Emotional Distress Merits Actual Damages

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By Deborah Swann

Emotional distress caused by landlord’s willful violation of the bankruptcy stay was entitled to compensation as actual damages ( Lansaw v. Zokaites (In re Lansaw) , 2017 BL 116554, 3d Cir., 16-1867, 4/10/17 ).

It was an issue of first impression in the U.S. Court of Appeals for the Third Circuit.

The debtors also presented sufficient evidence of their emotional distress to support the award. Doctors’ receipts and medical testimony were not necessary, Judge Michael H. Melloy wrote for the court.

An individual injured by any willful violation of the Bankruptcy Code’s stay against collection activities can recover “actual damages, including costs and attorneys’ fees,” and in appropriate circumstances, “punitive damages,” under Bankruptcy Code Section 362(k)(1). The damage award serves to enforce the bankruptcy’s stay.

The stay’s protections are not just financial in character, but serve also to provide the debtor with a breathing spell, the court noted. It stops all collection efforts and harassment, it said.

The court joined a growing number of circuits, including the First, Ninth, and Eleventh, in concluding that actual damages include damages for emotional distress resulting from a willful violation of the stay.

The court did not decide whether financial injury was a predicate to recovery for emotional distress. The debtors had incurred financial injury in the form of attorneys’ fees when they sought to enjoin further stay violations by the landlord. The court also left open whether emotional distress damages may be recovered against federal or state governments.

Also, the court upheld the debtors’ award of punitive damages. The 4-to-1 ratio between the punitive and actual damages awarded in this case comported with Constitutional considerations of due process, it said.

To contact the reporter on this story: Deborah Swann in Washington at dswann@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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