Brittner filed an adversary proceeding against Beach Anesthesia alleging violations of the automatic stay, but the bankruptcy court (affirmed by the district court) held that she had either failed to establish actual damages or to mitigate damages.
The Court of Appeals held that that Brittner needed to satisfy a five-part test to establish a violation of the automatic stay:
(1) that a bankruptcy petition was filed,
(2) that the debtors are individuals under the automatic stay provision,
(3) that the creditors received notice of the petition,
(4) that the creditor’s actions were in willful violation of the stay, and
(5) that the debtors suffered damages.
In re Warren, 532 B.R. 655, 660 (Bankr. D.S.C. 2015) (cleaned up).
Further, the court found that Brittner failed to establish actual damages, which were based on emotional distress and attorney’s fees. To establish emotional distress her “own conclusory allegations that [s]he felt embarrassed, degraded, or devastated, and suffered a loss of self-esteem, will not suffice.” Doe v. Chao, 306 F.3d 170, 180 (4th Cir. 2002) (cleaned up). Instead, Brittner needed to produce evidence that emotional distress resulted in her seeking medical or psychological treatment. Further, attorney’s fees resulting from actions that “were manufactured by counsel and ‘could have easily been mitigated'” were not allowed.
This sets a very high standard for damages for emotional distress in stay violation actions, which is particularly problematic as, unlike other consumer protection laws such as the FDCPA or UDTPA, the Bankruptcy Code does not provide for statutory damages.
Consequences of this include:
- Creditor having not repercussions for violating the stay;
- Debtor’s attorneys routinely having clients who express any distress in response to stay violations seek immediate medical or psychological care;
- Not bringing stay violations in the bankruptcy courts, but instead FDCPA or UDTPA actions (and having statutory damages) in the state or federal district courts for the same violations.
This case can, however, support the argument that since debtors and their attorneys are expected to mitigate damages by minimizing or avoiding attorneys fees, that reasonable attorney’s fees for creditors (and Trustees) should be subject to the exact same expectation, where such fees “could have been resolved without court intervention.”