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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?

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.

Judge Stacy Jernigan's Fight Against The New Bottom Feeders

In In re White Stacy Jernigan, the United States Bankruptcy Judge for the Northern District of Texas in Dallas took steps to expose and reel in those that she called "A New Cottage Industry of Bottom Feeders" who try to make a buck off down and out debtors who are about to lose their home after they seek bankruptcy relief.

Earlier in the Debtor's bankruptcy, Judge Jernigan believed she had to lift the automatic stay protecting the Debtor's home.  Given that a bankruptcy already existed it was unlikely that the Debtors could stop the foreclosure from taking place.  The Debtor's bankruptcy attorney insisted that there was little they could do to stop the foreclosure given that the automatic stay had been lifted.

But, with foreclosure comes lots of mail solicitations promising help.  Of the approximately 40 mailings that the Debtors received based on the posting of their home for foreclosure, the Debtors chose a company that represented itself as North American Foreclosure.  It what that company and its representatives called "a completely legal procedure" they convinced the Debtors to transfer a 1% ownership of their home to an individual who would file bankruptcy to stop the foreclosure.  The the Debtors would pay North American $650 per month until the 1% was paid back (whenever that would happen).

The paperwork selling the 1% of the house to an individual in California was apparently backdated.  Then the mortgage company, which was in the process of foreclosing the home, receive notification from the representatives of American Foreclosure that the property was included in the bankruptcy of a Debtor who had then filed bankruptcy in California.  The problem, as it turns out, is that the property was not listed on the California Debtor's bankruptcy case, and the Debtor claims she knew nothing of the transaction.  She was apparently duped as well.

The Debtors paid a gentleman by the name of David Curtis, North American Foreclosure's local representative, $650.00 for the first payment to begin the process.  The Debtors eventually made one payment to the company before their bankruptcy counsel contacted the Debtor's about Judge Jernigan's show cause order.

The Bankruptcy Court, upon learning of the fraud, took immediate action, finding that those associated with North American Foreclosure likely violated various bankruptcy laws, she found that the Debtors were likely innocent parties which were duped, and she order North American Foreclosure, and its representatives, David Curtis and his company, Jireh Capital Services, to appear and show cause why they did not violate the automatic stay provisions of 11 U.S.C. § 362 and are not liable pursuant to § 362(k).  The Court confirmed in its Order pursuant to 11 U.S.C. § 362(j) that the automatic stay was terminated in the Debtors' bankruptcy and, in case it was not, she annulled the stay retroactively pursuant to 11 U.S.C. § 362(d).  The Court voided the transfer of the 1% to the California bankruptcy filer.  The Court reported the actions as possible bankruptcy crimes pursuant to 18 U.S.C. §§ 3057, 152 and 157.  The Court provided a courtesy copy of her decision to the Chief Bankruptcy Judge in California and the Texas Attorney General, and the Judge issued a plea to the consumer debtors bankruptcy bar to be mindful of these actions and to warn their client's accordingly.

To date nobody has appeared before Judge Jernigan to show cause as ordered.

I Do Not Understand Dave Ramsey

Most of us know of Dave Ramsey.  He is the former real estate high flier that came cashing down to earth at a young age, only to file bankruptcy himself and start over.  And, start over he has by preaching to the masses about the irresponsibility of debt.  He has classes, has written books on the subject, has a radio show and gives lectures to sold out audiences.  He has been nice enough to speak at seminars and organizations of bankruptcy attorneys.  There is probably not one bankruptcy attorney that does not believe in Dave Ramsey's overall goal of people getting out of debt, downshifting their expectations, and providing properly for their families.  All good goals.

What I disagree with is his reluctance to advocate bankruptcy for many of those that desperately need to get back on the right road.  Under his Myths & Truths section on his website, and on his radio show, he advocates against the practice.  His point is that bankruptcy is a "gut-wrenching, life-changing event that causes lifelong damage".  Really?

He says the myth is that to filed bankruptcy to start over "seems so easy", but this is really a straw man defense.  Nobody says it is "easy".  Few, if anybody, that visit a bankruptcy attorney believes this is an easy solution.  They believe it is a necessary solution.  It is not accurate to say the process is said to be "easy" and the opposite is true, and therefore bankruptcy is the wrong idea.

As for the "life changing" aspect of which he objects, I thought that was the whole point of his system and method.  To have a life changing affect on who people deal with and eliminate debt.

I guess he argues that "lifelong damage" is the difference.  But, what is the "lifelong damage".  It hurts your credit rating?  First, as too many bankruptcy attorneys can see, now that they have to run these credit reports on people before filing, most FICO scores are estimated, and do, substantially increase with the filing of a bankruptcy.  Besides, Ramsey's whole point is not to incur debt.

Is the damage spoken and written of about stigma?  Ramsey, as I understand it, filed bankruptcy.  There is a stigma to bankruptcy.  There is also a stigma in having to reorganize and fight with your creditors for years at a time.

The easy part of the equation is that most people cannot deal effectively by themselves with a catastrophic debt problem.   How much long range planning, how much individual negotiations with creditors, how much stress can one take?

None of us see any "lifelong damage" to bankruptcy.  Some people have a lot of problems with unemployment or illness and the like, but those who file almost always recover relatively quickly.  And, the filing of a bankruptcy should not conflict in any way with Mr. Ramsey's books, radio show, lectures and courses.  It is all valuable advice.

A comparative analysis of the what best suits a debtor's exact needs is always good.  But, bankruptcy is not a myth.  It is a solution that fits a good number of people.

It is the automatic stay of which my law firm enforces that is the benefit that is just incomparable to any other system.  It is what allows individuals and families to achieve a fresh start.  After all, is that not what Ramsey, all bankruptcy attorneys, and most debtors really want to achieve -- a fresh start.

Undisclosed Fees Charged By A Mortgage Company Both Before And After Confirmation Can Constitute Compensable Violations

The scenario is that debtors file bankruptcy, typically a Chapter 13 bankruptcy.  They might pay an arrearage on the home through the plan.  They pay their mortgage payment direct through the plan, meaning the ongoing mortgage payment is included in the plan, but either by the debtors or through the trustee in some jurisdictions the current house payment is being made directly.  The mortgage company continues to add charges while the bankruptcy is pending for drive by inspections, attorneys' fees, certain late penalties, and the like.  However, the company does little to disclose these to the court.  The result is the mortgage company is laying in wait -- hiding -- while these fees build (sometimes called "escrow arrearages") until the bankruptcy is discharged.  Then the mortgage servicing company (which is often not the same one as when the bankruptcy was originally filed) makes a demand for these fees, and the accrued interest from the fees.  Sometimes the mortgage company makes a demand for back house payments when the past mortgage payments were first applied to paying these fees, costs and expenses.  In any event, if not paid after discharge the mortgage company threatens foreclosure.

For years bankruptcy attorneys have been trying to figure out how to effectively deal with this matter, because the situation exists to some extent in nearly every Chapter 13 bankruptcy in which a mortgage is involved.  What complicates the matter for both the attorney and the client is deciphering the long -- often erratic -- payment history since the filing of the bankruptcy.  It takes an untold number of attorney time to get this accomplished, and there is a question of how to get paid, and how to get the matter resolved.  In this, there might now be hope.

Two Houston bankruptcy courts have tackled this issue with different opinions of which laws are violated, but essentially reaching the same conclusion -- these fees must be disclosed by the filing of a 2016(a) fee application with the court or they are likely (1) per se unreasonable, and (2) constitute violations of the Bankruptcy Code, the orders of the Court, and possibly the injunctions of the Court.

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.

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 Must Distinquish Between What Is A Fine And What Is Compensation For A Pecuniary Loss

In what is yet an unpublished decision, Bankruptcy Judge Letitia Clark of the Southern District of Texas has issued a decision, which indicates that when suing the state agency for failing to issue a driver's license you have to distinguish between the failure to do so in an effort to collect a pecuniary loss and the State exercising it's police powers.

THE INTENTIONAL LAWYER THAT STOLE CHRISTMAS

I have written about Bob Sutton before and his book The No Asshole Rule: Building A Civilized Workplace and Surviving One That Isn't.  You can read my prior posts by clicking here, here and here.

Bob Sutton is Professor of Management Science and Engineering in the Stanford Engineering School, where he is Co-Director of the Center for Work, Technology, an active member of the Stanford Technology Ventures Program, and a cofounder of the new Hasso Planter Institute of Design, a multi-disciplinary program at Stanford that teaches and spreads "design thinking."  In short, he is not a foul mouth sailor or bar room brawler.  He is an intellectual.

He uses this crude term to describe a generic (and nameless) group of people because he argues that, in fact, there is no other word that really captures how devastating these abusers are to others.  In fact, in the past I have tried to adopted other phrases to describe these undesirables.  See this post by clicking here. I think Bob Sutton's position on the word is true, but this East Texas country boy still tends to feel the need to apologize before using this term before hand.

In any event, Bob Sutton recently blogged about there being two varieties of assholes.  These are "Intentional" assholes who want to leave others feeling demeaned and de-energized, and "Clueless" assholes who damage people without realizing how much harm they are doing.

I have found in my line of work that many large organizations possess the "Clueless" variety that cause trouble for consumer, their employees, their customers and others.  However, usually with some well thought out litigation you can reform this type.

Further, in the practice of law many of us have had "Clueless" moments that we regret, I am sure.

The difference is that the "Clueless" are often well intentioned but occasionally misguided (read we are "just human" or "we are all just sinners"), while the "Intentional" have a plan, a strategy, a philosophy, a way of life (and in law a way of practice) that is truly and unnecessarily hurtful, harmful, costly and demeaning to others.  I have had asshole moments in the past, but am generally sorry and repentant.  The "Intentional" is proud and unapologetic.  Negative attention is better than no attention.  The means justifies the ends. The fact they get away with their conduct (and are rewarded for their conduct) teaches them to do it again, again, and again.  There are no ethical and moral boundaries.  You cannot call the "Intentional" on it because such an act alone reinforces their ego and, hence, their bad behavior.  The fact that somebody believes I am an asshole would make me feel bad.  It provides "Intentional" their net worth in the practice of law.

I knew an attorney once who had a bumper sticker on his car that stated, "The meek might inherit the earth, but not the mineral rights".  Cute, but I think it defines the philosophy of those we speak.

There are just too many law firm, and especially Big Law firms, in which the "Intentional" variety prevail.  They are often referred to as "Rambo Lawyer", although I think that is probably too popular of term to use.  It is this "Intentional" type of lawyer that brings displeasure to us Third Wave attorneys in our practice of law.  These "Intentional" lawyers are too costly in time and money for no particular benefit but their own.  That is the objective they seek.

I have been on a rant about it lately because the problem seems to be getting worse.  Maybe it just manifests itself during this holiday season as the "Intentionals", let's call them, enjoy using and abusing the holiday season to disrupt the lives of Third Wave attorneys, debtors and other ones aggrieved by their "Clueless" client's actions. They cannot win a case legally or ethically so their tactic is to be so disruptive, so costly, so obnoxious and vile that the aggrieved cave in and go away demoralized.  What better place to play Grinch than during the Christmas holiday.

A few years ago one of the "Intentionals" served an unannounced subpoena on me, as the Plaintiff's attorney in the case, two days before Christmas to show up the day after Christmas for my deposition to be taken.  I was also suppose to produce all of the prior cases files I had handled of the same type as being litigated in that instance.  I was to deliver my work product in this case, as well as all of my research notes, all papers I had ever published and seminars were I had lectured.  I was also to deliver my client's legal file for copying.  I called the attorney upon receiving the subpoena to express how much I disagreed with it, but to also suggest that we needed an agreement to put it off until after the holidays so the judge could decide this issue.  The lawyer fell into an unrelenting yelling fit so bad I just had to ask if he was on medication.

Not only did I believe this to be inappropriate on so many levels (which is an understatement), but so did the federal judge involved. The Judge had to disrupt his Christmas vacation as well to quash the subpoena.  I got to spend Christmas Eve drafting motions and engaging in telephonic hearings.  The Judge had to hold a hearing before New Years to deal with the issue after he quashed the subpoena.  The lawyer himself was unrepentant, priding himself on his litigation prowess that unnerves the opposition, and the case was settled only because the lawyer's partner thought it was the only way to avoid sanctions for the law firm.  (A settlement put the cost of this bad behavior on the lawyer's client as opposed to him, and he got paid for his time in all of this to boot).

It is important to note that this attorney acts this way in almost every case and is marketed by the law firm as a litigation attack dog to its Fortune 500 companies.  He is not only an "Intentional", but he is intentional in being an "Intentional" -- the worst kind of asshole.

I have run into this problem this Christmas season, if not on this scale.  What has amazed me over the years is that the "Intentionals" tend to grow and thrive in the same Big Law litigation departments. Unfortunately, they take these kids out of law school, over work them (or work them over), and teach them to be wholly dedicated and intelligent lawyers, but also irresponsible, demoralizing asses.  It is truly unfortunate.  With the law firm's move up or move out policy on associate retention, only those who pass the "Intentional" test seem to win out.

I have often wondered what percentage of Rule 11 sanction motions are tactically filed, or at least threatened, by the "Intentionals" between the Thanksgiving and Christmas holidays.  My guess is a lot. The "Intentionals" try to use personal attacks on attorneys and holiday schedules to de-energize the other side.  It is that "Intentional" strategy in motion.  (Pun intended).

The other issue of course is billing.  Is there any doubt that the "Intentionals" among us, and their law firms, get paid more per case because they whip their hourly paying clients into a frenzy and spend hundreds of hours on these frivolous personal attacks.  That is what I suspect.  After all, there has to be a quantifiable benefit to being an "Intentional".  My guess is that it is marketing as being overly zealous and billing because you are a strategist instead of a moralist.  (As a side note, one would think that unit billing and fix fee billing would help cure this beast).

I wonder if these attorneys know they are assholes.  I am sure they rationalize their inappropriate conduct in some way.  I think the practice is more prevalent in Big Law because if the environment is ripe for this type of thing, there is a lot of moral support (although that term seems inopposite of what I want to say) among their peers in their firm.  In other words, as my Mother says, "birds of a feather flock together".  "Intentionals" flock with "Intentionals".

Most attorneys get along and play well with others.  Most have a group bond (if not a friendship) and a group ethic to which they at least try to adhere.  For example, attorneys meet at bar functions and they visit in Court.  They have disagreements, but they do not act out badly.  Yet, it is funny, during these functions all of these attorneys know who the "Intentionals" are.  The courts and judges know who they are.  One judge that I knew classified these attorneys as being "board certified in billing".  That is their reward and motivation for being bad.  And because we are nicer than they are, we keep it to ourselves. I think, however, the time is coming when we will need to orchestrate "Intentional Interventions" to help these attorneys and firms become better citizens.

In the meantime, maybe we should produce a movie of the "Intentional" lawyer who stole Christmas.

As I have said in the past, all of us have bad moments.  The difference is that when the smoke clears we do not overly try to rationalize it.  We feel sorry and try to apologize or at least make amends.  I guess that is because we had a "Clueless" moment.

Here is what I have learned as an attorney.  Sometimes we are right, and should be proud of it.  Sometimes we turn out to be wrong.  That is the reason they pay the judges the big money to figure this out. However, in either case, it is just not a good idea to be arrogant.  I think, ultimately, arrogance is the factor that distinguishes the "Intentional" from us "Clueless".  The "Intentionals" are assholes but they are proud of it.