Kevin R. Huennekens, UNITED STATES BANKRUPTCY JUDGE.
THIS CASE came before the Court on the Rule to Show Cause issued April 20, 2017, ordering Craig E. Baumann ("Baumann") to appear and show cause (i) why he should not be held in contempt for a willful violation of the automatic stay of the Bankruptcy Code, 11 U.S.C. § 362(a), and for a willful violation of the Court's discharge order and the injunction imposed by 11 U.S.C. § 524, and (ii) why sanctions, including an award of damages, both actual and punitive, and an award of attorney's fees should not be imposed upon him. An evidentiary hearing was conducted on July 25, 2017 (the "Trial"), at the conclusion of which the Court advised Debtor's counsel to submit a fee application (the "Fee Application") and ordered Baumann to immediately remit to the Debtor the monies of the Debtor being held by Baumann in his trust account. The Court thereupon took the matter of damages under advisement. This Memorandum Opinion sets forth the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
Baumann is an attorney licensed to practice law in the Commonwealth of Virginia and is a member in good standing of the bar of this Court. Robert P. Banks (the "Debtor") is employed as a mechanic by Beatty Management Company ("Beatty Management"). The Debtor rented an apartment from Baumann in 2015. After the Debtor defaulted under the terms of the lease, Baumann had the Debtor evicted from the apartment. On September 23, 2015, Baumann obtained a judgment against the Debtor in the General District Court of Fairfax County (the "General District Court") for unpaid rent. On November 16, 2015, Baumann commenced an action in the General District Court to garnish the Debtor's wages (the "First Garnishment"). The return date on the First Garnishment was set for July 6, 2016, at which time the General District Court ordered that the funds withheld from the Debtor's wages pursuant to the First Garnishment be paid over to Baumann (the "Garnishment Order"). On August 10, 2016, Bauman commenced a second garnishment action against the Debtor
The Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code (the "Bankruptcy Case") on August 30, 2016 (the "Petition Date"), in the United States Bankruptcy Court for the Eastern District of Virginia (the "Court"). Baumann was properly scheduled as an unsecured creditor in the amount of $8,709.40 on Schedule F annexed to the bankruptcy petition. Baumann was included on the creditor service list that the Debtor filed with the Court. The Clerk's Office of this Court duly issued a Notice of Chapter 7 Bankruptcy Case to Baumann and all of the Debtor's other scheduled creditors on Official Form 309A (the "Bankruptcy Notice"). The Debtor's bankruptcy counsel, Thomas Andrews ("Andrews"), served Baumann with a Suggestion of Bankruptcy that he filed in the General District Court. Notwithstanding the commencement of the Debtor's bankruptcy case, Baumann took no action to stop the Second Garnishment. The Debtor received a discharge on December 15, 2016.
As the return date for the First Garnishment fell within the 90-day period immediately preceding the Petition Date, the Garnishment Order on the First Garnishment was avoidable under 11 U.S.C. § 547 as a preferential transfer. See In re Baum, 15 B.R. 538, 540-41 (Bankr. E.D. Va. 1981). The Debtor claimed $500 of his prepetition garnished wages exempt on his schedule C pursuant to Virginia Code § 34-4. The Debtor was entitled to avoid and recover from Baumann the amount he had claimed as exempt in accordance with 11 U.S.C. § 522(g) and (h). Baumann agreed to have the $500 exempt portion from the First Garnishment returned to the Debtor. Accordingly, Baumann sent Andrews two copies of an order of payment (the "Order of Payment") to be entered by the General District Court decreeing that $500 of the funds that had been withheld by the Debtor's employer pursuant to the First Garnishment be paid over to Andrews for the benefit of the Debtor. Andrews endorsed the orders and returned them to Baumann.
Some party (the identity of whom has no bearing on the ruling in this case) altered the Order of Payment that was entered by the General District Court after it had been endorsed by Andrews.
The altered Order of Payment was entered by the General District Court on January 31, 2017, the return date for the Second Garnishment. The General District Court sent Baumann four checks totaling $1,667 issued by the Debtor's employer for the monies withheld from the Debtor's postpetition wages. Baumann did not immediately return these postpetition funds to the Debtor. Baumann did not send a copy of the altered Order of Payment to
Instead, Baumann negotiated the four checks and retained the proceeds in his escrow account. One of the four checks did not clear the employer's account.
Postpetition wages were withheld from the Debtor on at least four occasions as a result of the Second Garnishment. The Debtor never did receive the $500 portion that he had claimed exempt from the First Garnishment. Baumann acknowledged that he continues to hold the funds he received from the Second Garnishment in his trust account along with the Replacement Check. On March 13, 2017, the Debtor filed a Motion to Reopen his Bankruptcy Case along with an Application for a Rule to Show Cause (the "Application"). A copy of the Application was sent to Baumann the same day. On March 22, 2017, Baumann filed a response to the Application, contesting the relief requested by the Debtor. A hearing on the Application occurred on April 11, 2017. The Bankruptcy Case was reopened by an order entered April 20, 2017. The Court entered the Rule to Show Cause the next day.
The Court has subject matter jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order of Reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. A proceeding to prosecute a violation of the automatic stay or a violation of the discharge injunction is a core proceeding under 28 U.S.C. § 157(b)(2)(A). See Budget Serv. Co. v. Better Homes of Virginia, Inc., 804 F.2d 289, 292 (4th Cir. 1986). Accordingly, the Court has the authority to enter a final order subject to the right of appeal under 28 U.S.C. § 158. Venue is appropriate in this Court pursuant to 28 U.S.C. § 1408.
The filing of a petition under section 11 U.S.C. § 301 operates as a stay preventing most creditor actions against the debtor, property of the debtor, and property of the estate. 11 U.S.C. § 362(a). The automatic stay is:
Better Homes of Virginia, 804 F.2d at 292 (quoting H.R. Rep. No. 95-595, at 340-42 (1977), as reprinted in 1978 U.S.C.C.A.N. 5787, 6296-97; S. Rep. No. 95-989, at 54-55 (1978), as reprinted in 1978
Section 524(a)(2) of the Bankruptcy Code imposes an injunction after the issuance of the discharge order "against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as personal liability of the debtor, whether or not discharge of such debt is waived." With respect to dischargeable debts, the discharge injunction serves to replace the automatic stay. Any behavior which would constitute a violation of the automatic stay would also constitute a violation of the discharge injunction once the stay has expired. See In re Mickens, 229 B.R. 114, 117 (Bankr. W.D. Va. 1999) (citing In re Holland, 21 B.R. 681, 688 (Bankr. N.D. Ind. 1982)). Although there is no specific provision for the enforcement of the discharge injunction as there is for the automatic stay in 11 U.S.C. § 362(k), a violation of the discharge injunction may be prosecuted for contempt of court, and appropriate sanctions may be awarded. See In re Jones, 367 B.R. 564, 567 (Bankr. E.D. Va. 2007); In re Gates, Case No. 04-12076, Adversary Proceeding No. 04-1240, 2005 Bankr. LEXIS 2034, at *11 (Bankr. E.D. Va. May 10, 2005); Cherry v. Arendall (In re Cherry), 247 B.R. 176, 186-87 (Bankr. E.D. Va. 2000).
Baumann violated the automatic stay when he failed to dismiss the Second Garnishment upon learning that the Debtor had filed his Bankruptcy Case. See In re Highsmith, 542 B.R. 738, 749 (Bankr. M.D. N.C. 2015) (holding that a creditor violates the automatic stay willfully when it has knowledge of the bankruptcy and it fails to take possible and necessary action to prevent the continuation of the collection process); In re Gordon Properties LLC, 460 B.R. 681, 694 (Bankr. E.D. Va. 2011) (stating the same) (quoting In re Baum, 15 B.R. at 541); Brown v. Town & Country Sales and Serv., Inc. (In re Brown), 237 B.R. 316, 319-20 (Bankr. E.D. Va. 1999) (holding that a secured creditor had an affirmative duty to return to the debtors a vehicle which it had lawfully repossessed prepetition); In re Manuel, 212 B.R. 517, 519 (Bankr. E.D. Va. 1997) (holding that a creditor who issues a garnishment before a debtor files bankruptcy has the affirmative duty to promptly dismiss the garnishment upon filing of the bankruptcy petition); In re Holland, 21 B.R. at 688 (holding that "inactivity on the part of a creditor with notice of the bankruptcy which permits the forces of collection to go forward is as offensive to the automatic stay provision as is activity") (emphasis added); In re Elder, 12 B.R. 491, 494-96 (Bankr. M.D. Ga. 1981) (holding that when a creditor sets the garnishment in motion, it is responsible for what happens thereafter); see also In re Mickens, 229 B.R. 114 (Bankr. W.D. Va. 1999); In re Dennis, 17 B.R. 558 (Bankr. M.D. Ga. 1982); In re Dohm, 14 B.R. 701 (Bankr. N.D. Ill. 1981). Indeed, Baumann conceded at trial that his actions violated the automatic stay.
Baumann violated the discharge injunction when he used the altered Order of Payment to collect the discharged prepetition debt from the Debtor. See In re
First, black letter bankruptcy law does not permit such an agreement. In the case at bar, there was no approved reaffirmation agreement.
The gravamen of Baumann's defense is that the Debtor did nothing to mitigate his damages and that the Debtor's recovery should be limited to the
Section 362(k)(1) of the Bankruptcy Code specifically permits a court to impose actual damages, including costs and attorney's fees as well as punitive damages, for a willful violation of the automatic stay. See 11 U.S.C. § 362(k)(1); see also Mickens v. Waynesboro Dupont Employees Credit Union, Inc. (In re Mickens), 229 B.R. 114, 118 (Bankr. W.D. Va. 1999). "A willful violation does not require specific intent to violate the stay, only knowledge of the stay and an intentional act." In re Hendry, 214 B.R. 473, 475 (Bankr. E.D. Va. 1997); see also Better Homes of Virginia, Inc., 804 F.2d at 293 (finding the bankruptcy court acted within its power in assessing money damages under § 362 after concluding that the creditor "knew of the pending petition and intentionally attempted to repossess the vehicles in spite of it"); Davis v. I.R.S., 136 B.R. 414, 423 (E.D. Va. 1992). Willfulness describes the intentional nature of action taken in violation of the stay, rather than the specific intent to violate the stay. See In re Highsmith, 542 B.R. at 748.
Having considered the evidence, the Court finds that Baumann had actual knowledge of the Debtor's bankruptcy case.
Actual damages include those actually incurred by the debtor. Skillforce, Inc. v. Hafer, 509 B.R. 523, 534 (E.D. Va. 2014). Actual losses may include "lost time damages, out-of-pocket expenses, and emotional damages." In re Ojiegbe, 539 B.R. 474, 479 (Bankr. D. Md. 2015). The Debtor had lost income in the amount of $525 due to time he had to take off from work. The Debtor had been deprived of the use of the postpetition wages Baumann held for 299 days in the amount of $794.19. The Debtor suffered damages in the amount of $500 from Baumann's failure to turn over the exempt portion from the First Garnishment. The Debtor testified that the continuation of the garnishment after he had received his discharge further damaged his credit at a time when he was trying to get back on his feet and rehabilitate his rating. The Debtor's employer expressed displeasure with him after it received the Dunning Communication from Baumann threatening legal action. The Debtor testified about the chilled relationship that developed at work immediately thereafter. The Debtor was passed over for an upcoming promotion. The anxiety these events inflicted on the Debtor was neither fleeting nor trivial. The Debtor testified that he became depressed because his fresh start had been frustrated. The Debtor established a direct causal connection between his significant emotional distress and violations of the stay and the discharge order.
While an award for emotional damages may be difficult to fashion, the Debtor has, nonetheless, established that he suffered significant emotional harm. In this case, Baumann made illegal threats to the Debtor's employer which contributed to a strained work environment, the loss of a promotion, and depression. The Court finds under these circumstances that the Debtor should be entitled to recover $2,500 in emotional damages on account of the mental anguish he suffered. See, e.g., In re Seaton, 462 B.R. 582, 600-603 (Bankr. E.D. Va. 2011). The Court will award the Debtor actual compensatory damages, including damages for emotional distress, in the sum of $4,319.19.
The Debtor executed an engagement agreement under which he agreed to compensate his lawyer at an hourly rate of $425. That rate is well within the prevailing range of hourly fees charged in the Northern Virginia area by experienced bankruptcy counsel. Debtor's counsel submitted a Fee Application for the Court's review wherein he requested fees in the amount of $18,105 and reimbursement of expenses in the amount of $305. Applying the factors set forth in 11 U.S.C. § 330(a)(3), the Court finds that the legal work performed was necessary to the Debtor's representation. The Court finds that with the exception of 2.30 hours in travel time, the fees that were charged are reasonable. Travel time will be allowed at only one half of the attorney's hourly rate. The Court finds that the Fee Application otherwise complies with the twelve elements set forth in Barber v. Kimbrell's, Inc., 577 F.2d 216, 226 n.28 (4th Cir. 1978) (citing Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974)), and Harman v. Levin, 772 F.2d 1150, 1152 (4th Cir. 1985) (applying Barber to fee awards in Bankruptcy). The Court will award attorney's fees in favor of the Debtor and against Baumann in the reduced amount of $17,616.25 plus expenses of $305.
Section 362(k)(1) of the Bankruptcy Code also provides that a court may award punitive damages to an individual injured by a willful violation of the automatic stay in "appropriate circumstances." While that phrase is not defined in the Bankruptcy Code, punitive damages clearly require "more than [a] mere willful violation of the automatic stay." In re Brown, 237 B.R. at 320-21. Some courts articulate the standard as a "reckless or callous disregard for the law or rights of others." Goichman v. Bloom (In re Bloom), 875 F.2d 224, 228 (9th Cir. 1989). Other courts require a violation rising to the level of "egregious or vindictive" conduct resembling specific intent to violate the stay. In re Seaton, 462 B.R. at 604 (quoting Rountree v. Nunnery (In re Rountree), 448 B.R. 389, 419 (Bankr. E.D. Va. 2011)); see also In re Carrigan, 109 B.R. 167, 172 (Bankr. W.D. N.C. 1989).
The Court finds that the actions of Baumann in the case at bar constituted flagrant violations of both the automatic stay and the discharge injunction. Baumann was in possession of sufficient facts that would have caused any reasonably prudent person to cease collection efforts. But, Baumann is more than just a reasonably prudent person. He is an experienced member of the bar of this Court who was extensively familiar with Bankruptcy law. See, e.g., Bankruptcy/Civil Litigation, THE LAW OFFICES OF CRAIG E. BAUMANN, http://www.craigbaumann.com/practice-areas/bankruptcycivil-litigation/ (last visited Aug. 24, 2017) (advertising to clients that he is an "experienced bankruptcy attorney in Virginia"). The Court found Baumann's feigned ignorance of the law to be entirely disingenuous. As a bankruptcy practitioner, Baumann knew full well that no one was required to phone him and ask that the garnishment be dismissed. Although he had many opportunities to take corrective action, Baumann chose to persist in his course of illegal action undeterred by the automatic stay or the discharge injunction. The continued refusal to halt the Second Garnishment, the failure to remit the portion from the First Garnishment that the Debtor had claimed exempt, the threats made to the Debtor's employer in the Dunning Communication, the negotiation of the garnished funds upon receiving them from the General District Court, and then continuing to hold the Debtor's postpetition wages even after the Rule to Show Cause had been issued all rise to the level of egregious conduct for which punitive damages are appropriate.
The Court's remaining task is to determine the amount of punitive damages that are appropriate in this case. Punitive damages serve the twin aims of deterrence and retribution. See Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 432, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001). Of particular importance to this case, a court may award punitive damages to deter future misconduct. See Saunders v. Equifax Info. Servs., L.L.C., 469 F.Supp.2d 343, 348 (E.D. Va. 2007), aff'd sub nom. Saunders v. Branch Banking & Trust Co. of Virginia, 526 F.3d 142 (4th Cir. 2008). Generally, courts are afforded much discretion in setting exemplary or punitive damages for a willful violation of the automatic stay.
A punitive damage award should "be based on the facts and circumstance of the defendant's misconduct." Saunders, 469 F.Supp.2d at 350. Relevant factors considered by courts may include the nature of the creditor's conduct, the degree of contempt shown for adherence to the law, the nature and extent of harm to the debtor, and the creditor's ability to pay. See Wills v. Heritage Bank (In re Wills),
In the instant case, $5,000 in punitive damages is appropriate.
Having determined that Baumann willfully violated both the automatic stay and the discharge injunction and that those violations rise to the level of egregious conduct, the Court will award the Debtor actual compensatory damages against Baumann in the amount of $4,319.19, plus attorney's fees and costs in the amount of $17,921.25, and punitive damages in the amount of $5,000.
A separate order shall issue.
