Attorney Fees Are Actual Damages for Stay Violation

Under the plain language of section 362(k)(1), costs and attorney fees are “actual damages” for violation of the automatic stay. Parker v. Credit Central South, Inc., No. 15-11204 (11th Cir. Dec. 17, 2015).

Credit Central instituted a collection action against Mr. Parker in state court. When Mr. Parker filed for chapter 13 bankruptcy nine days later he informed Credit Central. Credit Central filed a proof of claim in the bankruptcy case but continued to prosecute the small claims action as well. The state court entered default judgment against Mr. Parker. The next day, Mr. Parker filed an adversary complaint against Credit Central for violation of the automatic stay. Only then did Credit Central dismiss the case in state court. The bankruptcy court found that Credit Central willfully violated the automatic stay and awarded Mr. Parker $2,000 in compensatory damages for emotional distress, $10,000 in punitive damages, and more than $30,000 in attorney’s fees. The district court found that the emotional distress award was not sufficiently supported but it affirmed the punitive and attorney fee awards.

The Eleventh Circuit affirmed. It began with section 362(k)(1) which provides: “[An] individual injured by any willful violation of a stay . . . shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” Credit Central’s first argument that it did not violate the stay was dealt with in short order. The automatic stay prohibits debt collection activity outside the bankruptcy and Credit Central continued to prosecute its small claims action until the debtor filed his adversary complaint; a clear violation of the stay.

The court rejected Credit Central’s next argument that Mr. Parker was not injured by the stay violation, finding that “Section 362(k)(1) states plainly that a debtor’s ‘actual damages[] includ[e] costs and attorneys’ fees’ and that an award of actual damages is mandatory when the stay is violated willfully.” Injury was established where the debtor was forced to file an adversary proceeding in the bankruptcy, and where Credit Central fought that action in bad faith by issuing a blanket denial of the allegations in the complaint including the allegation that it had filed a proof of claim. Based on the plain language of the Code, incurring costs and attorney’s fees to rectify a stay violation constitutes “injury” demanding compensation. The fact that Mr. Parker failed to adequately prove damages for emotional distress did not affect his right to fees and costs.

Finally, the court affirmed the punitive damage award finding that Credit Central “acted with reckless disregard of the automatic stay by using nonattorney staff to prosecute small claims actions for the admitted purpose of lessening its legal costs. And Credit Central was indifferent to Parker’s rights to have ‘a breathing spell from his creditors,’ to escape ‘all collection efforts [and] all harassment,’ and ‘to be relieved of the financial pressure that drove him into bankruptcy,’” (citing Ellison v. Nw. Eng’g Co., 707 F.2d 1310, 1311 (11th Cir. 1983)). Punitive damages served the dual purpose of punishing Credit Central for its indifference to Mr. Parker’s rights and deterring similar conduct in the future.

Parker 11th Cir opinion