Bankruptcy reform has changed the placement of the remedy provision for cases filed after October 17, 2005 from 11 U.S.C. § 362(h) to § 362(k) with some minor revisions that do not much apply. But, there is still a good deal of confusion in the law as to whether a Chapter 13 trustee owns a private cause of action of a debtor which arises under these provisions pursuant to estate issues of 11 U.S.C. § 1306. The case law would suggest not for the simple reason that Congress carved out of the Bankruptcy Code a private cause of action that appears to belong to a debtor (and possibly a creditor), but never a trustee.
For purposes of clarity, however, 11 U.S.C. § 362(h) reads: “An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages”. (Emphasis added). The 5th Circuit has stated that this provision constitutes a “private cause of action” and constitutes a “private remedy”, and relevant court decisions state that a trustee cannot bring or recover damages under this provision. Pettitt v. Baker, 876 F.2d 456 (5th Cir. 1989).
Pettitt v. Baker, Id., concluded that 11 U.S.C. § 362(h) created both a “private cause of action” and a “private remedy” that belonged to a debtor. The 5th Circuit overruled the lower courts by specifically ruling that debtors do, in fact, have a private cause of action and remedy under § 362(h). The 5th Circuit stated in pertinent part:
“We are cognizant that there are scant primary or secondary authorities applying or discussing the relatively new subsection (h). Nor is there a plethora of enlightening references in the relevant legislative history. We do not consider such essential, however, to today's task. To hold that 11 U.S.C. § 362(h) does not create a private right of action would require us to ignore its plain and express language. As we read that language, we cannot but conclude that Congress established a remedy for an individual injured by a willful violation of a section 362(a) stay”. Id. at 457-459. (Emphasis added).
Also see, Matter of Pointer, 952 F.2d 82, 86 (5th Cir. 1992) (we held that § 362(h) creates a private right of action for one (there, the debtor)); In re Joubert, 411 F.3d 452, 456 (3rd Cir. 2005) (Congress's choice in § 362(h) to create private causes of action for violations of bankruptcy stays); Smith v. Keycorp Mortg., Inc., 151 B.R. 870, 875 (N.D.Ill. 1993) (The Bankruptcy Code is a comprehensive system….When Congress wanted to provide a private cause of action under the Bankruptcy Code, it did so expressly); In Re Hutchinson, 211 B.R. 325, 329 (E.D.Ark. 1997) (It is well settled, despite the unsupported assertions of the defendants, that a debtor has the right to plead causes of action for violations of the automatic stay, and recover the appropriate damages); In re Gullett, 230 B.R. 321, 331 (S.D.Tex. 1999) (Section 362(h) creates a private right of action for a debtor); In re Reyes, 238 B.R. 507, 518 (R.I. 1999) (Congress explicitly created private causes of action to enforce certain provisions of the Code, such as Section 362(h)), for a few similar cases and conclusions relied upon).
Further, in reading relevant court rulings, there is the real impression that a Chapter 13 trustee lacks standing to bring or pursue a claim under 11 U.S.C. § 362(h), leaving this matter to the exclusive province of the debtor in most cases. Although, the 5th Circuit Court of Appeals has not ruled exclusively on whether a Chapter 13 trustee has standing, it has discussed the constitutional issue of standing in regard to § 362(h) as it concerns a creditor, and it has done so in a way that would seem to exclude such a right as to a Chapter 13 trustee. In The Matter of Pointer, supra, at 85, the 5th Circuit in reviewing the relevant United States Supreme Court decisions concerning Article III constitutional standing as well as non-Constitutional prudential standing, stated:
“The constitutional limits on standing eliminate claims in which the plaintiff has failed to make out a case or controversy between himself and the defendant. In order to satisfy Art. III, the plaintiff must show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant. Otherwise, the exercise of federal jurisdiction "would be gratuitous and thus inconsistent with the Art. III limitation." Even when a case falls within these constitutional boundaries, a plaintiff may still lack standing under the prudential principles by which the judiciary seeks to avoid deciding questions of broad social import where no individual rights would be vindicated and to limit access to the federal courts to those litigants best suited to assert a particular claim.... Congress may, by legislation, expand standing to the full extent permitted by Art. III, thus permitting litigation by one "who otherwise would be barred by prudential standing rules." In no event, however, may Congress abrogate the Art. III minima: A plaintiff must always have suffered "a distinct and palpable injury to himself," that is likely to be redressed if the requested relief is granted”. (Emphasis added). (Internal cites not noted).
The 5th Circuit, therefore, summarized:
“In order to assert constitutional standing, a plaintiff must therefore allege (1) a personal injury (2) fairly traceable to the defendant's allegedly unlawful conduct, which is (3) likely to be redressed by the requested relief. Allen v. Wright, 468 U.S. 737,751, 104 S.Ct. 3315, 3324, 82 L.Ed.2d 556 (1984))”.
Applying this analysis, the 5th Circuit found that the particular creditor appealing this matter did have standing to pursue damages under § 362(h). However, under this same analysis a Chapter 13 trustee could not meet the Constitutional, Article III, requirements for standing to bring a § 362(h) action because it would be unlikely that the Trustee could ever show “that he personally has suffered some actual or threatened injury.” Or, stated the other way by the 5th Circuit, a Chapter 13 trustee “must always have suffered ‘a distinct and palpable injury to himself,” which would not appear to be the case in any instance.
Whereas the 5th Circuit Court of Appeals has not applied the Supreme Court analysis to Chapter 13 trustees directly, other courts have done so, and they have reached the same conclusion as stated here. In In re Bequette, 184 B.R. 327, 335 (S.D.Ill. 1995) the bankruptcy court, applying the standard in Pointer, supra, stated a trustee lacks statutory, as well as constitutional, standing to seek damages for violation of the stay, as the remedy of § 362(h) is available to debtors and creditors only. And other courts, including circuit courts agree with this proposition. See, In re Pace, 67 F.3d 187, 193 (9th Cir. 1995), reh'g denied 67 F.3d 187 (9th Cir. 1995) (while a trustee can be an "individual" if the trustee is a natural person, the individual's status as trustee precludes any finding that the trustee suffered any damages as an individual, because any harm suffered in the form of costs and attorney's fees is actually incurred by a thing, viz., the bankruptcy estate, and not by the trustee as a natural person); In re Dyer, 322 F.3d 1178, 1189 (9th Cir. 2003) (the Trustee is ineligible to receive damages under that private cause of action, because she is not an "individual”); In re Just Brakes Corporate Sys., 175 B.R. 288 (Bankr. D. Mo. 1994) (holding that a Trustee representing a Debtor corporation filing suit pursuant to section 362(h) is not acting in his individual capacity and therefore relief under section 362(h) is not available), and upheld on appeal at 108 F.3d 881 (8th Cir. 1997); In re Amberjack Interests, Inc., 326 B.R. 379, 398 [F1] (S.D.Tex. 2005) (While the Plaintiff in this adversary proceeding is the Trustee, who is indeed an individual, the Trustee is suing on behalf of the estate of the Debtor corporation and therefore cannot be considered an individual for purposes of obtaining standing under section 362(h)); In re Lickman, 297 B.R. 162, 196 (M.D.Fla. 2003) (the state of the law in the circuit, as gleaned from Jove Engineering, seems to be that a trustee is limited to sanctions under Section 105(a) when confronted with a stay violation); In re Walsh, 219 B.R. 873, 878 [F10] (9th Cir. BAP 1998) (Section 105(a), and not section 362(h), was employed because the trustee is not an "individual" within the meaning of
section 362(h)); In re Elder-Beerman Stores Corp., 206 B.R. 142, 152 (S.D.Ohio 1997); and, In re Stockbridge Funding Corp., 145 B.R. 797, 813 (S.D.N.Y. 1992) (stating a trustee cannot receive damages under 362(h)), among other court’s taking the same stance.
With the 5th Circuit long stating that 11 U.S.C. § 362(h) creates both a “private cause of action” and a “private remedy”, taken in conjunction with dicta of the 5th Circuit and the decisions of other courts that a trustee does not have standing to pursue or receive damages in a § 362(h) action, it would not be unreasonable to believe that a debtor is not intruding on any claim of a trustee, and, as a result, the bankruptcy estate, in filing, pursuing, and settling these adversary proceedings under these provisions. Likewise, should a Chapter 13 trustee believe that the bankruptcy estate has been injured in any way, apart from the claim of a debtor, a trustee would appear to be free to bring, either by a separate adversary proceeding or by intervening in the debtor’s adversary proceeding, in pursuit of the trustee’s own separate cause of action under 11 U.S.C. § 105. One does not necessarily preclude the other, and the settlement of one does not preclude the other because different individuals and entities are theoretically injured in this analysis.
On a practice level it would appear that a Chapter 13 trustee is not the party that has brought these § 362(h) actions in the bankruptcy courts of Texas. The perennial 5th Circuit cases on this point seem to follow the “plain meaning” of the Bankruptcy Code as directed by United States v. Ron Pair Enterprises, Inc., 489 U.S. 235,241-242, 109 S.Ct 1026(1989). In In re Pettitt, supra at 457, the 5th Circuit overruled the lower courts in specifically finding that the debtor did have a private cause of action and a private remedy. In re Chesnut, 422 F.3d 298 (5th Cir. 2005), specifically pertained to a Chapter 13 bankruptcy case. In Chesnut the 5th Circuit noted that the case was brought directly by a debtor. Id. at 301. Further, in relation to this Chapter 13 case the 5th Circuit in Chesnut noted that “[i]n § 362(h), Congress gave debtors the right to sue for violation of the stay”. Id. at 302. A review of the underlying adversary proceeding filed in Chesnut would indicate that the attorney for a debtor did not request or receive prior approval to represent a Debtor in this adversary, and the Chapter 13 Trustee was not a party and did not participate in the adversary proceeding. Chesnut v. Brown, Adv. No. 03-04248-dml (Bankr. N.D. Tex 2003). In Mitchell v. BankIllinois, 316 B.R. 891 (S.D.Tex. 2004) the United States District Court upheld an appeal as to a stay violation brought by the debtor in a Chapter 13 bankruptcy. A review of the underlying bankruptcy and adversary in Mitchell shows that the debtor was represented by “special counsel” in the adversary proceeding and appeal, that no pre-approval for his representation was sought or granted, and that the Chapter 13 Trustee was not a party to this adversary or appeal. See, Adv. No. 02-03149 and Bankruptcy No. 02-3806 (Bankr. S.D. Tex 2002). In re Robert Keith Tom involved an adversary proceeding in a Chapter 13 case in which the United States District Court overturned the denial of attorneys’ fees to special counsel retained by the debtor in prosecuting an automatic stay violation under 11 U.S.C. § 362(h). An application to employ special counsel was not sought, nor was the Chapter 13 Trustee a party to the adversary. See, Bankruptcy No. 03-36450-H5-13 and Adv. No. 04-3640 (Bankr. S.D. Tex 2004), as well as Civil Action No. H-05-1232 (S.D. Tex 2005). In re Latangia Venise Walker involved the United States District Court overturning a finding by the bankruptcy court that the automatic stay had not been violated as a result of the creditor holding a vehicle pending proof of insurance in a Chapter 13 case. Special counsel represented the debtor in this case, but pre-approval of special counsel was not sought, nor was the Chapter 13 Trustee a party to the action. See, Bankruptcy No. 03-44723 and Adv. No. 03-04102 (Bankr. S.D. Tex 2003), as well as Civil Action No. H-04-4608 (S.D. Tex. 2004). In this regard, debtors and their attorneys should always to keep the Chapter 13 Trustee informed of their actions by the service of process on all pleadings and documents within the adversaries filed with the Court and phone conversations.
In this regard, debtors and their attorneys should always to keep the Chapter 13 Trustee informed of their actions by the service of process on all pleadings and documents within the adversaries filed with the Court and phone conversations.
Let me introduce you to Ozenne v. Bendon, 2006 Bankr. LEXIS 112 (9th Cir. 1/17/06), a case recently decided by the 9th Circuit BAP. It is beyond me as to why legal issues such as this, which were effectively decided in the 1980s, continued to be argued, but creditor attorneys keep attempting to find the sympathetic judge that will envision a non-existent exception to what is very close to a strict liability statute. Possibly, because nothing in the decision is novel or new, that is the reason that this decision went unpublished. The case, however, is instructive if for no other reason it illustrates that there is no new interpretation of the law concerning universal punishment for one who knowingly violates a federal court injunction no matter what one's motivation or justification might have been.
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