Defeo v. Winyah Surgical Specialists, P.A. (In re)

635 B.R. 253

IN RE, James DEFEO, Jr., Debtor(s).

James Defeo, Jr., Plaintiff(s),

v.Winyah Surgical Specialists, P.A. doing business as Winyah Surgical Specialists, Defendant(s).

C/A No. 20-03738-JW

Adv. Pro. No. 21-80011-JW

United States Bankruptcy Court, D. South Carolina.

Signed January 14, 2022

David Hart Breen, Breen Law Firm, Myrtle Beach, SC, Matthew M. Breen, Lowcountry Law, LLC, Mount Pleasant, SC, for Plaintiff.

Christine E. Brimm, Barton Brimm, PA, Myrtle Beach, SC, for Defendant.

JUDGMENT

John E. Waites, US Bankruptcy Judge Based on the findings of fact and conclusions of law set forth in the attached Order, the Court finds that Defendant, Winyah Surgical Specialists, P.A., doing business as Winyah Surgical Specialists, willfully violated the automatic stay and is liable to the Debtor, James Defeo, Jr., for actual damages, including attorney's fees, pursuant to 11 U.S.C. § 362(k). The Court awards Debtor damages of $16.76 for mileage expenses. Debtor's request for emotional distress damages is denied for failure of proof. The Court further finds that Debtor should be awarded attorney's fees and costs in the amount of $2,515.45. The Court finds that punitive damages are not appropriate under the circumstances of this case because there is no evidence of egregious conduct by Defendant. Accordingly, Defendant shall pay Debtor damages in the total amount of $2,532.21 within 14 days of the entry of the Order, subject to the applicability of Fed. R. Civ. P. 68(d).

ORDER

This matter comes before the Court upon the Complaint filed by James Defeo, Jr. ("Debtor") against Winyah Surgical Specialists, P.A., doing business as Winyah Surgical Specialists ("Defendant") alleging a willful violation of the automatic stay under 11 U.S.C. § 362(k). Defendant denied that its actions constituted a willful stay violation and a trial was held. Pursuant to Fed. R. Civ. P. 52, which is made applicable to this proceeding by Fed. R. Bankr. P. 7052, the Court makes the following findings of fact and conclusions of law.¹

FINDINGS OF FACT

1. Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code on October 2, 2020, C/A No. 20-03738. With the petition, Debtor also filed his schedules and statements, which included a list of Debtor's creditors. The Notice of Chapter 13 Case was served on the creditors listed in the petition.

2. Debtor inadvertently omitted Defendant as a creditor in his initial schedules and therefore Defendant did not receive notice of Debtor's bankruptcy at the time the case was filed.

3. In late November 2020, Debtor received an invoice from Defendant seeking payment of a medical debt in the amount of $910.00 ("November Invoice"). At the time Defendant mailed the November Invoice, it had not received notice of Debtor's bankruptcy case.

4. On December 4, 2020, Debtor's counsel called Defendant and verbally gave Defendant notice that Debtor had filed for bankruptcy. A note was placed in Debtor's medical chart on December 4, 2020, at 3:02 p.m. that "Bankruptcy Attorney Mr. David Breen at 843-445-9915 called to let us know Mr. Defeo has filed for bankruptcy, so we do not send any more bills." On that date, Defendant's office manager opened Debtor's chart to select the "Don't Send Statements" and "Exclude From Collections" boxes so that Debtor would not receive future bills, but it appears that the settings did not save.

5. On December 10, 2020, Debtor amended his bankruptcy schedules to list the debt owed to Defendant and mailed a copy of the Notice of the Chapter 13 Case and Amended Schedules E/F to Defendant.

Debtor also filed an Amended Chapter 13 Plan, which was also served on Defendant.

6. On January 5, 2021, the Court entered an Order Confirming the Chapter 13 Plan and served all creditors with a copy of the Order, including Defendant. Defendant admits receiving the Order Confirming the Chapter 13 Plan.

7. On February 9, 2021, Debtor received an invoice from Defendant, dated February 2, 2021, seeking payment in the prepetition amount of $910.00 (the "February Invoice").

8. Two days later, on February 11, 2021, Debtor called his attorney regarding receipt of the February invoice.

9. On February 15, 2021, Debtor drove to his attorney's office, which is less than 5 miles from his home, and signed a Verification of the Complaint, which asserted Defendant's violation of the automatic stay for the sending of the February Invoice. The Complaint was filed later that day. Neither Debtor nor his counsel attempted to contact Defendant regarding the February Invoice prior to filing the Complaint.

10. On February 16, 2021, the Summons was issued by the Court.

11. On February 22, 2021, Debtor's Counsel contacted Defendant by email to inquire about whether it had retained an attorney to represent it in connection with the adversary proceeding.

12. On March 17, 2021, Defendant filed its Answer to the Complaint denying violation of the stay and asserting that its actions were not willful because the February Invoice was sent due to inadvertence or computer error. Defendant further stated in its Answer that it did not intend to seek collection of the amount outside of the bankruptcy case and that it had taken actions to immediately mitigate and remedy any potential stay violation.

13. On April 8, 2021, Defendant's Counsel and Debtor's Counsel participated in a discovery conference pursuant to Fed. R. Civ. P. 26(f) by telephone. During this call, Defendant's Counsel made a settlement offer and asked Debtor's Counsel for the amount of attorney's fees incurred to date to further consider and assess settlement, and Debtor's Counsel refused to voluntarily provide such information, stating that his attorney's fees and costs incurred to date would only be provided through discovery.

14. Later that day on April 8, 2021, Defendant served an Offer of Judgment to Debtor's Counsel pursuant to Rule 68 of the Federal Rules of Civil Procedure. The amount of the Offer of Judgment is unknown to the Court. Defendant's Counsel also delivered a copy of a proposed Motion for Sanctions on Debtor's Counsel, based on allegations that Debtor's Counsel included certain false and inflammatory allegations in the Complaint without first conducting a reasonable investigation of the facts and that the Complaint was filed for an improper purpose: to needlessly increase the expense of litigation. Defendant's Counsel notified Debtor's Counsel that if he failed to withdraw the Complaint within 21 days, she would file the Motion for Sanctions with the Court.

15. Defendant's Counsel again requested copies of Debtor's Counsel's billing records by email and telephone on April 12, 2021, by email on May 4, 2021, and through discovery requests served on May 12, 2021.

16. On May 3, 2021, after no response or amendment of the Complaint, Defendant filed the Motion for Sanctions with the Court.

17. The Court entered an Order granting Defendant's Motion for Sanctions on August 26, 2021. On September 27, 2021, the Court entered an Amended Final Order on Defendant's Motion for Sanctions, which struck certain disputed allegations from the Complaint and ordered Debtor's Counsel to pay sanctions.² In that Order, the Court observed that Debtor's Counsel had a history of filing adversary proceedings for willful violation of the automatic stay seeking significant damages ranging as high as $25,000 to $75,000 based upon the mailing of collection letters.³

18. On November 4, 2021, the Court conducted a trial of this adversary proceeding. During the trial, Debtor testified regarding the damages he claims were caused by Defendant's alleged willful violation of the automatic stay, including that he had feelings of stress, nausea and loss of sleep for a period of approximately two days, mileage for traveling to his attorney's office to sign the Verification of the Complaint and for traveling to the Court to attend the trial, lost wages of $300 to attend the trial, and attorney's fees in the amount of $17,500.45, which included time for travel and preparation for the trial.⁴

19. At trial, Defendant's office manager testified that the February Invoice was sent by mistake and that Defendant did not intend for the invoice to go out. She believed she had taken the necessary steps of checking the boxes in Debtor's medical chart on December 4, 2020 to ensure that no further invoices would be sent. She admitted that she did not check the chart again when she received the Notice of Chapter 13 Bankruptcy Case, Amended Schedules, and Chapter 13 plan in mid-December 2020. She also did not check the chart after receiving the Order Confirming Plan in January 2021. She learned of the adversary proceeding when Debtor's counsel contacted her by letter on February 22, 2021 to inquire whether Defendant had retained counsel. At that time, she checked Debtor's chart and discovered that the boxes were no longer checked. She again marked the boxes for no billing and made sure the setting saved. After the February Invoice, no further invoices were sent to Debtor by Defendant.

CONCLUSIONS OF LAW

Section 362(a)(6) of the Bankruptcy Code provides that the filing of a petition "operates as a stay, applicable to all entities, of ... any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title." 11 U.S.C. § 362(a)(6). The automatic stay under § 362(a) provides a debtor with a breathing spell from the pressure of collection actions by creditors by halting the collection process for most debts. The stay also operates to preserve the relative positions and rights of creditors and avoid a "race to the courthouse."

Section 362(k) equips debtors with a powerful tool to preserve the benefits of the automatic stay and discourage creditors from engaging in conduct in violation of the stay. Under § 362(k), creditors who willfully fail to comply with the automatic stay are subject to a statutory claim for damages, including costs and attorney's fees, and...