Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: January 17, 2007
Appeal from the United States Bankruptcy Court for the District of Nevada. Bk. No. 05-28304, Ref. No. 06-13. Hon. Linda B. Riegle, Bankruptcy Judge, Presiding.
Before: SMITH, BRANDT and NAUGLE, [ Bankruptcy Judges.
Hon. David N. Naugle, United States Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
After determining that debtor's landlord had willfully violated the automatic stay, the bankruptcy court awarded attorney fees of $250 pursuant to § 362(k)(1) but offset the entire award against unpaid rent. A timely notice of appeal was filed on April 14, 2006. We REVERSE and REMAND.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated pursuant to The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (" BAPCPA"), Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
I. FACTS
A. The Eviction
On August 30, 2005, Carlos Gonzalez (" Debtor") entered into a one-year rental agreement with John Gervais (" Gervais") in which he agreed to rent a single family home at 9707 Kampsville Avenue, Las Vegas, Nevada (" residence") for $1,450 per month. On December 21, 2005, Gervais initiated eviction proceedings due to Debtor's failure to make the rent payments. Less than two weeks later, on December 30, 2005, Debtor filed for chapter 13 relief. The state court issued an eviction order on January 3, 2006.
Debtor's attorney, Christopher Burke (" Burke"), faxed a copy of the notice of e-filing page and the proposed chapter 13 plan to the Justice Court of Las Vegas Township and the Constable of Las Vegas Township office on January 4, 2006. The recipients of the fax were informed that as Debtor did not have a fax number for Gervais, Gervais would not receive notice of the bankruptcy for a few days since it was sent by mail.
On January 5, 2006, a sheriff from the Constable's office arrived at the residence and advised Debtor that he and his family had ten minutes to gather some belongings and vacate the premises. Debtor informed the sheriff that he had filed for bankruptcy and that a copy of his petition had been faxed to the Constable's office and Justice Court the day before. The sheriff contacted the Constable's office, but was advised that no notice of the bankruptcy had been received and he should proceed with the eviction. Consequently, Debtor and his family were forced to leave and the residence was locked up.
At the time of eviction, Debtor had not obtained a copy of his petition from Burke.
Upon learning of the eviction, Burke's office immediately called Gervais and advised him that the eviction had occurred in violation of the automatic stay and that steps had been taken to notify him of the bankruptcy. Nevertheless, believing that he had legal possession, Gervais refused to allow Debtor back into the residence. The Constable's office and the Nevada Legal Services had both advised Gervais that he need not do anything until instructed by court order to reverse the eviction.
The next day, Burke left a message for Gervais regarding Debtor's bankruptcy, but Gervais failed to return the call.
A few days following the eviction, Gervais drove by the residence to inspect it. During the visit he discovered that the premises had been broken into and that there was a meal cooking in the kitchen. Assuming this was Debtor's handiwork and based on the advice of local police, on January 10, 2006, Gervais moved Debtor's belongings to a storage unit to reduce the motivation for further break-ins.
B. The Bankruptcy Case
On January 6, 2006, Debtor filed a " Motion for Violation of Automatic Stay and Allowing Debtor Back Into His Home" (the " stay motion"). Debtor complained Gervais had continued with the eviction process after being notified of the bankruptcy filing by both him and Burke's office. As a result, he contended Gervais had willfully violated the automatic stay imposed by § 362(a)(6), and, pursuant to § 362(h) , was liable for sanctions, Debtor's attorney fees, and Debtor's actual expenses suffered on account of the eviction.
Debtor's bankruptcy was filed post-BAPCPA; however, the authority Debtor cites to support the bankruptcy court awarding sanctions, attorney fees, and actual damages is pre-BAPCPA. Under BAPCPA, § 362(h) was amended and is now § 362(k)(1). See supra note 3.
In opposing the stay motion, Gervais maintained that he had not received notice of the bankruptcy by Burke's office until after the eviction process had been completed. By that time, he believed he had legal possession of the residence. Based on this assumption, Gervais thought that only a court order reversing the eviction could require him to allow Debtor access to the residence. Therefore, he felt he had complied with the law and had acted only to protect his interest in the residence.
The motion was heard on January 12, 2006. In its oral ruling, the bankruptcy court found that Gervais's post-petition eviction order was void as a matter of law, having been entered in violation of the automatic stay. Further, the court found that neither exception to the stay under § 362(b)(22) or § 362(b)(23) applied, and thus, Debtor was entitled to possession of the residence. The court thereupon ordered Gervais to restore possession of the residence to Debtor within 24 hours and to return Debtor's personal property. It also ordered Debtor to make the January 2006 rent payment in the amount of $1,300 by January 15th and to timely pay the February 2006 rent payment. As for damages, the court set an evidentiary hearing forty-five days out to allow Debtor time to cure the outstanding rent and prove up the damage amount.
Sections 362(b)(22) and (b)(23) state
The normal monthly rental amount was $1,450; however, the court reduced the January rental amount to $1,300 to compensate Debtor for the damages he suffered during the eviction.
On February 16, 2006, Debtor filed a motion which detailed the damages sought for Gervais's stay violation (the " damages motion"). The damages motion requested $1,616.70 in attorney fees and $1,000 in punitive damages and was supported by an affidavit filed by Burke which provided a time record of his services.
Following an evidentiary hearing on the matter, on February 22, 2006, the court awarded attorney fees in the amount of $250 to Burke. However, the court reserved the right to setoff the fee award based upon the outcome of Gervais' relief from stay hearing that was to be held on March 13, 2006.
At the relief from stay hearing, Gervais provided evidence that Debtor had failed to pay any of the outstanding rent, including the three months that had become due post-petition. As a result, the court lifted the stay and entered an order on April 4, 2006, awarding fees of $250 for Gervais' stay violation, but offsetting the entire amount against the unpaid rent (the " damages order").
Debtor appeals.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(1). We have jurisdiction under 28 U.S.C. § § 158(b)(1) and (c)(1).
The only order being appealed is the damages order entered on April 4, 2006. The January 20, 2006 order granting relief from stay has not been appealed. Thus, the issues on appeal are limited to those related to the damages order. Fed. R. App. P. 3(c)(1).
1. Whether the bankruptcy court abused its discretion in awarding only a fraction of the attorney fees requested by Debtor for the stay violation.2. Whether the bankruptcy court erred in offsetting the stay violation award against the unpaid rent.
IV. STANDARD OF REVIEW
A bankruptcy court's assessment of damages under § 362(k)(1) is reviewed for an abuse of discretion. Ozenne v. Bendon (In re Ozenne), 337 B.R. 214, 218 (9th Cir. BAP 2006). " We review the factual determinations underlying an award of attorney's fees for clear error, and the legal premises used by the court to determine the award de novo." Eskanos & Adler, P.C. v. Roman (In re Roman), 283 B.R. 1, 7 (9th Cir. BAP 2002).
The breadth of a bankruptcy court's § 105(a) power is also a legal question that is reviewed de novo. Id. The court's application of its § 105 power is reviewed for an abuse of discretion, which includes the application of an incorrect rule of law. Yadidi v. Herzlich (In re Yadidi), 274 B.R. 843, 847 (9th Cir. BAP 2002).
V. DISCUSSION
Debtor complains that the bankruptcy court erred by 1) reducing the amount of attorney fees awarded for the stay violation without providing any explanation for its reduction; and 2) offsetting the attorney fee award due to Debtor's failure to pay any post-petition rent.
1. The Awarding of Attorney Fees Under § 362(k)(1)
Section 362(a) imposes an affirmative duty on Gervais to discontinue collection actions upon the filing of a bankruptcy petition. See 11 U.S.C. § 362(a); Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1215 (9th Cir. 2002). Under § 362(k)(1), " [a]n 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."
Gervais admits to being informed about the bankruptcy, but chose to proceed with the eviction, based on advice provided by the Constable's office and the Nevada Legal Services. Therefore, he maintains that he did not willfully violate the stay. This argument does not suffice.
" [T]he willfulness test for automatic stay violations merely requires that: (1) the creditor know of the automatic stay; and (2) the actions that violate the stay be intentional." Morris v. Peralta, 317 B.R. 381, 389 (9th Cir. BAP 2004); see also Pinkstaff v. United States (In re Pinkstaff), 974 F.2d 113, 115 (9th Cir. 1992). Once a creditor has knowledge of the bankruptcy, he is deemed to have knowledge of the automatic stay. Ramirez v. Fuselier (In re Ramirez), 183 B.R. 583, 589 (9th Cir. BAP 1995), appeal dismissed, 201 F.3d 444 (9th Cir. 1999)(table). While notice is relevant to the question of willfulness, it does not matter that the creditor did not receive formal notice of the petition from the court. See Peralta, 317 B.R. at 389. Likewise, a creditor's good faith belief that it had a right to the property at issue is irrelevant to determining whether the violation was willful or compensation should be awarded. Id.; Ramirez, 183 B.R. at 589. Cf. In re Taylor, 884 F.2d 478, 483 (9th Cir. 1989)(good faith reliance on the advice of counsel is not a defense); Williams v. Levi (In re Williams), 323 B.R. 691, 701 (9th Cir. BAP 2005)(reliance on a state court's determination cannot be a defense).
Here, the evidence establishes that Gervais had knowledge of the bankruptcy and automatic stay at the time of the eviction. It also supports a finding that Gervais intentionally refused to allow Debtor back into the residence after being notified of the stay violation. Thus, the bankruptcy court properly found Gervais's stay violation willful.
Section 362(k) provides little guidance as to the standard a bankruptcy court should apply in awarding actual damages. Roman, 283 B.R. at 11. Nevertheless, based upon the reasonableness analysis employed by the Ninth Circuit and courts in other circuits, we have determined that § 362(k)(1) " 'requires that the injured party be awarded the entire amount of actual damages reasonably incurred as a result of a violation of the automatic stay.'" Id. (citing Stainton v. Lee (In re Stainton), 139 B.R. 232, 235 (9th Cir. BAP 1992)). In deciding what is " reasonable", we endorse the use of the principles found in § 330 as a guide for awarding attorney fees. Id. An award for a stay violation will be " reasonable" provided it is supported by the evidence and not " grossly excessive, monstrous, or shocking to the conscience." Computer Commc'ns, Inc. v. Codex Corp. (In re Computer Commc'ns, Inc.), 824 F.2d 725, 731 (9th Cir. 1987)(a contempt action for a stay).
Here, Debtor sought attorney fees in the amount of $1,616.70. These fees represented time spent by Burke and his paralegal in 1) notifying the Constable's office, the Justice Court, and Gervais of the bankruptcy; 2) preparing and filing the order shortening time related to the stay motion, the stay motion, and the damages brief; and 3) attending the hearings related to the stay motion and damages motion. Many, if not all, of the services listed appear to represent reasonable fees incurred in connection with the stay violation. Nevertheless, the bankruptcy court apparently found only $250 of the $1,616.70 to be reasonable.
While we recognize that the bankruptcy court is in the best position to determine in the first instance the reasonableness of the attorney fees sought, the court in this case provided insufficient findings as to how it arrived at the amount it awarded. In order for us to exercise our review function, some explanation is necessary. Bernardi v. Yeutter, 951 F.2d 971, 974 (9th Cir. 1991). We will therefore reverse the order and remand.
2. Recipient of the Award
In this case, although the damages order awards the $250 directly to Burke, § 362(k)(1) allows for recovery of actual damages incurred by the injured individual. The injured individual is, of course, Debtor. Burke has cited no authority supporting a direct award of fees to the injured party's counsel. Thus, Debtor is the party to whom the fees may be awarded, despite the fact they ultimately were meant for payment to Burke.
3. The Offsetting of the Attorney Fees Award
As the offset question may arise on remand, we will address it. Section 105(a) provides a bankruptcy court with the power to take whatever action is appropriate or necessary in aid of the exercise of its jurisdiction over the administration of a title 11 case. 11 U.S.C. § 105(a); Roman, 283 B.R. at 13. This equitable power must be exercised within the confines of the Bankruptcy Code, Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988), and " is limited to those situations where it is a means to fulfill some specific Code provision." Graves v. Myrvang (In re Myrvang), 232 F.3d 1116, 1124-25 (9th Cir. 2000)(citing In re Fesco Plastics Corp., 996 F.2d 152, 154 (7th Cir. 1993)).
Prior to entering the damages order, the bankruptcy court entered an order which required Debtor to make the January and February 2006 post-petition rental payments (the " rental order"). Debtor failed to make any of the payments.
Under § 105(a), the court has the ability to take whatever action is necessary to aid in its administration of the case. The court had ordered payment of the post-petition rent, which Gervais was entitled to as an administrative claim pursuant to § 503. See Microsoft Corp. v. DAK Indus., Inc. (In re DAK Indus., Inc.), 66 F.3d 1091, 1094 (9th Cir. 1995). Debtor failed to comply with the rental order, thus the court had the power to enforce it by setting off the rental amounts due with the damages awarded to Debtor under § 362(k)(1). Courts have long recognized that the Bankruptcy Code does not " abrogate the common law right of setoff", and therefore, post-petition obligations owed by a creditor may be setoff against post-petition obligations owed by the debtor. In re Seal, 192 B.R. 442, 457 (Bankr. W.D. Mich. 1996); In re Gordon Sel-Way, Inc., 239 B.R. 741, 750-751 (E.D. Mich. 1999).
Debtor relies on In re Stainton, 139 B.R. 232 (9th Cir. BAP 1992), arguing that the court erred by offsetting the fees. The court here did not award part of the attorney fees to be paid by Debtor or the estate. The bankruptcy court in Stainton awarded $6,973.10 in attorneys fees to the debtor for a party's willful violation of the stay. 139 B.R. at 234. In awarding the fees, the court required the violating party to pay only $1,495 of the fees with the balance to be borne by the bankruptcy estate. Id. On appeal, we emphasized that the " plain language of the statute requires that the injured party be awarded the entire amount of actual damages reasonably incurred as a result of a violation of the automatic stay." Id. at 235. Accordingly, we found the court's apportioning of the actual damages to be inconsistent with the language of the statute and thus improper. Id. Stainton does not address the question of setoff; instead, it stands for the principle that a debtor damaged by a stay violation is to recover actual damages, not something different, such as an award partially against the estate, rather than the violator.
As Debtor is the appropriate recipient of the damages award, the bankruptcy court had the power under § 105(a) to offset that award with the rental amount Debtor owed Gervais. The bankruptcy court did not err in offsetting the rent against the damages award.
VI. CONCLUSION
For the foregoing reasons, we REVERSE and REMAND for further proceedings.
Code § 362(k)(1) is, in pertinent part, essentially the same as § 362(h), its predecessor under pre-BAPCPA. Consequently, the judicial decisions and commentary which discuss § 362(h) remain viable and relevant as guides for determining liability for damages for willful violations of the automatic stay under § 362(k)(1). See Midlantic Nat'l Bank v. N.J. Dept. of Envtl. Prot., 474 U.S. 494, 501, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986)(" The normal rule of statutory construction is that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes the intent specific.").
(b) The filing of a petition under section 301 . . . of this title . . . does not operate as a stay-. . . . (22) subject to subsection (l), under subsection (a)(3), of the continuation of any eviction . . . by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor; (23) subject to subsection (m), under subsection (a)(3), of an eviction that seeks possession of the residential property in which the debtor resides as a tenant under a lease or rental agreement based on endangerment of such property or the illegal use of controlled substances on such property, but only if the lessor files with the court, and serves upon the debtor, a certification under penalty of perjury that such an eviction action has been filed, or that the debtor, during the 30-day period preceding the date of the filing of the certification, has endangered property or illegally used or allowed to be used a controlled substance on the property[.]