Jeffrey S Prusan

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
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In re
Case No. 09-49716-CEC
Jeffrey S. Prusan,
Chapter 7
Debtor.
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DECISION
APPEARANCES:
Joshua N. Bleichman, Esq.
Bleichman & Klein
268 Route 59
Spring Valley, New York 10097
Attorney for the Debtor
Melinda D. Middlebrooks, Esq.
Joseph Shapiro, Esq.
Jonathan Goodgold, Esq.
Middlebrooks, Shapiro & Nachbar, P.C.
1757 Morris Avenue
Union, New Jersey 07083
Attorneys for Ira and Barbara Goldberg and
Jonathan Goodgold
CARLA E. CRAIG
Chief United States Bankruptcy Judge
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This matter comes before the Court on the motion of Jeffrey S. Prusan (the “Debtor”) for
sanctions against Ira and Barbara Goldberg (together, the “Goldbergs”) and Jonathan Goodgold,
Esq. (together with the Goldbergs, the “Respondents”) pursuant to § 362(k) of the Bankruptcy1
Code for the willful violation of the automatic stay imposed by § 362(a). The Respondents
oppose the Debtor’s motion. For the following reasons, the Debtor’s motion is denied.
Jurisdiction
This Court has jurisdiction over this core proceeding under 28 U.S.C. §§ 1334(b) and
157(b)(2)(A), and the Eastern District of New York standing order of reference dated August 28,
1986. This decision constitutes the Court’s findings of fact and conclusions of law to the extent
required by Federal Rule of Bankruptcy Procedure 7052.
Background
The following facts are undisputed.
On November 3, 2009, the Debtor filed a voluntary petition for relief under chapter 7 of
the Bankruptcy Code. On Schedule F, the Debtor listed the Goldbergs as unsecured creditors
holding a disputed claim, described as “judgment” for $675,000. On the Statement of Financial
Affairs, the Debtor listed an action (the “State Court Action”) brought against him by the
Goldbergs in the Superior Court of New Jersey (the “N.J. State Court”), stating that the action
was resolved by “settlement agreement.”
The Debtor filed for bankruptcy on the date that he was scheduled to appear at a
deposition in connection with the State Court Action. (Opp’n Ex. O.) On November 2, 2009,
the day before the deposition, the Debtor’s counsel notified Goodgold, the Goldberg’s attorney in
Unless otherwise indicated, all statutory references herein are to the Bankruptcy Code, 11 U.S.C.
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the State Court Action, that the Debtor “is filing bankruptcy” and will not attend the deposition.
(Opp’n Ex. P.) Two days later, on November 4, 2009, the Debtor’s counsel provided Goodgold
with a copy of the Debtor’s petition. The petition did not contain a timestamp or other indication
that it had been filed with the court. On that same date, Goodgold, as counsel to the Goldbergs,
sent a letter to the N.J. State Court stating:
Late on November 2, 2009, a fax came in from [Debtor’s counsel]
stating that Mr. Prusan will not attend the deposition because he “is
filing bankruptcy.” . . . I highlight the word “filing” because that is
not what Mr. Prusan testified to Your Honor on October 20, 2009.
He specifically stated he hired an attorney and filed for bankruptcy
protection, but could not and did not provide any proof of same. . . .
This morning we just received a copy of the Bankruptcy petition,
which is dated November 3, 2009, further showing that Mr. Prusan’s
testimony was a deliberate lie to avoid being deposed and/or arrested.
. . . While we are under the impression that Mr. Prusan’s bankruptcy
petition may have already been filed, we are uncertain and do not
have any proof of same.
(Opp’n Ex. R at 1-2.) Based upon the Debtor’s alleged misrepresentation, Goodgold requested
that the N.J. State Court “entertain or sua sponte order a contempt hearing.” (Opp’n Ex. R at 2.)
The N.J. State Court contacted Goodgold the following week to schedule a hearing with
respect to the issues raised in the letter. Goodgold informed the N.J. State Court that the Debtor
filed for bankruptcy and that the matter could not proceed.
On November 12, 2009, the Debtor filed this motion alleging that, by sending the letter,
the Goldbergs and Goodgold sought to collect a pre-petition debt after he had filed for
bankruptcy protection. The Debtor argues that this letter violated the automatic stay imposed by
§ 362(a), and seeks the imposition of sanctions, and an award of punitive damages in the amount
of $5,000, plus attorneys’ fees and costs totaling $3,000.
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Discussion
The automatic stay is triggered the instant a bankruptcy petition is filed. 11 U.S.C. § 362.
Among the actions stayed are:
the commencement or continuation, including the issuance or
employment of process, of a judicial, administrative, or other action
or proceeding against the debtor that was or could have been
commenced before the commencement of the [bankruptcy] case . . .,
or to recover a claim against the debtor that arose before the
commencement of the case under this title; . . . [and] 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)(1),(6). While a party’s knowledge of the filing is “immaterial to a
determination of whether the stay was violated,” it is relevant to whether the violation was
willful. Siskin v. Complete Aircraft Servs., Inc. (In re Siskin), 231 B.R. 514, 517 (Bankr.
E.D.N.Y. 1999). “Pre-filing contact between a creditor and a debtor indicating that a bankruptcy
may be filed has not been deemed sufficient to constitute actual notice for purposes of
establishing a willful violation because, ‘. . . it must be emphasized that it is the filing of a
petition and not the debtor’s intent to file which invokes the automatic stay.’” In re Flack, 239
B.R. 155, 163 (Bankr. S.D. Ohio 1999) (quoting In re Bragg, 56 B.R. 46, 49 (Bankr. M.D. Ala.
1985)).
If a violation was willful, an individual debtor may seek relief pursuant to § 362(k),
which 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.” 11 U.S.C. § 362(k)(1). This section was2
Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
2
§ 362(k) was designated § 362(h).
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enacted “[t]o preserve the integrity of the automatic stay provisions and to protect consumer
debtors and creditors.” Flack, 239 B.R. at 162.
The Respondents argue that they did not have actual knowledge of the bankruptcy filing
because counsel’s letter only stated that the Debtor “is filing bankruptcy,” and because the
petition provided to them did not contain any proof that it was filed. Additionally, the
Respondents argue that § 362(k) permits an award of punitive damages only in situations where
the Debtor has been injured by the violation, and that the Debtor was not injured by the letter.
Respondents contend, therefore, that no punitive damages are recoverable.
The Debtor argues that the Respondents knew, or should have known, of the bankruptcy
filing, and that they willfully violated the automatic stay by sending the letter to the N.J. State
Court. The Debtor contends that he can obtain punitive damages and attorneys’ fees pursuant to
§ 362(k) by virtue of the violation, without suffering other damages. To find otherwise, he
argues, would have the effect of giving “permission” for violations that do not cause damages.
(Tr. at 14-15.)3
The Debtor’s motion must be denied because the Respondents’ conduct does not warrant
an award of punitive damages under § 362(k), even assuming the Respondents had actual
knowledge of the Debtor’s bankruptcy filing. Punitive damages are only appropriate when a
creditor, in bad faith or with malice, violated the automatic stay, Crysen/Montenay Energy Co. v.
Esselen Assocs., Inc. (In re Crysen/Montenay Energy Co.), 902 F.2d 1098, 1105 (2d Cir. 1990);
In re Adomah, 368 B.R. 134, 139 (S.D.N.Y. 2007), or acted in a particularly egregious manner,
In re Solis, 137 B.R. 121, 133 (Bankr. S.D.N.Y. 1992). Furthermore, a debtor must show that he
“Tr.” refers to the transcript of the hearing held on December 3, 2009.
3
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suffered actual damages in order to recover punitive damages; “[v]iolation of the automatic stay,
standing alone, will not support award of damages under . . . § 362[k].” Siskin, 231 B.R. at 521.
While Goodgold certainly violated the automatic stay by sending the letter to the N.J.
State Court, he also promptly thereafter informed the court that the matter could not proceed
because the Debtor filed for bankruptcy. The Debtor was not required to appear in N.J. State
Court, and was not required to take any action to enforce the automatic stay and prevent the N.J.
State Court from holding a contempt hearing. Indeed, it is conceded that Goodgold informed the
N.J. State Court of the bankruptcy filing before this motion was filed. (Tr. at 5.) Based upon
these facts, this Court cannot conclude that Goodgold’s actions were egregious, or that he
maliciously, or in bad faith, violated the automatic stay. Given this conclusion, punitive damages
cannot be awarded.
Moreover, this Court cannot award the reimbursement of attorneys’ fees and costs under
these circumstances. While attorneys’ fees and costs are recoverable under § 362(k), the fees4
and costs must be reasonable and necessary. In re Robinson, 228 B.R. 75, 85 (Bankr. E.D.N.Y.
1998). “The policy of section 362[k], to discourage willful violations of the automatic stay, is
tempered by a reasonableness standard born of courts’ reluctance to foster a ‘cottage industry’
built around satellite fee litigation.” Id. (citing Putnam v. Rymes Heating Oils, Inc. (In re
Putnam), 167 B.R. 737, 741 (Bankr. D.N.H. 1994)). It is well established that “[r]easonable and
necessary fees do not include unnecessary litigation costs.” Id.; see also Yarinsky v. Saratoga
Although the Debtor stated that he suffered no actual damages (Tr. at 3), attorneys’ fees and costs
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constitute actual damages. See 11 U.S.C. § 362(k) (“[A]n individual injured by any willful violation of a stay
provided by this section shall recover actual damages, including costs and attorneys’ fees . . . .”); In re Robinson, 228
B.R. 75, 85 (Bankr. E.D.N.Y. 1998) (citing Bank of Boston v. Baker (In re Baker), 140 B.R. 88, 90 (D. Vt. 1992)).
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Springs Plastic Surgery, PC (In re Saratoga Springs Plastic Surgery, PC), No. 1:03CV896, 2005
WL 357207, at *5 n.4 (N.D.N.Y. Feb. 11, 2005), aff’d, 172 Fed. Appx. 339 (2d Cir. 2006)
(“[A]n ‘excessively litigious approach’ to violations of the automatic stay that do not cause
damages in an[d] of themselves must be guarded against.”).
Here, Goodgold informed the N.J. State Court that the matter could not proceed before
the Debtor filed this motion to enforce the automatic stay and to recover sanctions. This is
precisely what Goodgold was required to do. See Sucre v. MIC Leasing Corp. (In re Sucre), 226
B.R. 340, 348 (Bankr. S.D.N.Y. 1998) (“Upon learning of a bankruptcy filing, a creditor has an
affirmative duty to return the debtor to the status quo position as of the time of the filing of the
petition.”). As a result of Goodgold’s corrective actions, the Debtor did not incur any costs in
defending himself at a contempt hearing in N.J. State Court, nor was he required to make a
motion in this Court to enforce the stay. The only damages incurred by the Debtor were the fees
and costs of bringing this subsequent motion to recover punitive damages. Under these
circumstances, and because punitive damages are clearly unwarranted, this Court concludes that
the fees incurred in bringing this motion were neither reasonable nor necessary. Therefore, the
fees and costs of bringing this motion are not recoverable by the Debtor.
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Conclusion
For all the foregoing reasons, the Debtor’s motion is denied. A separate order will issue.
____________________________
Carla E. Craig
United States Bankruptcy Judge
Dated: Brooklyn, New York
March 2, 2010
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