IN RE PRUSINOWSKI, (Bankr.D.Wyo. 1997)

PETER McNIFF, United States Bankruptcy Judge.

On December 18, 1996, this matter came before the court for hearing on its order to show cause issued in response to the debtors' motion for an order finding Avco Financial Services (Avco) and the WyHy Federal Credit Union (WyHy) in violation of the automatic stay.

The court has jurisdiction over this core proceeding pursuant to 28 U.S.C. § 157(b)(2)(O) 1334. These issues may be heard as a contested matter. In re Hooker Investments, Inc., 116 B.R. 375, 378 (Bankr.S.D.N.Y. 1990); In re Timbs, 178 B.R. 989, 994 (Bankr.E.D.Tenn. 1994).

Facts

The relevant facts are not disputed. Avco got a judgment against Mr. Prusinowski on July 27, 1995. Its most recent effort to execute on the judgment was on November 4, 1996 when Avco initiated garnishment proceedings. A writ of garnishment was filed in the state court on November 5, 1996. On November 6, 1996, the Prusinowskis filed their voluntary petition for relief under chapter 13 of the Bankruptcy Code.

The process server served the writ of garnishment on WyHy on November 12, 1996. Prusinowskis maintain two accounts at WyHy. Upon receipt of the writ, WyHy transferred the entire balance of the checking account into the debtors' share account, which WyHy froze to satisfy the garnishment. When Mrs. Prusinowski deposited funds into her checking account on November 13, 1996, WyHy transferred enough of the deposit to the frozen share account to completely satisfy the amount of Avco's judgment. On that same date, Mrs. Prusinowski informed an agent of WyHy that she had filed the chapter 13 petition. On November 15, WyHy transferred an additional $5 into the frozen share account from the checking account in order to preserve its minimum balance requirement.

On November 13, 1996, Prusinowskis notified Avco of the pending chapter 13 case. Ms. Stai, an agent of Avco, attempted to stop service of the garnishment writ. By that time, however, the writ had been served and WyHy had frozen the account. Ms. Stai communicated to the debtors' attorney that Avco would cooperate with him to obtain a release of the funds. Then, she consulted Avco's attorney for advice concerning procedures for stopping the garnishment and regarding the bankruptcy's effect on the pending garnishment.

Avco and WyHy have the same attorney. On November 19, 1996, the account at WyHy was still frozen and Avco had taken no action to have the writ quashed or the garnishment action dismissed. Its counsel communicated to the debtors' attorney that Avco is not "required to expend additional time and energy in performing a function that can just as easily be performed by you and your clients which only benefits your clients." And, "[i]f you will prepare a Motion to Quash the Writ of Garnishment explaining to the County Court the reasons and grounds, on behalf of AVCO, I would again be more than willing to sign it."

Because of the transfers from checking to savings by WyHy, the funds in checking were insufficient to satisfy all of the checks written by the Prusinowskis. WyHy returned at least two checks to the payees, Albertsons and Wyoming Central Federal Credit Union (Wyoming Central). Because of the returned checks, the Prusinowskis incurred a $15 return check fee at Albertsons, a $3.50 returned check charge at Wyoming Central, and a late payment penalty of $25 on their contract-for-deed installment.

Conclusions of Law

This matter arises on the debtors' motion for an award of damages against both respondents for a willful violation of the automatic stay. Under § 362, a stay is imposed against the continuation of any judicial proceeding to recover a claim against the debtor, and against any act to exercise control over property of the estate. The court is mandated to award damages to an individual injured by a willful violation of the automatic stay, including punitive damages. 11 U.S.C. § 362(h).

A violation is willful if the action is deliberately taken with knowledge that the debtor has filed a petition in bankruptcy. In re Matthews, 184 B.R. 594, 599 (Bankr.S.D.Ala. 1995). In the case of an entity in possession of estate property, knowledge means notice or knowledge of the bankruptcy and that the property in the possessor's custody is the debtor's property. In re USA Diversified Products, Inc., 100 F.3d 53, 57 (7th Cir. 1996). Conduct is deliberate if it is intentional, but the conduct need not be taken with intent to violate the stay. In re Roberts, 175 B.R. 339, 344 (Bankr. 9th Cir. 1994).

All parties to this matter agree that the automatic stay prevents a judgment creditor from continuing with actions to collect the judgment. The crux of the dispute in this case is which party, the creditor or the debtor, must take the action necessary to stop the collection activity.

The case law is in agreement and clear that once a creditor is notified of a bankruptcy filing, the stay imposes an affirmative duty on that creditor to stop postpetition collection activities. Id. at 343; In re Clemmons, 107 B.R. 488, 490 (Bankr.D.Del. 1989). A garnishing creditor has an affirmative duty to dismiss a garnishment. In re Dennis, 17 B.R. 558 (Bankr.M.D.Ga. 1982).

Because § 542(a) requires an entity in possession of estate property to deliver that property to the trustee, the failure to do so has been deemed a violation of § 362(a)(3). In re Del Mission Ltd., 98 F.3d 1147, 1151 (9th Cir. 1996). This is so regardless of whether or not the entity is a creditor.

The court agrees with those authorities and holds that the failure by Avco to take affirmative action to quash the writ or have the state court action dismissed was a willful violation of the automatic stay. Despite the clear direction of the law, Avco argues that the responsibility for having the writ quashed was the debtors'. This argument is meritless and somewhat baffling. Such a result effectively and needlessly requires the debtors to defend the garnishment, defeating the very purpose of the automatic stay, and diminishing the benefits of the bankruptcy case to the debtors.

Avco's position that it had no ability to affect the garnishment proceedings, once the writ was served and the lien had attached, defies reason. A plaintiff is in the best position to have an action dismissed or suspended.

The case against WyHy is much closer. WyHy defends by asserting that if it had released the funds to the debtors (unfrozen the account) it would have been in violation of the garnishment writ and order of the state court. Thus, WyHy argues that it found itself caught between two conflicting court orders.

WyHy's failure to turnover the account funds after receiving knowledge of the bankruptcy was a technical violation of the automatic stay. Undoubtedly there is a point where an entity in WyHy's position has a responsibility to proceed affirmatively, by interpleader action or otherwise, to resolve such a dilemma. However, the court recognizes that even an interpleader action takes time. Therefore, the court concludes that under the circumstances of this case, WyHy's conduct was not deliberate or willful.

An award of compensatory damages is mandatory for a creditor's willful violation of the automatic stay. In re Pace, 67 F.3d 187, 193 (9th Cir. 1995). The debtors proved actual damages of $43.50 arising from the unpaid check charges. Also, damage awards appropriately include reasonable attorney's fees and costs. In re Herbst, 167 B.R. 983, 985 (Bankr.N.D.Fla. 1994). In this case, the evidence was insufficient to support the damages asserted for embarrassment, an increase in the cost of doing business, or the nebulous claim of employee dissatisfaction.

The debtors in this case also request an award of punitive damages. Punitive damages are awarded for particularly egregious actions. In re Timbs, 178 B.R. at 996. In this case the court concludes that the violation does not justify an award of punitive damages. The court will issue a simultaneous judgment in accordance with this decision.