In Re Pulliam
ORDER GRANTING DEBTORS’ MOTION TO SHOW CAUSE AND FOR SANCTIONS AND HOLDING LEWIS & WEST, INC., IN CONTEMPT FOR VIOLATION OF THE AUTOMATIC STAY UNDER § 362(a).
This matter came before the Court for evidentiary hearing on April 17, 2001 concerning Debtors’ Amended Motion To Show Cause And For Sanctions pursuant to Fed. R. Bankr.P. 9020(b). On November 30, 2000, Arthur and Jaime Pulliam, debtors, filed their Motion To Show Cause why Lewis & West, a creditor, was not in contempt for violation of the automatic stay under § 362(a) which took effect on November 15, 2000, the date the Pulliams filed their Chapter 7 petition.
1
In their motion, the Pulliams asserted that Lewis & West had continued to garnish Mr. Pul-liam’s wages pursuant to a garnishment order entered Octobеr 30, 2000, even after receiving notice of the pending case from the court and a request for release from the Pulliam’s counsel. Thereafter, on December 11, 2000, the Pulliams filed an Amended Motion To Show Cause And For Sanctions claiming that Lеwis
&
West had garnished another $506.47 since November 30, 2000. Lewis & West objected to the
FINDINGS OF FACT
Prior to the hearing, the parties filed a partial stipulation of facts and sevеral exhibits. The parties stipulated to the following facts. Lewis & West obtained a judgment against Mr. Pulliam on September 6, 2000 in the District Court of Butler County, Kansas, for $966.85 with interest at the rate of 1.75% per month from December 15, 1999, until paid in full; and for costs. 2 Lewis & West filed a garnishmеnt order on October 30, 2000, and served it on Timec Co., Mr. Pulliam’s employer, the next day. 3 On November 15, 2000, the Pulliams filed their Chapter 7 petition and mailed a Suggestion of Bankruptcy to Lewis & West along with a file-stamped copy of the petition. The Court sent notice to Lewis & West of the Pulliams’ bankruptcy the following day. On November 22, 2000, Mr. Arst’s assistant called Mr. Connell asking that the garnishment be released as to those funds obtained after the fifing of the bankruptcy. Mr. Connell replied that he did not know what amounts thosе would be. Mr. Arst’s assistant stated that she would discuss the matter with Mr. Arst. On November 30, 2000, the Pulliams filed the instant Motion and, on December 11, 2000, the Pulliams Amended that Motion alleging the further garnishment and attachment of some $506.74. On December 14, 2000, Lewis & West received a copy of the wage garnishment answer and filed a garnishment release that same day. 4
At trial, the Pulliams offered several additional exhibits. Exhibit 1 was a deduction report from Timec Company, showing the garnishment dates and amounts. Exhibit 2 was a check from Timec рayable to Mr. Pulliam for $1100, the total amount garnished; and exhibit 3 included Mr. Arst’s time sheets and file notes. Lewis & West objected to the admission of debtors’ exhibits 2 and 3 because they had not been supplied to the creditor in advance of trial. The Court sustained Lewis & West’s objection to debtors’ exhibits 2 and 3 and their contents are not a part of the record of these proceedings.
The Court heard undisputed testimony from Mr. Pulliam. Mr. Pulliam testified that he is employed at Timec Company in El Dorado, Kansas, and that shortly before fifing his Chapter 7 petition, his wages were garnished and continued to be garnished after the bankruptcy was filed. Mr. Pulliam testified that $1100 was withheld by Timec through December 24, 2000 because the garnishment was not released. Mr. Pulliam identified Exhibit 1, a compilation by Timec of the garnishments totaling $1100. Lewis & West objected to admission of this exhibit, but the Court admitted Exhibit 1 for the limited purpose of showing the dates money was garnished from Mr. Pulliam’s paycheck.
Debtors assert that § 362(a) required Lewis & West to immediately release the garnishment without awaiting an answer from Mr. Pulliam’s employer. Although debtors requested a prompt release of the garnishment, Lewis & West declined, preferring to wait until Timec had filed its garnishment answer so that it could determine how much was garnished pre-petition and how much post petition.
Lewis & West argues that it did not know what funds had been attached and could not determine how much to release. Lewis & West further contends that declining to dismiss the garnishment does not violate the automatic stay. Lewis
&
West also asserts that its only delay was in awаiting the paperwork to release (in other words, Timec’s answer) and that Lewis
&
West released the garnishment the same day it received Timec’s answer. In support of its position, Lewis
&
West cites two cases,
Carlsen v. Internal Revenue Service (In re Carlsen),
DISCUSSION
Section 362 of the Bankruptcy Code generally provides for the automatic stay of any and all proceedings against the debtor once a bankruptcy petition is filed. Pursuant to § 362(a), “[e]xcept as provided in subsection (b) of this section, a petition filed under section 301, 302, 303 of this title... operates as a stay, applicable to all entities of—
(1)the commencement or continuation, including the issuanсe of employment of process, of a judicial, administrative, or other action or proceeding against that debtor that was or could have been commenced before the commencement of the case undеr this title...” (Italics added).
The consequences of violating the automatic stay provisions are set forth in § 362(h), which provides that:
“[A]n individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attоrney’s fees, and in appropriate circumstances, may recover punitive damages.”
Additionally, a party injured by a willful violation of the stay can seek sanctions for contempt of court under § 105(a).
See Mountain America Credit Uniоn v. Skinner (In re Skinner),
Contrary to Lewis & West’s argument, a garnishing creditor has an affirmative duty to release the garnishment of a debtor’s wages as soon as it learns of the pending bankruptcy. To hold otherwise would be to eviscerate the power and purpose of the stay which is designed to protect debtors from collection activity during the pendency of a case in bankruptcy.
A creditor who has initiated collection efforts without knowledge of a bankruptcy petition has an affirmative duty to restore the
status quo
without the debtor having to seek relief from the Bankruptcy Court.
In re Miller,
Lewis & West had an affirmative duty to release the garnishment of Mr. Pulliam’s wages as soon as it learned of his pending bankruptcy. When Lewis
&
West refused to release the garnishment, claiming it could not file a release until Timec had filed its answer, Timec remained bound to withhold Mr. Pulliam’s wages for any pay period ending during the 30 days following service of the order.
See
Kan. Stat. Ann. § 61-2005(c) (1999). This is precisely the “continuation” of process stayed by § 362(a). Lewis & West simply had no reason to delay releasing the garnishment. It is no excuse that Lewis
&
West did not know the exact amount of post-petition wages that had been garnished from Mr. Pulliam’s рaycheck. Wages that Mr. Pulliam earned pre-petition were also property of the estate under § 541 in which the trustee could conceivably claim an interest.
See Fisher,
In holding that Lewis & West violated the automatic stay, the Court must determine what damages Mr. Pulliam sustained. To prevail under § 362(h), Mr. Pulliam must prove that Lewis
&
West action in failing to immediately release the garnishment was willful and that he incurred actual damages. The U.S. Court of Appeals for the Tenth Circuit has not defined “willful” for purposes of § 362(h), however, in
Diviney v. Nations-Bank of Texas (In re Diviney),
A “willful violation” does not require a specific intent to violate the automatic stay. Rather, the statute provides for damages upon a finding that the defendant knеw of the automatic stay and that the defendant’s actions which violated the stay were intentional. Whether the party believes in good faith that it had a right to the property is not relevant to whether the act was “willful” or whether compensation must be awarded.
Other Kansas bankruptcy courts have adopted this definition of “willful” when the automatic stay has been violated.
See In re Fisher,
Here it is undisputed that thе creditor knew of the inception of the stay and that the creditor intentionally allowed the garnishment to continue. The creditor’s “good faith” belief in its entitlement to some of debtor’s wages is not a defense to the creditor’s stay violation. The Court finds that Mr. Pulliam has proven by a preponderance of the evidence that Lewis & West willfully violated the stay when notice of Mr. Pulliam’s bankruptcy case was mailed to it around November 16, 2000, yet waited another month, until December 14, 2000, tо file the release.
See TranSouth Fin. Corp. v. Sharon (In re Sharon),
IT IS THEREFORE ORDERED THAT Lewis & West be held in contempt of court for violation of the automatic stay pursuant to 11 U.S.C. § 362(a) with sanctions awarded to debtor against Lewis & West in the amount of $300.00 attorney’s fees.