Rochelle's Daily Wire

In a case involving the finality of a contempt order for violating the automatic stay, a judge on the Eleventh Circuit hints that her circuit’s precedent may be out of step with Supreme Court authority.

Bound by its own precedent, the Eleventh Circuit held that an order in a contempt proceeding is nonfinal and nonappealable until the bankruptcy court fixes the award of attorneys’ fees in later proceedings. Relying on earlier Supreme Court’s authority, the district court believed that the appeal should have been taken immediately after the contempt finding, although damages and attorneys’ fees were left open at the time.

Contempt and Attorneys’ Fees

Before bankruptcy, the corporate debtor had been suing a local government for disclosure of documents under the state’s public records act. The debtor and the city settled but left open the question of whether the debtor was entitled to costs and attorneys’ fees.

The day before the hearing in state court on attorneys’ fees, the debtor filed a chapter 11 petition. The debtor argued in state court that the automatic stay precluded a hearing on its own fee request.

The city countered in state court by contending that the automatic stay did not apply because the debtor was on the offensive. The state court agreed with the city but decided to withhold a ruling on attorneys’ fees until the conclusion of the bankruptcy.

Six weeks after the hearing in state court, the debtor moved in bankruptcy court to hold the city in contempt of the automatic stay. The bankruptcy court disagreed with the state court and held that the city had violated the automatic stay.

The bankruptcy court entered an order finding the city in contempt and liable for violating the stay. The contempt order also declared that the city would be liable for the debtor’s attorneys’ fees in an amount to be decided in further proceedings. The contempt order ruled that the debtor was entitled to neither compensatory nor punitive damages.

The city did not appeal the contempt order.

Weeks later, the bankruptcy court conducted a hearing and held the city liable for about $13,000 in attorneys’ fees. The city then appealed both the contempt order and the order granting the debtor $13,000 in attorneys’ fees.

The city appealed, presumably to argue under Taggart v. Lorenzen, 139 S. Ct. 1795, 1799 (2019), that there was no contempt because the city had an “objectively reasonable basis” for contending there was no violation of the automatic stay.

The district court dismissed the appeal, believing that the appeal from the contempt order was untimely. The city appealed to the Eleventh Circuit.

Conflicting Supreme Court Authority

In her December 5 opinion for the appeals court, Eleventh Circuit Judge Robin S. Rosenbaum said she understood why the district court believed the contempt order was a final order requiring an immediate appeal. “After all,” she said, the contempt order “left only the determination of attorneys’ fees, so a straight-forward application of the ‘bright-line rule’ from Budinich and Ray Haluch yields the conclusion that the Contempt Order was a ‘final decision.’”

Judge Rosenbaum was referring to Budinich v. Becton Dickinson & Co., 486 U.S. 196, 199 (1988), where she characterized the Supreme Court as holding under 28 U.S.C. § 1291 that “an outstanding attorneys’ fees issue does not preclude an otherwise final decision from being a ‘final decision.’ Budinich, 486 U.S. at 202.”

Judge Rosenbaum’s other reference was to Ray Haluch Gravel Co. v. Cent. Pension Fund of Int’l Union of Operating Eng’rs and Emps., 571 U.S. 177 (2014), where she said the Supreme Court reaffirmed the Budinich principle in a contractual context. In Ray Haluch, she described the Supreme Court as holding “that an unresolved attorneys’ fee issue did not prevent a decision from being ‘final’ even though attorneys’ fees were part of the contract damages to be awarded. Id. at 184–85.”

“But this is a contempt case,” Judge Rosenbaum said. She cited Eleventh Circuit authority as recently as 2019 for the proposition “that a contempt decision does not become ‘final’ until the contempt penalties imposed are no longer ‘conditional or subject to modification.’ PlayNation Play Sys., Inc. v. Velex Corp., 939 F.3d 1205, 1212 (11th Cir. 2019) (citations omitted).”

According to Judge Rosenbaum, PlayNation and cases like it in the Eleventh Circuit, such as Combs v. Ryan’s Coal Co., Inc., 785 F.2d 970 (11th Cir. 1986), were based on Fox v. Capital Co., 299 U.S. 105 (1936).

Judge Rosenbaum was obliged to deal with the question of whether Combs and PlayNation were not good law in view of Supreme Court edicts in Budinich and Ray Haluch. She cited the familiar proposition that a circuit court must follow its own precedent, like PlayNation, unless the en banc court or the Supreme Court abrogates it. “Here,” the judge said, “we issued PlayNation after the Supreme Court issued its decisions in Budinich and Ray Haluch. That means PlayNation controls.”

Judge Rosenbaum said that PlayNation was “materially indistinguishable” from the case on appeal and required reversal of the district court, because the contempt order did not become final until the amount of attorneys’ fees was fixed. She vacated the district court decision and remanded, presumably for the district court to consider whether Taggart precluded a contempt finding.

Observations

There is a lack of clarity as to whether a contempt order is final before the bankruptcy court determines the amount of damages and attorneys’ fees. Courts typically seem to believe that attorneys’ fees are integral and not subsidiary to the contempt claim, meaning there is no final order until attorneys’ fees are fixed.

The Supreme Court’s decision in Bullard v. Blue Hills Bank, 575 U.S. 496 (2015), does not answer the question definitively. In Bullard, the Court held that an order denying confirmation of a chapter 13 plan was not final and not appealable. Bullard instructs courts to identify the “relevant proceeding.”

In the context of a bankruptcy proceeding for contempt, what’s the relevant proceeding? Is it purely the finding of contempt, or is contempt inextricably bound with the debtor’s damages and attorneys’ fees? And what if the court fixes the debtor’s damage but does not immediately rule on attorneys’ fees?

One day, an appellate court in a bankruptcy case may cite Budinich and Ray Haluch to hold that a contempt finding unadorned by attorneys’ fees is final. Caution therefore counsels the filing of an appeal immediately after a finding of contempt. Courts could clarify finality by entering a memorandum opinion that finds contempt but withholding entry of an order until fixing the amount of damages and attorneys’ fees.