Filed: Feb. 04, 2021
Latest Update: Feb. 06, 2021
NOT FOR PUBLICATION FILED
FEB 4 2021
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. NV-20-1199-BFL
WILLIE N. MOON and ADNETTE M.
GUNNELS-MOON, Bk. No. 13-12466-MKN
Debtors.
WILLIE N. MOON; ADNETTE M.
GUNNELS-MOON,
Appellants,
v. MEMORANDUM 1
RUSHMORE LOAN MANAGEMENT
SERVICES, LLC,
Appellee.
Appeal from the United States Bankruptcy Court
for the District of Nevada
Mike K. Nakagawa, Bankruptcy Judge, Presiding
Before: BRAND, FARIS, and LAFFERTY, Bankruptcy Judges.
INTRODUCTION
Appellants Willie N. Moon and Adnette M. Gunnels-Moon appeal an
order denying their request for attorney's fees and costs under § 362(k)(1)2 for
1 This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
2 Unless specified otherwise, all chapter and section references are to the
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defending against an adversary proceeding filed by Rushmore Loan
Management Services, LLC ("Rushmore") that Rushmore later voluntarily
dismissed. Because the adversary proceeding, in part, sought to challenge the
Moons' earlier contempt proceeding against Rushmore for willfully violating
the automatic stay, we conclude that at least some of the fees and costs were
recoverable by the Moons under § 362(k)(1). Therefore, we VACATE and
REMAND.
FACTS
A. Previous events and appeals
The Moons filed their chapter 13 bankruptcy case on March 26, 2013. At
the time, their home ("Residence") was subject to two liens. Rushmore held
the second lien, which appeared to be entirely underwater.
Thereafter, the Moons moved to value the Residence under § 506(a) to
strip off Rushmore's entirely unsecured lien. Rushmore did not respond. On
December 5, 2013, the bankruptcy court entered an order granting the
valuation motion ("Lien Avoidance Order"). The Lien Avoidance Order
provided that Rushmore's claim was reclassified from a secured claim to an
unsecured claim, and that its second deed of trust would be avoided upon the
Moons' successful completion of their chapter 13 plan.
On April 7, 2014, the bankruptcy court entered an order confirming the
Moons' amended chapter 13 plan ("Confirmation Order"). On September 28,
Bankruptcy Code, 11 U.S.C. §§ 101–1532, all "Rule" references are to the Federal Rules of
Bankruptcy Procedure, and all "Civil Rule" references are to the Federal Rules of Civil
Procedure.
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2016, the bankruptcy court entered an order of discharge for the Moons,
discharging their prepetition unsecured debt, including the debt owed to
Rushmore. A final decree closing the case was entered on October 3, 2016.
As it turns out, no documents filed during the Moons' chapter 13 case
— the bankruptcy notice, any motions, applications, notices of hearings, court
orders or other papers — were served on Rushmore due to an address error.
The address error stemmed from a mistake made in the creditor matrix when
the case was filed and continued throughout the case.
After reopening their bankruptcy case, the Moons filed a motion
against Rushmore, seeking to hold Rushmore in contempt for violation of the
automatic stay and the discharge injunction ("First Contempt Motion"). The
Moons alleged that, between November 2013 and October 2018, Rushmore
sought to collect the debt through numerous monthly mortgage statements
and other collection letters and hundreds of telephone calls to the Residence.
The Moons sought damages for their emotional distress, punitive damages,
and attorney's fees.
After an evidentiary hearing in September 2019, the bankruptcy court
entered an Order and Memorandum Decision on February 25, 2020, granting
the First Contempt Motion and awarding the Moons $100,742.10 in
compensatory damages (including $100,000 to Mr. Moon for his emotional
distress) and $200,000 in punitive damages for Rushmore's willful violation of
the automatic stay under § 362(k)(1) ("First Contempt Order"). In re Moon, 613
B.R. 317, 361 (Bankr. D. Nev. 2020). The court declined to award any damages
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for Rushmore's violation of the discharge injunction because the Moons had
not established when Rushmore became aware of the discharge order.
On appeal to the BAP, the Panel reversed the bankruptcy court's
$100,000 damage award to Willie for lack of standing, and vacated and
remanded the $200,000 punitive damages award for further consideration by
the bankruptcy court in light of the significantly reduced compensatory
award. The Panel affirmed the bankruptcy court's decision with respect to the
discharge injunction. See Rushmore Loan Mgmt. Servs., LLC v. Moon (In re
Moon), BAP Nos. NV-20-1057-BGTa & NV-20-1070-BGTa, 2021 WL 62629 (9th
Cir. BAP Jan. 7, 2021).
Meanwhile, the Moons sought all of the attorney's fees and costs they
incurred for the First Contempt Motion under § 362(k)(1) ("First Fee Motion").
Rushmore opposed the First Fee Motion, arguing that the Moons had not
"incurred" any attorney's fees as "actual damages" under § 362(k)(1), because
there was no agreement obligating them to pay their attorney, Mr.
Christopher P. Burke. Rushmore also argued that if the court was inclined to
award the Moons their attorney's fees, any award should be limited to the
time spent on their stay violation claim.
After a hearing, the bankruptcy court granted the First Fee Motion,
awarding the Moons their attorney's fees and costs of $67,007.94 under
§ 362(k)(1). The court denied the Moons' request for a fee enhancement.
On appeal, while the Panel agreed that the Moons were entitled to
attorney's fees and costs under § 362(k)(1) and affirmed the cost award, it
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vacated and remanded the fee award for further findings and consideration
by the bankruptcy court. See Rushmore Loan Mgmt. Servs., LLC v. Moon (In re
Moon), BAP Nos. NV-20-1144-BTaF & NV-20-1155-BTaF, 2021 WL 62630 (9th
Cir. BAP Jan. 7, 2021).
B. Rushmore files and dismisses its adversary proceeding.
Meanwhile, on September 4, 2019, just two weeks before the evidentiary
hearing on the First Contempt Motion, Rushmore filed an adversary proceeding
against the Moons seeking declaratory relief ("Rushmore Adversary"). Rushmore
contended that its second deed of trust was a constitutionally protected property
right, that entry of the Lien Avoidance Order without notice violated its due
process rights, and that any potential violations of the automatic stay or the
discharge injunction by Rushmore were created by the Moons' failure to serve
Rushmore. In its prayer, Rushmore sought judgment against the Moons as
follows: (1) that the court declare Rushmore was never personally served in the
Moons' bankruptcy until the First Contempt Motion; (2) that the court strike the
First Contempt Motion because it was a result of a constitutional deprivation of
notice to Rushmore and unclean hands by the Moons; (3) that the court strike the
Lien Avoidance Order or, alternatively, that Rushmore be awarded monetary
damages for the full value of its second deed of trust; and (4) that Rushmore be
awarded all attorney's fees and costs for the Rushmore Adversary and the First
Contempt Motion.
The Moons moved to dismiss the Rushmore Adversary under Civil
Rule 12(b)(6). In short, the Moons argued that the Rushmore Adversary was
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an improper collateral attack on the Lien Avoidance Order. They further
argued that Rushmore should have sought such relief by motion.
Rushmore opposed the motion to dismiss and moved for summary
judgment ("MSJ"). Many, if not all, of the exhibits attached to Rushmore's MSJ
were the same exhibits Rushmore offered into evidence at the evidentiary
hearing on the First Contempt Motion. In support of its MSJ, Rushmore
argued that the Moons' failure to serve Rushmore violated its due process
rights and the opportunity to participate in the case and defend its property
interest. Rushmore contended that both the Confirmation Order and the Lien
Avoidance Order were void as to Rushmore for lack of notice and lack of
personal jurisdiction. Rushmore further argued that the First Contempt
Motion was brought in bad faith or, at minimum, with unclean hands,
because they inappropriately pushed forward with seeking sanctions even
though their new attorney was aware of the prior service errors.
The Moons filed a reply to their motion to dismiss and an opposition to
Rushmore's MSJ. The hearings for the competing motions were initially
continued pending the outcome of the First Contempt Motion, and once that
was resolved, were finally scheduled for May 7, 2020.
On May 6, 2020, the Moons sought leave to file a supplemental
opposition to the MSJ, which consisted of a declaration from their former
bankruptcy attorney and three certified mail receipts in connection with the
Moons' service of the valuation motion on Rushmore in September 2013.
Rushmore denied receiving service of the valuation motion. In light of the
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Moons' new documents, the parties agreed to continue the hearing for the
Moons' motion to dismiss and Rushmore's MSJ until June 4, 2020.
On May 22, 2020, Rushmore filed a notice of voluntary dismissal of the
Rushmore Adversary under Civil Rule 41(a)(1)(A)(i), 3 which the Moons did
not oppose. After a hearing, the bankruptcy court agreed to take all pending
matters off calendar and direct the clerk to close the Rushmore Adversary.
C. Moons file their second request for attorney's fees and costs.
The Moons then sought the attorney's fees and costs they incurred in
defending against the Rushmore Adversary under § 362(k)(1) ("Second Fee
Motion"). The Moons argued they were entitled to a reasonable attorney's fee
of $14,398.50 and costs of $12.00, for what they contended was Rushmore's
continuing stay violation by filing the Rushmore Adversary which sought to
"strike" the First Contempt Motion. Mr. Burke stated in his declaration that he
spent 9.4 hours at his previous hourly rate of $500.00 and 16.3 hours at his
new hourly rate of $595.00 "dealing with the actions caused by Rushmore's
willful stay violation." A billing summary reflecting the services Mr. Burke
provided was attached.
Rushmore opposed the Second Fee Motion, arguing that (1) its filing of
an adversary proceeding based on the Moons' failure to properly serve it with
notice of the bankruptcy or the motion attempting to strip its lien was not a
"continuing" violation of the automatic stay, (2) the Moons had not presented
3Civil Rule 41(a)(1)(A)(i), applicable here by Rule 7041, provides that a plaintiff
may dismiss an action without a court order before the opposing party files an answer or a
motion for summary judgment.
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any legal basis to recover attorney's fees related to the Rushmore Adversary,
and (3) the bankruptcy court lacked jurisdiction to award attorney's fees
related to the now-dismissed proceeding.
In reply, the Moons argued it was not their contention that the filing of
the Rushmore Adversary itself was a stay violation. Rather, they were
arguing that having to defend against the Rushmore Adversary, which
sought to justify, defend, and negate Rushmore's stay violation and to "strike"
the First Contempt Motion, invoked the attorney's fees provision of
§ 362(k)(1). The Moons further argued that, because the bankruptcy case was
still open, the court had jurisdiction to consider the Second Fee Motion
despite the voluntary dismissal of the Rushmore Adversary. The Moons
requested an additional $2,439.50 for the attorney's fees they incurred in
defending the Second Fee Motion.
After a hearing, the bankruptcy court entered an order denying the
Second Fee Motion. It determined that Rushmore's filing of the Rushmore
Adversary was not a continuation of pre-discharge conduct that violated the
automatic stay post-discharge warranting an award of attorney's fees and
costs under § 362(k)(1). The Moons timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(1) and (2)(A). We have jurisdiction under 28 U.S.C. § 158.
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ISSUE
Did the bankruptcy court abuse its discretion in not awarding the
Moons any attorney's fees or costs under § 362(k)(1) for defending against the
Rushmore Adversary?
STANDARDS OF REVIEW
We review de novo questions of subject matter jurisdiction. Montana v.
Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189, 1193 (9th Cir. 2005); Davis v.
Courington (In re Davis),
177 B.R. 907, 910 (9th Cir. BAP 1995).
The bankruptcy court's decision whether to award attorney's fees is
reviewed for abuse of discretion. See Easley v. Collection Serv. of Nev., 910 F.3d
1286, 1289 (9th Cir. 2018). However, when the principal issue raised on
appeal is legal in nature, we review the bankruptcy court's award de novo.
See
id.
The bankruptcy court abuses its discretion if it applies the wrong legal
standard or its findings of fact are clearly erroneous. Olomi v. Tukhi (In re
Tukhi),
568 B.R. 107, 112-13 (9th Cir. BAP 2017) (citing United States v. Hinkson,
585 F.3d 1247, 1261-62 & n.20 (9th Cir. 2009) (en banc)).
DISCUSSION
In the First Contempt Order entered in February 2020, the bankruptcy
court found that Rushmore had willfully violated the automatic stay with its
repeated collection efforts from December 20, 2014, the date Rushmore was
deemed to have had actual knowledge of the Moons' bankruptcy, to
September 28, 2016, the date of their discharge. The court awarded the Moons
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compensatory damages, punitive damages, and, ultimately, attorney's fees
and costs under § 362(k)(1). However, the court denied the Moons any
attorney's fees or costs under § 362(k)(1) for the Rushmore Adversary, finding
that the Rushmore Adversary was not a continuing stay violation and that
the Moons could not recover fees and costs incurred as a result of its filing
and dismissal years after the automatic stay expired, and years after the
discharge was entered.
The Moons argue that the bankruptcy court erred by not awarding the
attorney's fees and costs they incurred for having to defend against the
Rushmore Adversary, which they contend was filed offensively to strike the
First Contempt Motion and justify Rushmore's stay violation. Rushmore
counters that the Moons are attempting to raise a new argument on appeal,
that fees may be awarded under § 362(k)(1) because the Rushmore Adversary
was a "collateral attack" on the First Contempt Motion. Rushmore also argues
that once the Rushmore Adversary was dismissed, the bankruptcy court lost
jurisdiction over the adversary and could not award fees.
While the Moons did argue before the bankruptcy court that the filing
of the Rushmore Adversary was a "continuing" stay violation entitling them
to fees and costs under § 362(k)(1), an argument we too reject, they also
argued that having to defend against the Rushmore Adversary, which in part
sought to defend Rushmore's stay violation and to "strike" the First Contempt
Motion, warranted fees and costs under § 362(k)(1). In other words, the
Moons did raise the "collateral attack" argument. Unfortunately, the
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bankruptcy court did not address it, nor did it address Rushmore's threshold
argument that the court lacked jurisdiction to consider a fee award since the
Rushmore Adversary had been voluntarily dismissed under Civil Rule
41(a)(1)(A).
Rushmore had every right to challenge the validity of the Lien
Avoidance Order and the Confirmation Order given the Moons' failure to
provide notice, and perhaps the First Contempt Motion was not the best
action in which to resolve those issues. However, the Rushmore Adversary,
filed just two weeks before the evidentiary hearing on the First Contempt
Motion and not dismissed until three months after the First Contempt Order,
went further than that. It sought to "strike" the First Contempt Motion and
establish that the Moons were responsible for Rushmore's stay violation.
Rushmore never filed a substantive response to the First Contempt Motion
despite having months to do so, and failed to engage in any meaningful
discovery before the evidentiary hearing or file a trial brief. Rushmore chose
instead to assert its defenses to the First Contempt Motion in the Rushmore
Adversary, which the bankruptcy court aptly described as a "discrete and
perhaps unnecessary act undertaken as a belated response to the First
Contempt Motion."
"Under the 'American Rule,' we follow 'a general practice of not
awarding fees to a prevailing party absent explicit statutory authority.'"
Easley, 910 F.3d at 1290 (quoting Key Tronic Corp. v. United States,
511 U.S. 809,
819 (1994)). Here, the explicit statutory authority is § 362(k)(1), which
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authorizes an award of attorney's fees and costs to the debtor for successfully
prosecuting an action for damages under § 362(k)(1). Am.'s Servicing Co. v.
Schwartz-Tallard (In re Schwartz-Tallard), 803 F.3d 1095, 1101 (9th Cir. 2015) (en
banc); see also Ramirez v. Fuselier (In re Ramirez),
183 B.R. 583, 589 (9th Cir. BAP
1995) (an award of costs and attorney's fees is mandatory upon a finding that
the stay was willfully violated).
In the Rushmore Adversary, the Moons were compelled to defend
against certain arguments Rushmore should have, but failed to, raise in
defense of the First Contempt Motion. And the Moons had to continue to
defend against those arguments after the bankruptcy court had already
rejected them in the First Contempt Order and awarded the Moons damages
for Rushmore's willful stay violation. The Moons incurred attorney's fees and
costs as a result. 4 Rushmore cannot now shield itself from those fees and costs
simply because their defense to the First Contempt Motion was brought
under the guise of an adversary proceeding. That amounts to an end run
around the statute and exalts form over substance. In fact, we see no other
reason for why Rushmore chose to raise nearly all of its defenses to the First
Contempt Motion in the Rushmore Adversary, other than to avoid payment
of the Moons' attorney's fees and costs under § 362(k)(1). Thus, despite labels,
at least some of the fees and costs the Moons incurred in the Rushmore
4 We, as did another Panel, reject Rushmore's argument that the Moons did not
"incur" any attorney's fees as "actual damages" under § 362(k)(1), even though they had no
personal obligation to pay Mr. Burke out-of-pocket for his services. See Rushmore Loan
Mgmt. Servs., LLC v. Moon (In re Moon), BAP Nos. NV-20-1144-BTaF & NV-20-1155-BTaF,
2021 WL 62630 (9th Cir. BAP Jan. 7, 2021).
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Adversary were incurred as part of their stay violation damages claim against
Rushmore under § 362(k)(1).
In addition, we reject Rushmore's argument that the bankruptcy court
was divested of jurisdiction to consider the Second Fee Motion given the
voluntary dismissal of the Rushmore Adversary. In support of its argument,
Rushmore cites American Soccer Co., Inc. v. Score First Enterprises, a Division of
Kevlar Industries, 187 F.3d 1108 (9th Cir. 1999). There, the plaintiff filed a
notice of voluntary dismissal under Civil Rule 41(a)(1)(A)(i), dismissing the
complaint without prejudice. After the defendant successfully moved to
vacate the dismissal, the district court dismissed the complaint with prejudice
and ordered the plaintiff to pay attorney's fees to the defendant. The Ninth
Circuit Court of Appeals reversed, holding that under Civil Rule 41(a)(1) a
plaintiff has an "absolute right" to voluntarily dismiss an action when the
defendant has not yet served an answer or motion to dismiss, and that such
right may not be extinguished or circumscribed by the court.
Id. at 1110.
Accordingly, the district court lacked jurisdiction to vacate the voluntary
dismissal and rule on the merits.
Id. at 1112.
American Soccer did not hold, as Rushmore contends, that a voluntary
dismissal prevents a defendant from moving for attorney's fees and costs.
That is because "[i]t is well established that a federal court may consider
collateral issues after an action is no longer pending[,]" including a request
for attorney's fees. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 395 (1990);
Teece v. Kuwait Fin. House (Bahrain) B.S.C.,
667 F. App'x 931, 932 (9th Cir. Aug.
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3, 2016) (holding that the district court had jurisdiction over the "collateral
matter" of defendant's motion for attorney's fees despite plaintiff's voluntary
dismissal under Civil Rule 41(a)(1)(A)(i)); Budanio v. Saipan Marine Tours, Inc.,
22 F. App'x 708, 710 (9th Cir. Oct. 2, 2001) (holding that the district court
retained jurisdiction to consider a request for attorney's fees despite plaintiff's
voluntary dismissal); Turner v. Vilsack, No. 3:13-cv-1900,
2016 WL 1048893, at
*3 (D. Or. Mar. 14, 2016) (applying the same rule to a stipulated dismissal
under Civil Rule 41(a)(1)(A)(ii) in a case under the Equal Access to Justice
Act). 5
Consequently, the Moons are entitled to attorney's fees for the
Rushmore Adversary under § 362(k)(1), at least those fees they incurred in
defending against Rushmore's arguments in defense of its stay violation. On
remand, the bankruptcy court must award the Moons a reasonable attorney's
fee and costs.
CONCLUSION
For the reasons stated above, we VACATE and REMAND the Second
Fee Order for further proceedings consistent with our decision.
Rushmore asserted in the notice of voluntary dismissal that the Rushmore
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Adversary was dismissed "with prejudice" as to the claims raised in that proceeding.
However, the bankruptcy court noted in the Second Fee Order that, because the issue of
Rushmore's notice of the automatic stay was never litigated in the Rushmore Adversary,
preclusive effect could not be given to the voluntary dismissal with prejudice, citing
Amadeo v. Principal Mutual Life Insurance Co., 290 F.3d 1152, 1159 (9th Cir. 2002) and Board of
Trustees. v. Noorda, No. 2:16-cv-00170,
2018 WL 1568679, at *3 (D. Nev. Mar. 30, 2018).
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