An unrepentant lender who improperly took $297.72 was saddled with $250,000 in punitive damages on top of $17, 550 in actual damages for willful violation of the automatic stay under Section 362(k).
Bankruptcy Judge Kay Woods of Youngstown, Ohio, used words like “patently unreasonable” and “reckless” to describe the lender’s conduct. For the measure of punitive damages, she settled on half the $500,000 fine that can be imposed for filing a false claim.
The imposition of damages for violating the stay resulted from a series of mistakes that the lender did not fully correct for 11 months.
The chapter 13 debtor owed about $11,000 to an auto lender that was to be paid in full during the life of the plan. The debtor had a $77,000 home mortgage and a separate $3,000 unsecured loan also owing to the mortgage lender.
The home mortgage lender took over servicing for several thousand mortgages from a lender with a name similar to the auto lender’s, so the mortgage lender mistakenly believed it had taken over servicing of the auto loan. Consequently, the mortgage lender filed a notice of transfer with the bankruptcy court, prompting the chapter 13 trustee to send the auto loan payments to the mortgage lender for several months. The mortgage lender applied payments from the trustee to the home mortgage.
Although informed by the debtor about the mistake, the mortgage lender did not return the improperly received funds until it was sued for willful violation of the automatic stay. In the meantime, the debtor, whose auto loan otherwise would have been paid in full, could not purchase a new car because the auto lender, behind in receipt of payments, would not release its lien.
In her opinion on June 15, Judge Woods concluded after discovery and a hearing with witnesses that the mortgage lender’s filing of the claim-transfer notice and retention of the payments was in willful violation of the automatic stay, implicating Section 362(k) and the ability of an individual debtor to recover actual and punitive damages along with attorney’s fees.
In the course of her 50-page opinion, Judge Woods described the mortgage lender’s conduct using words like:
· utter lack of adequate review;
· patently unreasonable;
· wanton;
· recklessly indifferent; and
· wholly unreasonable.
Judge Woods was perturbed that the mortgage lender “never apologized or even acknowledged” that filing the bogus claim-transfer notice harmed the debtor. She rejected the mortgage lender’s defense that it did not act with “nefarious and malevolent intent.”
She said intent is “immaterial to finding a willful violation of the stay.” It is enough, she said, when a creditor knows there is a bankruptcy and engages in deliberate conduct that, “it so happens,” violates the stay.
Judge Woods said she contemplated imposing $33,700 in punitive damages, representing $100 a day for the 337 days after the mortgage lender filed the bogus notice of claim transfer. She decided on a larger amount in view of the mortgage lender’s “self-righteous attitude regarding its wrongful conduct.”
The judge concluded that $33,700 was not enough to deter the mortgage lender from making similar “mistakes” in the future. Relying on precedent that allows punitive damages sufficient “to deter future bad conduct,” Judge Woods concluded that $250,000 was the right amount.