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In re Harrison
Citation: 599 B.R. 173Docket: Case No.: 18-50089-KKS
Court: United States Bankruptcy Court, N.D. Florida; March 8, 2019; Us Bankruptcy; United States Bankruptcy Court
Deltona Corporation and its counsel were found to have willfully violated the automatic stay in a Chapter 13 bankruptcy case filed by the Debtor on March 26, 2018. Following the Debtor's motion for sanctions, the Court conducted a hearing on July 16, 2018, leading to an interim order determining the stay violation. A final evidentiary hearing on August 27, 2018, involved testimonies from the Debtor, Deltona's employee, a Deputy Clerk, and a Deputy Sheriff, along with documentary and video evidence. The Court concluded that Deltona had indeed violated the stay and announced that damages, including punitive damages, would be awarded. The Debtor's dispute with Deltona pertains to a property in Chipley, Florida, claimed as her homestead. After ceasing payments, Deltona initiated foreclosure proceedings on June 18, 2015. The Debtor's bankruptcy petition was filed just before a scheduled foreclosure sale, marking her third bankruptcy case since October 2016. Previous cases in Georgia resulted in dismissals but did not stem from failures to comply with court orders. Deltona had obtained a Final Judgment of Foreclosure after the dismissal of the Debtor's second Georgia case, yet the petition should have halted the foreclosure sale due to the automatic stay. The Debtor sought to extend this stay on April 12, 2018, against Deltona's objection, which was ultimately overruled by the Court. Following the sanctions motion, Deltona admitted to the stay violation but contended it was unintentional due to a legal error by their state counsel, without taking steps to vacate the foreclosure sale. Deltona violated the automatic stay following the Debtor's Chapter 13 filing. The Debtor informed Deltona's state court counsel and the Washington County Clerk of Court about the stay, but on March 27, 2018, despite her efforts to halt the scheduled foreclosure sale, the sale proceeded with Deltona as the sole bidder. The Deputy Clerk, Donjuan, suggested the Debtor seek intervention from the presiding judge, but ultimately ignored her claims that the sale was stayed. The Debtor expressed her distress over the sale, which occurred in her absence, and was visibly upset upon learning it had taken place. Deltona attempted to discredit the Debtor's testimony by presenting security camera footage showing her agitated behavior before the sale. After the sale, the Washington County Clerk issued a certificate of title to Deltona, who subsequently changed the locks and posted 'no trespassing' signs on the Chipley Property, preventing the Debtor from accessing her home for approximately 94 days. The Debtor contacted Deltona's bankruptcy counsel during this period, asserting her rights under the stay. Access was only restored on June 30, 2018, after Deltona's counsel acknowledged in court that the Debtor had been locked out and agreed to provide her keys. Deltona turned off the utilities at the Chipley Property after evicting a third-party tenant, leaving it vacant and without air conditioning for an extended period. Following Deltona's admission of stay violations, Debtor was granted access to the property, which she frequently visited, often sleeping in her car or staying with others. Debtor reported extensive damage and initiated repairs, including painting and flooring replacement. Deltona's representative, Mr. Worthington, testified about the property’s condition after the foreclosure sale, noting damage to both the front and garage doors. During Debtor's visits, she observed Mr. Worthington driving by multiple times, prompting her to question whether he was 'stalking' her. Although he denied stalking, he acknowledged visiting the property numerous times at Deltona's request to monitor it, including thirteen visits after Debtor regained access. A late-night incident occurred when Deputy Sheriff Landon Fries was dispatched to investigate a report of a suspicious person at the foreclosed property. Deputy Fries claimed to approach normally and left after confirming Debtor's identification. However, Debtor recounted the encounter as aggressive, alleging that the officer arrived with his gun drawn, accused her and her mother of breaking and entering, and described the situation as extremely distressing. Additionally, Deltona's bankruptcy counsel, H. Matthew Fuqua, failed to address Debtor's complaints regarding Deltona's violation of the automatic stay shortly after the foreclosure sale, which Debtor found particularly troubling. Deltona's bankruptcy counsel is accused of making false and misleading representations to the Court regarding the status of the automatic stay and the foreclosure of the Chipley Property. They failed to disclose that the sale had already occurred and that Deltona had locked the Debtor out of the property. Instead, counsel claimed that Deltona sought to proceed with foreclosure and accused the Debtor of filing for bankruptcy in bad faith to obstruct Deltona's rights. Counsel argued that the automatic stay was annulled based on a previous order from the Second Georgia Case, citing 11 U.S.C. 362(d)(4), but this claim is false. The motion in the Georgia case did not request prospective stay relief, and the order did not mention such relief, only granting Deltona the right to proceed with foreclosure. Deltona's counsel further asserted that the automatic stay should be annulled due to bad faith, which contradicted their previous claims that the stay was not in effect. This defense was procedurally improper as it required a formal motion. During hearings, counsel focused on whether the Chipley Property was the Debtor's homestead, a matter irrelevant to the violation of the stay. They delayed taking action to vacate the foreclosure sale until compelled to do so, instead requesting that the bankruptcy court vacate the sale, which violates the principle of giving state court judgments full faith and credit. The document concludes that contempt is an appropriate remedy for willful violations of the automatic stay, as the stay is a fundamental aspect of bankruptcy law and violations are treated as contempt of court. Willful conduct in violation of the automatic stay can result in contempt, even if based on counsel's advice, while inadvertent violations do not warrant such a remedy. Creditors are obligated to reverse any actions taken that breach the stay, and failing to do so can escalate the violation to a willful one. The debtor must prove that the violation was willful, characterized in the Eleventh Circuit by the offending party’s knowledge of the stay and intentional actions that contravene it. Deltona's actions were deemed willful as they knowingly proceeded with a foreclosure sale despite the stay and the debtor’s bankruptcy petition. Deltona's counsel did not acknowledge the stay violation upon entering the case and failed to rectify the situation, which prolonged the violations for over ninety days. The debtor experienced emotional distress due to these actions. Testimony indicated that Deltona's bankruptcy counsel was aware of the stay and did not act when informed of the violation, leading the debtor to seek judicial sanctions. The counsel’s failure to disclose the stay violation in their initial filings further exemplified their willful negligence. It was concluded that the actions of Deltona and its counsel were deliberate, and the continued violations constituted willful misconduct under the automatic stay provisions. In In re Taylor, a creditor's attorney violated the automatic stay by obtaining a default judgment against the debtor after the debtor filed for bankruptcy. The debtor's attorney attempted to have the judgment vacated, but the creditor's attorney refused. The bankruptcy court sanctioned the creditor's attorney with attorneys' fees, emphasizing that one must take steps to discontinue actions that violate an injunction. Similarly, Deltona's bankruptcy counsel failed to reinstate the pre-petition status quo regarding a foreclosure sale and instead contributed to ongoing stay violations through misleading representations. Despite being alerted to these violations, Deltona and its counsel showed no remorse or effort to correct the situation. The court found sufficient evidence of willful stay violations by Deltona's counsel, entitling the debtor to damages under 11 U.S.C. § 362(k). The debtor is entitled to compensatory damages, including those for emotional distress, as well as punitive damages due to the willful disregard for bankruptcy laws. The debtor's claims for out-of-pocket expenses include travel costs, lock replacement, and mailbox costs, although she only provided limited documentary evidence of damages, totaling $400. Emotional distress damages can be awarded without medical evidence if the stay violations are egregious, requiring proof of significant distress and a causal link to the stay violation. In Lodge v. Kondaur Capital Corp., the debtor filed for Chapter 13 bankruptcy, during which a mortgage creditor attempted to foreclose without obtaining relief from the automatic stay. The creditor published a foreclosure notice, which the debtor and his wife did not see until they received warning letters from law firms. The foreclosure was later canceled. After completing his bankruptcy plan, the debtor sought damages for emotional distress due to the creditor's actions, but the bankruptcy court denied this request, citing insufficient evidence of significant emotional distress from a single-day notice publication. Contrasting this case, the current debtor has demonstrated a clear entitlement to emotional distress damages, supported by compelling evidence, including video and testimonies. For three months, the debtor was subjected to actions by Deltona, such as illegal lockout, mail interference, stalking, and misreporting her property status, leading to severe emotional trauma characterized by anxiety, helplessness, and paranoia. The debtor's awareness of her rights under the Bankruptcy Code and her inability to convince Deltona to cease its violations further exacerbated her distress. The court found that punitive damages against Deltona and its bankruptcy counsel are appropriate due to their egregious and malicious conduct. Five factors support this decision: (1) Deltona's deliberate actions, knowing about the bankruptcy filing; (2) the significant harm inflicted on the debtor; (3) Deltona's presumed financial capability to pay punitive damages; (4) the motives behind Deltona's actions; and (5) the lack of provocation from the debtor. Overall, all factors favor awarding punitive damages to redress the willful violations of the automatic stay. Deltona has not provided evidence or arguments to counter the assertions made against it. It admits its primary motive is to complete the foreclosure but demonstrates a deeper, detrimental motive of winning at all costs, disregarding the Bankruptcy Code, the Court, and the Debtor's rights. The Debtor's sole provocation has been filing multiple bankruptcy cases to protect the Chipley Property, a practice that the Bankruptcy Code allows. Deltona incorrectly claims that punitive damages must be capped at a single-digit multiplier of actual damages, citing Exxon Shipping Co. v. Baker, which only affirmed the constitutionality of such a ratio, not its exclusivity. Additionally, Deltona's reference to In re Escobedo does not support its position, as that case involved a lower multiplier of 0.6 after determining an appropriate punitive damage amount. Deltona asserts it can offset damages awarded for its misconduct against the Debtor's debt on the FJ, but the Court disagrees. The cited bankruptcy case involved recoupment under Alabama law, not setoff, and mutuality is lacking between the Debtor’s debt and the awarded damages for Deltona's violations of the automatic stay. Even if mutuality existed, equitable principles would bar setoff due to Deltona's bad conduct. Courts have historically denied setoff in cases involving creditor misconduct, emphasizing that Deltona must compensate for its actions without offsetting against the Debtor's debt. Moreover, punitive damages are deemed appropriate against Deltona's bankruptcy counsel for their role in facilitating Deltona's misconduct. The counsel's actions, including failing to disclose the foreclosure sale and locking the Debtor out of the property, reflect a disregard for the Court and the bankruptcy system, leading to the Debtor's emotional distress. Their actions mirror Deltona's motive to win at all costs, which is deemed unacceptable. Courts have previously sanctioned similar behavior, as demonstrated in In re Campbell, where a willful violation of the automatic stay resulted in significant punitive damages to deter future misconduct. An attorney violated the automatic stay by filing a civil suit against a debtor after the debtor had filed for Chapter 7 bankruptcy, failing to seek stay relief and disregarding requests to dismiss the suit for approximately 222 days. The bankruptcy court awarded the debtor and his spouse, the Hornes, $30,000 for emotional distress, $5,000 in punitive damages, and attorney fees. The district court upheld these awards and granted the Hornes an additional $92,495.86 in appellate fees and costs due to the attorney's willful violation of the automatic stay, despite the attorney's subsequent appeals. The Eleventh Circuit affirmed these decisions, emphasizing the attorney's obstinate conduct in ignoring federal bankruptcy restrictions. The court highlighted the unreasonableness of the attorney's actions and indicated that punitive damages and potential additional sanctions under Rule 9011 of the Federal Rules of Bankruptcy Procedure may be warranted to deter future misconduct. Rule 9011 imposes an obligation on attorneys to conduct a reasonable investigation before submitting filings, ensuring they are not for improper purposes and are supported by law and facts. The court stated that sanctions could be imposed if an attorney fails to adhere to these standards, emphasizing the need for due process in establishing bad faith and assessing damages. Deltona's bankruptcy counsel has been formally notified of the potential for sanctions based on the outlined misconduct. Debtor notified Deltona and its counsel of her bankruptcy, which should have automatically halted the foreclosure sale. However, Deltona failed to take necessary actions to rectify the situation, including reversing the sale, allowing Debtor access to her property, and stopping unwanted surveillance. This negligence resulted in financial loss and emotional distress for Debtor. The Court granted Debtor's Sanctions Motion, ordering Deltona to pay $45,500 in total damages, comprising $10,400 in actual damages (including $400 in compensatory and $10,000 in emotional distress damages) and $35,100 in punitive damages. Additionally, Deltona's bankruptcy counsel was ordered to pay $15,000 in damages, including $5,000 in emotional distress and $10,000 in punitive damages. Payments must be made within 21 days, with proof of payment required within 7 days thereafter. Should checks be undeliverable, Deltona must make reasonable efforts to locate Debtor and re-deliver funds or deposit them into the Court's registry. Deltona's bankruptcy counsel is also required to notify relevant parties of the Order and is subject to the Court's jurisdiction for enforcement. Deltona's bankruptcy counsel, A. Clay Milton and H. Matthew Fuqua, are ordered to submit a written explanation within twenty-one days of the March 8, 2019 Order, justifying why the Court should not impose additional sanctions for their conduct in this case. The Order cites multiple documents, including the Debtor's Complaint and various motions regarding potential sanctions against The Deltona Corporation for violations of the automatic bankruptcy stay. Following the submission of the parties' papers, the Court may hold further hearings, possibly including an evidentiary hearing to assess damages. A scrivener’s error in an Interim Order regarding the foreclosure sale date is noted. Additionally, the Debtor's motion to suppress video evidence was denied. The video evidence demonstrated Deltona's violation of the stay and the emotional distress suffered by the Debtor, despite Deltona's claims regarding the visibility of the Debtor's reaction. The Debtor's credible testimony indicated that Deltona had neglected the Chipley Property, causing damage. Furthermore, it was established that Deltona had a Receiver appointed to manage the property and address tenant-related issues. Mr. Worthington testified that he removed Debtor's damaged mailbox on the same day Deltona provided keys to the property. Deputy Fries, who responded to the incident, could not identify the caller to the Sheriff's office. The Georgia bankruptcy court's order accurately reflected the status of proceedings as Deltona had not yet secured a final judgment of foreclosure. The automatic stay in bankruptcy is immediate and does not require judicial intervention, as established in various cases and legal texts. A creditor is obligated to act against any violation of the automatic stay; inaction can lead to sanctions. The court emphasized that all parties aware of a bankruptcy filing, including state officials, must take steps to halt ongoing processes like garnishment to avoid sanctions. Under 11 U.S.C. § 362(k), the court awarded the Debtor $460 in compensatory damages, consisting of $360 for yard work and $100 for lock replacement, although the actual receipt for yard work was $300. Deltona conceded that emotional distress damages do not require medical evidence, affirming the court's interpretation of the law. The court referenced various cases, including In re Campbell, which support the inclusion of emotional distress damages in actual damages for punitive damages calculation, following the precedent set by State Farm Mut. Auto. Ins. Co. regarding the constitutionality of single-digit multipliers for punitive damages. Furthermore, the excerpt notes that under 11 U.S.C. § 553(a), creditors retain the right to offset mutual debts that arose prior to the bankruptcy filing, provided there is mutuality of obligation, as established by case law. Deltona's continued violations of the automatic stay may have stemmed from management and attorneys believing that the debtor's damages would be minimal. This rationale led to punitive damages in the case of *In re Brodgen*, where a creditor knowingly violated the stay to repossess a vehicle for perceived economic benefit, prompting the court to mandate punitive damages to deter similar future conduct. The lengthy history of *In re Horne* includes an attorney's unsuccessful appeal of sanctions and a subsequent failed recusal motion against the bankruptcy judge, which was affirmed by the Eleventh Circuit after multiple appeals. The district court, on remand, awarded the Hornes an additional $14,918.60 in attorney's fees. The U.S. Supreme Court denied a certiorari petition related to this case. The court clarified that "including costs and attorneys' fees" in section 362(k)(1) is intended to encompass actual damages beyond immediate injuries from stay violations, allowing for fees incurred in actions to secure full statutory relief as part of the debtor's actual damages. This interpretation is supported by relevant case law and bankruptcy rules.