Friday, July 25, 2008

Fifth Circuit Answers Three Questions of First Impression on Violation of Automatic Stay

The Fifth Circuit answered at least three questions of first impression in a recent case regarding violation of the automatic stay. In re Repine, No. 06-20807 (5th Cir. 7/22/08).

The facts of this case sound straight out of a made for TV movie, including love gone bad, prison and a renegade lawyer. Ronald Repine was married to Elizabeth Pollard Repine. Although he had made as much as $147,000 per year at one point, he was unemployed during part of the period from 2001 to 2003. He managed to get behind on his child support to the extent of $22,859. The family court sentenced him to 180 days in jail for criminal contempt and also ordered that he be held in civil contempt indefinitely until he paid the past due support and paid $2,027 to his ex-wife’s attorney Patsy Young.

Shortly after being incarcerated, Ronald did what anyone would do: he filed for chapter 13 bankruptcy. Elizabeth then retained separate counsel to represent her in the bankruptcy. Notwithstanding the automatic stay, Elizabeth made a deal with Ronald to pay the back support and get him out of jail. Ronald agreed to deed his house to Elizabeth who would be allowed to sell it and apply the proceeds to the back child support. There was just one problem: the agreement did not provide for payment of Patsy’s attorney’s fees. Elizabeth’s bankruptcy lawyer came up with a practical solution. He obtained an order from the Bankruptcy Court allowing the transfer of the house to Elizabeth and for the proceeds to be applied to the child support debt, including attorney’s fees. The order also provided that any unpaid attorney’s fees would be paid under Ronald’s Chapter 13 plan.

Elizabeth complied with her part of the deal and asked that Ronald be released from jail. However, Patsy objected because she wanted to be paid her attorney’s fees. As a result, the family court denied the motion. Shortly thereafter, Ronald completed the criminal portion of his contempt sanction and started serving the civil contempt portion. Patsy refused to submit an agreed order for Ronald’s release unless she received certified checks for her attorney’s fees. Elizabeth and Ronald then went to Bankruptcy Court to enforce the agreed order. The Bankruptcy Court ordered Patsy to appear and show cause why she should not be held in contempt for violation of the automatic stay. Despite being served with the order by a U.S. Marshall, Patsy did not appear. As a result, the Bankruptcy Court caused a warrant to be issued and Patsy was taken into custody by the U.S. Marshall’s Service.

The Bankruptcy Court ordered Patsy released but told her to stop trying to collect her attorney’s fees. Undeterred, Patsy refused to submit the order providing for Ronald’s release. Because of Patsy’s actions, Ronald was unable to attend his father’s funeral. Finally, Patsy moved to withdraw from the family law case and Elizabeth’s bankruptcy counsel substituted in. Ronald was finally released after having served about six weeks of his civil contempt sentence.

Once he got out, Ronald filed a complaint for violation of the automatic stay against Patsy. The Bankruptcy Court awarded Ronald total damages of $27,280, including $4,400 for emotional distress and $5,000 in punitive damages plus $33,720. Thus, Patsy’s efforts to collect $2,027 in attorney’s fees caused her to incur liability of $61,000.

The Court of Appeals did not have any difficulty finding that the Bankruptcy Court’s determination that Patsy had violated the automatic stay should be affirmed. While child support may be collected from property which is not property of the estate, Patsy’s demand to be paid or else Ronald could not be released from jail did not distinguish between being paid from property of the estate or non-property of the estate. Patsy just wanted to get paid and she didn’t care where the money came from. Additionally, the Court of Appeals found that Patsy’s determined refusal to submit the order agreed to by her client extended the period of Ronald’s incarceration.

When it came to damages, the Fifth Circuit plowed new ground. Section 362(k) allows punitive damages in “appropriate circumstances,” a rather indefinite mandate. The Fifth Circuit had not previously decided what constituted “appropriate circumstances” to award punitive damages. It accepted the Eighth Circuit’s standard of “egregious intentional misconduct on the violator’s part” and found that Patsy met the standard. Ignoring the Bankruptcy Court's admonition to stop collecting as well as your own client’s wishes is enough to constitute egregious intentional misconduct.

Next, the Fifth Circuit had to consider whether damages for emotional distress could be awarded for a violation of the automatic stay. This was also an issue of first impression. The Court found that a debtor seeking to recover damages for emotional distress must set forth “specific information” rather than “generalized assertions.” The Court found that testimony that he was “very upset” at what his sons would think about him being incarcerated, that it was “very traumatic” to miss his father’s funeral and that he had dreams about missing his father’s funeral and worried about it when interacting with other people all fell within the category of “generalized assertions” which would not give rise to emotional distress. As a result, the Court vacated the award for emotional distress.

Finally, the Fifth Circuit considered whether fees incurred in prosecuting an action for violation of the automatic stay were recoverable as damages. This was also an issue of first impression. The Fifth Circuit agreed that fees incurred in prosecuting an action for violation of the stay were recoverable and rejected a requirement that there be proof that the fees incurred had actually been paid.

At the end of the day, all of the damages except for $4,400 in emotional distress were affirmed.

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