20-4067-br In re: DiBattista

United States Court of Appeals For the Second Circuit

August Term 2021

Argued: September 8, 2021 Decided: May 17, 2022

No. 20-4067-bk

IN RE: BRET S. DIBATTISTA, Debtor.

LAW OFFICES OF FRANCIS J. O’REILLY, ESQ.,

Appellant,

v.

SELENE FINANCE, L.P.,

Appellee.

Appeal from the United States District Court for the Southern District of New York No. 20-cv-4620, Philip M. Halpern, Judge.

Before: JACOBS, LOHIER, and SULLIVAN, Circuit Judges. Appellant, a law firm, challenges an order of the Southern District of New York (Halpern, J.) affirming the bankruptcy court’s denial of the firm’s request for appellate attorneys’ fees. The bankruptcy court determined that it lacked the authority to award appellate attorneys’ fees, and the district court agreed. On appeal, we hold that a bankruptcy court’s traditional power to impose contempt sanctions carries with it the authority to award damages and attorneys’ fees – including appellate attorneys’ fees. We therefore vacate the order of the district court with instructions to remand to the bankruptcy court to consider whether appellate fees ought to be awarded.

VACATED AND REMANDED.

CARLOS J. CUEVAS, Yonkers, NY, for Appellant.

MICHEL LEE, Knuckles, Komosinski & Manfro, LLP, Elmsford, NY, for Appellee.

RICHARD J. SULLIVAN, Circuit Judge:

This case concerns the authority of a bankruptcy court to award attorneys’

fees incurred during the appeal of the bankruptcy court’s contempt order. The

Appellant here – the Law Offices of Francis J. O’Reilly, Esq. (“O’Reilly”) –

challenges a November 25, 2020 order entered in the United States District Court

for the Southern District of New York (Halpern, J.) affirming the bankruptcy

court’s denial of O’Reilly’s request for appellate attorneys’ fees from Contemnor-

Appellee Selene Finance, L.P. (“Selene”). The bankruptcy court denied O’Reilly’s

request for appellate fees because it concluded that it lacked the authority to award

such fees. The district court agreed, reasoning that a bankruptcy judge is not

2 empowered to award legal fees incurred in connection with an appeal to the

district court. We disagree. A bankruptcy court has the power to impose contempt

sanctions, which traditionally includes the authority to award damages and

attorneys’ fees. This authority carries with it the ability to award appellate

attorneys’ fees.

Accordingly, for the reasons set forth below, we VACATE the district court’s

judgment with instructions to remand to the bankruptcy court to consider whether

appellate fees ought to be awarded.

I. BACKGROUND

On July 24, 2009, Bret S. DiBattista filed a voluntary petition for relief under

Chapter 7 of the Bankruptcy Code. A few months later, the bankruptcy court

entered a discharge order releasing DiBattista from liability for most of his

prebankruptcy debts, including his mortgage. Such an order operates as an

injunction, “bar[ring] creditors from attempting to collect any debt covered by the

order.” Taggart v. Lorenzen,

(2019) (citing

(a)(2)).

Despite the court’s order, Selene, the servicer of DiBattista’s mortgage, attempted

to collect on DiBattista’s delinquent mortgage payments, making dozens of phone

calls and apparently reporting his delinquency to credit agencies.

3 In 2019, DiBattista, represented by O’Reilly, filed a motion in the bankruptcy

court to reopen the proceedings, and the bankruptcy court granted his request.

DiBattista then filed a motion for contempt sanctions against Selene, which the

bankruptcy court also granted. The court based its decision on Selene’s

“absolutely egregious” credit-reporting behavior, along with the “embarrassment,

stress, and anxiety” Selene caused as it “hounded” DiBattista and his family with

more than thirty collections calls. J. App’x at 53–54. Finding Selene in contempt

for “repeatedly and willfully” violating the discharge order, the bankruptcy court

awarded DiBattista $9,046.60 in legal fees and expenses, as well as $17,500.00 in

damages for Selene’s attempts to collect on a discharged debt and for false credit

reporting tied to those collection efforts. J. App’x at 58–59.

Selene then appealed the bankruptcy court’s decision to the district court.

The district court affirmed the bankruptcy court’s determination that Selene had

violated the discharge order. But the district court also noted inconsistencies in

the bankruptcy court’s description of the award of $17,500 in damages; the

bankruptcy court at least once referred to these as “punitive damages” and once

characterized them as “actual damages.” J. App’x at 77–78; see

, 58–59. In

4 light of this discrepancy, the district court vacated the award of $17,500 and

remanded the case for clarification on that point.

On remand, the bankruptcy court reinstated its $17,500 award, clarifying

that the sum represented compensatory damages. O’Reilly thereafter requested

that the bankruptcy court further award attorneys’ fees totaling $28,215 for the

firm’s appellate work in the district court. The bankruptcy court denied the

requested fees, reasoning as follows:

Appeal is a legal avenue for any losing party to pursue, and it’s not a violation of the discharge order. And a party is not in contempt for choosing to take an appeal. If [O’Reilly] wanted fees, [it] needed to ask Judge Seibel for fees for that proceeding.

J. App’x at 138. Soon after, O’Reilly appealed to the district court, arguing that the

bankruptcy court had erroneously concluded that it lacked the authority to award

attorneys’ fees for litigation services provided during the first appeal to the district

court. The district court affirmed the bankruptcy court’s ruling, concluding that a

“bankruptcy judge has simply not been empowered by Congress to award legal

fees incurred in connection with an appeal to the district court.” J. App’x at 151.

O’Reilly timely appealed.

5 II. STANDARD OF REVIEW

“[A]n order of the district court functioning in its capacity as an appellate

court in a bankruptcy case is subject to plenary review.” Jackson v. Novak (In re

Jackson),

(2d Cir. 2010). In other words, we independently review

the bankruptcy court’s decision, “accepting the bankruptcy court’s factual

findings unless they are clearly erroneous[] and reviewing its conclusions of law

de novo.”

A bankruptcy court’s decision on sanctions is reviewed for abuse of

discretion. See Solow v. Kalikow (In re Kalikow),

(2d Cir. 2010). The

bankruptcy court “necessarily abuse[s] its discretion if it based its ruling on an

erroneous view of the law or on a clearly erroneous assessment of the evidence.”

(internal quotation marks omitted).

III. DISCUSSION

Two Bankruptcy Code provisions bear on the bankruptcy court’s authority

to award attorneys’ fees. The first, section 524, directs that a bankruptcy discharge

order “operates as an injunction against the commencement or continuation of an

action, the employment of process, or an act, to collect, recover or offset” a

discharged debt.

(a)(2). The second, section 105, empowers a

bankruptcy court to “issue any order, process, or judgment that is necessary or

6 appropriate to carry out the provisions of this title.”

§ 105(a). These provisions

“bring with them the old soil that has long governed how courts enforce

injunctions.” Taggart,

(internal quotation marks omitted). Taken

together, “these provisions authorize a court to impose civil contempt sanctions.”

“Under traditional principles of equity practice,” courts impose contempt

sanctions to (1) “coerce [a] defendant into compliance with an injunction” or

(2) “compensate [a] complainant for losses stemming from [a] defendant’s

noncompliance with an injunction.”

(internal quotation marks omitted).

It is well settled that a bankruptcy court may compensate a debtor for a

creditor’s violation of its discharge order. See, e.g., Anderson v. Credit One Bank (In

re Anderson),

(2d Cir. 2018) (“We have previously observed that

the statutory contempt powers given to a bankruptcy court under § 105(a)

complement the inherent powers of a federal court to enforce its own orders.”

(internal quotation marks and alteration omitted)); MBNA Am. Bank v. Hill,

(2d Cir. 2006) (noting the “undisputed power of a bankruptcy court

to enforce its own orders” (internal quotation marks omitted)). “Consistent with

this determination, bankruptcy courts across the country have appropriately used

their statutory contempt power to order monetary relief, in the form of actual

7 damages[] [and] attorney fees . . . when creditors have engaged in conduct that

violates § 524.” Bessette v. Avco Fin. Servs., Inc.,

(1st Cir. 2000).

Here, the bankruptcy court nonetheless determined that it lacked the

authority to award attorneys’ fees for O’Reilly’s appellate work in the district

court, reasoning that (1) an appeal is not a violation of the discharge order, and (2)

O’Reilly would have needed to request appellate attorneys’ fees from the district

court. We disagree with both assertions.

Although it did not involve bankruptcy, our decision in Weitzman sheds

light on the authority and obligation of a lower court to award appellate attorneys’

fees in a successful appeal against a willful contemnor. See Weitzman v. Stein,

(2d Cir. 1996). In Weitzman, we held that, where a contemnor willfully

violated a court’s injunction, that court “would need to articulate persuasive

grounds for any denial of compensation for the reasonable legal costs” – including

appellate fees – incurred by a victim as a result of the contempt.

. The

district court in that case had reasoned that the victim’s appellate “costs were not

‘caused by’” the contemnor’s misconduct.

. We disagreed, noting that

ultimately “none of this [litigation] would have been necessary” if the contemnor

had simply obeyed the district court’s order.

Accordingly, we reversed the

8 denial of costs and attorneys’ fees associated with the appeal and remanded the

case.

at 720–21.

Weitzman thus forecloses the bankruptcy court’s first rationale for denying

appellate attorneys’ fees; while an appeal itself does not violate the bankruptcy

court’s discharge order, “none of this [appellate litigation] would have been

necessary if [Selene] had respected” the bankruptcy court’s discharge order.

. Put plainly, DiBattista’s appellate fees were “caused by” Selene’s contempt.

(internal quotation marks omitted). Indeed, the record reflects that the

appellate fees were more than $28,000, dwarfing the $17,500 in compensatory

damages the bankruptcy court awarded to DiBattista. As these facts demonstrate,

the failure to compensate the victim of contempt with appellate fees could leave

the victim worse off for seeking to enforce a discharge order and would, at the

very least, discount any compensatory damages award.

The bankruptcy court’s second rationale – that only the district court could

award litigation costs for appellate proceedings before it – is equally unpersuasive.

It is undisputed that bankruptcy courts have the power to sanction a party for

violating their discharge orders. See In re Anderson,

. And in line

with long-established practice, this contempt power encompasses the authority to

9 “compensate the complainant for losses stemming from the defendant’s

noncompliance with an injunction,” Taggart,

(internal quotation

marks omitted) – even if those losses take the form of appellate litigation fees, see

Weitzman, 98 F.3d at 720−21.

Selene’s other arguments on appeal are similarly unavailing. Selene first

attempts to distinguish this case from Weitzman, arguing that Weitzman dealt with

“an attorney’s fee award for an appellant’s successful second appeal seeking to enforce

a non-bankruptcy contempt order and not, as is the case here, an appellee defending

the first appeal of a bankruptcy contempt order, which was partially remanded

and thus a partial success.” Selene Br. at 19 (emphasis in original). DiBattista,

however, was successful on appeal in all material respects. The district court

merely remanded for clarification on the $17,500 damages award, leaving the

bankruptcy court’s willful contempt finding undisturbed. Indeed, on remand, the

bankruptcy court reinstated that award. Moreover, it is immaterial that this case

involves a bankruptcy court’s, rather than a district court’s, contempt order. As

discussed, sections 524 and 105 of the Bankruptcy Code “bring with them the old

soil that has long governed how courts enforce injunctions.” Taggart,

(internal quotation marks omitted). That “old soil” permits a court enforcing

10 its injunction – in Weitzman, a district court; here, a bankruptcy court – to

“compensate [a] complainant for losses stemming from [a] defendant’s

noncompliance with an injunction.”

(internal quotation marks omitted).

Selene further argues that since the district court “explicitly affirmed the

Contempt Order’s award of attorney’s fees,” the bankruptcy court lacked the

authority to “revisit” the question of attorneys’ fees. Selene Br. at 11−12 (internal

quotation marks omitted). It is true that the district court remanded the case “for

the sole purpose of reconsidering damages (apart from the $9,046.60 representing

reasonable legal fees and expenses).” J. App’x at 78 (emphasis added). But the

district court did not opine on the appropriateness of appellate fees – an issue that

was not raised before it – and in no way prohibited the bankruptcy court from

awarding additional fees for O’Reilly’s appellate work.

Relying on Rule 8020 of the Federal Rules of Bankruptcy Procedure, Selene

next argues that “appellate fees would not be justified given that the underlying

appeal could not be considered frivolous.” Selene Br. at 15. To be sure, Rule 8020

permits a district court to award attorneys’ fees for “frivolous” appeals from the

bankruptcy court. Fed. R. Bankr. P. 8020(a). But nothing about the rule precludes

a bankruptcy court from exercising the “old-soil” power to award fees for non-

11 frivolous appeals of its contempt order in the appropriate circumstances. The fact

that a court can award attorneys’ fees for frivolous appeals pursuant to Rule 38 of

the Federal Rules of Appellate Procedure does not prevent a lower court from

assessing appellate fees against a willful contemnor who has flouted the lower

court’s injunction order, even where the contemnor’s appeal is non-frivolous.

Nor can Selene rely on the so-called American Rule that litigants should

bear their own costs, which ordinarily applies “absent explicit statutory

authority.” Baker Botts L.L.P. v. ASARCO LLC,

(2015) (internal

quotation marks omitted). A long-recognized exception to the American Rule

permits courts to “assess attorneys’ fees for the willful disobedience of a court

order as part of the fine to be levied on the [contemnor].” Alyeska Pipeline Serv. Co.

v. Wilderness Soc’y,

(1975) (internal quotation marks and ellipsis

omitted). Weitzman itself clearly falls within this exception, as does this case.

We are also unpersuaded by Selene’s policy argument that authorizing a

bankruptcy court to award appellate fees would discourage meritorious appeals.

The same could be said of this Court’s decision in Weitzman, but Weitzman is

nonetheless the controlling law of the Circuit.

12 Finally, Selene’s argument that O’Reilly failed to provide detailed time

entries to support its request for fees does not alter our holding. To the extent that

Selene challenges the reasonableness of the fees, that argument is best addressed

to the bankruptcy court. See Weitzman,

(remanding for the district

court, which issued the violated injunction, “to calculate the appropriate amount

of damages and of costs and fees”). At this juncture, we express no view on the

reasonableness of the appellate fees sought by O’Reilly. We hold only that the

bankruptcy court’s denial of O’Reilly’s request for appellate fees was based on an

erroneous view of the law and was therefore an abuse of discretion. See In re

Kalikow,

.

IV. CONCLUSION

For the foregoing reasons, we VACATE the judgment of the district court

and REMAND for further proceedings. The district court is instructed to remand

this case to the bankruptcy court to calculate the appropriate attorneys’ fees and

costs from the first appeal or “to articulate persuasive grounds for any denial of

compensation for the reasonable legal costs.” Weitzman,

. Further,

“[i]n order to avoid extending this already prolonged litigation, we also direct”

13 the bankruptcy court to consider whether it should “grant fees and costs for this

second successful appeal.”

.

14