612 B.R. 604
Bankr. E.D. Cal.2020Background
- Cavalry SPV‑1 (assignee of Citibank) obtained a money judgment and a California earnings withholding order (EWO) served on the debtor’s employer in February 2019.
- The employer’s return (Feb. 14) showed an existing child‑support withholding and did not return Cavalry’s EWO as ineffective, leaving Cavalry’s EWO in a “dormant” but enforceable status.
- Debtor Dumace LeGrand filed Chapter 7 on Feb. 28, 2019; discharge entered June 17, 2019; Cavalry and its counsel Winn Law had notice but did not terminate the EWO.
- The employer withheld on Cavalry’s EWO after overtime increased the debtor’s disposable wages (paydates May 22 through Aug. 7), collecting $883.35 total; some garnishments occurred after discharge.
- Debtor’s counsel faxed a demand to terminate the garnishment on July 10; Cavalry/Winn did not terminate the EWO until July 29, after the debtor filed a sanctions motion.
- The court found willful violation of the automatic stay under 11 U.S.C. § 362(k)(1), awarded actual damages (including attorney fees and emotional‑distress), and punitive damages; Cavalry and Winn were held jointly and severally liable for $34,883.35.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did allowing the EWO to remain in effect after the bankruptcy filing violate the automatic stay? | LeGrand: creditors had notice and an affirmative duty to terminate the EWO; failing to do so caused stay violations. | Cavalry/Winn: employer retained the EWO; they relied on the employer’s return and routine procedure. | Court: Willful stay violations under §362(k)(1); creditors knew the EWO was dormant yet enforceable and had a duty to terminate it. |
| Are post‑discharge garnishments governed by civil contempt under §524 or by §362(k)(1) remedies (including punitive damages)? | LeGrand: Because the garnishments began pre‑discharge and continued, §362(k)(1) remedies remain available and appropriate. | Defendants: Post‑discharge conduct implicates the discharge injunction and civil contempt standards. | Court: Where post‑discharge enforcement is a continuation of pre‑discharge stay violations, §362(k)(1) remains the proper and stronger remedy (punitive damages available). |
| Are punitive damages appropriate for the stay violations? | LeGrand: Nineteen‑day stonewall, refusal to respond, and knowledge of the law show reckless/callous disregard warranting punitive damages. | Defendants: They acted reasonably/relied on employer; any delay was not in bad faith. | Court: Found lack of good faith and reckless disregard; awarded $25,000 punitive damages under §362(k)(1). |
| May Cavalry be held liable for Winn’s failure to terminate the EWO? | LeGrand: creditor is responsible for acts/omissions of its counsel. | Winn: contended responsibility lay with counsel taking action. | Court: Client (Cavalry) is vicariously liable for counsel’s acts/omissions; joint and several liability imposed. |
Key Cases Cited
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (Supreme Court: civil contempt for discharge injunction requires that there be no fair ground of doubt about injunction’s scope)
- Snowden v. Check Into Cash of Wash., Inc. (In re Snowden), 769 F.3d 651 (9th Cir. 2014) (§362 remedies extend until actual restitution; punitive damages available in appropriate cases)
- Eskanos & Adler, P.C. v. Leetien (In re Leetien), 309 F.3d 1210 (9th Cir. 2002) (willfulness in stay violations is a factual inquiry)
- Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178 (9th Cir. 2003) (civil contempt principles apply to bankruptcy injunctions and stay violations)
- Goichman v. Bloom (In re Bloom), 875 F.2d 224 (9th Cir. 1989) (punitive damages under §362 where creditor acted with reckless or callous disregard)
- Dawson v. Washington Mutual Bank (In re Dawson), 390 F.3d 1139 (9th Cir. 2004) (emotional‑distress damages may be recoverable for stay violations)
- Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380 (1993) (clients are accountable for attorneys’ acts/omissions)