Roche v. Pep Boys, Inc. (In Re Roche)Roche v. Pep Boys, Inc. (In Re Roche)
ORDER DENYING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND GRANTING PLAINTIFF’S CROSS MOTION FOR SUMMARY JUDGMENT
This above-referenced adversary proceeding is before the Court on a Motion
The principal issue before the Court is to determine whether a judgment creditor and/or its attorney is in willful violation of the automatic stay by staying but not releasing a bank garnishment filed pre-petition, despite repeated requests from the debtor. For the reasons stated herein, the Court finds that Defendant Pep Boys’ failure to dismiss the garnishment in conjunction with the failure to seek adequate protection within a reasonable time period, constitutes a willful violation of the automatic stay. Since Plaintiff has not submitted any evidence with respect to damages, that matter will be set for evidentiary hearing.
FACTS
On May 19, 2003, Pep Boys obtained a judgment against Roche Auto Care, Inc. and Juliana Roche, Guarantor. (Pep Boys, Inc., f/k/a Pep Auto Supply Company v. Roche Auto Care, Inc. and Juliana Roche, Guarantor, State Court of Cobb County, Georgia, Civil Action File No. 03-A-1956). In accordance with O.C.G.A. § 18-4-20, a Summons of Garnishment was served upon Lockheed Georgia Employees Federal Credit Union on January 31, 2005. (Case No.2005G 154, State Court of Cobb County).
On February 24, 2005, Plaintiff, and her spouse, Daniel Roche, filed a Chapter 13 case in this Court. On Schedule B, Plaintiff disclosed an interest in a joint checking account with her son at Lockheed Federal Credit Union in Smyrna, Georgia with a value of $497.57. The entire proceeds of the checking account were claimed as exempt pursuant to O.C.G.A. § 44-13-100(6) & (1) on Schedule C of the petition. The balance of the subject account at the time of garnishment was $443.63. When Plaintiff filed for Chapter 13 relief, the garnished funds had not yet been remitted to Pep Boys, but the lien of Pep Boys had attached upon the service of the summons of garnishment. See O.C.G.A. § 18-4-20.
On February 25, 2005, the day after the filing of the petition, Christina Kaiden, counsel for Plaintiff, wrote and faxed a letter to both James W. Martin, counsel for Defendants, and to Pam Johnson, a representative of Lockheed Georgia Employees Federal Credit Union, informing them that a bankruptcy petition had been filed on behalf of Plaintiff and therefore Plaintiff was protected by the automatic stay of 11 U.S.C. § 362(a). Ms. Kaiden requested in writing the immediate dismissal of the bank garnishment. Also on February 25th, Ms. Kaiden filed a “Notice of United States Bankruptcy Court Automatic Stay” in the State Court of Cobb County garnishment proceeding.
On February 28, 2005, Mr. Martin faxed a response to Ms. Kaiden thanking her for providing notice of Plaintiffs Chapter 13 petition and informing her that it was his contention that the garnishee is required to hold on to any funds currently in its possession pending the disposition of the
On March 22, 2005, Plaintiff commenced this adversary proceeding by filing a complaint which included three claims against the Defendants: Claim One requested an emergency turnover of property and release of the garnishment that had been placed against Plaintiffs checking account; Claim Two requested damages for Defendants’ willful violation of the automatic stay due to the fact that the Defendants failed to immediately release the garnishment upon learning about the filing of the bankruptcy petition; and Claim Three, 1 sought damages due to alleged violations of the Fair Debt Collection Practices Act (15 U.S.C. § 1692 et. seq.) specifically against Defendant Simpson Law Offices, LLP. Count Three was voluntarily dismissed by Plaintiff on March 29, 2005. The factual allegations of Claims One and Two do not distinguish between the actions of Defendants. Indeed, there is no allegation that Simpson took any action other than in its capacity as counsel to Pep Boys. Defendants are represented by the same attorney (Simpson). Defendants filed a joint answer and all other pleadings have been filed jointly and do not seek to distinguish between the two defendants.
On March 24, 2005, Plaintiff filed an Emergency Motion for Turnover of Property and Release of Checking Account Garnishment. Pursuant to Plaintiffs request for an emergency hearing on the matter, a hearing was held before the undersigned on March 29, 2005. On March 30, 2005, an Order was entered memorializing the oral ruling of the Court which gave Defendants forty-eight hours to dismiss the garnishment or face contempt. Pursuant to the direction of the Court, the Cobb County garnishment action was dismissed on March 29, 2005.
On April 21, 2005, Defendants filed a Motion to Dismiss Pursuant to Fed. R. Bank. P. 7012(b)(6) and included in the supporting materials a Statement of Undisputed Material Facts. Plaintiff filed a timely response and the Court entered an Order which construed Defendants’ motion to dismiss as a motion for summary judgment and provided the parties additional time to supplement their pleadings accordingly.
The legal issue before the Court is whether Defendants, by staying but not dismissing or taking any other action pertaining to the pending garnishment against Plaintiff, committed a wilful violation of the automatic stay and, if so, whether Plaintiff has suffered any actual damages.
STANDARD FOR SUMMARY JUDGMENT
Rule 56(c) of the Federal Rules of Civil Procedure, applicable herein by Rule 7056 of the Federal Rules of Bankruptcy Procedure, provides that summary judgment shall be rendered “if the pleadings, depositions, answers to interrogatories, and ad
LEGAL ANALYSIS
The legal issue presented before the Court involves a three part analysis: first, whether Defendants’ failure to dismiss a pre-petition bank garnishment violated the automatic stay; second, if a violation is established, whether Defendants’ refusal to take any steps to affirmatively release the garnishment constitutes a willful violation as set forth under section 362(h) of the Bankruptcy Code; and third, whether Plaintiff suffered damages as a consequence of the violation. Each element is discussed in turn.
1. Violation of the Automatic Stay
The automatic stay goes into effect upon the filing of a bankruptcy petition, prohibiting certain actions against the debtor or property of the bankruptcy estate. 11 U.S.C. § 362(a).
11 U.S.C. § 362(a) provides in pertinent part:
(a) [A] petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of-
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor ...;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate; [and]
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title[.]
11 U.S.C. § 362(a).
Under 11 U.S.C. § 541(a)(1), the commencement of a case under Title 11 creates an estate comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” In
United States v. Whiting Pools, Inc.,
The automatic stay is designed to provide blanket relief from creditor action against estate property once the bankruptcy case has commenced. The automatic stay is considered “one of the fundamental debtor protections provided by the bankruptcy laws.”
Midlantic Nat’l Bank v. New Jersey Dep’t. of Environmental Protection,
The responsibility is placed on the creditor because “to place the onus on the debtor ... to take affirmative legal steps to recover property seized in violation of the automatic stay would subject the debt- or to the financial pressures the automatic stay was designed to temporarily abate, and render the breathing spell from his creditors illusory.”
In re McCall-Pruitt,
The act of garnishment falls within the prohibitions of § 362(a) as the continuation of a judicial proceeding prohibited by § 362(a)(1) and the enforcement, against property of the estate, of a judgment obtained before the commencement of the case prohibited by § 362(a)(2).
See In re See,
Defendants argue that by ordering them to release the garnished funds to Plaintiff this Court has ignored the decision by the United States Supreme Court in
Citizens Bank v. Strumpf,
Placing an affirmative duty on pre-petition garnishing creditors is consonant with the application of the automatic stay as to other secured creditors. A creditor’s right to adequate protection must be balanced with an orderly administration of a bankruptcy estate. Creditors may protect their interest by seeking relief from the stay. They may not continue to actively or passively assert control indefinitely over estate property once they are notified of the automatic stay. Once given notice, creditors must cease collection activities against the debtor and seek to enforce rights to adequate protection through the courts. Here, the Defendants could have taken measures to protect themselves by immediately seeking relief from the court. By refusing Plaintiffs repeated requests for release of the garnishment and by taking no action of their own, Defendants took the decision-making process into their own hands rather than allowing the court to balance Plaintiffs rights in the property against the Defendants’ lien rights.
The situation in this case can be analogized to the secured creditor who has a lien on a debtor’s vehicle and, prior to the filing of the bankruptcy, has repossessed the vehicle. Upon the filing of the bankruptcy case and receipt of notice, the creditor is in violation of the automatic stay if it does not promptly turn over the vehicle or move the court to prohibit, limit or condition the use of the vehicle under 11 U.S.C. § 363(e).
Rutherford v. Auto Cash, Inc. (In re Rutherford),
2. Willful Violation of the Automatic Stay
Section 362(h) provides that “[a]n individual injured by any willful violation of stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” An act is deemed to be a willful violation under 362(h) if the defendant knew of the automatic stay, and intentionally committed the act regardless of whether the violator specifically intended to violate the stay.
Jove Eng’g v. IRS,
When a creditor receives actual notice of the filing of a case, the burden is on the creditor to ensure that the automatic stay is not violated.
Mitchell Constr. Co. v. Smith (In re Smith),
Similar fact patterns have been found sufficient to support automatic stay violations. In
In re Klein,
Recently reported opinions from the Bankruptcy Court in the Eastern District of New York reach the same conclusion. In
In re Parry,
Where a garnishment lien holder has notice of the automatic stay, courts have consistently found that a creditor willfully violates the stay by failing to release that garnishment. While most reported decisions address situations where violators continue a garnishment against a debtor’s wages
(see In re Briskey,
3. Damages
If an individual is injured by a willful violation of the automatic stay, she is entitled to “actual damages, including costs and attorneys’ fees.” 11 U.S.C. § 362(h). When damages are sought under § 362(h) for violation of the automatic stay, the party seeking damages bears the burden of proof.
Lamar v. Mitsubishi Motors Credit of Am., Inc. (In re Lamar),
Punitive damages are authorized under § 362(h), but only in “appropriate circumstances.” “[E]gregious, intentional misconduct on the violator’s part is necessary to support a punitive damages award.”
In re Ketelsen,
The imposition of punitive damages for a violation of the automatic stay is appropriate when the violator acts in an egregious intentional manner.
In re Hedetneimi,
As noted above, most of the cases involving garnishments and stay violations arise in the context of wage garnishments where the continuing nature of the garnishment will impact post-petition property as to which the garnishing creditor has no lien rights. In the context of the garnishment of a bank account, the creditor has a lien on property of the estate which constitutes cash collateral. While the lien may be avoidable (as was the lien held by Pep Boys in this case), until the Debtor
ORDERED that Defendants’ Motion for Summary Judgment is hereby DENIED and Plaintiffs Cross-Motion for Summary Judgment is hereby GRANTED.
IT IS FURTHER ORDERED AND NOTICE IS GIVEN that an evidentiary hearing on the amount actual damages suffered by Plaintiff shall be held before the undersigned on February 3, 2006 at 11:00 a.m., in Courtroom 1201, United States Bankruptcy Court, 75 Spring Street SW., Atlanta, Georgia 30303. The parties are directed to submit an original and two copies of any exhibits to be used at the hearing to the Courtroom Deputy no later than three (3) days in advance of the hearing.
IT IS SO ORDERED.
Notes
. Claim Three contained four separate "Counts” against Defendant Simpson only.