Marvin Isgur, UNITED STATES BANKRUPTCY JUDGE.
Plaintiffs Pedro Diaz and Alicia Diaz filed suit against Heavy Action Recovery, Inc. and ARA, Inc. ("Defendants") for violation of the Court's discharge injunction and various federal and state statutes. The Court granted Plaintiffs' Motion for Default Judgment on November 17, 2014. Plaintiffs agreed to a final judgment awarding damages solely for violations of the discharge injunction as well as an injunction preventing further violations on the part of Defendants.
The Court awards Plaintiffs' actual damages of $591.20 and $12,236.92 in attorney's fees. ARA is solely liable for these awards. The Court sanctions ARA in the amount of $17,000.00. ARA is enjoined from taking further actions to collect the Chase Manhattan Bank debt from Plaintiffs.
Plaintiffs filed for chapter 7 relief on May 31, 2006. In their bankruptcy schedules, Plaintiffs listed Heavy Action Recovery as an unsecured creditor for $9,036.00. (ECF No. 1-1 at 3). Heavy Action Recovery had purchased the original debt from Chase Manhattan Bank. On September 20, 2006, Plaintiffs obtained their discharge.
ARA FILE #: 1311817-01
(ECF No. 1-1 at 16). On August 13, 2013, ARA sent a similar letter to Plaintiffs, again demanding $10,550.84 in payment. (ECF No. 1-1 at 18). Alicia Diaz contacted ARA shortly after receiving the letters and informed them that the debt had been discharged through bankruptcy. Ms. Diaz testified that an ARA employee responded by threatening her and her husband with jail time due because they had obtained the debt using their son's social security number (an allegation which Plaintiffs deny). She further testified that ARA threatened to ruin her son's credit rating. Ms. Diaz and an ARA representative communicated again several times. She informed the representative repeatedly that the debt had been discharged, but the demands for payment and threats of legal action continued.
In response to ARA's collection efforts, Ms. Diaz agreed to pay $200 immediately with another $2,786.12 to be paid on August 23, 2013. Ms. Diaz provided her bank
Due to stress caused by the continuous stream of phone calls, Ms. Diaz went to see a doctor who advised her to receive massage therapy. Plaintiffs also each took two-and-a-half days off of work to meet with their attorneys and attend a court hearing in connection with this lawsuit.
On July 18, 2014, Plaintiffs filed suit against Heavy Action Recovery and ARA. The complaint alleged violations of the September 20, 2006 discharge order, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, and the Texas Fair Debt Collection Practices Act. (ECF No. 1). Defendants were served with process via the Texas Secretary of State on August 21, 2014. (ECF No. 12 at 1). Defendants failed to answer the complaint within the 30-day period after the issuance of summons provided by Fed. R. Bankr.P. 7012(a).
Section 524 of the Bankruptcy Code provides that once a debt has been
A bankruptcy court's decision to impose sanctions is discretionary. Id. "[C]ompensatory damages, in addition to coercive sanctions, may be awarded as a sanction if a party willfully violates a section 524(a)(2) injunction." In re Sandburg Fin. Corp., 446 B.R. 793, 803 (S.D.Tex. 2011) (citing In re Eastman, 419 B.R. 711, 725 (Bankr.W.D.Tex.2009). A defendant need not have the specific intent to violate the discharge injunction for its actions to be willful, rather an action is willful if (1) the defendant knows the injunction has been entered and (2) intends the actions that violate it. McClure, 420 B.R. at 663. "That the actions are intentional — as opposed to the actual violation of the injunction being intentional — is sufficient." Id.
This Court grants Plaintiffs' motion for default judgment. Defendants have neither filed an answer nor otherwise defended this lawsuit. The Court therefore accepts as true the well-pleaded allegations stated by Plaintiffs in their complaint and their facts set forth in evidence. See J & J Sports Prods., Inc. v. Palma, 2012 WL 1853519 at *2 (N.D.Tex. May 21, 2012). Plaintiffs have established that Heavy Action Recovery assigned ownership of the debt in question despite actual knowledge that the debt had been discharged in bankruptcy. The mere assignment of a debt is not an attempt to collect upon that debt, however. See Commodore Holdings, Inc. v. Exxon Mobil Corp., 331 F.3d 1257, 1259 (11th Cir.2003) (holding that an assignment of debt for consideration is not in itself an unlawful collection practice). Without evidence that Heavy Action Recovery assisted ARA's attempts to collect upon the debt, a civil contempt order against Heavy Action Recovery is not appropriate. Plaintiffs' have not presented any such evidence.
By contrast, the evidence of ARA's willful violations of the discharge injunction is overwhelming. After receiving two letters from ARA requesting payment of $10,550.84, Ms. Diaz immediately called the ARA representative and informed him that the debt had been discharged in bankruptcy. At this point, ARA had actual knowledge of the bankruptcy injunction. Instead of immediately halting attempts to collect the discharged debt, ARA began to threaten and harass Plaintiffs. ARA threatened Mr. Diaz with jail time because of the confusion over the son's social security number, it threatened to ruin the son's credit rating, and it threatened to serve Plaintiffs with a lawsuit (a lawsuit which ARA knew or should have known would have been wholly without merit and would have violated the discharge injunction). On August 20, 2013 ARA sent a letter to Plaintiffs informing them that if they did not pay the $2,986.12 settlement by the
Plaintiffs seek actual damages, including compensation for emotional distress. At the November 17, 2014 hearing, Ms. Diaz testified that the repeated phone calls caused her and her husband a great deal of stress because they were afraid Mr. Diaz could go to jail. Ms. Diaz further testified that she went to see a doctor because of the stress, that she frequently had trouble sleeping during this time, and that she cried the first time ARA mentioned her son's credit rating. (ECF No. 18 at 14-15). Despite this testimony, the Court finds that Plaintiffs have not met the burden in order to recover damages for emotional distress. The Fifth Circuit has set forth the standard for an award of emotional distress damages in Hitt v. Connell:
301 F.3d 240, 250-51 (5th Cir.2002) (internal citations and quotations omitted) (emphasis in original). Ms. Diaz has not provided corroborating testimony from either her husband or her physician regarding her emotional distress. Although this is not in itself fatal to an emotional damages claim, she has not provided specific evidence of emotional harm, but rather generalized testimony that she felt stress and lost sleep. Accordingly, the Court will not award emotional distress damages.
Plaintiffs, however, should be compensated for their time and effort spent in prosecuting this lawsuit. "In order to ensure that debtors are not hesitant to prosecute violations of the discharge injunction, they should be awarded actual damages to compensate them for the time and effort they expend in the process." McLure v. Bank of Am. (In re McLure), 420 B.R. 655, 664(Bankr.N.D.Tex.2009). Ms. Diaz testified that she took a total of two-and-a-half days off of work to consult with her lawyers and attend the November 17 hearing.
Plaintiffs ask the Court to award them a total of $12,236.92 in attorneys' fees and expenses. Plaintiffs have employed two separate law firms in connection with this case. Plaintiffs' bankruptcy attorney Ellen Stone asserts that she and a paralegal spent a total of 16.4 hours on this matter with hourly rates of $350.00 and $95.00, respectively. Stone originally requested $5,397.50 in fees and $70.14 in expenses, but has agreed to a $2,000.00 deduction, bringing the total to $3,467.64. Plaintiffs' second law firm, Armstrong Kellett Bartholow P.C., spent a total of 39.6 hours on this matter with hourly rates ranging from $150.00 to $500.00. Armstrong Kellett Bartholow originally requested $10,905.00 in fees and $864.28 in expenses, but has agreed to a $3,000 deduction, bringing the total to $8,769.28.
The calculation of attorney's fees under federal law is a well-established process. Attorney's fees are awarded based on the lodestar method of computation. Migis v. Pearle Vision, Inc., 135 F.3d 1041, 1047 (5th Cir.1998). First, the court calculates the lodestar fee by multiplying the reasonable number of hours expended on the case by the reasonable hourly rates for the participating lawyers. Id. Next, the court considers whether to make a lodestar adjustment upwards or downwards depending on the circumstances of the case.
The Court finds that ARA's conduct was sufficiently egregious to warrant coercive sanctions. The decision to award sanctions for a willful violation of a discharge injunction is within the discretion of the bankruptcy court. Placid Refining Co. v. Terrebonne Fuel and Lube, Inc. (In re Terrebonne Fuel and Lube, Inc.), 108 F.3d 609, 613 (5th Cir.1997). The 524(a) discharge is an essential feature of the bankruptcy process. Without it, there can be no fresh start. ARA acted in flagrant disregard of the discharge injunction by repeatedly attempting to collect a debt that it knew had been discharged. The methods by which ARA actually attempted to collect the debt are particularly troublesome as well. They threatened Plaintiffs with jail time, threatened
As discussed above, Plaintiffs provided to the Court a total of 23 voicemail recordings. Plaintiffs have also provided a transcript of a letter dated August 20, 2013 from an ARA employee. Plaintiffs have also described in detail two conversations Ms. Diaz had with ARA representatives shortly after Plaintiffs received the initial letter from ARA. Each of these 26 communications violated the discharge injunction.
Plaintiffs have also requested that ARA be enjoined from seeking further collection of discharged debts. The Fifth Circuit has recognized that § 105(a) grants bankruptcy courts the authority to grant injunctive relief. Mirant Corp. v. Potomac Elec. Power Co. (In re Mirant Corp.), 378 F.3d 511, 523 (5th Cir.2004). A party seeking a permanent injunction must prove an irreparable injury for which there is no adequate remedy at law. An adequate remedy at law exists if the situation to be enjoined can be remedied by legally measurable damages. Dresser-Rand Co. v. Virtual Automation Inc., 361 F.3d 831, 848 (5th Cir.2004). If ARA continues to call Plaintiffs, damages alone would not compensate them for the stress caused by the harassing phone calls. It appears that ARA continued to make calls as recently as October of 2014, when Plaintiffs met with their attorney regarding a new round of phone calls. (Plaintiffs' Ex. No. 29). ARA persisted in their conduct despite facing the threat of court-ordered damages due to the complaint pending against them. Injunctive relief is necessary to prevent further violations of the discharge injunction. Accordingly, the Court grants Plaintiffs' request for an injunction.
The Court will issue a judgment consistent with this memorandum opinion.
