What is a Court to do when an attorney knowingly violates the automatic stay in bankruptcy, and after being sanctioned for that transgression, challenges an award of attorney’s fees at every possible opportunity? In its decision released on December 5, 2017, the Eleventh Circuit Court of Appeals considered just that question in affirming awards of trial and appellate attorney’s fees. The Court affirmed prior fees incurred of $134,209.36, and imposed an additional fee award of $30,559.98 as to the current appeal. This award of fees and expenses for nearly $165,000.00 was over four times the amount of the original award of actual damages of $40,000.00 made by the Bankruptcy Court for a violation of the automatic stay.
On the surface, the facts of Mantiply v. Horne began as the garden variety stay violation case. A husband and wife filed a Chapter 7 case in Mobile, Alabama. Post-bankruptcy, a local attorney, Mary Beth Mantiply, filed suit for her clients in state court against the Debtor, Richard D. Horne. According to the decision, Mantiply knew of the Chapter 7 filing substantially in advance of the filing of her state court action. Rather than dismiss her state court case or seek stay relief from the Bankruptcy Court, Mantiply trudged forward with her lawsuit and did not appear in the bankruptcy case until after a discharge was entered. Through counsel, the Debtor eventually encouraged Mantiply to desist by filing a sanctions motion with the Bankruptcy Court which was of no avail until the Bankruptcy Court entered a judgment pursuant to 11 U.S.C. §362(k) awarding damages of $40,000.00 plus attorney’s fees and expenses of $41,714.31. What would follow from Mantiply were multiple appeals to the District Court, the Eleventh Circuit and a Petition for Writ of Certiorari, together with multiple motions to recuse the judge assigned in the bankruptcy case, all of which were ultimately affirmed or decided favorably to the Debtor.
The back story to the case is that while it is disclosed in the opinion that Mantiply is an attorney, there is no discussion of the fact that the Debtor, Richard Horne, was a long time attorney practicing personal injury and criminal law.1 Both lawyers had practiced law for many decades in south Alabama and at the time of the bankruptcy filing, the two lawyers were at odds with each other. From the pleadings below, Mantiply appears to have learned of Horne’s Chapter 7 via news reports, and then posted on social media regarding the bankruptcy filing and its impact on a will contest she had pending in which Richard Horne was involved. For reasons not known from the opinion, it appears that Mantiply and Horne may have had some personal animosity between them originating from the will contest which was a catalyst to the resulting bankruptcy litigation. Regardless of what the professional relationship between Horne and Mantiply may have been, Mantiply took umbrage at the results below and appealed relentlessly.
Although Mantiply is a case of first impression for the Eleventh Circuit, the central issue is narrow. With respect to the imposition of attorney’s fees under 11 U.S.C. §362(k), Mantiply relied upon the recent decision in Baker Botts, LLP v. ASARCO, LLC, 576 U.S. ___, 135 S.Ct. 2158 (2015) to argue that under the American Rule on the award of attorney’s fees, each side must pay its own fees. In particular, Mantiply urged the Court to parse the differentiation between those fees awarded in association with stopping conduct prohibited by the automatic stay and those fees incurred in the process of protecting an award of damages. In other words, Mantiply maintained that Horne might be entitled to fees incurred in obtaining an order holding that she had violated the stay, but not for fees incurred by Horne in the defense of her multiple subsequent appeals.
In considering Mantiply’s argument, the Court first looked to the context of ASARCO. In ASARCO, the issue was whether the express language of 11 U.S.C. §330(a)(1) was broad enough to authorize compensation for time spent litigating a contested fee application. There, the Court held that the express language of the statute did not go so far. Part of the motivation behind the ASARCO decision was to admonish lawyers that fees should not be awarded to go after disputed fees. As to the situation in Mantiply, the Court held that the express language of §362(k)(1) stood in “stark contrast” to §330(a)(1) in that the imposition of fees was “mandatory” (citing, Jove Eng’g, Inc. v. IRS, 92 F.3d 1539, 1559 (11 Cir. 1996)) and that the statute plainly authorized a departure from the American Rule to allow a shift in the award of fees and expenses in relation to a stay violation.
The Court declined to accept the narrow interpretation of the scope of fees to be awarded urged by Mantiply, and instead embraced the logic of the Ninth Circuit in In re Schwarz-Tallard, 803 F.3d 1095 (9th Cir. 2015) (en banc) which held that the language of §362(k)(1) had no limiting language supporting the argument that any fees awarded must be restricted solely to the expense associated with restraining the continued violation of the automatic stay. Further, the Court expressed the view that “the party wrongfully violating the automatic stay and causing the resulting damage awards is the one required to shoulder these fees. That is all too clear in a case like this, in which [a creditor] has appealed each and every adverse order to the district court and then to this Court time and again.”
The lesson of Mantiply is all too clear. Before embarking upon appellate remedies after the loss of a stay violation case, a creditor must consider not only the potential legal results of that appeal, but also the expense. When providing a litigation budget to a client, counsel must also advise the client that the budget is really twice that amount in that if the result below is affirmed, the Debtor will be entitled to an award of fees and expenses as well. One might posit that this creates a chilling effect upon the exercise of an appeal right, but in the context of Mantiply, the teaching of the case may as well be a lesson in the exercise of common sense and the penalty for making an ill-fated litigation decision.
1Mr. Horne passed away during the pendency of the last appeal.