Improperly garnishing $666 from a chapter 13 debtor’s wages resulted in an award of $50,000 in punitive damages and up to $32,000 in attorneys’ fees, even though the garnishee sustained only $1,500 in actual damages.
Chief Bankruptcy Judge William R. Sawyer of Birmingham, Ala., imposed punitive damages to deter the recurrence of the creditor’s “deplorable” conduct. The saga began as the result of a simple mistake and was exacerbated because the creditor employed poorly trained nonlawyers to cut the cost of debt collection, Judge Sawyer said.
A lender intended to collect a $666 deficiency on an auto loan from someone named Peggy Vaughan. In the state court summons, the creditor incorrectly spelled the last name as Vaughn.
After the borrower defaulted, the creditor sent a garnishment notice to Vaughan’s employer, but again misspelled the name as Vaughn and included neither the actual judgment debtor’s social security number nor her home address.
It turned out that the employer had another employee named Peggy Vaughn. The employer began docking Vaughn’s paycheck. Vaughn, it turned out, was in bankruptcy.
The garnishee, Vaughn, called the creditor and explained that she was in bankruptcy and owed nothing to the creditor. The creditor, according to Sawyer, did not correct the mistake for five months, after it had collected $666.
Meanwhile, Vaughn had filed an adversary proceeding. After trial, Judge Sawyer handed down his findings and conclusions on Dec. 2, awarding $1,500 in actual damages for a willful stay violation under Section 362(k) because the bankrupt was deprived of the use of $666. He did not give an award for emotional distress because the debtor had not proven damages.
Judge Sawyer found “appropriate circumstances” for punitive damages, given the creditor’s “slothfulness” in halting the garnishment and paying back the money. The additional damages were proper, he said, even though the creditor’s “egregiousness” lay in its inaction, not in its action.
Judge Sawyer said that the creditor had “an affirmative duty to act with utmost haste” when it was originally notified of the mistake in a phone call from the debtor. He did not cut off an award of attorneys’ fees when the stay violation ended because the adversary proceeding had been properly commenced. He is holding further proceedings to decide whether he will award the entire $32,000 in fees the debtor is requesting.