StayViolation.Com

Wizard Of OZ

Someone recently compared what we attorneys do as being something similar to the Wizard of Oz, in  that what is behind our organizations might be a little smaller than and less intimidating than as we try to make it appear.

Maybe so, but behind everything what we are trying to do is pin a conscience on corporations, banks, finance companies and creditors that pretend to tear their clothes and gnash their teeth over having to pay a little recompense to a financially vulnerable person to whom they have treated badly.  At the same time, most of the multi billion dollar corporations do not think twice of paying their badly performing management hundred million dollar compensation packages or in spending, like Citibank, hundreds of millions to change their logo from one side of their name to another side of their name on all of their signs and print material.

I had a major national bank recently tell me in an email that it would not be "bullied" by my debtor who was in bankruptcy.  Really?  Bullied by a debtor who was just minding his own business and wanted to be left alone from the constant harassment he was receiving despite the fact the lender knew it had been enjoined from this behavior and the fact that the bankruptcy attorney had warned the bank that it was violating the automatic stay.  And, what did the lender find as being bullied.  The Debtor asking them to stop, pay him $500.00 for his time in this matter, and to pay his attorneys' fees of a few thousand dollars that he had not wanted to spend but for the fact that the lender would not stop its activities when politely asked to obey the Court's order.

The last refuge is bankruptcy court, and in this the debtor is suppose to be safe for unilateral action without the knowledge and concern of the bankruptcy court.  And, when big business and big lenders do not obey the law we are increasingly fighting a war of hyperbole.

Not only bankruptcy, but predatory lending, junk fees, the inability to solve any problem or concern of a customer without litigation shows how the essential problem of big lenders and big business and big law firms that they have ceased to serve their customers.  We all feel it.  We are not now trusted customers as we feel more like targets.

Government offers few protections with the exception of the bankruptcy courts.  As a result, the Bankruptcy Code has become the de facto Code of Conduct that should be imposed on all corporations and all lenders.  Should it be so?  Maybe not, but that is what our government has left us, and they have left it to the debtors to enforce this Code of Conduct themselves.

Everybody needs a conscience.  Only it either does not come naturally to big business and those in finance or it is lost in the hierarchy.  It is necessary to ensure that individual actions do not violate a group's moral norms. Conscience consists in the internalization or acceptance of a group's moral norms as correct and overriding one's self-interest when they conflict.  These big lenders and big business do not do override, and these corporations desperately need a conscience to monitor and control their behavior.

William Langewiesche wrote in The Atlantic in November 2001: "The greatest pyramids ... are made not of stone but of people: they are the vast bureaucracies that constitute society's core, and they function not necessarily to get the "job" done but to reward the personal loyalty of those at the bottom to those at the top."  I tend to think he is right.

Adam Smith’s first major work was the Theory of Moral Sentiments. He understood, as an ethicist, that the mechanism of the “invisible hand” would be most efficient if self-interest was restrained by conscience. With remarkable prescience Smith warned that corporations would slip the restraints of human conscience.  These big companies and lenders have taken on a life of their own.  These are entities without a conscience with the potential to wreak havoc on the societies that have created them.

So, what is our job?  It is, I think, to try as best we can in individual cases to demand the respect of these big institutions and try to pin to them a little conscience -- a little concern -- as to what they do.

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.

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."

Why?

I get this question a lot from bankruptcy attorneys and from clients.  Why, for example, does a creditor who repossesses a vehicle in violation of the automatic stay fail to return it immediately upon demand?  Or, why does a collection agency or creditor continue to send and make demands after being told of the bankruptcy?  Are they intentionally violating the automatic stay?

Well, the answer is often no.  They are not intending to violate the stay.  It is usually based upon institutional arrogance.  No one person is handling the entire matter, the person who is confronted with the issue does not have the complete authority, training, experience, or will to stop what is happening.  The person taking the demand to stop hears so many complaints and explanations it just goes in one ear and out the other.  One cog is given instructions on how to perform and it dare not do anything else.  Sometimes it is based upon a misunderstanding of the law or the remedies available to the creditor or collector, the creditor or collector dares to rely on its own instincts and not consult a bankruptcy attorney as to whether it is right in its assumptions.  A creditor or collector too often finds it is fine to rely on its own opinion that requires you or your attorney to prove them wrong.

What does not help is that many of the misconceptions harbored by creditors and collectors are not as a result of bad legal advice.  It is a result of bankruptcy attorneys continually letting them off the hook for past indiscretions.  I cannot tell you how many times, especially from carry-the-note car lots, I have heard the refrain that I have always done this in the past and I never got sued.

The good news is that an aggrieved debtor does not have to prove (or for that matter disprove) the intend to the creditor or collector who violated the automatic stay.  This is the willfulness standard, and it is followed by nearly every jurisdiction in the country.  Under 11 U.S.C. § 362(h) of the pre-BABCPA Code, or 11 U.S.C. § 362(k) of the post-BABCPA Code, damages are mandatory, including attorneys' fees and costs upon the finding that (1) one or more of the automatic stay provisions of 11 U.S.C. § 362(a) were violated, (2) there is not an exception for the action pursuant to 11 U.S.C. § 362(b), (3) the creditor or collector had notice of the bankruptcy filing, and (4) the creditor intended the action it undertook to violated the automatic stay.

There are two important distinctions in regard to these elements.  The first, is that if a creditor or collector repossessed a car, for example, you only have to show it intended to repossess the car.  You do not have to prove it knew or believed they were or were not violating the automatic stay.  This just does not matter.

The second issue is that there are NO GOOD FAITH DEFENSES allowed to explain the conduct.  Le me repeat that.  There are NO GOOD FAITH DEFENSES allowed to explain the conduct.  So, for example, it does not matter if the creditor or collector thought it was not violating the stay, or thought it had a right to violate the stay, or was advised by legal counsel that it was okay to do what it did, or had gotten away with the conduct before.

Many courts simply do not like to admit it, but 11 U.S.C. § 362(h) or (k) are strict liability statutes.  You only have to prove  up the objective facts related to the elements stated above.  You do not have to prove up or disprove why it happened.  The Courts should not be concerning themselves with why something happened for the determination of actual damages, including attorneys' fees and costs.

Aside From Non-Collection Letters Required By Law You Cannot Lift The Stay To Foreclose On A Home And Continue To Call The Debtor

Mortgage lenders continue to push the envelope in bankruptcy case.  They believe they can imagine exceptions for their conduct, even though not supported by law, and make them so.  There seems to be a disconnect in the thought of mortgage lenders in what they can and cannot do in a bankruptcy process, and that if they cannot adapt their technologies that they should not be held responsible for their conduct.  No doubt this is aggravated by the sub-prime and mortgage default situation, which, unlike before BABCPA, they are wanting to avoid the specter of foreclosure (in this case, even though the stay was lifted).

In what is a simple decision from Bankruptcy Judge Thomas L. Saladino of District of Nebraska, the Court distinguishes from letters sent to borrowers facing foreclosures as required by non-bankruptcy law and the attempt to continue harassing the Debtors as to their house debt by the use of telephone calls in which the stay is lifted to foreclose.

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.

Basketball Star Or No, You Cannot Throw Parents In Jail For Back Child Support When Seeking Reorganization Through Bankruptcy

There is a terrible tendency among family or domestic relation lawyers who have a child support collection matter pending before a Chapter 11, 12 or 13 bankruptcy is filed to allow the momentum of the state court collection process to continue, acting like it is out of their control.  Also, family law attorneys want to believe they are not labile in these situations, and that bankruptcy judges are loath to punish the ex-spouse just trying to collect the child support they are rightfully owed.

I am not completely sure why this dynamic continues to take place. But, too often family law attorneys who wear binders and some arrogant state law judges who think they can find creative ways to ignore the bankruptcy process.  All the while some debtor is being improperly punished, the bankruptcy estate is being harmed, and everyone involved is blaming the other and waving their hands up in the air say, "we didn't know".  It is right to say that most or many bankruptcy judges do not buy this argument.  They are not likely to punish the judges involved and they do not have to do so.  They can punish the ex-spouse and the ex-spouses lawyer, and they often do so.  Spouses owed child support and their collection attorneys should not rely on a bankruptcy judge to ignore the clear meaning of the law as a potential defense. 

Adversary Filed Against TMZ For Publishing The O.J. Book Online Claiming It Was A Violation Of The Automatic Stay

Lorraine Brooke Associates was or is the corporation established to hold the rights to O. J. Simpson's notorious book, If I Did It.  As you will recall, Judith Regan got canned from HarperCollins, the book publishing arm of News Corporation, by Rupert Murdoch, partly for going forward with the book.  Murdoch and News Corp. then attempted to destroy all copies of the book already published.  Lorraine Brooke Associates later filed or was forced into bankruptcy, and a trustee was appointed.  The United States Bankruptcy Court for the Southern District of Florida, Miami Division, at some point ordered all copies of the manuscript turned over to the trustee.  The Court had also ruled previously that the claim against Loraine Brooke Associates by the Goldman family, whose son was murdered along with O. J. Simpson's ex-wife, had a claim against the bankruptcy estate for any money collected.  After this order, it is alleged that TMZ.Com, a division or company of Time-Warner and AOL, published the complete manuscript online, in PDF, for approximately a two hour period.  This has led the Trustee, Drew M. Dillworth, to file a Motion for Contempt against TMZ.Com, claiming among other things by not turning over the manuscript and by publishing the manuscript online, that it willfully violated the automatic stay provisions of 11 U.S.C. § 362(a) by exercising control over property of the bankruptcy estate.  The Motion seeks damages under 11 U.S.C. § 105, presumably because § 362(k) is not available to a Trustee or a non-individual debtor.  The Motion can be read by clicking here.

YOU CANNOT VIOLATED THE STAY AFTER THE COURT LIFTS IT

The interesting question raised before the United States Court of Appeals, 10th Circuit, in Duran vs. Americredit Financial Services is whether a creditor can violate the automatic stay by repossessing an automobile after the Court has order the lifting the automatic stay, but before the 10 day appeals period has run?

According to the Bankruptcy Court, the District Court and the 10th Circuit, the answer is no.

After review the matter, the 10th Circuit merely adopted the decision of the United States District Court as correct and supplanted that written decision in its decision.  (District Judge Robert Blackburn, who wrote the decision is pictured).

The problem involved what appeared to be a conflict between 11 U.S.C. § 362(e)(1) and Rule 4001(a)(3) of the Bankruptcy Rules of Procedure.  362(e)(1) requires the automatic stay to terminate after the expiration of 30 days, unless it is Court orders otherwise.  Bankruptcy Rule 4001(a)(3) states that an order entered by the Court lifting the stay pursuant to 4001(a)(1) is itself stayed for a period of 10 days, unless otherwise ordered by the Court.   Apparently, the Court did not "order otherwise" under either provision and the automobile on which the Court lifted the automatic stay was repossessed by AmeriCredit  on the 9th day after the Court's order lifting the stay was entered.

Reviewing the Bankruptcy Court's ruling the District Court stated:

The key question is whether the stay created under Bankruptcy Rule          4001(a)(3) suspends the automatic termination of the automatic stay when that          termination becomes effective 30 days after the filing of a motion for relief from          stay.  I conclude that the Rule 4001(a)(3) stay cannot have that effect.  The          United States Supreme Court has the power to prescribe rules for cases brought          under Title 11 of the United States Code.  28 U.S.C. § 2075.  Although Congress          has an opportunity to review new rules before they become effective, Congress'          explicit approval is not required before a new rule becomes effective.  Id.  To the          extent a rule adopted by the Supreme Court abridges, enlarges, or modifies a          substantive right, the rule is ineffective, because  2075 provides that such "rules          shall not abridge, enlarge, or modify any substantive right."  Id.  For          AmeriCredit, the termination of the automatic stay under  362(e) is a substantive          right.  A secured creditor's ability to recover its collateral, the property that is          security for the debt, is a substantive right.  "[T]o the extent Bankruptcy Rule          4001(a)(3) is read to be inconsistent with the Congressional thirty-day stay          duration mandate of Code § 362(e), it would exceed the rule making power given          the Supreme Court by Congress in 28 U.S.C. § 2075." 

Libby's Law License Will Likely Be Suspended

Legal Profession Blog is of the opinion that Scooter Libby's license to practice law may eventually be permanently revoked, but in the interim it is certain is right to practice law will be suspended.

According to Mike Frisch, Legal Counsel at Georgetown University Law Center, Libby "will be suspended immediately when the D. C. Court of Appeals receives a certified copy of the docket entry reflecting the jury's guilty verdict. The court will then order the Board on Professional Responsibility to determine whether any crime for which Libby was convicted involves moral turpitude per se. Perjury and obstruction of justice are crimes that the court has previously held involve moral turpitude per se. Thus, the board is required to recommend disbarment. The court will not take final action until the appeals process is finished."

Frisch goes on to say, that if Libby is pardoned, "the court may impose sanction based on the underlying facts of the case but not on the conviction."