Opinion
Case No. 99-16179-SSM Chapter 7.
Date: June 5, 2000.
Jeffrey M. Sherman, Esquire, O'Rourke Cundra, Washington, D.C., Counsel for the debtor.
Kevin M. Fitzpatrick, Esquire, Fairfax, VA. Counsel for Chevy Chase Bank.
MEMORANDUM OPINION
An evidentiary hearing was held on April 24, 2000, on the debtor's motion to hold Chevy Chase Bank ("Chevy Chase") in contempt for violation of the automatic stay. The debtor was present in person and was represented by counsel. Chevy Chase was present by counsel. The dispositive issue is whether a bank violates the automatic stay by freezing the debtor's checking account (opened a few days after the petition was filed) and threatening to close it unless the debtor pays the prepetition claim of another bank that had reported the debtor for "NSF" (non-sufficient funds) activity.
Background
Peter Kater, a self-employed musician ("the debtor"), filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on December 17, 1999. The chapter 7 trustee filed a report of no distribution on February 17, 2000, and the debtor received a discharge on March 31, 2000. On his schedules he listed 60 creditors. Relevant to the present motion, neither Chevy Chase nor Norwest Bank Colorado, N.A., ("Norwest") was listed as a creditor, although at the hearing the debtor's counsel advised the court that Norwest did have a prepetition overdraft claim against the debtor in the approximate amount of $900. No amendments to the schedules have been filed listing the Norwest claim, debtor's counsel taking the position that it was sufficient that he had provided telephone and fax notice to Norwest shortly after the bankruptcy filing.
Prior to the bankruptcy filing, the debtor had opened a checking account (#114-323979-2) at Chevy Chase. On the advice of his counsel, he left that account open to enable outstanding checks to clear, but opened a new account (#114-324182-7) on December 21, 1999 (four days after the bankruptcy filing) with an initial deposit of approximately $4,000. The debtor testified that the deposit consisted of revenues from a concert he had given after the bankruptcy filing and from post-petition tape and compact disc sales. After opening the account, he wrote approximately 8 checks, all of which Chevy Chase paid. Approximately a week after opening the account, he went to the Chevy Chase branch in Ashburn, Virginia, where he had opened the account, and attempted to make a cash withdrawal. He was told he could not do so because the account was subject to a "hold" or had been "frozen" and that he could no longer write any checks. When he asked the branch manager the reason why the account had been frozen, she replied that she had no idea. She did telephone the Chevy Chase main office, however, and then advised the debtor that the account was on hold based on a "Chex Systems" report. Although the debtor explained to the branch manager that he had filed bankruptcy the previous week, he was unable to withdraw the funds and left the bank.
The debtor went back a couple of days later and tried to withdraw funds. He spoke again to the branch manager, who told him the issue was that he had an outstanding debt to another bank, and that if the debtor did not pay the other bank back, Chevy Chase was going to close his account. She also told him he would shortly be receiving a letter with a written explanation. When he did not receive the letter, he went back again and asked when he would receive it. On January 12, 2000, he received a letter, dated the previous day and signed by Lenora Price, in Chevy Chase's "new account verification" division, which stated:
It is the policy of Chevy Chase Bank, FSB to review all new and existing accounts. This review includes a verification check with Chex Systems, an account verification service. Due to information contained in the Chex Systems file, your account(s) has been restricted. No further deposits will be allowed. Your account(s) will be closed by Chevy Chase Bank on the above closure date [January 25, 2000]. At that time a check representing your closing balance and accrued interest will be sent to you via certified mail. Should you desire to make other closure arrangements, you may do so by contacting this office during normal business hours.
The letter did not include a copy of, or otherwise elaborate upon, the Chex Systems report, but merely suggested that the debtor contact Chex Systems directly. The report in question, which was not produced until the evidentiary hearing, is dated January 1, 2000, and contains the following notation:
Reason:
NON-SUFFICIENT FUNDS (NSF) ACTIVITY Dated: 12/03/99 Submitted by: NORWEST BANK COLORADO, N.A. #1028 COLORADO DEPOSIT SERVICES 1740 BROADWAY M. S. 8615 DENVER, CO 80274-8602
When January 25, 2000, had passed, and he had not received a check for his account balance, as stated in the January 11, 2000, letter, he telephoned Ms. Price in early February and asked why he had not received the check. She told him that she was giving him more time to pay the other debt, and she also told him, "Your account isn't frozen." He asked her if he could go to the branch and close out the account, and she told him he could. He then went back to the Ashburn branch and attempted to do so, but was again told the account was frozen. He complained to the branch manager, who then called Ms. Price. At that point, he was allowed to withdraw the remaining funds (which were something less than $300) and close the account, but only after being asked by the branch manager whether he wanted to apply the money "to the other account."
Neither party called the branch manager or Ms. Price as a witness. Chevy Chase offered the testimony of Ken Brown, like Ms. Price a "new accounts verification officer." He testified that he received a call from the debtor's attorney on January 12, 2000, but had declined to discuss the specifics of the debtor's account absent written authorization from the debtor. He testified that it was Chevy Chase's general policy, if a new account holder had been reported for "NSF" action by another bank, to restrict the account and to ask the account holder to pay the charges on the other account. He further testified that, upon receipt of the Chex Systems report, a "104 attention code" had been placed on the debtor's account. He explained that the "104" code signified "No over-the-counter transactions, pay checks to available balance exclusive of lines of credit." He testified that funds could in fact be withdrawn from such an account, but only if the teller obtained approval from an officer such as himself, which could only be done during normal business hours, and not, for example, on weekends or evenings. He further testified that Chevy Chase never received any written notice of the debtor's bankruptcy, and that Chevy Chase had no connection with Norwest.
The debtor offered the testimony of his bankruptcy attorney, Jeffrey Sherman, concerning the January 12, 2000, telephone call with Mr. Brown. Chevy Chase objected on the ground that an attorney cannot, while continuing to act as counsel for a client, testify on the client's behalf at trial. The court took the objection under advisement and provisionally allowed the testimony. Mr. Sherman testified that during the discussion, he specifically advised Mr. Brown that the debtor had filed a bankruptcy; that Mr. Brown told him the account was being closed because the Chex Systems report showed "NSF" activity at another bank; that Chevy Chase would not do business with a customer who owed another bank money; and that if the debtor paid the other bank, Chevy Chase would continue to do business with him.
Discussion I.
The filing of a bankruptcy petition creates an automatic stay of, among other actions, "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case[.]" § 362(a)(6), Bankruptcy Code. Where a stayed party takes an action prohibited by the stay, such conduct, if willful, may be treated as civil contempt under § 105, Bankruptcy Code. See Burd v. Walters (In re Walters), 868 F.2d 665 (4th Cir. 1989). Such conduct may also provide the basis for an award of damages under § 362(h), Bankruptcy Code, which provides: "An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." Budget Service Co. v. Better Homes of Va., 804 F.2d 289 (4th Cir. 1986).
A. Burden of Proof
At the outset of the hearing, the debtor argued that, because the court is proceeding on an order to show cause, the burden of proof is on the creditor to demonstrate why it should not held in contempt and sanctioned accordingly. The court initially notes that no order to show cause has actually been signed or served on Chevy Chase. Nevertheless, debtor's position is not supported by the case law. The moving party in a motion for an order to show cause must come forth with sufficient evidence to make out a prima facie case. See Cook v. American Steamship Co., 134 F.3d 771, 776 (6th Cir. 1998); Wyatt v. Sawyer, 80 F. Supp.2d 1275, 1278 (M.D.Ala. 1999). If this burden is met, then the burden shifts to the opposing party to produce sufficient evidence to rebut the movant's case. Wyatt, 80 F. Supp.2d at 1278. Once this is done, the burden shifts back to the moving party, who ultimately bears the burden of proof. Id. Thus, the burden of proof always remains with the debtor. See United States v. Cohen, 152 F.3d 321 n. 1 (4th Cir. 1998) ("The show cause order erroneously shifted the burden of proof to [the defendant]") (dicta); Major v. Orthopedic Equip. Co., Inc., 496 F. Supp. 604, 616 (E.D.Va. 1980). Furthermore, when seeking sanctions under § 362(h), the courts are in agreement that the burden of proof rests with the debtor. See Hanna Coal Co. v. Internal Revenue Service, 218 B.R. 825 (W.D.Va. 1997). Considering the debtor is essentially seeking monetary damages for an alleged violation of the automatic stay, it makes no sense to place on Chevy Chase the burden of proving that it should not be held in contempt.
Debtor's counsel apparently understood the court to rule, during the course of a telephone conference to reschedule the evidentiary hearing, that the application for an order to show cause was granted. The court, however, does not recall making such a ruling, and no such ruling is reflected in the April 7, 2000, order continuing the hearing. Accordingly, the matter before the court continues to be a motion or application for an order to show cause.
Having determined that the debtor bears the burden of proof, the court notes that the debtor must prove his case by the preponderance of the evidence. Hanna Coal, 218 B.R. at 830; Clayton v. King (In re Clayton), 235 B.R. 801, 806 (Bankr.M.D.N.C. 1998). But see In re Clarkson, 168 B.R. 93, 95 (Bankr.D.S.C. 1994) (clear and convincing).
B. Testimony of Debtor's Counsel
As discussed, Chevy Chase objected to the testimony of debtor's counsel under Federal Rule of Evidence 601, arguing that Mr. Sherman, as counsel for the debtor, is prohibited by former DR 5-102(A), Virginia Code of Professional Responsibility, from testifying as a witness and representing his client in the same proceeding. The debtor, in opposition, stressed that Chevy Chase's objection comes too late since the motion to show cause made it clear at the outset that Mr. Sherman was to be called as a witness. It was argued that debtor's disclosure gave Chevy Chase ample time to file a motion to disqualify counsel. Furthermore, the debtor contends that precluding Mr. Sherman's testimony would impose a substantial hardship and create a dangerous precedent.
Often referred to as the "witness-advocate" rule, DR 5-102(A) has recently been replaced by Rule 3.7, Virginia Rules of Professional Conduct, which provides as follows:
Effective January 1, 2000, the Virginia Rules of Professional Conduct replaced the former Virginia Code of Professional Responsibility. The motion at hand, because it was filed on January, 19, 2000, is governed by the new Rules. The court, nevertheless, believes that the "witness-advocate" rule has not been materially modified by Rule 3.7.
(a) A lawyer shall not act as an advocate in an adversarial proceeding in which the lawyer is likely to be a necessary witness except where:
(1) the testimony relates to an uncontested issue;
(2) the testimony relates to the nature and value of legal services rendered in the case; or
(3) disqualification of the lawyer would work substantial hardship on the client.
The "witness-advocate" rule serves to prevent confusion on the part of the trier of fact between the lawyer as advocate interpreting evidence and the lawyer as witness giving evidence. See 3 Joseph McLaughlin, Weinstein's Evidence, § 601.04[3] at 601-22 (2d ed. 1999). By allowing the testimony, counsel would, in effect, be arguing his own credibility when advocating the case on behalf of his client — the evil that the rule is aimed against. Personalized Mass. Media Corp. v. Weather Channel, Inc., 899 F. Supp. 239, 242 (E.D.Va. 1995) ("[T]he roles of advocate and witness are inconsistent, it being the function of the advocate to argue the case of another and the role of the witness to state facts objectively.").
The evil the rule is designed to prevent is less evident, as is the case here, when a bench trial is conducted, but the scope of Rule 3.7 is not limited to jury trials.
There appears to be no federal rule of evidence that unequivocally precludes the testimony of a party's lawyer for lack of competency. United States v. Nyman, 649 F.2d 208, 210-11 (4th Cir. 1980); see also Universal Athletic Sales, Co. v. American Gym Corp., 546 F.2d 530, 539 (3d Cir. 1976). Although courts disfavor counsel calling himself as witness on behalf of his client, the Fourth Circuit has held: "[T]he general rule is that an attorney is competent to testify when the testimony is important and no other witness would be able to supply it." Nyman, 649 F.2d at 211. Even granting that the testimony is on an important issue — notice to Chevy Chase of the bankruptcy filing — the debtor has failed to make a showing that no other witness could testify. As noted, the debtor's own (unrebutted) testimony is that he told both the branch manager and Ms. Price that he had filed bankruptcy. Since Mr. Brown and Ms. Price are at the same level in Chevy Chase's organizational structure, Mr. Sherman's testimony as to what he told Mr. Brown is cumulative of his client's testimony as to what Ms. Price was told. That there was a telephone call by Mr. Sherman to Mr. Brown is furthermore admitted by Mr. Brown, and the only real point of disagreement is whether Mr. Sherman told Mr. Brown that his client had filed bankruptcy.
Mr. Brown testified that the debtor's bankruptcy filing was never mentioned in the course of a discussion. Because it would be odd for an experienced bankruptcy practitioner, such as Mr. Sherman, to place a telephone call on behalf of a debtor-client and not mention that the client had filed for bankruptcy, Mr. Brown's failure to recall such a statement is not particularly persuasive.
In any event, Local Bankruptcy Rule 2090-1(I), relating to an attorney's admission to practice before this court, has adopted the ethical standards of the Virginia State Bar. Therefore, the court is required to enforce them. Although not denying that the general prohibition of Rule 3.7(a) applies to bankruptcy proceedings, the debtor urges the court to consider the hardship exception. The problem is that the debtor has failed to demonstrate with any specificity what the substantial hardship is. The debtor's argument is primarily concerned with public policy ramifications of excluding his counsel's testimony. Instead, the court believes the focus should be on the particular circumstances of this case.
A review of the facts shows that Mr. Sherman knew from the outset that he might be needed as a witness. Furthermore, the value of Mr. Sherman's services have not been shown to be distinctive for the exception to apply. Personalized Mass, 899 F. Supp. at 245 (finding that other law firms were fully capable of undertaking the representation of the affected party). Finally, the debtor argues that counsel for Chevy Chase inexcusably waited until the day of the hearing to object to Mr. Sherman's testimony, when he should have known all along that Mr. Sherman would be called to testify. However, there is no rule of procedure that requires a motion to disqualify or motion in limine to be filed in advance of the trial of a contested matter. In sum, because the facts do not support a finding that prohibiting Mr. Sherman from being both witness and advocate would work a substantial hardship on his client, the court will sustain Chevy Chase's objection to Mr. Sherman's testimony and will not consider that testimony for the purpose of this opinion.
C. Does Norwest Bank have a "claim"?
Chevy Chase argues that debtor's motion to show cause fails for the simple reason that, since the debtor never scheduled a claim to Norwest, the debtor is essentially estopped from asserting that the automatic stay applies. In the absence of a "claim against the debtor," Chevy Chase reasons, an essential element of § 362(a)(6) is missing. In addition, Chevy Chase contends that it could not have had actual knowledge that its actions constituted an attempt to collect a prepetition claim against the debtor, since even if it had checked the debtor's schedules, Norwest's claim would not have been listed. Although Chevy Chase's argument partially goes to the willfulness of its action, as will be discussed later, the court will address the issue at this time.
At the outset, the court is astonished, to say the least, by debtor's position that it was unnecessary to file amended schedules to add Norwest as a creditor, even granting that the original omission of Norwest from the schedules was the result of simple oversight and was unintended. The debtor has a positive duty to file a complete list of creditors. Fed.R.Bankr.P. 1007(a)(1). That list is required to be verified under oath or under penalty of perjury. Fed.R.Bankr.P. 1008. The importance of complete and accurate schedules cannot be overstated. With respect to creditors, not only does the listing of a creditor ensure that the creditor is sent important notices concerning the case (for example, the date of the meeting of creditors; the bar date, if any, for filing claims; the bar date for filing complaints objecting to discharge or to determine the dischargeability of certain debts; the entry of a discharge), but it also enables the creditors to know who the others are and to compare notes to determine if there is a basis for objecting to the debtor's discharge or to determine if assets have been hidden. Furthermore, a claim that has not been listed in time to permit the creditor to file a timely proof of claim or a timely dischargeability complaint is not discharged unless the omitted creditor had actual knowledge of the bankruptcy filing in time to permit the appropriate action to be taken. § 523(a)(3), Bankruptcy Code. Even putting aside the lawyer's professional responsibility to assist his or her client in filing complete and accurate schedules, an attorney who does not promptly amend the schedules when an omitted creditor is discovered during the administration of a case does his or her client a great disservice, since proof that the omitted creditor had actual knowledge of the case despite not being listed in the schedules may be difficult to establish and is fraught with risk.
That said, there is nevertheless no legal support for the view that a claim not scheduled by the debtor is not a "claim" for the purpose of § 362(a), Bankruptcy Code, particularly in light of the expansive definition of "claim" in § 101(5), Bankruptcy Code. Even an unlisted debt will be discharged, provided no bar date was set for filing proofs of claim, and the debt is not otherwise nondischargeable. In re Woolard, 190 B.R. 70 (Bankr.E.D.Va. 1995). If an unlisted claim can be discharged, it surely qualifies as a claim for the purpose of the automatic stay as well.
Section 101(5), Bankruptcy Code, provides as follows:
(5) "claim" means —
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured[.]
Although Chevy Chase never uses the term "estoppel" in its argument, the court has independently considered whether judicial estoppel would prevent the debtor from taking the position that Norwest's unlisted claim was subject to the automatic stay. Judicial estoppel is an equitable doctrine designed to protect the integrity of the judicial process. Hildebrand v. Kugler (In re Kugler), 170 B.R. 291, 302 (Bankr.E.D.Va. 1994). At its core, judicial estoppel acts on the maxim that "there is only one truth about a given set of circumstances." King v. Herbert J. Thomas Mem'l Hosp., 159 F.3d 192, 196 (4th Cir. 1998). Its purpose is to prevent a party from benefitting by asserting inconsistent positions with respect to a particular set of facts. The Fourth Circuit has established three elements that must be met before judicial estoppel may be applied:
(1) The party to be estopped must be asserting a position that is factually incompatible with a position taken in a prior judicial or administrative proceeding; (2) the prior inconsistent position must have been accepted by the tribunal; and (3) the party to be estopped must have taken inconsistent positions intentionally for the purpose of gaining unfair advantage.
King, 159 F.3d at 196. With respect to the third element, judicial estoppel may not be imposed on a party where the inconsistent positions were the result of inadvertence or mistake. Id. The application of judicial estoppel in any particular case is necessarily fact-dependent, and the Fourth Circuit has instructed that it "should be applied with caution." Peugeot Motors of America, Inc. v. Eastern Auto Distributors, Inc., 892 F.2d 355, 356 n. 3 (4th Cir. 1989). In the present case, the initial omission of Norwest from the schedules appears to have been inadvertent, and, in any event, there is no showing that the omission was "accepted" by this court or conferred any advantage on the debtor. Thus, an essential element of judicial estoppel is missing.
Chevy Chase's alternative argument is that it had no formal notice of the prepetition nature of Norwest's claim. The law is clear, however, that the automatic stay is effective even as to parties who had no notice of the bankruptcy filing. In re James, 120 B.R. 802, 814 (E.D.Pa. 1990), aff'd 940 F.2d 46 (3rd Cir. 1991). No special action or request by the debtor is required to make the stay effective: as noted by the United States District Court for this district,
The automatic stay is a self-executing provision of the Bankruptcy Code and begins to operate nationwide, without notice, once the debtor files its petition for relief.
In re A. H. Robins Co., Inc., 63 B.R. 986, 988 (E.D.Va. 1986) (Mehrige, J.) (emphasis added), aff'd Grady v. A. H. Robins Co., Inc., 839 F.2d 198 (4th Cir. 1988). Of course, lack of knowledge that a bankruptcy has been filed will negate a finding of willfulness, but that is another issue. That is, where a party is ignorant of the bankruptcy filing, actions taken in violation of the stay, although voidable, do not constitute contempt. But where a party has actual knowledge of the bankruptcy, and despite such knowledge intentionally undertakes actions that in fact violate the stay, the party's ignorance of the legal effect of the stay is no defense to a resulting motion to find the party in civil contempt, although it may have a mitigating effect on the sanctions imposed. See, e.g., In re Peterkin, 102 B.R. 50, 53-54 (Bankr.E.D.N.C. 1989) (creditor who knows of the debtor's bankruptcy "has the burden `to correctly ascertain the scope of the automatic stay[.]'"). In this case, the evidence clearly establishes that Chevy Chase was given actual notice by the debtor that he had filed for bankruptcy. The slightest investigation by Chevy Chase, after it was told of the bankruptcy filing, would have revealed that the date of the bankruptcy filing (December 17, 1999) was after the date (December 3, 1999) of the "NSF" report. Thus, any overdraft claim in favor of Norwest was clearly a prepetition claim and subject to the automatic stay.
D. Act to Collect or Recover Claim
The key issue to be determined by the court is whether Chevy Chase's actions constituted an "act to collect" the Norwest claim in violation of the automatic stay. As a preliminary matter, both sides have a different take on what transpired from the time the debtor was initially advised of the administrative hold on the debtor's account to the date the funds were eventually withdrawn. Chevy Chase maintained that only a limited restriction was placed on the debtor's account. At no time, according to Chevy Chase, was the account actually "frozen," nor were funds ever kept from the debtor. Chevy Chase stressed that the debtor's account could have been closed at anytime during regular business hours had he made a phone call to its corporate office. The debtor, on the other hand, claims that he was repeatedly denied access to his account because of his failure to pay the NFS claim held by Norwest.
Although the "104" restriction code on the debtor's account did not technically, perhaps, amount to a "freeze" on the account, since it allowed checks that were presented to be paid to the extent of the debtor's available balance, it is clear that the nuances of the "104" restriction were not clear even to the branch manager, let alone the tellers. In any event, from the debtor's perspective, it could hardly be distinguished from a "freeze": the "104" code barred any "over-the-counter" transactions, effectively preventing any deposits or withdrawals. Funds in the account in excess of that needed to pay outstanding checks were effectively withheld from the debtor for over a month, and he was eventually able to withdraw them (even though he had earlier been advised that they would be mailed to him automatically) only after jumping through considerable hoops.
That being said, it is not, as the debtor readily concedes, the "hold" itself that constitutes the violation of the automatic stay but rather the request that the debtor pay the Norwest overdraft as a condition of "unfreezing" his account. The debtor does not quarrel with Chevy Chases's basic argument that financial institutions are not required to do business with a customer who has filed for bankruptcy. The problem is that Chevy Chase went one step beyond simply refusing to do business with the debtor. Such a refusal, the debtor concedes, would not have violated the automatic stay.
Since, according to the debtor's testimony, the funds in the account were derived from post-petition earnings, they were not property of the bankruptcy estate. Thus, the issue of attempting to exercise control over property of the estate, in violation of § 362(a)(3), Bankruptcy Code, is not implicated.
Additionally, it would appear that even a total freeze on the account would not, as least as the Supreme Court views the matter, have constituted an attempt "to exercise control" over the funds in the account. In Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995), the bank had placed an administrative hold on the debtor's checking account and subsequently filed a motion for relief from the automatic stay to assert a setoff. The central holding of Strumpf was that the administrative hold by itself did not constitute a setoff prohibited by § 362(a)(7), Bankruptcy Code. Id. at 19-20, 116 S.Ct. at 289. However, the Court did briefly address the issue of whether the administrative hold violated §§ 362(a)(3) and 362(a)(6), Bankruptcy Code. The Court declined to find a violation of the stay, explaining that a bank account "consists of nothing more or less than a promise to pay, from the bank to the depositor; petitioner's temporary refusal to pay was [not] a taking of possession of respondent's property . . ., but merely a refusal to perform its promise." Id. at 21, 116 S.Ct. at 290.
What Chevy Chase did — however, and what it could not do without violating the automatic stay — was to pressure the debtor to pay a prepetition debt by making such payment a condition of doing business with the bank.
But did such pressure constitute an act to "collect" the Norwest overdraft? As defined in Black's Law Dictionary, "To collect a debt or claim is to obtain payment or liquidation of it[.]" BLACK'S LAW DICTIONARY 263 (6th ed. 1990) (definition of "collect"). Given that straightforward definition, Chevy Chase's act of telling the debtor it would do business with him only if he paid the Norwest overdraft would plainly have the effect of coercing payment of the claim. See In re Dembek, 64 B.R. 745, 749-50 (Bankr.N.D.Ohio 1986) (school's withholding of the transcript of debtor's son for failing to pay delinquent tuition violated the stay). For this reason, the court concludes that Chevy Chase's constitute an act to collect a prepetition claim against the debtor.
It is, of course, true that the claim in question was not Chevy Chase's own claim. Chevy Chase was not a creditor in the debtor's bankruptcy case, and there is no evidence that it was acting at the request of, or had a specific intent to benefit, Norwest. However, the automatic stay under § 362(a) applies by its terms to "all entities," not merely "creditors." Case law supports the proposition that parties who are not themselves creditors can be held accountable for violations of the automatic stay. See, e.g., In re Atlas Machine Iron Works, Inc., 239 B.R. 322, 335 (Bankr.E.D.Va. 1998) (dicta); In re Lee, 35 B.R. 452, 455-56 (Bankr.N.D.Ga. 1983). Simply put, the fact that there was no direct benefit to Chevy Chase does not negate the fact that a violation of the automatic stay occurred.
E. Willfulness
Although the court therefore readily concludes that Chevy Chase's actions violated the automatic stay, damages cannot be awarded under § 362(h), Bankruptcy Code, unless the violation was "willful." To establish a "willful" act, the moving party must prove that the creditor had actual knowledge of the bankruptcy, and despite such knowledge intentionally undertook actions that in fact violated the stay. Citizens Bank of Md. v. Strumpf, 37 F.3d 155, 159 (4th Cir. 1994), rev'd on other grounds, 516 U.S. 16, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995) ("[T]o constitute a willful act, the creditor need not act with specific intent but must only commit an intentional act with knowledge of the automatic stay."); see In re Hendry, 214 B.R. 473 (Bankr.E.D.Va. 1997).
Applying this standard to the case at hand, the court first finds that Chevy Chase had knowledge of the bankruptcy case. As discussed, the debtor gave the branch manager and Ms. Price oral notice of his bankruptcy. Mr. Brown testified that Chevy Chase never received a copy of the bankruptcy petition, but such a formal notification of the bankruptcy case is not required by the Bankruptcy Code. In re Locasico, 77 B.R. 932, 933 (Bankr.S.D.Fla. 1987) (oral notice is sufficient); In re Davis, 74 B.R. 406 (Bankr.N.D.Ohio 1987). Once a party has sufficient facts to suggest that a bankruptcy petition has been filed, the party has a duty to investigate. See In re Clayton, 235 B.R. 801, 808 (Bankr.M.D.N.C. 1998). Thus, after the debtor advised two different officers of Chevy Chase that he had filed for bankruptcy, Chevy Chase's actions were done with knowledge of the bankruptcy case, even though Chevy Chase made no effort to verify the truthfulness of the debtor's statements.
Secondly, there is no question that the Chevy Chase's conduct was done intentionally. The evidence establishes that its employees made repeated affirmative attempts, while the account was frozen, to have the debtor pay the Norwest overdraft. Moreover, Mr. Brown clearly testified that Chevy Chase had adopted a policy to restrict a customer's account and to ask the account holder to pay the charges owed to other banks. Chevy Chase has pointed to no evidence that even remotely suggest that its actions were, for example, the result of a computer glitch or were done contrary to the bank's established policy. Accordingly, after considering the evidence, the court concludes that Chevy Chase willfully violated the automatic stay.
F. Damages
The final issue to be determined by the court is damages. As noted, under § 362(h) the debtor is entitled to actual damages and, in some circumstances, punitive damages. In the motion to show cause, the debtor asks the court to sanction Chevy Chase in an amount of not less than $50,000. The debtor alleges that Chevy Chase's conduct exposed him to great public embarrassment and humiliation, and forced him to incur substantial attorney's fees. At the hearing, Chevy Chase, in turn, argued that the debtor had proven no actual injuries, thus precluding the court from awarding attorney's fees. Chevy Chase stressed that the all of the debtor's checks were honored and that the remaining funds were returned to the debtor.
As noted, the letter signed by Ms. Price informed the debtor that his account was to be closed, and that the remaining funds and accrued interest were to be returned to the debtor. However, it is unclear whether the debtor received any interest when he was finally able to withdraw the remaining funds.
Chevy Chase's position has been accepted by many, and possibly a majority, of courts, which hold that the debtor must prove some out-of-pocket damages in order to recover attorney's fees and costs. Lovett v. Honeywell, 930 F.2d 625, 629 (8th Cir. 1991); Aiello v. Providian Fin. Corp. (In re Aiello), 231 B.R. 684, 689 (Bankr.N.D.Ill. 1999). Section 362(h) refers to "actual" damages, but what is not clear is whether actual damages only contemplate "pecuniary" damages. In any event, the Fourth Circuit appears to have taken the position that bankruptcy courts may award nominal damages for violations of the stay. Strumpf, 37 F.3d at 159; see also In re Withrow, 93 B.R. 436 (Bankr. W.D. N.C. 1988). Here, nominal damages are appropriate, even in the absence of direct financial loss, because the debtor was subject to improper pressure to pay a prepetition debt. See In re Brian Johnson Motor Co., Inc., 180 B.R. 104, 109 (Bankr.D.S.C. 1995) (nominal damages for delay in filing motion for relief firm stay while account was frozen). The only reason there is no direct financial loss is because the debtor did not succumb to the pressure. Accordingly, the court will award nominal damages in the amount of $1.00. Since it was necessary for the debtor to seek the assistance of counsel in order to vindicate the automatic stay, an award of counsel fees is also appropriate. Since no evidence was presented at the hearing with respect to attorney's fees incurred by the debtor, the court will direct debtor's counsel to submit an affidavit supported by time entries showing the fees charged to the debtor for counsel's services related to this matter. Chevy Chase will be given to an opportunity to object the amount of the requested fees.
To the extent that the debtor seeks punitive damages against Chevy Chase, however, the court will deny such an award. As mandated by Congress, punitive damages should be only be awarded in "appropriate circumstances." Typically, a finding of egregious factual circumstances or clear disregard of the bankruptcy laws warrants such a sanction. Cherry v. Arendall (In re Cherry), 247 B.R. 176, 190 (Bankr.E.D.Va. 2000); Wills v. The Heritage Bank (In re Wills), 226 B.R. 369, 376 (Bankr. E.D. Va. 1998). Although the court is troubled by Chevy Chase's decision to ignore, or failure to take seriously, the ramifications of the debtor's bankruptcy filing, the fact remains that its actions, however improper, were not undertaken out of malice or for the purpose of providing any direct benefit to itself, nor can they otherwise be characterized as egregious. Accordingly, punitive damages will not be awarded.
A separate order will be entered consistent with this opinion.