Kevin McCain and Nikki McCain

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U.S. Bankruptcy Court
District of Idaho

Filed: August 19, 2004
At: 2:00 p.m.

By: Sylvia Wirth

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF IDAHO

In Re:
Bankruptcy Case
KEVIN McCAIN and No. 03-04624
NIKKI McCAIN,
Debtors.
MEMORANDUM OF DECISION
Appearances:

Kelly I. Beeman, Boise, Idaho, Attorney for Debtors.

Chapter 7 Debtors Kevin and Nikki McCain filed five motions
to recover monetary sanctions from five of their creditors under 11 U.S.C.
§ 362(h), alleging that the creditors violated the automatic stay im effect in their
bankruptcy case. The Court conducted a hearing concernmg Debtors’ motions on
August 3, 2004; the only party appearing was Debtors’ attorney. At the

conclusion of the hearing, the Court took the motions under advisement. The

MEMORANDUM OF DECISION - 1

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Court’s findings of fact and conclusions of Jaw follow. See Fed. R. Bankr. P.
7052; 9014,
Facts

The facts are limited to those appearing in the Court’s file.

Debtors filed a petition for relief under Chapter 7 of the Bankruptcy
Code on December 23, 2003. Debtors’ Schedule F lists debts owing to NCO
| Financial Systems (“NCO”), OSI Collection Services, Inc. (“OSI”), and United
Parcel Service (“UPS”). Docket No. 1. The list of creditors, or “mailing matrix,”
that Debtors filed with their petition, see Fed. R. Bankr. P. 1007, named these
same creditors, and they were mailed a copy of the notice commencing the
| bankruptcy case by the Bankruptcy Noticing Center. See Docket Entry of Jan. 6,
9004. These three creditors were also provided notice of Debtors’ discharge,
entered on March 29, 2004. Docket No. 6.

On March 1, 2004, NCO sent Mr. McCain a letter requesting
payment of his account. Docket No. 28. NCO was attempting to collect this debt
on behalf of AT&T. As far as the Court can tell from this limited record, AT&T
was not listed as a creditor in this case, nor is there any other evidence that AT&T

received notice of Debtors’ bankruptcy filing.

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On June 5, 2004, Allied Interstate sent Mr. McCain a demand letter
on behalf of UPS, for the purpose of collecting the debt owed to UPS. Docket No.
28.

On June 8, 2004, Todd Haines, an attorney from California, sent Mr.
McCain a letter in an attempt to collect a debt owed to Federal Express. Docket
No. 28. At the hearing, Debtors’ counsel represented to the Court that Federal
Express originally engaged OSJ to collect its account with Debtors. In April 2004,
after Debtors received their discharge, OSI ceased collection efforts and “closed
the account.” Apparently Federal Express resumed collection efforts and retained
Mr. Haines to aid in that process.

Debtors have filed motions for sanctions against both NCO and
AT&T for the collection letter sent by NCO, Docket No. 16 (NCO) and Docket
No. 10 (AT&T); they have filed a motion for sanctions against UPS for the
collection letter sent by Allied Interstate, Docket No. 13;' and they have filed
motions for sanctions against both Mr. Haines and Federal Express for the
collection letter sent by Mr, Haines, Docket No, 22 (Mr. Haines) and Docket No.

19 (Federal Express).

1 Debtors have also filed a motion for sanctions against Allied Interstate. Docket
No. 7. However, that motion and it is not currently before the Court.

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Disposition
A. Were there violations of the automatic stay?

Section 362(a) of the Bankruptcy Code states that “a petition filed
under [title 11 of the United States Code]... operates as a stay, applicable to all
entities, of .. . any act to collect, assess, or recover a claim against the debtor that
arose before the commencement of the case under this title... .” 11 U.S.C.

§ 362(a)(6). This automatic stay of collection activities against a debtor terminates
as soon as (1) the bankruptcy case is closed, (2) the case is dismissed, or (3) in the

case of an individual debtor proceeding under Chapter 7, at the time a discharge is

granted or denied. 11 U.S.C. § 362(c}(2); Assocs. Fin. Servs. Co. of Idaho v. First

Fed. Sav. & Loan Ass'n (in re Franck), 91 1.B.C.R. 208, 209-10 (Bankr. D. Idaho

1991).

With respect to the motions for sanctions against UPS, Mr. Haines,
and Federal Express, there was no stay in effect at the time the collection letters
were sent to Debtors because their discharge had been entered. Therefore, the
letters did not violate the automatic stay. See In re Wagner, 87 B.R. 612, 618
(Bankr. C.D, Cal. 1988). For this reason, Debtors’ motions must be denied as to

these creditors.”

* Creditors’ actions may have violated the discharge injunction of 11 U.S.C.
§ 524, but the Court does not reach that issue because Debtors’ motion is founded upon

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However, NCO did send a collection letter while the automatic stay
was in effect. This is an obvious violation of the Bankruptcy Code. See, e.g., /n
re Chavis, 213 B.R. 462, 463-64 (Bankr. E.D.N.C. 1997) (noting a post-petition,
pre-discharge demand letter sent by a creditor violated § 362(a)). Moreover,
because it appears NCO had notice of Debtors’ bankruptcy filing, and it undertook
a voluntary act that in fact violated the stay, NCO committed a willful violation of
§ 362(a). Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1215 (9 Cir. 2002)
(discussing what constitutes a willful violation); Jn re Jacobson, 03.2 1,B.C.R.
119, 121 (Bankr. D. Idaho 2003).

Debtors argue AT&T is responsible for the willful violation of
§ 362(a) by NCO, its collection agent. However, recall neither AT&T, nor NCO
for that matter, bothered to appear at the hearing on Debtors’ motions or otherwise
address any of Debtors’ allegations.’ Thus, the Court must proceed on the record
as it exists, even though it was established solely by Debtors. See Jn re Eash, 225

B.R. 489, 490-91 (Bankr. D. Idaho 1998) (relying on the record established by the

§ 362(h), which clearly provides no remedy for violation of the bankruptcy discharge.

* The Court acknowledges that on August 10, 2004, a full week after the Court
took this matter under advisement, NCO filed a “Motion and Memorandum to Dismiss”
and other papers in support of the motion. Docket Nos. 30, 31, 33. NCO’s motion
requests that the Court dismiss Debtors’ motion for sanctions against it because Debtors
did not give NCO proper notice. Given the outcome of Debtors’ motion for sanctions
against NCO, the Court will deny NCO’s motion to dismiss as moot.

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debtors when the creditors failed to appear or oppose the debtors’ motion for
sanctions under § 362(h)).

According to the motion and the affidavit of Debtors’ counsel
accompanying it, Docket Nos. 10, 11, Debtors allege AT&T should be legally
responsible for the willful stay violation of NCO simply by virtue of their agency
relationship. While there is some legal support for this conclusion, it is not
universally accepted. Compare In re Withrow, 93 B.R. 436, 438 (Bankr.
W.D.N.C. 1998) (imputing notice to the collection agent to the creditor-principal
and holding the creditor liable for the willful § 362(a) violation by the agent), with
Inre Atlas Mach. & lron Works, Inc., 239 B.R. 322, 333-35 (Bankr. E.D, Va.
1998) (discussing why a principal may not be liable for the stay violation of an
agent),

Here, the Court declines to adopt a particular view on the issue
because AT&T has not objected to Debtors’ motion. In the absence of any
effective opposition by AT&T, the Court will grant Debtors’ motion as to AT&T
for violation of the automatic stay, notwithstanding that it may not have had notice
of Debtors’ bankruptcy and may not have directed NCO’s actions or ratified them
later. If AT&T can disprove Debtors’ allegations, then upon proper motion, notice

and hearing, the Court may be willing to reconsider its ruling in this regard.

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B. Calculating damages.

Section 362(h) of the Bankruptcy Code states: “An individual
injured by any willful violation of a stay provided by this section shall recover
actuat damages, including costs and attorneys’ fees, and, in appropriate
circumstances, may recover punitive damages.” 11 U.S.C. § 362(h). The burden
of proving damages is on Debtors. Jn re Jacobson, 03,2 1.B.C.R. at 121; in re
Wiersma, 03.1 1.B.C.R. 42, 44 (Bankr. D. Idaho 2003).

Even though the Court concludes that two of the creditors are guilty
of stay violations, the record in this case is completely insufficient to allow the
Court to award any actual damages or attorney fees to Debtors. Debtors did not
testify, nor did they provide any other competent proof, that they sustained actual
damages as a result of their receipt of the demand letter. See Eskanos & Adler,
PC. v. Roman (in re Roman), 283 B.R. 1, 8-9 (B.A.P. 9" Cir. 2002) (basing
§ 362(h) damages on the debtor’s declaration). During argument at the hearing, in
response to the Court’s questioning about the adequacy of the proof, Debtors’
attorney suggested Debtors incurred travel costs in coming to counsel’s office to
discuss these matters. While this type of pecuniary injury, though surely small in
amount, is likely compensable under § 362(h), see id., it is compensable only if

proven. There is no evidence in the record to support an award, even a small one.

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Regarding attorney fees and costs, counsel did not provide the Court
with any proof of the amount of fees and costs his clients incurred in pursuing
these motions, choosing instead to “leave the matter to the discretion of the
Court.” Of course, it would be a clear error if the Court awarded damages without
any competent evidence in the record as to the extent of the injury or the amount
necessary to redress it. The Court declines to simply guess. See Roman, 283 B.R.
at 11 (discussing the need for the record to substantiate an award of attorney fees
under § 362(h)).

With respect to Debtors’ request for punitive damages, in McHenry
v. Key Bank (In re McHenry), 179 B.R. 165, 168 (B.A.P. 9" Cir. 1995), the B.A.P,
held that “no punitive damages should be awarded in the absence of actual
damages ....” The Panel noted that not every stay violation should result in
punishing the offender because some violations are minor and technical in nature,
and there may be little need to deter future violations. 7d. at 169. Further, it is
difficult to identify the correct measure for imposing punitive damages where no
actual damages have been proven or sustained. /d.

In this case, the lack of proof of any actual damages precludes an
award of punitive damages. And even if the Court were to consider punitive

damages, several factors mitigate in favor of the offending parties. First, the

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record reflects but a single violation, rather than a pattern of violations. Second,
there is no indication that future violations are likely to occur. Third, Debtors and
their attorney apparently made no attempt to resolve the problem directly with
NCO or AT&T prior to filing the motions for sanctions. The Court disdains the
unwise use of sanctions under § 362(h) as a sword instead ofa shield. /d. at
168-69 (“The automatic stay afforded by section 362 is intended to be a shield
protecting debtors and their estates, and should not be used as a sword for their
enrichment.”), For these reasons, the Court will not award punitive damages.
Conclusion

The Court will deny Debtors’ motions for sanctions against UPS,
Mr. Haines, and Federal Express. No action by any of these parties or their agents
viclated the automatic stay because it was not in effect at the time the collection
letters at issue were sent.

AT&T, as the principal, and NCO, as the collection agent, are both
guilty of a willful violation of 11 U.S.C. § 362(a). But the Court declines to award
Debtors damages because the record is insufficient to prove they suffered any
actual damages, nor is there any sort of competent proof regarding their claims for
recovery of attorney fees and costs. As a result, Debtors’ motions for sanctions

against AT&T and NCO will also be denied.

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However, the Court admonishes AT&T and NCO for failing to abide
by federal law; each also deserves criticism for failing to timely respond to

Debtors’ motions, or to appear at the hearing.

A separate order will be entered.

DATED This 19th day of Au

JIMD.PAPPAS “_/
U.S. BANKRUPTCY JUDGE

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CERTIFICATE OF SERVICE

I, the undersigned, hereby certify that I served by the method
indicated below, a true copy of the document to which this certificate is attached,
to the following named person(s) at the following address(es), on the date shown
below:

Office of the U.S. Trustee

jeff.c howe(@usdoj.gov
gary.meclendon@usdo].gov

Via Email

Kelly I. Beeman, Esq.
Beeman Law Offices

710-1/2 W. Franklin, Suite 201
Baise, Idaho 83702

AT&T
P. O Box 2971
Omaha, NE 68103

Federal Express
P. O. Box 1140
Memphis, TN 38101

Todd F. Haines, Esq.
P. O. Box 7000
Tarzana, CA 91357

United Parcel Service
FP, O. Box 894820
Los Angeles, CA 90189

CT Corporation System

Registered Agent for AT&T, Federal Express and UPS
300 N. 6" St.

Boise, Idaho 83702

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Kevin J. Scanlan, Esq.
P. O. Box 1271
Boise, Idaho 83701

Via U.S. Mail

Note re E-mail service: A ".pdf" version of the above decision/order was electronically transmitted to the
parties indicated above. Email service is provided as a courtesy only upon request of a party. To review
an electronic image of the original of this document, or to subscribe for email service of future
decisions/orders from the Bankruptcy Judges, please access the Court's Internet web site,

www. id uscourls gov.

CASE NO.: 03-04624 CAMERON S. BURKE, CLERK
U.S, BANKRUPJCY COURT

DATED: 8/19/04 eputy Clerk

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