Opinion
8:23-bk-05737-RCT
07-16-2024
In re: Speedway Auto Sales 27, LLC dba Lakeland Car Mart dba Lakeland Auto Mart, Debtor.
ORDER AFTER TRIAL ON DEBTOR'S EMERGENCY MOTION TO SANCTION WESTLAKE FLOORING COMPANY, LLC FOR VIOLATING THE AUTOMATIC STAY AND AWARDING DAMAGES
Roberta A. Colton, Judge.
On June 4 - 6, 2024, this Court held a trial on Debtor's Emergency Motion for Order to Show Cause as to Why Westlake Flooring Company, LLC ("Westlake") Should Not be Sanctioned for a Willful Violation of 11 U.S.C. § 362 (Doc. 6) and Debtor's Supplement thereto (Doc. 8). The Court heard testimony from eleven witness and admitted various exhibits into evidence. After the trial, the parties submitted written closing arguments. After considering the evidence and arguments, the Court finds that Westlake willfully violated the automatic stay by repossessing 17 cars from Debtor's lot, initiating five ACH withdrawals from Debtor's Chase bank account totaling $106,420.76, and emailing the COO of one of Debtor's main lenders for its customers (FinBe) and asking the lender not to fund any more sales to Debtor's customers. As such, the Court finds that Westlake should be sanctioned for its willful violations of the automatic stay.
The trial transcripts are filed at Docs. 215 - 217.
Debtor's exhibits are filed at Docs. 122 - 128, and Westlake's exhibits are filed at Docs. 148 - 161, 164 - 170, 177, and 226. The exhibits that were admitted into evidence are listed on Docs. 202 and 203.
Docs. 245, 248.
I. Stay Violations: Findings of Fact
Carlos and Suyapa Duran own Debtor Speedway Auto Sales 27, LLC. Debtor is a used car dealership, and it has focused on the niche market of undocumented and Spanish speaking car buyers since 2019. These customers often do not have social security numbers and pay stubs, which limits the types of lenders that will finance their used car purchases. FinBe, Lendbuzz, and Westlake Financial are three subprime lenders that have financed these types of customers buying cars from Debtor.
Westlake Financial is a different entity from Westlake Flooring. Both Westlake Financial and Westlake Flooring are owned by the same company.
Westlake provided Debtor with floorplan financing, consisting of a revolving $1 million line of credit, that Debtor could use to acquire its used car inventory. Pursuant to the terms of their financing agreement, Debtor was required to hold the funds received from the sales of cars that Debtor acquired with Westlake's financing in trust for Westlake and to pay Westlake the held funds on the "Maturity Date." The "Maturity Date" was generally defined as the earlier of: (1) seven days after the car was sold, if the customer financed the car; or (2) within 24 hours after Debtor received payment for the car from the purchaser or lender. Westlake and Debtor had worked under this arrangement since 2019.
Westlake Ex. 1: Doc. 148-1, p. 4.
There are other instances that affect the Maturity Date that are not relevant here. (Westlake Ex. 1: Doc. 148-1, p. 21-22).
Westlake Ex. 1: Doc. 148-1, p. 21-22.
On September 21, 2023, Mr. Duran filed for divorce. This negatively affected Mr. and Ms. Duran's working relationship, and thereafter, Mr. Duran accused Ms. Duran of causing Debtor to disburse funds that put a financial strain on Debtor.
On Monday, December 18, 2023, Westlake emailed Mr. Duran and stated that Debtor's account was two weeks overdue and that Debtor owed Westlake $370,000 that needed to be paid immediately. The next day, Tuesday, December 19, 2023, Yantelo Henriquez, Westlake's Area Manager, called Ms. Duran and told her that his boss, Michael Andolino - Westlake's Regional Manager, wanted to speak with her. The three of them spoke on a three-way call, during which Andolino told Ms. Duran that if Debtor did not pay Westlake $200,000 that it owed by 2:00 p.m., Westlake would repossess the cars that it had funded. In response, Ms. Duran immediately went to see her bankruptcy attorneys and had Debtor file for bankruptcy relief under Chapter 11 at 4:23 p.m. on December 19, 2023.
Debtor Ex. 1: Doc. 122-1.
Debtor Ex. 2: Doc. 122-2.
Up to this point, the facts are basically undisputed. It is also undisputed that on December 20, 2023-after Debtor had filed for bankruptcy the day before-Westlake repossessed 17 cars from Debtor's lot, initiated five ACH withdrawals from Debtor's Chase bank account totaling $106,420.76, and emailed the COO of FinBe to ask that FinBe not fund any more sales to Debtor's customers. However, when Westlake found out about Debtor's bankruptcy filing is hotly disputed.
Debtor's Version of the Facts
Ms. Duran testified that once the bankruptcy petition was filed, she and her attorneys (Buddy Ford and Jonathon Semach) called Andolino, and Semach informed Andolino that Debtor had filed for bankruptcy. Semach also testified that he had spoken to Andolino during the phone call and informed him of Debtor's bankruptcy filing. Ms. Duran's attorneys' phone records confirm that the law office called Andolino at 4:32 p.m. on December 19, 2023, and that the call lasted 1 minute and 17 seconds.
Debtor Ex. 3: Doc. 122-3
According to Semach, Andolino understood that Debtor had filed for bankruptcy, and Andolino asked Semach to send him an email confirming Debtor's bankruptcy filing. Semach asked Andolino for his email address, and Andolino responded that Ms. Duran already had it.
Ms. Duran did not believe that she had Andolino's email address, so at 4:35 p.m., she texted Henriquez to ask him for Andolino's email address. Henriquez responded to her text by giving her an incorrect email address for Andolino; Ms. Duran did not know at the time that the email address Henriquez gave her was incorrect.
Debtor Ex. 5: Doc. 122-5.
Debtor Ex. 5: Doc. 122-5. According to Henriquez, he did not realize that his phone had auto-filled the incorrect portion of the email address.
At 4:51 p.m. on December 19, 2023, Semach emailed Andolino (at the incorrect email address) and provided him with Debtor's bankruptcy case number and Semach's contact information. Because it was sent to an incorrect email address, Semach's email to Andolino bounced back. Semach then asked his assistant to try to find the correct email address for Andolino, she found an email address, and Semach emailed Andolino at that email address at 5:28 p.m. on December 19, 2023. When that second email did not bounce back, Semach believed that it had reached Andolino. However, Andolino later told Semach that the second email address was also incorrect.
Debtor Ex. 6: Doc. 122-6.
Debtor Ex. 9: Doc. 122-9.
Buddy Ford also texted Andolino on December 19, 2023, at 5:19 p.m. and informed him that if Westlake proceeded to repossess the cars, Westlake would be violating the automatic stay. (Debtor Ex. 7: Doc. 122-7). Andolino contends that he did not receive this text until the next morning, because he had shut his phone off to attend a hockey game. (Debtor Ex. 8: Doc. 122-8). However, Andolino's phone records show that he called someone at 5:18 p.m. and 5:26 p.m. (Debtor Ex. 13: Doc. 122-13). It is not clear whether Ford's text was sent to the same phone number that the 5:18 and 5:26 calls were made from, as Andolino testified that he had two cell phones.
After meeting with the bankruptcy attorneys and filing Debtor's bankruptcy petition, Ms. Duran went to Debtor's car lot. When she got there, Henriquez and Leonardo Albornoz of Westlake were onsite to oversee the repossession of the cars that Westlake had funded. Ms. Duran then called her personal attorney, Matthew Kovschak, and he came to the lot, arriving around 5:15 or 5:30 p.m.
Kovschak testified that when he arrived, he asked who was in charge, and Henriquez responded that he was in charge. Kovschak handed Henriquez proof of Debtor's bankruptcy filing (a PACER printout) and told Henriquez that he needed to leave because Westlake was violating the automatic stay. Henriquez was on a phone call with Andolino during this interaction and refused to keep the bankruptcy papers. Henriquez responded that he would not leave because the bankruptcy did not apply to Westlake, because Westlake held the titles to the cars that it had funded.
Kovschak then called the Polk County Sheriff's Office for assistance at 6:01 p.m., and Officer Brian Goodman arrived at the scene at 6:11 p.m. Kovschak explained what had occurred and gave Goodman proof of Debtor's bankruptcy filing.
Debtor Ex. 11: Doc. 122-11.
Goodman testified that he spoke with Henriquez and informed him that Debtor had filed for bankruptcy. Henriquez told Goodman that he was unaware that Debtor had filed for bankruptcy, and then Henriquez and Albornoz left the lot.
However, Westlake had already started to arrange for the repossession of the cars, which led to Dustin Westwood, the owner of a tow truck company, being called to come to Debtor's car lot to repossess 17 cars. At 7:11 p.m., Henriquez texted Westwood and asked Westwood to call him. Henriquez advised Westwood that the police were onsite and that Westwood could not come and tow the cars. Westwood testified that after he had spoken to Henriquez, Andolino called Westwood and asked him to go to Debtor's lot and get the cars. Because the police had just been there, Westwood wanted to wait a while before going to tow the cars.
Debtor Ex. 12: Doc. 122-12.
Andolino admitted at trial that he was involved in the decision to repossess the cars.
Mr. Duran testified that at 7:21 p.m., he called Andolino and they spoke about the fact that Debtor had filed for bankruptcy. Phone records confirm that their call lasted nine minutes.
Debtor Ex. 13: Doc. 122-13.
Westwood arrived at Debtor's lot at 2:20 a.m. on December 20, 2023, and towed Westlake's 17 cars (three other non-Westlake-funded cars remained on the lot). Westwood testified that he was not aware that Debtor had filed for bankruptcy and would not have gone to Debtor's lot had he known.
Debtor Ex. 15: Doc. 122-15.
At some point on December 20 or 21, 2023, Westwood was told not to take the repossessed cars to auction; he was told to hold onto them instead. Ultimately, Westwood returned the 17 cars to Debtor on December 27, 2023.
Westlake's Version of the Facts
Jennifer Fiore, Assistant Vice President of Westlake, testified that by October of 2023, Westlake was noticing negative trends with respect to Debtor's account, so she wanted the account watched more closely. She also testified that when Westlake is notified of a bankruptcy, it tells its field employees to cease all collection efforts. However, she stated that neither Henriquez nor Andolino told her that Debtor had filed for bankruptcy, and if she had known, she would have immediately stopped all collection efforts.
The negative trends included Westlake-funded cars that could not be located for audits and delinquent payments that were increasing in amounts due and length of non-payment.
Both Henriquez and Andolino testified that they were completely unaware of Debtor's bankruptcy filing prior to the repossession of the 17 cars. While the Court finds Fiore's testimony-that neither Henriquez nor Andolino told her that Debtor had filed for bankruptcy- credible, the Court finds that both Henriquez's and Andolino's testimony on the issue of whether they knew on December 19, 2023, that Debtor had filed for bankruptcy completely lacked credibility.
Henriquez does not dispute that he was at Debtor's car lot on December 19, 2023, and that Kovschak handed him papers. He testified that he was on the phone with Andolino at the time, and Andolino told him not to accept the papers. As a result, Henriquez put the papers back on Kovschak's car. However, Henriquez disputes the testimony that he told Kovschak that bankruptcy did not apply to Westlake. Additionally, Henriquez contends that when Officer Goodman arrived on the scene, Goodman never told him that Debtor had filed for bankruptcy.
Andolino's testimony is even less credible. Andolino testified that on December 19, 2023, he had no knowledge that Debtor had filed for bankruptcy. In fact, he testified that he does not recall being told that Debtor had filed for bankruptcy during the December 19, 2023, phone call at 4:32 p.m. from Ms. Duran, Semach, and Ford. However, he admits that he called Jennifer Fiore, Assistant Vice President of Westlake, after his phone call with Ms. Duran, Semach, and Ford. He also testified that Mr. Duran never told him that Debtor had filed for bankruptcy during their nine-minute call at 7:21 p.m. on December 19.
To believe Henriquez's and Andolino's testimony, the Court would have to believe that Kovschak and Semach-attorneys and officers of the Court-lied under oath about telling Henriquez and Andolino about Debtor's bankruptcy filing. In fact, the Court would have to believe that Semach never mentioned Debtor's bankruptcy filing to Andolino during the December 19, 2023, phone call at 4:32 p.m. Andolino does not dispute that the phone call occurred, and phone records confirm it.
Additionally, the Court would have to find that Officer Goodman-who has no reason not to testify truthfully in this case and whose testimony matched his police report and Debtor's version of the events-also lied under oath about telling Henriquez that Debtor had filed for bankruptcy.
The Court does not accept Westlake's invitation to believe its version of events. Instead, the Court finds that Westlake knew about Debtor's bankruptcy filing after the 4:32 p.m. phone call by Semach to Andolino on December 19, 2023. Westlake again was informed of the bankruptcy at the dealership by Kovschak, who handed Westlake's representative a printout of the bankruptcy docket and case number. And, if that was not enough actual notice, Westlake was informed of Debtor's bankruptcy in the evening of December 19, 2023, by Officer Goodman. Actual notice thus came before any of the challenged conduct occurred.
The Court notes that in its closing argument, Westlake completely ignores the evidence of Westlake's actual knowledge of Debtor's bankruptcy filing on December 19, 2023, from Semach and Officer Goodman. (Doc. 245).
The Challenged Conduct
Debtor contends that Westlake willfully violated the automatic stay on December 20, 2023, in three ways. First, Westlake repossessed 17 vehicles from Debtor's lot. Second, Westlake unilaterally initiated five ACH withdrawals totaling $106,420.76 from Debtor's Chase bank account. Third, Andolino sent an "urgent" email to Mike Thacker, COO of FinBe, in which Andolino stated the following:
Debtor Ex. 18: Doc. 122-18. These ACH transfers resulted in the funds being withdrawn from Debtor's Chase bank account on December 21, 2023. (Westlake Ex. 38: Doc 168-1). These funds were not returned until December 27, 2023. (Doc. 45, p. 9).
Michael good afternoon I am with Westlake flooring I am on the road right now driving, but I wanted to reach out to you right away we have a Mutual customer Lakeland Car-Mart we have repossessed them last night they are out of trust over a million dollars. Carlos the husband has informed me that we have 16 deals in funding I don't know if it's part of your company, but I'd love for you to please not fund any more units until you speak with me. Please call me
tonight.
"Out of trust" appears to be a term of art that means that the funds that Debtor held in trust for Westlake were not paid to Westlake by the Maturity Date. According to the December 18, 2023, email that Westlake sent to Mr. Duran, Debtor owed Westlake $370,000. The term, "out of trust," was not used in Westlake's December 18, 2023, email.
Debtor Ex. 40: Doc. 128-3.
Westlake does not dispute that it engaged in this conduct after Debtor's bankruptcy petition was filed. Instead, it relies on Andolino's and Henriquez's trial testimony that Westlake was not aware of Debtor's bankruptcy filing prior to taking these actions.
II. Stay Violations: Conclusion of Law
The "automatic stay arises by operation of law at the moment the bankruptcy petition is filed regardless of whether affected parties have notice of the filing." In general and as relevant here, the automatic stay stops a creditor from taking: (1) "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;" and (2) "any act to collect, assess, or recover a claim against the debtor that arose before the" bankruptcy filing. "The automatic stay is one of the most important provisions of the Bankruptcy Code and is designed to afford debtors 'breathing space' to reorder their affairs, make peace with their creditors, and enjoy a clear field for future effort." The automatic stay also serves to protect other creditors in a bankruptcy case by preventing a race to the courthouse, or in this case, a race to repossession of collateral.
In re Byrd, 2009 WL 385571, at *2 (Bankr. N.D. Ala. Feb. 5, 2009).
11 U.S.C. § 362(a)(3) & (6).
In re Unlimited Homes, Inc., 2018 WL 1054095, at *2 (Bankr. N.D.Ga. Feb. 23, 2018) (citation omitted).
When a creditor willfully violates the automatic stay, the creditor may be subject to sanctions for the damages caused to the debtor. The authority for the sanctions is dependent upon whether the debtor is an individual (and 11 U.S.C. § 362(k) applies) or an entity (and the contempt power of 11 U.S.C. § 105(a) applies).
See In re Edgewater Construction Group, Inc., 653 B.R. 221, 226 (Bankr. S.D. Fla. 2023).
See Jove Engineering, Inc. v. I.R.S., 92 F.3d 1539, 1552-53 (11th Cir. 1996).
In this case, Debtor is a limited liability company, and as such, the authority to sanction Westlake for its violations of the automatic stay comes from § 105(a), which provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Section 105 creates a statutory contempt power that bankruptcy courts may use to remedy violations of the automatic stay that damage a corporate debtor. Thus, if Westlake willfully violated the automatic stay, this Court may find Westlake in civil contempt and sanction its conduct.
See id. at 1553. Section "105(a) grants courts independent statutory powers to award monetary and other forms of relief for automatic stay violations to the extent such awards are 'necessary or appropriate' to carry out the provisions of the Bankruptcy Code." Id. at 1554.
See id. at 1555. An "award of damages, including attorney's fees, under section 105 is discretionary." Unlimited Homes, 2018 WL 1054095, at *2 (citations omitted).
In determining whether Westlake willfully violated the automatic stay, this Court is mindful of the following:
The Eleventh Circuit has adopted a two-part test to determine whether a defendant willfully violated the automatic stay. The test is whether the creditor "(1) knew that the automatic stay was invoked and (2) intended the actions which violated the stay." . . . Violation of the automatic stay is presumed deliberate if the creditor has actual notice of the bankruptcy. Upon obtaining knowledge of the bankruptcy, the creditor bears the burden of not violating the automatic stay.
Byrd, 2009 WL 385571, at *2 (internal citations omitted).
Furthermore, "[t]he fact that the party did not intend to violate the automatic stay and acted without malice does not preclude a finding of contempt and an assessment of appropriate sanctions."
Unlimited Homes, 2018 WL 1054095, at *3 (citation omitted).
"A finding of civil contempt must be based on 'clear and convincing evidence.'" As explained below, Debtor easily meets its burden of establishing that Westlake willfully violated the automatic stay. Therefore, sanctions in the form of damages resulting from the stay violations are warranted.
Jove, 92 F.3d at 1545 (citation omitted).
When the debtor is an individual, a debtor will be awarded damages for a willful violation of the automatic stay under § 362(k), and a challenged action will be deemed willful if the violator knew that the automatic stay was invoked and intended the actions that violated the stay. See Byrd, 2009 WL 385571, at *2. After the U.S. Supreme Court's decision in Taggart v. Lorenzen, 587 U.S. 554 (2019), regarding violations of the discharge injunction, it is unclear whether the willfulness standard under § 362(k) was changed to an inquiry into whether there was no fair ground of doubt as to whether the automatic stay barred the violator's conduct such that there was no objectively reasonable basis for concluding that the conduct was lawful. See In re Abril, 2021 WL 3162637, at *4 (Bankr. M.D. Fla. June 24, 2021). However, § 362(k) is not implicated in this case because Debtor is not an individual. Further, regardless of the standard being applied, Debtor has shown by clear and convincing evidence that Westlake willfully violated the automatic stay. Hence, the Court specifically finds no fair ground of doubt as to whether Westlake violated the automatic stay and no objectively reasonable basis to conclude that Westlake's conduct was lawful.
A. Actual Notice of Bankruptcy
The first inquiry is notice of the bankruptcy. As explained by one court:
A creditor is not subject to the Code's provisions pertaining to the automatic stay until notice of the bankruptcy filing is received. A debtor may notify a creditor of his bankruptcy filing orally or in writing. Once the creditor receives notice, "the creditor is obligated to inquire further before ignoring the verbal notice and proceeding to collect on its debt." The debtor has the burden of providing the creditor with actual notice. . . . Once a party and its counsel have knowledge that a bankruptcy petition has been filed, they are deemed to have knowledge that the automatic stay is in place.
In re Kennedy, 2023 WL 3011246, at *4 (Bankr. N.D.Ga. April 19, 2023) (internal citations omitted).
Furthermore, "[t]he law is very clear that once a party has notice that a bankruptcy has been filed, that party cannot just ignore that information until receiving the information in the form that party would like to have it."
Edgewater Construction, 653 B.R. at 227.
The evidence before the Court is clear-Debtor has shown that Westlake had actual notice on December 19, 2023, that Debtor had filed for bankruptcy. Westlake received notice when Ms. Duran, Semach, and Ford called Andolino at 4:32 p.m. just minutes after the bankruptcy petition was filed, and Westlake received notice again later that day when Officer Goodman told Henriquez that Debtor had filed for bankruptcy. Andolino's and Henriquez's testimony that they were not told about Debtor's bankruptcy filing was simply not credible.
Despite the clear evidence that Westlake had actual notice of Debtor's bankruptcy filing on December 19, Westlake argues that it is immune from liability because Debtor did not comply with the notice requirements set forth in their financing agreement. Westlake cites to 11 U.S.C. § 342(g) and argues that actual notice was not effective to put it on notice of Debtor's bankruptcy.
Section 342(g) states:
(g)(1) Notice provided to a creditor by the debtor or the court other than in accordance with this section (excluding this subsection) shall not be effective notice until such notice is brought to the attention of such creditor. If such creditor designates a person or an organizational subdivision of such creditor to be responsible for receiving notices under this title and establishes reasonable procedures so that such notices receivable by such creditor are to be delivered to such person or such subdivision, then a notice provided to such creditor other than in accordance with this section (excluding this subsection) shall not be considered to have been brought to the attention of such creditor until such notice is received by such person or such subdivision.
(2) A monetary penalty may not be imposed on a creditor for a violation of a stay in effect under section 362(a) . . . unless the conduct that is the basis of such violation or of such failure occurs after such creditor receives notice effective under this section of the order for relief.
Westlake's reliance on 11 U.S.C. § 342(g) is misplaced. When a creditor has "actual notice" of a bankruptcy filing, it cannot rely on the safe harbor of § 342(g). Section § 342(g) relates generally to written or constructive notice and does not negate the actual notice of Debtor's bankruptcy that Westlake received on December 19. As previously stated, "[t]he law is very clear that once a party has notice that a bankruptcy has been filed, that party cannot just ignore that information until receiving the information in the form that party would like to have it."Westlake's position that it could knowingly act with impunity until formal written notice of the bankruptcy was received by its California office is untenable and unsupportable.
"Once a creditor has knowledge of the bankruptcy, the 'safe harbor' from monetary damages provided by § 342(g)(2) no longer applies." Murray v. Haugen (In re Murray), No. 13-1104, 2013 WL 6800881, at *1 (Bankr. N.D. Cal. Dec. 24, 2013) (citing Davis v. Kohler (In re Davis), 498 B.R. 64, 69 (Bankr. D.S.C. 2013)); see also In re Campbell, 649 B.R. 831, 837 (Bankr. S.D.Miss. 2023); Walsh v. UGI Utils., Inc. (In re Walsh), 518 B.R. 288, 289 (Bankr. M.D. Pa. 2014) ("The first sentence of § 342(g)(1) compels the conclusion that if a 'notice is brought to the attention of a creditor'-i.e., actual knowledge-then it is 'effective.'").
See, e.g., In re Brannon, 2013 WL 237759, at *2, n.1 (Bankr. S.D. Ala. Jan. 22,2013); In re Combs, 2006 WL 6591825, at *4 (Bankr. N.D.Ga. Nov. 20, 2006).
Edgewater Construction, 653 B.R. at 227.
In any event, Westlake offered no evidence that it even complied with the requirements to trigger § 342(g). Section § 342(g) must be read in conjunction with 11 U.S.C. § 342(c)(2)(A) and Federal Rule of Bankruptcy Procedure 2002(g)(5).
11 U.S.C. § 342(c)(2)(A) states:
If, within the 90 days before the commencement of a voluntary case, a creditor supplies the debtor in at least 2 communications sent to the debtor with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then any notice required by this title to be sent by the debtor to such creditor shall be sent to such address and shall include such account number.
Federal Rule of Bankruptcy Procedure 2002(g)(5) states:
A creditor may treat a notice as not having been brought to the creditor's attention under § 342(g)(1) only if, prior to issuance of the notice, the creditor has filed a statement that designates the name and address of the person or organizational subdivision of the creditor responsible for receiving notices under the Code, and that describes the procedures established by the creditor to cause such notices to be delivered to the designated person or subdivision.
Here, Westlake presented no evidence that it complied with § 342(c)(2)(A), nor any evidence that Westlake filed a statement that designates the name and address of the person or organizational subdivision within Westlake responsible for receiving notices under the Code. Thus, the Court rejects Westlake's attempt to use § 342(g) to shield it from liability for its stay violations.
See, e.g., In re Parker, 519 B.R. 884, 889 (Bankr. Dist. Col. 2014).
B. Westlake's Intentional Acts
Next, this Court must determine whether Westlake intended the acts that violated the automatic stay. The acts that violated the automatic stay occurred on December 20, 2023, and consisted of Westlake repossessing 17 cars from Debtor's lot, initiating five ACH withdrawals from Debtor's Chase bank account totaling $106,420.76, and emailing Thacker of FinBe and asking that FinBe not fund any more sales to Debtor's customers. There is no question that Westlake intended these acts that violated the automatic stay and that these acts were taken after Westlake had actual knowledge that Debtor had filed for bankruptcy.
Even if Westlake held title to the cars that it had repossessed, that does not shield its conduct from the automatic stay. See Kennedy, 2023 WL 3011246, at *4 (stating that "[t]he automatic stay . . . protects the estate's possession of property even if it is not property of the estate, and it prevents a party from seeking possession even if the debtor has no legal basis for possession"). Instead, the proper course of conduct would have been for Westlake to first obtain relief from the automatic stay from this Court. See Edgewater Construction, 653 B.R. at 227 n.8.
C. Liability for Westlake's Willful Violations of the Automatic Stay
Because Debtor has established by clear and convincing evidence that Westlake willfully violated the automatic stay, the Court will sanction Westlake for its stay violations to the extent of the resulting damages to Debtor. Like the issue of notice of the bankruptcy case, the resulting damages are hotly disputed.
III. Damages: Evidence at Trial
Debtor argues that the three acts of challenged conduct resulted in the destruction of their business. Specifically, Debtor contends that Westlake's repossession of the 17 cars from Debtor's lot for seven days resulted in seven days of lost sales during a higher sales time (i.e., the week of Christmas). Debtor was also without the use of the $106,420.76 that Westlake withdrew from Debtor's Chase bank account the day after the bankruptcy was filed. Finally, Debtor contends that Andolino's email to Thacker, COO of FinBe, not only resulted in the undoing of 20 car sales that had occurred, were pre-approved, and were in process of being funded by FinBe, but it also resulted in FinBe and Lendbuzz no longer being willing to fund customers' purchases of Debtor's cars. The following evidence was introduced at trial on the issue of damages.
11 U.S.C. § 362(a)(3) prohibits "any act to . . . exercise control over property of the estate."
Debtor introduced evidence that the week of Christmas generally has higher sales than normal, even though Debtor is closed on Christmas day and closes early on Christmas eve. Mr. Duran testified that Debtor was averaging about 60 car sales per month. This testimony is consistent with the testimony of Westlake's rebuttal expert witness, Steven Wolf, who testified that Debtor was averaging about 14 cars sold per week. Debtor was without, and thus could not sell, the 17 repossessed cars during the week of Christmas.
Debtors 2023 Operating Report, which covers January 1, 2023, through December 8, 2023, shows that Debtor sold 670 cars during that 11.25-month period, which equals 59.6 cars per month. (Westlake Ex. 63: Doc. 151-25).
Doc. 217. P. 16.
Debtor also introduced evidence of 20 deals that had already been made for car sales where financing had been pre-approved but the sale had not yet been funded by lenders ("Dead Deals").Of those 20 Dead Deals, 18 were pre-approved to be funded by FinBe, and 2 were pre-approved to be funded by Westlake Financial. After Andolino sent Thacker the December 20, 2023, email, FinBe refused to fund these 18 pre-approved Dead Deals of cars that already had been sold and were in possession of Debtor's customers. The other 2 Dead Deals were to be funded by Westlake Financial-a company that is related to Westlake.
Debtor Ex. 19: Doc. 122-19.
Andolino testified that when looking at Dealertrack documents, if the document says "approved," that means that the customer is pre-approved for the financing for the car. The Dealertrack documents for the 20 Dead Deals (Debtor Ex. 19: Doc. 122-19) show that each of the deals was already pre-approved for financing.
The same company owns both Westlake Financial and Westlake Flooring.
Debtor did not produce any evidence regarding the exact amount of profit that it would have made on each of the Dead Deals. However, based on Debtor's 2022 and 2023 Operating Reports, Debtor averaged between $1,222 and $1,238 in profit for each car sold during those two years. This calculation was confirmed by Westlake's rebuttal expert witness, Steven Wolf.
Debtor's 2022 Operating Report shows that Debtor made $751,541 in profit from 607 cars sold, which averages $1,238 per car. (Westlake Ex. 29: Doc. 150-12). Likewise, Debtor's 2023 Operating Report shows that Debtor made $818,960 in profit from 670 cars sold, which averages $1,222 per car. (Westlake Ex. 63: Doc. 151-25).
Mr. Duran testified that when a floorplan company communicates to a lender that the car dealer is out of trust, that is a red flag for the lender. Thus, Debtor contends that Andolino's email to Thacker essentially destroyed Debtor's business. Specifically, Mr. Duran testified that Andolino's email to Thacker not only caused FinBe to not fund those 18 Dead Deals, but it also caused FinBe to stop funding all of Debtor's future customers. Likewise, Mr. and Ms. Duran both testified that Lendbuzz also stopped funding Debtor's customers after Andolino sent the email to Thacker. Thus, Mr. and Ms. Duran both contend that Debtor had built relationships with its lenders to finance its niche customer base and Andolino's email destroyed those relationships.
This is because, if the lender pays the car dealer, but the car dealer does not pay the floorplan company, the lender may not get title from the floorplan company for the car that the lender finances. (Doc. 216, p. 168).
Mr. Duran testified that after Andolino sent the email to Thacker, the only available lenders were Integrity, Western Funding, CPS, 1803 Finance, and Citizens Bank. However, Mr. Duran testified that only Western Funding and 1803 Finance provide financing for Debtor's type of customers. He pointed out that Western Funding did not lend on terms as favorable as FinBe and Lendbuzz. In fact, he testified that Western Funding had only funded one of Debtor's deals during the past three years and zero deals during the last six months. Likewise, he testified that 1803 Finance's terms are not nearly as favorable as FinBe's and Lendbuzz's terms.
1803 Finance requires a very high down payment and will not accept a job letter as proof of income.
Debtor's expert witness, Larry Hyman, testified as to Debtor's damages, based on the assumption that Westlake's stay violations destroyed Debtor's business. Hyman testified that as of December 18, 2023-prior to Debtor filing for bankruptcy-Debtor's business was worth between $3,354,774 and $3,971,484. However, that valuation is only relevant if Debtor proves that Westlake's stay violations did, in fact, destroy Debtor's business. Yet, Mr. Duran conceded on cross-examination that being out of trust by $370,000 could "maybe" cause a lender to stop doing business with a car dealer. And Westlake's rebuttal expert witness, Steven Wolf, testified that he found Hyman's conclusion "puzzling": that the stay violations-in which the repossessed cars and ACH withdrawals were returned within a week-could "cause the complete destruction of the business." Wolf pointed out that Debtor had been in business for years and had established goodwill in the community, and as such, it was unlikely that those stay violations could completely destroy Debtor's business.
Furthermore, the stay violations occurred after Debtor filed for bankruptcy, and Hyman's valuation did not take into account that vital detail.
Doc. 216, p. 105.
Doc. 216, p. 216.
Doc. 216, p. 216.
IV. Damages: Findings of Fact and Conclusions of Law
Based on the evidence presented at trial, the Court finds that Debtor was damaged by Westlake's willful violations of the automatic stay. In making this determination, the Court is mindful that: (1) Debtor must prove the amount of its actual damages with reasonable certainty;and (2) Debtor must prove that those damages were proximately caused by Westlake's stay violations. With this in mind, it is clear that Debtor's damages proximately caused by Westlake's stay violations are far less than the over-$3 million claimed by Debtor.
See Kennedy, 2023 WL 3011246 at *7 (citation omitted).
In re Thigpen, 2009 WL 10742947, at *6 (Bankr. M.D. Fla. Mar. 30, 2009) (citations omitted).
The Court does not accept Debtor's argument that Westlake's stay violations destroyed Debtor's business, justifying the damages calculated by Hyman. Debtor had many problems that led to the apparent demise of its business. The Durans' pending divorce created significant management uncertainty, and Debtor already owed Westlake a significant amount. The business was in trouble for many reasons, and Westlake's post-bankruptcy actions certainly contributed. But Westlake's conduct was specifically targeted and temporary. As such, the direct damages are calculable.
A. Damages Caused by the Repossession
Westlake repossessed 17 cars on December 20, 2023, and did not return the cars until December 27, 2023. Thus, Debtor was without this inventory during the normally busy Christmas week. Based on historical performance and credible testimony, the 17 cars could very reasonably have been sold (and Westlake paid) had they not been repossessed. Obviously, with its inventory and cash unavailable, Debtor could not pay employees or stay open to sell anything. If Debtor had those vehicles and sold them, Debtor would have made approximately $1,230 in profit per car, or $20,910 total. The Court finds that Westlake's willful stay violation of repossessing the 17 cars resulted in $20,910 in damages to Debtor.
B. Damages Caused by the ACH Withdrawals
Westlake initiated five ACH withdrawals from Debtor's Chase bank account on December 20, 2023, totaling $106,420.76 and did not return the funds until December 27, 2023. Debtor did not put on any specific evidence of damages caused by the ACH withdrawals. Rather, Debtor maintains that the business was closed due to Westlake's conduct and never recovered. Because the Court does not accept that Westlake's post-petition conduct caused the destruction of Debtor's business, the Court accepts Westlake's position via its rebuttal expert, Wolf, who testified that these withdrawals likely caused only $15 per day in lost interest. Thus, the Court finds that Westlake's willful stay violation of withdrawing $106,420.76 from Debtor's bank account resulted in $105 in damages to Debtor.
Doc. 217, p. 13.
C. Damages Caused by Andolino's Email to FinBe's COO
On December 20, 2023, Andolino sent an email to FinBe's COO, Thacker, asking that FinBe not fund any of the pending car sales until Thacker spoke to Andolino. The Durans testified at trial that this email resulted in FinBe refusing to fund the 18 Dead Deals that FinBe had pre-approved, and the Court found this testimony to be credible. Had FinBe financed those 18 Dead Deals, Debtor would have made approximately $1,230 in profit per car, or $22,140 total. The Court finds that Westlake's willful stay violation of sending the email to FinBe was an act to exercise control over property of the estate and resulted in $22,140 in damages to Debtor.
There is no basis for finding that Andolino's email to FinBe caused Westlake Financial (a company related to Westlake Flooring) not to fund the other 2 Dead Deals.
Debtor also contends that the email destroyed Debtor's business. However, Debtor did not prove causation on this point. Debtor did not bring representatives from FinBe and Lendbuzz to testify at trial that Andolino's email caused them to decide to not fund any future sales for Debtor's customers. In fact, there was no evidence that Lendbuzz knew of the email. Furthermore, Mr. Duran conceded that it was possible that a lender might stop doing business with a car dealer based solely on the fact that the dealer was out of trust by $370,000. Therefore, Debtor has not proven that Westlake's post-petition email to FinBe caused the complete destruction of Debtor's business. It was an act to exercise control over property of the bankruptcy estate (the approved financing contracts), but it was not wholly responsible for the continued difficulties facing Debtor.
The Court notes that Andolino's email stated that Debtor was out of trust by over $1 million and that Debtor disputes that contention. However, the issue before the Court is whether Westlake violated the automatic stay, not whether Westlake made a misrepresentation and/or tortiously interfered with Debtor's business relationships.
This conclusion is the same regardless of whether the Court applies the clear and convincing standard or the preponderance of the evidence standard.
D. Punitive Damages
Debtor also seeks punitive damages for Westlake's willful stay violations. A bankruptcy court can award punitive damages under § 105(a) as long as doing so is necessary or appropriate to carry out the provisions of the Bankruptcy Code. "[P]unitive sanctions are appropriate only where a party acted with sufficient notice concerning the legal import of its offending actions."Thus, in seeking punitive damages, Debtor must show that Westlake acted with reckless or callous disregard for the law or rights of others.
See Jove, 92 F.3d at 1554 (citation omitted); In re WVF Acquisition, LLC, 420 B.R. 902, 914 (Bankr. S.D. Fla. 2009).
In re McLean, 794 F.3d 1313, 1325 (11th Cir. 2015) (citation omitted).
See id. (citations omitted).
Debtor cites to In re WVF Acquisition, LLC to support its request for punitive damages. In WVF Acquisition, the debtor was a communication and information services company that provided internet access to customers in North America and Europe. The debtor purchased internet access from WBS in order to provide service to the debtor's customers. The bankruptcy court awarded punitive damages for WBS' stay violation, stating:
420 B.R. 902 (Bankr. S.D. Fla. 2009).
See id. at 906.
See id.
WBS intentionally terminated the Debtor's internet service, knowing that this would bring the Debtor's business to a halt, after receiving unequivocal written notice of the Debtor's bankruptcy filing including a specific invocation of the automatic stay. While the Debtor was unable to provide service to tens of thousands of direct and indirect customers, WBS demanded a general release as a condition to restoring service. WBS's actions constitute "a willful disrespect" and "arrogant defiance of the bankruptcy laws." The potential for irreparable harm to the Debtor was well known to WBS. WBS acted with malicious intent to shut down the Debtor's business.
Id. at 914 (internal citations omitted).
The level of recklessness or callous disregard for the law or rights of others shown by WBS in WVF Acquisition far exceeds that of Westlake in this case. While Westlake's conduct was clearly wrong, the evidence is does not show that Westlake knew its conduct would destroy Debtor's business or cause irreparable harm; Westlake's conduct can be fully remedied by compensatory damages. Moreover, once Westlake's attorneys became involved, the cars were returned to Debtor and the ACH transfers were reversed. Westlake's bankruptcy attorneys played a significant role in mitigating the damages by unwinding the stay violations, to the extent they were able to do so. After careful consideration, this Court finds that punitive damages are not warranted under the facts of this case.
E. Attorney's Fees
Debtor also seeks an award of its reasonable attorney's fees. Debtor "can recover attorney's fees as actual damages if reasonably incurred as a result of a willful stay violation."Here, it is clear that Debtor's attorney's fees were reasonably incurred as a result of Westlake's willful stay violations.
See Kennedy, 2023 WL 3011246, at *7 (citation omitted).
Originally, Debtor's Emergency Motion regarding Westlake's stay violations was scheduled for a three-hour trial to determine whether sanctions were warranted. However, as explained at the April 24, 2024, hearing, Westlake decided to take the position that its actions did not violate the automatic stay and that a trial on the issue of liability would take two days to try. Given that Westlake's position on liability would require the Court to believe Andolino and Henri quez that they did not have notice of Debtor's bankruptcy on December 19, 2023, and given that their trial testimony clearly was not credible, the Court finds that Westlake unnecessarily caused Debtor to incur attorney's fees on the issue of liability. Accordingly, the Court finds that Debtor is entitled to recover its reasonable attorney's fees, as they were incurred as a result of Westlake's willful stay violations.
Doc. 46.
V. Conclusion
Based on the above, it is ORDERED that:
(1) The Court finds that Westlake willfully violated the automatic stay by repossessing 17 cars from Debtor's lot, initiating five ACH withdrawals from Debtor's Chase bank account totaling $106,420.76, and emailing the COO of FinBe and asking that FinBe not fund any more sales to Debtor's customers.
(2) The Court finds that Westlake's willful violations of the automatic stay proximately caused $43,155 in damages to Debtor, consisting of the following: (a) $20,910 in lost profit from repossessing the 17 cars; (b) $105 in lost interest due to the ACH withdrawals; and (c) $22,140 in lost profit from the 18 Dead Deals that FinBe would not finance due to Andolino's email. Additionally, Westlake's willful stay violations also caused Debtor to incur attorney's fees, and the Court will award Debtor its reasonable attorney's fees and costs.
(3) Debtor is directed to file a motion for attorney's fees and costs within 14 days after the entry of this order. Westlake may file a response thereto within 7 days thereafter. Thereafter, the Court will enter a final order determining the amount of the sanction.