Sternberg v. Johnston

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MELVIN STERNBERG; STERNBERG &  Nos. 07-16870 &
SINGER, LTD., 08-15721
Appellants, D.C. No.
v. 2:06-CV-02115-
LOGAN T. JOHNSTON, III,  ROS
Appellee. ORDER
AMENDING
OPINION AND
AMENDED
 OPINION
Appeal from the United States District Court
for the District of Arizona
Roslyn O. Silver, District Judge, Presiding
Argued and Submitted
March 6, 2009—Tucson, Arizona
Filed October 1, 2009
Amended October 22, 2009
Second Amendment February 8, 2010
Before: Michael Daly Hawkins, Marsha S. Berzon, and
Richard R. Clifton, Circuit Judges.
Opinion by Judge Clifton
2143
STERNBERG v. JOHNSTON 2147
COUNSEL
Michael W. Carmel, Phoenix, Arizona, for the appellants.
Ronald J. Ellett, Phoenix, Arizona, for the appellee.
ORDER
The opinion in this case is further amended by adding a
new footnote 3 (and renumbering succeeding footnotes) on
page 14188 of the amended slip opinion filed on October 22,
2009 (also found at 582 F.3d 1114, 1122), at the end of the
first sentence of the fourth paragraph under the heading “B.
Attorney Fees,” which reads:
The relevant statute, 11 U.S.C. § 362(k)(1), states
that “an individual injured by any willful violation of
a stay . . . shall recover actual damages, including
costs and attorneys’ fees, and, in appropriate circum-
stances, may recover punitive damages.”
The new footnote 3 added at the end of that sentence is:
The attorneys fee award against Sternberg was based
on the authority of this statute. The bankruptcy court
did not find Sternberg or anyone else to be in civil
contempt for violating the automatic stay, nor did it
impose any sanctions under its inherent civil con-
tempt authority. See In re Dyer, 322 F.2d 1178, 1189
2148 STERNBERG v. JOHNSTON
(9th Cir. 2003). As this opinion does not consider the
civil contempt authority of the court, it does not limit
the availability of contempt sanctions, including
attorney fees, for violation of the automatic stay,
where otherwise appropriate.
With this amendment, the panel has voted to deny the peti-
tion for panel rehearing. Judges Berzon and Clifton vote to
deny the petition for rehearing en banc and Judge Hawkins so
recommends. The full court has been advised of the petition
for rehearing and rehearing en banc and no judge has
requested a vote on whether to rehear the matter en banc. See
Fed. R. App. P. 35. The petition for panel rehearing and the
petition for rehearing en banc are denied. No subsequent peti-
tions for rehearing, rehearing en banc, or rehearing before the
full court may be filed.
OPINION
CLIFTON, Circuit Judge:
The filing of a bankruptcy petition immediately gives rise
to an automatic stay. The stay applies to block or freeze most
judicial actions against a debtor. It also permits a debtor to
recoup any “actual damages,” including attorney fees, that
result from a willful stay violation. See 11 U.S.C. § 362. This
case presents questions both as to when a willful stay viola-
tion occurs and as to what attorney fees may be recovered as
“actual damages.”
We affirm the holding of the district court that appellant
Melvin Sternberg willfully violated the automatic stay that
arose once appellee Logan Johnston filed for bankruptcy. Our
cases establish that Sternberg had an affirmative duty to com-
ply with the stay. This duty included ensuring that his actions
did not prolong a violation of the stay that resulted from a
STERNBERG v. JOHNSTON 2149
state court motion seeking relief against Johnston that Stern-
berg filed prior to the bankruptcy. In this case, Sternberg will-
fully violated the automatic stay by defending an overbroad
state court order in its entirety.
We also hold, however, that Johnston can recover as actual
damages only those attorney fees related to enforcing the
automatic stay and remedying the stay violation, not the fees
incurred in prosecuting the bankruptcy adversary proceeding
in which he pursued his claim for those damages. We thus
vacate the amount of the award entered by the district court
and remand for determination of the appropriate amount.
I. Background
Logan Johnston and Paula Parker were divorced in 1996.
As part of the property settlement, Johnston was ordered to
pay spousal maintenance.
In January 2001, Parker, through her attorney, Melvin
Sternberg, asked the state court to hold Johnston in contempt
for non-payment of spousal support. Among other things, the
request asked the court to “award Judgment . . . for all sums
of spousal maintenance[;] . . . enter an Order that [Johnston]
be incarcerated; that his professional law license be sus-
pended; and his drivers’ license be revoked . . . until he . . .
immediately pay[s] ALL sums[;]” and place a lien “upon any
vehicle or other property owned.”
On May 14 of that year, Johnston filed a Chapter 11 bank-
ruptcy petition. His bankruptcy counsel did not file notice of
this petition in the state court proceeding until May 17, how-
ever.
On that same day, May 17, the state court conducted what
appears to have been a previously scheduled evidentiary hear-
ing on Parker’s contempt request. Johnston, who is an attor-
ney, represented himself. Approximately 15 minutes into the
2150 STERNBERG v. JOHNSTON
hearing, he advised the court for the first time of his bank-
ruptcy proceedings, explaining that the proceedings would
result in a plan to pay his debts, including the spousal support,
and that his bankruptcy counsel had informed him that the fil-
ing of the bankruptcy petition stayed anything regarding the
property settlement, attorney fees, and sanctions. He apolo-
gized for “not knowing exactly what’s going on” and said, “I
guess, I object in the abstract to anything that would contra-
vene the bankruptcy laws,” while agreeing that the state court
could establish the amount of his arrears.
Sternberg, for his part, explained that he did not know if the
bankruptcy filing stayed the proceedings but stated that he did
not think moving forward on the arrears, attorney fees, and
contempt determination would violate the stay. The court
decided to proceed on the issue of whether Johnston was in
contempt. It would “take up the issue of sanctions at a later
time when counsel ha[d] researched whether or not [the] court
has jurisdiction to issue sanctions when a bankruptcy proceed-
ing is pending.”
On July 13, the state court filed a minute order holding
Johnston in violation of the divorce decree. The court found
Johnston in contempt and granted judgment for Parker in the
amount of $87,525.60, including interest. In addition, it
ordered Johnston to “pay the judgment by August 1, 2001,”
or be jailed “until the full amount . . . is paid.”
The parties were surprised by the order. Specifically, the
bankruptcy court found that Sternberg and Parker “had
expected further proceedings before the Judge would order
[Johnston] to pay a sum certain or face any consequences.”
Johnston quickly sought to obtain relief from the order. He
filed a motion for stay in the state court, but the hearing date
on that motion was set for the day after the August 1 deadline
by which he was to pay the arrears or go to jail. Additionally,
he wrote a letter to Sternberg informing him that he was in
STERNBERG v. JOHNSTON 2151
violation of the automatic stay and asking Sternberg to “take
appropriate remedial measures to cure [his] violation.” Stern-
berg did not take such action.
Johnston then filed a petition in the Arizona court of
appeals, requesting the appellate court to stay and vacate the
order. Representing Parker, Sternberg’s law firm filed a
responsive brief, which was signed by another lawyer on
Sternberg’s behalf. The brief took the position that the state
court had proceeded within two exemptions to the automatic
stay. Those exemptions allow for “the establishment or modi-
fication of an order for domestic support obligations” and “the
collection of a domestic support obligation from property that
is not property of the estate.” 11 U.S.C. § 362(b)(2)(A)-(B).
The brief concluded by arguing that the judge “properly exer-
cised her broad discretion and legal authority to continue with
the evidentiary hearing[,] . . . [to] hold Petitioner in con-
tempt[,]” and to “deny [his] motion for relief.”
In the meantime, Johnston also sought relief from the bank-
ruptcy court, where he filed another emergency motion to set
aside the minute order, and also an adversary proceeding
charging Parker and Sternberg with willfully violating the
automatic stay. On July 31, the bankruptcy court conducted a
hearing on the emergency motion. It concluded that the auto-
matic stay had been violated and vacated the state court’s
minute order. In a later order, the bankruptcy court summa-
rized its decision as follows:
If the State Court had qualified its Order to reflect
only the amount of the arrearages, or if the State
Court had been advised of what constituted non-
estate property, so that the Minute Entry Order could
be tailored only to the collection of the arrearages
from such non-estate property, then the State Court
arguably would have been acting within an excep-
tion to the automatic stay. However, the Minute
Entry dictated that the Debtor immediately satisfy a
2152 STERNBERG v. JOHNSTON
large Judgment or face incarceration; all without the
State Court focusing on the non-estate property . . .
or requesting the Bankruptcy Court’s prior determi-
nation of whether the automatic stay applied . . . .
Johnston v. Parker (In re Johnston), 308 B.R. 469, 474
(Bankr. D. Ariz. 2003) (“Johnston I”).
Some time later, the adversary proceeding went to trial.
After Johnston presented his case, Parker and Sternberg
moved for a directed verdict. Id. at 471. The bankruptcy court
granted the motion. Id. at 484-85. While the court reaffirmed
its earlier conclusion that the state court order had violated the
automatic stay, it wrote that it “[did] not see any separate vio-
lation of the stay by Defendants Parker and Sternberg.” Id. at
478. Furthermore, the court noted that while Eskanos &
Alder, P.C. v. Leetien (Eskanos), 309 F.3d 1210 (9th Cir.
2002), a precedent imposing an affirmative duty on parties to
dismiss or stay actions that violate the stay, id. at 1214-15,
could be interpreted as “chang[ing] this result,” the court
believed that case “should be limited to postpetition collection
actions commenced or maintained by a creditor or its law
firm” and not a claim for “support arrearages.” Johnston I,
308 B.R. at 483-84.
On appeal, the district court reversed, holding Eskanos to
be controlling. Johnston v. Parker (In re Johnston), 321 B.R.
262, 282 (D. Ariz. 2005) (“Johnston II”). More specifically,
the court held, under Eskanos, that Sternberg and Parker “had
an obligation to remedy the violation” of the stay created by
the state court order and found no grounds by which to distin-
guish Eskanos. Id. at 284-86. It remanded the case to the
bankruptcy court for further proceedings. Id. at 287.
The remanded issues were then tried to the bankruptcy
court. Before the court issued a ruling, Johnston settled with
Parker, leaving only Sternberg as a defendant.
STERNBERG v. JOHNSTON 2153
The bankruptcy court filed its decision in March 2006. The
court explained that the district court’s opinion had narrowed
the issues because it had concluded that “Sternberg willfully
violated the automatic stay.” After hearing Johnston’s testi-
mony and reviewing his monthly interim reports, the court
concluded that Johnston had been injured in the amount of
$2,883.20 because the stay violation had hindered his ability
to work. The court also found Johnston’s testimony of emo-
tional distress to be credible and awarded further damages in
the amount of $20,000. Lastly, the court conducted a review
of Johnston’s attorney fees and costs, and awarded $69,986,
which included fees for prosecuting the adversary proceeding.
The total judgment amounted to $92,869.20 plus post-
judgment interest at a rate of 5.10% per annum.
An appeal followed, and the district court affirmed. Stern-
berg then appealed to our court.
II. Discussion
This opinion addresses two issues: whether Sternberg vio-
lated the automatic stay and whether the bankruptcy court
erred in its calculation of Johnston’s damages.1 Each issue is
addressed in turn.2
1
While Sternberg also argues that the bankruptcy court’s emotional dis-
tress award was an abuse of discretion, this issue does not merit a lengthy
discussion. Each of Sternberg’s arguments is foreclosed by Dawson v.
Washington Mutual Bank, F.A. (In re Dawson), 390 F.3d 1139 (9th Cir.
2004). First, as In re Dawson clearly states, “even if the violation of the
automatic stay was not egregious,” Johnston could recover emotional dis-
tress damages that arose from a stay violation. Id. at 1149-50. Second,
Johnston could establish emotional distress damages without corroborat-
ing evidence if the circumstances make it obvious “that a reasonable per-
son would [have] suffer[ed] significant emotional harm,” which the
bankruptcy court found was the case here. Id. at 1149-51. Lastly, there is
no basis on which to disturb the bankruptcy court’s finding that Johnston
did not waive his emotional distress claim or to find that his claim was
somehow precluded by the bankruptcy court’s evidentiary rulings.
2
Johnston argues that Sternberg has waived all of his arguments but one
by providing an inadequate “appellate record.” Sternberg supplemented
his excerpts of record, however, making it sufficient to resolve this dis-
pute. See Everett v. Perez (In re Perez), 30 F.3d 1209, 1217-18 (9th Cir.
1994).
2154 STERNBERG v. JOHNSTON
A. The Automatic Stay
Whether the automatic stay has been violated is an issue we
review de novo. Eskanos, 309 F.3d at 1213. “Whether a party
has willfully violated the automatic stay is a question of fact
reviewed for clear error.” Id.
[1] When a debtor files for bankruptcy, he is immediately
protected by an automatic stay under 11 U.S.C. § 362(a),
which provides that a bankruptcy petition, among other
things,
operates as a stay, applicable to all entities, of the
commencement or continuation . . . of a judicial,
administrative, or other action or proceeding against
the debtor . . . ; the enforcement . . . of a judgment
. . . ; any act to obtain possession of property of the
estate . . . ; [and] any act to create, perfect, or enforce
any lien . . . .”
It does not, however, prevent “the commencement or continu-
ation of a civil action . . . for the establishment or modifica-
tion of an order for domestic support obligations” or “the
collection of a domestic support obligation from property that
is not property of the estate.” 11 U.S.C. § 362(b)(2)(A)-(B).
Nevertheless, “[t]he scope of protections embodied in the
automatic stay is quite broad, and serves as one of the most
important protections in bankruptcy law.” Eskanos, 309 F.3d
at 1214; see Stringer v. Huet (In re Stringer), 847 F.2d 549,
552 (9th Cir. 1988) (“Congress clearly intended the automatic
stay to be quite broad. Exemptions to the stay, on the other
hand, should be read narrowly . . . .”).
[2] We have held on several occasions that the automatic
stay imposes on non-debtor parties an affirmative duty of
compliance. In State of California Employment Development
Department v. Taxel (In re Del Mission Ltd.), for example, we
held that a state’s knowing retention of disputed taxes vio-
STERNBERG v. JOHNSTON 2155
lated the automatic stay. 98 F.3d 1147, 1151-52 (9th Cir.
1996). We explained that “the onus to return estate property
is placed upon the possessor; it does not fall on the debtor to
pursue the possessor.” Id. at 1151. Similarly, in Knupfer v.
Lindblade (In re Dyer), we held that the post-bankruptcy peti-
tion recordation of a deed of trust by a creditor was a willful
violation of the automatic stay because the creditor “had an
affirmative duty to remedy his automatic stay violation . . .
such as by attempting to undo the recordation process.” 322
F.3d 1178, 1191-92 (9th Cir. 2003).
The district court in this case found the rationale of our
decision in Eskanos controlling. In that case, a law firm had
been hired by one of a debtor’s unsecured creditors to pursue
a collection action against the debtor. After filing the action,
the firm learned of the debtor’s bankruptcy but waited 23 days
to dismiss the action. Eskanos, 309 F.3d at 1212. The bank-
ruptcy court found that this inaction violated the automatic
stay, and the district court agreed. Id. at 1212-13. On appeal,
we explained that the plain language of § 362(a)(1) unam-
biguously imposed an “affirmative duty” on the firm to dis-
continue the action once it gained knowledge of the
bankruptcy. Id. at 1214-15. “Maintenance of an active collec-
tion action in state court does nothing if not carry forward or
persist against a debtor. . . . [S]tate filings exist as more than
placeholders—the risk of default judgment looms over the
debtor throughout.” Id. at 1214. Since the law firm allowed
the collection action to persist even after learning of the debt-
or’s bankruptcy, we affirmed. Id. at 1214-16.
[3] The above authorities establish that Sternberg had an
“affirmative duty” to conform his conduct to the automatic
stay once Johnston filed for bankruptcy. The district court
found that Sternberg violated this duty because he “w[as]
required to take affirmative action to stay or vacate the state
court’s . . . Order” and failed to do so. Johnston II, 321 B.R.
at 286.
2156 STERNBERG v. JOHNSTON
[4] We do not fault Sternberg for anything he did at the
May 17 state court hearing, because the news of Johnston’s
bankruptcy filing came as a surprise to him. The state court’s
July 13 order also surprised him, and Sternberg cannot be
held responsible for the order. Within a reasonable time after
that, however, the law required Sternberg to take corrective
action. He did not, and he affirmatively opposed Johnston’s
effort to obtain relief from the state appellate court.
As described above, shortly after the overbroad state court
order was filed, Johnston brought a petition for special action
requesting the state appellate court to stay and vacate the
order. In response, Sternberg offered a complete defense of
the order. The conclusion of the brief filed by Sternberg’s law
firm on behalf of Parker illustrates the breadth of this defense.
The brief concludes by arguing that the state court judge
“properly exercised her broad discretion and legal authority to
continue with the evidentiary hearing[,] . . . hold [Johnston]
in contempt[,]” and “deny [his] motion for relief.” Sternberg’s
defense of the order was absolute. He did not try to parse the
valid from the invalid, but instead defended the order in its
entirety, including the command that Johnston pay the arrears
or go to jail, and without limiting the source of payment to
non-estate property.
[5] Sternberg argues that he was “compelled” to do this
because the order was not completely invalid and Johnston
had requested that it be vacated in its entirety. This misses the
point. What Sternberg was compelled to do was comply with
the automatic stay. See, e.g., Eskanos, 309 F.3d at 1212-14.
The state court order was in violation of the stay because, as
the courts below concluded, it ordered Johnston to pay arrears
or go to jail without focusing on Johnston’s non-estate prop-
erty. See Johnston II, 321 B.R. at 275-80; Johnston I, 308
B.R. at 478, 480; see also 11 U.S.C. § 362. Sternberg recog-
nized this but did not say anything to the appellate court
because he did not think it was his duty “to practice law on
STERNBERG v. JOHNSTON 2157
[Johnston’s] behalf.” That did not, however, authorize him to
act in violation of the automatic stay.
[6] To comply with his “affirmative duty” under the auto-
matic stay, Sternberg needed to do what he could to relieve
the violation. He could not simply rely on the normal adver-
sarial process. See Johnston Envtl. Corp. v. Knight (In re
Goodman), 991 F.2d 613, 615-16 (9th Cir. 1993) (holding
that parties who attempted to exempt a debtor from their
unlawful detainer action with a unilateral stipulation still vio-
lated the automatic stay because “the stipulation might not
[have] accomplish[ed] its intended purpose” and thus the par-
ties “could have, and should have, pursued the orthodox rem-
edy: relief from the automatic stay”). At a minimum, he had
an obligation to alert the state appellate court to the conflicts
between the order and the automatic stay. As we have
explained before, “[t]he automatic stay is intended to give the
debtor a breathing spell from his creditors.” Goichman v.
Bloom (In re Bloom), 875 F.2d 224, 226 (9th Cir. 1989)
(internal quotation marks omitted). The state court order
intruded upon Johnston’s “breathing spell.” Sternberg did not
act to try to fix that problem.
Sternberg also argues a variety of facts that implicitly chal-
lenge the willfulness of his violation. The thrust of his argu-
ment is that because Johnston never specifically requested
that Sternberg seek to modify the order, and because Stern-
berg never sought to collect on the order, Sternberg did not
willfully violate the stay. Sternberg also appears to argue that
because he believed that he was always proceeding within the
domestic support exemptions, he could not have committed a
willful violation.
Johnston was not required to ask Sternberg to modify the
order for Sternberg’s violation to be willful. See In re Del
Mission Ltd., 98 F.3d at 1151-52 (concluding that the reten-
tion of taxes was a violation of the stay even though the
debtor never requested their return). Likewise, Sternberg
2158 STERNBERG v. JOHNSTON
needed neither to make some collection effort nor to know
that his actions were unlawful for his violation to be willful.
See Eskanos, 309 F.3d at 1214-15 (rejecting the law firm’s
assertion that something more than maintaining an active col-
lection action was needed to violate the stay); In re Goodman,
991 F.2d at 618 (“Whether the [defendant] believes in good
faith that it had a right to the property is not relevant to
whether the act was ‘willful’ . . . .” (internal quotation marks
omitted)). All that is required is that Sternberg “knew of the
automatic stay, and [his] actions in violation of the stay were
intentional.” Eskanos, 309 F.3d at 1215. Both of these ele-
ments were satisfied here.
At a minimum, Sternberg needed to alert the appellate court
to the obvious conflicts between the order and the stay. By not
doing so, he willfully violated the automatic stay.
B. Attorney Fees
Sternberg also argues that the bankruptcy court erred in cal-
culating Johnston’s damages because it awarded attorney fees
not only for the work associated with remedying the stay vio-
lation but also for the subsequent adversary proceeding in
which Johnston sought to collect damages for the stay viola-
tion. We agree.
“A bankruptcy court’s award of attorney fees is reviewed
for abuse of discretion or erroneous application of the law.”
Dawson v. Washington Mutual Bank, F.A. (In re Dawson),
390 F.3d 1139, 1145 (9th Cir. 2004).
[7] Congress legislates against the backdrop of the “Ameri-
can Rule.” Fogerty v. Fantasy, Inc., 510 U.S. 517, 533
(1994). “Unlike Britain where counsel fees are regularly
awarded to the prevailing party, it is the general rule in this
country that unless Congress provides otherwise, parties are
to bear their own attorney’s fees.” Id. We interpret possible
fee-shifting statutes in light of their context and the goals
STERNBERG v. JOHNSTON 2159
underlying the legislation of which they are a part. See Fulfill-
ment Services Inc. v. United Parcel Service, Inc., 528 F.3d
614, 623 (9th Cir. 2008).
[8] The relevant statute, 11 U.S.C. § 362(k)(1), states that
“an individual injured by any willful violation of a stay . . .
shall recover actual damages, including costs and attorneys’
fees, and, in appropriate circumstances, may recover punitive
damages.”3 Without a doubt, Congress intended § 362(k)(1) to
permit recovery as damages of fees incurred to prevent viola-
tion of the automatic stay. In permitting recovery of these fees
as damages, § 362(k)(1) is consistent with the American Rule.
There are several other situations in which fees can be part of
damages; i.e., where the harm to be remedied includes expen-
diture of fees. Examples include legal malpractice suits, see,
e.g., John Kohl & Co. P.C. v. Dearborn & Ewing, 977
S.W.2d 528 (Tenn. 1998) (holding that a successful plaintiff
in a legal malpractice action may recover “initial fees a plain-
tiff pays or agrees to pay an attorney for legal services that
were negligently performed” and “corrective fees incurred by
the plaintiff for work performed to correct the problem caused
by the negligent lawyer” but not “litigation fees, which are
legal fees paid by the plaintiff to prosecute the malpractice
action against the offending lawyer”) (internal quotations
omitted); bad faith actions against an insurer, see Brandt v.
Superior Court, 37 Cal. 3d 813 (Cal. 1985) (“When an insur-
er’s tortious conduct reasonably compels the insured to retain
an attorney to obtain the benefits due under a policy, it fol-
lows that the insurer should be liable in a tort action for that
expense. The attorney’s fees are an economic loss — damages
3
The attorneys fee award against Sternberg was based on the authority
of this statute. The bankruptcy court did not find Sternberg or anyone else
to be in civil contempt for violating the automatic stay, nor did it impose
any sanctions under its inherent civil contempt authority. See In re Dyer,
322 F.2d 1178, 1189 (9th Cir. 2003). As this opinion does not consider the
civil contempt authority of the court, it does not limit the availability of
contempt sanctions, including attorney fees, for violation of the automatic
stay, where otherwise appropriate.
2160 STERNBERG v. JOHNSTON
— proximately caused by the tort. These fees must be distin-
guished from recovery of attorney’s fees qua attorney’s fees,
such as those attributable to the bringing of the bad faith
action itself.”) (internal citations omitted); and abuse of pro-
cess suits, see, e.g., Technical Computer Servs., Inc. v. Buck-
ley, 844 P.2d 1249 (Colo. Ct. App. 1992) (recognizing the
“general rule” that “a claimant in a malicious prosecution or
abuse of process action can recover attorney fees incurred in
defending against the prior wrongful litigation” but “cannot
recover attorney fees incurred in bringing the malicious prose-
cution or abuse of process action itself,” and applying the
same rule where “the abuse of process claim is brought as a
counterclaim to wrongful litigation rather than as a later sepa-
rate action”).
What is less clear is whether Congress intended to deviate
from the American Rule by allowing recovery as damages of
the fees incurred in the bankruptcy court action for damages
resulting from violation of the automatic stay.4
We have previously stated that § 362(k)(1) “mandates the
award of actual damages to an individual injured by any will-
ful violation of a stay.” In re Del Mission Ltd., 98 F.3d at
1152 (internal quotation marks and alterations omitted). But
“actual damages” is an ambiguous phrase. See In re Dawson,
390 F.3d at 1146 (noting that “the text of the statute” does not
4
We have affirmed awards under § 362(k)(1) that appear to have con-
tained attorney fees incurred in prosecuting a § 362(k)(1) damages action.
See In re Dawson, 390 F.3d at 1152-53; In re Bloom, 875 F.2d at 227; see
also Havelock v. Taxel (In re Pace), 67 F.3d 187, 192 (9th Cir. 1995)
(describing In re Bloom as “approving an award of fees that included the
cost of prosecuting the action for damages stemming from violation of the
automatic stay”). In these cases our court was not confronted with an argu-
ment that § 362(k)(1) does not permit such fees. “In [none of the] case[s],
then, was the issue we face today ‘presented for review’ and decided.
Accordingly, we are free to decide the issue without referring it to the
court en banc.” United States v. Macias-Valencia, 510 F.3d 1012, 1015
(9th Cir. 2007) (internal citation omitted).
STERNBERG v. JOHNSTON 2161
define “actual damages”). The Bankruptcy Appellate Panel
(“BAP”), for example, seems to view “actual damages” as
requiring an award that returns a debtor to the position he was
in before the stay violation occurred. See Beard v. Walsh (In
re Walsh), 219 B.R. 873, 878 (B.A.P. 9th Cir. 1998) (rejecting
an alternative reading of the statute under which, according to
the BAP, “the injured party is not made whole”). Thus, in In
re Pace, the BAP stated:
An award of attorneys’ fees is appropriate where a
debtor must resort to the Court to enforce his or her
rights in consequence of a violation of the automatic
stay. Accordingly, it is well established that the
attorneys’ fees and costs incurred in prosecuting an
adversary proceeding seeking damages arising from
a violation of the automatic stay is recoverable . . . .
Havelock v. Taxel (In re Pace), 159 B.R. 890, 900 (B.A.P. 9th
Cir. 1993) (internal quotation marks and citation omitted),
vacated in part on other grounds by 67 F.3d 187 (9th Cir.
1995).
[9] In contrast, we conclude that the plain meaning of “ac-
tual damages” points to a different result. The dictionary
defines “actual damages” as “[a]n amount awarded . . . to
compensate for a proven injury or loss; damages that repay
actual losses.” BLACK’S LAW DICTIONARY 416 (8th ed. 2004).
Following this definition, the proven injury is the injury
resulting from the stay violation itself. Once the violation has
ended, any fees the debtor incurs after that point in pursuit of
a damage award would not be to compensate for “actual dam-
ages” under § 362(k)(1). Under the American Rule, a plaintiff
cannot ordinarily recover attorney fees spent to correct a legal
injury as part of his damages, even though it could be said he
is not made whole as a result. See, e.g., Restatement (Second)
of Torts § 914(1) (1979) (“The damages in a tort action do not
ordinarily include compensation for attorney fees or other
expenses of the litigation.”). The same is true here. The con-
2162 STERNBERG v. JOHNSTON
text and goals of the automatic stay support this narrower
understanding, and it is the one we adopt.
We have explained the purposes of the automatic stay as
twofold. These two purposes are enabling the debtor to try to
reorganize during a break from collection efforts and protect-
ing creditors by preventing one creditor from pursuing its own
remedies to the detriment of its co-creditors. See In re Daw-
son, 390 F.3d at 1147 (citing United States v. Dos Cabezas
Corp., 995 F.2d 1486, 1491 (9th Cir. 1993)). In re Dawson
took this analysis a step further. There, we reasoned that the
twofold purpose showed that “the stay . . . is meant to achieve
financial and non-financial goals.” Id. We explained that “one
aim of the automatic stay is financial[, as] the stay gives the
debtor time to put finances back in order, . . . [b]ut another
purpose is to create a breathing spell” for a debtor from his
creditors. Id. (internal quotation marks omitted).
Permitting a debtor to collect attorney fees incurred in pros-
ecuting a damages action would further neither the financial
nor the non-financial goals of the automatic stay. With regard
to the financial goals, we have explained that “the stay gives
the debtor time to put finances back in order, offers the debtor
an opportunity to reorganize so that creditors can be satisfied
to the greatest extent possible, and prevents creditors from
racing to devour the debtor’s estate . . . .” Id. The stay, then,
is meant to help the debtor deal with his bankruptcy for the
benefit of himself and his creditors alike. We have never said
the stay should aid the debtor in pursuing his creditors, even
those creditors who violate the stay. The stay is a shield, not
a sword. See, e.g., Hillis Motors, Inc. v. Hawaii Auto. Deal-
ers’ Ass’n, 997 F.2d 581, 585 (9th Cir. 1993) (“It is designed
to effect an immediate freeze of the status quo by precluding
and nullifying post-petition actions . . . in nonbankruptcy fora
against the debtor . . . .”).
[10] Allowing attorney fees for a damages action also
would not promote the non-financial goals of the automatic
STERNBERG v. JOHNSTON 2163
stay. More litigation is hardly consistent with the concept of
a “breathing spell” for the debtor. In fact, part of the rationale
of the “affirmative duty” we have imposed on non-debtors to
dismiss collection actions against debtors is that “[c]ounsel
must be engaged to defend against a default judgment [and]
. . . state collection actions are not to be used as leverage in
negotiating . . . in bankruptcy.” Eskanos, 309 F.3d at 1214.
There is no reason to think that we should approve these pos-
sibilities when they could work to the debtor’s advantage.
Either way, he is engaged in litigation attenuated from the
actual bankruptcy, something we do not think Congress
intended to promote by allowing him to collect “actual dam-
ages” for a violation of the automatic stay. See Fogerty, 510
U.S. at 534 (“Such a bold departure from traditional practice
would have surely drawn more explicit statutory language
. . . .”); Fulfillment Services, 528 F.3d at 624 (“While imposi-
tion of the British Rule would be far from [an] ‘absurd result’
. . . [,] [h]ad Congress aspired to such a radical departure, it
no doubt would have so indicated with explicit language to
that effect.”). We conclude, therefore, that a damages action
for a stay violation is akin to an ordinary damages action, for
which attorney fees are not available under the American
Rule.
[11] We recognize that the Fifth Circuit appears to have
held to the contrary: “The lower courts in our Circuit have
concluded that it is proper to award attorney’s fees that were
incurred prosecuting a section 362(k) claim[,]” and “[w]e
adopt the same reading of section 362(k) and therefore agree.”
Young v. Repine (In re Repine), 536 F.3d 512, 522 (5th Cir.
2008). We do not create a circuit split lightly. But the above-
quoted language is all the court said on the issue. Without
more, we are hard-pressed to find this decision persuasive.
[12] We remand to the district court with instructions to
remand to the bankruptcy court to determine which fees are
properly allocable to efforts to enforce the automatic stay and
prevent enforcement of the state court order that violated the
2164 STERNBERG v. JOHNSTON
stay. All fees related to proving Johnston’s damages are disal-
lowed per the American Rule.
III. Conclusion
[13] We affirm that portion of the district court’s judgment
that holds that Sternberg violated the automatic stay and is lia-
ble for Johnston’s actual damages. We also affirm the deter-
minations that Johnston suffered actual damages of $2,883.20
for the interference with his work and an additional
$20,000.00 for emotional distress. His actual damages also
include the attorney fees incurred in seeking to enforce the
automatic stay and to fix the problem caused by the overbroad
state court order. Because Johnston’s actual damages under
§ 362(k)(1) do not include fees incurred in prosecuting the
adversary proceeding to obtain damages, we vacate the
amount of the judgment and remand for further proceedings
to determine the appropriate amount.
Each side to bear its own costs.
AFFIRMED IN PART; VACATED AND REMANDED
IN PART.