For an egregious violation of the automatic stay that “severely injured” the debtor, Chief Bankruptcy Judge Laura T. Beyer of Charlotte, N.C., imposed $260,000 in sanctions, given that the lender’s “behavior displayed a high degree of reprehensibility.”
The October 6 opinion by Judge Beyer shows how a court may quantify actual and punitive damages when the case on damages was not well presented by the debtor’s counsel. She said that “a more successful litigant could have shown the [debtor’s] entitlement to a larger amount of damages.”
Judge Beyer’s 57-page opinion also demonstrates how the lender could have paid nominal damages had it admitted its violation of the automatic stay instead of continuing to fight the debtor for seven years.
Throughout, Judge Beyer liberally cited an opinion by Bankruptcy Judge Christopher M. Klein of Sacramento, Calif. In Sundquist v. Bank of America NA, 566 B.R. 563, 571 (Bankr. E.D. Cal. March 23, 2017), he imposed more than $46 million in compensatory and punitive damages on a bank for foreclosing and evicting a couple from their home, even though the lender knew they had filed a chapter 13 petition expressly to halt foreclosure. The judgment included $40 million in punitive damages for what Judge Klein called a “Kafkaesque nightmare of stay-violating foreclosure.”
In Sundquist, the parties later reached a confidential settlement asking Judge Klein to expunge his opinion excoriating the lender. Ultimately, he approved the settlement but did not vacate his opinion. Sundquist v. Bank of America N.A. (In re Sundquist), 580 B.R. 536 (Bankr. E.D. Cal. Jan. 18, 2018).
Foreclosure in Violation of the Stay
The debtor filed her second chapter 13 petition to forestall foreclosure of her home. The court dismissed the petition five days after filing.
The debtor claims that her husband notified the mortgage lender about the automatic stay on the day of filing. A few days later, but before dismissal, the lender completed a foreclosure sale, realizing a few months later that it conducted foreclosure in violation of the automatic stay. Nonetheless, the lender sold the property to a third party, after having evicted the debtor from the home.
The debtor evidently had difficulty finding a lawyer to sue on her behalf. Eventually, she hired an attorney who was not familiar with this type of litigation and failed to keep detailed, contemporaneous time records, Judge Beyer said.
The debtor’s lawyer sued in federal district court in 2013, making claims under state law and for violation of the automatic stay. The case was dismissed but reinstated by the Fourth Circuit. Ultimately, the suit ended up on Judge Beyer’s docket in 2015.
Judge Beyer granted summary judgment in favor of the debtor in early 2019, finding an “egregious stay violation” that “continued for several years.” She said that the lender admitted sufficient facts to show a willful stay violation.
Before “taking steps to undo [a foreclosure] sale” that violated the automatic stay, Judge Beyer said the lender had a practice of waiting to see whether the bankruptcy would be dismissed.
The Hearing on Damages
Judge Beyer scheduled separate proceedings in December 2019 to determine damages.
Overall, Judge Beyer said that the debtor “did not convincingly show a significant portion of her alleged injuries at trial.” With regard to the value of the home, she awarded $13,000, representing the difference between the assessed value of the home and mortgage that the sale paid off.
With regard to emotional distress, Judge Beyer had “no trouble concluding” that the debtor suffered “compensable emotional distress.” She said that the lender’s “behavior was sufficiently egregious, or at least disturbing, to establish damages without corroboration.”
Judge Beyer said that emotional distress damages were “entirely appropriate,” since the defendant was “an experienced institutional” lender and was “represented by one of the leading foreclosure law firms in the state.” Given the lack of documentary evidence, she imposed damages of $5,000 for emotional distress.
With regard to attorneys’ fees, Judge Beyer recognized the need for proportionality between actual damages and attorneys’ fees. However, proportionality was “a nondispositive factor,” she said.
Judge Beyer said the case was “not very desirable” from a lawyer’s point of view and required “a great deal of time and labor” over seven years. She said the lender passed up several opportunities to settle and “stop the . . . clock” on the debtor’s attorneys’ fees. For instance, the record revealed that the lender had turned down a $5,000 settlement offer, contending there was no stay violation. She said that the lender “displayed an excessively litigious approach.”
The $109,000 in attorneys’ fees that Judge Beyer imposed was less than half of what the debtor’s counsel sought, but his time records were deficient. The allowed fees, she said, were appropriate in view of the facts of the case and the lender’s “central role in extending that duration.” She noted that “a more skillful litigant would have shown the [debtor’s] entitlement to a larger amount of damages.”
Finally, Judge Beyer turned to punitive damages, saying that deterrence is more important than retribution. She noted that the lender “refused to admit any culpability” until she ruled to the contrary. Rather than “trying to fix the problem” upon realizing there was a stay violation, she said the lender did “nothing . . . for almost a decade.”
The “lack of contrition,” Judge Beyer said, “is a sign that violations will continue.” Finding “a high degree of reprehensibility,” she awarded $130,000 in punitive damages, an amount “roughly equivalent” to the debtor’s actual damages and attorneys’ fees.
For an egregious violation of the automatic stay that “severely injured” the debtor, Chief Bankruptcy Judge Laura T. Beyer of Charlotte, N.C., imposed $260,000 in sanctions, given that the lender’s “behavior displayed a high degree of reprehensibility.”
The October 6 opinion by Judge Beyer shows how a court may quantify actual and punitive damages when the case on damages was not well presented by the debtor’s counsel. She said that “a more successful litigant could have shown the [debtor’s] entitlement to a larger amount of damages.”
Judge Beyer’s 57-page opinion also demonstrates how the lender could have paid nominal damages had it admitted its violation of the automatic stay instead of continuing to fight the debtor for seven years.
Throughout, Judge Beyer liberally cited an opinion by Bankruptcy Judge Christopher M. Klein of Sacramento, Calif. In Sundquist v. Bank of America NA, 566 B.R. 563, 571 (Bankr. E.D. Cal. March 23, 2017), he imposed more than $46 million in compensatory and punitive damages on a bank for foreclosing and evicting a couple from their home, even though the lender knew they had filed a chapter 13 petition expressly to halt foreclosure. The judgment included $40 million in punitive damages for what Judge Klein called a “Kafkaesque nightmare of stay-violating foreclosure.”
In Sundquist, the parties later reached a confidential settlement asking Judge Klein to expunge his opinion excoriating the lender. Ultimately, he approved the settlement but did not vacate his opinion. Sundquist v. Bank of America N.A. (In re Sundquist), 580 B.R. 536 (Bankr. E.D. Cal. Jan. 18, 2018).