Freda Butz, an individual bankruptcy debtor, received a computer-generated printout from one of her creditors, People First Federal Credit Union, five weeks after filing a joint petition with her husband and four weeks after Credit Union had received notice of the filing. The statement identified the balance owed and included language saying, Your account is 10 or more days past due. Please remit the amount due immediately. If you feel an error has been made please contact us. The debtor filed a complaint with the bankruptcy court alleging that Credit Union had committed a willful violation of the automatic stay under 362(k) and sought actual damages. The debtor then filed a motion for summary judgment on the complaint. Credit Union defended the motion on the grounds that the statement was not an effort to collect a prepetition debt and was instead informational only and did nothing more than advise the debtor of the status of her account, which the Credit Union had properly marked internally as a not-for-collection account. The Credit Union also defended on the grounds that the statement was not a willful violation of the automatic stay since it was an automatically computer-generated statement routinely sent to all Credit Union customers.

OPINION: OPEL, Bankruptcy Judge:

Generally, to prove a violation of the automatic stay, a debtor/plaintiff must show both that the defendant (1) knew of the automatic stay, and (2) acted willfully to violate the stay. A willful violation is a condition precedent to receiving damages under 362(k). It is a willful violation of the automatic stay when a creditor violates the stay with knowledge that the bankruptcy petition has been filed. In re Lansdale Family Restaurants, Inc., 977 F.2d 826, 829 (3d Cir. 1992). . . . Courts in the Third Circuit have consistently recognized that willfulness under 362(k) does not require a finding of a creditor's specific intent to violate the stay. (Citations omitted.) The Defendant admits receiving notice of the bankruptcy filing when it received the Notice of 341 Meeting of Creditors on May 5, 2010. The Defendant also admits that it sent the Statement to the Plaintiff on June 14, 2010. With these admissions, I find that there are no genuine issues of material fact in this case. I find that the Defendant had notice of the bankruptcy filing when it mailed the Statement to the Plaintiff on or about June 14, 2010.

Since the Defendant admits it had notice of the bankruptcy when it sent the Statement, the question I must now decide is whether sending the Statement was a willful violation of the automatic stay. The Defendant has explained that it sent the Statement to the Plaintiff because she continues to conduct post-petition business with the Credit Union and has both a savings account and a line of credit. Mr. Kurtz, the Defendant's Asset Recovery Supervisor, stated in his Affidavit that monthly, the Defendant mails what it calls a combined statement to the Plaintiff, and its other customers. The combined statement outlines the activity and balances of the line of credit and the savings account. Paragraph 6 of the Affidavit states Defendant is unable to segregate loans from savings or checking accounts for purposes of mailing [s]tatements to Plaintiff or any other members of the Credit Union. Kurtz Aff. 6. Finally, Mr. Kurtz verified that the Statement was only sent when the Plaintiff's line of credit became past due, and clarified that the Defendant's system is programmed to forward one notice only, regardless of whether or not payment is tendered.

To further substantiate its position, the Defendant contends that it took several actions which demonstrate that it complied with the requirements of the automatic stay. Upon receipt of the Notice of the 341 meeting, the Defendant states that the Plaintiff's line of credit was immediately marked as no collection activity. The Defendant also reported the line of credit to the three major credit bureaus as included in a Chapter 13 bankruptcy. Finally, through the Defendant's internal procedures, the line of credit was charged off in July 2010.

In determining whether or not sending the Statement was a violation of the stay, the Defendant's other acts, which appear to be harmonious with the stay, are irrelevant to the analysis. Sending the Statement itself was either a violation of the stay, or it was not. The Statement is addressed to the Plaintiff and includes her member number; it is a preprinted form with several blank boxes for the computer to fill with the appropriate member specific information. The Statement indicates that payments are due monthly and it is dated 6/14/10. It states, Your account is 10 or more days past due. Please remit the amount due immediately. If you feel an error has been made please contact us. It further states a loan balance of 4809.76, that the last payment was made on 4/19/10, the loan paid through date is 5/25/10 and an amount due of 125.00. Finally, there is a line to indicate the amount paid and the form is perforated such that a Credit Union member may separate a portion of the statement to presumably return with a payment.

Tasked to evaluate the Statement, I conclude that it is, in part, an invoice demanding payment on the account. The Defendant's arguments that the Statement is a simple notice to keep the Plaintiff informed of the status of her account is unpersuasive. If the Statement were only an informative notice, it would not use the language, Your account is 10 or more days past due. Please remit the amount due immediately. Nor would it state 125.00 in the amount due box. Finally, if the Statement was only informative, and not for collection purposes, the computer would not have been triggered to send it only after when the Plaintiff's line of credit became past due as explained by Mr. Kurtz. I find that by sending the Statement to the Plaintiff, the Defendant violated the automatic stay under 362(a).

Similarly, the Defendant's position that it was necessary for the computer to send such statements to the Plaintiff, as it does all other customers, is unpersuasive. When considering the willfulness of acts which violate the stay, courts have rejected the so called computer did it defense. See In re Wingard, 382 B.R. 892, 902 (Bankr. W.D. Pa. 2008). Where there is actual notice of the bankruptcy, the defendant has the burden of proving that it took steps to prevent violations of the stay. See In re Rijos, 263 B.R. 382, 392 (1st Cir. BAP 2001). The computer did it defense has been characterized as a non-starter since intelligent beings still control the computer and could have altered the programming appropriately. In re McCormack, 203 B.R. 521, 524 (Bankr. D.N.H. 1996).

The supposed necessity in this case is of the Defendant's own creation; it arises because of the Credit Union's own internal policies and procedures. The Defendant has an obligation to shape its policies and procedures such that they are harmonious with the legal requirements placed upon it by the Bankruptcy Code and otherwise. Sophisticated commercial enterprises have a clear obligation to adjust their programming and procedures and their instruction to employees to handle complex matters correctly. McCormack, 203 B.R. at 525.

I find that the Defendant's act of sending the Statement to the Plaintiff was a willful violation as described in 362(k). Therefore, the Plaintiff is entitled to judgment as a matter of law on the issue of violation of the automatic stay. A hearing must still be held to determine if the Plaintiff is entitled to recover any damages.

Topic Questions:

1. Since the court in Butz rejected the computer made me do it defense and stressed that creditors have an obligation to shape their policies and procedures to make them harmonious with legal requirements such as the automatic stay, what recommendations should your supervising attorney pass along to the creditor/client regarding changes it needs to make to (1) its computerized records system, and (2) instructions to its employees regarding an alternative system for identifying accounts subject to the automatic stay and preventing even routine billing of such accounts?
2. Even where a creditor has policies and procedures in place designed to avoid violating the stay, inadvertent violations can occur, giving rise to the issue of whether the creditor should be deemed to have acted willfully. Should oops be a defense in the following scenarios?
   • ABC Collection Company purchases charged-off consumer debt and quickly files suit to obtain judgment, usually by default. ABC uses Quick Serve, Inc., to achieve service of process on defendants in its collection lawsuits. ABC has in place a policy and procedures to pull unserved process for debtors upon receipt of notice of their filing for bankruptcy so that process is not delivered to Quick Serve for service on those debtors. Where process has already been delivered to Quick Serve when notice of bankruptcy filing is received the procedure is to immediately contact Quick Serve by phone and e-mail to prevent service of process that would violate the automatic stay. Today, ABC receives notice that Martha Jones has filed a case in Chapter 7. The procedures are followed but her process papers cannot be located in the office. On the assumption that the process papers have already been forwarded to Quick Serve, ABC contacts Quick Serve, notifies it of the bankruptcy filing, and instructs it to not serve Martha. Quick Serve acknowledges receipt of the information but thereafter has Martha served with process. Has ABC violated the stay? See In re Kinsey, 349 B.R. 48, 52 (Bankr. D. Idaho 2006).
   • Fast Collect Corp. has purchased a debt owed by Mike P. Campion and has filed suit against him to collect it. While the collection suit is pending, Fast Collect receives notice that Michael P. Campion has filed a petition in Chapter 7. Using its recently updated software system, it notes the Michael P. Campion bankruptcy filing in its Mike P. Campion file and the collection lawsuit is stayed. Three months later Fast Collect purchases another debt owed by Michael P. Campion. When the new account is entered into Fast Collect's computer system, it does not find a match with the Mike P. Campion file because the software searches only for similarities between last names and the first three letters of the first name. Not recognizing that Michael P. Campion is the same person as Mike P. Campion and is in a Chapter 7 case, Fast Collect files suit against Campion. Has Fast Collect violated the stay? See In re Campion, 294 B.R. 313 (9th Cir. B.A.P. 2003).
3. The Butz court says that a violation of the automatic stay occurs only where the creditor commits the willful act with knowledge of the automatic stay. The creditor in Butz admitted to having actual knowledge of the bankruptcy filing prior to the statement being sent and as a commercial lender clearly knew that such filing triggered the automatic stay. But there can be disputes regarding whether a creditor has the requisite knowledge to substantiate a finding of violation.
   • Is it a defense if the creditor knows that a bankruptcy petition has been filed but is not familiar with the automatic stay? See In re Wagner, 74 B.R. 898 (Bankr. E.D. Pa. 1987).
   • Is it a defense if a creditor hears through the grapevine that a debtor has or may have filed for bankruptcy relief but the creditor has not received any official notice from the debtor or the bankruptcy court? See In re Rhyne, 59 B.R. 276 (Bankr. E.D. Pa. 1986), and In re Flack, 239 B.R. 155, 163 (Bankr. S.D. Ohio 1999).
   • Is it a defense if a creditor learns of a debtor's bankruptcy filing but continues collection efforts after an attorney tells him (mistakenly) that the automatic stay does not go into effect until formal notice is received from the court? See In re Ashby, 36 B.R. 976 (Bankr. D. Utah 1984).
   • Is it a defense if a creditor continues collection efforts after learning of a debtor's bankruptcy filing but does so believing in good faith that his debt is not one subject to the automatic stay and in fact the law is sharply divided on the point? See United States v. Norton, 717 F.2d 767 (3d Cir. 1983), and In re Wilson, 19 B.R. 45 (Bankr. E.D. Pa. 1982).
   • Is it a defense if the debt that is owed to the creditor is a nondischargeable debt such as a student loan? See In re Walker, 336 B.R. 534 (Bankr. M.D. Fla. 2005), but compare In re Billingsley, 276 B.R. 48, 53 (Bankr. D.N.J. 2002).
   • Is it a defense if the creditor itself has no knowledge of the bankruptcy filing but an agent or affiliate of the creditor does when the willful act occurs? See Green Tree Servicing, LLC v. Taylor, 369 B.R. 282 (Bankr. S.D. W. Va. 2007) (attorney of creditor given notice), and Haile v. New York State Higher Educ. Servs. Corp., 90 B.R. 51, 55 (Bankr. W.D.N.Y. 1988) (collection agency retained by creditor given notice).

Reflection Questions:

1. What specific knowledge and information did you gain from the learning materials and activities that you can apply to your experiences now? In the future?
2. What are the social and ethical issues involved with the subject matter of this assignment?
3. Which topics were confusing, complicated or contradictory? Why? Did you ask the class or instructor for assistance?