Bankruptcy Court Has Jurisdiction to Award Attorneys’ Fees for Work Performed by Creditor’s Counsel Protecting Civil Rights Judgment in Bankruptcy Case

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A California bankruptcy court has held that the right to seek attorneys’ fees for violations of the Civil Rights Act applies to fees incurred protecting a civil rights judgment in a bankruptcy proceeding. In the case of In re Harris,[1] the bankruptcy court granted the creditor’s request for attorneys’ fees and costs incurred in the bankruptcy case because such fees and costs were for work performed while protecting and enforcing the creditor’s pre-petition civil rights judgment.

Rosalina Harris, a detective with the Los Angeles Sheriff’s Department, filed a voluntary chapter 11 petition. Prior to the bankruptcy filing, the creditor, Crystal Holmes, who had lived next door to Harris, filed a complaint in the U.S. District Court for the Central District of California against Harris and others, alleging malicious prosecution and deprivation of civil rights under 42 U.S.C. § 1983. On July 11, 2019, a judgment was entered against Harris in the amount of $2,265,952.[2] Harris appealed the judgment, and the appeal is pending before the U.S. Court of Appeals for the Ninth Circuit.

After the judgment was entered (and prior to any ruling on the appeal), in March 2020 Harris filed a chapter 11 bankruptcy petition. The court entered an order dismissing the case a few months later in May 2020 as a bad-faith filing. The court found that the basis for the filing was to avoid the requirement of posting a supersedeas bond in the pending appeal of the civil rights judgment.

Although the bankruptcy court dismissed the case, it retained subject-matter and personal jurisdiction over the debtor and her counsel regarding any request by Holmes for reimbursement of attorneys’ fees and/or sanctions. The court issued a provisional ruling on the unopposed motion for fees, indicating that it intended to deny the relief based on lack of jurisdiction. But following a hearing on the matter, the court determined that it had jurisdiction to award attorneys’ fees.[3]

In reaching its decision, the court looked substantially to United States v. Merrit Yochum and Rose Marie Yochum (In re Yochum).[4] In Yochum, the debtors sought an award of attorneys’ fees pursuant to 26 U.S.C. § 7340 following tax litigation with the IRS during the bankruptcy proceeding. Although the Ninth Circuit ultimately denied the request for attorneys’ fees, it acknowledged that the bankruptcy court had jurisdiction to award such fees in the first instance.[5]

In Harris, like in Yochum, the court found that the award of attorneys’ fees can be a core proceeding. The Yochum Court noted that courts look to a variety of factors to determine whether a matter is core or noncore, including “whether the rights involved exist independent of title 11, depend on state law for their resolution, existed prior to the filing of a bankruptcy petition, or were significantly affected by the filing of the bankruptcy case.”[6] The Yochum Court specifically found that the request for fees resulting from litigation in the bankruptcy did not exist independent of the bankruptcy, did not depend on state law, and did not exist prior to the bankruptcy. Rather, the right to such litigation costs “emanates from the bankruptcy itself” and therefore should be considered core.[7]

Similarly, the Harris court found that if the creditor had not contested the filing of the chapter 11 petition, the debtor might have been able to confirm a chapter 11 plan that discharged the § 1983 judgment in whole or part. Therefore, like in Yochum, the court found that the attorneys’ fees did not exist independently of the bankruptcy but were incurred during the bankruptcy through Holmes’s efforts to protect her judgment and dismiss the case. Thus, the issue was a core proceeding.

Having determined that the matter was core and that the bankruptcy court had jurisdiction to award attorneys’ fees, the court awarded a total of $49,202.44 in fees and costs under 42 U.S.C. § 1988 as necessary expenditures “to enforce and protect the Judgment entered” in Holmes’s favor. The Harris court cited the case Pinshaw v. Monk[8] as an example of fees awarded pursuant to 42 U.S.C. § 1988 for litigation in bankruptcy court. In Pinshaw v. Monk, attorneys’ fees were awarded by the district court to the plaintiff pursuant to 42 U.S.C. § 1988 for fees incurred by the plaintiff’s counsel to prevent any judgment under 42 U.S.C. § 1983 from being discharged in the defendant’s intervening bankruptcy case. The court found that “[i]f attorney’s time spent on appeal and time spent collecting a judgment result in reimbursement [and they do]…, time spent in opposition to discharge of a judgment in the Bankruptcy Court should be compensable.”[9]

The Harris court determined the amount of the allowed fees by using the lodestar method, which is “calculated by multiplying the number of hours the prevailing party reasonably expended on the litigation by a reasonable hourly rate.” The determination of reasonableness depends on the “prevailing market rates in the relevant community,” and the “relevant community” is often the environs of the district court. The court also considered the skill and reputation of the creditor’s counsel.

The decision that a bankruptcy court has jurisdiction to authorize attorneys’ fees under § 1988 will be significant in assisting plaintiffs in civil rights actions with protecting themselves in a defendant’s intervening bankruptcy case. However, the Harris decision was based on an unopposed motion for attorneys’ fees. The court initially denied the relief based on lack of jurisdiction and only reached a different conclusion to allow the fees after hearing argument from the creditor’s counsel. Thus, there may be room for disagreement and for courts in other cases to reach different conclusions on whether a bankruptcy court has jurisdiction to award attorneys’ fees under 42 U.S.C. § 1988.

 

[1] Case No. 2:20-bk-12839-ER (C.D. Cal. Bankr. July 23, 2020).

[2] The judgment consisted of a jury award of $765,592 for violation of the “Fourth amendment right to be free from unreasonable arrest without probable cause” and punitive damages in the amount of $1.5 million for acting with “malice, oppression, or reckless disregard” of constitutional rights. The district court also awarded Ms. Holmes attorneys’ fees and costs.

[3] In a separate opinion entered on July 23, 2020, the bankruptcy court denied Holmes’s motion for sanctions against Harris and her counsel for filing the bankruptcy, since the court found that at the time of the filing Harris and her counsel had an objectively reasonable basis to assert that a chapter 11 plan could be confirmed.

[4] 89 F.3d 661 (9th Cir. 1996).

[5] Yochum analyzed the language in 26 U.S.C. § 7430(c)(6), which provides for litigation costs related to “any civil action brought in a court of the United States (including the Tax Court and the United States Claims Court).” In re Yochum, 89 F.3d at 666. The Yochum Court noted that it is unclear whether bankruptcy courts are included in this definition, and acknowledged that courts interpreting the section have reached different conclusions. Id. The Yochum Court determined that “[b]ecause bankruptcy courts are units of the district court, they are by analogy ‘courts of the United States’ as defined by section 7430 and therefore possess the power to award attorneys’ fees.” Id. at 669.

[6] Yochum, 89 F.3d at 669 (quoting In re Cinematronics Inc., 916 F.2d 1444, 1450, n.5 (9th Cir. 1990)).

[7] Yochum, 89 F.3d at 670.

[8] 565 F. Supp. 44, 46 (D. Mass. 1983).

[9] Pinshaw v. Monk, 565 F. Supp. 44, 45 (D. Mass. 1983) (internal citations omitted). The defendant in Pinshaw v. Monk argued that an award of fees pursuant to 42 U.S.C. § 1988 was not appropriate in the bankruptcy proceeding that was commenced prior to the district court’s entry of judgment under 42 U.S.C. § 1983. However, the court found “that an award of compensation would be diluted if a fee were denied here when it was required to contest an effort to resist the collection of an ultimate judgment.” Id. at 46.