ROSA I PIZARRO ESCALERA

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AUTHENTICATED /
U.S. GOVERNMENT
INFORMATION
GPO

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

IN RE:
ROSA I. PIZARRO ESCALERA : Case No. 07-01249 (ESL)
Chapter 13
Debtor.
OPINION AND ORDER

This case is before the court on the request for actual damages, attorney’s fees and
sanctions for the willful violation of the automatic stay filed by Rosa Pizarro Escalera (the
“Debtor”) and the opposition thereto filed by the Puerto Rico Department of State.

Background

The Debtor filed this bankruptcy petition under Chapter 13 on March 12, 2007. The plan
dated April 3, 2007 was confirmed on May 29, 2001. The Debtor was employed at the P.R.
Department of State (the “State Department”) at the time of the filing-of the petition and
subsequently. The plan was funded through payroll deductions from the State Department.

On March 5, 2009 the State Department sent the Debtor a letter informing her that as of
December 31, 2008 she had a negative balance in her annual and sick leave of 29 days, 3 hours
and 46 minutes equal to $3,129.28. The State Department also informed the Debtor that they
would be retaining the checks for the second bi-weekly payments from March to May 2009,
equal to 30 working days, and that the remaining 3 hours and 44 minutes would be paid through
a special payroll deduction. The State Department failed to request court authorization prior to
the garnishment of the Debtor’s salary.

On July 31, 2009 the Debtor filed an urgent motion for violation of stay (the “Urgent

Motion”) requesting this court to direct the State Department to reimburse the Debtor all of the

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monies withheld from her paycheck. The Debtor explained that she is a single mother, that her
son suffers from Asperger Autism syndrome and he needs special care and special education. The
Debtor states that she had to pay $445.00 for extended hours and tutoring on June 30, 2009 when
she started receiving her paychecks regularly after three and a half months. Debtor’s paycheck
every 15 days is $541.64 after deductions and the plan payments of $200.00 are deducted from
her paycheck, thus the Debtor’s employer knew of the bankruptcy filing. The motion was
granted as unopposed on August 11, 2009.

The Debtor filed a motion for post confirmation modification of chapter 13 plan dated
August 3, 2009 due to her inability to comply with both the plan and mortgage payments caused
by the withholdings by the Department of State. The motion for post confirmation modification
was granted on August 11, 2009.

On August 11, 2009 the Debtor filed a Memorandum in Support of Urgent Motion
Requesting Remedy alleging that her employer’s actions led her to fall into depression, and to
incur in arrears with the Chapter 13 plan and the post-petition mortgage payments. The Debtor...
requests actual damages caused; loss of income for a period of 7 weeks, arrears with the plan and
the post petition mortgage payments causing the Debtor to file a post confirmation modification
to cure arrears, and prayed for the reimbursement of the monies withheld or $3,129.28, punitive
damages and/or sanctions in the sum of $500.00 for the willful violation of the automatic stay,
$5,000 in damages, and $2,000 for attorney’s fees and costs.

On September 14, 2009 the State Department responded stating that the withholding had
been a clerical mistake due to inadvertence and that the monies had been reimbursed already.
The Debtor replied on September 16, 2009 stating that before the Urgent Motion was filed she

tried to meet with the person in the Payroll Division, Irma, who refused to receive her and

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indicated that any communication should be made through e-mail, which the Debtor did to no
avail. The reimbursement was made on September 15, 2009 after many attempts to request the
reimbursement pursuant to the order entered by this court.

In the joint pre-trial report filed on October 18, 2009 the parties stipulated that the above
factual exposition was uncontested. The Debtor further stated that she is single and 18 weeks
pregnant, with 2 children; that her employer’s actions caused so much stress that her blood
pressure became elevated causing Arterial Hypertension and continuous contractions; and that
she was forced to be absent from her work from Sept 9 - 11, 14 - 19, 22 -29, for which period she
received no paycheck inasmuch as she does not have any accumulated sick or annual leave. The
State Department alleges that the withholding of monies from Debtor’s salary was a clerical
mistake due to “excusable negligence”. The State Department stated that the mistake was caused
by a change of public policy by the “central government” on allowing the use of working hours
for personal matters.

Trial

The trial was held on July 14, 2010. The court denied the State Department’s defense of
excusable neglect and determined that there was a willful violation of the automatic stay. The
parties were granted 10 days to supplement their position regarding the damages award which is
the only issue pending disposition.

Ms. Rosa Pizarro testified that she received the letter from the State Department
informing of the garnishment and after receipt of the letter she wrote an e-mail to her supervisor
informing her of the payroll deductions in payment of the Chapter 13 plan. The garnishment
made her nervous because the payments to the Chapter 13 plan were not being made. She said

she did not try to stop the garnishment for fear of losing her job. The plan was affected, the

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arrears to the plan were $1,900, and to the mortgage, $2,500. A motion to lift stay was filed and
the Debtor filed the Urgent Motion. The Debtor stated that she took the order on the Urgent
Motion with copy of a letter drafted by her attorneys to stop the garnishment to the State
Department and they said they would discuss the matter with their attorneys. She received
reimbursement on September 15, 2009, 30 days after delivery of the letter and the order. This
situation caused her high blood pressure and severe depression as she was worried about the
health of her kids. She was absent from work due to emotional distress. She became pregnant in
August 2009 and due to the stress caused by the garnishment, delivered her baby at 36 weeks.

Ms. Nivea Esther Torres Ocasio, Human Resources Director of the State Department,
testified that the Debtor’s gross salary was $2,298 per month, net salary $1,042.50 and her bi-
weekly payments were $521.25. Three bi-weekly payments were garnished; March, April and
May. During these months the Debtor only received one bi-weekly payment. In March 2009 the
Debtor had a negative balance of 45 days, and from January 2008 until January 2010, 96 days
negative. balance which equal to $10,176. The State Department did not garnish any more wages
after May 2009.

The Debtor is requesting $5,272.36 in economic losses including: $350.00 in attorney’s
fees in relation to the modification of confirmed plan, $2,920.96 in mortgage arrears, $401.40 in
attorney’s fees and expenses charged by the mortgage creditor, BPPR, in relation to its motion
for relief from stay, $1,600 in arrears with the plan, $2,000 in emotional and physical damages
including distress, pregnancy, premature labor, $2,000 in attorney’s fees for the Urgent Motion
and memorandum of law, joint pre-trial report and trial, and $500.00 in sanctions for the willful

violation of the automatic stay.

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Post Trial Memoranda

The Department of State argued that the damages’ request should be denied because the
damages were minimal, the deduction on the plan was eventually made, garnishment was for
three payments and stopped in May while the health problems were in September and thus were
not related to the garnishment. The Department of State maintained that the pregnancy health
issues could not have been related to the garnishment. In the post trial memorandum of law the
Debtor argued that sanctions may be recovered against a governmental unit in violation of
automatic stay cases, but punitive damages may not. Conversely, the State Department argues in
its memorandum of law that the Debtor is not entitled to punitive damages as the Department of
State is an arm of the Government of Puerto Rico and thus a government agency.

Discussion

Sovereign Immunity

11 U.S.C. § 362(k)(1) provides that “an individual injured by any willful violation ofa
stay provided by this section shall recover actual damages, including costs and attorney’s fees,
and, in appropriate circumstances, may recover punitive damages.” However, the contested
matter before the court is the willful violation of the automatic stay action by a governmental
entity, the State Department. The statutory waiver of sovereign immunity in 11 U.S.C. § 106 ap-
plies to actions brought under 11 U.S.C. 362(k)(1). Section 106 provides in its pertinent part
that:

(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is

abrogated as to a governmental unit to the extent set forth in this section with respect to

the following:

(1) Sections 105, ... 362, 523, 524, ...

(3) The court may issue against a governmental unit an order, process, or judgment under
such sections or the Federal Rules of Bankruptcy Procedure, including an order or

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judgment awarding a money recovery, but not including an award of punitive damages.

A waiver of immunity must be “unequivocally expressed” Dep’t of the Army v. Blue

Fox, Inc., 525 U.S. 255, 261, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999), and must be strictly

construed in favor of the sovereign. Orff v. United States, 545 U.S. 596, 601-02, 125 S.Ct. 2606,

162 L.Ed.2d 544 (2005). Ambiguities must be resolved in favor of immunity. United States v.
Williams, 514 U.S. 527, 530, 115 S.Ct. 1611, 131 L.Ed.2d 608 (1995). The 1994 amendments to
§ 106(a) specifically abrogate sovereign immunity as to a governmental unit with respect to
actions pursuant to § 362. The broad definition of governmental unit, 11 U.S.C. § 101(27)
includes the State Department of the Government/Commonwealth of Puerto Rico. Moreover,

after the Supreme Court’s decisions in Tennessee Student Assistance Corp. v. Hood, 541 U.S.

440 (2004) and Central Virginia Community College v. Katz, 546 U.S. 356 (2006), a waiver of
sovereign immunity is valid as to in rem proceedings. Automatic stay proceedings are in rem. In
re Pro-Fit Holdings Ltd., 391 B.R. 850 (Bankr. C. D. Cal. 2008). A state sovereign immunity is

not a defense or excuse to a violation of the automatic stay. In re Omine, 485 F.3d 1307 (11®

Cir. 2007).

Punitive and Emotional Distress Damages

The statute is clear that punitive damages may not be assessed against a governmental
unit. However, the question remains if the same holds true regarding emotional distress
damages, that is, if Section 362(k)’s “actual damages”, for which sovereign immunity is
expressly waived, encompasses emotional distress damages.

The First Circuit in In re Rivera Torres, 432 F. 3d 20 (1* Cir. 2005) held that § 106 is an

express waiver of sovereign immunity, and a waiver, in appropriate circumstances, for money

recovery. However, the court concluded that the term “money recovery” does not include

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emotional distress damages. The First Circuit acknowledged that in Fleet Mortgage Group v.

Kaneb, 196 F.3d 265 (1* Cir. 1999) there is dicta suggesting that emotional distress damages
may be available as actual damages, but finds that the Panel in Kaneb did not specifically reach

the question of whether emotional distress damages are authorized under § 362(h). The court

further noted that in Bessette v. Avco Financial Services, Inc., 230 F.3d 439 (1* Cir. 2000), the

Panel found that “actual damages” may be authorized under §105 for violations of §524, but did
not discuss whether emotional distress damages were encompassed within the term “actual
damages”.

This court concludes that pursuant to §106 and First Circuit case law, the Debtor is
barred from an award of punitive damages or emotional distress damages as the action was

brought against a governmental entity. See, Rivera Torres, 432 F.3d 20; In re Duby, 2010 WL

2867447 (Bankr. D.N.H.); In re King, 396 B.R. 242 (Bankr. D-Mass 2008)(“the Court holds that
the government has not “definitively and unequivocally” waived its sovereign immunity for
emotional distress damages awards under § 106(a) for willful violation of the automatic stay
actions brought pursuant to § 362(k)(1), [c]onsequently, the Court shall dismiss Count I against
the IRS and United States.”)

Other Damages

The State Department’s willful violation of the automatic stay by withholding three salary
payments caused the Debtor to incur in attorney’s fees for the modification of the confirmed
plan, the filing of the Urgent Motion and Memorandum of law, the Joint Pre-Trial Report, the
trial and the Memorandum of Law in Compliance with Order. The Debtor requests the amount
of $2,350.00 in attorney’s fees which this court finds reasonable. The Debtor also requests

$401.40 in the creditor’s attorney’s fees for the filing of the motion for relief of stay, which this

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court also finds reasonable.

This court finds that the Debtor is not entitled to damages for her pregnancy
complications which included high blood pressure and premature labor, because in her testimony
the Debtor recognized that she became pregnant in August 2009, at which time the
reimbursement of her salary payments was in process, and the pregnancy complications arose
after the monies were reimbursed. It must be noted that the post confirmation modification was
approved in August 2009. Furthermore, the arrears the Debtor incurred with the mortgage and
the plan do not constitute “actual damages” as the salary payments withheld were subsequently
reimbursed.

Conclusion

In view of the aforestated the Debtor is awarded the amount of $2,751.40 in attorney’s
fees for the State Department’s willful violation of the automatic stay. The Debtor’s request for
punitive and emotional distress damages, for the mortgage arrears and plan arrears incurred, and
for the damages due to the pregnancy complications, is hereby denied.

SO ORDERED.

Dated this 18" day of January, 2011, in San Juan, Puerto Rico.