Radcliffe v. International Painters & Allied Trades Industry Pension Fund (In Re Radcliffe)Radcliffe v. International Painters & Allied Trades Industry Pension Fund (In Re Radcliffe)
MEMORANDUM OPINION AND ORDER
Appellee Barry G. Radcliffe owned and operated Glass Service, Inc. As part of a labor agreement, Glass Service contributed to a union pension fund. When the company became delinquent on its contributions in early 2004, Radcliffe signed a personal guarantee to pay Glass Service’s contributions should the company default again. Glass Service did default again, but Radcliffe turned out to be a four flusher; he didn’t stand behind his personal guaranty and so he stiffed the fund.
The Appellant, International Painters and Allied Trades Industry Pension Fund, sued Radcliffe for breach of contract and ultimately received a default judgment against him. Radcliffe promptly declared bankruptcy. But just before doing so, he completed a request for his own pension benefits from International. International agreed to pay Radcliffe’s benefits, but informed him that it would first withhold payment and apply the amounts withheld to the substantial debt Radcliffe owed International by virtue of defaulting on the contributions. Radcliffe’s counsel responded that doing so would violate the automatic stay that took effect upon Radcliffe’s filing for bankruptcy. International engaged in a little self help and withheld payment nonetheless. But it did nothing to clear its actions with the Bankruptcy Court. Radcliffe filed a complaint to en *885 force the automatic stay and the Bankruptcy Court ruled in his favor, ordering International to pay compensatory damages, interest, punitive damages, and attorneys fees. International now appeals. The bankruptcy judge did not abuse his discretion and so his decision is AFFIRMED.
BACKGROUND
Radcliffe owned Glass Service, Inc., which was party to a collective bargaining agreement with International. As part of that agreement, Glass Service was to make contributions to International, a multiem-ployer employee benefit pension plan. In early 2004, Glass Service became delinquent on its contributions. In May 2004, Radcliffe executed an installment promissory note as well as a personal guarantee committing to personally fulfill Glass Service’s contribution obligations should it default. The guarantee obliged Radcliffe to “pay all contributions, delinquencies and amounts specified in the [union contract], that [Glass Service] owes to [International]” should Glass Service become delinquent again. (DE 1-7 at 6 (quotation marks omitted).) 1 Under the guarantee, if Radcliffe failed to fulfill his obligations he would be “liable under the same terms, and to the same extent,” as Glass Service for both “contractual and statutory liabilities.” (Id. at 6.)
Glass Service apparently did default because on December 2004 International sued it and Radcliffe in federal court in Washington, D.C. In April of the following year, the D.C. court entered a default judgment in favor of International against the defendants. The “clear basis” of Radcliffe’s liability to International was his failure to fulfill the personal guarantee — it was not an assertion of a breach of fiduciary duty by Radcliffe. (Id.) There is nothing in the complaint or judgment that even remotely references a breach of fiduciary duty. Rather, it was simply a contract action based on the personal guarantee. (Id. at 6-7.)
One month after the default judgment, Glass Service closed its doors permanently. Thereafter, Radcliffe completed the paperwork to receive his own pension benefits from International. He first submitted an application for benefits in September. He then completed additional forms on October 6 and returned them to International on October 13. The very same day Radcliffe returned the forms to International — October 13, 2005 — he also filed a Chapter 7 bankruptcy petition. As part of his petition, Radcliffe listed International as a creditor with claims in the amount of $107,500.00.
On November 2, 2005, International sent Radcliffe a letter regarding his pension benefits. It informed Radcliffe that his application for benefits had been approved and that he was entitled to a monthly payment of $2,473.00, but that he would not be receiving payments until the $74,946.47 debt he owed International from the default judgment had been paid. Instead, International advised Radcliffe that it would be withholding his pension benefits and applying the amount of each payment to the debt he owed International. International expressly and unilaterally rejected the notion that using Radcliffe’s pension benefits to offset his debt was *886 barred by the automatic stay. Here’s what International told Radcliffe in its letter to him:
As you have an outstanding personal debt to the Pension Fund, your monthly pension benefits will be offset against your debt to the Pension Fund until such time as the judgment has been satisfied or you reach the age of 65. The offset of debts due International is allowed by Section 7.30(c) of the Pension Plan document and applicable case law. See, e.g., Coar v. Kazimir,990 F.2d 1413 (3d Cir.1993). As the debt exceeds the amount of your monthly benefit, you will not receive any actual payment. However, as the money is being applied directly for your benefit to reduce your indebtedness, the Pension Fund will report the pension payments that are offset to pay the judgment and the payments will be treated by the IRS as a pension benefit paid to you.
This is an initial determination by the Pension Plan concerning an offset of amounts you owe the Pension Plan and Annuity Plan against benefits due you. If you or any interested party disagree with this determination you or any interested party may file an appeal to the Trustees.... The appeal must be filed within 60 days of the date of this letter and should set forth reasons why you contend the Plans [sic] determinations are not permissible, including any documentation substantiating your claim.... This decision will become final and binding in the absence of a timely appeal.
We have received notice that you filed a Chapter 7 bankruptcy petition on October 13, 2005. We believe that pension assets are not property of the bankruptcy estate under the bankruptcy law. As a result, the offset of your pension benefits should not be affected by the bankruptcy. If you or your bankruptcy counsel believes otherwise, let us know and we will re-examine this issue.
0See DE 1-9 at 7-8 (emphasis in original).)
Radcliffe’s counsel responded to International’s letter a little more than a week later. (Id. at 10.) In her letter, Radcliffe’s counsel objected to International’s proposed setoff, noting that she “fail[ed] to understand how [International is] entitled to collect on a pre-petition debt in violation of the automatic stay that is now in effect.” (Id.) She then explained that Radcliffe would file a complaint if International did not provide an adequate legal basis for its action.
International ignored them; it didn’t respond to the letter nor did it seek relief from the automatic stay. Instead, it waited and forced Radcliffe to file an adversary complaint, which he did on December 7. (DE 1-7 at 9.) Although International requested relief from the stay in its answer to the complaint, (DE 1-10 at 3-4), it waited until May 31, 2006 to file a motion for relief, (DE 1-24).
The Bankruptcy Court entered its initial order in the adversary proceeding on March 14, 2007. (DE 1-16.) 2 It then reconsidered the order, and entered a new one on July 19, which constituted its findings of fact and conclusions of law under Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52(a). (DE 1-7 at 2.) The Bankruptcy Court consolidated the issues raised in the *887 adversary proceeding and the motion for relief from the stay and disposed of both in the July 19 order, which the Court expressly noted were “core proceedings” under 28 U.S.C. § 157(b)(2)(G) and (0). (Id. at 2.)
The Bankruptcy Court narrowed the issues presented to two: first, whether International violated the automatic stay by not paying Radcliffe his pension benefits; and second, if it did, should the automatic stay be retroactively annulled or modified to allow International to set off Radcliffe’s debts it. (Id. at 11.) 3 The Court concluded that International’s actions did violate the automatic stay, and that the stay should not be annulled. The Bankruptcy Court’s analysis of both questions involved a deeper question regarding International’s right to carry out a setoff under ERISA. (See id. at 14.) The Bankruptcy Court ultimately determined that International could not offset Radcliffe’s debt with his monthly pension benefits because that would violate ERISA’s anti-alienation provision. (See id. at 14-21.) Thus, the Court held that International had indeed violated the automatic stay and that it was not entitled to relief. The Court also determined that the violation was willful and awarded both compensatory and punitive damages.
International now appeals wide swaths of the Bankruptcy Court’s decision. It argues that Radcliffe lacks standing to enforce the automatic stay. It also asserts that the setoff is valid under ERISA, and even if it is not, International’s conduct did not amount to a willful violation of the automatic stay. In addition, International also contests both the Bankruptcy Court’s calculation of damages as well as its award of punitive damages.
The parties stipulated to the Bankruptcy Court’s jurisdiction over the adversary proceeding. (See DE 1-12 ¶ 29.) The Bankruptcy Court held that the issues presented in this case constituted core proceedings under 28 U.S.C. § 157(b), (see DE 1-7 at 2), but to the extent they are not, the Bankruptcy Court nevertheless had jurisdiction pursuant to Local Rule 200.1 because of the parties’ consent. This Court therefore has jurisdiction under 28 U.S.C. §§ 158,1881, and 1334.
DISCUSSION
The standard for review of bankruptcy court decisions depends upon the issue being reviewed. Findings of fact are upheld unless clearly erroneous, but legal conclusions are reviewed
de novo. Marrs-Winn Co., Inc. v. Giberson Elec., Inc. (In re Marrs-Winn),
In reviewing for abuse of discretion, this Court will reverse where a bankruptcy court’s “decision is premised on an incorrect legal principle or a clearly erroneous factual finding, or when the record contains no evidence on which the court
*888
rationally could have relied.”
In re Kmart Corp.,
As noted above, International takes issue with most of the Bankruptcy Court’s order. I will first address International’s standing arguments. I will then turn to whether International violated the automatic stay and, if so, whether the stay should be lifted. Finally, I will examine the appropriate damages.
I. STANDING
In deciding whether a party has standing to enforce an automatic stay, the Seventh Circuit generally relies upon the “pecuniary interest” rule.
Cult Awareness Network, Inc. v. Martino (In re Cult Awareness Network, Inc.),
Case law also supports standing to invoke a statute where the person invoking it is one whom the statute is intended to protect.
See In re Matter of James Wilson Assocs.,
II. WAS THERE A VIOLATION OF THE AUTOMATIC STAY?
An “automatic stay” takes effect immediately upon the filing of bankruptcy protection. 11 U.S.C. § 362(a).
See also
*889
In re Matter of Vitreous Steel Prods. Co.,
Radcliffe asserts, and the Bankruptcy Court found, that International’s conduct violated the provision of the stay in § 362(a)(6).
4
That section prohibits “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the [bankruptcy case].” 11 U.S.C. § 362(a)(6). It does not give the debtor a respite “from communication with creditors,” but only “from the threat of immediate action by creditors.”
In re Matter of Duke,
International did more than “communicate” with Radcliffe. It informed him that his “monthly pension benefits will be offset against [his] debt to the Pension Fund until such time as the judgment has been satisfied,” and it cited § 7.30(c) of the Plan and a Third Circuit case for authority to do so. (DE 1-9 at 7.) The letter went on to note that, even though Radcliffe had entered bankruptcy, International believed the threatened “offset of [his] pension benefits should not be affected by the bankruptcy” because the “pension assets are not property of the bankruptcy estate.” (Id. at 8.) There can be no doubt that this constitutes “an act to collect, assess, or recover a claim against” Radcliffe. It was not a mere communication, nor even a threat that International might use Radcliffe’s pension benefits to offset his debt. It was a clear statement that International was going to carry out the offset, regardless of the protections granted by the bankruptcy laws. More importantly, International did more than make statements of its intentions. It actually followed through and did not pay Radcliffe his benefits and did not seek the Bankruptcy Court’s approval before taking such action.
International asserts that its letter did not violate § 362(a)(6) because it was not coercive or harassing, (see DE 6 at 39), but that is tough to swallow. International held all the cards. It possessed Radcliffe’s pension benefits and it made a unilateral decision to not pay them. And it preemptively rejected the argument that the bankruptcy laws protected him. Then it chose not to seek court approval, leaving Radcliffe to fend for himself while it kept *890 his benefits. International did not need coercive or harassing rhetoric to coax the money out of Radcliffe; they had the money and planned on keeping it, effectively telling him to buzz off. Even if done politely, that is not permitted by § 362(a)(6). And while International would like to blame this situation on “Radcliffe’s litigious bent,” (DE 6 at 49), that ignores the fact that International put Radcliffe in this position by ignoring the bankruptcy laws.
International defends its actions by arguing that, first, the Bankruptcy Code does not restrict its right to offset Radcliffe’s debt, and second, that it simply undertook an “administrative freeze” of Radcliffe’s payments, which does not violate the automatic stay. (See DE 6 at 40-41.) The first is just incorrect; the second is a stretch.
As a general rule, the Bankruptcy Code does not restrict the substantive right to offset debt.
See U.S. v. Maxwell,
International points to
Citizens Bank of Maryland v. Strumpf,
However, this does not necessarily answer International’s contention that its “[a]etion simply maintains the status quo pending judicial action on the setoff’ and is “consistent with the Bankruptcy Code and does not constitute a violation of the automatic stay” even if a court ultimately determines that the “hold and offset claim were invalid.” (DE 6 at 41-42.) But a comparison of the facts here with the facts in
Strumpf
answers that argument. In
Strumpf,
a creditor temporarily withheld payment of a debt that it owed a bankrupt debtor.
In contrast, here International
expressly
stated that it was going to withhold payments and that it was going to do so
despite
the bankruptcy case because it did not believe the bankruptcy laws applied to it.
(See
DE 1-9 at 7-8.) Then International refused to seek relief from the Bankruptcy Court until after Radcliffe filed his complaint. In fact, International did not actively seek relief from the Bankruptcy Court until approximately six months later, and then only after prompt
*891
ing from the Bankruptcy Court.
(See
DE 1-7 at 13.) But even generously construing International’s answer as sufficient to seek relief from the stay, that answer came two months after International’s letter announcing its intent and well after International had missed its first payment to Radcliffe, and even then it was still in
response
to Radeliffe’s complaint. Quite simply, International’s conduct reveals that it was not temporarily withholding payment so that it could seek court approval.
See In re Orr,
Nothing in
In re Laux,
The next question is whether International’s violation of the automatic stay was willful. Section 362(h) only provides for damages for “willful” violations of the automatic stay. 11 U.S.C. § 362(h). “A ‘willful violation’ [of § 362(h) ] does not require a specific intent to violate the automatic stay.”
Price v. U.S. (In re
Price),
Here International has used its unique position as the holder of both Radeliffe’s debt and his pension payments to make sure that its debt would be paid. While International’s conduct might not have been at the expense of other creditors, that is for the Bankruptcy Court&emdash;not International&emdash;to decide. See 11 U.S.C. § 362(d). Simply reading through International’s November 2 letter leaves little doubt that the Bankruptcy Court was correct in deciding that International willfully violated § 362(a)(6). International was not only aware of Radeliffe’s bankruptcy proceeding, it considered and rejected the notion that it was constrained by the automatic stay. (See DE 1-9 at 8.)
*892
Even if there were any question, Radcliffe’s November 11 response also notified International of the bankruptcy proceeding and objected to International’s plan. International argues that its November 2 letter “simply explained the basis of its claim for a setoff and the mechanics of the setoff with an invitation to informal discussion or formal appeal to resolve any contrary claims,” and that Radcliffe’s response declined to appeal after “providing] no substantive theory to entitle him to actual payment.” (DE 6 at 39.) That reading is not very sensible; but it is beside the point anyway. International was fully aware of the bankruptcy proceeding — both when it wrote the letter advising that it intended to carry out the setoff and later when it withheld payment without seeking relief from the Bankruptcy Court. Under Seventh Circuit precedent, International acted willfully. It may very well be that International believed in good faith that the automatic stay did not prohibit its actions,
(see
DE 6 at 44-46), but a good faith belief in one’s position is not relevant to a determination of whether the violation was willful.
Fleet Mortgage Group, Inc. v. Kaneb,
III. WHETHER TO GRANT RELIEF FROM THE AUTOMATIC STAY
Having decided that International violated § 362(a)(6), the next question for the Bankruptcy Court was whether to grant International relief from the automatic stay. To decide that question, the Bankruptcy Court looked to ERISA to determine whether International even had a right to divert Radcliffe’s benefits to offset his debt. (See DE 1-7 at 14.) It held that ERISA did not permit International to setoff Radcliffe’s debt and, as a result, denied International’s request for relief from the automatic stay. (Id. at 20-21.)
I review the Bankruptcy Court’s decision regarding relief from the automatic stay for abuse of discretion.
See, e.g., Meyer Med.,
In reviewing the Bankruptcy Court’s decision, I will first provide some background regarding ERISA and its anti-alienation provision. Second, I examine International’s argument that its action was, in fact, neither a setoff nor an alienation. I then turn to International’s argument that its setoff is exempt from the anti-alienation provision. Finally, I address International’s argument that it is merely invoking a contractual remedy as is permitted by the Seventh Circuit’s decision in
Northcutt v. General Motors Hourly-Rate Employees Pension Plan,
A. ERISA And The Anti-Alienation Provision
ERISA is a comprehensive statutory scheme designed to safeguard
*893
employment benefits. “The principal object of the statute is to protect plan participants and beneficiaries.”
Boggs v. Boggs,
One of ERISA’s protections is the so-called anti-alienation provision, which states that “[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” 29 U.S.C. § 1056(d)(1). The provision reflects a Congressional judgment to safeguard a stream of income for pensioners and their dependants even if that policy choice prevents others from securing relief for wrongs done them.
Guidry v. Sheet Metal Workers Nat’l Pension Fund,
The “anti-alienation provision is mandatory and contains only two explicit exceptions,” which are contained in §§ 1056(d)(4) and (d)(3)(A),
Boggs,
B. Whether International Seeks A Setoff Or Alienation Under § 1056
As an initial matter I must decide whether what International sought to do was even a setoff or alienation under § 1056 in the first place. International answers the question “no” because the payments are only between the ERISA-covered plan and its beneficiary, as opposed to one that also includes a third party.
{See, e.g.,
DE 6 at 38.) It contends—relying on
Coar v. Kazimir,
First, the Third Circuit has expressly limited the reach of
Coar.
The court has since noted that
Coar
was based on the pre-1997 amendment language in § 1056(d), which it held conflicted with a statutory right to recover for a breach of a fiduciary duty.
See Martorana v. Bd. of Trs. of Steamfitters Local Union 420 Health, Welfare & Pension Fund,
Second, a straight-forward reading of § 1056(d)’s post-1997 amendment prohibition on alienation is not limited to setoffs in favor of third parties. There is nothing within subsection (d)(1) suggesting the prohibition is so limited. See 29 U.S.C. § 1056(d)(1) (“Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.”). Moreover, other provisions of the same section provide that alienation of certain amounts, which are retained by the pension plan, do not violate (d)(1). See 29 U.S.C. § 1056(d)(2) (expressly allowing “assignment or alienation made for the purpose of defraying plan administration costs”).
Similarly, International’s reliance on “authoritative governmental agencies,” which it claims “have concluded that the recovery of debts is simply an accounting measure” rather than an alienation, is misplaced. (DE 6 at 31.) Under International’s theory, “a person who owes the plan money is simply treated as having been paid in advance and is not entitled to payment until there is a net balance from the Plan.”
(Id.
at 31-32.) But the two agencies upon which International relies state this position with respect to recovery of benefit
overpayments. See
Dept, of Labor ERISA Op. No. 77-08,
What these regulations are getting at is the following situation: suppose a plan overpaid a beneficiary by $100 a month for two years. The plan would be out $2400 in this scenario. It would not be an offset to withhold future payments until the $2400 was paid off since this would merely be a recoupment of overpayments. But that’s not at all what International sought to do here. International wasn’t recouping an overpayment; it never overpaid Radcliffe in the first place. So what International did plainly amounts to an offset under § 1056(d).
C. Exemption Under § 1056(d)(4)
Section 1056(d)(4) exempts certain offsets from its ban on alienation. International claims that what it was attempting to do falls within the exemption, and so that is what I explore next. Here is the pertinent language from the statute:
[The prohibition on alienation] shall not apply to any offset of a participant’s benefits provided under an employee pension benefit plan against an amount that the participant is ordered or required to pay to the plan if—
(A) the order or requirement to pay arises—
(i) under a judgment of conviction for a crime involving such plan,
[or]
(ii) under a civil judgment (including a consent order to decree) entered by a court in an action brought in connection with a violation (or alleged violation) of part 4 of this subtitle [section 1101 et seq. of this title] ... [and]
(B) the judgment, order, decree, or settlement agreement expressly provides for the offset of all or part of the *895 amount ordered or required to be paid to the plan against the participant’s benefits provided under the plan....
29 U.S.C. § 1056(d)(4).
Radcliffe was not convicted of a crime involving International. Nor does the D.C. default judgment “expressly provide for the offset.” Thus, as a straight-forward matter of statutory interpretation, International does not meet the requirements for the § 1056(d)(4) exemption.
International nevertheless argues that “[t]he case law uniformly allows such offsets and has rejected claims that [setoffs] violate[ ] the anti-assignment rule.” (DE 6 at 30-31.) But the cases upon which International relies all involved either an overpayment or a breach of a fiduciary duty. Indeed, in the case International relied upon in its November 2 letter,
Coar v. Kazimir,
the plan beneficiary had been both convicted of a RICO conspiracy regarding his administration of the fund and found civilly liable for a breach of his fiduciary duties to the tune of $25 million.
In this case, there was no allegation that Radcliffe breached his fiduciary duty to International in the D.C. complaint; instead, it essentially stated a breach of contract claim against him. (See DE 1-27 at 2-13.) And the D.C. default judgment is devoid of any reference to Radeliffe’s alleged fiduciary duty. (See DE 1-28 at 3-5.) In short, the default judgment giving rise to Radeliffe’s debt did not meet the requirements of subsection (A)(ii).
International counters by arguing “that the debt was substantively a fiduciary debt under the principles that would have been asserted in the absence of the settlement with the personal guaranty,” and that therefore holding that it is not a debt arising from a breach of a fiduciary duty exalts form over substance. (DE 6 at 16 n. 5; see also 32 n. 13.) But this argument is blocked by the plain language of § 1056(d)(4)(A)(ii), which requires a civil judgment based upon a violation of part 4 of the subtitle. And even if International’s complaint did concern a breach of Rad-eliffe’s fiduciary duty (which it plainly did not) it would still lack the requisite language in the default judgment order to satisfy (A)(ii).
At bottom, I am not going to evaluate claims International might have had against Radcliffe but chose not to bring. The question before me is simply whether the Bankruptcy Court abused its discretion by not granting International relief from the automatic stay. It would be senseless to apply the exemption under § 1056(d)(4)(A)(ii) based on possible claims that International asserts it might have brought instead of evaluating the claim it actually did assert.
In sum, what International did was an alienation of Radeliffe’s funds. And International’s actions did not fall within the exemption to that rule. The Bankruptcy Court was therefore correct in holding that International was not entitled to relief from the automatic stay.
D. Contractual Recoupment Of Overpayment In Northcutt
Having no other avenue to avoid the anti-alienation provision, International raises a new argument on appeal which concerns a 2006 Seventh Circuit decision, which it says “was missed by the parties and Bankruptcy Court ... but is controlling authority that rejects the Bankruptcy Court’s holding and judgment.” (DE 6 at
*896
21-22 (citing
Northcutt,
As an initial matter, International waived this argument by not raising it in the bankruptcy court. See
In re Matter of Geraci
Northcutt
involved a pension plan’s right to recoup an overpayment.
The Seventh Circuit held that the contractual provision for recoupment of an overpayment was permitted under ERISA. The Seventh Circuit noted that prior Supreme Court cases, such as
Great-West,
As discussed earlier, International does not seek to invoke a contractual remedy to recoup an overpayment. As International explained in its November 2 letter to Radcliffe, it is attempting to invoke § 7.30(c) of the pension plan contract. (See DE 1-9 at 7.) That section provides that the plan’s benefits may not be assigned or alienated except:
the prohibition on assignment and alienation shall not apply to an offset or other recovery by the Plan, pursuant to a criminal conviction, civil judgment, or settlement agreement as provided in IRC 401(a)(13)(C) and (D). Unless prohibited by law, the remedy in IRC 401(a)(13)(C) and (D) shall not preclude any other or greater right of offset or recovery by the Plan allowed by ERISA or its common law.
(DE 1-31 at 1.) This section makes no reference to recouping overpayments; it is simply a restatement of the law under 29
*897
U.S.C. § 1056(d)(4). Section 401(a)(13)(C) and (D) of the Internal Revenue Code are likewise restatements of § 1056(d)(4). Thus, unlike the contractual provision in
Northcutt,
§ 7.30(c) is not a contractual provision for the recoupment of overpaid benefits. So payment here would not further ERISA’s “great concern ... to ensure the integrity of written plans, and to enforce them as written.”
Northcutt,
Even if the plan documents permit, as International argues, International to “offset future benefits by any overpayments or other amounts [Radcliffe] owe[s] the Plan,” (DE 6 at 26 (quotation marks omitted)), International has not overpaid Radcliffe. All of the cases cited by International involved a situation where the plan overpaid the beneficiary and then later sought re-coupment. Unlike in those cases, including
Northcutt,
International did not pay Radcliffe a benefit that was later determined to be one to which he was not entitled.
See Northcutt,
In sum, International is not seeking to
recoup
benefits it has already paid out; it is seeking to obtain the contributions Radcliffe owes International via a distinct contract. Therefore,
Northcutt
is not controlling. As noted above, ERISA prohibits setoffs except in certain, very specific situations. That provision “reflects a considered congressional policy choice, a decision to safeguard a stream of income for pensioners ... even if that decision prevents others from securing relief for the wrongs done them.”
Guidry,
IY. DAMAGES
Having determined that International violated the automatic stay and is not entitled to retroactive relief from it, the next issue is damages. International disputes the Bankruptcy Court’s calculation. The Bankruptcy Court held International liable for compensatory damages in the amount of pension benefits withheld between September 2005 and January 2006 plus interest, attorney’s fees, and $10,000 in punitive damages. (DE 1-7 at 31-32.) A bankruptcy court is empowered to award these types of damages to enforce the automatic stay under § 362(h). But International now challenges the Bankruptcy Court’s calculation.
In a rather lengthy, substantive footnote, International asserts the Bankruptcy Court erred in its calculation of both the amounts owed to Radcliffe and the interest rate to be applied to those amounts.
(See
DE 6 at 49-50 n. 16.) First, International argues that the Bankruptcy Court erroneously included the monthly benefit payments for the months of September and October 2005.
(Id.)
It contends that, had it made those payments on time, the cash from those payments would have become property of the estate when Radcliffe filed for bankruptcy on October 13, 2005.
(Id.)
The problem with this argument is that we are not dealing
*898
with cash that was in the estate at the time Radcliffe filed for bankruptcy. Instead, we are dealing with a right to payment that Radcliffe possesses via his pension. The right to payment under ERISA is not part of the bankruptcy estate.
See Patterson,
International next argues that the Bankruptcy Court used an incorrect interest rate to calculate the amount of interest due Radcliffe on the compensatory damages.
{See
DE 6 at 49-50 n. 16.) According to International, if it owes Radcliffe any payment, it is by virtue of ERISA and therefore the amount should be subject to the interest rates governing delayed ERISA payments rather than the higher rate for bankruptcy payments.
{Id.)
International’s argument forgets the posture of this case. Radcliffe did not file a complaint under ERISA; he filed an adversary complaint in bankruptcy. The Bankruptcy Judge held that International violated § 362(a)(6) under
bankruptcy
law. The Bankruptcy Judge then referred to ERISA to determine whether to grant International relief from the automatic stay, again under bankruptcy law. The Bankruptcy Judge’s reference to ERISA did not transform this ease into an ERISA one; it is still an adversary complaint in bankruptcy and therefore subject to the interest rates provided by the bankruptcy regime. The Seventh Circuit generally uses the prime rate, like the Bankruptcy Court did here, to calculate prejudgment interest.
See First Nat’l Bank of Chi. v. Standard Bank & Trust,
As for the award of punitive damages, International claims that such awards should be reserved for conduct with “a malevolent intent or a clear disregard and disrespect of the bankruptcy laws,” and that they are not appropriate for conduct that is only “deliberate.” (DE 6 at 50-51 (quoting
Vazquez v. Sears, Roebuck & Co. (In re
Vazquez),
I have not found a definitive articulation in the Seventh Circuit of the standard of review for an award of punitive damages under § 362(h). Most other courts have applied some version of a highly deferential review.
See, e.g., Knupfer v. Lindblade (In re Dyer),
I conclude that my review of the Bankruptcy Court’s award of punitive damages here should be deferential. This conclusion is primarily based on the text of the statute itself. It provides that the “individual injured by any willful violation of [the automatic stay] ... in appropriate circumstances, may recover punitive damages.” 11 U.S.C. § 362(h) (emphasis added). The italicized language grants the bankruptcy court significant discretion in the award of punitive damages. That, in combination with the deferential review generally given to a bankruptcy court’s determinations regarding relief from the automatic stay, convinces me that the “abuse of discretion” standard used in the cases mentioned above is appropriate.
The Bankruptcy Court found that, in the face of the automatic stay that International knew was in effect, International chose to do nothing to clear its proposed setoff with the Bankruptcy Court because it had a theory about the applicability of the stay. (DE 1-7 at 28-30.) Indeed, the Bankruptcy Court concluded that this autocratic decision was “egregious” and “cavalier” and “require[d] deterrence.” (Id. at 30 (quotation marks omitted).) According to Judge Klingeberger, International forced Radcliffe to take the initiative, convincing him that “if Radcliffe had not filed this adversary proceeding, International would have undertaken no affirmative action whatsoever to seek relief from the stay.” (Id. at 30.)
International’s decision to ignore the stay and force Radcliffe to take action required punishment in Judge Klingeber-ger’s view. Hence the award of punitive damages in the sum of $10,000. It’s a bit ironic that the person who stiffed the fund would be allowed to not only receive his own benefits but be rewarded with a $10,000 windfall to boot. But Judge Klin-geberger balanced that concern against the need for deterrence and concluded that deterrence was necessary for those who willfully violate the stay. While I may have arrived at a different conclusion as it relates to punitive damages had I been deciding the case in the first instance, Judge Klingeberger’s decision was well within the bounds of the discretion vested in him under § 362(h).
CONCLUSION
The Bankruptcy Court’s July 19, 2007 Order is AFFIRMED.
SO ORDERED.
Notes
. For clarity, the Court will refer to the docket entries rather than the titles of the various documents contained in those entries, with paragraph or page citations when necessary. Where the citation refers to attachments or exhibits for the entry, the specific document is denoted by a hyphenated suffix. The suffix indicates the specific document within the general docket number (t.e., “DE 1- — ”), and is followed by the page or paragraph citation if required.
. The Bankruptcy Court issued an order of discharge in Radcliffe’s bankruptcy proceeding on January 30, 2006, (DE 1-23), and thus the automatic stay ceased on that day, see 11 U.S.C. § 362(c)(2)(C). But it was replaced with the post-discharge injunction. See 11 U.S.C. § 524(a)(2). There is no claim that the post-discharge injunction has been violated. (See DE 1-7 at 10.)
. The Bankruptcy Court correctly pointed out that, because Radcliffe filed for bankruptcy protection on October 13, 2005, the case is governed by pre-BAPCPA law. (DE 1-7 at 2 n. 3.) As a result, § 362(h), the pre-BAPCPA statutory designation, governs this case. (See id.)
. The Bankruptcy Court held that International’s actions did not violate § 362(a)(7), which specifically prohibits “the setoff of debt” owed by the debtor. (See DE 1-7 at 21.) Because this Court agrees that International’s conduct violated § 362(a)(6), it need not discuss the Bankruptcy Court's decision with respect to § 362(a)(7).
. Contrary to International’s contentions, the Bankruptcy Court did not venture out of its jurisdiction in deciding not to grant relief from the automatic stay. (See DE 6 at 15-17.) It was completely within the Bankruptcy Court's jurisdiction — and discretion — to grant or deny relief from the stay. It simply (and wisely) chose to examine ERISA law in making that determination.