Friday, November 28, 2014

Violate Bankruptcy Stay, Skip Court, Avoid Punitives, says Appellate Panel


Earlier this week, the Eighth Circuit Bankruptcy Appellate Panel reversed an award of punitive damages against a landlord who willfully violated the Bankruptcy Code's automatic stay.


Eviction Violates Automatic Stay

The case involved a consumer-tenant in an active chapter 13 bankruptcy.

The consumer's landlords, Eldon Bugg, and his son, Danny Bugg, wrongfully changed the locks on his rental home, then damaged his vehicle by towing it without permission.


At trial, the bankruptcy court determined the landlords violated the automatic stay, and imposed $2,000 punitive damages against the father, who failed to personally appear to testify.

Punitive Damages Reversed on Appeal

On appeal, the Appellate Panel reversed the award of punitive damages against the father who skipped trial.

The Panel acknowledged that punitive damages may be appropriate based on (1) the nature of the creditor's conduct, (2) the nature and extent of harm to the debtor, (3) the creditor's ability to pay damages, (4) the level of sophistication of the creditor, (5) the creditor's motives, (6) and any provocation by the debtor.


However, the Panel reasoned that the bankruptcy judge didn't, "make specific findings of fact as to Eldon Bugg's motive or egregious conduct in violating the stay."

Commentary

It's unclear why the Panel reversed the punitive damages award on an abuse of discretion standard, when its own account of the record seemed to justify sanctions.

The Panel's opinion explains that the trial judge specifically found that the father (1) previously misled the court, (2) intentionally violated the automatic stay, (3) left his son hung out to dry by skipping trial, and (4) caused severe disruption and harm to the consumer's life and property.

The opinion doesn't indicate that the consumer provoked the violation, and the fact that the landlord was in business for profit justified an inference that he had the ability to pay the modest $2,000 award, and his prior motions practice and representation by counsel proved he was somewhat sophisticated.

Of the six "punitive damages" factors the Panel cited as persuasive, only the fifth "motive" factor appears not to have weighed in favor of the consumer.