Bankruptcy: Great Decision: In re Poole

Information that should and should not be reported where there is a bankruptcy.
David A. Szwak

Bankruptcy: Great Decision: In re Poole

Postby David A. Szwak » Mon Oct 24, 2005 8:13 pm

In re Poole,
242 B.R. 104, Bankr.N.D.Ga., Oct 06, 1999

Chapter 13 debtor filed motion for imposition of sanctions against vehicle leasing company and company's law firm for violation of the discharge injunction. The Bankruptcy Court, Margaret H. Murphy, J., held that: (1) debtor's motion was not barred by laches; (2) actual notice of debtor's bankruptcy to employees of company and of its law firm could be imputed to company and law firm under agency principles; (3) violation of discharge injunction was willful, thus subjecting defendants to sanctions, including actual damages and damages for emotional distress; (4) law firm's opposition to debtor's motion to set aside state court judgment, which was void as obtained in violation of the automatic stay, was in bad faith and subjected law firm to punitive damages; and (5) defendants were liable for attorney fees incurred by debtor at debtor's attorney's $175 hourly rate.

Motion granted.

Creditor and its law firm failed to show lack of actual notice of debtors' Chapter 13 filing and discharge, and, thus, they could not escape imposition of contempt sanctions for their willful violation of discharge injunction, where creditor was served with notice of debtors' bankruptcy filing and with notice of debtors' discharge but mistakenly failed to properly note the bankruptcy filing in their records, and law firm had in its files two credit reports which reflected debtors' bankruptcy filing, though no attorney ever reviewed those credit reports or noted the bankruptcy filing in firm's records.

Creditors may be liable for contempt if their violation of discharge injunction was willful.

Violation of discharge injunction is "willful "if creditor knew the discharge injunction was invoked and intended the actions which violated the discharge injunction.

Actual notice of Chapter 13 debtors' bankruptcy to employees of creditor and creditor's law firm could be imputed to creditor and law firm under agency principles.

Chapter 13 debtors had no duty to notify creditor's law firm of their bankruptcy filing, though including law firm in the mailing matrix in addition to creditor may have been a prudent course of action.

Chapter 13 debtors had no duty to file plea noting the automatic stay in creditor's state court lawsuit pending against debtors prepetition.

Bankruptcy debtor does not have burden to personally contact its creditors to assure they take action to protect their interests, but, rather, when notice of bankruptcy filing is received, burden is on creditor to take appropriate action, including filing proof of claim, discontinuing any efforts to collect a claim, and taking affirmative action to undo any action which may have been taken without notice of the bankruptcy in violation of automatic stay or discharge injunction.

Conduct of creditor and its law firm in continuing to pursue state court collection remedies against Chapter 13 debtor was willful, thereby subjecting creditor and law firm to sanctions for violating discharge injunction, since their conduct was intentional and with knowledge of bankruptcy filing and discharge injunction, even though law firm did not have notice of debtor's bankruptcy when state court lawsuit against debtor was initially reactivated, where creditor continued to serve debtor at invalid corporate address after law firm had requested and obtained debtor's credit report containing debtor's correct, current home address.

Compensatory damages and attorney fees may be awarded as sanctions for violations of discharge injunction, pursuant to bankruptcy statute authorizing court to enter any necessary or appropriate orders

Punitive damages are not available under bankruptcy statute authorizing court to enter any necessary or appropriate orders, but punitive damages may be imposed for violations of discharge injunction, however, pursuant to court's inherent contempt powers if actions were taken in bad faith.

As remedy for violation of discharge injunction by creditor and its law firm, Chapter 13 debtors were entitled to recover expense of filing traverse to garnishment, despite law firm's contention that a simple telephone call from debtors' attorney would have been sufficient to prompt the dismissal of the garnishment and the return of garnished funds, and that the expense of filing the traverse was unnecessary.

Having violated discharge injunction by commencing garnishment of Chapter 13 debtor's wages from employer, creditor's law firm was required to reimburse debtor not only for the garnished amounts but also the $50 amount retained by employer to cover its legal fees, as permitted under state law, since that amount was an element of damages arising from law firm's conduct.

Bankruptcy court may award compensatory damages for emotional distress caused by a willful violation of the automatic stay or discharge injunction.

Medical testimony is not necessary to support a claim for damages for emotional distress caused by willful violation of discharge injunction.

Chapter 13 debtors were entitled to emotional distress damages of $1,200 for violation of discharge injunction by creditor and its law firm, since garnishment of debtor-husband's wages so long after entry of debtors' bankruptcy discharge, which debtors justifiably believed protected them from such actions, was shocking and humiliating, and law firm's failure to properly serve debtor with notice of the garnishment proceedings made discovery of the garnishment all the more shocking.

After creditor's law firm violated discharge injunction by engaging in state court efforts to collect on judgment against Chapter 13 debtor, debtor was entitled to recover $150 as reasonable amount to allow for debtor to accomplish the proper filing or recording of canceled writ of fieri facias, where, upon request by debtor's attorney that law firm cancel the writ of fieri facias, law firm inserted a typewritten cancellation notation on the writ and sent the original writ to debtors' attorney.

Having obtained judgment against Chapter 13 debtor while automatic stay was in effect, creditor's law firm was responsible for cleansing the public record of the void judgment, and such responsibility included both the judgment on creditor's complaint and the judgment on debtor's counterclaim, since counterclaim was a contingent asset of the estate when debtor's bankruptcy petition was filed.

Any judgment against Chapter 13 debtor, entered while automatic stay was in effect, was void.

Failure by creditor and its law firm to employ appropriate safeguards to avoid initial violations of automatic stay or discharge injunction did not relieve either creditor or law firm of a finding that their actions were willful.

Opposition by creditor's law firm to Chapter 13 debtor's motion to set aside state court judgment, which was void as obtained in violation of the automatic stay, was in bad faith and subjected law firm to punitive damages, since such opposition was completely unsupported by the facts or the law, and evidence suggested that law firm employed its opposition to the motion to set aside as a tool to coerce debtor into dismissing or abandoning his counterclaim. Bankr.Code, 11 U.S.C.A. § 362.

After violating discharge injunction, creditor and its law firm were liable for attorney fees incurred by debtor at debtor's attorney's $175 hourly rate, despite debtor's attorney's lack of experience in bankruptcy cases, where attorney had substantial litigation experience, bankruptcy court's evaluation of attorney's skill, both in courtroom and in his written pleadings, showed that his skill was equal to other more experienced bankruptcy attorneys charging similar hourly rates, and attorney voluntarily reduced the number of billed hours for such additional time as was required for him to educate himself regarding bankruptcy law.

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