McLaughlin v. Fireman's Trust Mortgage Corp. (In Re McLaughlin)McLaughlin v. Fireman's Trust Mortgage Corp. (In Re McLaughlin)
OPINION
At present, the instant proceeding fits the classic mode of litigation which exists only due to the persistence of a satellite fee issue which has maintained its orbit even after the merits of the case have been put to rest. The only issue remaining and that has been remaining in the matter for some time is whether counsel for the plaintiff-debtor is entitled to attorney’s fees pursuant to 11 U.S.C. § 362(h) and, if so, in what amount. The specific questions raised are as follows: (1) May a party whose violation of the stay is subjectively innocent and relatively justifiable be held liable for attorneys’ fees to the debtor’s counsel? and (2) May counsel for a debtor who has foregone any claim to damages for the stay violation be classified as “[a]n individual injured” by a stay violation entitled to recover such fees?
We hold that both of these questions must be answered in the affirmative, but that both raise issues which are relevant to consider in fixing the amount of an award pursuant to § 362(h). We therefore award counsel for the debtor here about half of what is sought, i.e., $1000.00.
The underlying Chapter 13 bankruptcy case was filed by RENEE McLAUGHLIN, the Debtor, on September 15, 1988. Virtually nothing has transpired in the main case exceрt the filing of this adversary proceeding by the Debtor on November 29, 1988. Pursuant to a motion for a temporary restraining order (TRO) seeking to enjoin a December 5, 1988, sheriff’s sale of the Debtor’s residence at 1845 Nolan Street, Philadelphia, PA 19138 (hereinafter “the Home”), filed with the complaint, we conducted a hearing on December 1,1988. We considered the hearing to be, in effect, on a motion for a preliminary injunction, because we required notice and conducted an evidentiary hearing before acting on the motion. See Bankruptcy Rule 7065; compare Federal Rule of Civil Procedure (F.R. Civ.P.) 65(a)(1) with F.R.Civ.P. 65(b). At its close, we indicated an intention to grant relief tо the Debtor, memorializing same in a brief Order and Memorandum of that day. Given the rather extensive testimony adduced at the hearing and the consideration of avoiding three hearings in the event that the December 1, 1988, proceeding would be contended to be TRO hearing, we scheduled the final hearing on December 8, 1988. This hearing was continued by agreement, with the provisional injunction to remain in effect, until January 10, 1989.
On January 10, 1989, we were advised that the parties had agreed that the injunction could be entered as permanent, and that this was the only relief to be accorded to thе Debtor in the proceeding. Thus, the merits were totally resolved. The only is
The Stipulation of Facts is too lengthy to recite verbatim; thus we shall summarize it. On September 26, 1972, the Debtor’s parents, William and the late Willie Mae Hunt, executed a mortgage in favor of the Defendants’ assignor in connection with the purchase of the Home. It is not mentioned in the Stipulation, but the Debtor credibly testified at the hearing on Decеmber 1, 1988, that she was in fact the equitable “owner” of the Home at all time since September 26, 1972. She had resided there, with her children, exclusively, and she had made all of the payments at all times since the purchase. The deed was placed in her parents’ name because of a belief that, otherwise, the Debtor’s estranged husband might acquire an interest in the premises. The Debtor ultimately fell into arrears on the mortgage, and Defendant Firstrust Savings Bank, the present mortgagor (referred to hereinafter as “the Defendant”), filed a foreclosure action against the Hunts, obtained a default judgment against the Debtor’s father, and ultimately scheduled a sheriff’s foreclosure sale on November 7, 1988. The sale was stayed voluntarily by the Defendant, due to a notice problem, until December 5, 1988.
In the mean time, the Debtor’s counsel filed the instant bankruptcy case and advised the Defendant’s counsel that, under the circumstances, she believed that this filing stayed the sheriff’s sale. Throughout October, 1988, as the sale date drew nearer, the parties corresponded, but did not agree, on whether the Debtor’s bankruptcy filing impacted on the sheriff’s sale.
On November 1, 1988, Mr. Hunt deeded the property to the Debtor, and same was duly recorded. On November 7, 1988, the Debtor’s counsel cited the Defendant’s counsel to our decisions
In re Sudler,
This controversy involves strictly an interpretation of 11 U.S.C. § 362(h), which provides as follows:
(h) An individual injured by any willful violation of a stay provided by this section [§ 362(a) ] shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
The issues vigorously briefed by the parties are whether the Defendant’s initial position that the stay arising from the Debt- or’s case did not apply to the foreclosure of the Home had merit and, if it did, whether the Defеndant’s “good faith” in taking this position is relevant to the issue of the Debt- or’s ability to request attorneys’ fees from the Defendant pursuant to § 362(h).
Skewing the Defendant’s view of the issue is its persistence in the erroneous contention that the recorded deed of the premises from Mr. Hunt to the Debtor did not render the premises “property of the Debtor’s estate.” Since the underlying bankruptcy is a Chapter 13 case, by effect of 11 U.S.C. § 1306(a)(1), plainly it did, because, pursuant to this Code section, property acquired by a debtor “after the commencement of the case but before the cаse is closed”
is
property of a Chapter 13 debtor’s estate. However, we must concede that the Defendant’s global position in this dispute was not totally implausible, given the lack of consideration for and belated timing of the transfer effected by
The most notable authority in favor of the Defendant’s general position that its subjective and possibly objective innocence of spirit in contending that the stay did not halt the sale of the Home is relevant to the inquiry of whether it should be liable for the Debtor’s attorneys’ fees is
United States v. Norton,
The
Norton
language is, however, not conclusive of the issue before us. The decision in
Norton
preceded enactment of § 362(h) in 1984. The only rationale for awarding any remedies to debtors wronged by stay violations, prior to enactment of § 362(h), was the contention that the viola-tive act constituted contempt of court. The policy that “[a] party should not be held in contempt unless a court first gives fair warning that certain acts are forbidden; any ambiguities in the law should be resolved in favor of the party charged with contempt,”
id.
at 774, is central to the result in
Norton.
Other courts utilizing the same reasoning as
Norton,
similarly concluded that the “good faith” of the creditor was a defense to a claim of contempt arising from a violation of the stay.
See, e.g., Ford v. Kammerer,
We do not wish to suggest that the enactment of § 362(h) completely changed the receptivity of all bankruptcy courts to “good faith” defenses to claims of debtors for attorneys’ fees from creditors which they incurred in vindicating the automatic stay. Some courts were willing to enter such awards even prior to the enactment of § 362(h). Thus, in
In re AM International, Inc., 53
B.R. 744 (Bankr.M.D.Tenn.1985), the court awarded thе debtor’s counsel fees of $53,427.78 for prosecuting a stay-violation claim. Although citing
Norton
as an example of courts which support the position that “attorneys’ fees should not be awarded for violations of the automatic stay which involve unusual or controversial questions of law,”
id.
at 746, the court adopts the contrary view that “creditors should file first with the bankruptcy court to determine the applicability of the automatic stay, and those who act without court authorization do so at their peril.”
Id.
at 746-47.
See also, e.g., In re Demp,
On the other hand, some courts have reasoned that, despite the presence of § 362(h), attorneys’ fees for the debtor’s counsel will not be imposed upon a creditor who violates the automatic stay by means of conduct which is merely erroneous rather than maliciously willful.
See In re Bain,
Numerous cases hold to the contrary, and have awarded fees despite the creditor’s apparent “good faith” in violating the stay. However, we note that, with the exception of the court in
AM International,
the courts do not appear to be liberal in the measure of such fees.
See In re DeLay,
There have been several recent decisions of this court addressing requests by debtors undеr § 362(h), but none of them have discussed, in depth, the issue of when attorneys’ fees to the debtor’s counsel should be imposed as a remedy against an offending creditor. The seminal decision in this area is
In re Wagner,
In
Boston Business,
More focused on the issue of an award of fees in a case where the violation of § 362 was less clear are two more recent decisions of this court,
In re Sechuan City, Inc., Sechuan City, Inc. v. North American Motor Ins. Inc.,
In
University Medical Center,
we noted that the debtor had neither sought nor proven a right to any consequential damages, other than return of funds received in violation of the stay, except attorneys’ fees and costs. We recognized that the issue of whether the stay had been violated by the course of events in issue had probably been decided to the contrary in the past, but had been clearly established in our opinion of August 12, 1988, involving the self-same government agency, in
In re St. Mary Hospital,
Having considered all that has gone before on this subject, we must now focus our own thinking on this toрic. First, we must consider the policy behind § 362(h). Obviously, its effect is to clarify and broaden the powers of bankruptcy judges to impose sanctions and thereby discourage violations of the automatic stay. Therefore, we submit that its terms should be construed as broadly as possible, in order to discourage creditors from violating the automatic stay and allowing bankruptcy judges to impose a range of stiff penalties if stay violations nevertheless take place.
We believe that the statements in AM International that creditors should be encouraged to seek declaratory relief before acting in circumstances where they are on the cutting edge of committing a stay violation are well taken, at least as applied to § 362(h). Allowing ignorance of the law or “good faith” to be a defense to monetary penalties for stay violations will only encourage ignorance, real or feigned. Encouragement of ignorance is not the message that bankruptcy judges should be sending to creditors in their § 362(h) decisions. The effect of interpretations which encourage ignorance will only serve to encourage stay violations and stir up litigation.
Therefore, we may have been ovеrindulgent with the governmental creditors involved in Johnson-Alien and University Medical Center. It is true that they, unlike the Defendant here, had the public fisc to uphold. However, governmental creditors have attorneys available at their disposal to test the waters of whether a certain action will constitute a stay violation, and they should do so before plunging in with all of the power of governmental force behind them. The difficulty of an issue of the scope of this automatic stay should not be very relevant to the determination of the debtor’s right to attorneys' fees under § 362(h). The more difficult the issue, the harder that the debtor will be рressed to vindicate his or her position. If the debtor loses a close issue, counsel will have labored without compensation. If counsel succeeds, the labor should be rewarded.
On the other hand, as the rather unusual result in
Houchens
portends, rewarding debtors too lavishly in § 362(h) actions will encourage a cottage industry of precipitous § 362(h) litigation. This is not to be encouraged either. It is the responsibility of the debtor to educate the creditor of the bankruptcy filing and its effect, and, if at all possible, avoid a crisis.
Having established these principles on the “good faith” issues and before applying these principles to the instant facts, we now address the other general issue raised herein, i.e., the significance of the requirement that, to recover attorneys’ fees pursuant to § 362(h), the debtor must be “[a]n individual injured” by a stay violation.
This issue is emphasized in
Bain, supra,
The recent cases decided in this jurisdiction cited above do not discuss the “injury” issue. There clearly were injuries and awards of damages to the debtors in
Sechuan City, Boston Business, Grosse, Aponte,
and
Wagner.
In
University Medical Center,
we allowed attorneys’ fees and costs to the debtor despite a finding of no consequential damаges.
However, this issue
was
discussed in another of our decisions,
In re Whitt,
On the other hand, in light of our analysis of the policies behind § 362(h), we believe that counsel for a debtor who is jeopardized in any significant manner by a stay violation and reasonably resorts to court to remedy the violation, should recover at least some measure of damages. Thus, the “injury” requirement should be very broadly construed. However, in saying this, we cannot forget the policy of discouraging satellite fee litigation such as
We now apply the principles which we have developed to the facts presented in the instant case. We have no hesitancy in concluding that the Debtor here suffered some “injury” as a result of the defendant’s conduct, as we have defined that requirement here. The Debtor clearly overplays her hand on this issue when she refers to “months of fear” suffered by her that she would lose the Home as the element of her injury. We would be disinclined to consider this element to have been established on this averment. First, there is no evidence of such “fear” in the record, either in the Stipulation of Facts or in the testimony of the Debtor on December 1, 1988. Secondly, we believe that the “fear,” if present, was engendered by the Debtor’s logical assumption that her mortgage payment delinquencies might result in the loss of the Home. From her perspective, it is doubtful that she had contemplated that a bankruptcy could save the Home. It is particularly doubtful that she contemplated that her bankruptcy would save the Home in light of the fact that it was titled to her father. Finally, the Debtor’s bankruptcy filing, even with the security оf the automatic stay in place to prevent the instant sheriff’s sale, cannot dispel her fears of losing the Home entirely. She must make future payments towards the mortgage and cure her delinquency or pay off the mortgage to accomplish this end.
The Defendant, however, never raises the “injury” issue as a defense in its brief. Perhaps it concluded, as do we, that the Debtor’s jeopardy of losing the Home, which was very real, and her need to resort to litigation to prevent its loss, which was equally real, satisfied this requirement. We do query why the Debtor’s counsel, in over two months, was unаble to locate the
Black
case, cited in a reported case (Capo
danno, supra,
These latter observations segue into the discussion of the Defendant’s “good faith.” Although the Debtor’s counsel could have and probably should have cited the Black case to it, the existence of this case was in the public domain and as accessible to the Defendant as it was to the Debtor. Certainly, it is not the obligation of the Debtor to submit a comprehensive list of citations to a creditor or its counsel in order to have the creditor respect the stay. After all, it is the automatic stay of which we are speaking. If the Defendant’s counsel was unaware of the Black case, that deficiency is not the fault of the Debtor or her counsel. We are, moreover, not certain that the Black case is a key to an otherwise inscrutable mystery regarding the applicability of the stay to the sale of the Home in issue here. Certainly, the issue, irrespective of the existence of the Black case, was close enough to have merited the Defendant’s filing a declaratory judgment action before proceeding with and persisting in conducting of the sale. Had this apprоach been taken, there would presently be no issue of the right of the Debtor’s counsel to attorneys’ fees.
We do not think that the issue of the applicability of the stay here was really very difficult, particularly given the presence of § 1306(a)(1), after the title to the property passed to the Debtor. However, even assuming that it
was
difficult, we
We therefore determine that the Debt- or’s counsel is entitled to reasonablе attorneys’ fees for vindicating the Debtor’s rights in this proceeding. Procedurally, regarding the amount of the fees requested, the Debtor’s counsel has complied with Meade Land, supra, as we directed, itemizing each item for which compensation is sought and the time spent on each.
However, substantively, we are not prepared to allow the entire sum of $2,160.00 which the Debtor’s counsel has requested. Specifically, harking back to our distaste for satellite fee litigation expressed at the outset, we shall disallow the five and a half hours spent on drafting the Stipulation of Facts and the fee mоtion
after
the merits of this proceeding had been resolved. Time spent in preparation of fee applications is disallowed entirely when the request is made from assets of a debtor’s estate.
See, e.g., In re J.A. & L.C. Brown Co.,
However, it is not clear to us that the efforts of the Debtor’s counsel to collect its reasonable attorneys’ fees were warranted, in light of the absence of evidence of the Defendant’s refusal to respond to a reasonable demand for attorneys’ fees. We generally make such a demand a pre-condition of any compensation for time spent on “statutory fee” applications, as a means of discouraging either party from taking a stance which we consider unjustified and thus fueling satellite fee litigation. Here, the parties’ presentation of the issue made our entry of such an Order an impossibility. Such a condition should, nevertheless, in our view, always be assumed by implication. Cf. Houchens, supra (failure to make a reasonable demand on the opposing party to rectify situation before proceeding with litigation may constitute bad faith). In the absence of any evidence of such a demand, which could have eliminated all of the services performed after the resolution of the case on the merits, we shall disallow all of the time spent on pursuit of the attorneys’ fees issue by the Debtor’s counsel.
The remaining entries on the fee appliсation leave a residual demand for an award of $1500.00. However, given the manner of the presentation of these issues by the Debtor’s counsel, we shall cut this figure to $1000. As we noted at page 562
supra,
the Debtor’s counsel failed to locate the case most directly on point to support the Debtor’s position. Further, said counsel perpetuated “brinkmanship” by delaying the presentation of the issue to us in a timely fashion. If this “brinkmanship” was tactical, which we are not prepared to say that it was, it surely should not be rewarded. This conclusion may, to some degree, implicate the “good faith” and “injury” issues which we addressed herein. It appears to us the manner in which this matter was presented to us by the Debtor’s counsel, moreso than the merits, resulted in the Defendant’s staunch opposition. The injury caused to the Debtor from “fear” of losing the Home at the December 5, 1988, sheriff’s sale was, in part, a function of the timing as well. The flurry of activity to prevent the sale could have been avoided by raising the matter in more timely and leisurely fashion. We believe that a reduction of the residual $1500.00 sought by the Debtor’s counsel is therefore appropriate when the stakеs of the litigation and the reasonable efforts necessary to accomplish the Debtor’s ends are considered.
See In re Central Ice Cream Co.,
ORDER
AND NOW, this 22nd day of February, 1989, upon consideration of the Debtor’s Motion for Award of Attorneys’ Fees, and the stipulation of Facts and Briefs of the parties presented to us in reference to this issue, it is hereby ORDERED and DECREED as follows:
1. The Motion is GRANTED in part.
2. Defendant FIRSTRUST SAYINGS BANK shall pay the sum of One Thousand ($1,000.00) Dollars to the Plaintiff’s counsel, COMMUNITY LEGAL SERVICES, INC., as attorneys’ fees, pursuant to 11 U.S.C. § 362(h).