FILED NOV 18 2021 ORDERED PUBLISHED 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 No. NC-21-1078-FBS BRADLEY EDWARD KOEBERER and NANCY LOUISE KOEBERER, Bk. No. 20-10514 Debtors.
BRADLEY EDWARD KOEBERER; NANCY LOUISE KOEBERER, Appellants, v. OPINION CALIFORNIA BANK OF COMMERCE; TIMOTHY W. HOFFMAN, Chapter 7 Trustee, Appellees.
Appeal from the United States Bankruptcy Court for the Northern District of California Roger L. Efremsky, Bankruptcy Judge, Presiding
APPEARANCES: Thomas Philip Kelly, III argued for appellants; Kevin E. Fusch of French Lyon Tang argued for appellee California Bank of Commerce.
Before: FARIS, BRAND, and SPRAKER, Bankruptcy Judges.
FARIS, Bankruptcy Judge:
INTRODUCTION
The bankruptcy court found that appellee California Bank of Commerce (the “Bank”) violated the automatic stay when it took certain
postpetition steps in a prepetition action against chapter 7 1 debtors Bradley
Edward Koeberer and Nancy Louise Koeberer and others. However, the
court declined to sanction the Bank because the Koeberers did not establish
that they suffered any injury. The Koeberers appeal the bankruptcy court’s
ruling, arguing that it is undisputed that the Bank knowingly violated the
automatic stay, so the bankruptcy court was obligated to sanction the Bank
and award them fees and costs.
The court correctly held that the Bank violated the automatic stay
and that the Koeberers did not prove their entitlement to actual or punitive
damages. But the court erred when it determined that the Koeberers lacked
standing and denied attorneys’ fees and costs because the violations were
“technical,” without making any finding as to the reasonableness of any of
the claimed fees and costs. Accordingly, we AFFIRM most of the court’s
judgment, but we VACATE the denial of attorneys’ fees and costs and
REMAND for a determination of reasonableness.
We publish to confirm that (1) postpetition prosecution of a
fraudulent transfer claim against nondebtor parties violates § 362(a)(1),
(2) the bankruptcy court may not deny all § 362(k) sanctions merely
because the violation of the automatic stay was “technical,” and (3) the
bankruptcy court may find that, in the circumstances of a particular case, a
Unless specified otherwise, all chapter and section references are to the 1
Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2 reasonable attorneys’ fee under § 362(k) is zero.
FACTS 2
A. Prepetition litigation
The Koeberers and their adult son, Bryan Koeberer (“Bryan”), were
the owners of Northern Pacific Corporation (“Northern”). In 2017, the Bank
loaned Northern a total of $2.75 million. Northern offered the Bank security
interests in all of its personal property. The Koeberers and Bryan
personally guaranteed the loans.
In mid-2019, Northern defaulted on the loans. The Bank demanded
full payment of the loan balance.
Around this time, the Koeberers created the Koeberer Irrevocable
Trust dated May 17, 2019. According to the chapter 7 trustee, Timothy W.
Hoffman (“Trustee”), the Koeberers transferred $125,000 and their
residence in Sonoma, California to the trust via gift deed for no
consideration. Mr. Koeberer’s relative, John Koeberer (“John”), was named
as trustee of the trust. The Koeberers’ two adult children were named as
the beneficiaries of the trust.
The Bank filed a complaint in California state court against Northern,
Mr. Koeberer, Mrs. Koeberer, Bryan, John, as trustee of the Koeberer
Irrevocable Trust, and another individual whose role is not relevant to this
2 We exercise our discretion to review the bankruptcy court’s docket in this case, as appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).
3 appeal. The Koeberers and Bryan were represented by Aaron Hancock;
John was represented by David Rosenbaum.
The state court complaint asserted various causes of action against
the defendants. The sixth cause of action was for fraudulent conveyance
under California’s Uniform Voidable Transactions Act (“UVTA”),
California Civil Code § 3439 et seq., against the Koeberers and John in his
capacity as trustee. The Bank alleged that the Koeberers transferred their
residence to John as trustee of their trust with actual intent to hinder, delay,
or defraud the Bank.
B. The Koeberers’ chapter 7 petition
The Koeberers filed a chapter 7 petition on September 20, 2020. They
acknowledged that they transferred their Sonoma residence and $125,000
cash to the Koeberer Irrevocable Trust. They noted the pending state court
litigation, scheduled the Bank’s nonpriority unsecured claim, and listed the
Bank on the creditors matrix.
A few days later, the Bank filed a notice of appearance and request
for electronic notice in the bankruptcy case.
C. The alleged stay violation
On or around October 8, 2020, the Bank filed in the state court a
Notice of Trial. The Notice of Trial was not limited to any specific causes of
action, suggesting that trial would be held on all claims against all
defendants. The proof of service indicated that the Notice of Trial was
served on (1) Aaron Hancock as “Defendants’ Attorney,” (2) David S.
4 Rosenbaum as attorney for John, and (3) Bryan. At this time, Mr. Hancock
had apparently sought to withdraw as attorney of record for the Koeberers
and Bryan; although the state court had orally granted his request, no order
had been entered yet.
Also on October 8, the Bank filed a Notice of Stay informing the state
court that the action was stayed as to “Bradley and Nancy Louise Koeberer
only.” The state court apparently rejected the Notice of Stay because it was
not filed by the party requesting the stay.
On October 23, John’s attorney filed a notice of stay in the state court,
based on the Koeberers’ bankruptcy filing. Three days later, John’s attorney
filed an ex parte application to continue the trial date. The Bank did not
oppose the motion to continue. At the hearing on that motion, the Bank
apparently informed the state court that it did not intend to proceed
against the Koeberers but intended to continue litigation against the
remaining defendants.
On October 28, the Koeberers’ bankruptcy counsel, Thomas P. Kelly
III, e-mailed counsel for the Bank, contending that the Bank had violated
the automatic stay by pursuing the state court action, “[s]pecifically . . . the
sixth cause of action for fraudulent conveyance pursuant to Civil Code
§[ ]3439.” Counsel for the Bank responded approximately ten minutes later
that the Bank was “not pursuing the claims against the Koeberes [sic]. We
are entitled to pursue the separate claims against the trustee of the
irrevocable trust, who is a named party, as the property is not property of
5 the bankruptcy estate.” Mr. Kelly did not respond.
The state court vacated the trial date on November 16. The case
remains pending, although there has been no significant activity.
D. Motion for contempt
On November 21, 2020, the Koeberers filed a motion for contempt
(“Contempt Motion”) against the Bank. They asserted that the Bank knew
that the Koeberers had filed their petition on September 20, yet it filed the
Notice of Trial in the state court on October 8 and served it on their
attorney, Mr. Hancock. They also pointed out that the Bank’s counsel
indicated that the Bank would continue to prosecute the fraudulent
transfer claim. They requested $5,000 plus attorneys’ fees and costs.
In response, the Bank argued that it did not take any direct action
against the Koeberers and only continued to pursue the remaining co-
defendants. It acknowledged that it had served the Notice of Trial on
Mr. Hancock but explained that it did so because Mr. Hancock was still
attorney of record for Bryan. It also pointed out that it informed the state
court that it did not intend to prosecute the state court action against the
Koeberers and told Mr. Kelly via e-mail that it was not pursuing any claim
against the Koeberers.
In their reply brief, the Koeberers contended that the Bank was not
pursuing claims against only the co-defendants, because the claim for
fraudulent transfer against John necessarily involved the Koeberers as
indispensable parties.
6 After a series of hearings, the bankruptcy court denied the Contempt
Motion and declined to award the Koeberers any damages. The court
found that that the Bank knew of the existence of the automatic stay. It also
found that the Bank filed the Notice of Trial but took no other action to
advance the case. It reasoned that, under the Second Circuit’s decision in
FDIC v. Hirsch (In re Colonial Realty Co.), 980 F.2d 125, 131-32 (2d Cir. 1992),
the Bank’s actions may have amounted to a violation of the automatic stay,
but it was only a technical violation at most and sanctions were not
warranted.
The bankruptcy court further held that the Koeberers did not have
standing to bring the Contempt Motion. The bankruptcy court reasoned
that the UVTA claim belonged to the bankruptcy estate, so only the Trustee
had standing to bring a motion for contempt based on violation of the
automatic stay as to the sixth cause of action.
The Koeberers timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in denying the Contempt
Motion for the Bank’s violation of the automatic stay.
STANDARDS OF REVIEW
“A bankruptcy court’s determination that the automatic stay was
7 violated is a question of law subject to de novo review.” Yellow Express, LLC
v. Dingley (In re Dingley), 514 B.R. 591, 595 (9th Cir. BAP 2014), aff’d on other
grounds, 852 F.3d 1143 (9th Cir. 2017). Similarly, we review de novo the
bankruptcy court’s ruling regarding the debtor’s standing to prosecute a
claim for violation of the automatic stay. See Advanced Ribbons & Off. Prods.,
Inc. v. U.S. Interstate Distrib., Inc. (In re Advanced Ribbons & Off. Prods., Inc.),
125 B.R. 259, 262 (9th Cir. BAP 1991) (“The debtor’s standing to assert a
violation of the automatic stay is also a legal issue subject to de novo
review.”). “De novo review requires that we consider a matter anew, as if
no decision had been made previously.” Francis v. Wallace (In re Francis),
505 B.R. 914, 917 (9th Cir. BAP 2014).
We review the amount of sanctions imposed for a willful violation of
the stay, including an award of attorneys’ fees and costs, for an abuse of
discretion. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1213 (9th Cir.
2002) (“The amount of sanctions imposed for a willful violation of the stay
is reviewed for an abuse of discretion.”); see Am.'s Servicing Co. v. Schwartz-
Tallard (In re Schwartz-Tallard), 803 F.3d 1095, 1101 (9th Cir. 2015) (en banc)
(“[C]ourts awarding fees under § 362(k) thus retain the discretion to
eliminate unnecessary or plainly excessive fees.” (citation omitted)).
To determine whether the bankruptcy court has abused its discretion,
we conduct a two-step inquiry: (1) we review de novo whether the
bankruptcy court “identified the correct legal rule to apply to the relief
requested” and (2) if it did, we consider whether the bankruptcy court’s
8 application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.
United States v. Hinkson, 585 F.3d 1247, 1262-63 & n.21 (9th Cir. 2009) (en
banc).
We review the court’s underlying factual findings, including whether
the violation was willful, for clear error. Eskanos & Adler, P.C., 309 F.3d at
1213. Factual findings are clearly erroneous if they are illogical,
implausible, or without support in the record. Retz v. Samson (In re Retz),
606 F.3d 1189, 1196 (9th Cir. 2010). If two views of the evidence are
possible, the court’s choice between them cannot be clearly erroneous.
Anderson v. City of Bessemer City, 470 U.S. 564, 573-74 (1985).
DISCUSSION
A. The Bank violated the automatic stay.
The Koeberers argue that the bankruptcy court erred in denying the
Contempt Motion because the Bank knew of the automatic stay yet chose
to actively pursue them in the state court action. The bankruptcy court held
that the Bank violated the automatic stay when it served the Notice of Trial
and sought to pursue the UVTA claim. The court went on to characterize
the violation as technical. We agree with the first part of this holding but
disagree with the second.
The filing of a chapter 7 petition automatically creates an estate
containing all legal and equitable interests of the debtor in property as of
the commencement of the case. The trustee administers the estate and is the
9 representative of the estate. Mwangi v. Wells Fargo Bank, N.A. (In re
Mwangi), 764 F.3d 1168, 1173 (9th Cir. 2014).
The filing of a petition also gives rise to the automatic stay that
“effect[s] an immediate freeze of the status quo by precluding and
nullifying post-petition actions, judicial or nonjudicial, in nonbankruptcy
fora against the debtor or affecting the property of the estate.” Id. (quoting
Hillis Motors, Inc. v. Haw. Auto. Dealers’ Ass’n, 997 F.2d 581, 585 (9th Cir.
1993)).
The subsections of § 362(a) describe the actions that are subject to the
automatic stay. The relevant subsections are § 362(a)(1) and (a)(3).
Subsection (a)(1) provides that a bankruptcy petition operates as a stay of:
the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title[.]
§ 362(a)(1) (emphasis added). Section 362(a)(1) thus applies to two types of
actions. The first clause applies to any action against the debtor that was
filed, or could have been filed, before the bankruptcy filing. The second
clause applies to any action to recover a claim against the debtor that arose
prepetition.
Subsection (a)(3) provides that the stay also applies to “any act to
obtain possession of property of the estate or of property from the estate or
10 to exercise control over property of the estate[.]”
Section 362(k)(1) provides 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.” “A willful violation is satisfied if a party knew
of the automatic stay, and its actions in violation of the stay were
intentional.” Eskanos & Adler, P.C., 309 F.3d at 1215.
The movant “bears the burden of proving, by a preponderance of the
evidence, that she suffered damages caused by the stay violations. A debtor
must support a claim for damages with reasonable certainty.” Moore v.
Ass’n of Apartment Owners of the Windsor (In re Moore), 488 B.R. 120, 127-28
(D. Haw. 2013) (citations omitted).
1. The Bank was aware of the automatic stay.
There is no dispute that the Bank knew of the automatic stay and
knew that it applied to at least part of its state court complaint against the
Koeberers. The Bank received notice of the bankruptcy petition and filed an
appearance and a request for electronic notification in the bankruptcy
court. It also filed a notice of stay in the state court action (which was
rejected) and told the state court that it was aware of the bankruptcy case
and would not pursue the state court action as to the Koeberers.
2. The Bank violated the automatic stay by “continuing” the state court action.
Despite knowledge of the automatic stay, the Bank filed the Notice of
11 Trial and intended to prosecute the UVTA claim against the Koeberers’ co-
defendants. We agree with the bankruptcy court that these acts violated the
automatic stay.
a. The Bank violated § 362(a)(1).
By filing the Notice of Trial, the Bank violated the first clause of
§ 362(a)(1) because doing so “continu[ed] . . . a judicial . . . action or
proceeding against the debtor that was . . . commenced before” the
Koeberers commenced their bankruptcy case. Filing the Notice of Trial
changed the status quo that existed when the Koeberers filed their
bankruptcy petition because it stated that the case would go to trial on a
specific date, presumably against all parties and on all causes of action. Cf.
Perryman v. Dal Poggetto (In re Perryman), 631 B.R. 899, 904 (9th Cir. BAP
Oct. 8, 2021) (stating that actions that do not disturb the status quo are not
violative of the automatic stay).
In an apparent attempt to avoid a violation, the Bank also filed a
Notice of Stay that the automatic stay applied to the Koeberers. But the
state court’s refusal to accept the notice thwarted this attempt. The state
court’s reason for doing so was incorrect, but the Bank’s failure to do
anything in response for several weeks is both unexplained and unexcused.
As a result, the case was set to proceed on all claims and against all parties.
In short, the Notice of Trial was an act to continue the case against the
Koeberers in violation of § 362(a)(1).
Filing the Notice of Trial also violated the second clause of § 362(a)(1)
12 because prosecuting the claims under the UVTA was the “continuation . . .
of a judicial . . . action or proceeding . . . to recover a claim against the
debtor that arose before the commencement of” the Koeberers’ bankruptcy
case. The Bank made no attempt to rectify this violation. Instead, the Bank
insisted that there was no violation at all because the stay did not apply.
The Bank was wrong. As the Second Circuit held in Colonial Realty:
Section 362(a)(1) provides that actions “against the debtor” or “to recover a claim against the debtor” are subject to the automatic stay. The latter category must encompass cases in which the debtor is not a defendant; it would otherwise be totally duplicative of the former category and pure surplusage. Upon analysis, a third-party action to recover fraudulently transferred property is properly regarded as undertaken “to recover a claim against the debtor” and subject to the automatic stay pursuant to § 362(a)(1).
980 F.2d at 131-32. It concluded that a fraudulent transfer claim was subject
to the automatic stay because “it is an ‘action . . . to recover a claim against
the debtor’ within the meaning of § 362(a)(1).” Id. at 132.
We agree with the bankruptcy court that Colonial Realty was well-
reasoned and that the Ninth Circuit would follow it. See 5 Collier on
Bankruptcy § 548.01[2][b][i] (Richard Levin & Henry J. Sommer eds., 16th
ed.) (citing Colonial Realty and stating that § 362(a)(1) “has been held to
apply to a creditor’s fraudulent transfer action against a transferee from the
debtor to the extent that the action seeks satisfaction of a claim against the
debtor. The argument here is that the creditor’s action is an effort to collect
13 a claim owed by the debtor, and thus is stayed by the express wording of
paragraph (1).”).3
The bankruptcy court correctly held that the Bank’s actions violated
§ 362(a)(1).
b. The Bank violated § 362(a)(3).
The Bank also violated subsection (a)(3) by continuing to pursue the
UVTA claim, because that claim belonged to the Koeberers’ bankruptcy
estate.
A fraudulent conveyance action becomes property of the estate upon
the filing of a bankruptcy petition. See In re Mark One Corp., 619 B.R. 423,
439 (Bankr. E.D. Cal. 2020) (holding that recovery on an action for
“preferences or fraudulent conveyances” “is clearly within the rights of the
bankruptcy estate to recover fraudulent conveyances”). “The trustee’s
3 The Koeberers argue that the Bank’s pursuit of the UVTA claim also violated the first clause of § 362(a)(1) because they were indispensable parties to that claim. We disagree. Most courts hold that the transferor is not a necessary party to such an action. See In re Silverman, 603 B.R. 498, 502 (Bankr. D.N.M. 2019) (surveying nationwide decisions and concluding that “[c]ase law makes clear that the transferor is not a necessary party to an avoidance action brought against the transferee if the transferor did not retain any interest in the transferred property”); Takiguchi v. MRI Int’l, Inc., Case No. 2:13-CV-01183-JAD-VCF, 2015 WL 13677808, at *2 (D. Nev. Jan. 23, 2015) (surveying cases and holding that “the weight of authority is that a transferor is indispensable only where he has retained an interest in the conveyed property”); Still v. Hopkins (In re Hopkins), 494 B.R. 306, 315 (Bankr. E.D. Tenn. 2013) (“In a suit to set aside a fraudulent conveyance, the grantor is not an indispensable party defendant where he has retained no interest, either legal or equitable, in the property conveyed.” (citation omitted)). But it does not matter because, as Colonial Realty makes clear, the second clause of § 362(a)(1) applies to actions to collect claims against the debtor regardless of whether the debtor is a party to the action. 14 standing to sue on behalf of the estate is exclusive; a debtor’s creditors
cannot prosecute such claims belonging to the estate absent abandonment.”
Capriati Constr. Corp. v. SPER, Inc. (In re Capriati Constr. Corp.), BAP No.
NV-17-1200-BHTa, 2018 WL 1404439, at *5 (9th Cir. BAP Mar. 20, 2018)
(citing Estate of Spirtos v. One San Bernardino Cnty. Super. Ct., 443 F.3d 1172,
1175 (9th Cir. 2006)).
The Notice of Trial stated that the entire case would proceed to trial.
As to the UVTA claim against John, this was an act to “exercise control
over property of the estate” that violated § 362(a)(3). See id. at *6 (“We
conclude that [creditor’s] fraudulent transfer claim asserted in the state
court action was property of [chapter 11 debtor-in-possession’s]
bankruptcy estate by virtue of § 544(b) once [debtor] filed its bankruptcy
petition, and such claim could only be pursued by [debtor-in-
possession].”). The Bank never took any steps to reverse its position and
comply with § 362(a)(3). Instead, the Bank doubled down on its position
when its counsel confirmed to the Koeberers’ counsel that the Bank would
pursue the UVTA claim against John. It was only when the state court
vacated the trial date that the Bank stopped pressing the UVTA claims.
Thus, the Bank also violated § 362(a)(3).
3. The bankruptcy court erred in holding that the Koeberers lacked standing to assert a stay violation.
The bankruptcy court also held that the Koeberers lacked standing to
assert a stay violation based on the Bank’s continued pursuit of the UVTA
15 claim, because the claim belonged to the bankruptcy trustee, and not the
Koeberers. This decision was partly correct and partly erroneous.
We agree with the bankruptcy court that the Koeberers lacked
standing to assert a violation of § 362(a)(3). The bankruptcy court correctly
stated that the Koeberers did not own the UVTA claim. Rather, that claim
belonged to the estate, represented exclusively by the trustee. See, e.g.,
Zavala v. Wells Fargo Bank, N.A. (In re Zavala), 444 B.R. 181, 191 (Bankr. E.D.
Cal. 2011) (holding, with regard to § 362(a)(3), that “[w]hile a debtor may
seek recovery of damages when the automatic stay is violated as to that
debtor, such a remedy does not grant the debtor ‘co-trustee’ like powers to
control property of the estate. The Debtors may not assert rights of the
bankruptcy estate against third-parties, such as the alleged claim for
violating the automatic stay as it applies to property of the estate”). Thus,
interference with the UVTA claim could have harmed only the estate and
could not have subjected the Koeberers to any actual damages.
Nevertheless, § 362(a)(1) protected the Koeberers. When a creditor
takes some action against the debtor, whom the automatic stay is meant to
protect, the debtor has standing to raise a violation of the automatic stay.
See Rogers v. NationsCredit Fin. Servs. Corp., 233 B.R. 98, 106 (N.D. Cal. 1999)
(“Defendant also adds a footnote alleging that Plaintiff lacks standing to
seek a claim for relief for violation of the automatic stay, as such relief is
property of the estate and thus the claim must be brought by the Trustee.
Defendant is mistaken. As noted above, a primary purpose of the
16 automatic stay provision of § 362 is to protect the interests of the
individual debtor.”).
As we have noted, the automatic stay protected the Koeberers from
any action to collect their prepetition debts, even actions to which they
were not (or were not required to be) parties. § 362(a)(1). The Notice of
Trial continued the state court action and appeared to be indiscriminately
directed at all parties, including the Koeberers, concerning all causes of
action. They had standing to protect their interests. See James v. Wash. Mut.
Sav. Bank (In re Brooks), 871 F.2d 89, 90 (9th Cir. 1989) (Congress “limited
standing [under § 362] to those Congress designated as beneficiaries of the
stay.” (discussing Magnoni v. Globe Inv. & Loan Co. (In re Globe Inv. & Loan
Co.), 867 F.2d 556 (9th Cir. 1989))).
4. The court erred when it denied § 362(k) sanctions because the Bank’s violations were “technical.”
The bankruptcy court held that sanctions were not warranted
because the Bank committed only technical violations of the automatic stay.
It found that the Bank “took no other action to advance the sixth cause of
action” and then “stood down.”
The statement that “technical” violations are undeserving of
sanctions under § 362(k) was error. Section 362(k) provides that the court
“shall” award sanctions to “any individual injured” by “any willful
violation of a stay provided by” § 362. § 362(k) (emphasis added); see In re
Schwartz-Tallard, 803 F.3d at 1101 (Ҥ 362(k) is best read as authorizing an
17 award of attorney’s fees incurred in prosecuting an action for damages
under the statute. . . . § 362(k) makes such fee awards mandatory rather
than discretionary . . . .”). While the moving party must show “injury,” and
the court may consider the severity of the violation when deciding the
amount of sanctions, there is no category of violations so minor that it
automatically negates the mandatory language of § 362(k). 4
B. The bankruptcy court did not err when it denied actual and punitive damages.
The bankruptcy court found that the Koeberers suffered no “actual
damage” as a result of the Bank’s violations. We discern no error. The
bankruptcy court had discretion to withhold § 362(k) sanctions where the
creditor’s conduct was not egregious and the debtors allege that they “were
inconvenienced and annoyed” but demonstrate “no actual damages.”
4 A violation of the automatic stay can also be a contempt of court. In such a case, a court may withhold all contempt remedies if the violation was “technical.” Cables & Accessories, Inc., v. Brewer (In re Cables & Accessories, Inc.), 92 F. App’x 435, 437 (9th Cir. 2004) (holding that “[t]he bankruptcy court did not abuse its discretion by refusing to hold Brewer in civil contempt for its technical violation of the automatic stay”). But § 362(k), and not the court’s contempt powers, governs this case, and the plain language of that section does not permit an exception for “technical” violations. This panel has expressed some support for “the idea that a technical violation of stay will not necessarily make that violation void.” Wash. Mut. Sav. Bank v. James (In re Brooks), 79 B.R. 479, 481 (9th Cir. BAP 1987), aff'd on other grounds, 871 F.2d 89 (9th Cir. 1989); see also Jones v. Wingo (In re Wingo), 89 B.R. 54, 57 (9th Cir. BAP 1988) (stating in dicta that “[t]here are situations in which a technical violation of the stay will not necessarily render that violation void”). The Ninth Circuit has expressly “refrain[ed] from addressing the validity of the Brooks exception.” Schwartz v. United States (In re Schwartz), 954 F.2d 569, 574-75 (9th Cir. 1992). This case does not present the issue of whether a transfer is void or voidable. 18 McHenry v. Key Bank (In re McHenry), 179 B.R. 165, 168 (9th Cir. BAP 1995)
(construing § 362(h), the predecessor of § 362(k)). Although the Koeberers’
motion claimed $5,000 of actual damages, the Koeberers never offered any
evidence at all that they suffered any actual harm, so the court was within
its discretion to deny an award of actual damages. In re Moore, 488 B.R. at
127-28.
Similarly, the court did not err when it denied punitive damages.
Although the Bank did not comply with the stay as quickly as it should
have, the bankruptcy court was well within its discretion to hold that the
Bank’s conduct was not so egregious as to warrant punitive damages. See
Stinson v. Cook Perkiss & Lew, APC (In re Stinson), 128 F. App’x 30, 31-32 (9th
Cir. 2005) (“Although § 362[(k)] permits the recovery of such damages ‘in
appropriate circumstances,’ this court has cautioned that punitive damages
are only appropriate if there has been ‘some showing of reckless or callous
disregard for the law or rights of others.’ . . . . The bankruptcy court has
considerable discretion in granting or denying punitive damages under
§ 362[(k)] . . . .”); In re McHenry, 179 B.R. at 168 (concluding that “no
punitive damages should be awarded in the absence of actual damages . . .
[because] the automatic stay afforded by section 362 is intended to be a
shield protecting debtors and their estates, and should not be used as a
sword for their enrichment . . . [and] [t]he incurrence of actual damage, a
measurable event, serves as a basis for a determination of an appropriate
punitive damage award. Where there is no actual damage, such measure
19 does not exist”); see also State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S.
408, 426 (2003) (“[C]ourts must ensure that the measure of punishment is
both reasonable and proportionate to the amount of harm to the plaintiff
and to the general damages recovered.”).
C. The bankruptcy court did not explicitly determine the reasonableness (or unreasonableness) of the Koeberers’ attorneys’ fees and costs.
Section 362(k)(1) states that an individual injured by a stay violation
“shall” recover “costs and attorneys’ fees . . . .” Despite its mandatory
language, this subsection is not a blank check. The Ninth Circuit has
instructed that “[o]nly an award of fees reasonably incurred is mandated
by” § 362(k)(1). In re Schwartz-Tallard, 803 F.3d at 1101; see Stainton v. Lee (In
re Stainton), 139 B.R. 232, 235 (9th Cir. BAP 1992) (discussing § 362(k)’s
predecessor and stating that “[i]t is well established that the bankruptcy
court has discretion to determine the reasonableness of the fees and costs
and to set the amounts accordingly”); In re Cowan, 586 B.R. 337, 346 n.10
(Bankr. D. Idaho 2018) (“In deciding the appropriate amount of attorney’s
fees to award as a sanction for a discharge violation, the Court must
determine ‘what portion of those costs was reasonable as opposed to costs
that could have been mitigated.’” (quoting Eskanos & Adler, P.C. v. Roman
(In re Roman), 283 B.R. 1, 12 (9th Cir. BAP 2002))).
The bankruptcy court did not explicitly determine the reasonable
amount of fees. Instead, the court denied all fees because it viewed the
20 Bank’s violation as “technical.” But the reasonableness of a legal fee does
not necessarily depend entirely on the severity of the conduct that
precipitated the legal work.
On this record, we cannot determine whether any particular amount
of attorneys’ fees would be reasonable. The Bank violated the stay by filing
and serving the Notice of Trial eighteen days after the Koeberers filed their
bankruptcy petition. We know that this was not inadvertent. In an
apparent attempt to avoid or mitigate its violation, it simultaneously filed
and served the Notice of Stay. But this was not entirely effectual because
the state court refused to file it and because it did not withdraw the Notice
of Trial as to the fraudulent transfer claims. The Bank did nothing to
correct its error until after the Koeberers’ counsel contacted its counsel. The
record shows that, on October 27-29, 2020, the Koeberers’ counsel billed for
about six hours of time to analyze the stay issues and communicate with
the Bank’s counsel.5 The state court trial was not continued until a few
weeks later.
On this record, the bankruptcy court might find that at least a portion
of the Koeberers’ attorneys’ fees were reasonably incurred to prevent or
mitigate the Bank’s stay violations. After all, the Bank persisted in its
efforts to prosecute the fraudulent transfer claims, despite § 362(a)(3) and
5 The relevant billing records are located in the appellants’ excerpts of record at pages 551-52 or on the bankruptcy court’s docket at ECF docket no. 46.
21 Colonial Realty, until the Koeberers’ counsel contacted the Bank’s counsel.6
Alternatively, the bankruptcy court might find that the reasonable amount
of the Koeberers’ fees is zero because the Koeberers offered no evidence of
actual damages and were not the primary targets of the fraudulent transfer
claims. Because the reasonable amount of attorneys’ fees is a factual
question, see Franchise Tax Bd. v. Roberts (In re Roberts), 175 B.R. 339, 345 (9th
Cir. BAP 1994) (declining to rule on “the reasonableness of the attorney
fees awarded” because it is a “question[ ] of fact, not law . . .”), the
bankruptcy court should address it in the first instance.
CONCLUSION
The bankruptcy court did not err in finding that the Bank violated the
automatic stay and denying an award of actual damages and punitive
damages to the Koeberers under § 362(k). But the Koeberers had standing
to address the stay violation against them, and the court denied the
attorneys’ fees claimed by the Koeberers without making any finding as to
the reasonableness of any of the claimed fees and costs. Therefore, we
6 The Bank argued that the bankruptcy court should deny fees because, by the time the Koeberers’ counsel began drafting the Contempt Motion, the stay violations had ended. We do not endorse a blanket rule that fees are never available if the stay violation has ended before the fee motion is filed. Debtors and their counsel should be encouraged to contact creditors’ counsel informally to secure compliance and only to file motions if informal efforts fail. The Bank’s argument, if accepted, would give debtors’ counsel a financial incentive to file fee motions at the earliest possible moment, before contacting the creditor. Furthermore, in this case, it remains a question of fact when the Bank ceased the stay violation and whether its termination of the stay violation was sufficiently conveyed to the Koeberers. 22 VACATE the denial of costs and attorneys’ fees, REMAND for the
bankruptcy court to determine the reasonable amount (if any) of the
Koeberers’ attorneys’ fees, and AFFIRM in all other respects.