Last week I wrote about the consequences of bankruptcy debtor’s counsel not acting in good faith. See Back to Basics, Continued—Bankruptcy and the Automatic Stay. One of the related duties to acting in good faith, is the obligation to mitigate one’s damages. 

In the bankruptcy context, some bankruptcy judges have limited counsel’s attorney’s fees in an action for Violation of the Automatic Stay, when the debtor’s attorney fails to make any effort to resolve the automatic stay violation before instituting litigation.  Although the language of the Bankruptcy Code does not require debtor’s counsel to attempt a resolution with creditor’s counsel, a number of decisions now support the position that lack of some effort to mitigate damages is inherently unreasonable, justifying a reduced fee award. 

The reasoning is that if the debtor had attempted to mitigate damages, the debtor likely would have avoided most all damages.

This concept works alongside the obligation of attorneys also to exercise due diligence prior to moving for a default judgment.

The California Court of Appeal used a comparable argument and analysis in a non-bankruptcy case last year.  That case was an unlawful detainer action—eviction.  The California Court of Appeal reversed a default judgment for the plaintiff.  The reversal was based on the fact that the plaintiff’s counsel obtained the default judgement without first warning opposing counsel of counsel’s intent to seek a default, although defendant’s counsel instructed plaintiff’s counsel to notify it of pleadings.  According to the court, the obligation to warn “is part of an attorney’s responsibility to the court and the legal profession…which takes precedence over the obligation to represent the client effectively.”

Plaintiff’s counsel not only failed to notify defendant’s counsel of the demand, but plaintiff’s counsel also effected service of the complaint, and the request for entry of default and default judgment, in a way intentionally and precisely calculated to create a strong possibility of default. 

Of course, the California unlawful detainer reversal favored the debtor.  But, that greatest of all 17^th Century legal doctrines—“What’s sauce for the goose, is sauce for the gander”—surely can be used in the 21^st Century to favor creditors when they are treated grossly unfairly.  And, there is bankruptcy case precedent that lack of some effort to mitigate damages is unreasonable as a matter of law! 

Please Note: This is the two hundred-fiftieth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report. To receive weekly insights to your email from the Consumer Finance Report blog, subscribe here.