source: CourtListenerOpinion
Date Created: 2021-01-07 22:00:41.350703+00
Date Added: 2024-06-11T08:01:28.263925
License: Public Domain

FILED
                                                                              JAN 7 2021
                           NOT FOR PUBLICATION
                                                                        SUSAN M. SPRAUL, CLERK
                                                                           U.S. BKCY. APP. PANEL
                                                                           OF THE NINTH CIRCUIT

              UNITED STATES BANKRUPTCY APPELLATE PANEL
                        OF THE NINTH CIRCUIT

In re:                                                BAP Nos. NV-20-1144-BTaF
WILLIE N. MOON and ADNETTE M.                                  NV-20-1155-BTaF
GUNNELS-MOON,                                                  (Cross-Appeals)
             Debtors.

RUSHMORE LOAN MANAGEMENT                              Bk. No. 13-bk-12466-MKN
SERVICES, LLC,
               Appellant/Cross-
               Appellee,
v.                                                     MEMORANDUM*
WILLIE N. MOON; ADNETTE M.
GUNNELS-MOON,
               Appellees/Cross-
               Appellants.

                Appeal from the United States Bankruptcy Court
                          for the District of Nevada
                  Mike K. Nakagawa, Bankruptcy Judge, Presiding

Before:       BRAND, TAYLOR, and FARIS, Bankruptcy Judges.

                                  INTRODUCTION

      Previously, the bankruptcy court determined that Rushmore Loan

          *
         This disposition is not appropriate for publication. Although it may be cited for
 whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
 value, see 9th Cir. BAP Rule 8024-1.
Management Services, LLC ("Rushmore") willfully violated the automatic

stay with its postpetition collection efforts against chapter 131 debtors Willie

Moon and Adnette Gunnels-Moon. The court awarded the Moons

compensatory damages of $100,742.10, which included $100,000 for Willie's

emotional distress, and $200,000 in punitive damages. The court declined to

award damages for Rushmore's violation of the discharge injunction, because

the Moons had not established when Rushmore became aware of the

discharge order. Those rulings are the subject of another appeal.2

      Thereafter, the court awarded the Moons their attorney's fees and costs

of $67,007.94. It declined to award the Moons a fee enhancement. Rushmore

now appeals the fee award; the Moons appeal the court's denial of their

request for a fee enhancement. We AFFIRM in part, and VACATE and

REMAND in part.

      We agree that the Moons are entitled to the attorney's fees and costs

they incurred for prosecuting a damages claim against Rushmore for its

willful violation of the automatic stay under § 362(k)(1). However, the

bankruptcy court erred by failing to state the reasons for the fee award. In

addition, in light of our reversal of the damages award to Willie and our

       1
         Unless specified otherwise, all chapter and section references are to the
 Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal
 Rules of Bankruptcy Procedure.
       2
        This Memorandum is entered concurrently with our Memorandum in BAP
 Nos. NV-20-1057-BGTa & NV-20-1070-BGTa.

                                            2
remand of the punitive damages award, it is appropriate to allow the

bankruptcy court to reconsider the attorney's fee award in all respects.

       I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

      After prevailing against Rushmore on their stay violation claim under

§ 362(k)(1), the Moons sought the attorney's fees and costs they incurred in

the action against Rushmore ("Fee Motion"). The Moons did not have a

written fee agreement with their attorney Mr. Christopher P. Burke, but it

appeared from arguments made in the Fee Motion that any payment of fees

to Mr. Burke was contingent upon the outcome of the Moons' action against

Rushmore. Mr. Burke stated in his declaration that he spent a total of 112.3

hours "dealing with the actions caused by Rushmore's willful stay violation,"

and that his hourly rate was $500.00. Itemized time sheets reflecting the tasks

and time spent by Mr. Burke were attached. The Moons asked the court to

award $56,150.00 as a reasonable attorney's fee and $10,857.94 in costs.3 They

also requested a fee enhancement multiplier of 1.5, which increased the total

fee request to $84,225.00.

      Rushmore opposed the Fee Motion. First, it argued that the Moons had

       3
         A majority of the Moons' costs included $8,907.64 spent for their expert witness,
 John Rao. Rushmore argued before the bankruptcy court that Mr. Rao's fee should be
 denied for lack of evidentiary support. The Moons later submitted the necessary
 evidence in their reply. On appeal, Rushmore argues that the Moons should not be
 awarded Mr. Rao's fee, if we decide in the other appeal that the bankruptcy court erred
 in allowing his testimony. However, we are affirming the court's decision to allow
 Mr. Rao's testimony. Rushmore never contested the remainder of the Moons' costs,
 about $2,000, which was incurred almost entirely for transcripts.

                                             3
not "incurred" any attorney's fees as "actual damages" under § 362(k)(1),

because there was no agreement obligating them to pay Mr. Burke. Further, if

Mr. Burke took the case on a contingency fee basis, Rushmore argued that the

lack of a written fee agreement precluded a fee award because it violated

Nevada Rule of Professional Conduct ("NRPC") 1.5(c), which requires that all

contingency fee agreements be in writing. Alternatively, argued Rushmore, if

the court was inclined to award the Moons their attorney's fees, any fee

award should be attributed only to the time spent on their stay violation

claim because they did not succeed on their discharge injunction violation

claim. Rushmore also opposed the Moons' request for a fee enhancement.4

      In reply, the Moons argued that they incurred attorney's fees as actual

damages even though they did not pay Mr. Burke for his services. The Moons

argued that § 362(k)(1) is a fee-shifting statute, and debtors can recover

attorney's fees even in cases where their attorneys have represented them pro

bono. The Moons contended that Rushmore lacked standing to raise concerns

over the existence of a written fee agreement. They also disagreed that their

attorney's fees should be halved. The Moons maintained that they were

successful on both of their claims, and the fact the court only awarded

damages for Rushmore's stay violation was irrelevant since a court can also

       4
         Rushmore raised other arguments before the bankruptcy court that it appears to
 have abandoned on appeal, including that Mr. Burke failed to comply with § 329(a) and
 Rule 2016, which were not relevant here, and that Mr. Burke's $500.00 hourly rate was
 not reasonable and should have been no more than $325.00.

                                           4
award attorney's fees for discharge injunction violations.

      After a hearing, the bankruptcy court entered an order on the Fee

Motion granting the Moons attorney's fees and costs of $67,007.94, but

denying their request for a fee enhancement ("Fee Order"). These timely

cross-appeals followed.

                               II. JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(1) and (2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                     III. ISSUES

1.    Did the bankruptcy court abuse its discretion in awarding the Moons

attorney's fees under § 362(k)(1)?

2.    Did the bankruptcy court err by awarding the full amount of attorney's

fees under § 362(k)(1), when some time was spent on the Moons' claim for

violation of the discharge injunction under § 524(a)(2)?

3.    Did the bankruptcy court abuse its discretion by not awarding a fee

enhancement?

                        IV. STANDARDS OF REVIEW

      We review for abuse of discretion an award of attorney's fees under

§ 362(k). Easley v. Collection Serv. of Nev., 910 F.3d 1286, 1289 (9th Cir. 2018).

"We review the factual determinations underlying an award of attorneys' fees

for clear error, and the legal premises used by the court to determine the

award de novo. If we conclude that the bankruptcy court applied the proper

                                          5
legal principles and did not clearly err in any factual determination, then we

review the award of attorneys' fees for an abuse of discretion." Eskanos &

Adler, P.C. v. Roman (In re Roman), 283 B.R. 1, 7 (9th Cir. BAP 2002) (internal

quotation marks and citations omitted).

       The bankruptcy court abuses its discretion if it applies the wrong legal

standard or its findings of fact are clearly erroneous. Olomi v. Tukhi (In re

Tukhi), 568 B.R. 107, 112-13 (9th Cir. BAP 2017) (citing United States v. Hinkson,

585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc)). Factual findings are not

clearly erroneous unless they are "(1) illogical, (2) implausible, or

(3) without support in inferences that may be drawn from the facts in the

record." Id. (quoting Hinkson, 585 F.3d at 1262).

                                 V. DISCUSSION

      Section 362(k)(1) provides, "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." An award of costs and attorney's fees is

mandatory upon a finding that the stay was willfully violated. Ramirez v.

Fuselier (In re Ramirez), 183 B.R. 583, 589 (9th Cir. BAP 1995) ("The words 'shall

recover' indicate that Congress intended that the award of actual damages,

costs and attorney's fees be mandatory upon a finding of a willful violation of

the stay.") (citing Tsafaroff v. Taylor (In re Taylor), 884 F.2d 478, 483 (9th Cir.

1989); Sansone v. Walsworth (In re Sansone), 99 B.R. 981, 987 (Bankr. C.D. Cal.

                                           6
1989)).

        Rushmore argues that the Moons could not recover attorney's fees as

"actual damages" under § 362(k)(1), because they did not "incur" any fees

given the lack of a written fee agreement or obligation to pay Mr. Burke. The

bankruptcy court did not address this specific issue, finding only that the

statutory language does not require an injured individual to have a fee

contract with an attorney, and thus the absence of any contract between the

Moons and Mr. Burke was immaterial to the recovery of fees and costs. The

court did not answer the question whether the Moons "incurred" any

attorney's fees if, as Rushmore contends, they had no obligation to pay

Mr. Burke. For the following reasons, we hold that attorney's fees and costs

are recoverable under § 362(k)(1) even if the debtor is not personally liable for

them.

        The Ninth Circuit Court of Appeals sitting en banc in America's

Servicing Company v. Schwartz-Tallard (In re Schwartz-Tallard), 803 F.3d 1095,

1099-1101 (9th Cir. 2015), held that § 362(k)(1) is a fee-shifting statute that

entitles a debtor not only to attorney's fees and costs incurred in ending a stay

violation, but also to fees and costs incurred in prosecuting an action for

damages from a stay violation and in successfully defending a damages

award on appeal. In doing so, Schwartz-Tallard expressly overruled Sternberg

v. Johnston, 595 F.3d 937 (9th Cir. 2010), which held that § 362(k)(1) limited a

debtor's recovery only to those attorney's fees and costs incurred in ending a

                                         7
stay violation. The Circuit Panel in Sternberg believed that § 362(k)(1)

compelled this result, because the statute made fees recoverable only as a

component of the debtor's "actual damages," not as attorney's fees as such.

595 F.3d at 946-47.

      While noting that most fee-shifting statutes which deviate from the

American Rule authorize the award of a "reasonable attorney's fee" to a

"prevailing party" and that § 362(k)(1) was "somewhat unusual in that

regard," the Schwartz-Tallard court believed the statute's phrasing signaled an

intent to permit, not preclude, an award of attorney's fees incurred in

pursuing a damages recovery. 803 F.3d at 1099. This interpretation of

§ 362(k)(1) was consistent with Congress's intent, which is to allow injured

debtors the ability to sue to recover the damages the statute authorizes:

      Congress undoubtedly knew that unless debtors could recover the
      attorney's fees they incurred in prosecuting an action for damages,
      many would lack the means or financial incentive (or both) to
      pursue such actions. After all, the very class of plaintiffs
      authorized to sue—individual debtors in bankruptcy—by
      definition will typically not have the resources to hire private
      counsel. And in many cases the actual damages suffered by the
      injured debtor will be too small to justify the expense of litigation,
      even if the debtor can afford to hire counsel.

      Thus, Congress could not have expected § 362(k) to serve as an
      effective deterrent unless it authorized recovery of the attorney's
      fees incurred in prosecuting an action for damages. In that respect,
      § 362(k) is no different from the many statutes Congress has
      enacted "making it possible for persons without means to bring suit

                                     8
       to vindicate their rights." Perdue v. Kenny A., 559 U.S. 542, 559
       (2010).
Id. at 1100 (some internal citations omitted). See also Blixeth v. Yellowstone

Mountain Club, LLC, 854 F.3d 626, 629 n.3 (9th Cir. 2017) (Schwartz-Tallard

"read[] § 362(k) as a fee-shifting provision rather than as a damages

provision[.]").

      In Easley, 910 F.3d at 1288, the Ninth Circuit took Schwartz-Tallard one

step further, holding that § 362(k)(1) also entitles a debtor to attorney's fees

and costs incurred in successfully challenging a damages award on appeal.

The Easley court again noted that § 362(k)(1) "operates as a fee-shifting

statute" and "serves a deterrent function much like many fee-shifting

statutes." Id. at 1291 (citing City of Burlington v. Dague, 505 U.S. 557, 574-75

(1992)).

      Imposition of damages and attorneys' fees and costs is essential to
      deter creditors from violating an automatic stay and protect
      debtors' assets for proper adjudication through the bankruptcy
      process. Recovery of attorneys' fees and costs is especially critical
      in the bankruptcy context where debtors lack the means to
      otherwise pursue their damages.

Id. Cf. Pennsylvania v. Del. Valley Citizens' Council for Clean Air, 478 U.S. 546,

565 (1986) (reasoning that, where the purpose of a fee-shifting statute is to

enable private parties to obtain legal help in seeking redress for injuries, "if

plaintiffs . . . find it possible to engage a lawyer based on the statutory

assurance that he will be paid a 'reasonable fee,' the purpose behind the

                                          9
fee-shifting statute has been satisfied").

      While these cases do not address the precise issue before us, they are

instructive for our analysis. The Supreme Court and the Ninth Circuit Court

of Appeals have held under other federal fee-shifting statutes that attorney's

fees and costs are "incurred" even when the plaintiff is not personally liable

for them. This is true whether counsel is representing the plaintiff on a

contingent fee basis or pro bono publico. See Blanchard v. Bergeron, 489 U.S. 87,

94 (1989) (pro bono representation does not bar the award of a reasonable

attorney's fee under 42 U.S.C. § 1988(b) [civil rights statute]); Cuellar v. Joyce,

603 F.3d 1142, 1143 (9th Cir. 2010) (petitioner "incurred" attorney's fees for

purposes of 42 U.S.C. § 11607(b)(3) [Hague Convention on the Civil Aspects

of International Child Abduction] even though her lawyers provided their

services pro bono); Nadarajah v. Holder, 569 F.3d 906, 916 (9th Cir. 2009) ("'It is

well-settled that an award of attorney's fees [under the Equal Access to

Justice Act] is not necessarily contingent upon an obligation to pay counsel. . .

The presence of an attorney-client relationship suffices to entitle prevailing

litigants to receive fee awards.'") (quoting Ed A. Wilson, Inc. v. Gen. Servs.

Admin., 126 F.3d 1406, 1409 (Fed. Cir. 1997)); Gotro v. R & B Realty Grp., 69

F.3d 1485, 1488 (9th Cir. 1995) (plaintiff who is represented on a contingent

fee basis "incurs" the "actual expense" of an attorney's fee under 28 U.S.C.

                                         10
§ 1447(c)5 [removal statute containing language similar to § 362(k)(1)]). See

also Flores v. Oh (In re Oh), No. NC-07-1325-MdKB, 2008 WL 8448837, at *12

(9th Cir. BAP Apr. 16, 2008) (pre-Schwartz-Tallard Panel rejecting the

argument that debtor could not recover attorney's fees under former § 362(h)

because he had not paid his attorney, noting that even parties represented

pro bono may recover fees and citing First Card v. Hunt (In re Hunt), 238 F.3d

1098, 1104-05 (9th Cir. 2001) (allowing debtor to recover attorney's fees under

§ 523(d) despite that he was represented by counsel pro bono)).

      We also find bankruptcy court decisions within our circuit addressing

the issue before us highly persuasive. In Dawson v. Washington Mutual Bank

(In re Dawson), 346 B.R. 503, 516-17 (Bankr. N.D. Cal. 2006), a pre-Schwartz-

Tallard case, the bankruptcy court rejected defendant's argument that the

debtor could not recover attorney's fees under former § 362(h), because the

services were provided on a contingent fee basis and therefore did not

constitute "actual damages." Relying on Gotro and similarities in the language

of § 362(h) and the removal statute, 28 U.S.C. § 1447(c), the bankruptcy court

held that attorney's fees were recoverable as actual damages though the

services were performed on a contingent fee basis and the debtor was not

personally liable for them. Another bankruptcy judge in the same district

       5
         28 U.S.C. § 1447(c) provides in relevant part: "An order remanding the case
 may require payment of just costs and any actual expenses, including attorney fees,
 incurred as a result of the removal."

                                           11
adopted Dawson, holding that the debtor "incurred" attorney's fees and costs

under former § 362(h) despite having only a contingent fee agreement with

his attorney – e.g., counsel had agreed to limit her fees and costs to those

ultimately recovered from defendants. Bertuccio v. Cal. State Contractors

License Bd. (In re Bertuccio), No. 04-56255, 2009 WL 3380605, at *7 & n.4 (Bankr.

N.D. Cal. Oct. 15, 2009), aff'd sub nom. Emp't Dev. Dep't v. Bertuccio, No.

09-CV-05209, 2011 WL 1158022 (N.D. Cal. Mar. 28, 2011).

      In its reply brief, Rushmore cites several cases which it argues are the

"majority standard" and support its position that the Moons were not entitled

to any fee award under § 362(k)(1). However, these cases are factually

distinguishable, or do not hold what Rushmore contends they do, or, most

importantly, flat-out contradict Ninth Circuit law because they hold that

§ 362(k)(1) is not a fee-shifting statute. See Heupel v. Nielsen (In re Nielsen), No.

16-00081, 2017 WL 57260, at *6 (D. Colo. Jan. 4, 2017) (holding that § 362(k) is

not a fee-shifting statute but concluding that debtors "incurred" attorney's

fees despite no obligation to pay them out-of-pocket because debtors were

responsible for paying their attorneys under the contingency fee agreements);

Dean v. Carr (In re Dean), 490 B.R. 662, 670 (Bankr. M.D. Pa. 2013) (citing cases

holding that § 362(k)(1) is not a fee-shifting statute and concluding that

debtor did not incur "actual damages" of attorney's fees because she was

represented pro bono and would never be liable for fees); In re Thompson, 426

B.R. 759, 765-67 (Bankr. N.D. Ill. 2010) (holding that § 362(k)(1) is not a typical

                                          12
fee-shifting statute like 42 U.S.C. § 1988(b) and, in any case, debtor's counsel

had waived any right to an attorney's fee for the appeal); Hutchings v. Ocwen

Fed. Bank FSB (In re Hutchings), 348 B.R. 847, 910 (Bankr. N.D. Ala. 2006)

(concluding that debtor could not recover attorney's fees and costs since he

neither paid his attorney nor incurred any personal obligation to do so); In re

Hedetneimi, 297 B.R. 837, 843 (Bankr. M.D. Fla. 2003) (concluding, without

analysis, that debtor was not entitled to an attorney's fee because she was

represented pro bono and was not responsible for the payment of fees).

      Schwartz-Tallard, Blixeth, and Easley have made it clear that § 362(k)(1) is

a fee-shifting statute, and our interpretation here promotes the statute's

policy purpose as stated in those authorities. To hold that a debtor "incurs"

the "actual damages" of attorney's fees only if the debtor is personally liable

for paying them would defeat the statute's purpose: making it possible for

injured, impecunious debtors to obtain counsel to bring suit and vindicate

their rights against violators of the automatic stay.

      Accordingly, the Moons "incurred" and could recover attorney's fees

and costs under § 362(k)(1) even though they had not paid any fees to

Mr. Burke nor were they expected to pay him out-of-pocket for his services.

Rushmore does not dispute that the Moons and Mr. Burke have an attorney-

client relationship. Although it would have been better practice for Mr. Burke

to have entered into a written fee agreement with the Moons, the lack of such

an agreement is not fatal since the presence of an attorney-client relationship

                                        13
suffices to entitle the Moons to a fee award. Nadarajah, 569 F.3d at 916.6

Further, to the extent it was necessary, the Moons' testimony established that

they were obligated to pay Mr. Burke in the event they prevailed and there

was a recovery of attorney's fees from Rushmore. Both Willie and Adnette

stated their belief that, if they prevailed against Rushmore, the court would

award them damages and attorney's fees. Notwithstanding that the Moons

are lay persons and their testimony may not have been precise, it is

reasonable to infer that they intended to turn over to Mr. Burke whatever

amount of attorney's fees they were awarded in the action against Rushmore.

      While we agree that the Moons are entitled to a reasonable attorney's

fee, we must vacate the fee award and remand the matter to the bankruptcy

       6
          Rushmore argued before the bankruptcy court and argues on appeal that a
 written fee agreement was necessary between the Moons and Mr. Burke under NRPC
 1.5(c). That rule, in relevant part, states:

       A fee may be contingent on the outcome of the matter for which the service
       is rendered, except in a matter in which a contingent fee is prohibited by
       paragraph (d) or other law. A contingent fee agreement shall be in writing,
       signed by the client[.]

 The bankruptcy court determined that Mr. Burke was not seeking a contingency fee. We
 agree that, in the traditional sense, — i.e., payment via a percentage of the client's
 recovery — he was not seeking such a fee. Rushmore argues this is of no moment, that
 NRPC 1.5(c) requires a written fee agreement when the fee is "contingent on the
 outcome" of the matter, which this was. First, this argument is focused primarily, if not
 exclusively, on Rushmore's contention that Mr. Burke could not recover fees under a
 quantum meruit theory, which we need not address given our decision. Second,
 Rushmore fails to cite any Nevada authority where an attorney was denied fees or a fee
 was reduced in a fee-shifting context because of the lack of a written fee agreement.

                                            14
court to determine the amount of fees to be awarded. Rushmore argues that

the bankruptcy court erred by awarding the Moons all of their attorney's fees

under § 362(k)(1), when some of the fees were for time spent on their

discharge injunction violation claim under § 524(a)(2), which they lost. The

Moons made no effort to segregate time spent on the stay violation from time

spent on the discharge injunction violation. Further, the bankruptcy court did

not explain, either legally or factually, why it awarded attorney's fees under

§ 362(k)(1) for what appears to be time spent on the discharge injunction

violation. See Stinson v. Bi-Rite Rest. Supply Inc. (In re Stinson), 295 B.R. 109,

118-19 & n.7 (9th Cir. BAP 2003), rev'd in part on other grounds, 128 F. App'x 30

(9th Cir. 2005) (affirming order awarding only those fees for time spent on

stay violation claim, the only claim on which debtor succeeded).

      Despite our general deference to the bankruptcy court's discretion in

determining the reasonableness of an attorney's fee, the court must include a

"concise but clear" explanation for its fee award. Hensley v. Eckerhart, 461 U.S.

424, 437 (1983) (discussing 42 U.S.C. § 1988); Gates v. Deukmejian, 987 F.2d

1392, 1398 (9th Cir. 1992) (same); In re Dutta, 175 B.R. 41, 46 (9th Cir. BAP

1994) (discussing § 330(a) and citing Hensley). This requires "some indication

of how it arrived at the amount of compensable hours for which fees were

awarded to allow for meaningful appellate review." Gates, 987 F.2d at 1398

(citing Cunningham v. Cty. of L.A., 879 F.2d 481, 485 (9th Cir. 1988)). The

bankruptcy court did not do that here. See In re Dutta, 175 B.R. at 46 (absent a

                                          15
sufficient explanation, the fee award must be remanded for the court to

provide one). Further, because we have reversed the award of damages to

Willie and remanded the punitive damages award for the bankruptcy court

to review in light of our decision, it is appropriate to allow the court to

reconsider the amount of the attorney's fee award and whether a fee

enhancement is appropriate.

                               VI. CONCLUSION

      For the reasons stated above, we AFFIRM the Fee Order with respect to

the bankruptcy court's ruling that the Moons were entitled to attorney's fees

for Rushmore's willful violation of the automatic stay under § 362(k)(1), and

we AFFIRM the Fee Order with respect to the amount of costs awarded.

However, because of our decision with respect to the Moons' other damages

and our inability to provide meaningful review of the amount of fees

awarded, we VACATE and REMAND that portion of the Fee Order for

further consideration by the bankruptcy court.

                                        16