Gates v. RAC Acceptance Tex., LLC (In re Gates)

621 B.R. 129

IN RE: Cheryl Lynn GATES, Debtor.

Cheryl Lynn Gates, Plaintiff,

v.RAC Acceptance Texas, LLC, d/b/a Acceptance Now, Defendant.

CASE NO. 20-50159-RBK

ADVERSARY NO. 20-05014-RBK

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

Signed November 05, 2020.

Michael J. O'Connor, Law Office of Michael J. O'Connor, San Antonio, TX, for Defendant.

Martin Warren Seidler, San Antonio, TX, for Plaintiff.

OPINION

Ronald B. King, Chief United States Bankruptcy Judge This adversary proceeding was filed by Cheryl Lynn Gates ("Gates") against the Defendant, RAC Acceptance Texas, LLC, d/b/a/ Acceptance Now ("RAC"). Gates, a chapter 7 debtor, seeks actual damages, punitive damages, a finding of contempt, costs, and attorney's fees under 11 U.S.C. § 362(k) based on RAC's violations of the automatic stay.¹ Gates alleges that RAC violated the automatic stay under §§ 362(a)(1), (3), and (6) when its employees made repeated post-petition contacts with Gates to collect money due on a pre-petition furniture financing transaction.

After a two-day trial on the merits, the Court finds that RAC has willfully violated the automatic stay under § 362(k). The Court will award $110.00 in actual damages and reasonable and necessary attorney's fees and costs. The Court finds no basis on which to award further damages for contempt or to award punitive damages under § 362(k).

Jurisdiction and Venue

The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334(b) and 157(b)(1). Venue is proper under 28 U.S.C. §§ 1408 and 1409. This proceeding constitutes a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to FED. R. BANKR. P. 7052.

Background

On January 10, 2020, Gates entered into a Rental-Purchase Agreement (the "Agreement") for a mattress and a sofa with RAC at its financing office inside an Ashley Furniture HomeStore in Live Oak, Texas. Under the terms of the Agreement, Gates promised to make biweekly rental payments of $72.46 for each biweekly period that she retained the property. Gates made four payments to RAC totaling $275.69 as follows:

On January 10, 2020, Gates paid RAC $74.99 with credit card;

On January 17, 2020, Gates paid RAC $7.56 in cash;

On January 17, 2020, Gates paid RAC $100.35 with credit card; and

On January 31, 2020, Gates paid RAC $92.79 with credit card.

Def.'s Ex. 5. No further payments were made, but Gates has continued to retain the property. See id. The mattress was delivered pre-petition on January 17, 2020, and the sofa was delivered post-petition on February 22, 2020. Def.'s Ex. 4.

On January 24, 2020, fourteen days after signing the Agreement, Gates filed her chapter 7 bankruptcy case.² Bankr. ECF No. 1. Gates listed the total value of her furniture and household goods as $500.00 on Schedule B and listed RAC as an unsecured creditor on Schedule F with a total claim amount of $71.73. Id . Gates did not list RAC as a secured creditor on Schedule D and did not list the Agreement as a lease or executory contract on Schedule G. Id. In addition, Gates did not list RAC in her Statement of Intention as a secured creditor or as the lessor in a personal property lease. Id. No explanation was given for the failure to properly schedule the debt. The Bankruptcy Noticing Center mailed formal notice of Gates's bankruptcy case to RAC by first-class mail on January 29, 2020. Bankr. ECF No. 6. The address used to serve RAC, and the address used in the schedules, was that of RAC's financing office in Live Oak, Texas, which is in the back of an Ashley Furniture HomeStore retail location. Id. Among other things, the official notice informs creditors of the bankruptcy filing, identifies Gates as the debtor, and explains the meaning of the automatic stay. Id.

In the weeks following Gates's bankruptcy filing, RAC staff contacted Gates to determine if she planned to return the property or renew the Agreement by making her required payments. Between February 12, 2020 and February 18, 2020, RAC's employees sent Gates two text messages and left three voicemail messages. Pl.'s Exs. 5 & 7. One text message stated, "[h]ello this is Kenneth with Acceptance Now – just a reminder that your rental is past due. Are you planning to make that payment this week?" Pl.'s Ex. 7.

On February 18, 2020, Gates answered a telephone call from RAC employee Oscar Rodriguez and advised him of her pending bankruptcy case, but noted that she intended to reaffirm her debt under the Agreement.³ Gates testified that she instructed Rodriguez to contact her attorney and not to call her anymore. Despite putting Rodriguez on notice of her bankruptcy, Rodriguez called Gates again on February 19, 20, and 27 regarding the same account. Def.'s Ex. 6. Gates did not answer these calls, and Rodriguez did not leave a voicemail message. Meanwhile, on February 22, 2020, Gates accepted delivery of the sofa, which had been on back-order. Def.'s Ex. 4. She did not return the sofa or the mattress and maintained possession of the items through the date of trial.

RAC's employees continued to attempt to contact Gates until March 4, 2020. Def.'s Ex. 6. On March 2, Gates received a text message from RAC District Manager Patrick Walton. The text message stated:

Please advise on your Acceptance Now Account. I just want to help! you [sic] are now 17 days past due and issue urgent on my desk to help. How about this deal $250 payment today we reset account fresh start [sic] to your next payday 3/20 Friday. Giving you a chance to catch up. This will Stop Rent A Center from visiting home this week and calls [sic] by calling in payment today. Counting on your integrity to ensure we keep building credit, ownership and you will want to do business with us again right [sic]? I know your [sic] a good customer. Please advise and call in on this great offer.

Def.'s Ex. 6. In response to this text message, Gates advised Patrick Walton by text message of her pending bankruptcy case, of the automatic stay, and asked Walton to call her attorney.⁴ Pl.'s Ex. 31. On March 3, 2020, Gates's counsel finally sent a "cease and desist" letter to RAC, which was addressed to the Live Oak location and RAC's headquarters in Plano, Texas. Pl.'s Ex. 25. Employees at the Live Oak location received and forwarded the cease and desist letter to RAC's legal office on March 4, 2020. Although RAC does not dispute that its employees likely received notice of Gates's bankruptcy filing shortly after the January 29, 2020 notice, RAC argued at trial that neither its corporate staff nor its legal staff received notice until March 4, 2020.

In total, between the period of February 12, 2020 and March 4, 2020, RAC attempted to contact Gates regarding payment on her account at least twenty-nine times, including fourteen voicemail messages, four text messages, nine unanswered telephone calls with no voicemail message, and two emails. Def.'s Ex. 6. It was not until March 4, 2020, upon receipt of the cease and desist letter, that RAC finally marked Gates's account "do not call." Def's Ex. 6. No contact was made after March 4, 2020.

Patrick Walton testified that all employees of RAC should review the internal notes on each customer account before contacting the customer, but "it doesn't always happen." RAC's company policy expressly prohibits employees from contacting customers who have filed for bankruptcy or have notified an employee that all further communications are to come through the customer's attorney. Pl.'s Ex. 29. Specifically, if a customer notifies an employee of her bankruptcy, Walton testified that employees should notify the district manager and legal department so the customer's account can be put in "Route 50" or flagged as "do not contact." See id. at 115. The policy also instructs employees to avoid all contact with customers when notified of bankruptcy "regardless of how—verbal, customer letter, letter from an attorney, or notice from the bankruptcy court." Id. at 117.

At trial, Gates conceded that she was already experiencing menopausal symptoms of mild depression prior to bankruptcy, for which she was prescribed antidepressant medication. Gates contends, however, that the collection activity by RAC aggravated her symptoms and exacerbated her anxiety and paranoia. See Pl.'s Ex. 22. In an email to Thomas Nohe, a physician's assistant, on March 3, 2020, Gates asked for a prescription for anxiety to treat symptoms she was experiencing as a direct result of RAC's collection activity. Pl.'s Ex. 23. Gates explained that she was "overwhelmed with anxiety over [RAC's] repeated harassment," but that she did not "plan on taking it long term, just a month would help." Id. Nohe responded via email within minutes and prescribed Gates with anxiety medication. Id. The prescribed medication cost Gates $10.00 out-of-pocket. Pl.'s Ex. 14. Gates did not refill her prescription and later cancelled her follow-up appointment with Nohe scheduled for March 23, 2020.

During February and March 2020, Gates was employed as a tenant liaison with a commercial real estate firm. On March 20, Gates received her annual employee review for the review period January 1, 2019 through December 31, 2019. Pl.'s Ex. 15. On a performance scale of 1–5, Gates's overall rating for 2019 was 2.12. Id. Gates was instructed to focus on the accuracy of her work and to minimize basic administrative mistakes. Id. Gates was terminated from her position effective May 14, 2020, over two months after RAC's last post-petition contact with Gates.⁵ Pl.'s Ex. 18. Gates attributes her poor work performance to anxiety and paranoia she experienced due to RAC's conduct.

In addition to the loss of her job, Gates testified that she experienced severe emotional distress. Gates argued that her pre-existing emotional issues, including depression, were exacerbated by RAC's post-petition contacts.⁶ See ECF No. 28. Specifically, Gates testified that Walton's text message on March 2,...