A recent Law 360 story by Clarice Silber, “2nd Circ, Rules Bankruptcy Court Can Award Attorney Fees” reports that a Second Circuit panel has overturned a district court's decision and sent a suit filing for Chapter 7 back to bankruptcy court, finding that a bankruptcy judge has the authority to award damages and attorney fees. The three-judge panel said that because bankruptcy judges have the power to impose contempt sanctions, they also have the jurisdiction to award those other fees.
"Bankruptcy court has the power to impose contempt sanctions, which traditionally includes the authority to award damages and attorneys' fees," U.S. Circuit Judge Richard J. Sullivan wrote for the panel in the ruling. "This authority carries with it the ability to award appellate attorneys' fees."
The judges vacated the district court's judgment and remanded the case to the bankruptcy court to consider whether appellate fees should be awarded. The decision stems from a case in which the appellant, the Law Offices of Francis J. O'Reilly Esq., had challenged the U.S. District Court for the Southern District of New York's order affirming a bankruptcy court's denial of the law firm's request for appellate attorney fees from the appellee, Selene Finance LP.
The U.S. Bankruptcy Court for the Southern District had originally denied O'Reilly's request for appellate fees because it decided that it lacked the authority to award them. Carlos Cuevas, an attorney representing O'Reilly, told Law360, "It's a very important decision for the bankruptcy bar because it has ensured that if a party is in contempt, that an attorney who successfully dissents that contempt order on appeal has the opportunity to be compensated for his or her services."
"And that's especially important if you're representing a debtor, because debtors most of the time lack the resources to fund an appeal, to pay for the printing of an appellate brief, an appendix and the attorney's services that are involved," Cuevas added. The debtor, Bret DiBattista, filed a Chapter 7 bankruptcy petition in July 2009, and won an order from the bankruptcy court preventing creditors from trying to collect on debts. Despite this, Selene, the servicer of DiBattista's mortgage, made dozens of phone calls trying to collect on his delinquent mortgage payments, behavior the court called "absolutely egregious." In 2019, DiBattista filed a motion for contempt sanctions against Selene, which the court granted.
Judge Sullivan wrote that DiBattista, who was represented by O'Reilly in 2019, had racked up appellate fees because of Selene's contempt. "Indeed the record reflects that the appellate fees were more than $28,000, dwarfing the $17,000 in compensatory damages the bankruptcy court awarded to DiBattista," Judge Sullivan wrote.