Wednesday, October 14, 2015

Ninth Circuit Overrules Controversial 2010 Bankruptcy Opinion

Written by Michael Fuller


Today, the Ninth Circuit Court of Appeals ruled that consumers in bankruptcy may seek reimbursement for the fees they incur recovering damages caused by automatic stay violations.

The court’s en banc opinion, In re Schwartz-Tallard, overruled a controversial 2010 case, Sternberg v. Johnston, which expressly prohibited courts from awarding fees incurred recovering damages under § 362(k) of the Bankruptcy Code.

See related post: Payday Lender Liable for Expenses Incurred Prosecuting its Bankruptcy Violation

In Schwartz-Tallard, a debtor sued her mortgage company after it wrongfully foreclosed on her home during bankruptcy. The mortgage company denied all liability but lost in bankruptcy court and on appeal. Due to Sternberg’s holding, Schwartz-Tallard could not recover the fees she incurred defending the bankruptcy court’s ruling on appeal.


Today’s opinion expressly overruled Sternberg. The en banc court reasoned that Sternberg’s holding undercut Congressional intent to “encourage injured debtors to bring suit to vindicate their statutory right to the automatic stay’s protection…” The opinion recognized that the purpose of the automatic stay’s remedial scheme was to deter violations and provide redress for those that do occur. The court cited a brief filed by the National Association of Consumer Bankruptcy Attorneys showing that under Sternberg’s holding, “in many cases the actual damages suffered by the injured debtor will be too small to justify the expense of litigation, even if the debtor can afford to hire counsel.”

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Michael Fuller is a partner at Olsen Daines and a consumer law adjunct professor at Lewis & Clark Law School.