StayViolation.Com

The "Computer Did It" Is Not A Defense

On March 6, 2008 Bankruptcy Judge Jeffery A. Deller  of the Western District of Pennsylvania in Pittsburgh, had to find again that the "Computer Did It" defense often raised by creditors and collectors is not a defense at all.

In Wingard vs. Altona Regional Health Systems and Credit Control Collections the creditor argued that it did not willfully violate the stay because of a computer error the notices and at least one phone call was made to the debtors.

The Court found first that the automatic stay was willfully violated because in the 2nd Circuit, as in all circuits, the standard for determining a willful violation is only that Defendant had notice of the bankruptcy and intended the act which violated the stay.  There was no real discussion as to whether collection letters and phone calls constituted a violation because that is obvious.

For whatever reason creditors and collectors continue to believe that a mistake on their part seems to constitute a legitimate defense, which is completely opposite of the law.  The continuation of this argument continues to run up damages in the way of legal fees and costs, which make these practices particularily regrettable.

The Court first responding to Credit Control Collections comment that the letters went out because the matter "fell through the cracks" when the computer was not properly coded, and the agencies automatic system of sending letter was the culprit.  A notice having been send to creditor's counsel after one letter was sent, the Court asks, "How many times can a bankruptcy file 'fall through the cracks'"?

As to the "Computer Did It" defense in general, the Court quoting another opinion stated the defense is a "nonstarter ... since intelligent beings still control the computer and are thus responsible for their error ... having a clear obligation to adjust their programming and procedures and their instructions to employees to handle complex matters correctly".

The decision by Judge Deller is troubling in that he did not award damages for the attorneys' fees in this case.  The matter is silent, and so it is unknown if the debtor's properly requested or proved such damages.

Countrywide Home Loans Being Probed

That just sounds painful.

I do not know if consumers should be smarter than what they appear sometimes.  Should they not know they cannot afford the house payments being proposed?  Should they not read the fine print?  That argument aside, why should huge lenders, including mortgage lenders, be allowed to take advantage of these people, those that actually end up funding the loans, and society as a whole?

CNNMoney, as well as other new sources, is reporting that the FBI is investigating whether Countrywide Home Loans used fraudulent lending practices and financial reporting to write all of those subprime loans, liar loans, and other non-conforming loans it did over the years.  The probe will examine underwriting and mortgage origination practices, and whether the company misrepresented losses related to subprime loans.

The reason this is shocking still is that Countrywide is the nation's largest home lender, responsible for 1 in 5 (20%) of the home notes written in this country.  If they cannot be trusted, if the government is unable to proactively protect those most threatened by predatory lending, then really nobody is safe.

The government starts its forensics only once the harm is done.  Countrywide is in serious financial trouble.  It is in the process of being acquired by Bank of America.  The foreclosures are already taking place.  The CEO has already left with an obscene paycheck in his pocket.

And yet, where is the poor aggrieved consumer to turn.  They are the ones that moved out of their shelter to buy the new home through Countrywide and others.  There houses are being foreclosed now.  They are in financial distress now.  The only place they can practically turn is to the bankruptcy courts and the law is ill equipped to deal with the problem.

Congress needs to act to allow bankruptcy judges to adjust interest rates and re-amortize home loans.  You can do it in Chapter 12 -- family farmer -- bankruptcies and that is a helps.  Pay the new house payment through the 13 trustee for 5 years, but re-amortize the note for up to 30 years.  I contend that will help the system of mortgage loans and not hurt it.

The question is do we have the political will to do what is right and necessary?

Barrett Burke Wilson Castle Daffin & Frappier (BBWCDF)

At what point does the law firm of Barrett Burke Wilson Castle Daffin & Frappier become toxic?

Let me say that I have known Mary Daffin for years.  She is one of the most gracious and upstanding people that I know.  She has achieved wonders helping this firm grow into the powerhouse that it is.  She has always been open, honest and above board with me.  The problem is, due to the size of the law firm, and the enormous duties undertaken, we do not get to deal with Mary Daffin.  So we have to say, despite Mary Daffin, that with every hit the firm takes and with sanction it receives, BBWCDF seems to redesign itself into some organization that is more discordant, more shrill, more mischievous, more authoritarian, and more impervious in its approach.

This now is nowhere more evident than in how it has decided to handle its adversary proceedings.

Should You Sue The Creditor's Lawyer Who Had Notice Of The Bankruptcy And Participated In The Violation Of The Automatic Stay

Man o' man, I can tell you right now that I do not like it.  I do not want to do it.  I will do most anything to keep from doing it.  However, lately I have to admit that the arrogance of some of these lawyers, and the tactics which they elect to employ, make it very difficult to avoid.

I use to take the position that the creditor or collector violating the stay will deal with its own attorney should it feel it got bad advice or representation.  Besides, what I had learned was that if you sue the attorney this Sicilian thing kind of erupts where the attorney's client no longer matters and the attorney  feels that he or she must win the argument at all costs.  The case consumes too much time and too much money, and then much explanation has to be developed at trial as to why this happened to support the damages known as legal fees.  You typically see an attorney that might be a little bit of an ass anyway turn into some kind of kamikaze jerk.  You have to think, who needs that?

The problem is, however, that I am finding that these attorneys (and they are pretty limited in number) whether or not you include them the litigation as a party they become annihilative in any event, they refuse to remove themselves from the litigation in violation of the lawyer-witness rule, and they become venomous and wrackful.  So, maybe you should consider carefully who these attorney might be, and then do what you can to remove them from the litigation.  It might be fine to simply file a motion to disqualify them because they and their firm represent a witnesses in the case.  But, if you are dealing with these Rambo lawyers that would advise their clients and participate in the willful violation of the automatic stay or discharge injunction -- if you know them to be pernicious and malevolent individuals anyway -- to just include them in the litigation as a party.

My Dad use to say about physicians that bedside manners matter.  I can tell you now that the same is true for attorneys.  And, whether by accident or intent, if these attorneys lack ethical and moral temperament, they leave you little choice but to include them when the facts suggest they had notice and were involved in the violation.

All of this presupposes that the lawyer and law firm actually had notice of the bankruptcy, and with this notice took or allowed prohibitive action against your client.  This point does not need to be stretched or exaggerated.  You should not sue the lawyer unless you are spot on in this regard.

Then, of course, you need to consider what Jonathan Alper of Florida Bankruptcy Law Blog wrote a few years ago:

"Overheard an interesting case in bankruptcy court concerning a debtor’s petition to sanction a creditor for pursuing a state court case against the debtor after he filed bankruptcy. The debtor’s attorney explained to the judge that he had repeatedly told the creditor’s collection agent and their attorney about the debtor’s bankruptcy and suggested they drop their action against the debtor. Nevertheless, the creditor’s attorney pursued discovery from the debtor and went as far as filing in state court a motion to show cause why the debtor should not be held in contempt of court. The debtor had to appear in state court with his attorney to personally explain to the judge that his bankruptcy stayed further discovery or any other activity in the state proceeding. The debtor appeared in bankruptcy court in a wheelchair breathing through an oxygen mask and unable to speak directly to the judge. His attorney showed that the debtor’s disability made it unusually difficult for him to go to state court because the creditor would not abide by the bankruptcy stay.

The debtor’s attorney stated that the debtor sought sanctions against the creditor company but not against the creditor’s attorneys. The judge denied sanctions. The judge reasoned that while the creditor’s attorney clearly knew that collection and discovery was going on after the bankruptcy there was no evidence that officers of the company knew their attorney was violating the stay. Since the debtor’s attorney had dropped demand against the creditor attorney the judge had insufficient evidence of intentional wrongdoing on behalf of the creditor company even though, as the debtor argued, the creditor’s attorney was acting as an agent of the client.

In this case a debtor’s attorney extended some professional courtesy to a fellow attorney to relieve them of personal liability and by doing so lost a recovery for the debtor at this hearing. It seemed clear that the bankruptcy judge would have entered a sanction against the creditor’s attorney in favor of the debtor. Before an attorney lets a fellow attorney off the hook he should make sure the client consents after the client understands what may be the loss of a potential source of monetary recovery."

Credit Union Will Not Quit Contacting Debtor And Is Sanctioned Over $13,000

Wendelin I. Lipp, the United States Bankruptcy Judge for the District of Maryland sanctioned Navy Federal Credit Union $3,464.50 in actual damages for attorneys' fees and $10,000.00 in punitive damages for continuing to call and send correspondence to the debtor once being informed of the debtor's Chapter 7 bankruptcy filing.  (You can find the Order Awarding Damages by clicking here).  The debtor's bankruptcy attorney contacted Navy Federal both before and after the debtor filed her Chapter 7 case.  Despite this the Credit Union contacted Ms. Price by phone 10 times, by mail twice and they came to her house once.  Judge Lipp considered it a blatant disregard of the automatic stay.

Why Does Not Matter

We all remember those obnoxious Enron ads on TV in which behind the crooked "E" logo the announcer kept repeating "why?  why?  why?"  This was played by some with great satisfaction after Enron filed bankruptcy and its executives were indicted.

Moral: Bankruptcy Courts Will Not Protect Trailer Trash

As they say, bad cases make bad law.

In a case that is yet to be published the U. S. Bankruptcy Court for the Middle District of Alabama has ruled in In re Willford, in essence, that Debtors who continues with a divorce filed in violation of the automatic stay will not find protection later when things do not go their way.

Mr. and Mrs. Williford had and have major problems.

APPLYING A BLEND RATE FOR FEES OF SOLOS AND SMALL FIRMS IS NOT APPROPRIATE, NOR IS REDUCING THE FEE BECAUSE AN ATTORNEY IS A SOLO PRACTITIONER

In a key decision out of the United States Court of Appeals, Second Circuit, the panel ruled in a federal fee-shifting case that courts (1) cannot apply a fictional blended billing rate to a solo practitioner who assists his client in prevailing in the case, and (2) should not reduce fees from the prevailing rate because the attorney is a solo practitioner or a member of a smaller firm.

In McDonald v. Pension Plan, 450 F.3d 91 (2nd Cir. 2006), New York attorney Edgar Pauk successfully represented James McDonald in a suit charging that the former longshoreman's union pension plan failed to properly calculate the years in which he accrued benefits.

Pauk had requested $425 an hour for his work, but Southern District of New York Judges Naomi Reice Buchwald and Kevin P. Castel, who presided over different portions of the case, set respective hourly rates of $325 and $390.  The 2nd Circuit panel vacated Castel's award on the grounds that he inappropriately applied a blended rate.  Such a rate is intended to take into account the different billing rates of partners and associates within a firm, but the appeals court said it had never before seen a blended rate applied in the case of a solo practitioner.

In other words, to determine his fee award, the panel noted, the District Court Judge "analogized Pauk's situation to that of a large law firm" and "created the hypothetical 'Pauk & Associates' -- comprised of one experienced ERISA litigation attorney and a hypothetical group of inexperienced associates -- and decided on [his] own which tasks should have been done by respective members of the hypothetical firm."

Thus, though all of the work was performed by Pauk, Castel decided some of the work merited a "partner" rate of $500 an hour while work that would have been delegated to junior associates in a larger firm merited a lower rate.

The 2nd Circuit said determined that playing this type of fiction was just wrong.

"There is simply no support for the proposition that a district court can decide what legal tasks could have been done by a hypothetical associate attorney working for or with Pauk in order to calculate a blended hourly rate of $390," the court said in its unsigned opinion.

The panel approved Buchwald's award and agreed with her reduction of Pauk's requested rate based on her finding that his performance "though effective, was less than stellar." The trial judge had found the lawyer frequently inefficient and "occasionally vexatious."

The appeals court also noted that Buchwald felt it was "of great significance" that Pauk was a solo practitioner with lower overhead costs than a firm.

Though the 2nd Circuit did not reject this finding, it cautioned in a footnote "that district courts should not treat an attorney's status as a solo practitioner as grounds for an automatic reduction in the reasonable hourly rate."

The panel said overhead was not in itself a valid reason for courts to assign higher or lower rates, though it said overhead could be considered as a valid explanation of why some lawyers charged more for their services. But the appellate court said solos with presumably lower administrative costs could also merit a high hourly rate.

"Indeed, it may be that in certain niche practice areas, attorneys of the highest 'skill, expertise and reputation' have decided to maintain a solo practice instead of affiliating themselves with a firm," the court wrote. "The reasons for doing so may be numerous, including the inherent problems of high overhead, fee-sharing and imputed conflicts of interest."

 

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.

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.