Court Sanctioned Creditor, an experienced Bankruptcy Attorney, who Feigned Ignorance of the Law, with $5,000 in Punitive Damages for Egregious Violations of the Automatic Stay and Discharge Injunction

Court Sanctioned Creditor, an experienced Bankruptcy Attorney, who Feigned Ignorance of the Law, with $5,000 in Punitive Damages for Egregious Violations of the Automatic Stay and Discharge Injunction

THIS CASE came before the Court on the Rule to Show Cause  ordering a a creditor, who is also an attorney,  to appear and show cause (i) why he should not be held in contempt for a willful violation of the automatic stay of the Bankruptcy Code, 11 U.S.C. § 362(a), and for a willful violation of the Court’s discharge order and the injunction imposed by 11 U.S.C. § 524, and (ii) why sanctions, including an award of damages, both actual and punitive, and an award of attorney’s fees should not be imposed upon him.

Baumann is an attorney licensed to practice law in this state and is a member in good standing of the bar of this Court.  The Debtor is employed as a mechanic by Beatty Management. The Debtor rented an apartment from Baumann in 2015. After the Debtor defaulted under the terms of the lease, Baumann had the Debtor evicted from the apartment. On September 23, 2015, Baumann obtained a judgment against the Debtor in state court for unpaid rent. On November 16, 2015, Baumann commenced an action in in state court to garnish the Debtor’s wages (the “First Garnishment”). The return date on the First Garnishment was set for July 6, 2016, at which time the state court ordered that the funds withheld from the Debtor’s wages pursuant to the First Garnishment be paid over to Baumann (the “Garnishment Order”). On August 10, 2016, Bauman commenced a second garnishment action against the Debtor in state court, returnable on January 31, 2017 (the “Second Garnishment”).

The Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code (the “Bankruptcy Case”) on August 30, 2016 (the “Petition Date”), in the United States Bankruptcy Court. Baumann was properly scheduled as an unsecured creditor in the amount of $8,709.40 on Schedule F annexed to the bankruptcy petition. Baumann was included on the creditor service list that the Debtor filed with the Court. The Debtor’s bankruptcy counsel served Baumann with a Suggestion of Bankruptcy that he filed in the state court. Notwithstanding the commencement of the Debtor’s bankruptcy case, Baumann took no action to stop the Second Garnishment. The Debtor received a discharge on December 15, 2016.

As the return date for the First Garnishment fell within the 90-day period immediately preceding the Petition Date, the Garnishment Order on the First Garnishment was avoidable under 11 U.S.C. § 547 as a preferential transfer. The Debtor claimed $500 of his prepetition garnished wages exempt on his schedule C pursuant to state law. The Debtor was entitled to avoid and recover from Baumann the amount he had claimed as exempt in accordance with 11 U.S.C. § 522(g) and (h). Baumann agreed to have the $500 exempt portion from the First Garnishment returned to the Debtor. Accordingly, Baumann sent the Debtor’s lawyer two copies of an order of payment (the “Order of Payment”) to be entered by the General District Court decreeing that $500 of the funds that had been withheld by the Debtor’s employer pursuant to the First Garnishment be paid over to the attorney for the benefit of the Debtor. Andrews endorsed the orders and returned them to Baumann.

Some party (the identity of whom has no bearing on the ruling in this case) altered the Order of Payment that was entered by the state court after it had been endorsed by Debtor’s counsel. The first alteration changed the case number from the First Garnishment action to the Second Garnishment action. The second alteration changed the number of garnished checks from one $500 check to four checks. The alterations that were made to the Order of Payment had the effect of making the Order of Payment completely inapplicable to the First Garnishment and the Debtor’s recovery of the exempted funds. Instead, the altered Order of Payment purported to deal only with the Second Garnishment of the Debtor’s postpetition wages.

The altered Order of Payment was entered by the General District Court on January 31, 2017, the return date for the Second Garnishment. The state court sent Baumann four checks totaling $1,667 issued by the Debtor’s employer for the monies withheld from the Debtor’s postpetition wages. Baumann did not immediately return these postpetition funds to the Debtor. Baumann did not send a copy of the altered Order of Payment to Debtor’s counsel after it had been entered by the General District Court. Baumann did not take any action to have the altered Order of Payment corrected by the state court.

Instead, Baumann negotiated the four checks and retained the proceeds in his escrow account. One of the four checks did not clear the employer’s account. On February 15, 2017, Baumann sent an e-mail communication to the Debtor’s employer, Beatty Management, asking when Beatty Management would be remitting the full amount due under the Second Garnishment action (the “Dunning Communication”). The Dunning Communication threatened to have the General District Court issue a show cause summons against Beatty Management if the wages were not turned over to him. As a result of this Dunning Communication, Beatty Management withheld additional money from the Debtor’s postpetition wages and sent Baumann the replacement check he had demanded (the “Replacement Check”).

Postpetition wages were withheld from the Debtor on at least four occasions as a result of the Second Garnishment. The Debtor never did receive the $500 portion that he had claimed exempt from the First Garnishment. Baumann acknowledged that he continues to hold the funds he received from the Second Garnishment in his trust account along with the Replacement Check.

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