In Alley Cassetty Companies, Inc. v. Wren, No. 2:12-cv-196-WCO, 2013 U.S. Dist. LEXIS 11294 (N.D. Ga. July 22, 2013), the creditor, who had no notice of the Debtor’s Bankruptcy case, filed a collection suit against the Debtor in state court. After receiving notice of the pending Bankruptcy case, creditor’s counsel informed Debtor’s counsel they would take no further action in the lawsuit. Debtor’s counsel also filed a Notice of Stay in the state case. Debtor then pursued damages against the creditor in Bankruptcy Court because the creditor did not dismiss the state lawsuit. The Bankruptcy Court ruled that the credit violated the stay and imposed $2500 in sanctions and attorney’s fees. The creditor appealed, and the District Court reversed.
The District Court first found that the automatic stay of 11 U.S.C. §362(a) was violated, albeit not willfully, as it was filed after the Debtor’s Bankruptcy case was filed. The next issue was whether the creditor willfully violated the stay, thus subjecting it to sanctions, for not taking the affirmative step of dismissing the lawsuit.
Once appellant was notified of the bankruptcy stay, “§362(a) imposes an affirmative duty to discontinue post-petition collection actions.” … “If a creditor acts without knowledge of the bankruptcy in violation of the automatic stay it must affirmatively act immediately to restore the pre-violation status quo.” [citations omitted]. The bankruptcy court in In re Smith, 180 B.R. 311, 319 (Bankr. N. D. Ga. 1995), held:
Under § 362(h), a debtor has the burden of providing a creditor with adequate actual notice of a pending bankruptcy case. When a creditor receives such actual notice, the burden is then on the creditor to assure that the automatic stay is not violated or, if it has been violated prior to receipt of actual notice, the burden is on the creditor to reverse any such action taken in violation of the stay.
Id. “The scope of protections embodied in the automatic stay is quite broad.” Id. at 1214…
The question here is whether appellant’s actions after it became aware of the pendency of Wren’s bankruptcy case were sufficient to satisfy its duty to “reverse [its prior] action[s] taken in violation of the stay” in the state court lawsuit. Id. In this regard, the Ninth Circuit Court in Eskanos & Adler, P.C., held:
We reject [the creditor]’s interpretation that “continuation” requires additional efforts beyond [*8] sustaining an active claim. The maintenance of an active collection action alone adequately satisfies the statutory prohibition against “continuation” of judicial actions. Consistent with the plain and unambiguous meaning of the statute, and consonant with Congressional intent, we hold that § 362(a)(1) imposes an affirmative duty to discontinue post-petition collection actions.
Eskanos & Adler, P.C., 309 F.3d at 1215. The court is not aware of any Eleventh Circuit authority on this point. Appellees argue that the fact that appellant took no further actions against Wren in the state court lawsuit is not sufficient to satisfy its “affirmative duty to discontinue” the lawsuit. Appellant did not file a written notice with the state court or seek stay relief in the bankruptcy court. The court notes, however, that such actions were not required for appellant to effect an “immediate freeze of the status quo.” Id. at 1214. A stay was already in place. Appellees have not submitted, and the court is not aware of, any cases requiring the dismissal of a state court lawsuit that had been stayed… Even if the court were to assume that appellant had failed to satisfy its “affirmative duty to discontinue,” appellant’s failure did not constitute a willful violation of the stay.
Here, it is undisputed that the state court lawsuit was stayed pursuant to a suggestion of bankruptcy that was filed by Wren. In addition, appellant promptly assured Wren in writing that it would not take any further actions against Wren. The bankruptcy court found that the state court lawsuit had “ceased going forward” and that “no harm . . . resulted from the continuance of the state court lawsuit.” (Bankr. Order of Feb. 6, 2012 at 4.) As a stay was legally in place, appellant did not need to take any steps to ensure that the automatic stay was not violated. Unlike the debtor in Eskanos & Adler, P.C., Wren did not incur any cost “in defending against a continuing stay violation and preventing a default judgment…” Accordingly, appellant’s violation of the stay was not willful pursuant to 11 U.S.C. § 362(k)(1), and appellees are not entitled to actual damages. Consequently, the bankruptcy court’s award of actual damages in the form of reasonable attorney’s fees must be vacated.