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discussing punitive damages in the context of a landlord's violation of the automatic stay
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Case No. 06-23936-TPA Adversary No. 13-2037-TPA
01-14-2015
IN RE: GARTH F. LANSAW and DEBORAH L. LANSAW, Debtors GARTH F. LANSAW and DEBORAH L. LANSAW, Plaintiffs, v. FRANK R. ZOKAITES, Defendant.
Appearances: Garth F. Lansaw and Deborah L. Lansaw, Pro se Plaintiffs Jeffrey A. Hulton, Esq., for the Defendant
Chapter 1 Appearances: Garth F. Lansaw and Deborah L. Lansaw, Pro se Plaintiffs
Jeffrey A. Hulton, Esq., for the Defendant
MEMORANDUM OPINION
The Debtors/Plaintiffs in this case, Garth and Deborah Lansaw, formerly operated a day care facility known as Forever Young Childcare ("the Daycare"). At the time their bankruptcy case was filed in 2006, the Daycare was being operated in space that the Lansaws had been leasing for a number of years from the Defendant, Frank Zokaites. The landlord-tenant relationship between the Parties might be described charitably as a difficult one, and it involved some pre-bankruptcy state court litigation. The Lansaws bankruptcy filing appears to have largely been triggered by a self-help "Notice of Distraint" that Zokaites had served on them, pursuant to which he claimed a lien against their personal property for unpaid rent.
The matter presently before the Court concerns two discrete occurrences during the course of the Parties' relationship, one of which took place about a year before the Lansaws filed their bankruptcy case, and the other involving a series of actions taken by Zokaites shortly after the filing. In the pre-petition incident, which lasted from September 5-9, 2005, Zokaites posted a sign near the parking lot entrance to the premises indicating that the Daycare was behind in its rental obligation and was being evicted. The Lansaws contend that this action constituted the tort of false light invasion of privacy. In the post-petition incidents, a few days after the bankruptcy was filed Zokaites entered the Daycare premises without permission to allegedly take photographs of the property he claimed was subject to the Notice of Distraint, several days later chained and padlocked the doors to the premises thus temporarily denying access to the Lansaws and disrupting the operation of the Daycare, and then wrote a letter to the Lansaws' intended new landlord threatening to file suit against him if he went forward with the new lease involving the Lansaws. It has previously been determined by the Hon. Judith Fitzgerald, who handled this matter before retiring from the Bench, that Zokaites violated the automatic stay by taking these actions, with the only remaining question for determination being how much damage should be awarded because of such violations.
Following a trial held in this matter this August and for reasons to be explained below, the Court finds that the Lansaws have not proven their case with respect to the false light invasion of privacy claim, and that a damage award of $50,100 shall be entered against Zokaites with respect to his violations of the automatic stay.
The Court has jurisdiction over these matters pursuant to 28 U.S.C. §§157(a) and 1334. The violation of the automatic stay matter is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(A), and the false light invasion of privacy matter is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(B). In addition, the Parties have filed consents indicating their agreement to allow the Court to render a final decision on the false light claim. See Adv. No. 1302037 Doc. Nos. 37, 38. This Memorandum Opinion represents the Court's findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052.
PROCEDURAL HISTORY
This adversary proceeding, and the underlying bankruptcy case, have had a long and tortuous history. It is not necessary to go into that history in detail for purposes of this Opinion, but a brief summary of relevant events will be helpful.
The main bankruptcy case was filed on August 16, 2006, with the Lansaws being represented by Attorney Stanley Kirshenbaum at the time. On August 28, 2006, the Lansaws initiated an adversary proceeding by filing a Complaint for Injunctive Relief against Zokaites, alleging that Zokaites had violated the automatic stay in a number of respects in connection with the Daycare. See, Adv. No. 06-02645, Doc. No. 1. In addition, the Lansaws filed a motion seeking a temporary restraining order and/or a preliminary injunction to enjoin Zokaites from any further interference with the operation of their business and their quiet enjoyment of the premises they were leasing from him. Adv. No. 06-02645, Doc. No. 2. That adversary, although now closed, was the genesis of the claim in the present case for damages resulting from Zokaites' violations of the automatic stay.
On October 3-4, 2006, the Hon. Judith K. Fitzgerald held a trial in Adv. No. 06-02645, with a follow-up argument held on October 20, 2006. In a Memorandum Opinion and Order issued on December 12, 2006 ("December 12, 2006 Opinion"), Judge Fitzgerald found that Zokaites had violated the automatic stay and that the Lansaws were entitled to have an injunction entered barring any further such violations. See, Adv. No. 06-02645 at Doc. No. 91 p. 8 and Doc. No. 92. Judge Fitzgerald did not, however, address the issue of any damages for the stay violations at that time.
In addition to Adv. No. 06-02645, the October 2006 trial and the subsequent argument involved a separate adversary proceeding that the Lansaws filed to recover an alleged preferential payment to Zokaites (Adv. No. 06-2659), a motion to reject an unexpired lease with Zokaites (Main Case Doc. No. 19), a motion to avoid a lien of Zokaites related to the Notice of Distraint (Main Case Doc. No. 21), and "Counter Motions" by Zokaites alleging that the Lansaws had filed the bankruptcy in bad faith and demanding that the case be dismissed.
Prior to the trial in the present matter, Zokaites argued that the failure of Judge Fitzgerald to award damages for violation of the stay in 2006 was tantamount to a finding by her that the Lansaws were not entitled to any damages, which would in turn bar any damage award now based on principles of res judicata. The Court rejected this argument based on its review of the December 12, 2006 Opinion, which indicated that Judge Fitzgerald's failure to address damages at that time was not intended as a decision on the merits that no damages should be awarded. This view was further bolstered by Judge Fitzgerald's comments at a hearing held in 2009 during which she explicitly recognized that damages for the stay violation were still an open issue. Audio Transcript of the June 18, 2009 hearing in the main case at 9:13:13 through 9:13:23. See also 8/4/14 Tr. at 29-33, Adv. Doc. No. 199.
Subsequently, the Lansaws again alleged that they were entitled to damages for the stay violation in a "Counterclaim" that they filed as part of their Objection to Zokaites proof of claim. See, Main Case Doc. No. 87, filed on February 23, 2007. For reasons that are unclear, the stay violation damage claim never did get resolved at any time during the remaining five-plus year period in which the case was assigned to Judge Fitzgerald, and it was still an open matter when the case was reassigned to the Undersigned on December 11, 2012.
The false light invasion of privacy claim, involving the September 2005 pre-petition sign incident, followed a similar, but slightly different route. It was not included in the complaint filed in Adv. No. 06-02645, but it was part of the Counterclaim filed by the Lansaws on February 23, 2007. Again, however, this claim did not get resolved during the time when Judge Fitzgerald was presiding over the case.
The Lansaws also raised claims of defamation and interference with contractual relations against Zokaites in their Counterclaim. Judge Fitzgerald granted summary judgment in favor of Zokaites as to them on June 19, 2009 and they are not presently at issue. See Order of June 19, 2009, Main Case Doc. No. 201 and Adv. No. 13-2037 Doc. No. 8.
When the main bankruptcy case was reassigned to the Undersigned, a status conference was scheduled for January 29, 2013. After the Court conducted this status conference and realized that the two issues of the false light invasion of privacy claim and damages for the stay violations still needed to be resolved, it determined that the best way to expeditiously do so was to initiate a new adversary proceeding based on the Counterclaim, treating it as equivalent to a complaint. This resulted in the inception of the present adversary proceeding on February 1, 2013. It will be noted that the first thirty-four (34) entries on this adversary docket are relevant filings that were originally made on the main case docket and which the Court directed to be placed on the adversary docket as well to help provide clarity to a somewhat confusing situation.
It should also be kept in mind that the Court is not writing on a blank slate in this matter. As mentioned above, Judge Fitzgerald previously conducted a 2-day trial in October 2006, and she issued the 15-page December 12, 2006 Opinion following that trial. Although that trial and the December 12, 2006 Opinion were focused on the Lansaws' request for injunctive relief with respect to the stay violations, it is nonetheless true that many of the same factual issues that she faced at that time are equally relevant here. Neither side ordered a transcript of the October 2006 trial to be prepared, but Judge Fitzgerald did docket her very detailed "Trial Notes" (72 pages) summarizing the testimony of the various witnesses and the other evidence presented at the trial. See Main Case Doc. No. 54.
The Court advised the parties at the trial in the present case that "[w]e are not starting from ground zero. We're building on what Judge Fitzgerald previously found...." 8/4/14 Tr. at 42. The Court thus will freely adopt findings made by Judge Fitzgerald in the December 12, 2006 Opinion as it sees fit, and will make reference to her Trial Notes as necessary. Additionally, the Court will refrain from setting forth a self-contained, comprehensive factual narrative of the Parties' relationship since Judge Fitzgerald has already done that. See, December 12, 2006 Opinion at 2-8. The Court will instead make reference to specific factual matters as necessary during the course of its discussion of the remaining claims.
False Light Invasion of Privacy
At the conclusion of the Lansaw's case at the August 2014 trial, the Court granted the oral motion by Zokaites for a judgment on partial findings on the false light invasion of privacy claim pursuant to Fed.R.Bankr.P. 7052, incorporating Fed.R.Civ.P. 52(c), indicating that it would subsequently enter formal judgment in favor of Zokaites at the conclusion of the matter as to the false light claim and set forth the findings of fact and conclusions of law upon which the Court's decision was based.
This aspect of the case concerns the incident in September 2005 when Zokaites placed a four-foot square sign prominently at the entrance to the parking lot where the Lansaws were operating the Daycare. This sign read as follows:
Forever Young day care is behind in their rent and I am evicting them. /s/ Frank Zokaites, Landlord.The Lansaws contend that this act disrupted their business by tarnishing their reputation with existing clients and potential future clients. They claim the placement of the sign invaded their privacy by causing them to be put into a false light.
The tort of false light invasion of privacy has been recognized to exist under Pennsylvania law. See, e.g., Graboff v. Colleran Firm, 744 F.3d 128, 136 (3d Cir. 2014) (citing cases). Nevertheless, the "contours of this tort remain amorphous." Larsen v. Philadelphia Newspapers, Inc., 375 Pa. Super. 66, 81 (Pa. Super. Ct. 1988) The Restatement (Second) of Torts provides the following explanation for this tort:
One who gives publicity to a matter concerning another that places the other before the public in a false light is subject to liability to the other for invasion of his privacy, ifRestatement (Second) Torts §652E. Pennsylvania courts have adopted this definition as a correct statement of this tort. See, e.g., Chicarella v. Passant, 343 Pa. Super. 330, 338 (Pa. Super. Ct. 1985).
(a) the false light in which the other was placed would be highly offensive to a reasonable person, and
(b) the actor had knowledge of or acted in reckless disregard as to the falsity of the publicized matter and the false light in which the other would be placed.
The Court has reviewed a good number of prior decisions in which the cause of action for false light invasion of privacy has been at issue, and they are not all entirely consistent with respect to all details as to what must be proven to establish such a claim. Despite that, the overall "big picture" is fairly clear, and the Court finds that the Lansaws have not met all of the required elements upon which the courts have expressed little disagreement.
For instance, does the matter which is the subject of the false light claim have to concern private facts only, or can it involve facts of public concern? To at least some extent this sort of inconsistency can be attributed to the fact that the Restatement sets forth a cluster of four distinct torts under the general heading of " invasion of privacy," each with its own peculiarities. In addition to Section 652E, see also Sections 652B (intrusion upon seclusion), 652C (appropriation of name or likeness) and 652D (publicity given to private life). The courts have not always been punctilious about recognizing the distinctions between and among these different tort theories in their discussions about invasion of privacy torts, and as a result a level of imprecision and "cross-contamination" has been engendered. See, e.g., Cooper v. City of Chester, 2011 WL 6046934 fn. 6 (E.D. Pa. 2011) (explaining that while Smith v. Borough of Dunmore, 633 F.3d 176 (3d Cir. 2011) held that a false light claim under Section 652E requires a publication of private facts, the Pennsylvania case upon which it relied for that conclusion, Strickland v. Univ. of Scranton, 700 A.2d 979 (Pa. Super Ct. 1999) actually relied on a still earlier Pennsylvania case that was addressing a claim for publicity given to private life based on Section 652D).
Referring to the Section 652E definition, the first element that must be shown is that there has been "publicity." In the context of a false light claim, publicity means that the matter is "made public, by communicating it to the public at large, or to so many persons that the matter must be regarded as substantially certain to become one of public knowledge." Curran v. Children's Serv. Ctr. of Wyoming County, Inc., 396 Pa. Super. 29, 39 (Pa. Super. Ct. 1990). This would be as opposed to a communication to only a small group of people, or only a single individual, which is unlikely to qualify as publicity.
In the present case, the Parties disputed whether the placement of the sign by Zokaites constituted publicity, but the Court has little problem finding that it did. At the very least, the sign was seen by all of the employees of the Daycare and all of the parents who dropped their children off during the time it was up. Mrs. Lansaw estimated that she spoke to perhaps 100 parents about the sign. 8/4/14 Tr. at 77. Additionally, the Daycare was located near other commercial offices and not far from a busy road, so very likely it was seen by a large number of other individuals. Mrs. Lansaw testified that the sign was placed near a longstanding "for rent" sign maintained by Zokaites, and was of approximately the same size as this other sign, which obviously would have been placed so as to be visible to the public. For all these reasons, the Court concludes that the Lansaws established that Zokaites gave publicity to the matter on the sign.
The second element requires a showing that the publicity placed the Lansaws in a "false light." This is where the Lansaws begin running into difficulties. It can readily be seen that the sign contained two basic factual assertions: that the Lansaws were behind in their rent, and that Zokaites was evicting them. The Lansaws themselves concede that the second assertion was true because Zokaites had in fact started a state court eviction action against them that was pending at the time the sign was placed. They contend, however, that they were in fact current with their rent at the time, making the first factual assertion in the sign false.
The rent issue is somewhat complex. As explained in Judge Fitzgerald's December 12, 2006 Opinion, on June 22, 2002, during a prior bankruptcy by the Lansaws, they and Zokaites entered into "Amendment No. 1" to their lease which extended the lease term to October 31, 2009, increased the base rent effective July 1, 2002 from $3,357.11 per month to $4,157.92 per month, and included a CPI and CAM (common area maintenance) component. Id. at 2-3. The Lansaws believed that the increase in base rent was just temporary to repay an arrearage they owed to Zokaites, and after that period expired the base rent would revert to the prior amount. They therefore reduced their rent payments after the two-year period, thereby creating a dispute with Zokaites who believed the base rent increase to be a permanent feature under Amendment No. 1.
This rental amount dispute was the subject of pending state court litigation at the time the sign was placed and no final decision had yet been reached. The statement on the sign that the Lansaws were behind in their rent was therefore more in the nature of an opinion rather than a judicial decision, and it would perhaps have been more technically accurate if it had been prefaced with an "I believe" to so indicate. Be that as it may, in the pending state court litigation it was eventually determined some months later that Zokaites' view as to the permanency of the base rent increase was the correct one. See Defendant's Exhibit 1. Moreover, as of the date the sign was placed the Lansaws were behind in the "CPI" component due under the lease, although that may have been due at least in part to a delay by Zokaites in sending out a notice of the amount of increase. In these circumstances the Court concludes that the statement on the sign concerning the rent was at least substantially true, with any falsity limited to a de minimus effect.
Even though a statement may be literally true, however, it is still possible to serve as a basis for a false light invasion of privacy claim. As explained by the Third Circuit:
... the [Pennsylvania] Superior Court has defined falsity broadly in that context. A plaintiff can establish falsity by showing that a defendant "selectively printed or broadcast true statements or pictures in a manner which created a false impression." Larsen, 543 A.2d at 1189. Thus, even where a publication is literally true, "discrete
presentation of information in a fashion which renders the publication susceptible to inferences casting one in a false light entitles the grievant to recompense for the wrong committed." Id. at 1189. The Superior Court has drawn this broad definition from defamation law, which permits recovery where a publication was true, but implied falsehoods. Id. (citing Dunlap, 448 A.2d at 15).Graboff v. Colleran Firm, 744 F.3d 128, 136-37 (3d Cir. 2014). The Court finds no basis for placing the sign into that category of communication. Zokaites made a blunt statement of fact that did not rely on any sort of selective editing or innuendo to create a false impression. Thus, the Lansaws failed to establish the second required element for a false light claim.
The third required element is that the false light into which the plaintiff has been placed would be highly offensive to a reasonable person. Assuming, solely for the sake of argument, that the Lansaws were placed into a false light by the sign, the Court finds that this element has been met. Comment c to Section 652E indicates that this element is designed to screen out claims based on minor errors that would not in the absence of special circumstances give any serious offense to a reasonable person. The statement in the present case is not of that type. If the Lansaws had been falsely depicted as not paying their rent, it would have been reasonable for them, as proprietors of a business in which reputation is key, to feel "seriously offended and aggrieved by the publicity." Id.
The final element the Court must consider is the one that weighs most decisively against the Lansaws' position. Under this element, they were required to show that Zokaites had knowledge of or acted in reckless disregard as to the falsity of the publicized matter and the false light in which they would be placed by the sign. Put in different terms, a false light claim requires a showing of scienter, or at least reckless disregard on the part of the defendant. See, e.g., Shadle v. Nexstar Broadcasting Group, Inc., No. 3:13-CV-02169, 2014 WL 3590003 at *10 (M.D. Pa. July 21, 2014).
The Lansaws did not provide any evidence that would support a conclusion that Zokaites acted with scienter or reckless disregard with respect to the truthfulness of the content of the sign. In fact, Mrs. Lansaw to her credit very candidly testified that she was sure that Zokaites believed the statement in the sign to be true. 8/4/2014 Tr. at 135-36. When asked whether he had any evidence that Zokaites believed the statement in the sign to be false, Mr. Lansaw could point to nothing except his personal conclusion as a "student of abnormal psychology." 8/26/2014 Tr. at 14-15. Mr. Lansaw was not qualified as an expert and this testimony amounts to pure conjecture, not evidence. The Lansaws thus failed to meet their burden of proof with respect to the fourth element of the false light claim.
To sum up, the Lansaws clearly did not prove at least two of the required four elements, and for that reason the Court granted the oral motion on judgment on partial findings. That having been said, the Court would further note for the record that this decision should in no way be viewed as any sort of approval of Zokaites' conduct in placing the sign. The Court believes what he did regarding the sign was reprehensible, and unfortunately consistent with the same sort of "bullying" tactics that he would display a year later when he violated the automatic stay, as will be discussed below. Had the Lansaws pleaded and argued a different cause of action, perhaps Zokaites' conduct could have been found actionable. The Court, however, can only adjudicate matters as presented to it by the Parties, and the facts of the case do not establish any liability for the false light invasion of privacy claim pursued by the Lansaws.
The Court would note, for instance, that one possible species of a viable claim for publicity given to private life under the Restatement (Second) of Torts §652D is to unreasonably publicize the matter of a private debt. See, e.g., Vogel v. W.T. Grant Co., 458 Pa. 124, 130 (Pa. 1974) (citing as the classic example of such Brents v. Morgan, 221 Ky. 765 (1927) where the court concluded that an automobile repairman could be liable for an invasion of the plaintiff's privacy where he placed a five by eight foot notice in his window calling attention to a customer's overdue account, even though the notice was true).
Violation of Automatic Stay
It was previously determined by Judge Fitzgerald that Zokaites wilfully violated the automatic stay in several respects. These incidents may be briefly described as follows:
• On August 21, 2006, Zokaites and his attorney entered the Daycare premises during normal business hours, against the will of Mrs. Lansaw, for the ostensible purpose of taking photographs of "collateral" located on the premises.The above represent a skeletal description of the events. They will be fleshed out in more detail, infra, when the Court turns to a discussion of punitive damages.
• On August 27, 2006, Zokaites chained the doors to the Daycare around noon. Later that evening the police were called again after Zokaites returned and took Mrs. Lansaw's keys from inside the premises.
• On August 28, 2006, Zokaites' attorney sent a letter to the Lansaws' new landlord threatening to sue him if he rented to them.
The only question before the Court at present is as to the appropriate amount of damages to award to the Lansaws because of these violations. The Bankruptcy Code provision dealing with the automatic stay provides in relevant part:
...an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorney fees, and, in appropriate circumstances, may recover punitive damages.11 U.S.C. §362(k)(1).
Zokaites concedes that, at a bare minimum, the Lansaws are entitled to recover as actual damages the amount of $2,600, which represents the stipulated amount of the attorney fees they were required to pay their former counsel related to the proceedings the Lansaws had to file in order to enjoin Zokaites from any further stay violations. See November 25, 2013 Pretrial Order at ¶8(a), Doc. No. 117. In addition to that amount, the Lansaws are also seeking an actual damage recovery for the emotional distress that they claim to have suffered as a direct result of the stay violations, as well as for a decrease in revenue to the Daycare which they claim were caused by Zokaites' actions. The final potential component of damages for the Court to consider is whether the circumstances surrounding the stay violations by Zokaites were appropriate for an award of punitive damages.
Emotional Distress
The subject of the availability of emotional distress damages for willful violation of the automatic stay was addressed by Judge Jeffery A. Deller, currently Chief Judge of this Court, in In re Wingard, 382 B.R. 892, 902-04 (Bankr. W.D. Pa. 2008). The conclusion reached in that case was that a "plain reading" of Section 362(k)(1) supports the view that emotional distress injury, standing alone, can form a basis for recovery under this provision. In Wingard, Judge Deller acknowledged that there was a split in authority on this issue, but cited legislative history that persuasively demonstrates that the automatic stay was intended to address "human" concerns, and not just strictly financial ones, by giving debtors some breathing space once they file a case. The Court adopts that well-reasoned view here and finds that the Lansaws can potentially recover damages for emotional distress even if they have not proven they were financially or physically harmed by Zokaites' stay violation, beyond the $2,600 in attorney fees incurred. That leads to the question of whether they have proven emotional distress injury, a matter sharply disputed by Zokaites.
The only evidence that the Debtors presented as to emotional stress was their own testimony, though that was often compelling. Mrs. Lansaw testified that she continues to have nightmares about Zokaites entering the building and taking her business away. After these experiences she sometimes wakes up screaming and crying. 8/4/2014 Tr. At 80. She stated that when she is out in public and happens to see someone who looks like Zokaites she can experience moments of "sheer fear." Id. at 80-81. She testified that she has lost trust in others and this has affected her relationship with friends. Id. at 81. She is taking prescription medication for depression and an ulcer, conditions which she attributes to stress from Zokaites, beginning with the sign incident and continuing thereafter. Id. at 81-82, 85, 153, 155-57. She felt physically threatened when Zokaites entered her office on August 21, 2006, and backed her up to a wall. Mrs. Lansaw acknowledged that she has not sought psychological counseling, but said she is considering doing so.
Mr. Lansaw testified about the effects on his wife that he has observed. He said that she has changed markedly since the incidents involving Zokaites. She just goes to work and comes home, rarely going out in public, avoiding human contact, and not enjoying life. Id. at 219. He testified to similar effects on himself, stating that he has become very withdrawn and has a fear of making new friendships. Id. He testified that he has only one friend who understands what he has gone through and he has no one else to talk to about it. Id.
The Court was in general favorably impressed with the testimony and credibility of the Lansaws and is of the view that they did experience emotional distress as a direct result of Zokaites' conduct. That conclusion is bolstered by the findings made by Judge Fitzgerald in her December 12, 2006 Opinion. She notes therein that Mrs. Lansaw was "quite upset" by the August 21, 2006 incident and was "in tears" in various appearances before the court. Id. at 6, 8. Judge Fitzgerald also concluded that
"Mrs. Lansaw is, in fact, so distressed by Zokaites' behavior that, notwithstanding Zokaites' offer to waive a variety of claims to keep Debtors as tenants, she is unable to work in a premises (sic) which he owns."Id. at 9.
Zokaites argues that the Court should not award any damages for emotional distress because the Lansaws did not provide any expert medical testimony to back up their position, and because even if they did experience emotional distress there are a number of possible causes for it other than his violations of the automatic stay.
Regarding the first point raised by Zokaites, it is true that the Lansaws provided no expert medical evidence in support of their claim. The only evidence provided was their own testimony, but that is not necessarily fatal to their emotional distress claim. The Wingard court addressed this same issue and concluded:
The case law in this area provides that when the wilful violator of the automatic stay has engaged in conduct that is patently or obviously egregious, emotional distress injuries may be proven merely by credible debtor testimony alone without resort to other extrinsic and corroborating evidence.382 B.R. at 904. On the other hand, if the stay violation conduct is not patently or obviously egregious, debtors must do more to prove their case, including a requirement that they provide corroborating extrinsic evidence beyond their own self-serving testimony. Id. at 905. The Wingard court noted that such extrinsic evidence does not necessarily have to be medical evidence from a treating physician, because sometimes emotionally injured people do not seek medical treatment for various reasons, but could, for example, be from family members, co-workers, or friends.
In the present case, during the August trial held before the Undersigned the Lansaws did not provide any extrinsic evidence to support their emotional distress damage claim, although in some measure each of them provided testimony about the observed effect on the other, so to that extent it could be viewed as corroborating extrinsic evidence. Additionally, at the October 2006 trial held before Judge Fitzgerald there was some more unambiguously extrinsic evidence presented to support the existence of emotional distress. Judge Fitzgerald stated that she credited the testimony at that trial of a Daycare employee named Linda Huston that Mrs. Lansaw since the incidents involving Zokaites was not functioning well at work and that she exhibited behavior at work that was very similar to her behavior in the courtroom. December 12, 2006 Opinion at 9. Ms. Huston also testified that this was a significant change in Mrs. Lansaw's behavior. Id. Mr. Lansaw also testified at the October 2006 trial that because of her experiences in this regard his wife was frequently ill, vomiting, and cried a lot. Id.
The Court concludes that the patently or obviously egregious standard has been met in this case. The actions of Zokaites, particularly since they were taken at the setting of a daycare center, at times before small children entrusted to the Plaintiffs' care and their very appropriately concerned parents, were outrageous and were such that a reasonable person in the position of the Debtors would be expected to suffer some psychological harm as a result of what happened. (See p. 27-30, infra, and December 12, 2006 Opinion at 6-7 for a more detailed discussion of exactly what Zokaites did.) As a result, the credible testimony of the Lansaws themselves is sufficient evidence of the harm they have suffered. Even if the egregiousness standard were not met, however, the Court would find that sufficient external corroborating evidence had been presented to establish the existence of emotional harm.
Zokaites' next argument goes to causation. He points to a number of other possible causes for any stress or emotional distress the Lansaws have experienced. These include aftereffects from a carbon monoxide poisoning incident in the Lansaw household in the early 1990's, Mr. Lansaw's employment status, a legal matter involving their daughter, disagreements with their bankruptcy counsel, the general stress of being in bankruptcy, and Zokaites' own pre-petition actions involving the sign incident as discussed previously in reference to the false light invasion of privacy claim. Consideration of these other possible contributing causes of emotional distress is appropriate. See e.g., York v. American Tel. & Tel. Co., 95 F.3d 948, 957-58 (10th Cir. 1996). For the reasons set forth below, in the aggregate, the Court finds however that none of these "experiences" were of sufficient probative value to break the claim of causation created by Zokaites' reprehensible and inexcusable conduct directly related to his obligation to honor his responsibilities upon inception of the automatic stay.
The Lansaws effectively addressed a number of the items raised by Zokaites and convinced the Court that they should not be considered causal factors in this matter. For instance, the incident involving the Lansaws' daughter appears to have been short-lived, with little long-term consequence. 8/26/14 Tr. at 30-32. The carbon monoxide poisoning episode was more serious and did admittedly cause the Lansaws some lasting cognitive damage, especially the direct exposure effects caused to Mr. Lansaw. Id. at 24. However, its serious effects were largely resolved by the mid-1990's, well before the stay violations by Zokaites. Id. at 22, 8/4/14 Tr. at 83-84. Furthermore, to the extent the poisoning may have left the Lansaws more vulnerable than the average person to emotional distress injury in the future, that is not a defense to the issue of causation but merely an occasion for the invocation of the legal maxim that a tortfeasor takes his victim as he finds him and is liable for the full extent of the damage he has inflicted, even if it is greater than he could have foreseen because the victim was particularly susceptible to the injury. See, e.g., Tabor v. Miller, 389 F.2d 645, 647-48 (3d Cir. 1968).
That having been said, there remain a number of potential contributing causes that the Lansaws have not refuted and that the Court cannot simply ignore. Therefore, ultimately, the Court will temper its damage award in certain respects.
Chief among these alleged causes is the pre-petition conduct of Zokaites himself, and indeed the testimony of the Lansaws demonstrated that they were experiencing emotional distress as a result of Zokaites' conduct well before the automatic stay violations took place. 8/4/14 Tr. at 143. It would not be credible to assert that all of that pre-petition stress had completely resolved, and that the automatic stay violations brought on a new, second round. Rather, the Court believes the only reasonable way to view the situation is that the Lansaws were experiencing some level of distress even as of the filing of their petition, and that it increased and continued as a result of the stay violations. The Court can also not rule out that the "anxiety and pressure inherent in the bankruptcy process," see Wingard, 382 B.R. at 905 (quoting In re Dawson, 390 F.3d 1139, 1149 (9th Cir. 2004)), has partially played a role in the emotional distress of the Lansaws, especially since they have been faced with a very aggressive legal adversary in Zokaites. There was also credible evidence presented that the Lansaws were dissatisfied with their bankruptcy counsel, which undoubtedly added to their stress. 8/26/14 Tr. at 34.
The Court is thus faced with a circumstance wherein it is convinced that the stay violations have caused emotional distress to the Lansaws, but so have other factors. Moreover, the Court knows of no way to "unbundle" the causative factors and assign any specific harm to a specific cause. No testimony, expert or otherwise, was presented in an attempt to do that, and even if it had been, the Court doubts it could have been credible. One solution would be to ignore the other causes and award damages based on the full scope of the Lansaws' emotional distress; another would be to award no damages at all for emotional distress. The Court rejects both of those approaches. It will instead award damages, but suitably "discounted" to reflect as best as it can the causative role played by the other, non-compensable factors.
There is no "legal yardstick" by which to accurately measure reasonable compensation for injuries such as emotional distress. Spence v. Board of Education of Christine School District, 806 F.2d 1198, 1203 (3d Cir. 1986) (Higginbotham, J., concurring). Damages for emotional distress are by there very nature incapable of precision. Griffiths v. CIGNA, Corp., 857 F.Supp. 399, 409 (E.D. Pa. 1994).
The Court can obtain some guidance by looking to what other courts have awarded for emotional distress damages in similar circumstances. In Zielinski v. SPS Technologies, LLC, 2011WL 5902214 (E.D. Pa. 2011), an employment discrimination case, the jury awarded damages of $250,000 for the plaintiff's emotional distress. The only evidence that had been presented in support of such damages was the plaintiff's own testimony that he had been offended by discriminatory comments directed against him and that they were humiliating and stressful. He said that he could not concentrate and had trouble sleeping. Plaintiff never sought medical treatment for those injuries. The Court found the award of $250,000 on this evidence to be "grossly excessive" and held that a new trial on damages would be awarded unless the plaintiff accepted a remittitur limiting emotional distress damages to $100,000 since anything beyond that amount "cannot be justified by the record." Id. at *10.
In Valentin v. Crozer-Chester Medical Center, 986 F.Supp. 292 (E.D. Pa. 1997), another employment discrimination case, the jury awarded the plaintiff damages of $209,000 for her emotional distress. The only evidence that plaintiff had provided on this point was her own testimony that she was depressed and humiliated by her termination from employment. The court found that plaintiff's testimony was sufficient to justify some damages for her pain and suffering, but that $209,000 was "grossly excessive." It stated that a new trial would be ordered unless the plaintiff agreed to a reduction in the emotional distress award down to $52,250.
In Shesko v. City of Coatesville, 324 F.Supp. 2d 643 (E.D. Pa. 2004), a case alleging that the plaintiff was not promoted because of unlawful sex discrimination, the jury awarded compensatory damages of $20,000 for emotional distress. The only evidence that had been presented in support of such damages was the plaintiff's own testimony that she had been sad and depressed and found it difficult to do her job on a daily basis after being passed over for the promotion. The court said that in light of the evidence it could not find that the jury's verdict was not rationally based.
In Hall v. Pennsylvania Department of Corrections, 2006 WL 2772551 (M.D. PA. 2006), yet another employment case, the only evidence of emotional distress was the plaintiff's own testimony as to the embarrassment, humiliation and mental anguish she experienced over an extended period of time. She did not present any evidence that she required psychiatric or medical treatment. The court found that the evidence presented could support an award of $75,000 for emotional distress.
It is also useful to consider some emotional distress awards made in the specific context of an automatic stay violation. In In re Iskric, 496 B.R. 355 (Bankr. M.D. Pa. 2013) a judgment creditor was found to have wilfully violated the automatic stay when, after being notified of the bankruptcy filing, it failed to take any action to prevent the enforcement of a bench warrant for the debtor that was issued in an execution proceeding pending at the time of the filing. As a result, the debtor was held in police custody for four days before being released. The court awarded damages of $10,000 for emotional distress.
In In re Snowden, 769 F.3d 651 (9th Cir. 2014) a payday loan creditor violated the stay by cashing the debtor's post-dated check that had been given to secure the loan. The debtor testified that this caused her to panic and go "out of her mind." She worried other creditors would do something similar and felt miserable. The bankruptcy court awarded $12,000 in damages for emotional distress, which was affirmed on appeal. See also In re Hernandez-Panameno, 2012 WL 4867580 (Bankr. N.D. Cal. 2012) (awarding $3,000 for emotional distress against creditor who violated stay by refusing to return repossessed car); In re Elks, 2012 WL 2412051 (Bankr. E.D. N.C. 2012) (awarding $5,000 for emotional distress against creditor that improperly repossessed shed, causing debtors mental anguish and humiliation); and, In re Smith, 2012 WL 1077840 (Bankr. M.D. Fla. 2012) (debtor's significant aggravation, emotional distress and inconvenience were readily apparent and did not require medical testimony, damage of $10,000 awarded).
Based on its review of the relevant case law, including its finding that in meeting their burden the Lansaws provided credible testimony establishing significant emotional distress resulting from Zokaites' multiple stay violations, and considering the role of other causal factors in the matter as raised by the Plaintiffs, the Court finds that the Lansaws have identified compensable instances of emotional distress caused by the Defendant. When compared to similar, inexcusable conduct identified in the above referenced bankruptcy decisions, an emotional distress award in the vicinity of $10,000 to $12,000, if not more, could be entirely justified based upon the record here in light of the egregious conduct and extent of harm caused by Zokaites. However, in formulating a final award, the Court will "temper" its decision in this regard for the reasons stated above and will award the Lansaws $7,500 in compensatory damages for their emotional distress.
Lost Profits
The Lansaws also sought damages for lost profits which they attribute to the actions of Zokaites. However, the only evidence they presented on this point related to damages following the sign incident. The Lansaws attempted to show that bad publicity following the placement of the sign led to a drop off in new client sign-ups. They also attempted to show that some parents removed their children from the Daycare due to Zokaites' actions.
As best as the Court can tell, the Lansaws did not present any evidence that would link an alleged loss of business revenue to the acts constituting stay violations. Furthermore, and in any event, the Court did not find the evidence that the Lansaws did submit as to lost revenues to be sufficiently credible to serve as a basis to award any such damages. A damage claim for loss of future profits is an inherently difficult thing to determine, and the party seeking it must provide the fact finder with "a reasonable amount of information so as to enable the fact finder to fairly estimate damages without engaging in speculation." In re Ginko Associates, L.P., 2008 WL 3200713, at *16 (Bankr. E.D. Pa. 2008). The Court finds that the Lansaws did not meet this burden and therefore awards no damages for lost profits.
Punitive Damages
With respect to stay violations, punitive damages are awarded in response to particularly egregious conduct, and the purpose of such damages is for both punishment and deterrence. In re Howard, 2011 WL 578777 at *13 (W.D. Pa. 2011) (quoting In re Frankel, 391 B.R. 266 (Bankr. M.D. Pa. 2008)). Punitive damages are reserved for cases in which the defendant's conduct was something more than a bare stay violation justifying compensatory damages or injunctive relief. Id. The defendant must have acted with actual knowledge that he was violating the stay, or with reckless disregard of whether he was doing so. Id. Punitive damages are especially appropriate if the defendant has acted in "arrogant defiance" of the Bankruptcy Code. Id.
The decision whether to award punitive damages is left to the sound discretion of the bankruptcy court, and the factors that this Court is to consider in making that determination, including the amount of any such award, are (1) Zokaites' conduct, (2) his motive, (3) whether there was any provocation by the Lansaws, and (4) Zokaites' ability to pay. Id. The Court is also mindful of the jurisprudence following BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) which makes clear that the imposition of punitive damages raises Constitutional due process concerns such that an award of punitive damages must bear some reasonable relationship to the amount of harm suffered by the plaintiff.
This Court has previously recognized that overreaching by a landlord following a bankruptcy filing by the tenant is the sort of conduct that could potentially lead to the imposition of punitive damages. See In re Alvarez, 319 B.R. 108, 111 (Bankr. W.D. Pa. 2004) (citing In re Atlantic Business and Community Corp., 901 F.2d 325 (3d Cir. 1990)). In the present case the Court has carefully considered the relevant factors and it concludes for the reasons stated below that this is an appropriate case for an award of punitive damages.
The first factor to look at is Zokaites' conduct. Although Judge Fitzgerald previously found that he violated the automatic stay, she did not make definitive findings with regard to certain details of those violations that could be significant on the question of the appropriate punitive damage award. For instance, with respect to the August 21, 2006 incident, Judge Fitzgerald stated as follows:
Despite the automatic stay and notice thereof, Zokaites and his lawyer paid a visit to Debtors' business during business hours on August 21, 2006, to photograph the personalty which Zokaites asserted secured his claim through the Notice of Distraint. He gained entry, after being denied same by Mrs. Lansaw, by following a parent inside. The parties dispute specifically what happened and whether or not Zokaites tried to goad Mrs. Lansaw into an altercation. Regardless of who said what and when, the Court finds that Mrs. Lansaw was quite upset by the incident.December 12, 2006 Opinion at 6. (emphasis added) The reference in the penultimate sentence in the above quote is to another part of the incident that Mrs. Lansaw also addressed at the August trial. She testified that she felt physically threatened when, during the August 21st incursion, Zokaites entered her small office space at the Daycare, got so close to her as she backed up against a wall that she could feel his breath, and three times in quick succession stated "do you want to hit me." The Court finds Mrs. Lansaw's testimony on this point to be credible. The Court also notes from its own observation that Zokaites is a large man, and his actions as described by Mrs. Lansaw could well be intimidating and distressing to someone in her position.
Zokaites was not asked about this part of the incident by either the Lansaws or his own attorney at the August trial. Even if he had been and denied it, the Court would likely have accepted Mrs. Lansaw's version of events because Zokaites' credibility was seriously undermined in the Court's eyes by his testimony concerning the sign incident from September 2005. Specifically, at the August trial Zokaites denied that he had been the one to place the sign, testifying that it had actually been placed by his brother, John, albeit at Zokaites' direction. 8/4/14 Tr. At 16768. This seemed to stun the Lansaws, who asked Zokaites a number of challenging questions about it to the point that the Court had to tell them to move on to a new topic. Zokaites' would not retract his testimony, Id. at 210-11, but his denial concerning the sign is contradicted by (1) the Lansaws' testimony, (2) the previous finding by Judge Fitzgerald that Zokaites himself had placed the sign, see December 12, 2006 Opinion at 3-4, and see also the Trial Notes at 39, (3) the statement at the August trial by Zokaites' attorney that "we've already stipulated" that Zokaites placed the sign, 8/4/14 Tr. At p. 57 1. 9-10, and (4) the September 19, 2005 police report on the incident that specifically identifies "Frank Zokaites" as the person observed to be placing the sign when the police officer arrived. In the face of this overwhelming evidence, the Court can only conclude that Zokaites gave deliberately false testimony on this point, making it proper for the Court to discredit all of his testimony if it so chooses under the principle of falsus in uno, falsus in omnibus. See, e.g., In re Gisondi, 2014 WL 683755, (E.D. Pa. 3014).
Concerning the August 27th chaining-of-the-door incident, Judge Fitzgerald found as follows:
Next, on Sunday, August 27, 2006, Zokaites testified that he used his key to gain entrance to the daycare at a time when no one was there. He observed that Debtors had moved a significant amount of property and some plumbing fixtures out of the space. He then removed the mechanisms that let the doors be opened from the outside. He padlocked and chained the doors (Plaintiffs' Exhibit 10).
Debtors learned of this when Mrs. Lansaw's mother, who was waiting for Debtor to help her clean the facility, unsuccessfully tried to stop Zokaites from taking these actions and called the police. After the police arrived .... At the request of a police officer, Zokaites
agreed to let Debtor retrieve a client list so that she could call the parents of the children to tell them the business would not open the next day.December 12, 2006 Opinion at 6-7. The Lansaws credibly added some details to these basic facts in their August trial testimony. When Mrs. Lansaw arrived on the premises, Zokaites suggested that she call all of the parents and tell them that the Daycare would not be open the next day. 8/4/14 Tr. at 100. Mrs. Lansaw was able to retrieve the list of parents from inside the Daycare but at Zokaites' insistence she had to be escorted in and out of the building by the police. Id. Mr. Lansaw was called by his wife and drove to the premises, observing the chains. Id. at 221-22. The Lansaws returned home and Mrs. Lansaw began making calls to parents to tell them the Daycare would not be open the next day. Id. at 222.
The parties tried to work out an agreement and were to meet later that evening. Zokaites now contends that he would have voluntarily removed the chains and let the business open on Monday. The court does not credit his testimony on that point. Zokaites testified that he was trying to stop the Debtors from removing collateral to their new space, but it was not until the parties met at the site later in the evening on August 27, in an unsuccessful effort to reach an amicable agreement, which resulted in yet another call to the police, that Zokaites agreed to let the business open on Monday.
Later that evening the Lansaws received a call from their attorney and were told that before Zokaites would unchain the doors there was a "paper" in the door of the Daycare that they should read over and see if they were willing to sign it. Id. at 223. They returned to the Daycare and reviewed the document, which Mr. Lansaw referred to as a proposed "interim standstill agreement." Id. Among the terms proposed in the agreement were that Mrs. Lansaw's mother had to agree that she had not been assaulted, that the Lansaws had to reaffirm their lease with Zokaites, and that they would not take any property out of the building. Id. at 224. The Lansaws called their attorney and told him the proposed agreement was unacceptable. Id. At that time Mr. Lansaw attempted to remove the chains from one of the sets of doors and was able to do so and thus gain access to the building. Id. The Lansaws then decided that they would sleep in the building that night to prevent Zokaites from attempting to lock them out again. Id.
Shortly thereafter, the Lansaws saw Zokaites pull up in his vehicle, get out shaking his head, and walk over to the door. Id. at 224-25. They then heard the now-unchained, but locked-by-them door open and, by the time they reached it, the door had been locked from the outside and Zokaites was seen returning to his vehicle. Id. at 225. They also discovered that Zokaites had taken a key ring belonging to Mrs. Lansaw that had been hanging from the inside keyhole of the door. Id. at 110-11, 225-26. This key ring included keys for her house and mailbox, in addition to the Daycare keys. At that point the Lansaws called the police again.
The final incident to be considered on the issue of punitive damages for violation of the stay concerns a letter that Zokaites directed to be sent to the Lansaws new landlord on August 28th. With respect to that incident, Judge Fitzgerald stated:
Going into the August trial, the Parties had identified a fourth incident of violation of the automatic stay by Zokaites - a letter he sent to Pine Township noting his objections to a building permit that had been issued to the new landlord for the new premises where the Lansaws intended to move the business. This incident was not addressed at the August trial except briefly in passing, however, and it plays no part in the Court's decision here.
On August 28th, Zokaites' attorney also sent a draft complaint to Patrick DiCesare, the new landlord, with a cover letter demanding that he terminate his lease with Debtors and stating that if he did not do so by close of business on Tuesday, August 20, 2006 [sic], the complaint would be filed.December 12, 2006 Opinion at 7. At the August trial, Zokaites' attorney testified and confirmed that he had indeed prepared a draft of a complaint against DiCesare and had "more than one"phone call with him concerning efforts to get him to terminate his lease with the Lansaws. 8/26/14 Tr. at 118-19.
The Court finds the actions of Zokaites constituting the stay violations to be very troubling. In addition to being violations of the stay, the unrebutted actions as credibly described by the Lansaws, whereby Zokaites entered the Daycare premises despite being explicitly denied admission by Mrs. Lansaw, and in which he accessed the premises and took her key ring, could arguably have constituted criminal offenses. See, e.g., 18 PA C.S.A. §3503 (criminal trespass), and, §3921 (theft by unlawful taking). The fact that there were multiple stay violations and that the Debtors had to secure an injunction to stop them, adds further weight to the seriousness of the situation. To the extent Zokaites gave testimony at the trial attempting to downplay or mitigate the seriousness of his misconduct, it is rejected as not credible.
The second factor for consideration is Zokaites' motive in engaging in these various violations of the automatic stay. The Court concludes that there were multiple strands going into his overall motive, none of them to be condoned. One was to intimidate or bully the Lansaws in an effort to get his way. This was demonstrated by the heavy-handed tactics he employed against them, beginning with another "chain" incident not previously discussed, this one occurring sometime in 2005 prior to the placement of the sign. At that time Zokaites came to the Daycare site during normal hours of operation, swinging a pair of chains and then theatrically dropping them near the entrance door and right outside a large plate glass window of the "infant room" of the facility where Daycare employees could see what was happening, and where infants had been placed. 8/4/14 Tr. at 66, 68-9, 193-94. He then entered the building and spoke with Mrs. Lansaw, asking that she drop a pending lawsuit. The Court itself asked Zokaites why he would do such a thing if not to threaten Mrs. Lansaw. He denied intending a threat of any "physical" harm to her, but was adamant that he had the right to threaten that he would lock the doors to the Daycare. Id. at 194-96. The sign incident was also clearly a tactic of intimidation and humiliation directed at the Lansaws.
This first chain incident, like the one involving the sign, predated the filing of the Lansaw bankruptcy and was thus not a violation of the automatic stay. Nevertheless, these pre-bankruptcy incidents were part of an ongoing series of steps that Zokaites took against the Lansaws and the Court finds that they are related and relevant on the issue of Zokaites' motive. See Fed.R.Evid. 404(b) (evidence of other wrongs or acts may be admissible for proof of motive).
Moving on to the actual stay violations themselves, they were of the same character. The tactic of entering the premises on August 21st against the express denial of access by Mrs. Lansaw, and then getting "in her face" in an attempt to provoke or frighten her was a bullying move. The action of chaining the daycare doors shut six days later in an effort to shut down the Daycare was of similar effect.
Or potentially even worse. The former bankruptcy attorney for the Lansaws gave some testimony at the August trial to the effect that he had been told by Zokaites' attorney that he (Zokaites' attorney) had accompanied Zokaites to the property on August 21st to prevent Zokaites from becoming violent. 8/26/14 Tr. at 69. Zokaites' attorney denied saying that, but did not otherwise have a good explanation as to why he, as an officer of the Court with bankruptcy experience, would have been involved in a violation of the stay. The Court advised the attorney in no uncertain terms that his participation in the stay violation was extremely disturbing and disappointing.
A second strand of motive identified by the Court is Zokaites' belief that he is somehow above the law. Again, the pre-bankruptcy incidents provide a prelude. As to the first chain incident, even when during the August trial the Court itself stated that it did not believe that Pennsylvania law would allow a landlord to throw down chains in front of a tenant and summarily lock the tenant out of the rental premises, Zokaites unapologetically defended his actions by saying that he had the right, as a commercial landlord, to lock a tenant out for non-payment of rent or breach of lease. 8/4/14 Tr. at 194-96. The Court would have expected its comment to elicit at least some sign of circumspection from Zokaites, perhaps an expression that he may not have been entirely correct on the law, but nothing like that was forthcoming. The sign incident was similarly revealing. Zokaites was admittedly under a state court order at that time to refrain from taking any extrajudicial efforts respecting the Lansaws continued possession and enjoyment of the leased premises. It is unclear whether the placement of the sign constituted a violation of that order, but at the very least it was a conscious effort on the part of Zokaites to get as close to the edge of doing so as possible.
For present purposes, the Court need not make a ruling on the exact scope of "self-help" remedies that may be available to a landlord under Pennsylvania law. It will note, however, that the applicable case law points to a conclusion that, at least where the tenant is in possession of the premises, the landlord's self-help remedies are extremely limited, if not outright eliminated, such that the landlord is required to pursue remedies under the Pennsylvania Landlord and Tenant Act, 68 P.S. 250.101, et. seq. See, e.g., Williams v. Kusnairs Bar and Tavern, 288 Fed. App'x. 847, 850 (3d Cir. 2008) (citing cases for the proposition that self-help remedies by a landlord have been eliminated completely in Pennsylvania); Stewart v. Philadelphia Housing Authority, 487 F.Supp. 2d 584 (E.D. Pa. 2007) (predicting that the Pennsylvania Supreme Court will recognize a cause of action for trespass under the Landlord and Tenant Act against landlord who uses self-help remedy against tenant); In re Kelco Enterprises, 86 B.R. 471) (Bankr. W.D. Pa. 1988) (distraint was ineffective and landlord did not obtain a lien on tenant's property), also citing Allegheny Clarklift, Inc. v. Woodline Industries of Pa., Inc., 356 Pa.Super. 269 (1986) (finding the distraint provision unconstitutional); 2401 Pennsylvania Ave. Corp. v. Southland Corp, 236 PA Super 102 (1975) (courts to apply Landlord and Tenant Act to a commercial lease).
The automatic stay breaches themselves were obvious legal violations, and in the Court's view rather clear ones done in utter defiance of the law. Based on the record, clearly Zokaites does not have the benefit of, nor did he offer such in mitigation, the excuse of inexperience or lack of legal guidance to help explain why he engaged in such a blatant disregard of the law. Furthermore, he violated the automatic stay on multiple occasions and in all likelihood would have continued to do so had the Lansaws not filed an adversary proceeding seeking injunctive relief on August 28, 2006 and obtained a TRO a few days later. Zokaites' actions were those of a person who thinks he can disregard the requirements of the law with impunity.
The final motive strand found by the Court for the stay violations may be the most difficult of all to come to grips with. It appears to the Court that Zokaites may actually have derived a perverse enjoyment from tormenting the Lansaws. Up until shortly before the time of their bankruptcy filing, he was doing everything in his power to have them evicted from the leased premises. As late as May 2006, Zokaites briefly reposted the sign indicating that he was evicting the Lansaws. See Judge Fitzgerald Trial Notes at 23, Main Case Doc. No. 74. Then, as soon as he learned that they had made arrangements to lease other space and move their business there, he suddenly did an about face and redirected his efforts to keeping them on his property.
Zokaites engaged in what might colloquially be referred to as "scorched earth" tactics in the Lansaw bankruptcy. At a fee petition hearing held before Judge Fitzgerald in 2011, the Lansaws' former bankruptcy attorney, one of the most experienced bankruptcy practitioners in this District, testified that Zokaites was not litigating for money, but rather for "sport." See Main Case, Doc. No. 438 at 25. The Lansaws called this attorney as a witness at the August trial and asked him about that characterization. While the attorney did not use the same colorful terminology in his trial testimony, in substance he said much the same thing:
My recollection from what I can remember right now is that throughout the litigation Mr. Zokaites filed objections to everything we did. I did not believe some of the objections were well-founded, and it appeared to me that we were litigating everything and anything in the case.8/26/14 Tr. at 67. The automatic stay violations fit within this same pattern of inflicting maximum pain on the Lansaws.
The third factor for consideration with respect to a possible punitive damage award is whether there was any provocation on the part of the Lansaws. The Court is unable to identify anything done by the Lansaws that might be viewed as a "provocation" that could in any way justify the stay violations. Zokaites was the aggressor with respect to all of the violations. Zokaites has identified nothing in the record to support a finding that there was a provocation by the Lansaws.
The final factor is the ability of Zokaites to pay a punitive damage award. There was little evidence presented on this point at the August trial, which the Court believes may be largely attributable to the fact that the Lansaws were acting pro se and were likely unaware of the need to provide such evidence. Some explicit evidence as to Zokaites' income and net worth would certainly have been helpful. Nevertheless, the Court finds that there is sufficient evidence of record to establish preponderantly that Zokaites' has the financial wherewithal to pay a punitive damage award on the scale being presently considered.
The Court notes that evidence was presented at the 2006 trial before Judge Fitzgerald to indicate that Zokaites is a businessman with fairly extensive holdings. Her Trial Notes of the testimony show that he described himself as a land developer and builder who at the time locally had about 100 lots under construction. Id. at 36-37. He owned town houses with over 200 units and 3 commercial buildings with 40,000 square feet of rental space and 15 tenants. Over his years in business he had developed over 2000 family home sites and built at least 500 homes himself. He also owned commercial properties in Akron, Ohio. At the August trial there were some indications as to Zokaites' financial status. He has two residences, one in Wexford and the other in Fort Lauderdale, Florida. 8/4/14 Tr. at 167. He also owns multiple companies and is the beneficiary of a self-settled trust known as the Transamerican Trust. 8/26/14 Tr. at 121. While far from ideal, the evidence presented was sufficient to show Zokaites has the ability to pay a punitive damage award.
When the punitive damages factors are considered collectively they all point to the conclusion that such an award is appropriate. In his violations of the automatic stay, Zokaites engaged in outrageous conduct, with a bad motive, without provocation by the Lansaws, and he has the financial means to respond to an award. The Lansaws have proven actual damages of $10,100, though the Court suspects that amount could have been considerably higher had their case been presented more effectively.
While each case is unique, some guidance into an appropriate punitive damage award can be gained by a review of other decisions where such an award has been made for violation of its stay. The facts in In re Atlanta Business and Community Corp., 901 F.2d 325 (3d Cir. 1990) were somewhat similar to what occurred here. The debtor operated a radio station out of space that it leased from a landlord named Cuffey. After the bankruptcy petition was filed, Cuffey delivered a letter to the debtor stating that it could no longer operate its station on the premises. He also tried to evict the debtor and repossess the premises by locking the doors and threatening radio station personnel if the premises were not vacated. The bankruptcy court awarded compensatory damages of $1,500 and punitive damages of $5,000, and the Third Circuit affirmed.
In In re B. Cohen & Sons Caterers, Inc., 108 B.R. 482 (E.D. Pa. 1989) the debtor's landlord obtained relief from stay allowing it to proceed with an eviction of the debtor. The landlord went beyond that, however, and caused certain property of the debtor to be sold in satisfaction of rent arrears. The bankruptcy court found that to be a willful violation of the stay and awarded punitive damages of $10,000, finding that the landlord's conduct was "oppressive and outrageous." That award was affirmed on appeal.
In another landlord-tenant case, In re Aponte, 82 B.R. 738 (Bankr. E.D. Pa. 1988) the landlord responded to the debtor's bankruptcy filing by cutting off heat to his apartment. As a result, the debtor had to rely on a kerosene heater. The bankruptcy court found this to be a violation of the automatic stay and an attempt to "freeze out" the debtor. Punitive damages of $2,000 were awarded.
All of these cases are from more than 20 years ago and the size of the damage awards in them need to be viewed in light of the general monetary inflation that has occurred since they were decided. After considering all relevant factors, including the Defendant's ability to pay and in order to deter and prevent similar future conduct, the Court concludes that a punitive damage award of $40,000 will be entered.
Setoff/Recoupment
A final item for consideration is as to how the satisfaction of the damage award against Zokaites should be accomplished. As the Court understands it, Zokaites takes the position that he should be able to set any damage award off against the claim he had in the Lansaw bankruptcy that has not been paid. The Lansaw bankruptcy started out as a Chapter 13 on August 16, 2006 and it was converted to Chapter 7 on November 10, 2011. In her Chapter 13 Final Report, the Chapter 13 Trustee stated that Zokaites had a secured claim of $72,696.93 and an unsecured claim of $116,702.15. See also Claim No. 13-1. No payments were made on these claims. See Main Case Doc. No. 467. The Chapter 7 Trustee then made a report of no distribution on November 13, 2012. Thus, it appears that Zokaites has not been paid anything on his claims and never will be.
Zokaites secured claim was based on the Notice of Distraint that he served on the Lansaws shortly before they filed bankruptcy. During the bankruptcy the Lansaws moved to avoid any lien related to that Notice. On October 26, 2006, Judge Fitzgerald granted them relief in part, finding that to the extent the Notice related to rent, it was avoided pursuant to 11 U.S.C. §545(3) and (4). See Main Case Doc. Nos. 46, 47. To the extent the lien was thus not avoided, the motion was continued for further proceedings. The remainder of the motion was never resolved and now appears to be moot.
11 U.S.C. §553(a) provides the general rule that the Bankruptcy Code "does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case." Four requirements must be met in order to effect a setoff under this provision:
(1) a debt exists from the creditor to the debtor and arose prior to the commencement of the bankruptcy case;
(2) the creditor has a claim against the debtor which arose prior to the commencement of the bankruptcy case;In re Tarbuck, 304 B.R. 718, 721 (Bankr. W.D. Pa. 2004).
(3) the debt and the claim are mutual obligations; and
(4) each are valid and enforceable.
It can readily be seen that any attempt by Zokaites to invoke a right of setoff founders on the very first requirement listed above since the debt that he owes to the Lansaws (as established by the Court herein) did not arise prior to the commencement of the bankruptcy case. The debt was based on the post-petition conduct of Zokaites in violating the stay and it thus arose post-petition. The Section 553(a) requirements are set forth in the conjunctive, so this is in itself sufficient to defeat any assertion of a right of setoff by Zokaites. See, e.g.,In re Labrum & Doak, LLP, 237 B.R. 275, 300 (Bankr. E.D. Pa. 1999) (post-petition obligations could not be the subject of a setoff, citing cases), In re Anes, 195 F.3d 177, 182 (3d Cir. 1999) (referring to the requirement under Section 553 that "both debts arise prior to the debtor's entry into bankruptcy".)
Another possible basis for Zokaites to use the existence of his claim against the Lansaws to reduce the damage award made here is through the doctrine of recoupment. Although the Bankruptcy Code does not explicitly address recoupment (unlike setoff), it has long been recognized by courts that the doctrine may be applied in a bankruptcy context. See, In re Monangahela Rye Liquors, 141 F.2d 864, 869 (3d Cir. 1944). As the court in Lee v. Schweiker, 739 F.2d 870 (3d Cir. 1984) explained:
Recoupment ... allows the creditor to assert that certain mutual claims extinguish one another in bankruptcy, in spite of the fact that they could not be "setoff" under 11 U.S.C. § 553. The
justification for the recoupment doctrine is that where the creditor's claim against the debtor arises from the same transaction as the debtor's claim, it is essentially a defense to the debtor's claim against the creditor rather than a mutual obligation, and application of the limitations on setoff in bankruptcy would be inequitable.739 F.2d at 875.
This raises the question of whether the claims of Zokaites (consisting of rent, late charges, etc. under the Parties' lease) and the Lansaws (for actual and punitive damages due to Zokaites' violation of the automatic stay) can be said to arise from the "same transaction." Case law makes it extremely unlikely that Zokaites could ever prevail on that contention. The Third Circuit has stated:
For the purposes of recoupment, a mere logical relationship is not enough: the "fact that the same two parties are involved, and that a similar subject matter gave rise to both claims, ... does not mean that the two arose from the 'same transaction.' " Id. Rather, both debts must arise out of a single integrated transaction so that it would be inequitable for the debtor to enjoy the benefits of that transaction without also meeting its obligations. Use of this stricter standard for delineating the bounds of a transaction in the context of recoupment is in accord with the principle that this doctrine, as a non-statutory, equitable exception to the automatic stay, should be narrowly construed.In re University Medical Center, 973 F.2d 1065, 1081 (3d Cir. 1992). Based on this "circumscribed" definition of a transaction, the University Medical court found that for purposes of applying the recoupment doctrine Medicare overpayments made to the debtor in 1985 did not arise from the same transaction as Medicare payments due the debtor for 1988, even though the parties were continuously in a "provider agreement" relationship during this entire time period.
In the present case the Zokaites claim and the Lansaw claim do not meet this "single integrated transaction" test. Zokaites claim is for a breach of contract, i.e., the lease between him and the Lansaws. The Lansaws claim, by contrast, is based on a statutory cause of action, which can most nearly be likened to a tort claim. The Court thus finds that the conditions for recoupment are not met. See, e.g., In re McConnell, 954 F.2d 662, 67 (5th Cir. 1991) (in fraudulent transfer action recoupment could be asserted based on contract, but not for unrelated tort).
Even if the Zokaites and Lansaw claims could somehow be viewed as having arisen from the same "single integrated transaction," the Court would have serious concerns about recognizing a right of recoupment in the circumstances presented in this case. To do so would, in effect, give a creditor who knows he is unlikely to get any recovery in the bankruptcy, a license to engage in a violation of the automatic stay without fear of consequence since, if ever called to account, he can simply point to his unsatisfied claim and assert recoupment. Recoupment is ultimately a creature of equity, and the Court does not believe equity would or should countenance such a result that would allow a party with unclean hands to escape liability for his misconduct. See, In re New Valley Corp., 181 F.3d 517, 525 (3d Cir. 1999) (application of unclean hands rests within the sound discretion of the trial court).
In this case, since Zokaites' post petition claim is approximately $116,000 for the Lansaws' rejection of the lease. Application of his reasoning as to set off would lead to the absurd result to the effect that he had a free pass to harass and terrorize the Lansaws so long as any award for doing so was less than that amount.
CONCLUSION
The post filing conduct of the Defendant ranks with the most egregious the Court has personally witnessed while on the Bench or even reviewed in its research when evaluating violations of the automatic stay. Frank Zokaites clearly knew what he was doing, believing at the time (and even at the August trial) that he was above the law and that the constraints of the automatic stay provisions of the Bankruptcy Code posed no impediment to him as he toyed with and harassed the Debtors as they pursued their fresh start in bankruptcy. Clearly this is a case where a financially capable bully, not just in the figurative but also the literal sense, arrogantly attempted to manipulate the system and intimidate the Debtors so he could collect the rent he believed was due even after the bankruptcy was filed.
For all of the foregoing reasons, judgment will be entered in favor of the Lansaws and against Zokaites in the amount of $50,100, with no reduction based on setoff or recoupment.
It should also be noted that on October 1, 2013, Zokaites made an "offer of judgment" pursuant to Fed.R.Bankr.P. 7068, incorporating Fed.R.Civ.P. 68. See Doc. No. 58. The Court had lost track of that filing until after making its determination as to an appropriate, total award to the Lansaws of $50,100. Upon recalling that Zokaites had made the offer of judgment, the Court reviewed it and determined that the amount offered by Zokaites was less than the amount of the award (only $42,172), therefore the condition to trigger Rule 68 was not met. Furthermore, Zokaites' offer of judgment specified that his offer was to be set off against his unpaid claim, which made his "real" offer $0. One might have thought that Zokaites would have proposed an offer of the full amount of his claim, knowing that he was never going to recover anything on it anyway. The fact that he did not do so provides an interesting insight into his mindset and, in the Court's view, further confirms its assessments concerning his motives, as previously discussed.
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An appropriate order follows. Dated: January 14, 2015
/s/_________
Thomas P. Agresti, Judge
United States Bankruptcy Court
Case administrator to serve:
Garth F. Lansaw
Deborah L. Lansaw
Jeffery Hulton, Esq.
ORDER
AND NOW, this 14th day of January, 2015, pursuant to Fed.R.Civ.P. 52 made applicable to this proceeding pursuant to Fed.R.Bankr.P. 7052, and for the reasons stated in the Memorandum Opinion filed at Doc. No. 218, it is hereby ORDERED, ADJUDGED and DECREED that, pursuant to Fed.R.Civ.P. 54 made applicable to this proceeding pursuant to Fed.R.Bankr.P. 7054, judgment is entered in favor of the Plaintiffs, Garth F. Lansaw and Deborah L. Lansaw, and against the Defendant, Frank R. Zokaites, in the amount of $50,100, with no reduction based on setoff or recoupment.
/s/_________
Thomas P. Agresti, Judge
United States Bankruptcy Court
Case administrator to serve:
Garth F. Lansaw
Deborah L. Lansaw
Jeffrey A. Hulton, Esq.