Bertuccio v. California State Contractors License Board et al

OCR transcription for search; preserved printed pages are authoritative

Entered on Docket
October 20, 2009

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

—

2
3
4
7009
6 gct 3 5
7 CLERK, soy COU
united BH cutee aBaliorse
8 san UNITED STATES BANKRUPTCY COURT
= 9 NORTHERN DISTRICT OF CALIFORNIA
jad
3 10 |} In re ] Case No. 04-56255
]
~ 11 Frank Bertuccio, ] Chapter 13
S
. ]
2 gE 12 Debtor. ]
Qu ]
Yd 13 ]
& ro Frank Bertuccio, ] Adversary No. 04-5524
rw 14 ]
4 < Plaintiff, ]
m2 15 ]
mA vs. ]
RE 16 ]
ie California State Contractors ]
me & 17] License Board, et al., ]
DZ, ]
A = 18 Defendants. ]
EY ]
— Oo 19
7,
~ 20 DECISION ON AWARD OF DEBTOR’S ATTORNEYS’ FEES AND COSTS
21 On December 31, 2009, the Court issued a Decision in Part on
22 || Debtor’s Action for Damages for Violation of the Automatic Stay
23 || (the “Partial Decision”). In the Partial Decision, the Court found
24 || as follows:
25 Defendants, collectively, violated the automatic stay
by failing to reinstate timely the Debtor’s contractor’s
26 license upon receiving actual notice of his bankruptcy
filing and request for reinstatement. However, the Debtor
27 has failed to prove any actual damages arising from the
operation of his business, and, therefore, shall not be
28

DECISION ON AWARD OF DEBTOR’S
ACRES 2 FEED OEHOYS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 1 of
23

AUTHENTICATE
U.S. GOVERNME
INFORMATION

GPO

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

o0o CO NBO Wo F&F WO NO =

NO bO NH NH NH ND NY NY NO KF KF HF HF KF KF OF OS ES
Oo ND DN AN BP WO NYO KF COS OO fH ANA DH A FP WO NY KF OC

Cagp

awarded any damages on that basis. The Court also denies
the Debtor’s request for punitive damages.

Partial Decision at 45:12-18.

The one issue the Court expressly did not reach in the Partial
Decision was whether Debtor should be awarded his attorneys’ fees
and costs as actual damages under Bankruptcy Code § 362(h).* The
Partial Decision notes:

The problem with the Debtor’s arguments in favor of an
award of attorneys’ fees and costs in this case is that no
evidence has been submitted by the Debtor on this issue.
Without such evidence, it is impossible for the Defendants
or the Court to determine “(1) what expenses or costs
resulted from the violation and (2) what portion of those
costs was reasonable, as opposed to the costs that could
have been mitigated.’” [In _re Roman, 283 B.R. 1, 12 (9th
Cir. BAP 2002)] (citations omitted). For this reason, to
the extent that the Debtor still wishes the Court to
consider an award of his attorneys’ fees and costs, the
Debtor’s counsel is hereby directed to file with the Court,
and serve on the Defendants a declaration containing a
detailed accounting of her fees and costs.

A further potential complication for the Court’s
consideration of whether attorneys’ fees and costs should
be awarded is the issue of whether the equities would
preclude an award of attorneys’ fees in this case. The
Court did not need to reach the question of the equities or
“unclean hands” with respect to the Debtor’s claim for
actual damages arising from his business operations
[because Debtor had not met the threshold showing of any
damages to such business operations]. However, such an
inquiry, may or may not be relevant with respect to the
potential award of the Debtor’s attorneys’ fees and costs.
If the equities were to preclude the Debtor from recovering
damages, does that necessarily preclude an award of
attorneys’ fees under 362(h)? Even if the Debtor
ultimately failed to prove any actual damages to his
business operations, the Debtor still wanted his
contractor’s license reinstated. Therefore, the adversary
proceeding was nonetheless necessary under the
circumstances. There is no evidence that Debtor’s counsel

' Unless otherwise provided, all references to code sections
shall mean the Bankruptcy Code, codified in Title 11 of the United
States Code, 11 U.S.c. § 101, et seq., including all amendments
thereto, as applicable at the time this Adversary Proceeding was
filed on November 1, 2004.

DECISION ON AWARD OF DEBTOR’S
ATARI S5 24FETOEH GIS ~Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 2 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

Ke) oo “I lon in - ios) N —

No i No i) N nN NO N N — —_ — —_ _ = ray —_ —_ —_
(or) ~ fon Nn a NS (ot) N — fons) Ke) oo ~ lon wa & (ve) i) — (>)

Ca

knew or should have known about the alleged “bad acts”
which ultimately led to the revocation of the Debtor’s
contractor’s license. Therefore, is it even appropriate
for the Court to consider the “bad acts” and the underlying
license issues in determining the reasonableness of the
attorneys’ fees and costs incurred, and whether those fees
and costs could have been mitigated? On the other hand,
the Debtor acknowledged under cross-examination at trial
that he chose not to answer truthfully on the question
regarding his criminal history on his application for a
contractor’s license. Trial Transcript, Vol. II, at 59:7-
64:12. Must the Court consider such factors since an award
of attorneys’ fees and costs is still an award to the
Debtor, even if indirectly?

The parties must be given a full opportunity to
address these issues, and any other they may wish to raise
after reviewing the Debtor’s attorneys’ fees and costs.

For this reason, the Court cannot rule on the issue of
attorneys’ fees and costs at this time.

Partial Decision at 43:14 - 44:27.
Debtor is represented by Cathleen Cooper Moran, Esq. of the

Moran Law Group. Defendants California State Contractor’s License

| Board (the “CSLB”) and Stephen B. Sands, Registrar of the CSLB,

(hereinafter, collectively, the “CSLB” unless otherwise specified)
are represented by Maretta D. Ward, Esq., Deputy Attorney General
for the State of California. Defendants the California State
Employment Development Department (the “EDD”) and Sally McKeag,
Chief Deputy Director of the EDD, (hereinafter, collectively, the
“EDD” unless otherwise specified) are represented by Marguerite C.
Stricklin, Esq., Deputy Attorney General for the State of
California.

This memorandum decision constitutes the Court’s findings of
fact and conclusions of law, pursuant to Rule 7052 of the Federal
Rules of Bankruptcy Procedure (“Bankruptcy Rules”).

\\\
\\\

DECISION ON AWARD OF DEBTOR'S

ATRAEOUS 2FEED OCH GTS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 3 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

—

rT.

2 ISSUES PRESENTED

3 The parties have now fully briefed Debtor’s request for an

4]|/ award of attorneys’ fees and costs. The remaining issues to be

5 || decided by the Court are as follows:

61. Whether, as the CSLB requests, Attorney Cathleen Cooper Moran
7 should be sanctioned for prosecuting an action on an illegal

8 contract and “participating in bankruptcy fraud”;

9]}2. Whether Debtor can recover attorneys’ fees and costs under

10 Bankruptcy Code § 362(h) in the absence of other “actual

11 damages” ;

12} 3 Whether the fees and costs sought by Debtor were reasonable and
13 necessary, or whether, and to what extent, such expenses could
14 have been mitigated;

15] 4 Whether, if awarded, attorneys’ fees should be reduced to a

16 rate of $125 per hour, in accordance with 28 U.S.C.

17 § 2414(d) (2) (A) which is incorporated by Bankruptcy Code

18 § 106 (a) (3);

19} 5 Whether, as alleged by Defendants, an award of attorneys’ fees
20 and costs is precluded because such fees and costs were not

21 actually incurred by Debtor;

22 1 6 The effect of Sternberg v. Johnston, -- F.3d --, 2009 WL

23 3128056 (9th Cir. Oct. 1, 2009), on any possible attorneys’

24 fees award in this case;

25 |] 7 Whether Debtor acted with “unclean hands” in his relations with
26 Defendants and whether such “unclean hands” precludes an award
27 of attorneys’ fees and costs on an equitable basis; and

28

DECISION ON AWARD OF DEBTOR’S
Cage MOaEOSS 24 BS DBtHE SS Filed: 10/15/09 Entgred: 10/20/09 13:48:17 Page 4 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

\o oo ~ nN wn - vs) No _

dN No i) i) iw) No N ie} N —_ —_ _ — —_ _ — —= — —_
oo ~] nN we £ (eS) N —_ r) Ko) oo ~ On a bh Ww N —_ _)

Ca

8. How an award of attorneys’ fees and costs, if any, should be

allocated among the Defendants.?

Il.
EVIDENCE PRESENTED

The only further evidence submitted by the parties is the
Declaration of Cathleen Cooper Moran in Support of Award of
Attorneys Fees (the “Moran Declaration”) .? Attached as Exhibits
A-D to the Moran Declaration are counsels’ time entries for
September 2004 through February 25, 2009. The Moran Declaration
states as following:

The Moran Law Firm was retained as Debtor’s Chapter 13 counsel
on September 15, 2004. Moran Declaration at 2:4-6. Prior to
filing the Adversary Proceeding, counsel attempted by phone and fax
to contact and convince the CSLB and the EDD that the filing of the
bankruptcy case required the reinstatement of Debtor’s Contractor’s
License. Id. at 2:12-15. After three weeks of trying, counsel
filed this Adversary Proceeding along with the motion for a
temporary restraining order. Id. at 2:15-17.

The CSLB resisted producing documents to the point that

Debtor’s counsel began preparing a motion to compel. Id. at 3:7-8.

? Debtor’s pleadings also raise one additional issue: “Can the
court award attorneys fees against a state agency?” Memorandum of
Points & Authorities in Support of Award of Attorneys Fees at 2:2.
However, the Court has already addressed this issue in the Partial
Decision and none of the Defendants contests the Court’s ability to
enter such an award in this case.

3 The EDD includes two attachments with its opposition. There
is no declaration under penalty of perjury authenticating these
attachments or otherwise making them admissible as evidence.

DECISION ON AWARD OF DEBTOR‘S

ATFQRYS 2FFED WC GIS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 5 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

Oo Oo NY DH OD FP WY WH

bBS wo bb HN NH ND HV NO NO KF Ff KF FF FO SF SEO OU ESP OlUhUh Sle
nH NY KH WN Ff WO NO KFK§ FOF BO fF NA DB A FP WO NYO KF CO

Ca

|] After counsel inquired as to a mutually convenient date for such a

motion to be heard, the requested documents were produced by the
CSLB. Id. at 3:8-9.

Over the course of this case, counsel appeared in San Jose at
four hearings; prepared for seven telephonic case management
conferences; took two depositions; defended Debtor’s deposition and
conducted a two-day trial. Id. at 4:23-25. The depositions taken
by Attorney Moran were of a representative of the CSLB and a
representative of the EDD. Id. at 3:10-12. The attorneys’ fees

sought are broken down as follows:

Description Total Fees
Commencement of bankruptcy to hearing on $4,084.75
TRO
Through first hearing on motion for $4,377.25
damages
Efforts at early resolution by motion $3,671.25
Discovery $6,646.50
Trial preparation $3,731.00
Trial $3,643.75
Post trial briefing $2,585.00
Hearing on possible holdings through $453.75
partial decision (9/08)
Motion to compel (discovery) $495.00
Submission of attorneys’ fees $2,573.50
$32,261.75

Id. at 4:11-22. The total hours worked is 131.80, for a blended
rate of $244.78/hour. Id. at Exhibit A. Attorney Moran billed =
105.70 hours; Attorney Renee Mendoza billed 12.50 hours; the
balance of 13.6 hours is divided between 3 paralegals. Id.

Paralegal resumes are attached as Exhibit F to the Moran

DECISION ON AWARD OF DEBTOR’S
REYES 24 == OC#F GSS Filed: 10/15/09 Entgred: 10/20/09 13:48:17 Page 6 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

—_

\o oo ~] los) WN b Ww nN

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Ca

Declaration. Although included in the hours total, some fees were

discounted or written-off entirely -- one paralegal’s 1.75 hours
were totally written-off for example. Id. at Exhibit A. Fees
associated with the submission of the pleadings related to
attorneys’ fees and costs represents roughly 8% of total fees.

The expenses sought by Debtor are as follows:

Description Total
PACER electronic docket 29.60
Photocopies (1092 copies @ $0.20/page) 218.40
Postage 25.40
Tolls for depositions 3.00
Incoming faxes (14 pages @ $0.20/page) 2.80
Telephone charges 0.53
BART - deposition 20.00
UPS Mailing 27.56
Court conference call 25.00
Lexis research 731.51
Mileage - trial (2 days) 36.36
Parking - trial (2 days) 30.00
CD of 9/3/08 hearing 26.00
Transcript expenses 1,121.90

$2,298.06

Moran Declaration, Exhibits B, C, D and E. Of the $2,298.06 in
total costs incurred by Debtor’s counsel, counsel has been
reimbursed for $1,121.90 (the exact subtotal for transcript
expenses). Id. at 5:5-6. While the Moran Declaration does not
specify who “reimbursed” counsel for the transcript expenses, a
separate bill for this amount, dated February 25, 2009 and

addressed to Debtor, is included in Exhibit D.

DECISION ON AWARD OF DEBTOR’S
ADRESS 24FEDOCH YES Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 7 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

\o oo ~ lon WN . Go N —_

bo NO No i) No N No No No —_ _ —_ ay _ —_ — _ _ —=
oe) ~] Nn WG BS WwW No —_ So \o oo ~] Nn in & Loe) NO — (on)

TIl.
ANALYSIS
A. Sanctions Against Attorney Moran
In light of the serious nature of the allegations, the Court
will first address the request for sanctions against Ms. Moran.
The Opposition to Motion for Attorney’s Fees filed by the CSLB
(“CSLB’s Opposition”) states:
Because this action was filed on two illegal contracts
and because there was no bankruptcy stay in effect at
the time CSLB suspended debtor’s license it appears
that Ms. Moran was not acting in good faith when she
filed this case
CSLB’s Opposition at 15:5-7. Debtor’s response to this argument
has been that the contracts at issue were not the basis of the
lawsuit, rather they were submitted by Debtor as evidence of the
damages he sustained as a result of the actions of the CSLB and the
EDD. The Court found this evidence did not warrant much weight for
Debtor’s proffered purpose, but that does not negate the fact that
the lawsuit was not primarily about these contracts, it was about
the Defendants’ refusal to reinstate Debtor’s contractor’s license
post-petition for roughly three weeks despite repeated requests.
Both the CSLB and the EDD seem to have entirely missed this
point -- the Partial Decision found Defendants had, in fact,
violated the automatic stay. Completely ignoring this finding, the
CSLB continues to argue that Debtor’s claims were “inappropriate”
from the outset. CSLB’s Opposition states:
Here, a simple analysis of her client’s suspended license
and the date on the contracts as well as the subsequent
timing of bankruptcy clearly indicate this case was filed
with a lack of forethought. This is not a legitimate

dispute between to [sic] reasonable parties who have
thoughtfully sought guidance from the Court. This is was

DECISION ON AWARD OF DEBTOR’S

Cage Oa055 24 DUR SS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 8 of

23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

Ne} [oe] ~ an a) > es) N i

No N No N N nN N No iw) peo —_ _ — _ —_ = —_ _ —_
fore) ~ fon Nn aS Ww No —_ Oo No) fore) ~ an Nn ff WwW No — ()

Ca

[sic] an inappropriate claim against the state and the federal
government.
CSLB’s Opposition at 15:18-23.
The Court finds the arguments on this point by the CSLB
unpersuasive, especially in light of the Court’s Partial Decision.

The request for sanctions against Ms. Moran is denied.

B. Attorneys’ Fees and Costs are Actual Damages.

The first substantive argument raised by Defendants is that
Debtor “cannot recover attorneys’ fees and costs in the absence of
actual damages.” EDD’s Opposition at 3:10-12 (citing In re

Fernandez, 227 B.R. 174, 179 (9th Cir. BAP 1998) and In re

Hutchings, 348 B.R. 847 (Bankr. N.D. Ala. 2006)). The EDD argues
that since the Court found in the Partial Decision that Debtor
sustained “no actual damages,” Debtor is not entitled to attorneys’
fees and costs under the “plain language” of Bankruptcy Code

§ 362(h).

The Partial Decision did, in fact, find that “the Debtor has

failed to prove any actual damages arising from the operation of
his business, and, therefore, shall not be awarded any damages on
that basis.” Partial Decision at 45:15-17 (emphasis added).
However, the Court expressly left for further briefing at Debtor’s
discretion, the issue of whether attorneys’ fees and costs should

be awarded to Debtor as actual damages under Bankruptcy Code

§ 362(h). The concerns posed by the Partial Decision on this
matter were not whether such attorneys’ fees and costs could be
awarded, but rather “(1) what expenses or costs results from the

violation and (2) what portion of those costs was reasonable, as

DECISION ON AWARD OF DEBTOR’S
ATF AES 2 FEETIVEH GOS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 9 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

—

i) bo NO iw) bo iw) we) NO No —_ — —" —_ rs —_ — _— _ —_
oe) ~ fon N - wd nN _ () Ko} oo ~ n wa a eS) i) _ j=)

Cas

\o io) ~ nN WN & vs) N

opposed to the costs that could have been mitigated.” Partial
Decision at 43:16-20 (citing Roman, 283 B.R. at 12). The Partial
Decision also noted the “further potential complication” of
“whether the equities would preclude an award of attorneys’ fees in
this case.” Partial Decision at 43:26 - 44:1.

Cases from within the Ninth Circuit have consistently held that
attorneys’ fees and costs can be awarded as actual damages under
Bankruptcy Code § 362(h) in the absence of other compensatory
damages. See In re Walsh, 219 B.R. 873, 876 (9th Cir. BAP 1998),
overruled on other grounds by Sternberg v. Johnston, -- F.3d --,
2009 WL 3128056 (9th Cir. 2009); In re Stainton, 139 B.R. 232, 235
(9th Cir. BAP 1992); In re Roberts, 175 B.R. 339 (9th Cir. BAP

1994); In re Strucka, 77 B.R. 777 (Bank. C.D. Cal. 1987); In re

Silva, 215 B.R. 73 (Bankr. D. Idaho 1997); In re Fash, 225 B.R. 489
(Bankr. D. Idaho 1998). American Law Reports summarizes the case
law on the issue of attorneys’ fees and costs under § 362(h) as
follows:

While the plain language of § 362(h) requires an award
of actual damages, the award of actual damages is not
automatic. Frequently a creditor’s violation of the
stay is found to be technical, as when an act is done
after the debtor’s bankruptcy filing yet before the
creditor receives notice of the stay. In such cases,
damages are sometimes denied, especially if a debtor’s
own conduct somehow contributed to the violation.
Furthermore, damages are routinely denied where the
debtor fails to adequately prove any actual damages.

Attorneys fees are expressly part of actual damages under
§ 362(h). Often debtors may not suffer tangible damages
due to a creditor’s violation of the stay but may have to
resort to the bankruptcy court to vindicate their rights.
In such cases the courts have consistently awarded
attorney’s fees to a debtor. It has been held that the

DECISION ON AWARD OF DEBTOR‘S

GALS 4 FERS OUR GSTS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 10 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

—v

© io.) ~ fo — a Ww No

= — = — — — — i
~ fon) —N aS iv?) N — (a)

N N N N N N N N N ion =
io) ~ nN wa & (es) N — Oo \O io)

cash

courts do not have the discretion to artificially limit an
amount of attorney’s fees claimed under § 362(h) and must award
all attorney’s fees proved by the debtor.

Attorney’s fees have been denied in cases in which the
creditor’s violation of the stay was technical and any

damages sustained by the debtor were minimal. Attorney’s

fees must be proven with specificity, and the courts have
frequently denied unsupported claims for fees.

Eric C. Surette, Annotation, Remedies and Damages for Violations of
the Automatic Stay Provisions of the Bankruptcy Code (11 U.S.C.A.
§ 362(h)), by Parties Other Than the Federal Government,153 A.L.R.

Fed. 463 (1999), § 2[a]. Courts have also denied attorneys’ fees
when the debtor “was not required to institute the section 362 (h)
proceeding in order to force the creditor to desist from further
violating the stay, or to prevent the creditor from again violating
the stay, or to undo the effects of the creditor’s stay violation.”
Hutchings, 348 B.R. at 902. See also, In re McHenry, 179 B.R. 165

(9th Cir. BAP 1995), In re Risner, 317 B.R. 830 (Bankr. D. Idaho

2004).

Applying these principles to the case at hand, the Court finds
that Defendants’ violation of the automatic stay was not de
minimis. Debtor was, in fact, required to bring this action to
compel Defendants to remedy their stay violation. Therefore, under
these circumstances, an award of attorneys fees and costs under
Bankruptcy Code § 362(h) is presumptively appropriate, even in the
absence of other compensatory damages. However, the Court must
nonetheless consider whether other equitable considerations can and
do override this presumption.

\\\
\\\

DECISION ON AWARD OF DEBTOR'S

ACH SY 4 FES GUH GSTS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 11 of
23

For The Northern District Of California

UNITED STATES BANKRUPTCY COURT

—v

Cc. Attorneys’ Fees and Costs Were Reasonable and Necessary

Pursuant to the Court’s instructions, Debtor has submitted a
detailed accounting of the attorneys fees and costs sought in this
matter. The Court finds these fees and costs, as set forth in
detail in the Moran Declaration, are entirely reasonable for the
scope of the work required. Over the more than four years this

case has been pending, Debtor’s counsel attended four hearings,

prepared for seven case management conferences, took two

Ke} oo ~ oO wn & ww N

depositions, defended Debtor’s deposition, conducted a two-day

10} trial and submitted post-trial briefing for which counsel is only
11 |} seeking $32,261.75 in fees. The facts also support Debtor’s

12 ] contention that the fees and costs were necessary to vindicate the
13 |] continued violation of the stay, the existence of which the Court
14] has previously found in the Partial Decision.

15

16]}D. Attorneys’ Fees Not Reduced to a Lower Statutory Billing Rate
17 The EDD notes correctly that Bankruptcy Code § 106(a) (3), which
18 | incorporates by reference 28 U.S.C. § 2412(d)(2) (a), limits the

19 || billing rate of attorneys’ fee awards against governmental units to
20|$125 per hour. Bankruptcy Code § 106(a) (3) imports the limitations
21} on fees and costs from the Equal Access to Justice Act into the

22 || Bankruptcy Code. Collier on Bankruptcy at ¢{ 106.04[3] notes:

23 Although that Act applies only to awards against the United
States, by incorporating these provisions into section

24 106(a) (3), Congress made them applicable to awards under
the Bankruptcy Code ‘against any governmental unit.’ The

25 legislative history of section 106 explained that ‘these
limitations are applicable to all governmental units, not

26 just the Federal Government.’

272 Collier on Bankruptcy g 106.04[3] (Alan N. Resnick & Henry J.
28

DECISION ON AWARD OF DEBTOR’S

Casd 8228552 45 p OU GS"§ Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 12 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

wo Oo INH On FF WO NY

N NY NH NY NY NH NY LK NHN FH
eYU AAR BDH FF GCeHRHAARE BHR AS

fab!

Sommer eds., 16th ed.) (citing 140 Cong. Rec. H10,766 (daily ed.
Oct. 4, 1994)) (footnote omitted).

The caveat to the general limit of $125 per hour, however, is
that this rate applies “unless the court determines that an
increase in the cost of living or a special factor, such as the
limited availability of qualified attorneys for the proceedings
involved, justifies a higher fee.” 28 U.S.C. § 2412(d) (2) (A). The
Moran Declaration easily provides such special factors -- this is a
complicated bankruptcy issue and she has 30 years of experience and
a specialization in the field. The blended rate for the fees
sought is only $244.78/hour -- a relatively modest rate for
bankruptcy work.

The Court finds that the billing rates charged by Debtor’s
counsel are appropriate given the nature of the work and it would
be inequitable to reduce such fees to reflect a statutory baseline

rate of $125 per hour.

E. Attorneys Fees and Costs “Incurred” by Debtor

Defendants’ next argument is that there is no evidence that the
fees and costs sought were actually incurred by Debtor. The
argument is that since Bankruptcy Code § 362(h) limits the ability
to recover “costs and attorneys’ fees” to the “individual injured”
by the stay violation, the statute requires that only the person
who actually paid or incurred an obligation to pay the costs and
attorneys’ fees may recover those damages. In support of this
argument, the CSLB cites Hutchings, 348 B.R. 847.

The issue of whether attorneys’ fees performed on a contingent

fee basis may be recovered as damages under 11 U.S.C. § 362(h) was

Sginbed Ogee ANDRO Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 13 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

1

‘© oo ~“ a v7) aN ive) N

N i) i) N N i) No N No —_ — — — _ — — = _ _
(o,<) “I (on wn aS ww N — Oo \O (oe) ~l fon A & wo N _ So

Cas

also presented in the case of In re Dawson, 346 B.R. 503 (Bankr.
| .o. Cal. 2006). On this issue, Dawson found that Ninth Circuit
case law supports an award of attorneys’ fees as actual damages

under Bankruptcy Code § 362(h) even if the litigant is not

personally liable for them. Id. at 517 (citing Gotro v. R&B

Realty Group, 69 F.3d 1485, 1488 (9th Cir. 1995). This Court
agrees with Dawson on this point, and finds that a contingent fee
structure does not preclude an award of attorneys fees under
Bankruptcy Code § 362(h). Therefore, the Court finds without merit
the CSLB’s arguments that Debtor has not “incurred” the fees and

costs sought.’

F. Sternberg v. Johnston

On October 1, 2009, the Ninth Circuit Court of Appeals issued a

decision that substantially impacts this case -- Sternberg v.

Johnston, -- F.3d --, 2009 WL 3128056 (9th Cir. Oct. 1, 2009). In
Sternberg, the Ninth Circuit held that attorneys fees and costs

recoverable under the current Bankruptcy Code § 362(k) (1)° for

4 This is, of course, even assuming arguendo that the fee
arrangement between Debtor and his counsel in the adversary
proceeding is, in fact, contingent in nature, meaning counsel
agreed to limit her fees and costs to those ultimately recoverable
from Defendants, if any. The only limited “evidence” submitted on
this issue is a statement in Debtor’s Memorandum that “[t]he cost
of the adversary has been borne to date by counsel.” Debtor’s
Memorandum at 6:17.

> Although Sternberg interprets the current Bankruptcy Code
§ 362(k) (1) and not the former Bankruptcy Code § 362(h), which was
in effect as of the filing of this Adversary Proceeding, the
pertinent language is identical between these provisions. In
addition, many of the cases cited by Sternberg were actually under
the former § 362(h), which was moved to the current § 362(k)(1) by
the Bankruptcy Abuse Prevention and Consumer Protection Act of

DECISION ON AWARD OF DEBTOR’S

BGAGREI 4 FESS GU GSTS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 14 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

‘Oo oo ~] nN ws & ee) N —_

nN No No bo i) N No N No —_ — —_ —_ —= —_ = — _ —
[oe] ~] ON Lv) aS we No — () \o [oe] ~] N GN b LoS) N — Oo

Cas

violations of the automatic stay are limited to work performed
prior to the remedying of the stay violation. Sternberg explains:

Once the violation has ended, any fees the debtor incurs
after that point in pursuit of a damage award would not be
to compensate for “actual damages” under § 362(k) (1).

Under the American Rule, a plaintiff cannot ordinarily
recover attorney fees spent to correct a legal injury as
part of his damages, even though it could be said he is not
made whole as a result. See, e.g., Restatement (Second) of
Torts § 914(1) (1979) (“The damages in a tort action do not
ordinarily include compensation for attorney fees or other
expenses of the litigation.”). The same is true here. The
context and goals of the automatic stay support this
narrower understanding and it is the one we adopt.

We have never said the stay should aid the debtor in

pursuing his creditors, even those creditors who violate

the stay. The stay is a shield, not a sword. See, e.q.,

Hillis Motors, Inc. v. Hawaii Auto. Dealers’ Ass’n, 997

F.2d 581, 585 (9th Cir. 1993).

Id. at *7-8.

Sternberg acknowledges that this holding is contrary to prior
holdings by the Ninth Circuit Bankruptcy Appellate Panel, which
allowed all attorneys’ fees and costs, including those incurred in
prosecution of the adversary proceeding seeking damages. Id. at *7

(citing Walsh, 219 B.R. 873 and Havelock v. Taxel (In re Pace), 159
B.R. 890, 900 (9th Cir. BAP 1993)). In addition, Sternberg

acknowledges this holding is inconsistent with the Fifth Circuit’s

decision in Young v. Repine (In re Repine), 536 F.3d 512, 522 (5th

Cir. 2008) and creates a “circuit split.” Id. at *8.
Nevertheless, the decisions of the Ninth Circuit Court of

Appeals are binding on this Court and, in light thereof, the Court

2005. In light thereof, the Court finds that Sternberg also
applies to cases commenced under the prior Bankruptcy Code.

DECISION ON AWARD OF DEBTOR’S

*PALG5SZ4 FEMS) UH GSTS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 15 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

\o oo ~ fo.) WG - vs) N. _

No N dN N No No No N i) — —_ —_ —_ — ra —_ — —_ —=
Oo KN BNO UA FP We NY KH CO Oo ON DH A RF WO NY KS CS

Cas

is required to deny the bulk of the attorneys’ fees and costs
requested by the Debtor in this case. By Debtor’s counsel’s own
account, only $4,084.75 of the fees sought were incurred prior to
and including the November 3, 2004 hearing on Debtor’s request for
a temporary restraining order. Although Debtor’s contractor’s
license had been reinstated on November 1, 2004,° neither Debtor’s
counsel nor the Court were aware of this fact at the time of the
November 3, 2004 hearing. The balance of the fees, totaling
$28,177, was incurred after the November 3, 2004 hearing and in
prosecution of the adversary proceeding seeking damages.
Therefore, $28,177 of the fees sought must be denied under
Sternberg and only $4,084.75 is potentially recoverable by Debtor
under Bankruptcy Code § 362(h). All expenses sought were incurred
well after November 3, 2004 and are, therefore, not recoverable

under Sternberg.’

6 On November 1, 2004, the CSLB was instructed by the EDD
that the suspension of the Debtor’s license could be lifted. Trial
Exhibit I. The CSLB lifted the license suspension on November 1,
2004. On November 2, 2004, the CSLB sent a letter to the Debtor
indicating his license had been reinstated effective November 1,
2004. Trial Exhibit K. Also on November 2, 2004, Staci Pugh of the
CSLB telephoned the Debtor’s counsel to advise her of the
reinstatement and left a message. Trial Transcript, Vol. II, 52:14
- 53:1.

7 This Court is required to follow Sternberg, but questions
the policy analysis underlying that decision. This decision
weakens substantially the effectiveness of the automatic stay.

What good is it to be entitled to damages and attorneys’ fees for a
violation of the automatic stay if it costs a debtor much more in
unrecoverable attorneys’ fees to recover such damages and
recoverable attorneys fees? In many, if not most, cases that will
likely be the situation.

DECISION ON AWARD OF DEBTOR'S

FALGGS 4 FEMS GU F§TS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 16 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

Co Oo NY DA HW RB WwW NY

i) i) N bdo to i) iw) N N —_ — —_ —_ —_ —_ —_ _ _ —
ao NTN DH A FP WYO NY F§ COD OD OH NH A BP WY NY KK CO

Cas

G. “Unclean Hands”

The Court is then left with the $4,084.75 in attorneys’ fees
incurred by Debtor prior to and including November 3, 2004 and
Defendants’ argument that Debtor should be prevented from
recovering any attorneys fees in light of Debtor’s “unclean hands”
with respect to his contractor’s license. A party has unclean
hands when the party has acted in bad faith and the bad faith
actions have “immediate and necessary relation” to the equitable
remedy being sought. Keystone Driller Co. v. General Excavator
Co., 290 U.S. 240, 245, 54 S.ct. 146, 147, 78 L.Ed. 293 (1933).
Defendants argue that Debtor has unclean hands because: (1) he lied
on his contractor’s applications, (2) he entered into the Leal and
Tovar Contracts illegally (as discussed in more detail in the
Partial Decision), and (3) he continued to operate his installation
business without a license.® Each of these factors does to some
extent support the contention that Debtor acted with unclean
hands.? However, the key question -- which Defendants fail to
address in their oppositions -- is whether “unclean hands” may
preclude a recovery under Bankruptcy Code § 362(h).

In response to Defendants’ “unclean hands” argument, Debtor

argues that an award of attorneys’ fees is “mandatory” upon the

®§ The Court understands Debtor’s point that Debtor expected

that his license would be reinstated, but it had not been.

? Defendants also argue that Debtor continues to operate
without a contractor’s license at the present. No evidence, other
than that presented at trial relating to Debtor’s business
operations around the time of his bankruptcy filing, has been
appropriately submitted by Defendants in support of this
allegation. If Debtor really is continuing to operate without a
contractor’s license, Defendants have appropriate remedies under
State law for such a violation.

DECISION ON AWARD OF DEBTOR’S

FARES 4 FERS GUA GSTS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 17 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

oO em NY Dn A FF WD NY kK

- Fe SS =
wo NYO —-| &

No NO NY NY NY NY NY NY NY KF KF Fe FF EF
Oo NN UO Pe WO NY KK CO OO CO NT HDB DA Lf

Cas4q

finding of a violation of the stay. Debtor’s Memorandum at 3:1,
4:17-18.

While the Partial Decision did find that Defendants violated
the automatic stay by refusing to reinstate Debtor’s contractor’s
license post-petition, the Partial Decision also expressly did not
reach the issue of “unclean hands” -- which the Partial Decision
left for future consideration in the event that Debtor chose to
further pursue his claim for attorneys fees and costs. Partial
Decision at 43:26 - 44:27.

Debtor next argues there is no requirement, under Bankruptcy
Code § 362(h), that a debtor have led a “blameless life pre-
petition” and that in virtually every § 362(h) action there are
‘disputes between the debtor and the creditor” prior to the alleged
stay violation. Debtor’s Memorandum, 3:9-14. Finally, Debtor
notes: ‘to hold that the creditor may ignore the stay without cost
if it has some claims, even a rightful claim, against the debtor on
some unrelated issue would cripple the stay, invite its disregard,
and embroil the court in adjudicating issues unrelated to the scope
and the enforceability of the injunction.” Debtor’s Memorandum at
3:24-28. While the policy arguments advanced by Debtor may be
compelling in many, perhaps most, situations, they do not control
here. First, the Court does not accept Debtor’s proposition that
his unclean hands are “unrelated” to the current action. To
contrary, the Court finds that Debtor’s unclean hands strike at the
very heart of the basis for this adversary proceeding -- Debtor’s
right to have his contractor’s license.

The equitable doctrine of “unclean hands” may be considered by

| a court in evaluating requests for attorneys fees and costs under

DECISION ON AWARD OF DEBTOR’S
FESS 2 4 FES tH FFT Filed: 10/15/09 . Entered: 10/20/09 13:48:17 Page 18 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

—

oO ON Dn A FF W NY

10
11

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

Case

Bankruptcy Code § 362(h). In re Gustafson, 111 B.R. 282, 288 (9th

Cir. BAP 1990), rev’d on other grounds, 934 F.2d 216 (9th Cir.
1991). However, as noted in In re Cinematronics, Inc., 111 B.R.
892 (Bankr. S.D. Cal. 1990):

[E]quitable principles may, in some circumstances, be

applicable to a claimed violation of stay. However, the

existing case law indicates that there must be compelling
equitable considerations which outweigh the court's need

for enforcement of an orderly administration of the

bankruptcy estate. Such determination must be made on a

case by case basis to insure that there is no suffocation

of the stay's intended policy. Nor must this court allow

“an ad hoc equitable exception to swallow a

well-established legal rule”. In re Smith, 86 B.R. 92, 96

(W.D. Mich. 1988). The court must find that equitable

considerations weigh heavily in favor of the defendants and

that the trustee bears some responsibility for creating the
problems before specifically balancing the equities of the
case.
Cinematronics, 111 B.R. at 901. In both Gustafson and
Cinematronics the courts found that the alleged “unclean hands” did
not substantially outweigh the policy concerns for enforcing the
automatic stay under the facts presented by those cases.

The facts presented here, however, are different from those of
Gustafson and Cinematronics. Here, Debtor seeks an award of
attorneys fees as damages for violations of Debtor’s rights under a
contractor’s license that Debtor obtained through false
representations. As Defendants have previously noted, everyone,
except Debtor, was surprised to learn at trial that Debtor had lied
on his application for a contractor’s license. The CSLB indicated
it now has new procedures in place to discover these types of
misrepresentations regarding criminal histories. However, these

misrepresentations slipped through before the implementation of

such protective measures and the CSLB did not learn of them until

28 || the trial before this Court. The only person who did know about

DECISION ON AWARD OF DEBTOR'S

CAGIS24 FEB CRP SFT Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 19 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

\o oo ~ n a) - vs) N —

nN NO i) N N N dN N N —_ — _ _ ra —_ — — —_ —_=
(oe) ~] fon (or - WwW No —_ co) Ke) (oe) ~ On WA -_ (ss) i) _ fo)

Cas

the past misrepresentations was Debtor. This Court will not
compensate Debtor for attorneys’ fees in recovering his license
when Debtor knew he had procured that license by lying on the
license application in the first place.?°

The Court is sympathetic to Debtor’s counsel, who has borne the
costs of this adversary proceeding and has conducted herself in an
entirely reasonable manner. However, the fact remains that any
award of attorneys fees under Bankruptcy Code § 362(h), the sole
basis alleged by Debtor and his counsel, is an award of damages to
Debtor. While there is no reason to believe that Debtor’s counsel
knew of Debtor’s false representations to the CSLB regarding his
criminal record, Debtor certainly did know of them and still chose
to pursue sanctions against Defendants for failing to reinstate his
contractor’s license.

Although Defendants’ actions in failing to reinstate the
contractor’s license in a timely manner were in error -- and under
any other factual circumstances would very likely have resulted in
an award of attorneys’ fees and costs -- the Court finds it would

be inequitable to allow this Debtor to recover attorneys’ fees as

damages under the unusual circumstances of this case. The Court
finds that Debtor’s unclean hands with respect to his knowing
misrepresentations to the CSLB, with respect to the very license at
issue here, outweigh the strong policy considerations in favor of

awarding damages for violations of the automatic stay under the

The Court understands that this decision could encourage
defendants to engage in fishing expeditions to discover “dirt” that
conceivably might be used to show that a debtor engaged in unclean
hands. However, that is not what happened here. Courts will need
to protect debtors against such fishing expeditions in ruling on
discovery disputes, etc.

DECISION ON AWARD OF DEBTOR’S

SEIS! 4 FEES CEP STS Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 20 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

Co Oo NY DH A FF WY NY KF

Nw NWO NWO HN NH NY ND NH NO KF KF FH KF KF HF FO PF Oh S| hl
oo IN DBD nO BR WO NY K& CO Ob RO NY DB vA FF Ww NY KF |S

Cas

facts of this case. The Court does not have before it the question
whether, or in what circumstances, State agencies should be allowed
to refuse to award a contractor’s license because of an applicant’s
prior criminal record -- where that person has “paid his debt to
society.” For these reasons, the Court denies Debtor’s request for
} Srrornevs fees and costs.

Having found that “unclean hands” preclude an award of
attorneys fees and costs in this case, the Court need not address
the remaining issue presented -- namely, the allocation of an award
between Defendants.

IV.
CONCLUSION

For the above-stated reasons:

1. The request for sanctions against Debtor’s counsel
Cathleen Cooper Moran is denied;

2. Debtor’s request, under Bankruptcy Code § 362(h), for

attorneys fees and costs incurred after November 3, 2004 is denied

in accordance with Sternberg v. Johnston, -- F.3d --, 2009 WL
3128056 (9th Cir. 2009); and

3. Debtor’s request for attorneys fees incurred prior to
November 3, 2004, when Debtor’s counsel did or should have become
aware of Defendants’ remedy of the stay violation, is denied in
light of Debtor’s “unclean hands” with respect to the
representations made by Debtor to the CSLB to obtain and maintain
//
//
//

DECISION ON AWARD OF DEBTOR’S

CPG H24 FEES COR SFT Filed: 10/15/09 Entered: 10/20/09 13:48:17 Page 21 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

oO Oo NY DH AH FF WH NY

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Cas

his contractor’s license and Debtor’s knowledge of these critical
misrepresentations when he nonetheless sought the post-petition
reinstatement of his contractor’s license.

The Court shall issue an order so-providing.

Dated: Vols | OF

[hur P wecselsll

ARTHUR S. WEISSBRODT
UNITED STATES BANKRUPTCY JUDGE

DECISION ON AWARD OF DEBTOR'S

BPEGRE24 FEESC8R 9STSFiled: 10/15/09 Entered: 10/20/09 13:48:17 Page 22 of
23

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

oO re NHN Dn OH FP W NY K

bo NO iw) bo iw) nN iw) No bo — — — — — — — — — —
ao NN UN Fe WY NY FH DOD Oo Oo YN DO An Ff WY NY KF OC

Court Service List

Frank Bertuccio
650 Castro St. Ste 120-349
Mountain View, CA 94041

Cathleen Cooper Moran, Esq.

Moran Law Group

1674 N Shoreline Blvd. #140

Mountain View, CA 94041-1375

Maretta D. Ward, Esq.

Deputy Attorney General
California Department of Justice
455 Golden Gate #11000

San Francisco, CA 94102

Marguerite C. Stricklin, Esq.
Deputy Attorney General

Office of the Attorney General
P.O. Box 70550

Oakland, CA 94612-0550

DECISION ON AWARD OF DEBTOR‘S

Casel G2°US524 FEEOtP 99°TSFiled: 10/15/09 Entegad: 10/20/09 13:48:17 Page 23 of

23