Devious Device Disables Debtors’ Car

Posted by NCBRC - September 28, 2015

Use of a device that renders a vehicle inoperable in the event of failure to make a payment on the car loan violates the automatic stay. In re Horace, No. 14-30103 (Bankr. N.D. Ohio Aug. 28, 2015). The Horaces bought a Chevy Trailblazer that was fitted with a “PassTime payment assurance device” designed to alert the owner with a beeping sound when payment is due on the vehicle loan. If payment is not received by the day it is due the alerts become more frantic. The vehicle automatically becomes inoperable unless the creditor enters a code to keep it running.

At the time the Horaces filed their chapter 13 bankruptcy they were current on payments for the vehicle loan. They notified the creditor, Universal Acceptance (UA), of the bankruptcy but did not provide for payments through the plan, opting instead to continue paying outside the plan. Three months later, the debtors filed the first of several amendments, each of which provided for payments to UA through the plan rather than continuing direct payments. During the period between the first proposed amended plan and when the plan was finally confirmed the debtors stopped making direct payments in accordance with the proposed amendments. The trustee, however, did not begin to disburse the funds until the plan was confirmed. As a result, there were a number of occasions in which the car was rendered inoperable for short periods due to the PassTime system. On more than one occasion, and despite contact by the debtors’ counsel with UA, after the car was rendered inoperable the debtors were forced to make a payment directly to UA to restart the car.

The Horaces filed a motion for damages for violation of the automatic stay. As a procedural matter, the court determined that UA had waived its right to an adversary proceeding under Rule 7001(1), by indicating its willingness to go forward on the motion. As to the substance of the motion, the court found that the PassTime device was comparable to sending the debtors an invoice with a payment coupon, and that by its use, the creditor exercised control over the vehicle in violation of sections 362(a)(3) and (6). The creditor’s conduct was willful because it knew of the bankruptcy and failed to take affirmative steps to disable the device.

Turning to the issue of damages, the court found that no evidence was presented as to any injury to Mr. Horace. The evidence of Mrs. Horace’s injury consisted of her testimony that she suffered pain when she was unable to operate her car after physical therapy appointments and that she was embarrassed by the beeping of the warning system. Although the debtors did not quantify their damages, they sought a “sanction” in the amount of $2,500 to atone Mrs. Horace for “stress.”

The court noted that damages for emotional injury are not typically permitted for a stay violation. It found that the stress suffered by Mrs. Horace was too vague and insufficiently supported by extrinsic evidence to sustain a damage award. It did find, however, that certain other of the debtors’ demands were appropriate including an order to the creditor to remove the device from the vehicle at its own expense.

With respect to attorneys’ fees, the debtors’ counsel presented his invoice in the amount of $1,076.25. The invoice did not include time spent preparing for and litigating the stay violation. The court held that attorneys’ fees under section 362(k) are part of the substantive law that requires them to be proved at trial under Fed. R. Civ. P. 54(d)(2)(A). Although the court specifically disagreed with the holding in Sternberg v. Johnston, 595 F.3d 937 (9th Cir. 2009), cert. denied 562 U.S. 831 (2010) prohibiting recovery of fees incurred after the violation has been corrected, it found that because the debtors’ attorney did not seek permission to present further evidence of fees incurred at the hearing, the attorneys’ fees were properly limited to the amount sought and proved at the hearing.

Horace Bankr. ND Ohio opinion

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  1. By Bankruptcy News Briefs 9/29 | NACBA Now on September 29, 2015 at 5:04 pm

    […] Devious Device Disables Debtors’ Car […]

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