Sanction for Discharge Violation: $450 in Actual Damages and $10,000 for Attorneys’ Fees
When there’s ‘no fair ground of doubt’ about a discharge violation, the creditor should settle or make an offer of settlement to avoid larger damages after trial.
Bankruptcy Judge Roberta A. Colton of Tampa, Fla., socked a law firm with $10,500 in sanctions for violating the discharge injunction.
The lesson to be learned: When confronted with a discharge violation, the offending creditor should settle, because it’s likely to be much more costly to go to trial and lose.
An individual filed a chapter 7 petition, with unpaid legal fees owing to her matrimonial counsel. The matrimonial firm received notice of the bankruptcy and the entry of discharge.
After discharge, the matrimonial firm wrote the debtor and called her, requesting payment of the unpaid fees. The debtor told the firm about her discharge in the first call and followed up with a certified letter enclosing the discharge order.
The law firm made and sent eight other calls and letters to collect the fees. The debtor’s bankruptcy lawyer then sent a cease-and-desist letter. At that point, administrative personnel at the matrimonial firm notified the partner in charge, who immediately ceased collection efforts.
The matrimonial lawyer did not respond to a written request by the bankruptcy lawyer for the payment of reparations for violation of the discharge injunction. Then, the bankruptcy lawyer mounted a motion to impose sanctions for violation of the discharge order.
Before handing down her January 8 opinion, Judge Colton had granted summary judgment in favor of the debtor, finding that the matrimonial firm had notice of the bankruptcy and discharge. She had denied summary judgment regarding satisfaction of the “no fair ground of doubt” standard for contempt of a discharge order under Taggart v. Lorenzen, 139 S. Ct. 1795 (2019).
Perhaps because the offending creditor was a law firm, Judge Colton said she “easily” concluded that the contacts had the “objective effect” of pressuring the debtor to pay the debt. “This is not to say,” she said, “that the Court finds the Law Firm acted in bad faith.”
The inappropriate actions resulted from “administrative errors” that the matrimonial partner corrected on becoming aware of the transgression. “Nevertheless, under the law, the Law Firm’s conduct is sanctionable,” Judge Colton said.
As to the amount of sanctions, the matrimonial firm argued that none were necessary because the collection efforts had ceased. Judge Colton disagreed. Sanctions are justified, she said, to coerce compliance “or to compensate the debtor for losses sustained by the creditor’s violation. [Emphasis in original.]”
With regard to the grounds for damages, Judge Colton said that emotional distress damages are available under Section 105, but the debtor “did not evidence the type of significant emotional distress required to support an award of emotional distress sanctions, nor did she show that the distress alleged was causally connected to the Law Firm’s violation of the discharge injunction.”
Judge Colton said she would “not simply overlook Debtor’s statutory right to be free of collection attempts in violation of the discharge injunction.” So, she awarded $450, or $50 for each of the firm’s nine discharge violations.
But there was more. Attorneys’ fees and costs “are recoverable as sanctions, provided they are reasonable,” Judge Colton said.
For the debtor’s counsel’s time charges, she reduced the request from about $12,200 to $10,000. She observed that the “case did not present novel or difficult questions of law, nor for that matter particularly difficult questions of fact.” Similar cases, she said, “were resolved successfully without the need for protracted litigation.”
Judge Colton entered judgment in favor of the debtor for about $10,500.
The debtor’s bankruptcy lawyer did not become involved until sending the cease-and-desist letter that demanded a settlement. At that juncture, the matrimonial firm should have been able to settle for a fraction of the eventual judgment that was inflated by the cost of a summary judgment motion and a trial.
In other words, an offer of judgment by the matrimonial firm would have cautioned the bankruptcy lawyer away from proceeding with litigation.