I went to San Francisco this week to watch the en banc oral argument in the Schwartz-Tallard case. Eleven judges on a cutting edge issue in bankruptcy!! I wondered if I would be able to get in. Five minutes before the judges came out, I was one of four people in the crowd. About then, ten or so young lawyer looking people came in to watch. I learned later that it was the judges clerks.
Schwartz-Tallard deals with Section 362(k) which 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.”
To cut to the chase, I think it will be an overwhelming affirmation of the BAP ruling that the debtor gets her attorney’s fees for participating in the creditor’s appeal. The real question that the judges asked a few times is what they should do about Sternberg v. Johnson. Judge O’Scannlain commented, “Collier’s has not been kind to our opinion in Sternberg.” A couple judges specifically asked, “What do you think we should do about Sternberg?” Do we have to get to Sternberg to resolve what you want? The answer of course was yes on one side and no on the other.
The argument began with the judges jumping all over the creditor’s attorney about the plain language of 362(k)! They were not interested in cites to old cases discussing “fee splitting.” If the language Congress gave us is clear, the inquiry stops there. At least 6 or 8 seemed to think the language was completely clear, the debtor gets attorney’s fees when the stay is violated. I was thinking this is going to be 11-0! When the attorney would make an argument, a judge would respond “but we have the language right in front of us.” Inevitably he – she would add, “let me read it to you again.”
When the debtor’s turn came, the questions were more about where does this stop? What if you have scorched earth litigation? The debtor’s attorney actually made a huge gaff with that. There was some discussion about some section somewhere that says “reasonable attorneys fees” but 362(k) only says attorneys fees. A judge asked, “Are you suggesting that we must award whatever the fees are and cannot look to reasonableness?” Judge Hurwitz then jumped in laughing and saying, “What if the attorney is charging $10,000 a minute!” “Are you saying the code requires that to be paid without any review?” The attorney, clearly the deer in the headlights at that point, paused – you could see him panicking inside – “Yes.” That brought open disdain and smirks all around.” Several jumped on him about that. One gently asked a question adding, “That is a softball question. I’m helping you.”
The attorney representing NACBA then got up and did a great job. He said obviously the fees have to be reasonable. When asked, he said the fees could be nothing depending on the facts although that would be unusual.
The lesson I cam away with is the judges are human. They don’t know anything about bankruptcy. They want to do what’s right and that is enforce the law that Congress wrote. The lawyers were determined to cite 50 cases and other code sections and predict the failure of the world if their point of view is not written into law. They talked very little about bankruptcy. They had too many notebooks, way too many prepared speeches that they kept trying to get back to. One talked so fast you could barely understand him. Of course, all that is easy to say sitting in the gallery.
In fairness, with 8 or 9 judges trying to ask you questions, the whole thing is very disjointed. And I walked away wondering why it is so hard for lawyers to directly answer the questions. That seems to almost never happen. I suspect it’s because of the fear that you won’t be given a chance to explain the yes or no that they want. That is actually fair. I’m going to point that out to the next appellate judge I happen to be near and try to get some sense of their view.
