Timothy Daniels

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U.S. Bankruptcy Court
District of Idaho

Filed: October 27, 2004
At: 9:00 am.

By: Sylvia Wirth

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF IDAHO

Tn Re:
Bankruptcy Case
TIMOTHY DANIELS, No. 04-41306
Debtor.
MEMORANDUM OF DECISION
Appearances:

Stephen A. Meikle, Idaho Falls, Idaho, Attorney for Debtor.

Craig W. Parrish, Pocatello, Idaho, Attorney for Creditor Bannock
Collections, Inc.

R. Sam Hopkins, Pocatello, Idaho, Chapter 7 Trustee.

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Background

There was atime in America when debtors were jailed for not
paying their debts. In reviewing the facts of this case, it appears perhaps that time
has not passed. In this case, a state court judge issued a warrant for the arrest of
Timothy Daniels (“Debtor”) at the request of Bannock Collections, Inc.
(“Creditor”) after Creditor was unable to collect a judgment agaist him for
$367.08, Debtor filed for relief under Chapter 7 of the Bankruptcy Code. After
the filing, while the arrest warrant remained outstanding, Creditor steadfastly
refused Debtor’s requests that Creditor act to have the warrant withdrawn.
Potentially, even today, Debtor may be subject to arrest.

Debtor contends Creditor’s refusal to act to quash the warrant
amounts to a violation of the automatic stay of 11 U.S.C. § 362(a), When he could
get no help from Creditor, Debtor filed a motion asking this Court to award him
damages against Creditor and its lawyer Craig Parrish (hereafter “Counsel”).
Docket No. 5. Creditor opposed the motion. Docket No. 6. On August 12, 2004,
the Court conducted an evidentiary hearing concerning Debtor’s motion and took

the issues under advisernent. Docket No. 11.

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Having reviewed the evidence and testimony submitted at the
hearing, along with the parties’ post-hearing briefs, Docket Nos. 12, 13, the Court
concludes that Creditor and its Counsel, with knowledge of Debtor’s pending
bankruptcy case, both willfully, even recklessly, violated the automatic stay. As a
result, Debtor is entitled to damages. What follows constitutes the Court’s
findings of fact and conclusions of law. Fed. R. Bankr. P. 7052; 9014.

Facts!

Creditor obtained a small claims default judgment against Debtor for
$367.08 in state court. When Creditor could not collect the judgment, on February
2, 2004, acting on Creditor’s motion, the state court issued an order directing
Debtor to produce copies of his 2003 W-2 forms and his federal income tax retum
for Creditor within ten days. Order, Ex. A. On February 11, 2003, Debtor filed
copies of his 2003 W-2 forms with the state court clerk. Ex. B. While Debtor did
not give copies of his tax returns to Creditor or file them with the state court,

based upon Debtor’s testimony at the August 12, 2004 hearing, in response to

! Those findings that refer to or are based upon the testimony given at the
evidentiary hearing reflect the Court’s evaluation of the witnesses’ credibility and its
determination of the proper weight to be attributed to such testimony.

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questions from Creditor’s counsel, it was apparent that Debtor believed, albeit
incorrectly, he had fully complied with the state court’s order.

Because Creditor did not receive copies of Debtor’s 2003 federal
income tax retums, on May 3, 2004, Creditor’s employee and paralegal, Traci
Bender, applied ex parte to the state court for a warrant for Debtor’s arrest based
upon his failure to fully comply with the state court’s order. Ex. 1. Ms. Bender
drafted and submitted a proposed arrest warrant for the judge’s signature. Ex. 2.
Creditor asked the state court to set bail for Debtor’s release when he was arrested
in the same amount as Creditor’s judgment, and that the bail be payable only in
cash. Ex, 1.’

The state court, for reasons that are not apparent from the record,
and without any further notice to Debtor or opportunity for a hearing,
accommodated Creditor’s request in all respects, and issued a warrant for his arrest
on May 4, 2004. As Creditor had asked, the warrant required Debtor to post bail,

in cash, in the same amount as Creditor’s judgment. Ex. 2. Ms. Bender received a

2 Notably, Creditor did not simply ask for Debtor’s income tax return in lieu of his
arrest, not did Ms. Bender advise the state court judge of Debtor's attempt to comply with
the order by filing copies of his W-2 forms with the clerk. Ex. 1.

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copy of the warrant from the state court after it was issued, sometime before the
end of May.

Luckily for all concerned, Debtor, who was unaware of the
outstanding warrant, was not arrested. Instead, he consulted an attorney and filed
a petition for relief under Chapter 7 of the Bankruptcy Code on June 17, 2004.
Debtor listed Creditor in his schedules and included Creditor’s correct mailing
address on the mailing matrix he filed with this Court. Docket No. 1. The
Bankruptcy Noticing Center sent notice of Debtor’s bankruptcy filing to Creditor
by mail.’ In addition to receipt of the written notice of Debtor’s bankruptcy filing,
Ms. Bender also recalls receiving a telephone call from Debtor’s attorney at about
the same time informing her of Debtor’s bankruptcy.

Because of the outstanding warrant, and knowing that Debtor had
filed a bankruptcy petition, Ms. Bender sought the advice of legal counsel about
Debtor’s situation. Ex. C. She had a conversation with Counsel, who regularly

represents Creditor in its collection actions, on June 30, 2004. Ex, C. At that

* The certificate of mailing filed with this Court by the Bankruptcy Noticing
Center reflects that notice was mailed to the parties listed on the mailing matrix on June
20, 2004. Creditor was sent copies of the notice at two addresses, one of which was a
post office box and the other a street address. Ms. Bender apparently received the notice
on June 30, 2004. Creditor’s Brief at 4, Docket No. 12.

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time, in response to Ms. Bender’s inquiries, Counsel advised her that Creditor was
not obliged to take any steps to withdraw the outstanding warrant. Instead, he told
her that it was Debtor’s responsibility to approach the state court to quash the
warrant. Ex. C: Brief at 4, Docket No. 12. Ms. Bender took her lawyer’s advice;
she did nothing, and neither did Counsel.
Over a month after the bankruptcy filing, on July 22, 2004, acting on
the outstanding warrant, the police appeared at the home of Debtor’s parents to
arrest him. He was not there. Debtor’s parents informed him that the police were
looking for him. After making several phone calls to the state court, and then to
i Creditor, Debtor learned that the police were after him in connection with
Creditor’s collection action. Debtor contacted his bankruptcy attorney. Since
then, Debtor has worried about the possibility he could be arrested at any time.
Over the course of the next two days, staff members at Debtor’s
attorney’s office called Ms. Bender and asked her for help in getting the arrest
warrant withdrawn. Ms. Bender advised them that Counsel had advised her not to
withdraw the warrant, and that she intended to follow that recommendation. Ms.
Bender instructed Debtor’s attorney's staff to call Counsel for any further help

regarding the situation. They did. Counsel also declined the requests that he act

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to get the warrant quashed. On July 30, 2004, Debtor filed the instant motion.
Docket No. 5.

At the August 12 hearing, Ms. Bender explained that it is her
company’s practice and custom to seek financial information from the judgment
debtors from whom Creditor is attempting to collect in state court. If that
information is not forthcoming, Creditor routinely asks the state courts to order
that the debtors be arrested under a warrant with a cash bond in the exact amount
of the judgment. In response to questions by the Court, Counsel conceded at the
hearing that the warrant procedure is intended as a tool to extract payment from
the judgment debtors. Once the bond is posted, Counsel explained that Creditor
then applies to the state court for release of the cash to Creditor in satisfaction of
the debt. If the judgment debtor happens to file for bankruptcy relief during this
process, Counsel has advised his client that it should ask the state court to release

the bail money, but only to the bankruptcy trustee.

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Arguments of the Parties

To be clear, the propriety of Creditor’s actions in obtaining the
issuance of an ex parte warrant for Debtor’s arrest for failure to turn over financial
information to Creditor is not a matter of concern for this Court. Because those
proceedings took place and the warrant was issued before Debtor filed his
bankruptcy petition, the automatic stay under § 362(a) was not implicated. It is
only Creditor’s and Counsel’s conduct, and the events that took place after the
bankruptcy case was commenced, that Debtor can call into question in this
context.
| Creditor’s position in this case is simple enough. Although the arrest
| warrant presumably remained outstanding at the time of the evidentiary hearing
and despite Debtor’s motion, Creditor contends it effectively ceased any collection
| activities against him upon the bankruptcy filing. Creditor argues it had no duty to
| act to withdraw the warrant at that time. Instead, Creditor insists that because the
| warrant was issued by the state court based upon Debtor's failure to comply with
its order to provide the tax documents, the warrant was designed to “uphold the
dignity of the court.” Creditor asserts that if grounds existed to quash the warrant,

| Debtor should have gone to the state court, not to Creditor, for help.

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Debtor argues that Creditor’s conduct in securing the issuance of an
arrest warrant with cash bail set in the amount of the judgment was but a poorly
disguised collection tool. Because the warrant procedure was intended by Creditor
to result in the collection of the judgment, Debtor contends that Creditor and
Counsel, by refusing to cooperate in getting the warrant withdrawn after Debtor's
bankzuptcy filing, violated the automatic stay. Debtor seeks money damages from
both Creditor and its Counsel for $135 in lost wages, $2,850 in attomey fees, and
$4,300 for his emotional distress. To punish Creditor, Debtor asks for $9,000 in
punitive damages. Docket Nos. 5, 10, 13, 14.

Disposition of the Issues

Simply stated, Debtor’s position has merit. On these facts, the Court
concludes that Creditor and Counsel willfully violated the automatic stay, and as
prescribed by the Bankruptcy Code, both are Hable to Debtor for damages. Here’s
why.

A. Creditor’s Actions Violated the Automatic Stay.

1. Creditor’s request for issuance of the arrest warrant
was a mncre collection device.

The legal implications for creditors when a debtor files a bankruptcy
petition are weighty, indeed. One immediate impact of a bankruptcy filing is the

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effect of the automatic stay on a creditor’s rights. “The scope of protections
embodied in the automatic stay is quite broad, and serves as one of the most
important protections in bankruptcy law.” Eskanos & Adler, P.C. v. Leetien, 309
i F.3d 1210, 1214 (9" Cir. 2002), Under § 362(a), the filing of a bankruptcy
petition operates, as a matter of law (or in other words, automatically), as a stay
that prohibits, among other things, “the commencement or continuation, including
the issuance or employment of process, of a judicial . . . action or proceeding
against the debtor that was... commenced before the commencement of the case
under this title, or to recover a claim against the debtor that arose before the
commencement of the [bankruptcy] case... .” 11 U.S.C. § 362(a)(1) (emphasis
added), The stay also forbids “any act to collect, assess, or recover a claim against
the debtor that arose before the commencement of the [bankruptcy

case]....” 11 U.S.C. § 362(a)(6). Beyond doubt, the plain language of the
statute absolutely prohibits the continuation of a creditor’s pending state court

I judicial action against a debtor in bankruptcy. Eskanos & Adler, P.C., 309 F.3d at
1214. And without question in this case, when Debtor filed for bankruptcy relief,
the automatic stay precluded any further proceedings in Creditor’s state court

collection action against Debtor.

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Of course, Creditor contends it took no action in state court against
Debtor after he filed for bankruptcy. Creditor’s spin of the facts suggests it was
the state court, not Creditor, that issued the arrest warrant, and that it did so not to
assist Creditor in its effort to get paid, but to uphold the integrity of the court and
as a sanction because Debtor failed to produce financial documents as previously
ordered. In Creditor’s view, even after the bankruptcy filing, the state court could
properly punish Debtor’s contempt for its orders, because m so doing, it was
protecting the public interest, not furthering Creditor’s pecuniary goals. And once
issued, only the state court, not Creditor, could quash the warrant, if it were so
inclined. Viewed in that manner, Creditor rationalizes it was not responsible to act
to get the warrant quashed.

When Debtor filed for bankruptcy relief, any further proceedings in
the state court action were unconditionally stayed by operation of federal law.
That would obviously include any efforts to enforce the state court’s arrest
warrant. The issue raised in this case is whether, in failing to take steps to stop
those proceedings, Creditor or Counsel violated the automatic stay. Without
deciding whether a state court may ever punish a debtor for civil contempt for

violating its orders in a collection action after the debtor files a bankruptcy

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petition, the Court declines to accept Creditor’s strained view of the issues. The
simple facts suggest otherwise.

Here, Creditor initiated the process that culminated in the state court
issuing a warrant for Debtor’s arrest. Creditor filed the state court collection
action against Debtor and secured a money judgment against him. Creditor
followed up with post-judgment collection proceedings. Specifically, when
Creditor’s judgment against Debtor went unpaid, Creditor sought information
about Debtor’s financial affairs. Understandably, copies of Debtor's tax
documents would have been helpful to Creditor to garnish Debtor’s wages or seize
his assets. But when Debtor failed to produce some of the requested information,
Creditor asked the state court to put Debtor in jail. Tt was Creditor that sought
entry of a warrant for Debtor’s arrest, even to the point of drafting the arrest
warrant. In other words, this entire scenario was created, produced and directed
by Creditor, not the state court.

Creditor’s strategy in this case was nothing new nor was it based
upon anything distinctive about Debtor’s conduct. It was Creditor’s routine
practice to seek a warrant in such cases, and if a debtor was arrested and bail was

posted, to ask the state court to give it the cash in satisfaction of its claim. At that

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point, it was clear Creditor no longer wanted just information; it wanted money.
To avoid incarceration, Debtor was required to post bail, mm cash, in the exact
amount of the judgment. The question for Debtor became “should I pay the
judgment or should | go to jail?” To this Court, it is clear that Creditor’s efforts to
get Debtor put behind bars were “calculated to enforce a money judgment, pursue
a ‘collection motive,’ [and] to harass” Debtor. In re Lincoin, 264 B.R. 370, 374
(Bankr. E.D. Pa. 2001). Requiring Debtor to either pay up or lose his freedom is a
choice the Bankruptcy Code was designed to eliminate.

Creditor’s use of the state court contempt proceedings was in
furtherance of its collection action. And even though the arrest warrant was issued
prebankruptcy, maintenance of that collection action in the form of the potential
enforcement of the arrest warrant was prohibited by operation of the automatic
stay once the bankruptcy case was commenced. Eskanos & Adler, P.C., 309 F.3d
at 1215 (“The maintenance of an active collection action alone adequately satisfies
the statutory prohibition against ‘continuation’ of judicial actions.”). See also
Guariglia v. Cmty. Nat’l Bank & Trust Co. (in re Guariglia), 382 F. Supp. 738,

761 {E.D.N.Y. 1974) (finding that the creditor’s post-judgment contempt action

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against the debtor for failing to answer interrogatories was, m reality, a coJlection
method when the fine imposed was in the exact amount of the judgment).*

2. When Debtor filed for bankruptcy relief, Creditor
had an affirmative duty to act to quash the warrant.

* The Court’s conclusion in this regard blazes no new legal trail. The reported
opinions of other courts that have considered the question presented here conclude that
the use of an arrest warrant, or the continuation of post-judgment collection methods
under similar circumstances, is prohibited by § 362(a)(1) and (6). See, e.g., Guariglia,
382 F. Supp. at 760-61 (concluding that a contempt order and fine imposed in the amount
of the creditor's judgment constituted a prohibited collection action, and that labeling the
order as one for contempt did not change its character as a collection tool); Goodman vy.
Albany Realty Co. (in re Goodman), 277 B.R. 839, 842-43 (Bankr. M.D. Ga. 2001)
(holding that an arrest warrant issued for the debtor's failure to answer interrogatories
propounded after the creditor had failed to collect its judgment was issued to aid in
collection of a judgment and was subject to the automatic stay); Jn re Lincoln, 264 B.R.
370, 374-75 (Bankr. B.D, Pa. 2001) (denying stay relief when the underlymg purpose of
continuing creditor’s contempt action was calculated to enforce its money judgment);
Siskin v. Complete Aircraft Servs., Tac. (In re Siskin), 231 BR. 514, 519-20 (Bankr.
B.D.N-Y. 1999) (holding that a court order of commitment, issued to compel the debtor
to turn over documents in aid of the creditor’s post-judgment collection efforts, is within
the automatic stay); Jn re Barboza, 211 B.R. 450, 452-53 (Bankr. D.R.I. 1997) (holding
that an arrest warrant and order to pay bail in the exact amount of the restitution awarded
to the creditor, which was subsequently disbursed to the creditor, constituted a
postpetition collection action prohibited by the automatic stay), Smith v. Mitchell Constr.
Co. (fn re Smith), 180 B.R. 311, 319 (Bankr. N.D. Ga. 1995) (holding that the automatic
stay was applicable to the contempt order entered to force the debtor to respond to post-
judgment interrogatories by the creditor in an effort to collect its judgment against the
debtor), Atkins v. Martinez (In re Atkins), 176 B.R. 998, 1007-08 (Bankr. D. Minn. 1994)
(holding that civil contempt proceedings initiated after the debtor failed to satisfy the
creditor’s judgment were stayed when the proceedings were designed to aid creditor in its
collection efforts). Creditor and its Counsel do not discuss in their brief, nor explain why
they apparently discounted, these many published decisions.

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Having concluded that the pending state court proceedings, including
the enforcement of the warrant issued at Creditor’s request, were subject to the
automatic stay, the Court next addresses Creditor’s argument that, upon learning
of Debtor’s bankruptcy, it had no duty to act affirmatively to withdraw the
warrant. Given the purpose of the automatic stay, Creditor’s argument must fail.

The automatic stay was designed to give debtors in bankruptcy relief
from creditor collection actions. As interpreted by the Ninth Circuit Court of
Appeals, Ҥ 362(a)(1) imposes an affirmative duty to discontinue post-petition
collection actions.” Eskanos & Adler, P.C., 309 F.3d at 1215 (emphasis added).
Implicit in this command is a creditor’s responsibility to act to stay further
proceedings in process at the time a bankruptcy case is commenced, or in the
words of the court, to “automatically dismiss or stay such proceeding or risk
possible sanctions for willful violations” of the automatic stay. /d. at 1214.

Here, after Debtor filed for bankruptcy, Debtor asked Creditor to act
to protect him from arrest. Creditor refused. Instead, Creditor sought to shift the
duty to quash the warrant to Debtor, the state court, or to the police by asserting it

was the “court’s warrant,” and by telling Debtor it had no responsibility to

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withdraw the warrant. The past decisions of this Court clearly criticize this
attitude.

In Jn re Johnson, 262 B.R. 831, 847 (Bankr. D. Idaho 2001), the
sheriff seized literally all of the debtor’s personal property at the request of a
creditor before the debtor filed for bankruptcy. After bankruptcy, the creditor
insisted that it was the debtor’s burden to secure the release of the property to
debtor from the sheriff. When the debtor challenged the creditor’s position in this
Court, it held that the creditor, not the sheriff, bore the duty to secure a stay in the
state court proceedings and to restore the debtor’s possession of the seized
| property. Johnson, 262 B.R. at 847. This Court explained:
[C]reditors and their counsel are not allowed to sit by
and watch the litigation they have commenced proceed
by shifting responsibility to local authorities charged
with collecting judgments obtained through their
efforts... . ‘The provisions of the automatic stay
place the responsibility to discontinue any pending

collection proceedings squarely on the shoulders of the
creditor who initiated the action... .”

Id. (quoting Jn re Johnson, 253 B.R. 857, 861 (Bankr. 8.D. Ohio 2000)). See also
In re Jacobson, 03.2 LB.C.R. 119, 120 (Bankr. D. Idaho 2003) (finding that once
the creditor learned of the bankruptcy filing, its nine day delay in notifyimg the
sheriff to release the debtor’s property violated the automatic stay).

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The cases instruct that Creditor had an affirmative duty to act to
suspend the collection action. In this case, Creditor took no affirmative action to
withdraw the warrant after it learned of Debtor’s bankruptcy filing. Because of
Creditor’s inaction, law enforcement officers appeared at Debtor’s parents’ home
in an attempt to arrest Debtor on July 22. Despite Debtor’s requests for help,
Creditor persisted in its view that it need not act to prevent Debtor's arrest. Under
these circumstances, Creditor’s conduct violated the automatic stay. See Johnson,
262 B.R, at 848.

Counsel also bears personal responsibility for stay violations under
the facts in this case. Based upon the evidence, it was clear to the Court that but
for Counsel’s advice, Creditor may have pursued an alternative path. It also
appears that Creditor authorized Counsel to finally determine whether it should
accede to Debtor’s requests. In this case, Ms. Bender not only imstructed Debtor
and his attorney’s staff to consult with Counsel about the case, but also made it
abundantly clear that the attorney, not her, should ultimately “make the call”
concerning whether Creditor should accommodate Debtor’s needs.

In particular, after the attempted arrest, staff at Debtor’s counsel’s

office called Counsel and specifically asked him to act to withdraw the warrant or

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risk vioJation of the autornatic stay. In responding, Counsel was engaged in more
than merely rendering advice to Creditor. Counsel appreciated his role as the
“decision-maker” when he refused to cooperate by promoting the notion that he
and his client had no duty to act. Under these facts, Counsel’s conduct is
actionable. See Tsafaroff v. Taylor (in re Taylor), 884 F.2d 478, 483 0.6 (9" Cir.
1989) (noting that, upon appropriate facts, an attorney may be found to have
willfully violated the stay, thereby subjecting Counsel to damages under § 362(h));
Fidelity Mortgage Investors v. Camelia Builders, Inc, (In re Fidelity Morigage
Investors), 550 F.2d 47, 57-58 (2d Cir. 1976) (holding both creditor and its
attorney liable for damages, fees and costs for instituting a state court action to
foreclose a materialman’s lien despite the fact that the debtor had filed a Chapter
11 petition).
B. The Failure to Act Was Willful.
To recover damages under § 362(h), the debtor must show that the

creditor’s offensive acts were “willful.” In the Ninth Circuit,

+ Section 362(h) of the Bankruptcy Code provides that:

An individual injured by any willful violation of a stay
provided by this section shall recover actual damages,
including costs and attorneys fees, and, in appropriate
circumstances, may recover punitive damages.

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A ‘willful violation’ does not require a specific intent
to violate the automatic stay. Rather, the statute
provides for damages upon a finding that the defendant
knew of the automatic stay and that the defendant's
I actions which violated the stay were intentional.
Taylor, 884 F.2d at 482 (quoting Goichman v. Bloom (in re Bloom), 875 F.2d 224,
227 (9% Cir, 1989) (emphasis added)); see also Eskanos & Adler, P.C., 309 F.3d at
1215 (“A willful violation is satisfied if a party knew of the automatic stay, and its
actions in violation of the stay were intentional.”) (citing Jn re Pinkstaff, 974 F.2d
113, 115 (9" Cir, 1992)); Jacobson, 03.2 J.B.C.R. at 121; Ja re Wiersma, 03.1
I.B.C.R. 42, 44 (Bankr. D. Idaho 2003); Johnson, 262 B.R, at 848. It is the intent
to act after receiving notice of the bankruptcy case, not a specific intent to violate
the stay, that is material. 7a re Andrus, 04.3 1.B.C.R. 137, 141 (Bankr. D. Idaho
2004).

1. Creditor’s actions were willful.

There is little doubt Creditor’s violation of the automatic stay was
willful here. Creditor was aware of Debtor’s bankruptcy filing, both from its

receipt of written notice from the BNC and via the telephone calls from Debtor’s

counsel. Once aware of Debtor’s bankruptcy, Creditor sought advice from

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Counsel regarding what it should do about the outstanding arrest warrant.
Accepting Counsel’s advice, Creditor made the deliberate decision to do nothing.

In the meantime, and in spite of the protection afforded by the
automatic stay, Debtor was at risk of arrest. The police contacted Debtor’s
parents, a development that must certainly have becn unnerving for them and
Debtor alike. Afterward, Debtor’s counsel repeatedly asked Creditor to withdraw
the arrest warrant; Creditor refused and instead directed Debtor’s counsel to
contact its attomey for help. Counsel then rebuffed Debtor’s pleas. Indeed,
Creditor and Counsel apparently still have not acted to quash the arrest warrant,
even after Debtor has forced the issue by coming to this Court.

Creditor reminds the Court that it relied upon the advice of counsel
in rejecting Debtor’s calls. See Ex. C. But even a good faith reliance on the
advice of counsel’ is no defense to a debtor’s action to remedy willful violations of
the automatic stay. Taylor, 884 F.2d at 483; Johnson, 262 B.R. at 848 (“neither a
good faith belief that the creditor had a right to the property nor good faith reliance

on the advice of counsel is relevant”) (quoting Barnett v. Edwards (in re

® Under these facts, whether Creditor (a professional collection agency) and its
employee (a “paralegal”) acted in good faith in ignoring the impact of the automatic stay
on the advice of their attorney remains an open question.

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Edwards), 214 B.R. 613, 620 (B.A.P. 9" Cir, 1997); Wiersma, 03.1 LB.C.R. at 44
(“whether the Bank’s agent believed he had good reason to act is not relevant to
the Court’s determination of whether a § 362(h) violation has occurred.”). That a
creditor should question the advice of its attorney may seem counterintuitive to
some. But the reason for this decisional rule is a sound and simple one:

‘[T]he stay is a broad provision which requires a

creditor to seek a judicial determination of its right to

proceed.’ It would contravene a fundamental policy of

federal bankruptcy law to allow creditors to proceed

with actions possibly subject to the stay merely upon

the advice of an attorney that they are entitled to

proceed. Accordingly, because ‘good faith reliance on

the advice of counsel’ is not a defense, [Debtor] is

entitled to an award of actual damages, costs, and

attomey fees to the extent she was injured by the

‘willful violation.’
Taylor, 884 F.2d at 483 (emphasis added, citations omitted). If Creditor doubts
the advice about the Bankruptcy Code given to it by counsel, it has an option: get
appropriate guidance from the Bankruptcy Court. Doing nothing, under these
facts, was indefensible.

In short, the Court concludes Creditor’s conduct constituted a willful
violation of the automatic stay.

2. Counsel’s conduct was willful.

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Counsel’s conduct after the attempted arrest constitutes a willful
violation of the automatic stay as well. With knowledge of the pending
bankruptcy case, Counsel made a deliberate decision to refuse to cooperate with
Debtor’s counsel by withdrawing the warrant. By resisting Debtor’s requests,
Counsel assumed the same risk as did Creditor that his conduct would violate the
automatic stay. See In re Fidelity Mortgage Investors, 550 F.2d at 58; In re Forty-
Five Fifty-Five, Inc., 111 B.R. 920, 922 (Bankr. D. Mont. 1990) (finding both
creditor and its counsel committed a willful violation of the automatic stay when
counsel, after the bankruptcy filing, requested a state court to issue an mjunction
prohibiting the debtor from transferring stock).

As noted above, while it seems obvious now, one prudent course for
Creditor and Counsel would have been to seek a prompt judicial determination that
their proposed course was the correct one. See Taylor, 884 P.2d at 483 n.6; inre
Forty-Five Fifty-Five, Inc., 111 B.R. at 923 (“Ifa creditor [or his attorney] is
uncertain about the scope of the automatic stay, he takes the risk of being assessed
for damages if he fails to obtain clarification from the bankruptcy court.”).

Instead, Creditor and Counsel elected to require Debtor to obtain a judicial

determination of the issues. Consequences attend that decision.

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The Court has reviewed the cases cited by Creditor and Counsel that
they suggest justify their strategy. None of these decisions, in the Court’s view,
can be read to offer support under these facts.

For example, Counsel and Creditor cite US Sprint Communications
Co. v. Buscher, 89 B.R. 154, 156-57 (D. Kan. 1988). There, the debtor-defendant
had violated a preliminary injunction issued by the district court forbidding him
from distributing illegal telephone service access codes. To prevent this conduct,
and also because he failed to appear at a hearing concerning his actions, the court
found debtor in contempt and ordered him jailed. However, before he could be
incarcerated, the debtor filed for bankruptcy, contending that the contempt
proceedings should be stayed under § 362(a). The court held the stay was
inapplicable. Jd. at 156 (citing Guariglia, 382 F. Supp. at 761). The court noted
that there is an important difference between a contempt proceeding intended as “a
circumvented method of collecting a judgment against the debtor,” as was the case
in Guariglia and that was certainly stayed by the bankruptcy filing, and a court’s
order designed to prevent a debtor from continuing to violate the terms of an
injunction against illegal activity, which is not subject to the bankruptcy stay.

Buscher, 89 B.R. at 156-57.

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The facts of Buscher are markedly dissimilar to those of this case.
There is no comparison to be made between the state court’s order in this case that
Debtor be arrested and incarcerated unless he posts cash equal to Creditor’s
judgment, and the one in Buscher fashioned by the federal district court to prevent
on-going illegal conduct. See Creditor’s Brief at 5, Docket No. 12. At the risk of
stating the obvious, again, Creditor’s design im securing the state court’s order here
was to get paid, not to protect the public from illegal activities. The Buscher court

used its contempt order to prevent continuing violations of the law.’

7 Counsel cited two additional cases, also implicating § 362, which are clearly not
applicable to the facts here either. In SEC v. Bilzerian, 131 F. Supp. 2d 10, 14-15
(D.D.C. 2001), the court decided that a contempt order issued in a securities fraud case
that required the debtor to tum over financial information was excepted from the
automatic stay under § 362(b)(4) because it constituted an SEC regulatory action. In Jn
re Maloney, 204 B.R. 671, 674-76 (Bankr. E.D.N.Y. 1996), the defendant was
incarcerated prior to his bankruptcy filing for failing to obey a court order to pay a
property settlement related to his divorce. After he filed a bankruptcy case, he sought to
avoid further incarceration arguing he was protected by § 362(a). However, in Ma/oney,
the debtor was not given any alternative to incarceration, such as paying the debt, and his
incarceration was for a definite time, leading the court to conclude that his continued
incarceration for the failure to obey a court order was not merely a collection device
prohibited by the automatic stay. Maloney, 204 B.R. at 675-76. Moreover, § 362(b)(2)
expressly excepts the continuation of actions to collect support from the reach of the
automatic stay. Here, neither the government’s police powers nor support enforcement
exceptions to the automatic stay are applicable, and the order for Debtor’s incarceration.
was for an indefinite period of time, with a “get-out-of-jail” provision if Debtor payed cash
bail equal to the amount of Creditor’s prepetition claim.

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Counsel relies upon two other cases not involving the scope of the
automatic stay under § 362, but instead examming the application of the exception
to discharge provisions under 11 U.S.C. § 523. Counsel’s reliance is misplaced.
The court in Thruway Messenger Serv., Inc. v. Marini Un re Marini), 28 B.R. 262,
265-66 (Bankr. E.D.N.Y. 1983), decided whether a fine, imposed by a state court
because the defendant-debtor violated a temporary restraining order barring him
from interfering with a creditor’s business, was excepted from discharge under
§ 523(a)(7).°. The Marini court held that the fine could not be discharged because
it was imposed by the court as punishment for the debtor’s violation of the
temporary restraining order. Marini, 28 B.R. at 266. Similarly, Rose v. Gedeon
(in re Gedeon), 31 B.R. 942, 946 (Bankr. D. Colo. 1983), held that monetary
contempt fines imposed when the debtor-defendant violated a custody order
requiring hirn to surrender custody of his children to the plamtiff-mother were also
nondischargeable under § 523(a)(7).

It is true that, in a Chapter 7 case, entry of a discharge in the debtor’s

favor terminates the automatic stay against creditor actions to collect

* Section 523(a)(7) provides that a debt is not dischargeable “to the extent such
debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental
unit, and is not compensation for actual pecuniary loss, other than a tax penalty . - - ”

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nondischargeable debts from the debtor. See 11 U.S.C. § 362(c)(2)(C); § 727(b).
But, prior to the entry of a discharge, even creditors holding nondischargeable
debts are prohibited by the automatic stay from resorting to judicial proceedings to
collect. Thus, even if Creditor’s claim against Debtor were for some reason
excepted from discharge in Debtor’s bankrupicy case (something which has
certainly not been shown to be the case), the refusal by Creditor and Counsel to
act to quash the outstanding arrest warrant would still constitute a willful violation
of the automatic stay.

C. Damages.

1. Actual damages.

Ifa stay violation has occurred, an award of actual damages is
mandatory. 11 U.S.C. § 362(h) (“An individual injured . . . shall recover actual
damages .. .”); Wiersma, 03.1 1.B.C.R. at 44 (stating that once a court decides a
willful stay violation has occurred, an award of actual damages is mandatory)
(citing California Employment Dev. Dep't v. Taxel (In re Del Mission Ltd.), 98
F.3d 1147, 1152-53 (9" Cir. 1996)). Actual damages include the costs and
attorneys fees incurred by the debtor to remedy the stay violation. 1] U.S.C.

§ 362(h); Jn re Roman, 283 B.R. 1, 9-10 (B.A.P. 9 Cir, 2002). However, the

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debtor bears the burden of proving any actual damages resulting from a stay
violation. Jacobson, 03.2 1.B.C.R, at 121 (holding that the debtor must prove the
ainount of actual damages).

In this case, Debtor seeks damages for his lost wages and attorney
fees. The Court concludes Debtor has sufficiently proven his entitlement to
recover all of his wages and attorney fees. Debtor testified he lost two days of
work because of the pendency of the arrest warrant and to attend the hearing on
this motion. His wages for those two days would have been $135. Aff. of Debtor
at 2, Docket No. 10; Debtor’s Brief at 6, Docket No. 13.’ Debtor is entitled to
recover this amount from Creditor.

Debtor’s counsel submitted a detailed affidavit itemizing the services
he provided attempting to quash the outstanding warrant for Debtor’s arrest and
prosecuting this motion. Docket No. 14. The fees amounted to $2,850.00. While
given an opportunity to do so, Creditor did not object to Debtor’s fee accounting.

For the Court to award attorney fees, the fees must be reasonable. fx re

® The Court notes that according to Debtor’s Schedule 1, he earns $1,040 per
month, which would translate to $48 per day or $6.00 per hour. Therefore, two days of
lost wages amounts to $96.00. Nevertheless, since there may have been changes in
Debtor’s employment or income since the schedule was filed, the Court will accept
Debtor’s lost wage calculations in his more recent affidavit.

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Aughenbaugh, 02.4 L.B.C.R. 157, 163 (Bankr. D. Idaho 2002). The amount of
fees requested in this case is adequately documented and, given the issues and
facts, appears reasonable. Debtor will be awarded his attorney fees as requested.

2. Damages for emotional distress.

Debtor also seeks an award of damages for his “emotional distress.”
While the case law is divided nationally, the prevailing case law in this Circuit
holds that, to recover damages for the debtor’s emotional distress from a creditor
that intentionally violates the automatic stay, the debtor must show that he suffered
a “significant economic loss caused by the willful violation of the automatic stay .
__ and then establish that his Joss caused him emotional injury.” Stinson v. Bi-Rite

Rest. Supply Inc. Un re Stinson), 295 B.R. 109, 122 (B.A.P. 9" Cir. 2003).”

1 Tn May, 2004, the Ninth Circuit published its decision in Dawson v.
Washington Mutual Bank (In re Dawson), 367 F.3d 1174, 1181 (9" Cir, 2004), in which
it held that ‘actual damages’ under § 362(h) do not include damages for emotional
distress” under any circumstances. However, after hearing on the instant motion, the
court of appeals issued an order withdrawing its opinion in Dawson. See Dawson, No.
02-16903, _ F.3d__, 2004 WL 2236597 (9% Cir. Oct. 04, 2004). Stinson, therefore,
represents the only circuit-level decisional authority concerning this issue. Given the
Court’s decision on the merits, it need not decide whether, as a matter of law, Debtor may
recover emotional distress damages in this case. As a result, the Court declines to
withhold entry of its decision here pending filing of an amended decision by the Ninth
Circuit in Dawson.

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In this case, Debtor has not established that he either suffered a
significant economic loss or that he suffered resulting emotional injury. While the
conduct of Creditor and its counsel violated the law, as a result, Debtor lost only
two days of work, one of which resulted from the need to attend the motion
hearing. The bulk of Debtor’s economic Joss is attributable to the attorney’s fees
incurred to bring the instant motion, the recovery of which has been allowed
above. While Debtor was likely distraught at the prospect that there was an
outstanding warrant for his arrest, no competent evidence was offered to prove
Debtor’s health suffered significantly as a result. Under these facts, absent a
significant economic loss and evidence that Debtor suffered substantial emotional
injury, the Court declines to award any damages on such account.

3. Punitive damages.

Debtor asks for $9,000 in punitive damages. Because Debtor has
proven he suffered actual damages, punitive damages may be awarded. McHenry
v. Key Bank (in re McHenry), 179 B.R. 165, 168 (B.A.P. 9” Cir, 1995) (stating
that punitive damages may only be awarded if actual damages have been proven).
However, punitive damages should only be awarded in “appropriate

circumstances.” 11 U.S.C. § 362(h). Such circumstances exist when there has

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been a “reckless or callous disregard for the law or rights of others.” Stinson, 295
B.R. at 122 (quoting Goichman v. Bloom (In re Bloom), 875 F.2d 224, 228 cg"
Cir. 1989)). See also In re McHenry, 179 B.R. at 168 (stating that punitive
damages are also appropriate if the creditor engaged in “egregious, intentional
misconduct.”); Ramirez v. Fuselier (In re Ramirez), 183 B.R. 583, 590 (B.A.P. gt
Cir. 1995) (stating that punitive damages will be awarded when a creditor’s
conduct is “malicious, wanton or oppressive.”). When setting the amount of
punitive damages, the Court may take many factors into account, including the
gravity of the offense and its deterrent effect upon Creditor and others. Wiersma,
03.1 LB.C.R. at 44 (citing Henry v. Assocs. Home Equity Servs., inc. (In re
Henry), 266 B.R. 457, 482 (Bankr. C.D. Cal. 2001).

While it disappoints the Court to do so, it concludes an award of
punitive damages is appropriate in this case.'' Not only does the evidence show
that Creditor and Counsel disregarded the Bankruptcy Code, both exhibited a lack

of any concern for Debtor’s predicament and rights. In steadfastly adhering to

'! Although the Court declined to award damages for emotional distress, an award
of punitive damages is not inconsistent with that decision because the purpose of the two
damage awards are different. Emotional distress damages are awarded to redress a
personal injury to the debtor, while punitive damages are designed to punish the
wrongdoer and to deter others.

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their offensive course, Debtor was exposed to the continuing risk of arrest and
forced to take legal action to protect his rights, something that obviously could and
should have been avoided with the parties’ cooperation. And the legal position
that Creditor and Counsel adopted is contrary to the teachings of the case law of
this Court, this Circuit, and most of the decisions of bankruptcy courts to have
addressed the issue when considering similar facts.

Because of Creditor’s and Counsel’s refusal to act, Debtor has
suffered the threat of arrest, even, potentially, to this date. Fortunately for all
concerned, Debtor has thus far avoided incarceration, but Creditor and Counsel
should not benefit from Debtor’s good luck in this regard. Faced with Debtor’s
repeated requests to withdraw the warrant, Creditor and Counsel had a prompt and
effective alternative course available: They could have sought a declaration that
the automatic stay did not prevent Debtor’s arrest, or sought relief from the stay m
order to pursue the contempt action. Instead, Creditor and Counsel elected to
force Debtor to pursue a motion in this Court to prevent the enforcement of the
warrant. Placing the burden on Debtor to prove he is entitled to the protection of
the automatic stay is not only heavy-handed and oppressive given Debtor’s

circumstances, it “suggests the same sort of ‘conscious decision to place both the

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financial burden and the litigation burden on the Debtor[]’” that was sanctioned in
Aughenbaugh. In re Andrus, 04.3 I.B.C.R. at 145 (quoting Aughenbaugh, 02.4
1.B.C.R. at 164).

The Court can not ignore the status of the parties im this case.
Debtor is a lay person with no particular legal training who is, by his public
declaration, without resources to pay his debts. Debtor erroneously believed he
had complied with the state court’s order to turn over his tax formation to
Creditor. [n contrast, Creditor is a professional collection agency, presumably
experienced, if not keenly cognizant, of the import of a bankruptcy filing to its
collection activities. Counsel, who apparently is Creditor’s regular attorney, is
similarly presumed to know the limits of the bankruptcy law.

Creditor and Counsel should have both known better. In light of the
automatic stay, each should have been motivated to take the cautious route and
sought discontinuance of the collection proceedings, which im this case meant
withdrawing the warrant. In the alternative, they could have asked this Court for
guidance concerning the status of the arrest warrant. Instead, Creditor and
Counsel both insisted that Debtor expend his limited resources to quash the

warrant. That Debtor filed a motion with this Court, instead of with the state

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court, is the risk Creditor and Counsel assumed by their conduct. The Court can
only conclude that, in spite of the bankruptcy filing, Creditor and Counsel had
calculated that, in order to avoid going to jail, Debtor would pay Creditor’s
judgment. This sort of maneuver must be sanctioned and discouraged.

In order to punish Creditor and Counsel, and to deter others from
engaging in similar conduct, the Court orders, in addition to actual damages, that
Creditor and Counsel, jointly and severally, pay Debtor punitive damages equal to
ten times Debtor’s lost wages, or $1,350.

Conclusion

The Court was distraught to learn that, even today, a creditor can
persuade a state court to incarcerate a debtor to compel payment of a debt. When
the debtor seeks shelter under the Bankruptcy Code, such a tactic is prohibited.

The facts show that Creditor initiated the contempt proceedings in
state court not to secure the financial information Debtor was ordered to provide,
but to coerce him into paying Creditor’s judgment. Upon learning that Debtor had
filed a bankruptcy petition, Creditor should have acted to quash the outstanding
warrant. By refusing Debtor’s requests to do what the Bankruptcy Code required,

Creditor willfully violated the automatic stay.

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Furthermore, it is clear that Creditor abdicated its discretion and
would not have taken this offensive course had it not been for the questionable
advice of its attorney. Though the published case law counseled against such a
course, Counsel elected to press his client’s position instead of seeckmg a judicial
determination from this Court that his approach was defensible. In doing so,
Counsel appreciated that his decision would not be countermanded by his client.

Debtor is entitled to actual damages of $135 for lost wages and
$2,850 for attorney fees. The Court declines to award Debtor any damages for
emotional distress. “Appropriate circumstances” also exist justifymg the
imposition of punitive damages of $1,350. The Court further concludes that
because both Creditor and Counsel played an active role in forcing Debtor to bring
this action instead of doing what the Code required, the obligation to pay Debtor’s
damages should therefore be the joint and several obligation of both Creditor and
Counsel, See Andrus, 04.3 LB.C.R. at 144 (imposing joint and several hability on
all of the individuals and entities that violated the automatic stay).

Finally, lest there be any mistake about the Court’s reaction to the
facts of this case, Creditor and Counsel would be well-advised to promptly take

whatever actions are required to ensure that the state court arrest warrant against

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Debtor will not be enforced. Under these circumstances, further violations of the
automatic stay will not be appreciated by Debtor nor countenanced by the Court.

Debtor’s motion will be granted by entry of a separate order

consistent with this Decision.
DATED This 27th day of van
rae.

JIM D. PAPPAS
U.S. BANKRUPTCY JUDGE

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CERTIFICATE OF SERVICE

I, the undersigned, hereby certify that 1 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.¢ howe@usdoj.gov
ary meclendon(@usdo. gov

R. Sam Hopkins
sam _hopkins(@if.rmei.net

Via Email

Stephen A. Meikle, Esq.
P. QO. Box 51137
{daho Falls, Idaho $3405

Craig W. Parrish
P.O. Box 4321
Pocatello, Idaho 83205

Via U.S. Mail

Note re E-mail service: A ".pdl" 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 purly. To review
an electronic image of the original of this document, or (o subscribe for cmuil service of fiture
decisions/orders from the Bankruptcy Judges, please access the Court's Internet web site,

www, id uscourts. gov.

CASE NO.: 04-41306 CAMERON 8. BURKE, CLERK
U.S. BANKRURTCY COURT

DATED: 10/27/04 lvia Wirth, Deputy Clerk

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