KEVIN R. ANDERSON, Bankruptcy Judge.
Is it a credible defense to a motion for sanctions for stay violations for a creditor to claim it lacked notice of the bankruptcy filing, even after service of multiple bankruptcy papers followed by phone calls from the debtors? The Court thinks not.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2). Venue is appropriate in this District under 28 U.S.C. §§ 1408 and 1409, and notice of the motion was properly served on all parties in interest.
On November 14, 2017, James Byron Kelley and Christiana Fayth Kelley ("Mrs. Kelley" or collectively, the "Debtors") filed a Chapter 13 petition for relief. The Debtors listed Vivint Smart Home ("Vivint") as a creditor with the following address: Vivint, 4931 N 300 W, Provo, UT 84604 (the "Provo Address").
The Debtors' Schedule G stated that they were rejecting their executory contract with Vivint for a home security system.
The Court's docket establishes that the following bankruptcy papers were served on Vivint at the Provo Address:
The Court's Returned Mail Report shows that none of the papers served by the Bankruptcy Noticing Center to Vivint's Provo Address were returned as undeliverable.
In addition, on April 18, 2018, Debtors' counsel sent Vivint a letter to the Provo Address with the heading "Notice of Filing of Bankruptcy and Notice of Intent to Seek Contempt Citation" (the "Attorney's Letter").
At the hearing, Vivint's representative, Landon Potter, insisted that Vivint has no record of receiving any of these seven served communications regarding the Debtors' bankruptcy case.
Mrs. Kelley testified that she contacted Vivint by telephone starting in January 2018 to inform Vivint of the Debtors' bankruptcy filing and requested that Vivint no longer contact she or her husband. On February 15, 2018, the Debtors received a phone call from a Joyce Black at Vivint, who left a voice message about a problem with the Debtors' Vivint account.
The paralegal for Debtors' counsel testified that on February 21, 2018, she called Vivint and spoke to a person named "Steve" in the billing department. The paralegal informed Steve of the Debtors' bankruptcy filing, that Vivint was still sending the Debtors collection notices, and that Vivint should stop contacting the Debtors. The paralegal also testified that Steve acknowledged receiving a copy of the Notice of Substitution of Counsel from Debtors' counsel, and that he would put the Debtors on a "no-contact list." Vivint's representative testified that he listened to the recording of this phone call and confirmed that the paralegal had informed Steve of the Debtors' bankruptcy filing, and that Steve had placed the Debtors on the no-contact list. However, he stated that there was no mention of the Notice of Substitution of Counsel.
After their bankruptcy filing, Vivint initiated the following communications with the Debtors:
Vivint's emails contained a banner in large letters saying, "Past Due Account!" It informed the Debtors that their "monthly balance is currently 60 days overdue." It contained a smaller banner saying, "Make Payment." The email on March 16, 2018 included the following warning: "If acceptable payment or payment arrangement is not made, Vivint will accelerate your agreement for immediate collection."
Despite being served with a notice of the Debtors' Chapter 13 case, a notice of the conversion to Chapter 7, four bankruptcy papers from the Bankruptcy Noticing Center, a letter from Debtors' counsel, and various phone calls regarding the Debtors' bankruptcy filing, Vivint nonetheless assigned the Debtors' account to Sequium Asset Solutions, a collection agency (the "Collection Agency").
Mrs. Kelley testified that around May 3, 2018, she received a phone call from the Collection Agency about the Vivint account. Mrs. Kelley informed the Collection Agency about the bankruptcy, but the Collection Agency questioned her veracity, and Mrs. Kelley terminated the call in tears.
Around this same time, the Debtors also received a demand letter from the Collection Agency dated May 3, 2018 seeking payment of the Vivint debt in the amount of $728.01.
Vivint's post-petition debt collection efforts caused the Debtors frustration, stress, and anxiety. Much of the hearing was consumed exploring other stress factors in Mrs. Kelley's life. The Court concludes that these other stresses are irrelevant to the motion. What is relevant is that Debtors were initially annoyed and frustrated with the continual communications from Vivint regarding their dischargeable debt, and that they understandably became significantly stressed and worried when Vivint assigned the account to the Collection Agency. Mrs. Kelley had additional cause for anxiety because her employment with the federal government required a certain security clearance, and she was apprehensive that the actions of Vivint and the Collection Agency could jeopardize her employment. Finally, there was evidence that on May 7, 2018, after receiving the communication from the Collection Agency, that Mrs. Kelley had to see her doctor for, inter alia, "situational stresses."
After receiving the debt collection notices from the Collection Agency, the Debtors asked their counsel to file a motion for sanctions. Debtors' counsel served Vivint at its Provo Address the motion for sanctions and a notice of hearing.
The automatic stay of 11 U.S.C. § 362
A creditor's observance of the stay is safeguarded by the serious consequences that flow from its violation.
The Tenth Circuit has defined the standard for finding a violation of the stay under § 362(k):
The first issue is whether Vivint had notice of the Debtors' bankruptcy filing. Vivint received no less than five notifications from the Bankruptcy Noticing Center, including the initial "Notice of Chapter 13 Bankruptcy Case" and the "Notice of Chapter 7 Bankruptcy Case" when the Debtors converted their case. All notices from the Bankruptcy Noticing Center went to Vivint's Provo Address, and Vivint conceded that this was the appropriate address for such notices. None of the notices were returned as undeliverable. Vivint received an additional notice of the bankruptcy when Debtors' counsel served it with his substitution as counsel.
Vivint asserts that it has no record of receiving any of these mailed notices. The Court is incredulous. If Vivint did not receive one of these served papers, it might merit consideration, but to claim that all seven of these mailed communications
"Papers sent by United States mail are presumed received by the addressee, absent evidence to the contrary."
Vivint's representative testified that it has procedures in place to properly route bankruptcy notices to the legal department; that Vivint receives approximately 1,500 bankruptcy notices per year; and that it is not aware of any other bankruptcy notice being missed or not properly processed to stop further collection actions. Vivint cites to In re Winders in support of its argument that the completeness of its processes, coupled with the lack of other complaints, is sufficient to rebut the presumption of receipt.
As noted above, Vivint cannot plausibly argue that all seven pieces of properly addressed mail regarding the Debtors' bankruptcy case were lost. The Court also notes that Vivint did not timely respond to the Debtors' motion for sanctions, with Vivint again claiming that it had not received any of the papers served in connection with the motion, and that it only learned of the motion through a creditor.
Further, this is not the only instance of Vivint failing to properly honor the effect of a properly served bankruptcy notice. In the Northern District of Texas, Vivint was involved with an almost identical violation of the stay.
But that was not the end of the matter. Vivint never responded to the Laras' efforts to collect their judgment for sanctions, so they later filed a motion for contempt against Vivint. In the second Lara opinion,
In the present matter, Vivint also argued that even if it did receive the bankruptcy notices and papers, it would have been difficult for Vivint to link the Debtors' Utah address listed in the bankruptcy notices with the Debtors' original Texas address
Having heard the evidence in this case, and having read the Lara opinions, the Court can only conclude that Vivint's procedures for processing bankruptcy notices are inadequate, are unintentionally not being followed, or are intentionally being ignored — none of which speaks well of Vivint.
For these reasons, the Court finds that Vivint had actual notice of the Debtors' bankruptcy filing within days of the Bankruptcy Noticing Center mailing the Notice of Chapter 13 Bankruptcy Filing on November 24, 2017. The Court further finds that Vivint received ongoing notices of the Debtors' bankruptcy filing with each paper served by the Bankruptcy Noticing Center and the Notice of Substitution of Counsel served by Debtors' counsel, Mr. Webster.
As mentioned above, "[n]otice of the bankruptcy filing need not be formal or official to put a creditor on notice."
As adopted by the Tenth Circuit Bankruptcy Appellate Panel:
Further, "[o]nce the creditor becomes aware of the filing of the bankruptcy petition and therefore the automatic stay, any intentional act is `willful.'"
The Court has found that Vivint was on notice of the Debtors' bankruptcy filing from the bankruptcy papers served by the Bankruptcy Noticing Center, from written documents sent by Debtors' counsel, and from telephonic communications.
After the bankruptcy filing and continuing through the filing of this motion, Vivint took intentional actions seeking to collect its pre-petition debt from the Debtors. Vivint's communications included at least two emails and at least one phone call. Most problematic is that after the ongoing notices and communications of the Debtors' bankruptcy filing, Vivint assigned the Debtors' account to a collection agency with the obvious threat of legal action to recover $728.01 on a pre-petition debt.
Based on these facts, the Court finds that Vivint had both actual and constructive notice of the Debtors' bankruptcy filing, and that despite such notice, Vivint willfully engaged in efforts to "collect, assess, or recover a claim against the debtor that arose before the commencement of the [bankruptcy] case."
Having found a willful violation of the stay, the injured party must establish actual damages arising from such violation. The phrase "actual damages" implies that an actual injury must take place that has caused financial expense or harm.
Actual damages also include a debtor's "costs and attorneys' fees" in seeking relief under § 363(k). On July 11, 2018, Debtors' counsel filed an affidavit with the Court showing fees of $3,760 for services up through the filing of the motion for sanctions.
Section 363(k) further provides that "in appropriate circumstances, [a debtor] may recover punitive damages." Vivint argued that because the Debtors' initial disclosures did not mention punitive damages, they are barred from seeking this relief. However, the first page of the Debtors' motion for sanctions states they are seeking punitive damages.
The evidentiary standard for awarding punitive damages is higher than for actual damages.
For the reasons set forth above, the Court finds that Vivint's assertion that it has no record of receiving any of the bankruptcy papers from the Bankruptcy Noticing Center is either disingenuous or clear and convincing evidence of a reckless disregard for the receipt and processing of papers sent from a federal court. The Court also finds that Vivint's continuing actions to collect its pre-petition debt, and especially its assignment of the Debtors' account to the Collection Agency, to be egregious and outrageous conduct. As further support for this finding, the Court notes that the Collection Agency's demand is dated one day before the Attorney's Letter requested Vivint acknowledge in writing that it would cease collection actions.
Vivint is clearly a sophisticated creditor. Its representative testified that it had over a million customers. He also testified that Vivint has a separate department for handling legal matters, that it understands the significance of a bankruptcy filing and the automatic stay, and that it has procedures in place to process bankruptcy papers.
As to Vivint's motivations, its representative testified that Vivint values and respects its customers and that it is sorry for what happened to the Debtors. However, the Court cannot overlook the fact that Vivint continued to contact the Debtors about payment on their account after multiple notices of their bankruptcy filing. Whether intentional or negligent, Vivint was trying to collect over $700 on a debt that was ultimately discharged by the bankruptcy. While these Debtors were sophisticated enough to know Vivint was stayed from collecting its debt, the Court wonders how many unsophisticated or pro se debtors respond to Vivint's requests for payment and threats of legal action by paying on a debt that was discharged in their bankruptcy case.
Lastly, the Debtors did nothing to provoke Vivint to treat them in this manner except to appropriately and graciously send the Attorney's Letter asking Vivint to honor the stay and to stop contacting the Debtors.
To protect the integrity of the bankruptcy system and the automatic stay, and to convince Vivint to give greater heed to bankruptcy notices, the Court awards the following punitive damages.
Mrs. Kelley testified that she received from and had communications with Vivint in January 2018. But the first documented communication from Vivint was the telephone call from Joyce Black on February 15, 2018, and the email demand for payment from Vivint dated February 16, 2018.
The next violation was Vivint's email sent on March 16, 2018. By then, telephone calls from the Debtor and the paralegal had informed Vivint that the Debtors were in bankruptcy and that further collection actions should cease. This email further contains the threat that "[i]f acceptable payment or payment arrangement is not made, Vivint will accelerate your agreement for immediate collection." For this violation of the stay, the Court awards $5,000 in punitive damages.
The last violation was Vivint's assignment of the Debtors' account to the Collection Agency on May 3, 2018. By this time, the Bankruptcy Noticing Center had served Vivint with a notice to file a proof of claim in the Debtors' case. In addition, the Attorney's Letter had been mailed to Vivint at the Provo Address. Vivint's assignment of Debtors' account to the Collection Agency is an aggravated collection action and caused the Debtors unnecessary anxiety because they would now have to fight with the Collection Agency. At this point, the Debtors had spent almost five months trying to convince Vivint to stop contacting them about this dischargeable debt. It caused them stress, it cost them time in communicating with their attorney and with Vivint, and it required them to take time off work and out of their lives to deal with a matter that should have simply ceased upon Vivint's receipt of the first bankruptcy notice in November 2017.
Vivint expressed contrition, but it also clung too tightly to its unbelievable story that it never had notice of the Debtors' bankruptcy filing.
Based on these aggravating factors, the Court awards punitive damages of $15,000 for Vivint's third stay violation in referring the Debtors' account to the Collection Agency. Combined, the Court awards a total of $22,000 in punitive damages.
Vivint is a national company with over a million customers. If anything, the Court is concerned that its award of punitive damages will be ignored, as it was in Lara, or viewed as a negligible annoyance rather than as an impetus for immediate change to ensure that Vivint timely honors the automatic stay when it receives a notice of a bankruptcy filing relating to one of its customers. The Court hopes for the latter but fears for the former given that Vivint has already ignored one judgment for sanctions for the same conduct.
In conclusion, the Court finds that Vivint did not rebut the presumption that it received the served notices of the Debtors' bankruptcy case. And in any event, Vivint had actual knowledge of the Debtors' bankruptcy case as early as February 21, 2018. Vivint's collection actions beginning in January 2018 and continuing through May 2018 constituted willful violations of the automatic stay under § 362(k).
The Court awards damages as follows:
The Court will issue an Order consistent with this Decision.
