Separating Damages from Fees: Seventh Circuit Clarifies Comparative-Fault Limits on Attorney-Fee Awards in Civil Contempt

1. Introduction

The Seventh Circuit’s decision in Jacqueline Sterling v. Southlake Nautilus Health & Racquet Club, Inc. (“Sterling II”) addresses a deceptively small debt—a $518 gym bill—but delivers an outsized precedent for bankruptcy practice and contempt jurisprudence. After a default judgment, a post-petition bench warrant, and Sterling’s unfortunate weekend in jail, the litigation turned to sanctions for Southlake’s violation of the discharge injunction. The bankruptcy court used pure comparative fault to halve both monetary damages and attorney’s fees. On appeal, the Seventh Circuit confirmed that comparative fault may reduce compensatory damages, but drew a bright doctrinal line: attorney’s fees in civil-contempt proceedings rest in the court’s broad equitable discretion and need not be reduced in lockstep with the plaintiff’s comparative fault. The court also clarified that silence on “costs” means costs are allowed by default.

2. Summary of the Judgment

The court affirmed the bankruptcy court’s 50/50 allocation of compensatory damages (lost wages & emotional distress) because both parties’ negligence contributed to Sterling’s arrest.
It vacated the parallel 50/50 split of attorney’s fees, holding that fee-shifting is governed by equity, not tort analogies; the bankruptcy court may, but need not, reduce fees for Sterling’s comparative fault.
It interpreted the lower court’s silence on costs as “costs allowed,” and remanded to set a post-appeal deadline for Sterling’s bill of costs.

3. Analysis

3.1 Precedents Cited and Their Influence

Taggart v. Lorenzen, 587 U.S. 554 (2019) – Reaffirmed that contempt to enforce the discharge injunction borrows “old soil” of traditional equity; informs the “fair ground of doubt” standard.
United Mine Workers, 330 U.S. 258 (1947) – Classical articulation of contempt’s compensatory and coercive aims, cited to position damages as compensatory.
Goodyear Tire v. Haeger, 581 U.S. 101 (2017) – Clarified that fee sanctions must be limited to fees “caused by” the misconduct; invoked to limit, but not mandate, apportionment.
NLRB v. Neises Construction, 62 F.4th 1040 (7th Cir. 2023) – Stated that compensatory damages are “typically required” once causation is shown, supporting the limited discretion on damages.
In re Federal Facilities Realty Trust, 227 F.2d 657 (7th Cir. 1955) – Early Seventh Circuit authority recognising automatic entitlement to damages and fees where contempt proven.
Toledo Scale, 261 U.S. 399 (1923) & Chambers v. NASCO, 501 U.S. 32 (1991) – Confirmed fee-shifting derives from court’s inherent power to protect its authority.
Congregation of the Passion v. Touche Ross, 854 F.2d 219 (7th Cir. 1988) – Held that a judgment silent on costs is deemed to allow costs, answering Sterling’s final issue.

3.2 Court’s Legal Reasoning

The panel adopted a bifurcated analytical framework:

Compensatory Damages = Tort Analogy
- Once causation is proven, damages “follow as a matter of course.”
- Comparative fault applies exactly as in negligence litigation; the debtor’s own rule violation (failure to notify the state court) warranted a 50% reduction.
Attorney’s Fees = Equitable Fee-Shifting
- Unlike damages, fees are imposed to vindicate the court’s authority and enable private enforcement of injunctions.
- The only statutory/constitutional constraint is proximate causation—fees must have been incurred because of the contempt.
- Beyond that, the court retains “broad discretion”; no mechanical comparative-fault apportionment is required.

3.3 Likely Impact on Future Litigation

Bankruptcy sphere – Trustees and debtors can seek full fee awards even where their own minor negligence contributed to post-discharge harm; creditors face heavier cost exposure for discharge violations.
Contempt jurisprudence – Provides a blueprint for separating tort-like damages from equitable fee awards across all injunction contexts, not only bankruptcy.
Litigation strategy – Defendants will still raise comparative fault on damages but must craft separate, equitable arguments to curb fee awards.
Procedural practice – Silence on costs now firmly understood to grant costs; counsel should file timely bills even after appeals.

4. Complex Concepts Simplified

Discharge Injunction – A permanent federal court order wiping out pre-bankruptcy debts and forbidding any collection efforts.
Civil Contempt – A court’s power to sanction non-compliance with its orders; aims to compensate the injured party or coerce future compliance, not punish criminally.
Comparative Fault (Pure) – Each party’s percentage of blame reduces (but does not bar) recovery; e.g., 50% debtor fault → debtor recovers 50% of compensatory damages.
Attorney-Fee Shifting – Exception to the American Rule; courts may order the wrongdoer to pay the winner’s lawyer bills when required to vindicate court orders.
Costs vs. Fees – “Costs” are limited, itemised litigation expenses (filing fees, transcripts, marshal fees) taxable under 28 U.S.C. § 1920; “fees” are lawyers’ compensation.

5. Conclusion

Sterling II crystallises a nuanced but critical distinction: damages awarded in civil-contempt proceedings track tort principles and therefore shrink with the plaintiff’s comparative fault, whereas attorney’s fees spring from the court’s equitable authority and are constrained only by causation and reasonableness, not by automatic fault-sharing rules. By vacating the fee apportionment and remanding for an independent discretionary assessment, the Seventh Circuit arms lower courts with flexibility to fully redress contempt of federal injunctions—especially bankruptcy discharges—without mechanically penalising victims for lesser missteps. The ruling also cements the procedural norm that unspoken costs are nonetheless recoverable, ensuring prevailing parties are not deprived due to technical oversight. In short, the decision strengthens debtor protections, clarifies fee-shifting doctrine, and underscores the judiciary’s commitment to the effective enforcement of its own orders.