DAVID T. THUMA, Bankruptcy Judge.
The debtor Juan Escobedo ("Debtor") entered into a contract to purchase improved real property from defendant Yolanda Davis ("Davis"). Davis later sued the Debtor for breach of contract and obtained a state court judgment ousting Debtor and his family from possession of the property. Before the deadline to vacate the property the Debtor filed this bankruptcy case, seeking protection of the automatic stay. Knowing of the bankruptcy filing, Davis forcibly dispossessed Debtor anyway. This adversary proceeding for willful violation of the stay is one result. Davis, in turn, has asked the Court for relief from the automatic stay. As set forth below, the Court will award damages to the Debtor for Davis' willful stay violation, and will lift the automatic stay to allow Davis to enforce her state law rights.
On April 20, 2012, the Debtor and Davis entered into a Contract (the "Sale Contract") for the purchase and sale of property located at 390 Bianes St., Hatch, New Mexico (the "Property"). The Property is improved with a small house built on a foundation, and was sold with a double-wide mobile home that is not permanently affixed (the "Mobile Home").
On June 3, 2013, Davis sued the Debtor in the Third Judicial District Court of New Mexico, commencing an action styled Yolanda Davis v. Juan Manuel Escobedo, no. CV-2013-01256 (the "State Court Action"). The case was assigned to Judge Manuel Arrieta. On April 7, 2014, Judge Arrieta conducted a trial on the merits. He ruled from the bench as follows:
Two days later, the Debtor transferred title to the Mobile Home to his name.
On April 21, 2014, Davis' attorney, Marco Perales-Pina, submitted to the Court a form of "Order on Trial on the Merits". Debtor's state-court counsel did not consent to the entry of the because he had been advised that the Debtor had filed for bankruptcy protection.
This Chapter 7 bankruptcy case was filed April 26, 2014 (the "Petition Date"). Davis was listed as a creditor, with an address of P.O. Box 283, Radium Springs, New Mexico 88054. On April 28, 2014, Notice of the Debtor's bankruptcy filing was mailed to Davis by the Bankruptcy Noticing Center at this address.
The Debtor was in possession of the Property on the Petition Date, and all of
On May 7, 2014, at about 5:00 p.m., Davis attempted to evict the Debtor and his family from the Property. At the time, the Debtor was out of town. Davis refused to use the Dona Ana County Sheriff Department's civil legal enforcement division. No request for relief from the automatic stay was requested prior to this eviction attempt. Predictably, there was a disturbance at the Property and the authorities were called.
A deputy from the Dona Ana County Sheriff's department arrived at the Property to find Davis, her husband, and another male relative (who was armed with a pistol), attempting to evict the Debtor's wife and six-year-old son. The sheriff's deputy did an admirable job in trying to sort out the situation. Davis, despite written notice of the bankruptcy filing and being told telephonically by Debtor's counsel, Oralia Franco, that she was in violation of the automatic stay, refused to allow Debtor or his family to remain on the Property. Davis attempted to hit the Debtor's dog with a shovel. Davis threatened to shoot the Debtor if he entered the Property. Davis moved her RV onto the Property to ensure that the Debtor could not enter the Property unseen.
Beginning on April 28, 2014, the Debtor was employed by CLP Resources, installing solar panels in Fort Stockton, Texas. The Debtor missed two days of work to review and sign documents related to the bankruptcy filing. When he missed a third day of work to return to the Property on May 7th because of Davis' actions, he was fired from his job. Missing work because of Davis' actions was not the only reason the Debtor lost his job.
Davis' actions caused the Debtor to suffer actual damages, including loss of personal property (stolen from the Property while the Debtor was dispossessed); lost wages; travel costs; bills for alternate housing; and attorneys' fees. Davis' refusal to allow the Debtor onto the Property continues to this day.
Debtor filed his complaint commencing this adversary proceeding on June 9, 2014. Davis filed her Motion for Relief from Automatic Stay and Abandonment of Property or, in the Alternative, for Adequate Protection, doc. 20, on June 12, 2014 (the "Stay Relief Motion").
When a bankruptcy petition is filed, § 362(a)
A mere possessory interest in property, whether or not pursuant to a legal right of possession, is protected by the automatic stay. See In re Milasinovich, 2014 WL 644455 (Bankr.D.N.M. 2014), citing 48th St. Steakhouse, Inc. v. Rockefeller Grp., Inc. (In re 48th St. Steakhouse, Inc.), 835 F.2d 427, 430 (2d Cir. 1987) ("Indeed, a mere possessory interest in real property, without any accompanying legal interest, is sufficient to trigger the protection of the automatic stay.")
The purpose of the automatic stay is two-fold: "The stay protects debtors from harassment and also ensures that the debtor's assets can be distributed in an orderly fashion, thus preserving the interests of the creditors as a group." Johnson v. Smith (In re Johnson), 575 F.3d 1079, 1083 (10th Cir.2009) citing Price v. Rochford, 947 F.2d 829, 831 (7th Cir.1991).
There is no question Debtor had possession of the Property on the Petition Date, and had the legal right to such possession. The automatic stay, therefore, prevented Davis from evicting Debtor. Davis should have sought stay relief from the Court. Instead she flouted the automatic stay provisions and threw the Debtor and his family off the Property under threat of being shot.
Davis has argued that her actions were permitted under § 362(b)(22).
Although the Final Judgment contains language sometimes found in eviction orders, Judge Arietta made clear that the Sale Contract was not a lease. The evidence before Judge Arietta and this Court plainly shows that Davis intended to sell the Property to the Debtor, and that the Debtor intended to purchase the Property over 30 years, putting $10,000 down. Debtor was responsible for property taxes and insurance, provisions standard with sales transactions but rare with consumer
Section 362(k)(1) provides:
"A debtor alleging a willful violation of the automatic stay has the burden to demonstrate, by a preponderance of the evidence, that a violation of the automatic stay has occurred, that the violation was willfully committed and that the debtor suffered damage as a result of the violation." In re Kline, 424 B.R. 516, 524 (Bankr.D.N.M.2010) (citations and quotation marks omitted). As set forth above, the Debtor has met his burden in establishing that a violation occurred.
To show that a stay violation is willful the debtor must establish "that the creditor knew of the automatic stay and intended the actions that constituted the violation; no specific intent is required.... Accordingly, a creditor's good faith belief that it had a right to the property is irrelevant." Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1172 (10th Cir.2007). Additionally, "Notice of the bankruptcy filing need not be formal or official to put a creditor on notice." Id.
The evidence is compelling that Davis had actual, formal notice of Debtor's bankruptcy filing. Davis' proper mailing address was listed on the Debtor's petition and the Court's BNC Certificate of Notice, doc. 9, shows that the notice was mailed to Davis on April 28, 2014. "[T]he presumption of delivery, which arises when mail is properly addressed, stamped and deposited in the mail, creates a rebuttable presumption that the item was received by the addressee in the ordinary course of mail." Reading Ventures, Ltd. v. U.S., 987 F.Supp. 1315, 1321 (D.Colo.1997). Davis, who confirmed that the address used was correct, presented no evidence of mailing irregularities or other compelling reasons to overcome the presumption. Additionally, on the sheriff's deputy's video she stated that she had a copy of the notice of bankruptcy.
Even if Davis did not have formal notice before May 7th, she admitted that on May 7th she received actual notice in two ways. First, Oralia Franco told Davis by telephone that the Debtor had filed for bankruptcy, and that Davis would be in big trouble for violating the automatic stay. Davis scoffed at this warning. Second, the sheriff's deputy showed Davis a copy of the notice of bankruptcy on May 7th. Davis may have believed that the automatic stay did not prevent her from evicting the Debtor,
Once a willful stay violation is proven, the Court must award actual damages, including costs and attorneys' fees.
Damage Item Damages Amount Calculation Lost wages and per diem for one $197 $14/hr. × 8 hours + per diem day of work ($85) Travel costs from Ft. Stockton to $177 $0.55/mile × 323 miles Hatch Items stolen from property and $500 for jewelry + $300 for disclosed on schedules7 television Displacement damages $500 Cost of bills paid for by Debtor while living with parents Attorney Fees $9,980 Per affidavit filed July 2, 2014, doc. 188 Total Actual Damages $11,654
The award of these damages is mandated by § 362(k)(1). See In re GeneSys, Inc., 273 B.R. 290, 295 (Bankr.D.D.C.2001) ("[The court] has no discretion to withhold an award of compensatory damages for violation of the automatic stay.").
Section 362(k)(1) also gives courts the ability to impose punitive damages in "appropriate circumstances." There are a variety of interpretations of "appropriate circumstances." See In re Taylor, 369 B.R. 282, 289 (S.D.W.Va.2007) (collecting cases and identifying four separate standards used by many courts). The Tenth Circuit Bankruptcy Appellate Panel has expressly approved of two. First: "[T]he debtor may recover punitive damages when the defendant acted with actual knowledge that he was violating a federally protected right or with reckless disregard of whether he was doing so." Diviney v. NationsBank of Tex., N.A. (In re Diviney), 225 B.R. 762, 776 (10th Cir. BAP 1998). See also Curtis v. LaSalle Nat'l Bank (In re Curtis), 322 B.R. 470, 486 (Bankr.D.Mass.2005) (identifying "arrogant defiance of federal law" as an appropriate standard). Second: the Court may use a four-factor test looking at: "(1) the nature of the defendant's conduct; (2) the defendant's ability to pay; (3) the motives of the defendant; and (4) any provocation by the debtor." Diviney, 225 B.R. at 777.
In this case, the Debtor has provided such proof. The video evidence shows that Davis had no regard for the effect that bankruptcy law had on the actions she was taking. Davis' only concern was repossessing the Property, bankruptcy law notwithstanding. From her actions,
Having determined that there are circumstances in this case making an award of punitive damages appropriate, the amount of the award must be determined. In discussing the appropriate award one court has observed:
In re Galmore, 390 B.R. 901, 908 (Bankr. N.D.Ind.2008) (citations omitted). The Court is also mindful of the Supreme Court's directive that "punitives are aimed not at compensation but principally at retribution and deterring harmful conduct." Exxon Shipping Co. v. Baker, 554 U.S. 471, 492, 128 S.Ct. 2605, 171 L.Ed.2d 570 (2008). The Supreme Court also directs that "Single-digit multipliers are more likely to comport with due process...." State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). With these directives in mind, as well as the facts of this case, the Court determines that an award of $7,000 in punitive damages against Davis is appropriate. This is a multiplier of 0.6 of actual damages awarded.
The Debtor accused Davis' attorney, Mr. Perales-Pina of violating the automatic stay. The Debtor's argument is premised on the cases finding attorney stay violations "as a result of their actions or omissions on behalf of their client...." In re Timbs, 178 B.R. 989, 995 (Bankr. E.D.Tenn.1994) (collecting cases). The Debtor also relies on the fact that his counsel sent a letter to Mr. Perales-Pina on May 29, 2014, advising Mr. Perales-Pina of the stay and demanding that Debtor be allowed to regain possession of the Property.
The cases Debtor relies upon are distinguishable. In every case where an attorney was found to have violated the automatic stay, the attorney was an active player rather than a passive advice-giver. For example, in Timbs the court found the lawyer in violation of the stay because he refused to stop garnishing a debtor's wages post-petition. 178 B.R. at 995. The cases cited by the Timbs court are to the same effect. Here, on the other hand, Mr. Perales-Pina did not act or fail to act. The most he could do was to advise his client not to evict the Debtor from the Property.
In addition to the Debtor's complaint for violation of the automatic stay, the Court also held a final hearing on Davis' Stay Relief Motion. The Court may grant relief from the automatic stay for "cause." § 362(d). Cause "is a discretionary determination made on a case-by-case basis." Carbaugh v. Carbaugh (In re Carbaugh), 278 B.R. 512, 525 (10th Cir. BAP 2002), citing Pursifull v. Eakin, 814 F.2d 1501, 1506 (10th Cir.1987). Because Davis seeks stay relief so she can continue or finalize the State Court Action, the Court should consider the motion using the factors set forth in In re Curtis, 40 B.R. 795 (Bankr.D.Utah 1984). See In re Jim's Maint. & Sons, Inc., 418 Fed.Appx. 726, 728 (10th Cir.2011) (unpublished) (noting that the Curtis factors "have been widely adopted by bankruptcy courts").
The following table summarizes the Court's analysis of the Curtis factors in this proceeding:
Weighs in Weighs in
favor of favor of Does
continuing lifting not
stay stay apply
Curtis factor
Whether the relief would result in a partial or complete X
resolution of the issues;
The lack of any connection or interference with the X
bankruptcy case;
Whether a specialized tribunal has been established to hear X
the particular cause of action and that tribunal has the
expertise to hear such cases;
Whether litigation in another forum would prejudice the X
interests of other creditors, the creditors' committee and
other interested parties
The interest of judicial economy and the expeditious and X
economical determination of litigation for the parties;
The impact of the stay on the parties and the "balance of X
the hurt."
Whether the foreign proceeding involves the debtor as a X
fiduciary;
Whether the debtor's insurance carrier has assumed full X
financial responsibility for defending the litigation;
Whether the action essentially involves third parties, and X
the debtor functions only as a bailee or conduit;
Whether the judgment claim arising from the foreign X
action is subject to equitable subordination under
Section 510(c)
Whether movant's success in the foreign proceeding would X
result in a judicial lien avoidable by the debtor under
Section 522(f);
Whether the foreign proceedings had progressed to the X
point where the parties were prepared for trial.
Thus, there are six factors that weigh in favor of lifting the stay, six that do not apply, and none that weigh in favor of keeping the stay in place.
The Debtor is right that real estate contracts are not read to allow forfeitures unless the language is clear and unambiguous. The issue was discussed in In re Draper, 2010 WL 963987 (Bankr. D.N.M.2010) (Jacobvitz, J.):
Id. at *3 (citations omitted). The Court agrees with this analysis, but the facts here are different. The relevant document is the Final Judgment, not the Sale Contract. The plain language of the Final Judgment makes clear that all of the Debtor's rights in the Property were terminated except for a temporary right of possession. The Final Judgment gave the Debtor no ability to cure his default, nor is it reasonable to construe the Final Judgment as less than the full adjudication of the parties' rights and remedies.
Davis should have obtained stay relief before evicting the Debtor and his family from the Property. Davis was aware of the stay but stubbornly refused to follow the law. Like Captain Ahab, she could think of nothing but revenge, and regaining the Property was her Moby Dick. Davis' actions were malicious, egregious, vindictive, in arrogant defiance of federal law, and done without provocation by the Debtor. Davis subjected herself to actual damages of $11,654 and punitive damages of $7,000. The stay violations were Davis' alone; her counsel did not violate the automatic stay.
Nevertheless, cause exists to modify the automatic stay and allow the State Court Action to proceed to completion, including an adjudication of whether transferring title to the Mobile Home was contrary to the Final Judgment.
The Court will enter separate orders or judgments consistent with this opinion.
