It is a common tendency for creditors and those who violate the automatic stay to defend a case based upon the belief that a judge will not follow the law in punishing them for an error. This is despite the fact the strict liability of stay violations is now almost universally accepted. The theory goes that the violation, although with knowledge, was a mistake, was corrected and that the resulting adversary is brought for the purposes of collecting money. These are obviously tactical defenses and not based upon the substantive law. Occasionally creditors do find a receptive ear from judges who will find excuses not to follow or to mute the accepted law. This defense strategy, however, often represents a large mistake on the part of the violator in a federal fee-shifting case in which, even if a judge is receptive to the argument, the violator is ultimately responsible for the costs of the litigation, the appeal and the subsequent re-litigation of the case. After all, how likely is that multiple judges in different venues will agree to deviate from established principals? It is a sucker's bet that many lose. But, these defense lawyers have to charge for something.
The best example of this is a situation happening was recently handed down in California. Yet unpublished, In re Dawson, No. 98-45213 TG, A.P. No. 98-4796 AT.(Bankr. N.D. Calf. 7/27/06), involved a stay violation case in which the Bankruptcy Court originally awarded only modest damages and attorneys' fees against Washington Mutual for violating the automatic stay while the Plaintiff's husband's (now deceased) prior Chapter 7 bankruptcy was pending. The Bankruptcy Court also denied the Plaintiff's claim for emotional distress damages. WaMu in its infinite wisdom decided to appeal this decision. The United States District Court decided to reverse and remand the modest award, but upheld the Bankruptcy Court on the issue of no emotional distress damages. The Plaintiff then appealed to the 9th Circuit, which properly applied the existing law and remanded the matter back to the Bankruptcy Court
WaMu would have none of it. It continued in its briefing and argument in fighting both emotional distress damages as well as the Plaintiff's attorneys' fees (required by the Bankruptcy Code). WaMu argued, among other things, that attorneys' fees were not awardable because the fees were not incurred to "remedy a violation" since the violation had ended before the suit was brought; because the attorneys' fees were contingent (meaning they were not paid unless there was a recovery); because the fees were excessive in comparison of the remaining award; and, that the hourly rate requested by Plaintiff's counsel was too high in that they had previously been awarded a lower hourly rate. Representing Don Quixote tactics, none of these arguments have much legal authority. They are Rambo in nature in that WaMu, like other creditors and violators, made a decision to fight even a modest award to the Nth degree just to show it was the biggest, baddest creditor on the block and should not be liable for its error. Such tactics no less are tempting to the creditor's attorneys who are usually charging many times what the Plaintiff is likely to be awarded. They are further very expensive tactics should the violator ultimately lose, as was the case for WaMu. (WaMu loses, but its attorneys win big in the defense lottery it was playing).
The Plaintiff correctly pointed out that an award of attorneys' fees and costs was mandatory even if run up as a result of WaMu's bad litigation choices; that contingent fees (as it is used in this context to represent fees not paid in advance by the Plaintiff as opposed to a percentage of any award) have been properly held to represent the Plaintiff's actual damages; that it is inappropriate to adjust an award of attorneys' fees based upon the remaining damages awarded; that attorneys' fees can be awarded in an action intended solely to recover damages; and, that the proper award of fees is the Lodestar standard.
The later point made by the Plaintiff was especially damaging to WaMu because in the previous Bankruptcy Court proceeding the Plaintiff had been awarded hourly fee was $250 and $200 and hour for her respective attorneys. The fees had been adjusted to represent what the Bankruptcy Court felt at the time was the Plaintiff's success on the merits. But, in this hearing the Court adjusted the fees to what it found to be the prevailing rates for likely positioned attorneys of $400 and $225 an hour respectively.
The end result is that WaMu's Rambo tactics took what was a very modest award, involving substantially reduced attorneys' fees (both in terms of a reduced hourly rate and time incurred) with which the Plaintiff would have likely accepted, and ended up paying the following:
1. $20,000.00 in emotional distress damages;
2. $7,440.00 in special damages; and,
3. $156,818.75 in Plaintiff's attorneys' fees and costs.
WaMu only lucked out in not having to pay punitive damages as well. But WaMu managed to turn an initial award of a few thousand dollars into a total award to now be paid of $184,258.75 plus interest.
Talk about snatching defeat from the jaws of victory. However, the case is illustrative of the need to fess up to say violations and their consequences early and to otherwise employ reasonable litigation tactics in trying to resolve these matters. Failure to do so can be very costly.
The
problem for many big corporations, insurance companies, financial
institutions and even consumers to a lesser degree is that it is easy
for a lawyer to lead them into temptation. To the lawyer it is the
means of getting paid more per case. To the entity it is the feeling
of feeling vindicated, even if the final result does not necessarily
turn out that way (kind of like the last act of defiance).
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