BAP Reverses Judge Bluebond’s $400,000 Stay Violation Award — Taggart All Over!

In an unpublished BAP opinion of The Preserve LLC, Judge Bluebond awarded the Chapter 7 Trustee and his attorneys $400,000 for a stay violation.  The BAP reversed saying the wrong procedure was used (adversary proceeding in lieu of motion) and that a trustee is ineligible to receive damages under section 362(k) because the trustee is not an “individual” within the meaning that section.  Instead, a trustee can recover damages for a stay violation for a sanction for civil contempt, which is a different standard.   I read Judge Bluebond’s original order and it was really well thought out with findings of facts and conclusions of law, I am surprised at the BAP’s reversal.   The Taggart case is all over this.

The BAP opinion does a great job breaking down the difference between the standard for awarding damages for civil contempt versus the standard for awarding damages under § 362(k).

First, damages are mandatory under § 362(k), while they are discretionary under the court’s contempt power.

Second, under § 362(k), a party with knowledge of bankruptcy proceedings is charged with knowledge of the automatic stay, but in the contempt context, the party must know of the stay and that the stay applies to its conduct.  In other words, in a contempt proceeding, knowledge of the stay may not be inferred simply because the creditor knew of the bankruptcy.  Even an unreasonable belief that the stay does not apply to a creditor’s claims would preclude a finding of contempt.  But once a creditor becomes aware of a stay violation (i.e., by learning that the stay applies to its conduct), it has an affirmative duty to remedy that violation.

Sevan Gorginian, Esq.

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