12/11/2009 09:55:05 AM EST
Sternberg v. Johnston, 582 F.3d 1114 (9th Cir. Oct. 1, 2009)
In this Emerging Issues Analysis, the author looks at a decision from the Ninth Circuit that effectively creates a circuit split on the issue of whether attorney's fees are available not only for remedying a stay violation but also for the efforts in collecting damages for the violation. The Ninth Circuit concluded that once the stay has been remedied, the debtor is responsible for fees to continue the prosecution of the violating party.
Mr. Jurs writes:
In Sternberg v. Johnston, 582 F.3d 1114, 2009 U.S. App. LEXIS 21532 (9th Cir. Oct. 1, 2009), the Court of Appeals for the Ninth Circuit was faced with two issues arising from an attorney's alleged violation of the bankruptcy automatic stay under 11 U.S.C. § 362 by pursuing a state court action on behalf of his client. The Ninth Circuit first considered whether an attorney has an affirmative duty to educate a state court on the extent of the bankruptcy stay, even if it is to the detriment of his client. Second, the court had to determine the quantum of damages for such a violation and decide whether such damages could include the attorney's fees incurred in prosecuting the action against the violating party.
Facts and Procedural History
In 1996, Logan Johnston ("Debtor") divorced Paula Parker and agreed to pay spousal maintenance, which obligation was incorporated in a state court order. Almost five years later, in 2001, Parker, through her attorney, Melvin Sternberg, returned to the state court seeking an order finding the Debtor in contempt for nonpayment of spousal support. Although the Debtor was himself an attorney, he obtained legal counsel for purposes of filing bankruptcy to contest the payment of this support.
On May 14, 2001, the Debtor filed a chapter 11 bankruptcy petition, but his bankruptcy counsel did not file a notice of bankruptcy in the state court support proceeding until May 17. That same day, the state court conducted a previously scheduled hearing on Parker's motion for contempt. The Debtor represented himself at that hearing, during which he advised the state court of the bankruptcy filing. Citing statements from his bankruptcy counsel, the Debtor told the state court that his bankruptcy stayed anything regarding the property settlement, attorney's fees, and sanctions. While objecting "in the abstract to anything that would contravene the bankruptcy laws," the Debtor agreed that the state court could establish the amount of the Debtor's arrears.