Laura Anne Aiello v. Providian Financial Corp.

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1864
Laura Anne Aiello,
Plaintiff-Appellant,
v.
Providian Financial Corp.,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 2811--David H. Coar, Judge.
Argued November 27, 2000--Decided February 6, 2001
Before Bauer, Posner, and Easterbrook, Circuit Judges.
Posner, Circuit Judge. The "automatic stay" is a
statutory injunction against efforts outside of
bankruptcy to collect debts from a debtor who is
under the protection of the bankruptcy court. 11
U.S.C. sec. 362. "An individual injured by any
willful violation of [the automatic stay] shall
recover actual damages, including costs and
attorneys’ fees, and, in appropriate
circumstances, may recover punitive damages."
sec. 362(h). The question presented by this
appeal is whether the term "actual damages" is
intended to include damages for purely emotional
injury. We can find only one federal appellate
case that deals with the question, and that only
tangentially: Fleet Mortgage Group, Inc. v.
Kaneb, 196 F.3d 265, 269-70 (1st Cir. 1999),
cited by neither party to this appeal, held that
damages awarded for emotional injury caused by a
willful violation of the automatic stay are
"actual damages." No doubt they are; but whether
their award is authorized by the statute is a
separate question, one not addressed in Fleet
Mortgage, the defendant apparently having waived
it. That case is also distinguishable from our
case, as we’ll see.
Aiello had filed a petition for Chapter 7
bankruptcy (liquidation). One of her creditors,
the defendant, to whom she owed a credit-card
debt of about $1,000, asked her to reaffirm the

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debt and threatened to charge her with fraud if
she refused. She did refuse, and the defendant
did not charge her with fraud. She filed this
class action suit to obtain redress on behalf of
herself and similarly situated victims of the
defendant’s alleged harassment. We may assume
that the defendant violated the stay and that the
violation was willful. The bankruptcy court,
seconded by the district court, so assumed but
nevertheless granted summary judgment for the
defendant on the ground that Aiello could not
obtain an award of damages under section 362(h)
when her only evidence of injury was the
statement in her affidavit that upon receipt of
the threatening letter from the defendant she
"cried, felt nauseous and scared and the letter
caused her to quarrel with her husband. . . .
Even after her meeting with her attorney, Ms.
Aiello was still frightened." Class certification
was denied. The appeal challenges that denial as
well as the grant of summary judgment for the
creditor.
The Bankruptcy Code authorizes a creditor to ask
the debtor to reaffirm the creditor’s debt so
that it will not be discharged along with the
debtor’s other debts when the debtor emerges from
bankruptcy. 11 U.S.C. sec. 524(c). The request is
usually made by a secured creditor, and the
inducement to the debtor to accede to the request
is that he avoids having his property
repossessed, since the order discharging the
debtor’s debts that usually concludes a
bankruptcy proceeding does not extinguish a
creditor’s security interest. Dewsnup v. Timm,
502 U.S. 410, 417-19 (1992); In re Penrod, 50
F.3d 459, 461 (7th Cir. 1995); In re Be-Mac
Transport Co., 83 F.3d 1020, 1025 (8th Cir.
1996). The inducement to the creditor is that he
may be undersecured, and in any event it can be
costly to foreclose on a security interest. So
debt-reaffirmation agreements are to the mutual
benefit of debtors and creditors, and so are
lawful. But the creditor may not resort to
extortion to obtain such an agreement, In re
Duke, 79 F.3d 43, 44-45 (7th Cir. 1996); In re
Brown, 851 F.2d 81, 84 (3d Cir. 1988); Morgan
Guaranty Trust Co. v. American Savings & Loan
Ass’n, 804 F.2d 1487, 1491-92 (9th Cir. 1986),
and Aiello claims, we must assume correctly given
the procedural posture of the case, that the
defendant’s behavior was extortionate.
In the absence of a valid reaffirmation
agreement, an effort to collect a debt directly
from the debtor after the latter has filed for
bankruptcy is barred by the automatic stay, an
injunction that "issues" without court action
upon the filing of the petition for bankruptcy,
11 U.S.C. sec. 362(a), and prevents any creditor

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of the debtor from attempting to collect a debt
other than by prosecuting a claim within the
bankruptcy proceeding itself. See In re Vitreous
Steel Products Co., 911 F.2d 1223, 1231 (7th Cir.
1990); Maritime Electric Co. v. United Jersey
Bank, 959 F.2d 1194, 1203-04 (3d Cir. 1991);
Morgan Guaranty Trust Co. v. American Savings &
Loan Ass’n, supra, 804 F.2d at 1491-92; Douglas
G. Baird, The Elements of Bankruptcy 193-99 (rev.
ed. 1993). The right to seek reaffirmation, which
is related to the right already mentioned of a
secured creditor to enforce his security interest
(as distinct from seeking a judgment for the debt
itself) outside of bankruptcy, is an exception to
the automatic stay. If resort to the exception is
vitiated by the extortionate character of the
resort, the creditor has violated the automatic
stay and thus brought the remedy provision,
section 362(h), into play. Among the debt-
collection efforts blocked by the automatic stay
is foreclosure of the creditor’s security
interest; although the interest is not
extinguished by the discharge in bankruptcy of
the debtor’s debts, enforcement of it is delayed
until then unless the automatic stay is lifted
earlier. In re Vitreous Steel Products Co.,
supra, 911 F.2d at 1231-32; Baird, supra, at 193.
The automatic stay is primarily for the
protection of the unsecured creditors as a group.
The stay prevents (without need to ask a court
for an injunction) a race by the creditors to
seize the debtor’s assets, a race that by
thwarting the orderly liquidation of those assets
would yield the creditors as a group less than if
they are restrained. In re Rimsat, Ltd, 98 F.3d
956, 961 (7th Cir. 1996); Martin-Trigona v.
Champion Federal Savings & Loan Ass’n, 892 F.2d
575, 577 (7th Cir. 1989); Maritime Electric Co.
v. United Jersey Bank, supra, 959 F.2d at 1204.
But it is also for the debtor’s protection, id.;
In re Hellums, 772 F.2d 379, 381 (7th Cir. 1985)
(per curiam); In re Little Creek Development Co.,
779 F.2d 1068, 1071 (5th Cir. 1986), most
obviously in a case like the present one where
the debtor is being asked to waive his right to a
discharge of debts, the right that is at the
heart of the "fresh start" rationale of
bankruptcy. A debtor bludgeoned into waiving his
right of discharge is denied the protection of
bankruptcy law.
That protection, however, is financial in
character; it is not protection of peace of mind.
Bankruptcy is a harrowing experience, for the
bankrupt but sometimes for the creditors as well.
The Bankruptcy Code was not drafted with
reference to the emotional incidents of
bankruptcy, and bankruptcy judges are not
selected with reference to their likely ability

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to evaluate claims of emotional injury. That is
not to suggest that victims of tortious
infliction of emotional distress in the course of
a bankruptcy proceeding are orphans of the law. A
creditor who resorts to extortion or intimidation
exposes himself to a suit under state tort law.
The automatic stay is not an obstacle, because it
does not apply to suits by the debtor. Alpern v.
Lieb, 11 F.3d 689, 690 (7th Cir. 1993); Martin-
Trigona v. Champion Federal Savings & Loan Ass’n,
supra, 892 F.2d at 577; Maritime Electric Co. v.
United Jersey Bank, supra, 959 F.2d at 1204;
Carley Capital Group v. Fireman’s Fund Ins. Co.,
889 F.2d 1126 (D.C. Cir. 1989) (per curiam).
The office of section 362(h) is not to redress
tort violations but to protect the rights
conferred by the automatic stay. If one creditor
muscled out the others in violation of the stay,
the bankruptcy court would impose monetary
sanctions under subsection (h). If the defendant
here had intimidated the debtor into giving up
her right of discharge, the bankruptcy court
would have ordered under the authority of the
same subsection the monetary relief necessary to
restore her to the financial position she would
have occupied had the defendant not resorted to
intimidation. The interest in judicial economy,
as embodied in the "clean-up" doctrine of equity,
Wal-Mart Stores, Incorporated Associates’ Health
& Welfare Plan v. Wells, 213 F.3d 398, 400-01
(7th Cir. 2000); Medtronic, Inc. v. Intermedics,
Inc., 725 F.2d 440, 442 (7th Cir. 1984); Mowbray
v. Mosely, Hallgarten, Estabrook & Weeden, Inc.,
795 F.2d 1111, 1114 (1st Cir. 1986); 1 Dan B.
Dobbs, Dobbs on the Law of Remedies: Damages-
Equity-Restitution sec. 2.7, pp. 180-81 (2d ed.
1993), might allow the court to "top off" relief
designed to redress any financial injury
inflicted by the violation of the automatic stay
with an award of damages for incidental harms,
perhaps including emotional distress if
adequately proved, to spare the debtor from
having to bring two suits. Fleet Mortgage may
have been such a case, since the misconduct of
the defendant in violating the automatic stay
imposed substantial legal costs on the plaintiff,
which are not alleged here. No financial injury
is alleged in this case, and we do not think that
emotional injury is compensable under section
362(h) when there is no financial loss to hitch
it to by means of the clean-up doctrine.
The law has always been wary of claims of
emotional distress, because they are so easy to
manufacture. For a long time damages for such
distress were generally limited to cases in which
the plaintiff was able to prove some other
injury. See Restatement (Second) of Torts sec. 46
comment b, sec. 436A (1965); W. Page Keeton et

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al., Prosser and Keeton on the Law of Torts sec.
54, pp. 361-65 (5th ed. 1984); Archibald H.
Throckmorton, "Damages for Fright," 34 Harv. L.
Rev. 260 (1921). The courts have grown more
confident of their ability to sift and value
claims of emotional distress, and the old
limitations have largely been abandoned; but
suspicion lingers, as illustrated by two recent
Supreme Court decisions, Metro-North Commuter
Railroad Co. v. Buckley, 521 U.S. 424, 428-38
(1997), and Consolidated Rail Corp. v. Gottshall,
512 U.S. 532 (1994), and by cases, most recently
our decision in Alston v. King, 231 F.3d 383,
388-89 (7th Cir. 2000), where we set a high
threshold for proof of damages for emotional
distress caused by a denial of due process of
law. Buckley and Gottshall were both cases under
the Federal Employers Liability Act, and the
Court emphasized that the Act was passed before
the modern era of receptivity to claims of
damages for purely emotional injury. The
Bankruptcy Code is recent (1978), and section
362(h) is even more recent, having been added to
the Code in 1984, but it is a footnote to the
power, now more than a century and a half old, to
stay creditors’ collection efforts in order to
preserve the debtor’s estate. Ex Parte Christy,
44 U.S. 292 (1845); 3 Collier on Bankruptcy sec.
362.LH[1] (15th rev. ed., Lawrence P. King ed.
2000); see also Mueller v. Nugent, 184 U.S. 1, 14
(1902). There is no indication that Congress
meant to change the fundamental character of
bankruptcy remedies by enacting the new
subsection.
The litigating strategy of the plaintiff’s law
firm in this case reinforces the common law’s
traditional concern with the abuses to which a
right to obtain damages for emotional distress
can give rise. Rather than attempt to prove that
Mrs. Aiello suffered more than a transient and
trivial shock from the defendant’s dunning
letter, the firm wants to aggregate her claim
with that of all other recipients of such letters
from this defendant in order to force settlement
by confronting the defendant with an avalanche of
litigation and an unquantifiable potential
liability. Class actions in bankruptcy are
authorized, Fed. R. Bankr. Pro. 7023; In re
American Reserve Corp., 840 F.2d 487 (7th Cir.
1988); Bolin v. Sears, Roebuck & Co., 231 F.3d
970, 973, 975 (5th Cir. 2000), but what is
contemplated here is a class action in which the
only issues of remedy would be the existence,
gravity, and monetary value of the emotional
distress that the defendant may have inflicted on
debtors in bankruptcy by its heavy-handed efforts
at obtaining reaffirmations. We are given no
reason to suppose that this is what section
362(h) is about.

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The potential for abuse if damages for a purely
emotional injury can be awarded in suits to
redress violations of the automatic stay is
considerable, as this case illustrates. The
injury suffered by Aiello is by her own account
slight, and this is probably true of most of the
other members of the class. But since the
injuries inflicted by the defendant’s allegedly
extortionate behavior must vary very considerably
across the members of the class, individual
hearings would be required to quantify each class
member’s generally slight damages. Those hearings
would cost far more than the stakes of the
average class member, which is an indication that
this class action suit was brought merely to
force a settlement, and is, in short, a nuisance
suit. The legal system has all the nuisance suits
it needs to keep life interesting.
The plaintiff and her classmates have the normal
tort remedies against oppressive debt-collection
tactics. See, e.g., Public Finance Corp. v.
Davis, 360 N.E.2d 765, 767-68 (Ill. 1976);
Sherman v. Field Clinic, 392 N.E.2d 154, 159
(Ill. App. 1979); Moore v. Greene, 431 F.2d 584,
590-93 (9th Cir. 1970); Santiesteban v. Goodyear
Tire & Rubber Co., 306 F.2d 9, 11 (5th Cir.
1962). And, as we said earlier, if she could show
that she had suffered a loss within the
contemplation of section 362, which is to say a
financial loss, she might be permitted to
piggyback a claim for damages for incidental
emotional distress. But without such a showing,
her claim must fail, and so her suit was rightly
dismissed.
Was the denial of class certification also
correct? The defendant has not picked up on this
court’s invitation to appellees in class action
suits in which class certification is denied to
urge class certification conditional on
affirmance of the dismissal of the plaintiff’s
claim, Amati v. City of Woodstock, 176 F.3d 952,
957 (7th Cir. 1999), but instead has reflexively
defended the district court’s denial of class
certification. And likewise the plaintiff has not
conditioned her appeal from the denial of class
certification on our reversing the dismissal of
the suit, so if we reversed the denial all the
other members of the class would go down with
her. By exposing the class to such a danger, the
plaintiff’s law firm undermines its claim to be
fit to represent the class. See Greisz v.
Household Bank (Illinois), N.A., 176 F.3d 1012
(7th Cir. 1999). In any event, since the case is
not suitable for class action treatment because
of the variance in injury among the members of
the class and the cost of the individualized
hearings that would in consequence be required

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for assessing damages, class certification was
properly denied.
The other questions presented by the appeal are
moot in light of our disposition of the main
issues.
Affirmed.

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