Punitive Damages for Violations of the Automatic Stay: Bankruptcy Code 362(k)
Bankruptcy Code Section 362(k) authorizes the imposition of punitive damages for a willful violation of the automatic stay. In determining whether to impose punitive damages, several bankruptcy courts have identified five factors to guide their decision.
June 15, 2018 at 02:30 PM
9 minute read
The automatic stay contained in Bankruptcy Code Section 362(a) is fundamental to the effectiveness of the consumer bankruptcy system. Most creditors observe the automatic stay, and refrain from engaging in debt collection activity after a bankruptcy petition has been filed. If there is a doubt as to the applicability of the automatic stay, then a creditor can obtain a comfort order as to the applicability of the automatic stay, or obtain relief from the automatic stay from the Bankruptcy Court. Nevertheless, there are some minute instances in which some creditors have acted in derogation of the automatic stay and they have continued with their debt collection activity after receiving actual notice of the commencement of a bankruptcy case. In certain limited instances, some creditors have committed egregious violations of the automatic stay to warrant the imposition of punitive damages, not only to compensate the victim but also to vindicate the consumer bankruptcy system. Bankruptcy Code Section 362(k) authorizes the imposition of punitive damages for a willful violation of the automatic stay. In re Velichko , 473 B.R. 64, 68 (Bankr. S.D.N.Y. 2012); 11 U.S.C. § 362(k). A finding of maliciousness or bad faith on the part of the offending creditor warrants the imposition of punitive damages. Crysen/Montenay Energy v. Esselen Assoc (Crysen/Montenay Energy Co.) , 902 F.2d 1098, 1105 (2 nd Cir. 1990). The primary purposes of an award of punitive damages for a willful violation of the automatic stay are punishment and deterrence. In re Rackowski, 2011 WL 7069457 *4 (Bankr. S.D.N.Y. 2011); In re Lukach , 2007 WL 1365436 *7 (Bankr. E.D.N.Y. 2007). U.S. Bankruptcy Court Chief Judge Carla E. Craig of the Eastern District of New York has stated:
The primary purpose of punitive damages awarded for a willful violation of the automatic stay is to cause a change in the creditor's behavior....' ” In re Panek, 402 B.R. 71, 77 (Bankr.D.Mass.2009) (quoting In re Shade, 261 B.R. 213, 216 (Bankr.C.D.Ill.2001)). The Second Circuit has stated that the punitive damages standard imposed by § 362(k) “encourages would-be violators to obtain declaratory judgments before seeking to vindicate their interests in violation of an automatic stay....” Crysen/Montenay Energy Co., 902 F.2d at 1105. In other words, “Parties may not make their own private determination of the scope of the automatic stay without consequence.”
In re Jean-Francois , 532 B.R. 449, 459 (Bankr. E.D.N.Y. 2015). |
Amount of Award Is Fact-Specific
The amount of a punitive damage award is fact-specific and within the discretion of a Bankruptcy Court. Curtis v. LaSalle National Bank (In re Curtis) , 322 B.R. 470, 486 (Bankr. D.Mass. 2005). The following comments have been made about the importance of tailoring the punitive damage award to the conduct of a particular creditor:
What would be sufficient to deter one creditor may not even be sufficient to gain notice from another. Punitive damages must be tailored not only based upon the egregiousness of the violation, but also based upon the particular creditor in violation.
Curtis v. LaSalle National Bank (In re Curtis) , 322 B.R. 470, 486 (Bankr. D.Mass. 2005). Courts have imposed punitive damages for arrogant defiance of the automatic stay. E.g. , In re Jean-Francois , 532 B.R. 449, 459 (Bankr. E.D.N.Y. 2015); , Diviney v. NationsBank of Texas (In re Diviney) , 211 B.R. 951 (Bankr. N.D.Okla. 1997). I n determining whether to impose punitive damages under Bankruptcy Code Section 362(k), several bankruptcy courts have identified five factors to guide their decision. They are the nature of the creditor's conduct, the creditor's ability to pay, the motives of the creditor, any provocation by the debtor, and the creditor's level of sophistication: In re Jean-Francois , 532 B.R. 449, 459 (Bankr. E.D.N.Y. 2015). A germane case in which punitive damages were awarded for a willful violation of the automatic stay is In re Jean-Francois , 532 B.R. 449 (Bankr. E.D.N.Y. 2015). The court did not award any compensatory damages because the debtor failed to sustain his burden of proof on the issue of actual damages. Craig, however, awarded $50,000.00 in punitive damages for an egregious violation of the automatic stay. The creditor conducted a post-petition eviction without obtaining relief from the automatic stay. The court stated:
In assessing the damages appropriate to deter future conduct by Church Avenue, it should be noted that Church Avenue learned of the bankruptcy filing on Sept. 3, 2013, at the latest, yet went ahead with the eviction of the debtor from the building on Sept. 16 without seeking relief from the automatic stay. Moreover, Church Avenue never sought stay relief to authorize it to exclude the debtor from the building after Sept. 16, 2013, and offered Mr. Davidovics patently incredible testimony that the locks were never changed in an effort to avoid responsibility for this ongoing stay violation. The fact that Church Avenue pursued the eviction more than a week after it learned of the debtor's bankruptcy suggests that Church Avenue either made its own—incorrect—legal conclusion with respect to whether the eviction would be a stay violation, or decided that moving ahead to empty the building quickly and evict the occupants was worth more to it than the risk associated with defending a future § 362(k) motion.
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