StayViolation.Com

GOOD 'OL LAWYER HUMOR

A lawyer's dog, running around town unleashed, heads for a butcher shop and steals a roast.

The butcher goes to the lawyer's office and asks, "if a dog running unleashed steals a piece of meat from my store, do I have a right to demand payment for the meat from the dog's owner?"

The lawyer answers, "Absolutely."

"Then you owe me $8.50. Your dog was loose and stole a roast from me today."

The lawyer, without a word, writes the butcher a check for $8.50. The butcher, having a feeling of satisfaction, leaves.

Three days later, the butcher finds a bill from the lawyer:

$100 due for a consultation.

TWO LESSONS. DO NOT FIRST EXPECT A WARNING BEFORE SUIT IS FILED. KEEP PROPER TIME RECORDS AND PROVE UP YOUR FEES.

In a case that is yet to be published, Bankruptcy Judge Stephen Gerling attempts to teach us two important lessons in recovering damages for an automatic stay violation.  Both were learned the hard way.  The first is a lesson for the creditor or violator of the stay, and the second is reserved for the debtor's attorney.

In re Turner, Case No. 04-66972.(Bankr N.D.N.Y. 7/21/2006) renews our faith that provided you prove up your damages appropriately that creditors will not be allowed to escape damages by use of frivolous excuses that blames the debtor or debtor's attorneys for their bad acts.

The case involved Today's Rentals, a rent-to-own company, who repossessed a TV set, which constituted property of the bankruptcy estate, through the use of "deception and trickery".  One day after the repossession the bankruptcy attorney sent Today's Rentals a copy of the motion it intended to file, and did file approximately a month later.  The counsel for Today's Rentals made the argument, as defined by the Court, that damages should not be awarded because the bankruptcy attorney immediately drafted the motion instead of giving the creditor a warning.

The Creditor's Lesson.  The Court ruled that a creditor does not have a right to have "a warning shot fired across it bow" before litigation is instituted for a willful violation of the automatic stay.  The Court stated that "[s]uch a requirement would place an unreasonable burden on a debtor to forewarn the offending creditor to cease and desist before debtor's counsel could reasonably file a Code § 362(h) motion".  In more particular terms it can be said that there exists no precondition to a private cause of action in § 362(h) under the pre-reform law or § 362(k) under the post-reform law, and therefore such an argument is precluded as a defense.  In other words, the burden is not on the debtor to see that a creditor with notice complies with the automatic stay.  The burden is on the creditor to comply with the automatic stay.

The Debtor's Lesson.  Proving up attorneys' fees as damages is the proper responsibility of the debtor's attorney.  There is a defined way to do so.  Failing to do so will be detrimental to getting fully paid for your services.  In this case the debtor's attorney requested $9,200.00.  The time records submitted, in the Court's words, "suffered from the infirmity of 'lumping,'" or generally showing a number of discrete tasks attributable to a single time increment.  Further, the  billing records contained mainly "boilerplate language".  As a result the Court was unable to conduct a "reasonableness" analysis given the lack of detail.  Further, the attorney failed to properly prove up the prevailing rates for attorneys' fees as required by Lodestar, leaving the Court to make that interpretation based on evidence provided by opposing counsel.  As a result, the fees of the debtor's attorney were reduced to $4,100.00, substantially discounting the hard won victory.

JUST IGNORE OBNOXIOUS DEFENSE COUNSEL

It's not uncommon, but I am afraid you will run into really what best can be described as Rambo attorneys.  Their goal is to be as unbelievably obnoxious as possible.  Acting like a bull in a china cabinet their hope is that they can derail the litigation in which their client has no reasonable defense by just wearing or grossing the debtors out.  Unfortunately, sometimes it works.

This conduct is really self-serving.  Their client is typically prone to enjoy this defense at least initially because it make the client feel vindicated in some way, even though no judge has ruled in their favor.  But, the real motivation is that all of this does one thing--line the pockets of the lawyer and the law firm with his or her client's cash.  We use to joke that these lawyers are board certified in billing.

Apart from this attempt at humor, these people are unpleasant.  In fact, they pride themselves as tough litigators.  They are not.  They are hacks.  There is nothing that I have found that says you cannot be a tough litigator and still be cordial, cooperative, and stick to the elements or actually recognized defenses available.  I have found these types of attorneys typically come from insurance defense backgrounds.  Causing reasons to bill, bill, bill is the way you climb in these firms, typically, and some of the aggressive types learn this lesson quickly.  Profit before ethics is the misplaced goal.  In the past I have notified the partners of these law firms, and have confronted the attorneys themselves about this type of conduct.  It never seems to help.  In fact, it usually just emboldens them.  Sometimes I think, like an alcoholic, they are in denial.  Unlike alcoholics, they get paid for their denial.

Oh, the war stories that can be told.

One of the best tactics these Rambo characters like to use is to attack the bankruptcy attorney on unrelated matters.  The attacks become personal.  These attacks rarely relate directly to the issue at hand.  I experienced this again recently when we sued a debt buyer for attempting to collect on a judgment, which did not attach to the homesteaded property in question.  The debtors, who had been discharged, were attempting to refinance their home.  The title company would not initially issue a title policy without a release.  The bankruptcy attorney was eventually contacted after the title company and new lender after they first attempted to contact the debt buyer directly to secure a release, but instead of just agreeing to sign a release the debt buyer attempted to collect its judgment.  The bankruptcy attorney called the debt buyer in an attempt to straighten the matter out without the need for litigation.  The debt buyer would have none of it, and insisted that it would only sign a release if the debtors paid for half of the face amount of the judgment.

I suppose there are a number of ways to defend against this action.  The debt buyers in this case has elected to personally attack the bankruptcy lawyer by reviewing the bankruptcy, second guessing his decisions in the case unrelated to issue at hand, and accusing him of essentially malpractice.  The theory I am given for this bad conduct is that it goes to the truth and veracity of the bankruptcy attorney who will testify as to the phone call to the debt buyer and the debt buyer's collection activity.

It is easy to get distracted in this type of situation.  However, I feel it best to remember that this type of conduct arises because the debt buyer does not have a defense under the law.  As in criminal defense cases, if you do not have a defense you go after the prosecutor.  The best advice for dealing with this practice is to not deal with this practice.  I try to take the following steps.

1.  Never just ignore the accusations, initially make sure accusation has no real relevance and then move on;

2.  Discuss the bad behavior with opposing counsel, and if there is no change of position, just tell him or her to go to hell and ignore them as much as possible;

3.  Ignore the argument, do not get distracted, and prepare your case as to each element of the law that must be proved, tell your story in time-line fashion, do not worry about their story, and it will become painfully obvious at trial that their accusations do not line up with the elements to be proved or disproved;

4.  Whatever you do, do not reciprocate; and,

5.  Simply remind the Court in opening and closing arguments, and any brief, that these personal attacks demonstrate only one thing--the emperor has no clothes--the violator does not have a defense. 

Remember, most judges see through this conduct and probably do not need to be reminded of it, but the issue goes to damages because this conduct will increase the attorneys' fees and costs owed by the violator to your client upon a finding of liability.  Why?  You will probably have excessive discovery, higher than usual communications, more court appearances, and dispositive motions that will have to be briefed.  Remember as well, this is all about the defense attorney lining his firm's pockets.  It is important to understand that the fees and costs are primarily due to the bad litigation choices of the defendant.  Not only does the Court need to be made aware of this, but opposing counsel's client needs to be made aware of it as well.

READY FOR SOME BAD HUMOR

The Mafia was looking for a new man to make weekly collections from  all the private businesses that they were 'protecting'.

Feeling the heat from the police force, they decided to use a deaf person for this job--if he were to get caught, he wouldn't be able to communicate to the police what he was doing.

Well, on his first week, the deaf collector picks up over $50,000. He gets greedy, decides to keep the money and stashes it in a safe place. The Mafia soon realizes that their collection is late, and sends some of their hoods after the deaf collector. The hoods find the deaf collector and ask him where the money is. The deaf collector can't communicate with them, so the Mafia drags the guy to an interpreter.

The Mafia hood says to the interpreter, "Ask him where da money is." The interpreter signs, "Where's the money?" The deaf replies, "I don't know what you're talking about." The interpreter tells the hood, "He says he doesn't know what you're talking about."

The hood pulls out a .38 gun and places it in the ear of the deaf  collector. "NOW ask him where da money is."

The interpreter signs, "Where is the money?" The deaf man replies, "The $50,000 is in Central Park, hidden in the third tree stump on the left from the West 78th Street gate." The interpreter says to the hood, "He says he still doesn't know what you're talking about, and doesn't think you have the balls to pull the trigger."

IRS TURNING DELINQUENT TAX COLLECTION OVER TO PRIVATE COLLECTORS

According to the New York Times the IRS is turning some collection of delinquent taxes over to private collectors. 

Within two weeks, the I.R.S. will turn over data on 12,500 taxpayers — each of whom owes $25,000 or less in back taxes — to three collection agencies. Larger debtors will continue to be pursued by I.R.S. officers.  The move, an initiative of the Bush administration, represents the first step in a broader plan to outsource the collection of smaller tax debts to private companies over time. Although I.R.S. officials acknowledge that this will be much more expensive than doing it internally, they say that Congress has forced their hand by refusing to let them hire more revenue officers, who could pull in a lot of easy-to-collect money.  The private debt collection program is expected to bring in $1.4 billion over 10 years, with the collection agencies keeping about $330 million of that, or 22 to 24 cents on the dollar.

As reported by the New York Times one of the three agencies retained to collect taxes is the law firm of Linebarger Goggan Blair & Sampson, which apparantly has a notorious background.  One of the former named partners, Juan Peña, admitted in 2002 that he paid bribes to win a collection contract from the city of San Antonio. He went to jail for the crime.  Also, one of its competitors, Municipal Services Bureau, also of Austin, sued Brownsville, Tex., charging that the city improperly gave the Linebarger firm a collections contract that it suggested was influenced by campaign contributions to two city commissioners.

From a practical standpoint suing the federal government directly for tax collection efforts in violation of the automatic stay and discharge injunction has become increasingly more difficult.  That is not true for private entities, such as debt collectors.  The issue is notice, but once notice is established to the debt collection agency, that company will have likely willfully violated the automatic stay or discharge injunction resulting in mandatory damages.  Past experience tells one that these collection agencies are notoriously bad at stopping collection activities based upon notice of a automatic stay or discharge injunction violation.  It is unlikely that they will be immune from certain damages, like punitive damages, as is the federal government they represent.  It is also unlikely that the federal government is going to indemnify these companies for any improper collection activity or behavior.

CREDITORS TAKE A SUBSTANTIAL RISK WHEN THEY DEFEND A STAY VIOLATION CASE ON THE BASIS THAT A JUDGE WILL NOT FOLLOW THE PREVAILING LAW

It is a common tendency for creditors and those who violate the automatic stay to defend a case based upon the belief that a judge will not follow the law in punishing them for an error.  This is despite the fact the strict liability of stay violations is now almost universally accepted.  The theory goes that the violation, although with knowledge, was a mistake, was corrected and that the resulting adversary is brought for the purposes of collecting money.  These are obviously tactical defenses and not based upon the substantive law.  Occasionally creditors do find a receptive ear from judges who will find excuses not to follow or to mute the accepted law.  This defense strategy, however, often represents a large mistake on the part of the violator in a federal fee-shifting case in which, even if a judge is receptive to the argument, the violator is ultimately responsible for the costs of the litigation, the appeal and the subsequent re-litigation of the case.  After all, how likely is that multiple judges in different venues will agree to deviate from established principals?  It is a sucker's bet that many lose.  But, these defense lawyers have to charge for something.

The best example of this is a situation happening was recently handed down in California.  Yet unpublished, In re Dawson, No. 98-45213 TG, A.P. No. 98-4796 AT.(Bankr. N.D. Calf. 7/27/06), involved a stay violation case in which the Bankruptcy Court originally awarded only modest damages and attorneys' fees against Washington Mutual for violating the automatic stay while the Plaintiff's husband's (now deceased) prior Chapter 7 bankruptcy was pending.  The Bankruptcy Court also denied the Plaintiff's claim for emotional distress damages.  WaMu in its infinite wisdom decided to appeal this decision.  The United States District Court decided to reverse and remand the modest award, but upheld the Bankruptcy Court on the issue of no emotional distress damages.  The Plaintiff then appealed to the 9th Circuit, which properly applied the existing law and remanded the matter back to the Bankruptcy Court

WaMu would have none of it.  It continued in its briefing and argument in fighting both emotional distress damages as well as the Plaintiff's attorneys' fees (required by the Bankruptcy Code).  WaMu argued, among other things, that attorneys' fees were not awardable because the fees were not incurred to "remedy a violation" since the violation had ended before the suit was brought; because the attorneys' fees were contingent (meaning they were not paid unless there was a recovery); because the fees were excessive in comparison of the remaining award; and, that the hourly rate requested by Plaintiff's counsel was too high in that they had previously been awarded a lower hourly rate.  Representing Don Quixote tactics, none of these arguments have much legal authority.  They are Rambo in nature in that WaMu, like other creditors and violators, made a decision to fight even a modest award to the Nth degree just to show it was the biggest, baddest creditor on the block and should not be liable for its error.  Such tactics no less are tempting to the creditor's attorneys who are usually charging many times what the Plaintiff is likely to be awarded.  They are further very expensive tactics should the violator ultimately lose, as was the case for WaMu.  (WaMu loses, but its attorneys win big in the defense lottery it was playing).

The Plaintiff correctly pointed out that an award of attorneys' fees and costs was mandatory even if run up as a result of WaMu's bad litigation choices; that contingent fees (as it is used in this context to represent fees not paid in advance by the Plaintiff as opposed to a percentage of any award) have been properly held to represent the Plaintiff's actual damages; that it is inappropriate to adjust an award of attorneys' fees based upon the remaining damages awarded; that attorneys' fees can be awarded in an action intended solely to recover damages; and, that the proper award of fees is the Lodestar standard.

The later point made by the Plaintiff was especially damaging to WaMu because in the previous Bankruptcy Court proceeding the Plaintiff had been awarded hourly fee was $250 and $200 and hour for her respective attorneys.   The fees had been adjusted to represent what the Bankruptcy Court felt at the time was the Plaintiff's success on the merits.  But, in this hearing the Court adjusted the fees to what it found to be the prevailing rates for likely positioned attorneys of $400 and $225 an hour respectively.

The end result is that WaMu's Rambo tactics took what was a very modest award, involving substantially reduced attorneys' fees (both in terms of a reduced hourly rate and time incurred) with which the Plaintiff would have likely accepted, and ended up paying the following:

1.  $20,000.00 in emotional distress damages;
2.  $7,440.00 in special damages; and,
3.  $156,818.75 in Plaintiff's attorneys' fees and costs.

WaMu only lucked out in not having to pay punitive damages as well.  But WaMu managed to turn an initial award of a few thousand dollars into a total award to now be paid of $184,258.75 plus interest.

Talk about snatching defeat from the jaws of victory.  However, the case is illustrative of the need to fess up to say violations and their consequences early and to otherwise employ reasonable litigation tactics in trying to resolve these matters.  Failure to do so can be very costly.

WILLIAM LERACH MAKES SOME GOOD POINTS

In Business Week's latest offline Competition edition (August 21/28, 2006) William Lerach, the Wall Street lawyer who has forced hundreds of companies to settle securities-fraud lawsuits for billions of dollars, makes some good points worth analyzing.

In speaking about driven and determined to achieve his goals Learch commented that he "had a session the other day where I almost lost my voice because I way yelling so hard and harsh.  I couldn't believe what these people were doing.  You can't have just one mode of behavior or conduct, you have to behave as the situation calls for".  He went on to say, "there's a time for yelling.  But you can be empathetic.  You don't need to hold people's heads underwater until they're going to drown".

Of course Learch was speaking about trial strategy and how to be effective in light of the situation at hand, but he could have been discussing any strategy, or lack thereof.  He understands that you cannot be a large monolithic organization that operates by use of a flow chart to get requirements accomplished effectively.  When you think about it that is what gets creditors and others in so much trouble concerning automatic stay and discharge injunction violations.  These organizations only have one "mode of behavior or conduct."  When these organizations do not get paid under the terms for which they contracted and they learn that getting paid requires "yelling" in the broad sense of making consumers uncomfortable.  These organizations require adherence to a set of procedures that do not allow there people to be "empathetic".  There tendency is the metaphorically hold the consumer's head underwater until they agree to pay.  When bankruptcy is filed or a discharge injunction is issued these monolithic corporations with their controls find it too difficult to turn off the collection system.  They can call it computer errors or misunderstandings, but the truth is the way the system has been configured.  The collection process has a hair trigger, which is all go and no stop.  These companies will not program deviations that allow their agents and employees to tone down the "yelling" and to let the consumer breath.  The prospect of Damages, especially punitive damages, are really the only means available to achieve some kind of change.

FAILING TO BRING STAY VIOLATION CASE AS AN ADVERSARY WAS FATAL

There is always a degree of discussion as to whether or not a stay violation matter should be brought as a motion or an adversary proceeding.  With some judges in the past it has been a damned if you do, damned if you don't situation.  However, the latest case to pop up on radar involves a trustee who brought such a dispute before the bankruptcy court as a motion only to see the motion dismissed because it was not brought as an adversary.  In what is a very short and unpublished decision in In re Smoot, Case No. 02-13924 (Bankr. N.D. Ind. 4/29/2006), the Bankruptcy Court wrote:

"In that Bankruptcy Rule 7001 requires an adversary proceeding in order to recover money or property from an entity (except a proceeding to compel the debtor to deliver property to the trustee) trustee's motion, filed on March 23, 2006, for stay violation for failure to turnover funds/property of the estate is DENIED".

As a practical matter it is almost always best to bring a stay violation matter as an adversary proceeding.

I STILL LOVE GOOD DEBT PAYMENT HUMOR

COURT UPHOLDS RULE THAT IT IS THE RESPONSIBILITY OF THE CREDITOR TO COMPLY WITH THE AUTOMATIC STAY AND NOT THE DUTY OF THE DEBTOR TO INFORM IT OF ITS VIOLATION

In what is still an unpublished case, Idaho Bankruptcy Judge Jim Pappas upholds the basic tenant of law that says that a creditor is responsible for its own compliance with the automatic stay (or injunction of the court), and it is not the responsibility of the debtor to figure out how to prevent the violation.

In In re Gorring, 05-42291 (Bankr. Idaho 7/7/2006) the creditor garnished a bank account of the debtors containing $13.00.  As a result the bank closed the debtor's account.  The bankruptcy attorney then notified the creditor and informed it of the bankruptcy, but did not inform the creditor of the stay violation.  Thereafter, the creditor sent a letter to the debtor advising him that the he could dispute the validity of the debt, and the letter attempted to collect the remaining balance owed.  The Court found these acts to constitute willful violations of the automatic stay.  The debtor then sought compensatory damages, including attorneys' fees, and punitive damages.  The Court denied the punitive damages but awarded all compensatory damages over the objection of the creditor which argued that any stay violation could have been prevented if the debtor, or debtor's counsel, had notified it first that it was violating the automatic stay.  The Court ruled:

"Creditor argues much of these damages could have been avoided had Debtor's attorney more promptly contacted Creditor about thestay violations. While Debtor is obliged to mitigate his damages,the Court will not penalize Debtor under these facts. It is Creditor's responsibility to properly respond to its receipt of a notice about a bankruptcy filing. It can not complain the Debtor did not act more promptly in pointing out Creditor's own errors".