Credit Central South, Inc. v. Parker
MEMORANDUM OPINION: Based upon the foregoing analysis, the Bankrupty Court's judgment awarding damages (Doc. 2 -15) is AFFIRMED IN PART and VACATED and REMANDED IN PART, and the Bankruptcy Court's order awarding attorney's is AFFIRMED. A separate final judgment will be entered. Signed by Chief Judge William Keith Watkins on 3/10/2015. (dmn, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
CREDIT CENTRAL SOUTH, INC.,
CASE NO. 1:14-CV-311-WKW
Appellant Credit Central South, Inc., appeals the orders of the United States
Bankruptcy Court for the Middle District of Alabama (“the Bankruptcy Court”) in
Adversary Proceeding No. 12-1066-WRS, which found that Credit Central violated
the automatic stay resulting from Appellee Marion Parker’s Chapter 13 bankruptcy
petition. See 11 U.S.C. § 362(a), (k). The Bankruptcy Court awarded Mr. Parker a
judgment for actual damages for emotional distress and punitive damages (Docs.
# 2-14, 2-15) and entered a separate order awarding attorney’s fees expended to
prosecute the adversary proceeding. (Docs. # 7-1, 7-2.) Credit Central’s timely
appeal of the judgment and order has been fully briefed. (Docs. # 6, 13, 18, 21.)
Upon consideration of the parties’ arguments, the record, the Bankruptcy Court’s
reasoned memorandum decisions, and relevant law, the court concludes that the
judgment (Doc. # 2-15) awarding damages is due to be affirmed in part and
vacated and remanded in part, and the attorney’s fee order (Doc. # 7-2) is due to be
I. JURISDICTION AND VENUE
This court has jurisdiction to hear appeals from orders of the Bankruptcy
Court. 28 U.S.C. § 158(a). Venue is proper because an appeal “shall be taken only
to the district court for the judicial district in which the bankruptcy judge is
serving.” Id. Jurisdiction and venue are uncontested.
II. STANDARD OF REVIEW
A bankruptcy court’s findings of fact are reviewed for clear error, and its
legal conclusions and any mixed questions of law and fact are reviewed de novo.
Educ. Credit Mgmt. v. Mosley (In re Mosley), 494 F.3d 1320, 1324 (11th Cir.
2007); Christopher v. Cox (In re Cox), 493 F.3d 1336, 1340 n.9 (11th Cir. 2007).
A finding of fact “is clearly erroneous when although there is evidence to support
it, the reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed.” Anderson v. City of Bessemer
City, N.C., 470 U.S. 564, 573 (1985) (citation, internal quotation marks, and
All references in this opinion to page numbers are to those pages assigned by CM/ECF
in the instant proceeding as opposed to page numbers generated by the parties or by CM/ECF in
the Bankruptcy Court.
“[A]n award of attorneys’ fees in a bankruptcy proceeding will be reversed
only if the court abused its discretion.” Hatcher v. Miller, (In re Red Carpet Corp.
of Panama City Beach), 902 F.2d 883, 890 (11th Cir. 1990). “An abuse of
discretion occurs if the judge fails to apply the proper legal standard or to follow
proper procedures in making the determination, or bases an award upon findings of
fact that are clearly erroneous.” Id.
Mr. Parker owed a $1,200 debt to Credit Central. Credit Central lawfully
attempted to collect the debt by suing Mr. Parker in Dale County District Court on
August 14, 2012. Credit Central utilized non-attorneys in its Ozark, Alabama
office to file the suit. On August 23, 2012, Mr. Parker filed for bankruptcy
protection under Chapter 13 and orally informed Credit Central that he had done
so. Credit Central also received written notice of the bankruptcy case from the
Bankruptcy Court. Credit Central filed a proof of claim in the bankruptcy case on
August 28, 2012. (See Claim # 1, Claims Register, Bankruptcy Case No. 1211502.)
On September 29, 2012, over a month after filing for bankruptcy relief, Mr.
Parker was served with process of the Dale County suit at his place of work by a
deputy sheriff. On October 25, 2012, two months after filing for bankruptcy relief,
a default judgment was entered against him, apparently sua sponte.2 Mr. Parker
initiated this adversary proceeding on October 26, 2012, for Credit Central’s
violation of the automatic stay, and on November 2, 2012, Credit Central finally
filed a written motion to dismiss the suit, which the Dale County District Court
granted two weeks later. In response to the adversary proceeding complaint,
Credit Central denied practically every allegation, including the existence and
amount of Mr. Parker’s underlying debt, its receipt of notice of the bankruptcy
case, and that it had filed a proof of claim for that debt, or that it has served Mr.
Parker with process in the state court suit. Discovery followed.
The Bankruptcy Court held a trial on December 18, 2013, during which Mr.
Parker testified that he had not suffered psychological harm and had not sought
medical treatment, but that he was embarrassed to have been served with process at
work and that he remained “upset” for “a few days.” (Doc. # 2-25, at 20.)
The branch manager of Credit Central’s Ozark office, Kimi Speaks, testified
at trial, explaining that she called the Dale County District Court twice after
becoming aware of Mr. Parker’s bankruptcy. Ms. Speaks was informed by a court
clerk that the case would not be dismissed until Mr. Parker’s counsel provided the
(See Doc. # 7-1, at 3 (explaining that the Alabama rules for small claims courts permit
court with notice of the bankruptcy. Ms. Speaks called3 the court to request
dismissal of Credit Central’s suit three more times – first, after the district court
unsuccessfully attempted serving Mr. Parker with process, next after successfully
serving him with process, and again after entering the default judgment.4
The Bankruptcy Court entered a judgment in favor of Mr. Parker and
awarded $2,000 in actual damages and $10,000 in punitive damages in the
adversary proceeding. (Docs. # 2-14, 2-15.) It announced its intent to award
attorney’s fees by separate order. (Doc. # 2-15.) After reviewing Mr. Parker’s
request for fees and Credit Central’s objections, the Bankruptcy Court awarded
him $30,318 in attorney’s fees (Doc. # 7-2), a sum that the Bankruptcy Court
found reasonable in view of the risk assumed by counsel for Mr. Parker and in
view of Credit Central’s “mendacity and utter lack of good faith.” (Docs. # 7-1,
at 26.) Credit Central timely appeals the judgment and the order awarding fees.
Of course, an attorney may occasionally call court clerks for procedural information or
other non-pleading issues. A non-attorney calling court clerks is a non-action legally. Even in
small claims court, it takes a piece of paper –a pleading or motion or even a letter – to brake
litigation momentum, a fact most attorneys know.
Hence, Credit Central attributes fault to the Dale County District Court and its staff
rather than to itself. Credit Central emphasizes that it is lawful for corporate entities to represent
themselves in state district court without the assistance of an attorney and is unapologetic that it
purposefully uses non-lawyers to prosecute small claims to reduce legal costs. Credit Central
also blames Mr. Parker and his attorney for not making efforts to ensure that the small claims
collection suit was stayed, even while they knew it remained pending following Mr. Parker’s
filing of his bankruptcy petition. Regardless of where the blame rests, competent counsel would
have avoided, on penalty of malpractice, the serious consequences Credit Central now faces over
a $1,200 debt.
According to Credit Central, the Bankruptcy Court erred in finding that it
willfully violated the automatic stay, in awarding damages for Mr. Parker’s
emotional distress, in awarding attorney’s fees, and in awarding punitive damages.
These arguments are addressed in turn.
Finding that Credit Central Willfully Violated the Automatic Stay
Credit Central asserts that it did not knowingly and willfully violate the
automatic stay. “A willful violation simply requires [a creditor’s] knowledge of
the automatic stay and an intent to perform the actions which violated the
automatic stay.” Credit Nation Lending Servs., LLC v. Nettles, 489 B.R. 239, 247
(N.D. Ala. 2013) (internal quotation marks omitted). The Bankruptcy Court’s
conclusion that Credit Central’s stay violation was willful arguably is a mixed
question of fact and law. See Talley v. Ala. Dep’t of Pub. Safety, 472 F. Supp. 2d
1323, 1325 (N.D. Ala. 2007). To the extent that Credit Central disputes the
Bankruptcy Court’s application of the law to the facts, the court agrees that there
was a willful violation under 11 U.S.C. § 362(k)(1). It was proper to find a willful
violation because Credit Central knew about Mr. Parker’s bankruptcy petition and
allowed its state court suit to progress for over two months before effectually
staying or dismissing that litigation.5 The finding is due to be affirmed.
Award of Actual Damages for Emotional Distress
Credit Central argues that Mr. Parker was not injured by a violation of the
automatic stay, and therefore, actual damages were not due to be awarded. The
Eleventh Circuit has recently held that “emotional distress damages fall within the
broad term of ‘actual damages’ in § 362(k).” Lodge v. Kondaur Capital Corp.,
750 F.3d 1263, 1271 (11th Cir. 2014).6 But “at a minimum, to recover ‘actual’
damages for emotional distress . . . , a plaintiff must (1) suffer significant
emotional distress, (2) clearly establish the significant emotional distress, and
(3) demonstrate a causal connection between that significant emotional distress
and the violation of the automatic stay.”
distress” is not “significant” emotional distress.
“Fleeting or trivial anxiety or
Id. at 1272.7
evidence in Lodge by this standard, the Circuit held that the plaintiffs failed to
Specifically, plaintiffs “offered only
show significant emotional distress.
In accordance with this court’s holding that there was a willful violation of the
automatic stay, Credit Central’s related objections to the Bankruptcy Court’s award of damages
and attorney’s fees, discussed infra, are rejected to the extent that Credit Central asserts that no
damages are due for lack of a willful violation of the automatic stay.
The Lodge opinion issued a few months after the Bankruptcy Court entered its
memorandum decision in favor of Mr. Parker.
As one bankruptcy court has recently opined, post-Lodge, “mere aggravation,
indignation and annoyance, or being ‘upset,’ are likewise insufficient as a matter of law.”
Morris v. Wells Fargo, N.A. (In re Morris), 514 B.R. 658, 668 (Bankr. N.D. Ala. 2014).
generalized evidence that they were ‘stressed out’ and had difficulties interacting
with one another and their children. [The husband-plaintiff] added that he had
‘trouble selling automobiles’ and that his coworkers were avoiding him.” Id.
Citing Lodge, Credit Central asserts that Mr. Parker’s reported temporal
embarrassment and feelings of anxiety are not “significant,” and further, that Mr.
Parker’s emotional distress was caused by other factors.
In response, Mr. Parker contends that Lodge did not disturb the emotional
distress damages standard theretofore applied in this district, i.e., the Ninth
Circuit’s standard in Dawson v. Wa. Mutual Bank, F.A. (In re Dawson), 390 F.3d
1139 (9th Cir. 2004). See McLean v. Greenpoint Credit LLC, 515 B.R. 841, 848
(M.D. Ala. 2014) (Watkins, C.J.) (following Dawson). Further, Mr. Parker notes
that the Eleventh Circuit cited Dawson extensively in Lodge and adopted a nearly
identical iteration of the standard for proving emotional distress damages. See
Lodge, 750 F.3d at 1271 (citing Dawson’s test before pronouncing its own). Mr.
Parker admits that “the Bankruptcy Court did not cite the Dawson standard in
awarding damages to [Mr.] Parker[,]” but he argues that “the facts recited [by the
Bankruptcy Court] show that [it] considered the factors.” (Doc. # 18, at 48.) Mr.
Parker asserts that, in the absence of clear error, this court may not disturb the
Bankruptcy Court’s factual findings that Mr. Parker’s claims of emotional distress
were “credible” and “sincere.” (Doc. # 2-14, at 3.)
In reply, Credit Central contends that “nowhere in the [Bankruptcy Court’s]
decision does [that court] apply [its factual] findings to its legal conclusions.”
(Doc. # 21, at 8.) Further, Credit Central objects that Mr. Parker’s testimony is
legally insufficient to support the award of damages because his testimony was
“uncorroborated.” (Doc. # 21, at 8, 13.)8 It further cites the Bankruptcy Court’s
justification of its damages award (see Doc. # 2-14, at 6), as an indication that the
court imposed actual damages on the basis of Credit Central’s perceived
misconduct, not on the basis of Mr. Parker’s showing that he suffered significant
The Bankruptcy Court cannot be faulted for not following a standard yet to
be enunciated by the Eleventh Circuit. Nonetheless, the award of actual damages
cannot stand on appeal if the facts do not satisfy the legal standard in Lodge. The
Bankruptcy Court’s factual finding that Mr. Parker’s testimony was credible and
sincere is not clearly erroneous, but whether the award of actual damages was
appropriate is a mixed question of fact and law subject to de novo review. The
issue is whether Mr. Parker’s reported emotional suffering was substantial enough
to cross the threshold from the realm of the “fleeting or trivial” to the “significant.”
Because this issue was raised for the first time in the reply brief, the court will not
consider it. See United States v. Levy, 379 F.3d 1241, 1244 (11th Cir. 2004). However, the court
notes that the Eleventh Circuit does require some sort of evidence corroborating a debtor’s
testimony that he experienced emotional distress, except in cases “where the [stay] violator
engaged in egregious conduct and significant emotional distress is readily apparent.” Lodge, 750
F.3d at 1272 (citing Dawson, 390 F.3d at 1149–50).
The court concludes that Mr. Parker’s “few days” of feeling embarrassment and
anxiety, which did not inflict psychological damage and which did not require
professional care, is insufficient as a matter of law to justify an award of actual
damages for emotional distress.9
Furthermore, as Mr. Parker has admitted, the memorandum decision of the
Bankruptcy Court is devoid of any legal standard for assessing the propriety of an
award of actual damages. The Bankruptcy Court justified its imposition of an
award by reasoning that courts must “fashion damage awards which are sufficient
[to] change [a creditor’s] calculus” by disincentivizing violations of the automatic
stay. (Doc. # 2-14, at 6.) Although this reasoning would be appropriate in the
context of an award of punitive damages, the Bankruptcy Court engaged in this
analysis in the context of actual damages. (See Doc. # 2-14, at 8 (beginning
discussion of the propriety of punitive damages, thereby suggesting that prior
reasoning justified award of actual damages).) The memorandum decision further
explains that Credit Central knowingly violated the automatic stay and failed to
mitigate its violation. (Doc. # 2-14, at 6–7.) But in setting a value for actual
damages, the focus would be Mr. Parker’s proof of suffering or other injury – not
Credit Central’s misconduct.
The court rejects, however, Credit Central’s argument that the causation element is
lacking. If Mr. Parker’s anxiety and embarrassment were significant enough to warrant actual
damages for emotional distress (they are not), Mr. Parker showed that Credit Central’s stay
violation caused his distress.
For these reasons, the Bankruptcy Court’s award of actual damages to Mr.
Parker in the amount of $2,000 is due to be vacated.
Award of Attorney’s Fees
Section 362(k)(1) provides that “an individual injured by any willful
violation of a stay provided by this section shall recover actual damages, including
costs and attorneys’ fees.” The Bankruptcy Court based its award of attorney’s
fees on § 362(k), but also wrote that if it were unable to award fees pursuant to
§ 362(k), it “would” nevertheless award fees “under [its] inherent authority and
under 11 U.S.C. § 105.” (Doc. # 7-1, at 4, 22–23.) Credit Central contends that
Mr. Parker’s attorney’s fees should not have been awarded under any of those
sources of authority.10
Authority Under § 362(k) to Award Attorney’s Fees
Absence of Testimony Supporting Fee Arrangement
A fundamental issue only briefly mentioned in Credit Central’s argument is
that “Mr. Parker did not testify or offer evidence that he incurred, or actually owes,
any attorney’s fees” related to “the work involved in this adversary proceeding.”
(Doc. # 6, at 27.) This objection was not lodged in opposition to Mr. Parker’s
motion for attorney’s fees. (See Doc. # 2-27.) “Ordinarily an appellate court does
not give consideration to issues not raised below,” and this principle extends to
There has been no argument that the $30,318 fee computation was erroneously
calculated or that counsel performed unnecessary or excessive work. (See Doc. # 7-1, at 23.)
bankruptcy cases because “bankruptcy cases are to be tried in bankruptcy court.”
Ala Dep’t of Econ. & Cmty. Affairs v. Ball Healthcare-Dallas LLC, (In re Lett),
632 F.3d 1216, 1226 (11th Cir. 2011) (internal quotation marks and alteration
omitted). Hence, this objection will not be considered here.
Pre-litigation Injury Requirement
Credit Central posits that Mr. Parker incurred no damages prior to suing
Credit Central for violating the stay, and he therefore is not entitled to recover fees.
Credit Central acknowledges that a debtor may file a complaint if he is suffering
“an ongoing stay violation,” (Doc. # 6, at 29), but it continues to deny that Mr.
Parker was ever in that position. Credit Central asserts that it was unnecessary for
Mr. Parker to file an adversary proceeding to remedy the stay violation because,
unbeknownst to Mr. Parker, Credit Central was trying (quite ineffectively) to stop
the prosecution of the Dale County District Court suit. Credit Central argues that
all damages incurred by Mr. Parker – i.e., attorney’s fees for the prosecution of the
adversary proceeding – were incurred after the adversary proceeding was filed, and
Mr. Parker was not “injured” by the stay violation at the time that he sued Credit
Central. Credit Central relies heavily upon Hutchings v. Ocwen Fed. Bank, FSB
(In re Hutchings), 348 B.R. 847 (Bankr. N.D. Ala. 2006), where Judge Cohen
declined to award the plaintiff’s attorney’s fees and offered an extensive
explanation – nearly 40,000 words – for why § 362(k) allows only an “injured”
party to recover damages for an automatic stay violation.
In response, Mr. Parker says summarily that “[e]ach” of Credit Central’s
arguments in its initial brief against the award of attorney’s fees “was roundly
rejected by the Bankruptcy Court.” (Doc. # 18, at 69.) However, Credit Central
did not cite Hutchings before the Bankruptcy Court in its opposition to Mr.
Parker’s request for attorney’s fees. (See Doc. # 2-27.) Credit Central’s argument
below was similar but different. (See Doc. # 2-27, at 3–5 (relying on the rule
announced in Sternberg v. Johnston, 595 F.3d 937, 947 (9th Cir. 2010)).) The
Ninth Circuit in Sternberg held that debtors are entitled to recover attorney’s fees
only for the expense of enforcing the stay, but not for the cost of prosecuting a stay
violation. The Bankruptcy Court rejected Sternberg as contrary to the law of the
Eleventh Circuit and most other bankruptcy courts. (Doc. # 7-1, at 9 (citing Jove
Eng’g, Inc. v. I.R.S., 92 F.3d 1539 (11th Cir. 1996)); 12–19 (explaining at length
why the Bankruptcy Court believes that Sternberg was decided wrongly).)
There has been no reliance upon Sternberg on appeal, just Hutchings.
Hutchings is distinguishable from Sternberg. Sternberg says attorney’s fees are
not recoverable for the prosecution of an adversary proceeding once the stay
violation is corrected. Hutchings says attorney’s fees are not recoverable for the
prosecution of an adversary proceeding where there is no injury resulting from the
stay violation. The court is not required to consider arguments raised for the first
time on appeal. See In re Lett, 632 F.3d at 1226. Perhaps Credit Central did not
cite Hutchings before the Bankruptcy Court because the argument would have
been futile in view of the Bankruptcy Court’s decision that Mr. Parker had suffered
an emotional distress injury prior to filing the adversary proceeding. Assuming
that futility explains the omission of Hutchings from Credit Central’s submissions
to the Bankruptcy Court, this court, in its discretion, will consider Credit Central’s
arguments based on Hutchings.
Upon review of the Hutchings decision, it is apparent that it is
distinguishable from this case. In the concluding remarks, which summarize the
facts and the law, the court stated:
Had Mr. Hutchings been required to maintain this lawsuit in order to
force [the defendant] to desist from further violating the stay, or to
prevent [the defendant] from again violating the stay, or to undo the
effects of [defendant]’s stay violations, or to recover compensatory
damages that he actually incurred as a result of those violations prior
to the institution of the lawsuit, the result would be completely
different. Certainly, a debtor is entitled to recover the attorney[’]s
fees and expenses that he or she has actually incurred in filing and
maintaining a section 362[(k)] action for those purposes. . . .
However, the proof in this case clearly indicates that Mr. Hutchings’
adversary proceeding was not intended to serve any of those purposes.
The uncontroverted evidence is that [the defendant] ceased violating
the stay prior to the institution of this lawsuit.
In re Hutchings, 348 B.R. at 917 (emphasis added).
Here, of course, Credit
Central did not cease violating the automatic stay until Mr. Parker sued.
Moreover, Credit Central persisted in the adversary proceeding to deny its conduct,
the amount of Mr. Parker’s debt, its receipt of notice of the bankruptcy case, its
service of process on Mr. Parker in the state court suit, and even its own filing of a
proof of claim. Thus, Credit Central aggravated the injury and must bear the
resulting pain. So, in accord with Hutchings, “[Mr. Parker] is entitled to recover
the attorney[’]s fees and expenses that he . . . has actually incurred in filing and
maintaining [his] section 362[(k)] action” “to force [Credit Central] to desist from
further violating the stay.” Id.11 Credit Central’s objections based on Hutchings
(Doc. # 6, at 27–33) are considered but found to be without merit.
Moreover, the Bankruptcy Court is correct that the law in this district and in
the Eleventh Circuit supports the Bankruptcy Court’s conclusion that “§ 362(k)
provides for the attorneys’ fees necessary to remedy the violation of the automatic
stay, to prosecute the adversary proceeding[,] and to defend the appeal. Anything
See also id. at 901–02 (“[A] debtor is precluded from obtaining an award pursuant to
section 362(h) of the costs, expenses and attorney[’]s fees incurred or generated as part of the
process of prosecuting a section 362(h) proceeding where the debtor: (1) was not injured by a
creditor’s stay violation; (2) has not incurred damages as a result of a creditor’s stay violation
prior to institution of a section 362(h) proceeding; (3) does not stand to incur any damages as a
result of a creditor’s stay violation subsequent to institution of a section 362(h) proceeding
except for costs, expenses and attorney[’]s fees incurred or generated as part of the process of
prosecuting the section 362(h) proceeding; or (4) was not required to institute the section 362(h)
proceeding in order to force the creditor to desist from further violating the stay, or to prevent
the creditor from again violating the stay, or to undo the effects of the creditor’s stay violation.”)
(emphasis added). Judge Cohen used the disjunctive “or” between his four hypothetical
scenarios. While categories (1), (2) and (3) describe and disqualify Mr. Parker under
Hutchings’s rule, category (4) does not. See id. at 901.
less than that would be contrary to both the plain language and the spirit of
§ 362(k).” (Doc. # 7-1, at 8.)
Duty to Mitigate Damages
Credit Central also argues that Mr. Parker and Mr. Wooten failed to mitigate
damages.12 Credit Central objects that Mr. Parker and his bankruptcy attorneys,
whose representation predates Mr. Wooten’s, “did not include the State Court
Action in his bankruptcy petition” and did not “contact the Dale County District
Court or Credit Central regarding [Credit Central’s] lawsuit.” (Doc. # 6, at 36.)13
Credit Central further complains that Mr. Wooten filed Mr. Parker’s adversary
proceeding complaint without contacting Credit Central or the Dale County
District Court. If Mr. Parker or Mr. Wooten had contacted Credit Central, Credit
Central suggests that Mr. Parker or Mr. Wooten would have learned that Credit
The words “mitigate” or “mitigation” are absent from Credit Central’s opposition brief
to Mr. Parker’s motion for attorney’s fees. (See Doc. # 2-27.) But the argument is considered
here because Credit Central has previously laid the blame upon Mr. Parker and his counsel in
more subtle terms.
The initial brief is unclear about what prejudice this caused Credit Central, but in the
reply brief, Credit Central associates Mr. Parker’s non-inclusion of the state court case on his
bankruptcy petition with Mr. Parker’s failure to file a suggestion of bankruptcy in the state court
case. (Doc. # 21, at 7.) Credit Central also complained in argument at trial that Mr. Parker did
not file a suggestion of bankruptcy. A suggestion of bankruptcy would have been appropriate if
Mr. Parker had been served with process prior to the date that he filed his bankruptcy petition.
See Barnes v. Sawyer, (In re Barnes), 326 B.R. 832, 835 (Bankr. M.D. Ala. 2005) (“The purpose
of a ‘Suggestion of Bankruptcy’ is to provide actual notice to the trial court and other parties
when a party files bankruptcy. While neither the Bankruptcy Code nor the Bankruptcy Rules
require this, it is a good practice to file a Suggestion of Bankruptcy in every pending civil action
to which a debtor is a party.”). But Credit Central ignores that Mr. Parker had not been lawfully
served with process in the state court action at the time that he petitioned for bankruptcy relief.
Mr. Parker’s informal notice of Credit Central’s intention to sue him to collect the debt is
Central was not trying to prosecute the state court action in violation of the stay.
And if Mr. Parker or Mr. Wooten had contacted the Dale County District Court,
Credit Central proposes that this could or would have stopped the prosecution of
Again, Credit Central relies on Hutchings, but for a different point. There,
after surveying several bankruptcy court decisions, Judge Cohen explained:
A common conclusion . . . is that if the debtor or the debtor’s attorney
had just contacted the offending creditor, both damages and a
subsequent lawsuit could have been avoided. That, of course is
exactly what happened here. Mr. Hutchings contacted [his lawyer].
And before any damages were incurred[, his lawyer] contacted [the
defendant]. And again, before any damages were incurred, [the
defendant] stopped violating the stay and stopped its foreclosure
But, as the cases discussed above demonstrate, a debtor is not entitled
to recover damages pursuant to section 362[(k)] where it was within
the debtor’s power to avoid, or at least mitigate, those damages.
Again, that was the situation here. Having suffered no damages, and
having obtained the exact result he desired, Mr. Hutchings could have
avoided any damages simply by not filing his complaint or timely
discontinuing it. But he did neither. And because he did not, he did
not mitigate his damages as he was required to do. Consequently, he
cannot be awarded those damages in this proceeding.
In re Hutchings, 348 B.R. at 909–10. Hence, Credit Central suggests that Mr.
Parker’s lawyers could and should have contacted Credit Central instead of
initiating an adversary proceeding.
Credit Central also relies on the Bankruptcy Court’s expectation, expressed
in In re Briskey, 258 B.R. 473, 480 (Bankr. M.D. Ala. 2001), that lawyers
“cooperate in a spirit of professionalism . . . to [e]nsure that the automatic stay is
not violated and that inadvertent violations are remedied promptly with a minimum
of expense and delay” and “communicate with employers and personnel in [a]
court” that issues process in violation of the automatic stay.
Credit Central’s failure-to-mitigate arguments fail to persuade for a few
reasons. First, assuming Mr. Parker or his lawyer had called Ms. Speaks about the
ongoing stay violation at any point after receiving service of process or the entry of
default judgment, he would have learned only what was revealed at trial: that
Credit Central was using a non-lawyer to prosecute a case, and that she had been
ineffective at complying with the automatic stay.
It is not clear what
communication from Mr. Parker to either the Dale County District Court or Credit
Central would have accomplished to remedy the stay violation – specifically,
service of Mr. Parker with process – when the onus was on Credit Central to
dismiss or stay the collection suit once Mr. Parker orally informed the Ozark office
of his bankruptcy petition. Mr. Parker’s subjective awareness of Ms. Speaks’s
good intentions to stop the suit would not have stripped him of his right to bring an
adversary proceeding to remedy the violation.
Secondly, as the Bankruptcy Court’s memorandum decision demonstrates,
the Bankruptcy Court considered the standard expectations stated in Briskey and
other precedents. (See Doc. # 7-1, at 19–20 (stating the requirement that “debtors
and their lawyers . . . make reasonable effort to remedy stay violations before filing
a complaint initiating an Adversary Proceeding”); at 19 n.8 (mentioning Briskey as
an example of a case where the debtor’s lawyer hastily sued the creditor instead of
“first attempting to resolve things directly with the creditor.”).) As the Bankruptcy
Court explained, it was unwilling to allow damages or attorney’s fees in an
adversary proceeding where a creditor “unwittingly violates the automatic stay”
and where pre-litigation communication could have remedied the violation. (Doc.
# 7-1, at 19.)
But as the Bankruptcy Court concluded and as this court has
affirmed, Credit Central had notice of Mr. Parker’s bankruptcy petition yet
continued to violate the automatic stay for two months, and thereafter, put Mr.
Parker to the task of proving largely undisputed facts in the adversary proceeding.
Finally, the Bankruptcy Court plainly rejected Credit Central’s suggestion
that “Mr. Wooten . . . allow[ed] his client to have a judgment taken against him.”
(Doc. # 7-1, at 21 (quoting Doc. # 2-27, at 5).) The Bankruptcy Court called
Credit Central’s argument “disingenuous” and a “blatant misrepresentation of the
facts” and found that there was no evidence that Mr. Parker or Mr. Wooten “baited
Credit Central into this automatic stay violation.” (Doc. # 7-1, at 21.) This court
agrees that Credit Central lacks any evidence that Mr. Parker’s attorney is partially
to blame for the consequences of Credit Central’s misconduct.
For all these reasons, Mr. Parker is not barred from recovering attorney’s
fees for failure to mitigate his damages.
Alternative Authority to Award Attorney’s Fees
Credit Central comprehensively contests the Bankruptcy Court’s statements
that Credit Central defended the stay violation in bad faith – a fact that relates to
the Bankruptcy Court’s suggestive but unofficial ruling that if it lacked authority to
award attorney’s fees under § 362(k), it “would” award fees pursuant to its
inherent authority or 11 U.S.C. § 105. (Doc. # 7-1, at 4, 22–23.) Credit Central
acknowledges that what the Bankruptcy Court “would” do was mere “dicta.”
(Doc. # 21, at 17.) The difference between dictum and ruling is substantial. The
Bankruptcy Court did not say that it based its fee decision on alternative grounds;
it said that it would base its fee decision on alternative grounds if pressed for
authority beyond § 362(k). These remarks do not constitute a conclusion of law
supporting the fee award imposed, and therefore, this court need not consider the
propriety of such a hypothetical conclusion, or whether it could be justified
reasonably by Credit Central’s lack of good faith. For this reason, Credit Central’s
objections to the Bankruptcy Court’s remarks about its alternative authority to
award attorney’s fees and Credit Central’s bad faith will not be considered.
This court agrees that an award of fees was proper under § 362(k) and Credit
Central has failed to show an abuse of discretion. The Bankruptcy Court’s award
of Mr. Parker’s attorney’s is due to be affirmed.
Award of Punitive Damages
Credit Central challenges the imposition of punitive damages.
individual injured by any willful violation of a stay . . . in appropriate
circumstances, may recover punitive damages.” 11 U.S.C. § 362(k)(1). Hence,
awards of punitive damages are discretionary. Courts typically have awarded
in response to particularly egregious conduct for both punitive and
deterrent purposes. Such awards are reserved for cases in which the
defendant’s conduct amounts to something more than a bare violation
justifying compensatory damages or injunctive relief. To recover
punitive damages, the defendant must have acted with actual
knowledge that he was violating the federally protected right or with
reckless disregard of whether he was doing so.
Keen v. Premium Asset Recovery Corp. (In re Keen), 301 B.R. 749, 755 (Bankr.
S.D. Fla. 2008). Five factors guide bankruptcy courts in determining whether an
award of punitive damages is proper: “(1) the nature of the [defendant]’s conduct;
(2) the nature and extent of the harm to the plaintiff; (3) the [defendant]’s ability to
pay; (4) the motives of the defendant; and (5) any provocation by the debtor.”
Castillo v. Three Aces Auto Sales (In re Castillo), 456 B.R. 719, 727 (Bankr. N.D.
Ga. 2011); see also In re White, 410 B.R. 322, 327 (Bankr. M.D. Fla. 2009) (using
same five factors); In re Roche, 361 B.R. 615, 624 (Bankr. N.D. Ga. 2005) (same).
In support of its finding that punitive damages should be imposed, the
Bankruptcy Court found that Credit Central had attempted to minimize its costs by
using non-lawyers to collect small claims in state court. The court explained that
imposing punitive damages would hopefully “encourage Credit Central, and
perhaps others similarly situated, either to use lawyers to bring suit, or at least to
properly supervise its employees.” (Doc. # 2-14, at 8.) The court cited several
decisions of other bankruptcy courts that awarded punitive damages where the
defendant violated the automatic stay. (Doc. # 2-14, at 8–9.) It reasoned that a
$10,000 punitive damages award, which was five times its award for actual
damages, was adequate to deter Credit Central from violating the stay in the same
way in the future. (Doc. # 2-14, at 9–10.) The Bankruptcy Court did not find that
Credit Central’s stay violation was egregious and did not discuss the five
guideposts cited above.
Credit Central challenges the Bankruptcy Court’s imposition of punitive
damages because there are no underlying actual damages, and even assuming
actual damages, it argues that Mr. Parker “failed to establish the predicate
behavior” that warrants punitive damages. (Doc. # 6, at 21.) Credit Central asserts
that its violation of the stay was not egregious and further contends that the
Bankruptcy Court improperly penalized it for engaging in a lawful business
practice, i.e., using non-lawyers to prosecute small claims in Alabama’s state
Mr. Parker responds that relevant case law supports the Bankruptcy Court’s
imposition of punitive damages.
He asserts that the Bankruptcy Court’s
acknowledgement that there are more egregious offenders than Credit Central does
not mean that Credit Central is absolved from any punitive damages award. Mr.
Parker contends that the Bankruptcy Court did not penalize Credit Central’s lawful
maintenance of small claims suits so much as its failure to ensure that its
employees maintained those suits without the risk of violating the automatic stay.
The absence of any compensable emotional distress or other actual damages
other than attorney’s fees does not preclude this court from upholding the
Bankruptcy Court’s award of punitive damages because a debtor’s incurrence of
attorney’s fees to prosecute the stay violation is “actual damages” under § 362(k).
See Bank of Boston v. Baker (In re Baker), 140 B.R. 88, 90 (D. Vt. 1992)
(interpreting plain language of § 362 to mean that “actual damages” “includ[es]
Credit Central does not argue that $10,000 in punitive damages, by itself, is excessive.
However, Credit Central has argued that the imposition of attorney’s fees, which Credit Central
deems punitive in nature, “improperly inflates the ratio of punitive damages from 5 to 1 to a
whopping 15 to 1.” (Doc. # 13, at 17; see also Doc. # 21, at 24.) Credit Central ignores that
attorney’s fees are actual damages under § 362(k). Properly viewing attorney’s fees as actual
damages ($30,318), the ratio of actual to punitive damages is far below a 1:1 ratio.
attorneys’ fees”).15 Thus, an award of punitive damages “made in connection with
an award of compensatory damages in the form of attorneys’ fees,” but without
any other actual damages, is not erroneous. Id. See also Knaus v. Concordia
Lumber Co. (In re Knaus), 889 F.2d 773, 775 (8th Cir. 1989) (reinstating
bankruptcy court’s award of attorney’s fees and punitive damages); In re M & J
Feed Mill, Inc., 112 B.R. 985, 989–90 (Bankr. W.D. Mo. 1990) (awarding fees and
Under the five-factor list for the proper assessment of punitive damages, the
court holds that Credit Central acted with actual knowledge of its violation of the
automatic stay, because it was repeatedly informed of the ongoing actions against
Mr. Parker in the state court proceedings (e.g., two attempts of service and an entry
of default judgment against Mr. Parker).
At best, Credit Central acted with
reckless disregard of whether it was violating the stay because it did not ensure that
its employees or an attorney effectively stopped the prosecution of the collection
suit. These facts make Credit Central’s conduct serious enough to warrant punitive
damages for purposes of both penalization and deterrence. It is no excuse that Ms.
Speaks did not appreciate how to effectively stop the prosecution of the state court
Credit Central has agreed with this proposition in the Bankruptcy Court. (See Doc.
# 2-27, at 2 (“[I]t is clear that attorney’s fees are included in ‘actual damages’ and are not
addressed as a separate category of damages with regard to a violation of the automatic stay.”).)
collection action, and it is no defense that she tried her best and meant no harm to
Furthermore, the five factors support the Bankruptcy Court’s imposition of
punitive damages because Credit Central’s stay violation was, as the Bankruptcy
Court reasoned, foreseeable and avoidable. Credit Central may have the right to
prosecute small claims in Alabama without the assistance of counsel, but it does
not have the right to violate the automatic stay in order to keeps its legal costs low.
Hence, (1) the nature of Credit Central’s conduct, (2) Credit Central’s ability to
pay the punitive damages award, (3) its motive to contain its legal costs at the risk
of violating the stay, and (4) the absence of any provocation by Mr. Parker are four
factors which weigh in favor of the Bankruptcy Court’s punitive damages award.
Castillo, 456 B.R. at 727.16
Any other objections of Credit Central not expressly addressed (see Doc.
# 6, at 25–26) are rejected. The Bankruptcy Court’s award of $10,000 in punitive
damages is due to be affirmed.
Based upon the foregoing analysis, the Bankruptcy Court’s judgment
awarding damages (Doc. # 2-15) is AFFIRMED IN PART and VACATED AND
To be clear, the court is not affirming the penalization of Credit Central for engaging in
lawful conduct under Alabama’s state court rules. The court is affirming the penalization of
Credit Central for willfully violating the automatic stay, an established fact.
REMANDED IN PART, and the Bankruptcy Court’s order awarding attorney’s
fees (Doc. # 7-2) is AFFIRMED.
A separate final judgment will be entered.
DONE this 10th day of March, 2015.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE
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