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Spookiest Bankruptcy Opinion of 2009

posted by Katie Porter

It's Halloween, and time for nominations for the Spookiest Bankruptcy Opinion of the Year. Comments are open. Name the opinion that gives you goosebumps, and explain why others should be scared . . . very, very scared.

My own nomination is Sternberg v. Johnston, ___F. 3d. ___, 2009 WL 3381162 (9th Cir. Oct. 22, 2009). This gem not only creates a Circuit Split (always scary to invite the Supreme Court into bankruptcy jurisprudence), but will harm both creditors and debtors. Why? Because the opinion will deter debtors and their attorneys from pursuing creditors who commit willful violations of the automatic stay. This is frightening because the stay is so key to the collective nature of bankruptcy; the stay protects both debtors and creditors and ensures an orderly bankruptcy process. The words of the stay won't have much teeth if nobody sues for damages in willful violations. Sternberg will dramatically reduce the enforcement of the automatic stay because it holds that attorney fees for pursuing a damage award for a willful stay violation may not be recovered as "actual damages" under 362(k)(1). A law without enforcement . . . that's a ghost that won't scare anyone.


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Man, I was liking the 9th Cir. there for a while after Espinosa. Now? Not so much. They totally extracted Costs and Attorneys fees from 362(k)(1)! It's like saying that they didn't think congress really meant "Costs and Attorneys Fees". What congress really meant was that "Attorneys fees and Costs" were some sort of secret code for something else and that now they had to look to Code in a totally different area of the law (other than bankruptcy) for direction.

$62k for Attorneys fees on an adversary for violation of stay is way huge though. But if they could prove it up through "Johnson" then, what the heck? I wish we could get $62K in attorneys fees on violations of stays. My (apparently errant thinking) was that Attorneys fees and Cost were the only "sure thing" in those types of actions. I don't think the "creditor" lobby was smart enough to legislate away attorneys fees and costs in this instant. When 362k first came out in 05, I was like "we already have that in (h)".??... Hope that dude had a contingency fee agreement.

The Law is a wonderful thing - when it is applied. The ability to be arbitrary & capricious and abuse due process under color of law will continuously present a problem because the Bar and Congress are too sheepish to take on the BK realm.
Items such as the fact that Bankruptcy Judges are hand picked by the Circuit(s) and have made the doctrine of lack of standing as "person aggrieved" almost psuedo law.
As for my vote - when the True story is told on eToys - this one will be the intro of the book as the 3rd Cir stipulated that Federal Rules of Appeal Procedure do not apply to Bankruptcy cases.

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