January 20, 2020

Stay Violation – When to Go For Sanctions

Orlando bankruptcy lawyer Jonathan Alper recently wrote in his Florida bankruptcy blog about a case he observed in the Orlando bankruptcy court in which a debtor’s lawyer failed to win stay violation sanctions for his client because of his desire to extend professional courtesy to the creditor’s lawyer.  The debtor’s attorney dropped his demand for sanctions against the lawyer but continued to pursue a contempt recovery against the actual creditor.  The judge ruled that the attorney was the party who did not honor the automatic stay, not the company, and by dismissing the lawyer from the Complaint for Sanctions, the debtor had no basis for recovery.

This reminds me of a case that my colleague Bernie Stittleburg and I pursued a couple of years ago against a law firm that represents numerous homeowner’s associations in the Atlanta area.  In our case, as in the one Jonathan Alper discusses, the creditor, through its law firm, filed a  post-bankruptcy lawsuit against the debtor even though the debt had been discharged in my client’s bankruptcy.  At the State Court hearing (we had a transcript), the creditor’s lawyer argued to the State Court judge that the bankruptcy stay did not apply to his client because his client did not get proper notice.  In fact, we had given the creditor notice at an address specifically identified by the creditor in loan documents.  In addition, there is case law that suggests that actual notice may be sufficient in some circumstances.  The bottom line in this case is that the creditor’s lawyer was absolutely incorrect in his statements to the State Court judge.

By the time the client came back to us, his wages had been garnished and he had suffered some very real finanical hardship.

Bernie and I decided to file a Contempt lawsuit against the creditors as well as the law firm that pursued the judgment against our client.  I remember engaging in several very uncomfortable telephone conversations with the managing partner of this firm who was reluctant to admit to wrongdoing and even more reluctant to make a settlement offer.

In the Orlando case, I suspect that the debtor’s lawyer was trying to preserve a relationship – as debtor’s lawyers we see and negotiate with the same creditor lawyers weekly.  In consumer bankruptcy, negotiated settlements on motions for relief and Chapter 13 confirmation objections are very common.  Busy creditor lawyers, who are paid hourly by their clients, are usually in court all day anyway so it would not burden them to refuse to negotiate every case, thereby forcing the debtor’s lawyer to spend hours of non-billable time waiting for a calendar call.

In our case, Bernie and I eventually worked out a settlement with the creditor law firm.  But our relationship with the creditor firm was damaged.  What happens the next time I am trying to work out a deal with that firm is very much an open question.

Jonathan Alper’s point that the lawyer needs to think about his client’s interest is correct.  However, for the debtor’s lawyer, thinking about the big picture, pursuing damages against a creditor’s lawyer who he will see again and again, is a difficult call.

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