Opinion
Case No. 8:20-bk-07698-CPM
2023-04-14
IN RE: Bassam MINAWI a/k/a Sam Minawi, Debtor.
Richard M. Dauval, St. Petersburg, FL, Trustee, Pro Se. Charles J. McHale, Golden Scaz Gagain PLLC, Tampa, FL, for Respondents.
Richard M. Dauval, St. Petersburg, FL, Trustee, Pro Se. Charles J. McHale, Golden Scaz Gagain PLLC, Tampa, FL, for Respondents. ORDER ON MOTION FOR SANCTIONS AGAINST HOMELESS EMPOWERMENT PROGRAM FOR VIOLATION OF THE AUTOMATIC STAY Catherine Peek McEwen, United States Bankruptcy Judge
The Eleventh Circuit Court of Appeals has set exacting guidelines governing the quantum of proof necessary to support recovery of damages for emotional distress resulting from a willful violation of the Bankruptcy Code's automatic stay. These guidelines present a challenge for aggrieved parties attempting to "tip the scales" in their favor to prove entitlement to such damages by a preponderance of the evidence. In the instant case, the Debtor, who claims that willful stay violations by his landlord caused him to suffer severe mental and emotional distress, as well as financial losses attributable to that distress, was unable to meet this burden of proof. The evidence adduced at trial lacked enough substance or weight to tip the scales in his favor, even ever so slightly, as the burden requires.
This case — the Debtor's second bankruptcy case before this Court — came on for trial on the Debtor's Motion for Contempt and Sanctions for Violation of the Automatic Stay of 11 U.S.C. § 362 (the "Sanctions Motion") (Doc. No. 92) and related filings. The Sanctions Motion seeks sanctions against Homeless Emergency Project, Inc. d/b/a Homeless Empowerment Program ("H.E.P"), the Debtor's landlord. The trial took place over four days.
Before the trial commenced, the Court entered an order (Doc. No. 297) granting partial summary judgment in favor of the Debtor. Specifically, the Court granted summary judgment in favor of the Debtor on whether a violation of the automatic stay occurred, finding that H.E.P. violated the stay by sending the Debtor certain notices titled either "Rent Reminder Notice" or "Notice of Rent Default" (the "Notice" or "Notices") while the stay was in effect. These include two Notices sent during the Debtor's first bankruptcy case (8:20-bk-05969-CPM "First Case") and a third Notice sent during the Debtor's current case (the "Second Case"). These three Notices related to pre-petition past due rent. In that same order, the Court further ruled that if, as a matter of law, the Debtor enjoyed a protected possessory interest that H.E.P. sought to deprive him of by sending the Notices, then H.E.P. also violated the stay when it sent the Debtor two additional Notices during the Debtor's First Case and another Notice during his Second Case. These three Notices related to post-petition past due rent. The Court granted summary judgment in favor of H.E.P. as to a number of other Notices sent during times when the stay was not in effect.
Because the Notices included a notification of default and a threat "to take further action to protect our rights, which may include termination of this lease," the Court determined that they constituted collection efforts proscribed by 11 U.S.C. § 362(a), the Bankruptcy Code's automatic stay provision.
See Defendant's Exhibit No. 9 (Doc. No. 299-1) (Notices dated August 10 and August 25, 2020).
See Defendant's Exhibit No. 10 (Doc. No. 299-2) (Notice dated October 15, 2020).
See Defendant's Exhibit No. 9 (Doc. 299-1) (Notices dated September 9 and September 15, 2020).
See Defendant's Exhibit No. 10 (Doc. No. 299-2) (Notice dated November 9, 2020).
The Debtor complained about a total of 13 Notices. However, only the six Notices specifically identified in this order are dated at a time when the automatic stay was in effect. Of the remaining seven Notices, one is dated between the dismissal of the First Case and the filing of the Second Case, and the rest are dated after the stay had terminated as to the Debtor in his Second Case by operation of 11 U.S.C. § 362(c)(3). Under this statute, because the Debtor's First Case remained pending within one year of the date he filed his Second Case, the stay terminated as to the Debtor 30 days after he filed the Second Case. See Plaintiff's Exhibit No. 7 (Doc. No. 252) (admitted into evidence with the exclusion of the Notices dated October 12, November 19, December 9, and December 28, 2020, and Notices dated January 12, January 20 and February 9, 2021, because these Notices were not sent while the stay was in effect).
The Court subsequently determined that the possessory interest the Debtor enjoyed in remaining in his living quarters was protected by the automatic stay. Therefore, all six Notices identified above, including those seeking payment of post-petition rent, were sent by H.E.P. in violation of the stay.
In re Johnson, 16 B.R. 193, 195 (Bankr. M.D. Fla. 1981) (even a "mere possessory interest is sufficient to invoke the protection of the automatic stay.")
The purpose of the trial was, therefore, basically two-fold: first, to determine whether H.E.P.'s violation of the automatic stay when it sent the six Notices was willful, which determination turns on when H.E.P. initially learned about each of the Debtor's bankruptcy cases. And, if one or more willful violations occurred, the second purpose was to quantify any damages the Debtor could prove he suffered as a direct consequence of those violations.
See 11 U.S.C. § 362(k) (directing recovery of actual damages and, in appropriate circumstances, punitive damages, when an individual is injured as a result of a willful violation of the automatic stay).
Lodge v. Kondaur Capital Corp., 750 F.3d 1263, 1267 (11th Cir. 2014) (affirming district court's determination that plaintiffs "failed to show that any harm they suffered was a direct result of the defendant's actions as opposed to other factors.") (emphasis added).
To recover damages for an automatic stay violation, conduct violating the stay is "willful" if the actor knew of the stay and intended the action that constituted the violation. No specific intent is required. H.E.P. has not denied that it intended to send the Notices. Therefore, a willful violation occurred with respect to any Notices H.E.P. sent the Debtor while the stay was in effect and after H.E.P. had notice of the Debtor's bankruptcy cases.
See 5th Ave. Real Estate Dev., Inc. v. Countrywide Home Loans, Inc. (In re 5th Ave. Real Estate Dev., Inc.), 2008 WL 4371336 (Bankr. S.D. Fla. Sept. 19, 2008) (citations omitted).
The Debtor bears the burden of proving both knowledge and damages by a preponderance of the evidence, which means the Debtor must prove that it is more likely than not that H.E.P. willfully violated the automatic stay, and it is more likely than not that he suffered compensable damages as a result of the violation. The Eleventh Circuit has approved a "tipping of the scales" analogy as an appropriate way to describe the preponderance of the evidence burden of proof. Under this analogy, the party who bears the burden of proof has met the burden if, after all of each party's evidence is placed on their respective sides of the scales, the scales tip in favor of the one who bears the burden. The Court finds and concludes that the Debtor tipped the scales in his favor on the issue of H.E.P.'s knowledge of his bankruptcy cases with respect to five of the six Notices that violated the stay. But he failed to tip the scales in his favor on the issue of whether he suffered damages as a consequence of having received the five Notices that H.E.P. sent in willful violation of the stay. Accordingly, the Debtor is not entitled to an award of damages on account of those stay violations.
See Mantiply v. Horne (In re Horne), 876 F.3d 1076, 1083 (11th Cir. 2017) (debtor has burden of proving damages from an automatic stay violation by a preponderance of the evidence). See also 5th Ave. Real Estate, 2008 WL 4371336 at *2 (party seeking damages under § 362(k) bears the burden of establishing willfulness by a preponderance of the evidence).
Blossom v. CSX Transp. Inc., 13 F.3d 1477, 1479 (11th Cir. 1994) (district court erred in criticizing jury instruction on preponderance the evidence that utilized the "tipping the scales" language).
Id. at 1479-80.
During the trial, the Debtor testified that Michael McFarling (now deceased), who worked for H.E.P., knew of the filing of the Debtor's First Case because not only did Mr. McFarling make copies of Debtor's chapter 13 bankruptcy petition and accompanying paperwork, but also he actually mailed these documents to the Bankruptcy Court. The Court credits this testimony in large part due to the Debtor's certainty as to the specific date on which he signed and delivered the paperwork to Mr. McFarling and the degree of detail he recalled surrounding Mr. McFarling's having made multiple copies and the Debtor's delivering a copy to the front desk person to be scanned and put in the Debtor's file. Because Mr. McFarling was an employee of H.E.P., his knowledge that the Debtor had filed for bankruptcy relief is imputed to H.E.P. Thus, the Debtor met his burden of proof with respect to the four Notices sent while the automatic stay in the First Case was effective. H.E.P. sent these Notices in willful violation of the stay.
Chang v. JPMorgan Chase Bank, 845 F.3d 1087, 1095 (11th Cir. 2017) (knowledge employee acquires while acting within the scope his authority is generally imputed to his employer under Florida law, subject to an exception when the employee is acting adversely to the corporation) (citations omitted). H.E.P. offered no evidence at trial and made no written or oral argument to suggest that by helping the Debtor file his chapter 13 bankruptcy paperwork Mr. McFarling acted adversely to H.E.P.
In connection with his Second Case, the Debtor introduced into evidence a copy of an email communication between the Debtor and Mr. McFarling dated October 9, 2020. In that communication, the Debtor stated he had printed the forms to file a chapter 7 bankruptcy case and asked Mr. McFarling if he has "any knowledge that can help [the Debtor] with the filing." Mr. McFarling responded "No, I don't but, if you have the forms our lawyer may be able to help." And although the Debtor testified that Mr. McFarling again made copies of the Debtor's paperwork with respect to his Second Case, and the Debtor testified that at least one copy was given to another H.E.P. employee, no testimony or other evidence was presented to show that Mr. McFarling or anyone else at H.E.P. put those papers in the mail for the Debtor. Knowledge of the Debtor's request for assistance with filling out forms for another bankruptcy case and even making copies of such forms does not constitute notice that another case was ever actually filed with the Bankruptcy Court and, if so, when. Consequently, the Debtor failed to prove by a preponderance of the evidence that the H.E.P. Notice dated October 15, 2020, one day after the Debtor filed his Second Case, was a willful violation of the automatic stay. However, the Debtor's evidence shows that he notified H.E.P. of this Second Case on October 28, 2020, via an email addressed to two H.E.P. employees, their receipt of which H.E.P. did not dispute. Therefore, the Debtor met his burden of proof to establish that the H.E.P. Notice dated November 9, 2020, was a fifth instance of a willful violation of the stay.
In fact, the petition filed in the Second Case includes a notation on the first page, made by the bankruptcy court's Clerk staff, indicating that this petition was received via email.
See Plaintiff's Exhibit No. 16 (Doc. No. 261).
In his Sanctions Motions, the Debtor alleges that, in addition to sending the Notices, H.E.P. violated the automatic stay by harassing the Debtor in various ways — including, but not limited to, yelling at him, threatening to call the police on him, and attempting to make him move into another house without a lease — as a means of attempting to collect past due rent from the Debtor. However, his evidence at trial was insufficient to support a finding of stay violations of this nature. His testimony failed to prove that any alleged instances of verbal harassment or threats, if they occurred at all, were intended by H.E.P. to intimidate the Debtor into paying rent lest he be evicted. On the other hand, H.E.P.'s Executive Vice President, Zachary White, testified that H.E.P.'s goal was to assist individuals during a temporary transition period and that H.E.P. did not pursue collection of arrearages or damages. The Court finds the testimony of this witness to be credible. As to H.E.P.'s attempting to move the Debtor to another house, Mr. White testified, again credibly, that moving the Debtor from the five-bedroom house he occupied alone at the time, which was next door to a city playground, to a different house was simply part of an ongoing process of converting houses on that same street from transitional housing for single individuals to affordable housing for low-income families. Mr. White further testified that H.E.P. offered the Debtor a new lease, but he refused it. In any event, H.E.P.'s attempts to move the Debtor to another house (with or without police intervention) in furtherance of managing its housing inventory for needy people appear to have occurred after the stay in his Second Case was terminated by operation of law. Consequently, the Debtor failed to meet his burden of proof as to these allegations.
The Court notes that this policy of not pursuing arrearages is not reflected in H.E.P.'s Notices and could not have been known to the Debtor.
See Plaintiff's Exhibit No. 18 (Doc. No. 263) (describing communications dated between January 29, 2021, and February 11, 2021, about H.E.P.'s having moved back a week its plans to show the Debtor a new house). The Court excluded this exhibit finding it irrelevant because the communications occurred after the automatic stay was terminated. See also Sanctions Motion (Doc. No. 92) (the only alleged conduct by H.E.P. for which the Debtor provides specific dates, including efforts to move the Debtor to a different house without a lease, is conduct occurring on or after January of 2021).
Having determined that H.E.P. willfully violated the automatic stay by sending a total of five Notices (four during the First Case and one during the Second Case) after H.E.P. had notice of the Debtor's bankruptcy filings, the Court turns to the issue of damages. Under § 362(k) of the Bankruptcy Code, with a limited exception not applicable here, "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." Although recovery of costs and attorneys' fees is considered mandatory under this statute as part of an injured individual's actual damages, the Debtor, pro se, represented himself and offered no evidence of costs incurred in connection with prosecuting the Sanctions Motion. The Debtor did testify that due to H.E.P.'s collection efforts, he suffered mental and emotional distress, and because that stress was so great, he made a mistake in applying to renew his work authorization (which later expired), and a condominium in which he claimed ownership rights was sold out from under him.
See, e.g., Parker v. Credit Central South, Inc. (In re Parker), 634 Fed. App'x 770, 773 (11th Cir. 2015).
With respect to damages for emotional stress, the Eleventh Circuit ruled in Lodge v. Kondaur Capital Corporation, as a matter of first impression, that emotional distress damages may constitute "actual damages" for which debtors may recover if they result from willful violations of the automatic stay. However, to recover such damages, a plaintiff must, "at a minimum, . . . (1) suffer significant emotional distress, (2) clearly establish the significant emotional distress, and (3) demonstrate a causal connection between the significant emotional distress and the violation of the automatic stay." In that case, the joint debtors sought damages for emotional distress against a creditor that, after receiving notice of the debtors' bankruptcy case, published in a local newspaper a notice of a foreclosure sale of the debtors' home. There, the court denied damages for emotional distress because the debtors offered no evidence to show how long they mistakenly believed that their property was about to be foreclosed and offered "only generalized evidence" that they were "stressed out," claiming they had difficulties interacting with one another and their children, and that one spouse, a car salesman, had trouble selling cars and was being avoided by his co-workers. Further, the court noted that the debtors submitted only their own affidavits in support of their damages claim, failing to corroborate their injuries in any way. Although the debtors averred that they visited a doctor for their emotional distress, they attached no evidence of such visits. Acknowledging that such corroboration may be unnecessary where "the violator engaged in egregious conduct and significant emotional distress is readily apparent," the court found no such conduct present because the notice of sale appeared in the paper only one day before the defendant cancelled it. The Eleventh Circuit ruled that, "[i]n any event, the [debtors] failed to prove a causal connection between their injuries and the violation of the automatic stay." Medical evidence would have been particularly helpful, the court noted, not only in evaluating the cause of the debtors' conditions, but also to show, if true, that their condition did not arise until after the debtor's discovery of the sale notice and how soon after such discovery their conditions arose.
Lodge v. Kondaur Capital Corp., 750 F.3d 1263, 1271 (11th Cir. 2014).
Id. at 1272.
Id.
Id.
Id.
Id. See also In re Lyubarsky 615 B.R. 924 (Bankr. M.D. Fla. 2020) (court awarded emotional distress damages to a debtor who was being treated by a psychiatrist for anxiety and went to the hospital several times with panic attacks after having been subjected to egregious conduct by a creditor who threatened to report the debtor to both the trustee and the United States Attorney for omitting assets from his schedules unless the debtor paid the creditor $250,000 within four days, which conduct also resulted in an award of over $200,000 in punitive damages).
Like the debtors in Lodge, the Debtor here has not met his burden of proving entitlement to damages for emotional distress. The Debtor testified that he suffered severe mental and emotional distress as a result of H.E.P.'s conduct. During the trial, he appeared to be angry and frustrated. Yet he offered no evidence to corroborate his testimony regarding emotional distress. He offered no records of having been diagnosed as suffering from — or having sought any form of treatment for — emotional distress, significant or otherwise. Nor did he testify that he sought any such diagnoses or treatment.
And even if, arguendo, the Debtor had proved he suffered significant emotional distress, he failed to present evidence to show that his distress was caused by the receipt of the five Notices H.E.P. sent in willful violation of the automatic stay. According to the Debtor's Sanctions Motion and the evidence he offered at trial, much of the conduct about which the Debtor complains, including H.E.P.'s efforts to move him to a different house (allegedly without a new lease), appears to have occurred after November 13, 2020, the date on which the stay terminated as to the Debtor in his Second Case. And some of the conduct he complained about occurred before the Debtor filed his First Case on August 5, 2020. In addition, allegations that H.E.P. operated a "trap house," and that H.E.P. employees contributed to an assault, a death, and criminal activity, and the like cannot reasonably be characterized as efforts to collect past due rent, regardless of when such events allegedly occurred.
See supra note 6.
See, e.g., Plaintiff's Exhibit No. 9 (a notice advising the Debtor that he must vacate the property by July 2, 2020, if his June rent is not paid in full by June 30, 2020) and Plaintiff's Exhibit No. 13 (a "Notice of Dismissal" dated June 5, 2020) (Doc. Nos. 254 and 258, respectively).
According to Dictionary.com, the term "trap house" is slang for "a place where illicit drugs are bought, sold, or used." See https://www.dictionary.com/browse/trap-house.
As to the Debtor's assertions that the severe emotional distress he was under caused him to suffer financial losses due to his inability to renew his work authorization or stop the sale of a condominium in which he claimed an interest, he failed to establish the monetary value associated with these losses, let alone a credible causal connection between any distress he purportedly suffered from having received the five H.E.P. Notice at issue and these alleged financial losses. The vast majority of his "evidence" on these alleged losses, and on damages generally, was nothing more than his own testimony, uncorroborated by the testimony of others, by documentation, or any other objectively reliable source.
The Court was not persuaded by the scant evidence at trial (solely the Debtor's own word) that any stress caused by receipt of the Notices distracted the Debtor to the degree that he was completely unable to focus on undertakings as important to someone in transitional housing as a necessary work authorization or saving a condominium.
Finally, to the extent the Debtor seeks punitive damages, such damages are available as a remedy under § 362(k) only when the violator acts in an "egregious intentional manner." The Eleventh Circuit has defined egregious conduct as action taken "with reckless or callous disregard for the law or rights of others" H.E.P.'s sending its tenants notices of past due rent, as occurs in the normal course of its regular operations, does not qualify as egregious conduct meriting an award of punitive damages. Nor do the number and frequency of the actionable Notices amount to egregious conduct.
See In re White, 410 B.R. 322, 327 (Bankr. M.D. Fla. 2009). See also Parker, 634 Fed. App'x at 773 (punitive damages serve dual purposes of punishment and deterrence).
The Debtor's anger and frustration, as exhibited at times during the trial and in his Sanctions Motion, appear to have likely arisen from a variety of obstacles he undoubtedly faced in the late summer and fall of 2020, when H.E.P. sent the Notices at issue. The March 2020 onset in Florida of the global COVID-19 pandemic, coupled with an alleged work-related injury, were likely major contributors to the Debtor's loss of income and related hardships. However, without proof of actual damages resulting from receipt of the particular Notices H.E.P. sent in willful disregard of the automatic stay and in the absence of egregious conduct by H.E.P. to support an award of punitive damages, the Court lacks authority to award the Debtor any damages. A similar outcome was reached in a prior case decided by the Hon. Paul M. Glenn, United States Bankruptcy Court Judge for the Middle District of Florida. There, the debtors complained of the Internal Revenue Service's continued efforts to collect trust fund taxes from the debtors after receiving notice of their bankruptcy filing. Judge Glenn found that in the absence of any injury having been suffered by the debtors as a result of receiving the IRS collection letter at issue, it could award only the debtors' attorney's fees for preparing the motion for sanctions.
In re Craine, 206 B.R. 594 (Bankr. M.D. Fla. 1997).
Id. at 598. See also In re Hedetneimi, 297 B.R. 837, 842-43 (Bankr. M.D. Fla. 2003) (debtor who failed to show she suffered injury from a willful stay violation and was represented by pro bono counsel, could receive only $5 in costs).
It bears noting, and perhaps is of some solace to the Debtor, that as a result of the Sanctions Motion, H.E.P. has revised its internal practices and procedures to improve its ability to identify which of its tenants may have an open bankruptcy case and to proceed accordingly so as to avoid violating the automatic stay going forward. H.E.P. also paid a hefty price, in the form of attorney's fees and other litigation expenses, as a result of having to defend against the Sanctions Motion. H.E.P. has, in effect, experienced consequences, albeit not Court-imposed, as a result of its failure to respect the stay in the Debtor's bankruptcy cases.
See Defendant's Exhibit No. 4 (Doc. No. 294-3) (H.E.P. Collection and Rent Policy - Addendum (effective September 15, 2021)).
Accordingly, it is
ORDERED that the Debtor's Sanctions Motion is denied. Although the Debtor proved that H.E.P. willfully violated the automatic stay by sending the Debtor Notices of past-due rent on five separate occasions, the Debtor did not prove by a preponderance of the evidence that he suffered any actual damages as a result of having received those Notices or that H.E.P.'s conduct merited punitive damages.
ORDERED.