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order (there was evidence that the July 13 order surprised both Sternberger and Johnston). However, the court said that within a reasonable time after the July 13 order, Sternberger was required to take corrective action and he did not. Instead, he affirmatively opposed Johnston's attempt to get relief from the July 13 order at the appellate state court level. Sternberger did not try to parse out the valid portions of the July 13 order from the invalid portions; he simply opposed the relief Johnston sought in its entirety. It was Sternberger's affirmative duty to not violate the automatic stay. He could not rely on the normal adversary process and hope that Johnston's arguments won the day on appeal nor was Johnston required to ask Sternberger to modify the July 13 order. The court said that at the very minimum, Sternberger was required to "alert the state appellate court to the conflicts between the order and the automatic stay." For these reasons, the court held that Sternberger violated the automatic stay.
(ii) Attorneys' Fees. The court ultimately held that "the bankruptcy court erred in calculating Johnston's damages because it awarded attorney fees not only for the work associated with remedying the stay violation but also for the subsequent adversary proceeding in which Johnston sought to collect damages for the stay violation." The court noted that "Congress legislates against the backdrop of the 'American Rule.'" The court felt that § 362(k)(1) undoubtedly allows for the recovery of fees incurred to prevent
the violation of the automatic stay since this is in line with the American Rule. But, the court felt that it was not clear whether Congress meant to "deviate from the American Rule by allowing recovery as damages of the fees incurred in the bankruptcy court action for damages resulting from violation of the automatic stay." Once a stay violation has ended, any fees incurred by the debtor in prosecuting an adversary proceeding would not compensate the debtor for 'actual damages' as those are defined in Black's dictionary. The purpose of the automatic stay is twofold: first, to give the debtor some breathing room and, second, to protect creditors by preventing one from pursuing its own remedy to the detriment of other creditors. Allowing a debtor to recover attorneys fees for prosecuting a § 362(k) action would not further either of these goals: on the one hand, the stay is a shield, not a sword and on the other hand, it would not give the debtor any breathing room since, after all, litigation is litigation. For these reasons, the court concluded that "a damages action for a stay violation is akin to an ordinary damages action, for which attorney fees are not available under the American Rule." The court recognized that the Fifth Circuit in In re Repine, 536 F.3d 512 (5th Cir. 2008) held the opposite. The court was reticent to create a circuit split but felt that it was appropriate here.
Facts: Amir Bartov and Aliza Sharon (the "Receivers"), as receivers of Gold & Honey, Ltd. ("GH Ltd."), Lucky Seven Ltd. ("Lucky Seven"), and Gold & Honey (1995) L.P. ("GH LP"), filed petitions seeking recognition of these companies. GH Ltd. and GH LP had previously filed chapter 11 and were debtors (the "Debtors") before the court when the Receivers filed for chapter 15 recognition. GH LP is a New York company with its principle place of business in NY. GH Ltd. is a company organized under the laws of Israel, is a general partner of GH LP and 49.5% equity holder in GH LP. First International Bank of Israel ("FIBI") is an Israeli bank that is organized and exists under the laws of Israel. FIBI has no offices nor branches within the U.S. but, obviously, has business contacts with the U.S. FIBI is a pre-petition lender to GH Ltd., with the loans guaranteed by GH LP. Originally, the Debtors jewelers operated in the U.S. By 1996 though, the manufacturing portion of the Debtors' business was out of Israel and operated in the name of GH LP, which remained a New York limited partnership. By 2008, GH LP and GH Ltd. had borrowed about $16 million from FIBI and had pledged as collateral certain machines and equipment that was located in Israel. In July 2008, FIBI seized substantially all of GH Ltd. and GH LP's assets and accounts and commenced an Israeli receivership proceeding. In September 2008, the Debtors filed for chapter 11 bankruptcy in the E.D.N.Y.; at that time, a receiver had yet to be appointed in the Israeli proceedings. On October 2, 2008, FIBI continued its application for the appointment of a receiver in the Israeli court. The Israeli court appointed a temporary receiver. On October 3, 2008, the Debtors filed a motion seeking a determination that the automatic stay applied to prevent the appointment of a receiver in Israel. FIBI appeared at the automatic stay hearing, as did the temporary receiver. The Court said that the automatic stay did in fact apply to the Debtors' property "wherever located and by whomever held, and entered an order to that effect (the "Stay Order")." The court did not specifically find that the stay precluded the Israeli court from ruling in the receivership proceeding; the court specifically told FIBI that if it proceeded in the Israeli court with the receivership proceeding, it did so at its own peril. Needless to say, FIBI continued prosecuting its receivership action and, on October 30, 2008, the Israeli court "declined to give effect to the automatic stay or to the Stay
©2010 Leif M. Clark
