In connection with the administration of the debtors’ bankruptcy case, the trustee in Badovick v. Greenspan (In re Greenspan), No. 10-8019, 2011 Bank. LEXIS 272 (B.A.P. 6th Cir. Feb. 2, 2011) sought to set aside a pre-petition transfer of property by the debtors on grounds of fraudulent conveyance.  The trustee and the debtors ultimately compromised the trustee’s claim, which the bankruptcy court approved, and the debtors eventually received their discharge.  Following the discharge, one of the debtors’ unsecured creditors, an attorney, filed a civil lawsuit against the debtors and the recipients of the debtors’ property, alleging the same pre-petition fraudulent conveyance of property claims that were at issue in the trustee’s former claim.  As a result, the debtors filed a motion to reopen their bankruptcy case and sought civil contempt charges against the attorney for violating the injunction against the commencement of an action to collect a debt discharged in bankruptcy, pursuant to 11 U.S.C. § 524(a)(2).

Following an evidentiary hearing, the bankruptcy court found the attorney in contempt for violating the discharge injunction and awarded the debtors their actual attorney’s fees and expenses incurred as a sanction against the attorney for violation of the injunction.  On appeal to the Bankruptcy Appellate Panel of the Sixth Circuit, the attorney argued that the amount of the bankruptcy court’s award was an abuse of discretion because, according to the attorney, the reasonable attorney’s fees that may be awarded as a sanction are not necessarily actual legal fees and expenses incurred.  Rather, the attorney argued that in determining an appropriate amount, the court must consider a number of factors, including the amount necessary to deter future violations, the amount that the debtors were forced to expend as a result of the attorney’s unreasonable actions, the mitigating actions of the opposing party, and the ability of the attorney to pay the sanctions.  Because the bankruptcy court did not consider these factors, the attorney argued that the award of attorney’s fees and expenses was an abuse of discretion.

The Bankruptcy Appellate Panel held, however, that the cases cited by the attorney in support of his argument were inapposite because they concerned the imposition of an award of attorney’s fees as a sanction against an attorney who has violated his obligations under Federal Rule of Bankruptcy Procedure 9011.  The court noted that the bankruptcy court’s imposition of sanctions in this case was based on the attorney’s violation of the discharge injunction as a creditor of the debtors, not as a result of his actions as an attorney under Rule 9011.  To that end, the court explained that a bankruptcy court has broad discretion in selecting an appropriate sanction for violation of a discharge injunction, and that reasonable attorney’s fees are an appropriate sanction.  Because the attorney failed to demonstrate that the fees were excessive, the court found no abuse of discretion in the bankruptcy court’s award of the debtors’ actual attorney’s fees and expenses incurred as a sanction against the attorney for his violation of the discharge injunction.  Accordingly, the bankruptcy court’s order was affirmed.