Memorandum Decision

Original Filed April 10, 2000

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re Case No. 98-53559-ASW Guetatchew Fikrou, Chapter 13 Debtor, Adv. Proc. No. 98-5268 Guetatchew Fikrou, Plaintiff, vs. Vinod Sarup, Glendale Federal Bank, Verdugo Trustee Service Corporation, Defendants.

MEMORANDUM DECISION
Chapter 13 Debtor Guetatchew Fikrou ("Debtor") initiated this adversary proceeding after his real property was foreclosed upon in violation of the automatic stay of 11 U.S.C. 362. In his complaint, Debtor names as Defendants California Federal Bank, a Federal Savings Bank (successor by merger to Glendale Federal Bank)("California Federal"), the foreclosing creditor; Verdugo Trustee Service Corporation ("Verdugo"), California Federal's foreclosure agent; and Vinod Sarup, the purchaser at the foreclosure sale. The complaint asserts against all Defendants the following claims: (1) "willful" violation of the stay under 362(h), entitling Debtor to actual and punitive damages; and (2) intentional infliction of emotional distress. The complaint also alleges a third claim against California Federal and Verdugo only: breach of the covenant of good faith and fair dealing. This matter was tried before the Court. Rhonda L. Nelson, Esq. and Gregory C. Nuti, Esq. of the law firm of Severson and Werson represented Defendants California Federal and Verdugo while both Debtor and Defendant Sarup appeared in propria persona. At the close of trial, all three Defendants moved to dismiss Debtor's complaint, which this Court granted subject to a written memorandum decision. The following decision constitutes this Court's findings of fact and conclusions of law, pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure. Herein, this Court finds that: (1) Defendant Sarup was not guilty of a "willful" violation within the meaning of 362(h); (2) if Defendants California Federal and Verdugo were guilty of a "willful" violation within the meaning of 362(h), then such violation was unintentional and in good faith, and, in any event, Debtor has not proven any actual or punitive damages; (3) Defendants' conduct did not rise to the level of outrageous conduct required to prove a claim for intentional infliction of emotional distress; and (4) neither California Federal nor Verdugo breached the covenant of good faith and fair dealing. STATEMENT OF FACTS On December 15, 1989, Debtor executed a promissory note in favor of California Federal in the amount of $184,000.00. As security for this note, California Federal received a first Deed of Trust on Debtor's rental property, located at 242 Herlong Avenue in San Jose, California ("Herlong Property"). Subsequently, on December 21, 1989, California Federal properly recorded its Deed of Trust in the Recorder's Office of Santa Clara County. Debtor defaulted under the loan on September 18, 1997. The very same day, California Federal issued a Notice of Default and provided Debtor with notice of a Trustee's Sale which was to be held on January 21, 1998. On January 20, 1998, the eve of the Trustee's Sale, Debtor filed for relief under Chapter 13 of the Bankruptcy Code. In his schedules, Debtor properly listed California Federal as a secured claimant, holding a first Deed of Trust on the Herlong Property. Pursuant to Debtor's motion, the Chapter 13 case was subsequently converted to Chapter 7 on February 3, 1998. California Federal filed a Motion for Relief from Stay in the converted case shortly thereafter on March 11, 1998. Attached to its motion, California Federal included a Relief from Stay Cover Sheet, which stated, among other things, that a Notice of Default had been filed on September 18, 1998. However, the cover sheet failed to provide that California Federal had continued the date of the Trustee's Sale from its original date of January 20, 1998. Instead, in the space designated for the Notice of Trustee's Sale, the letters "n/a," an abbreviation for "not applicable," had been typed in. Accompanying the motion was a declaration by California Federal's Bankruptcy Specialist Brenda Duncan. It, too, indicated that a Notice of Default had been filed, but did not mention that the Trustee's Sale had been continued. California Federal's Relief from Stay Motion was heard on March 25, 1998 before this Court. Kurt Jaenike, Esq. ("Jaenike") appeared on behalf of California Federal and Debtor appeared in pro per. Jaenike alleges that he inadvertently misrepresented the status of the postponed Trustee's Sale at the hearing. This misrepresentation, along with the cover sheet and declaration, served to create the false impression that no sale was pending. Unaware of the error, this Court granted relief from the automatic stay to California Federal and specifically provided that it could record a Notice of Trustee's Sale, with the proviso that no sale was to be consummated before May 6, 1998. On May 9, 1998, Debtor received a discharge in his Chapter 7 case. Debtor filed a second Chapter 13 case on May 5, 1998. Once again, California Federal filed a Motion for Relief from Stay on June 2, 1998. The cover sheet accompanying the motion was virtually identical to the one prepared for the March 25, 1998 hearing: it provided that a Notice of Default had been recorded on September 18, 1997 and had the letters "n/a" typed in the space designated for the Notice of Trustee's Sale. The Relief from Stay Motion was heard on June 17, 1998 before this Court. Debtor again appeared in pro per and Benjamin Levinson, Esq. ("Levinson"), representing California Federal, made a special appearance on behalf of Jaenike. No affirmative oral misrepresentation was made by California Federal's counsel, Levinson, at the hearing; the subject of whether a Trustee's Sale was pending was never discussed directly. However, based on the cover sheet, this Court was of the impression that no Trustee's Sale was pending, and there was no other contrary evidence to disabuse this Court of such a notion. At the hearing, this Court granted California Federal relief from the automatic stay, but stayed the effectiveness of the order until July 6, 1998, provided that Debtor made a $700 payment in certified funds to Levinson's office by June 18, 1998. The Court ruled that the stay would expire on July 6, 1998, at which time California Federal could foreclose on the Herlong Property. On June 20, 1998, an order was entered reflecting this Court's ruling ("June 20th Order"). Debtor tendered the $700 payment on June 17, 1998, thereby avoiding any immediate foreclosure by California Federal. However, in anticipation of the expiration of the stay on July 6, 1998, California Federal scheduled a Trustee's Sale to be held at 1:00 p.m. on the same day. On July 2, 1998, four days prior to the sale, Debtor filed an application for an Order Shortening Time, which this Court granted. Accompanying this application was a motion to modify the June 20th Order, which Debtor based on California Federal's alleged misrepresentations at the June 17, 1998 hearing regarding the status of the Trustee's Sale. In preparing the application and motion, Debtor employed the services of Stanley Zlotoff, Esq. ("Zlotoff"), with whom the Debtor had consulted a few weeks prior to the filing of the application. Zlotoff telephoned Jaenike's office on July 2, 1998 to inform him of the upcoming hearing on Debtor's motion, which was scheduled for July 6, 1998. In so doing, Zlotoff learned that Jaenike's office had recently moved to a new location: from 1655 North Main Street, Suite 250, Walnut Creek, California to 1501 North Broadway, Suite 210, Walnut Creek, California. Zlotoff informed Debtor of this fact and, on the same day, Debtor called Jaenike's office and spoke with Jaenike's secretary, Kimberly Flores ("Flores"). Flores asserts that she first spoke with Zlotoff, who noted the change of the office's address, phone number and fax number. She also claims to have given Debtor the same information, and that this enabled Debtor to fax his "Notice of Motion for An Order Shortening Time" to Jaenike's office on July 2, 1998. Debtor agrees that he called Flores on July 2, 1998 to inquire about the change of address. However, he alleges that Flores incorrectly indicated that the office's address had changed to 1501 North Broadway, Suite 250, Walnut Creek, California, 94596 rather than 1501 North Broadway, Suite 210, Walnut Creek, California. On July 6, 1998, a few hours before the scheduled Trustee's sale, Debtor's application to modify the June 20th Order was heard before this Court. Zlotoff made his first appearance on behalf of Debtor and Jaenike appeared on behalf of California Federal. At the hearing, this Court learned of the inaccuracies in the cover sheets which California Federal had prepared for its two Relief from Stay Motions -- heard on March 25, 1998 and June 17, 1998, respectively. This Court noted that, although both indicated that no Trustee's Sale was pending, California Federal had in fact been continuing the originally scheduled sale date of January 21, 1997 from time to time. This Court also noted that Debtor was receiving monthly rental income of $1600 from the property and, because he was unemployed, using it as his sole means of support. Based on the foregoing, this Court enjoined the Trustee's Sale, which had been scheduled to proceed at 1:00 p.m. on that day. This Court then re-imposed the stay and modified the June 20th Order, on the condition that Debtor tender, in certified funds, the following payments to Mr. Jaenike's office: $700 by July 10, 1998; $1400 by August 17, 1998; and $1431 by September 18, 1998. The Court further indicated that the stay would expire on September 16, 1998, at which time California Federal would have "...full relief [from stay]." Finally, the Court noted that "if [Debtor] doesn't pay, Mr. Jaenike can do a declaration." Zlotoff agreed to prepare an order reflecting this Court's ruling. On July 7, 1998, Debtor faxed a proposed order ("July Order") which he said he had prepared with the assistance of Zlotoff, and which Zlotoff had also signed. This order was faxed to Jaenike's new fax number, along with Debtor's letter requesting clarification on where to make the Court-ordered payments. Jaenike did not respond directly to Debtor's inquiry; rather, he faxed Debtor's letter to Zlotoff's office, with a notation that all payments had to be received in Jaenike's office. The July Order provided in relevant part: IT IS HEREBY ORDERED that as to the real property located in the County of Santa Clara, commonly known as 242 Herlong Avenue, San Jose, California, and particularly described as follows:.... ...that the automatic stay provisions of 11 U.S.C. section 362 that was due to be terminated on July 6, 1998 is reimposed and no Trustee's Sale of the said property shall take place provided that Debtor pay by certified funds the mortgage payment as follow[s]: a) $700.00 by Friday 7/10/98; b) $1431.00 by 8/17/98; c) $1431.00 by 9/18/98. IT IS FURTHER ORDERED that in the event of failure to timely pay the aforesaid amounts Glendale Federal Bank shall be entitled to automatic relief from stay upon the declaration of their counsel. Glendale Federal Bank shall have full relief from stay effective September 16, 1998.... Debtor alleges that he received no direct response from Jaenike about where to send the payments; instead, he had to rely on Zlotoff's communications with Jaenike. As a result, he claims that he first learned that payments had to be tendered to Jaenike's office, on July 9, 1998, after Zlotoff had spoken with Jaenike and then alerted Debtor. Later that day, Debtor called Jaenike's office to "confirm" the new address to which the payments were to be sent. Once again, Debtor spoke with Flores, whom Debtor alleges repeated the same incorrect address which she had given him on July 2, 1998: 1501 North Main Street, Suite 250, Walnut Creek, CA 94596. Debtor testified that he mailed a United States Postal money order in the amount of $700 around 2:26 p.m. on July 9, 1998 to this address. Debtor produced a copy of this money order and testified that it was not returned to him. On July 14, 1998, Debtor testified that he called Jaenike's office to inquire about the status of his case and was informed by Flores that no money order had been received. On July 16, 1998, Jaenike filed a declaration with the Court in which he alleged that Debtor had failed to tender the $700 payment by July 10, 1998 in accordance with the July Order. Jaenike testified that he mailed his declaration to both Debtor and //// //// Zlotoff on July 13, 1998, three days prior to filing it. Believing that the order was self-executing upon the filing of the declaration, Jaenike then advised California Federal that the stay was no longer in effect and that it could proceed to obtain possession of the Herlong Property. California Federal notified Verdugo which in turn scheduled a Trustee's sale for July 22, 1998 at 1:00 p.m. At 1:00 p.m on July 22, 1998, a Trustee's Sale of the Herlong Property was held, with Sarup emerging as the successful bidder. Sarup testified that the sale was delayed for one hour. Having purchased properties at foreclosure sales in the past, Sarup testified that he was aware that delays in foreclosure proceedings were common for a variety of reasons, including bankruptcy. However, Sarup testified that he was not personally acquainted with Debtor and had no knowledge of Debtor's bankruptcy. Moreover, he testified that he did not have actual knowledge that bankruptcy was the cause for the delay on this particular occasion. Debtor testified that he did not know of the Trustee's Sale until several hours after the sale, when he contacted Jaenike's office and learned that the property had been sold to Sarup. Debtor also testified that on the date of the sale, Maximo Raes ("Raes"), then the tenant at the Herlong Property, informed him that Sarup had served him with a Notice to Terminate Tenancy within 30 days. Debtor then contacted Sarup and informed him of the bankruptcy and Debtor's belief that the sale had been conducted in violation of Debtor's stay. Sarup testified that he contacted Jaenike who told him that sale had been properly conducted based on the July Order, a copy of which Sarup asked for and received. On July 31, 1998, Debtor arrived at the Herlong Property, intending to collect rent from Raes. At about the same time, Sarup arrived at the property and requested that Debtor vacate the premises. In Debtor's presence and (according to Debtor) that of his children, Sarup instructed Raes to pay rent to Sarup only and not to Debtor. On October 5, 1998, after having reached a settlement with Sarup, California Federal voluntarily rescinded the Trustee's Sale by recording a Notice of Rescission in the Santa Clara County Recorder's Office. On October 27, 1998, Debtor spoke with Jaenike and learned that Sarup had collected only $1300 in rent for the month of August, $300 less than the rent required by the lease agreement. Jaenike also informed Debtor that Debtor could collect the full rent due (i.e., $1600/month) for September and October, which Debtor did on October 27, 1998 and November 6, 1998, respectively. APPLICABLE LAW I. "WILLFUL" VIOLATION OF THE AUTOMATIC STAY UNDER 362 The filing of a bankruptcy petition triggers the automatic stay provision of 362, which grants Debtor a respite from dunning creditors as well as from any attempts to appropriate Debtor's property or interests therein. The legislative history indicates that the stay is one of the chief protections of bankruptcy and one which must be zealously safeguarded: The automatic stay is the fundamental protection provided to debtors by the bankruptcy code. It gives debtors a breathing spell from creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits debtors to attempt a repayment plan, or simply to be relieved of the financial pressures that drove them into bankruptcy House Report. No. 95-595, 95th Cong., 1st Sess. 340-2 (1977); Senate Report No. 95-989, 95th Cong., 2d 54-55 (1978); reprinted in 1978 U.S. Code Cong. & Ad. News at 5787, 5840-41 and 6296-97), quoted in In re Sansone, 99 B.R. 981, 984 (Bankr. C.D. Cal. 1998) ("Sansone"). To ensure that the protections afforded by the automatic stay remain inviolate, Congress provided that willful violators under 362(h) could be subject to both actual and punitive damages: An individual injured by any willful violation of the stay provided by this section shall recover actual damages, including costs and attorney's fees, and, in appropriate circumstances, may recover punitive damages. The term "willful" is not defined in 362(h), nor can any definition be found in the Code or the legislative history of that section. Instead, a definition of "willful" has evolved through the case law. Under the well-established Ninth Circuit precedent of In re Bloom, 875 F.2d 224, 227 (9th Cir. 1989) citing In re INSLAW, Inc. , 83 B.R. 89, 165 (Bankr. D.D.C. 1988): A "willful violation" [under  362(h)] does not require a specific intent to violate the automatic stay. Rather, the statute provides for damages upon a finding that the defendant knew of the automatic stay and the defendant's actions which violated the stay were intentional. The Bloom case offers a bright-line test which has been strictly upheld by the Ninth Circuit Bankruptcy Appellate Panel ("BAP") for determining whether a violation is "willful". Under Bloom, once notice of a bankruptcy filing is received, any act in violation of the stay is willful for purposes of 362(h), regardless of whether the willful violator understands the act's significance or believes that he is entitled to commit it. "Whether the party believes in good faith that it had a right to the property is not relevant to whether the act was 'willful.'" Bloom, 875 F.2d at 227. For example, in In re McHenry, 179 B.R. 165, 167 (9th Cir BAP 1995)("McHenry"), the BAP held that creditor's repossession of debtors' vehicle without relief from stay was a "willful" violation even though notice of the filing was misplaced and, therefore, creditor's employee did not know the stay was in effect. The fact that debtors had orally stated their intention not to reaffirm the debt secured by the vehicle and fully intended to surrender the vehicle to creditor was also irrelevant for purposes of finding a "willful" violation. Instead, the BAP reaffirmed the Bloom standard, holding that "[362] provides for damages upon a finding that the defendant knew of the automatic stay and that the defendant's actions which violated the stay were intentional." Id. at 167. Similarly, in In re Bulson, 117 B.R. 537 (9th Cir. BAP 1990), aff'd, 974 F.2d 1341 (9th Cir. 1992)("Bulson"), the BAP found that the Internal Revenue Service ("IRS") -- which had participated in and was therefore on notice of debtor's bankruptcy -- willfully violated the stay when it mailed a collection notice to debtor without receiving relief from stay. There, the BAP rejected a defense of good faith mistake which was based on an IRS technician's erroneous belief that, at the time of the mailing, the stay had been terminated: "[t]he fact that the IRS might have been mistaken about the status of the case, or believed it had a right to execute on the debtor's property does not make the act of collection non-willful." Id. at 539. See also Sansone, 99 B.R. at 987 ('good faith' mistakes of law or 'legitimate disputes' as to legal rights will not relieve a willful violator of the consequences of the act). Finally, in In re Taylor, 884 F.2d 478 (9th Cir. 1989) ("Taylor"), creditor proceeded with a foreclosure sale during debtor's second bankruptcy, in part relying on counsel's advice that a court order in debtor's first bankruptcy had provided prospective relief from the stay in debtor's second bankruptcy. Finding that creditor was obliged to seek relief from stay in debtor's second bankruptcy, the Ninth Circuit held that the foreclosure violated the stay and that such a violation was "willful" within the meaning of 362(h). A central notion underlying the above cases is that the stay is a safe harbor, which must not be buffeted by the imprudence and impatience of creditors to satisfy their claims. As stated in In re Pace, 159 B.R. 890, 901 (9th Cir. BAP 1993), "a party takes a calculated risk when it undertakes to make its own determination of what the stay means." A. RECOVERY OF DAMAGES UNDER 362(h) Under 362(h), a willful violation is a prerequisite to an award for either actual or punitive damages. Therefore, even in the face of a willful violation, 362(h) offers debtor no remedy without a showing of loss or injury. See In re Weisberg, 193 B.R. 916, 927 (9th Cir. BAP 1996)(award of damages to debtor who suffered no damage or loss was inappropriate even if technical violation of stay was willful); McHenry, 179 B.R. 165, 168-69 (a showing that debtors were inconvenienced and annoyed did not constitute actual damages). Where a willful violation is shown, actual damages include those damages proximately-related to restoring the status quo upset by the stay violation. "'[T]he Ninth Circuit has held that an individual injured by willful automatic stay violations shall recover damages clearly traceable to such stay violations whether or not those damages are incurred before or after the automatic stay terminates under 11 U.S.C.  362(c).'" In re Walsh, 219 B.R. 873, 879 (9th Cir. BAP 1998)(Ryan, J., concurring) quoting In re Fingers, 170 B.R. 419, 426 (S.D. Cal. 1994). Such actual damages and costs, where proven, are mandated by 362(h), and a court is without discretion to refuse a successful litigant those damages. "The words 'shall recover' indicate that Congress intended that the award of actual damages, costs and attorney's fees be mandatory upon a finding of a willful violation of the stay." In re Ramirez, 183 B.R. 583, 589 (9th Cir. BAP 1995) ("Ramirez"). Conversely, the decision to grant or deny punitive damages based on a willful violation under 362(h) is within the sound discretion of the court, and depends on several factors. First, actual damages must be proven. "The incurrence of actual damage, a measurable event, serves as a basis for a determination of an appropriate punitive damage award. Where there is no actual damage, such measure does not exist." McHenry, 179 B.R. at 168. Secondly, even where actual damages are proven, "[p]unitive damages will be awarded only if defendant's conduct was malicious, wanton or oppressive." Ramirez, 183 B.R. at 590. See also Sansone, 99 B.R. at 989-90 (no punitive damages warranted against creditor who relied in good faith on advise of counsel); McHenry, 179 B.R. at 168 (although willful, technical violation did not constitute egregious, intentional misconduct required for award of punitive damages). Finally, a court should refrain from awarding punitive damages where there is no need to deter the wrongdoer from repeating the behavior which willfully violated the stay. "Punitive damages are not intended to compensate an injured party; they are by definition meant to punish wrongful action which was intentional or malicious, and to deter the wrongdoer or others from similar conduct." Sansone, 99 B.R. at 987. II. BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING California contract law implies a covenant of good faith and fair dealing in every contract requiring that neither party to a contract do anything which will deprive the other of the benefits of the agreement. Seaman's Direct Buying Serv. v. Standard Oil Co. of Cal., 36 Cal. 3d 752, 768, 686 P.2d 1158, 1166, 206 Cal. Rptr. 354, 362 (1984). Under California law, a breach of this covenant cannot constitute an independent tort except in the context of an insurance contract or an independent duty arising from tort law. Freeman & Mills, Inc. v. Blecher Oil Co., 11 Cal. 4th 85, 900 P.2d 669, 44 Cal. Rptr. 2d 420 (1995)("Freeman"). III. INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS Generally, a plaintiff "incurring neither physical impact nor physical damage, and whose loss (other than emotional distress) is solely economic, is entitled neither to punitive damages nor to a recovery for emotional distress." Yu v. Signet Bank/ Virginia, 69 Cal. App. 4th 1377, 82 Cal. Rptr. 2d 304 (1999). However, California law provides an exception to this general rule, permitting recovery for intentional infliction of emotional distress, even absent a showing physical injury or monetary loss, where plaintiff can show each of the following elements: (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff's suffering severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by defendant's outrageous conduct. Davidson v. City of Westminster, 32 Cal. 3d 197, 209, 649 P.2d 894, 185 Cal. Rptr. 252, 258 (1982)("Davidson"). The most contentiously litigated of the three elements is the first; namely, what constitutes "outrageous" conduct. Generally, outrageous conduct is that which is "so extreme as to exceed all bounds of that usually tolerated in a civilized community." Davidson, 32 Cal. 3d at 210, 649 P.2d at 901, 185 Cal. Rptr. at 259. Whether conduct is deemed to be outrageous is largely determined on a case-by-case basis. However, it is clear that not all conduct that is undesirable is outrageous. See Cochran v. Cochran, 65 Cal. App. 4th 488, 495, 76 Cal. Rptr. 2d 540, 544 (1998)(tort of intentional infliction of emotional distress does not extend to "mere insults, indignities, threats, annoyances, petty oppressions, or other trivialities"). The law offers no recompense for hurt feelings or wounded pride; to be legally compensable, the hurt complained of must be such that "recitation of the facts to an average member of the community would arouse his resentment against the actor, and lead him to exclaim, 'Outrageous!'". KOVR-TV, Inc. v. Superior Court, 31 Cal. App. 4th 1023, 1028, 37 Cal. Rptr. 2d 431 (1995). ANALYSIS I. IF DEFENDANTS GLENDALE FEDERAL AND VERDUGO AND "WILLFULLY" VIOLATED DEBTOR'S STAY WITHIN THE MEANING OF  362, IT WAS AN UNINTENTIONAL,GOOD FAITH VIOLATION ONLY; SARUP DID NOT WILLFULLY VIOLATE THE STAY. Debtor's first claim asserts that all three Defendants willfully violated the automatic stay: California Federal and Verdugo, by proceeding with the foreclosure sale without first seeking relief from stay; and Sarup, by purchasing at the sale while allegedly on notice of Debtor's bankruptcy. This Court has already determined that the foreclosure sale of the Herlong Property violated Debtor's automatic stay; this is reflected in the Court's post-sale ruling on August 26, 1998. Indeed, California Federal conceded the fact of the violation by voluntarily rescinding the sale on October 5, 1998. However, not every stay violation is willful within the meaning of 362(h), and this Court will examine whether the instant stay violation caused by the improper foreclosure sale was willful. Debtor relies heavily on Ninth Circuit precedent holding that a willful violation under 362 requires no specific intent to violate the stay, merely knowledge of the stay and deliberate acts which lead to its violation. Debtor alleges that, at the time of the foreclosure sale, California Federal knew of Debtor's bankruptcy and that it did not have relief from the stay in the form of a court order. Therefore, he argues that when California Federal directed Verdugo to foreclose on the Herlong Property, it satisfied the two-pronged Bloom test of a willful violation: knowledge of the bankruptcy and deliberately setting in motion acts which violated the stay. He also urges this Court to disregard California Federal's defense regarding its reliance on Jaenike's "good faith" interpretation of the July Order. In its defense, California Federal urges this Court to view the recent Supreme Court decision in Kawaauhau v. Geiger, 523 U.S. 57 (1998)("Geiger") as establishing a new definition of willfulness, which requires the violator to intend not simply the act, but also the consequences flowing from the act. Applying this definition to the facts of the instant case, California Federal argues that its violation of the stay was not willful because it did not intend to violate Debtor's stay, although the acts which led to the violation were themselves deliberately taken. California Federal's reliance on Geiger is misplaced, and the holding of the case is not so broad as California Federal's argument suggests. Rather than announcing a new definition for willfulness under 362, Geiger dealt with the issue of whether a debt arising from a medical malpractice judgment, based on negligent or reckless conduct, was non-dischargeable as a debt for "willful and malicious injury" under 523(a)(6). Geiger does not concern the definition of willfulness under 362; indeed, it does not deal with violation of the 362 stay at all. Without a clear indication that the Supreme Court intended to overrule well- established precedent, this Court declines to adopt the Geiger definition of willfulness in this context. In the alternative, California Federal argues that it relied in good faith on Jaenike's advice regarding the effectiveness of the July Order, and that there was no intent to violate Debtor's stay. Even if accepted, however, this argument would not shield California Federal or Verdugo from a finding of willfulness. Under Bloom and its progeny, willfulness requires no specific intent; therefore, even good faith violators of the stay are not immune from a finding of willfulness. To understand how the violation of the automatic stay arose in this case requires a review of this Court's general practice regarding relief from stay motions. In the absence of an agreement by counsel or the grant by the Court of full relief from the stay, the Court typically issues an order requiring the debtor to make adequate protection payments to the creditor. If the debtor fails to make the required payments, the creditor typically is entitled to submit and to obtain a second order from the Court granting it full or partial relief from the stay without further hearing. To obtain that second order, the creditor must file with the Court and serve on the debtor and debtor's counsel a declaration stating that the debtor defaulted under the terms of the adequate protection order, and if notice of default was required by the order, that notice was given and that Debtor failed to cure the default within the period set forth in the adequate protection order; the creditor also submits a new order granting creditor full relief from the automatic stay (or more limited relief if that is what the adequate protection order provides). Jaenike's misunderstanding as to the Court's intention with respect to the July order probably occurred, at least in part, because the Court used a shorthand form to describe its general practice for issuing adequate protection orders, when it stated on the record: Mr. Jaenike has full relief effective September 16th [1998]; the order is modifiable if there is a bona fide escrow that will pay Mr. Jaenike in full. But [Debtor] can't keep the rents and not pay the mortgage; but the stay otherwise expires. There is no notice [required] here because the money is going to Mr. Jaenike. He [Debtor] either pays or he doesn't . . . if he does not pay, Mr. Jaenike can do a declaration. What the Court meant by its remarks was that if the Debtor did not pay as ordered, Jaenike could file and serve on both Debtor and Zlotoff a declaration stating that Jaenike had not received the required adequate protection payments along with a proposed new form of order granting California Federal full relief from the stay, together with a proof of service of those documents on Debtor and on Zlotoff and, upon receipt of the above, the Court would sign the new order granting full relief from the stay to California Federal. What happened then was that Debtor and (perhaps with the assistance of Zlotoff - who appeared on behalf of Debtor at the July hearing) drafted and forwarded to Jaenike the July order, which, as quoted earlier in this Memorandum Decision, provided that ". . . in the event of failure to timely pay the aforesaid amounts Glendale Federal Bank shall be entitled to automatic relief from stay upon the declaration of their counsel." The Order was probably drafted by Debtor, as it was prepared on Debtor's stationery, not Zlotoff's. Jaenike signed the July Order, although he realized when he received it that it deviated from the standard adequate protection orders issued by this Court. Jaenike testified as follows: Debtor: Isn't it standard to file an order with the court [instead of proceeding with a Trustee's Sale based on a declaration]? Jaenike: In my opinion, the order that was issued at the July 13 hearing was self-executing. The order said, 'file a declaration of default and the stay was terminated.' That's what the order stated. Debtor: Looking back, do you feel that this was in error? Jaenike: I think typically if it is a regular relief from stay motion....a lot of times Judge Weissbrodt wants you to file an ex parte application and proposed order. In this case, it was modifying an existing order for relief from stay. I frankly did believe that the order was drafted a little awkwardly, but your attorney drafted it and I approved it. And I thought it accurately represented what the court ordered on that date [emphasis added]. So Debtor, and perhaps Zlotoff, contributed to Jaenike's misunderstanding by preparing and forwarding an order to Jaenike that they apparently either later did not think was the correct order of the Court, or they thought at the time that their proposed order somehow incorporated the Court's normal practices with regard to such orders. Zlotoff and Jaenike were at the time both regular practitioners in this Court on relief from stay calendars (it is the Court's understanding that Jaenike may have since ceased practicing this type of bankruptcy law). Nevertheless, the Court finds that Jaenike's interpretation of the July order, drafted by Debtor and/or Zlotoff, was reasonable. Indeed, probably the most reasonable interpretation of the language of that order was that it allowed for immediate relief from stay upon the filing of the declaration of default by Jaenike. So Jaenike acted in good faith in construing an order of the Court drafted by the Debtor and his lawyer and California Federal followed Jaenike's advice. Under such circumstances, it is problematic to say that California Federal "willfully" violated the stay. The instant case is distinguishable from Bloom and its progeny. Without exception, those cases involved creditors who proceeded, independently of court guidance and despite knowledge of the bankruptcy, to decide the scope of the stay and whether particular acts fell outside its parameters. For example, in McHenry the creditor determined that because debtors had orally communicated their intent to surrender their vehicle, the act of repossession was not a violation of the stay. Similarly, the creditor in Bulson, on being informed that debtor's Chapter 13 plan was completed, interpreted this to mean that the stay had been lifted. In Taylor, creditor proceeded with a foreclosure sale during debtor's second bankruptcy, based on its interpretation of an order in debtor's first bankruptcy, which creditor interpreted as providing for prospective relief. A key fact common to all of these cases is that the creditor, and not the bankruptcy court, made the initial determination of the automatic stay's reach. The evils inherent in allowing creditors to decide the scope of the automatic stay are apparent; rather than being deterred from committing acts violating the stay, creditors would be encouraged to resort to self-help. By contrast, the instant case is not one in which creditor first resorted to self-help; instead, California Federal sought court guidance, through the appropriate procedure of a Relief from Stay Motion, before foreclosing on the Herlong Property. The violation resulted from Jaenike's erroneous belief that the language of the July Order was susceptible to only one interpretation: that Debtor's noncompliance with any of its conditions would entitle California Federal, upon the filing of Jaenike's declaration, to immediate relief from the stay. Although this Court subsequently disagreed with Jaenike's interpretation, it is a reasonable one given the language of July Order. Furthermore, Debtor, perhaps with the assistance of his attorney, drafted this problematic Order. This is not a case in which the creditor drafted an order, deliberately misinterpreting a court ruling, with the purpose of circumventing the automatic stay. Accordingly, California Federal's violation of the stay may not have been "willful" within the meaning of 362(h); if on the other hand, California Federal's violation was "willful" under a strict reading of Bloom, then it was a purely technical unintentional violation. In either case, Debtor has proven no actual damages so the distinction as to whether the violation technically was or was not willful has no practical effect. If California Federal did not willfully violate Debtor's stay, this Court must find that Verdugo, too, did not commit a willful violation. As its loan servicing agent, Verdugo could not act independently of California Federal; whatever actions the latter took are attributable to the former. Turning next to Debtor's claim of willful violation against Sarup, this Court finds it lacking in merit. Debtor failed to prove that Sarup knew of the Debtor's bankruptcy filing before he purchased the Herlong Property at the foreclosure sale. Sarup's uncontroverted testimony was that he was unaware of Debtor's bankruptcy at the time of the sale. He testified that he knew nothing of Debtor's history with the other Defendants, nor of the particular circumstances surrounding the sale. On cross- examination by Debtor, Sarup admitted that there was an hour delay at the foreclosure sale due to some circumstance of which he had no personal knowledge, but which could conceivably have been caused by a bankruptcy-related problem. However, Sarup testified that, in his experience, such delays were common and not necessarily indicative of bankruptcy. Given that Debtor has not produced any evidence to the contrary, this Court finds that Sarup had no actual knowledge of Debtor's bankruptcy and, therefore, did not willfully violate Debtor's stay by purchasing the Herlong Property at the foreclosure sale. A. ABSENT A WILLFUL VIOLATION UNDER 362(h), DEBTOR CANNOT BE AWARDED ACTUAL OR PUNITIVE DAMAGES; HOWEVER, EVEN IF A WILLFUL VIOLATION OCCURRED, DEBTOR HAS SHOWN NO COMPENSABLE DAMAGES. Under 362(h), a willful violation is a prerequisite to an award for either actual or punitive damages. In the instant case, even if California Federal and Verdugo committed a willful violation of the stay, Debtor has not proven any actual or punitive damages. If California Federal, Verdugo and Sarup did not willfully violate Debtor's stay, Debtor's request for actual and punitive damages could be disposed of summarily. First, although Debtor asserts "lost wages, lost benefits, bonuses, fringe benefits, and lost employment opportunities," he provided absolutely no evidence to substantiate that he incurred any of these actual damages. As a pro per litigant, Debtor has incurred no attorney's fees. Neither has Debtor incurred any fees by initiating this adversary in his own bankruptcy. As for Debtor's assertions of lost wages and lost employment opportunities, Debtor's attorney represented that Debtor was unemployed and using the rental income from the Herlong Property for support as early as the July 6, 1998 hearing. There is no evidence before this Court that Debtor was employed at the time of the violation or at any time subsequent to it. Debtor's failure to prove any actual damages is also fatal to his claim for punitive damages. Although a punitive damages award is properly denied for this reason alone, there are additional reasons which militate against granting Debtor such an award in this case. First, Debtor has not shown that any of Defendants' actions, both preceding and following the foreclosure sale, were of such an egregious, wanton or malicious nature as to warrant an award for punitive damages. Rather the conduct complained of here stems from a violation that was merely technical in nature: California Federal and Verdugo relied in good faith on the advice of their counsel, Jaenike, who in turn misinterpreted the meaning of an Order drafted by Debtor and/or his attorney. As examples of particularly egregious conduct by California Federal, Debtor cites the misrepresentations on the March and June cover sheets, both of which failed to indicate that a Trustee's Sale had been continued from time to time. Jaenike testified that these misrepresentations were inadvertent and due to clerical error, which testimony this Court found to be credible and plausible. These omissions, standing alone, under the specific facts of this case do not constitute the malicious, egregious and wanton behavior which warrant an imposition of punitive damages under 362(h). Similarly, the actions taken by Sarup, both preceding and following the sale, did not rise to the level of egregious and wanton conduct. Debtor has two main complaints against Sarup. First, Sarup, after prevailing at the sale, directed the tenant at the Herlong Property to pay rent to him and not to Debtor. Secondly, after Sarup received the August rent (the only rental income which Sarup collected from the Herlong Property; Debtor collected all rents due thereafter), he failed to remit that payment to Debtor until some six months later, in April of 1998. However, standing alone, these acts do not constitute malicious, egregious or wanton conduct. Unaware of the bankruptcy at the time of the sale, Sarup was a bona fide purchaser who was entitled to collect rents from -- and preclude Debtor from interfering with - Sarup's newly acquired property. With respect to the less than immediate return of the August rent, Sarup, a non-lawyer, proceeded cautiously vis-a-vis the Debtor, relying on his understanding of Jaenike's instructions as to when the rent payment should be remitted to Debtor. A second reason militating against an award of punitive damages against either California Federal, Verdugo, or Sarup is that, where there is no need to deter the wrongdoer from repeating the offensive behavior, as is the case here, the justification for awarding punitive damages diminishes. Nothing here suggests that California Federal or Verdugo need to be deterred from committing future offensive behavior which violates the stay; rather, this is a case where Defendants floundered in their attempt to follow a problematic Order drafted by Debtor and/or his attorney. Once this Court determined that Defendants had misinterpreted the July Order, Defendants promptly and voluntarily rescinded the Trustee's Sale. Similarly, Sarup committed no offensive behavior for which deterrence is needed. Rather, Sarup purchased the Herlong Property with no knowledge of Debtor's bankruptcy in a non-collusive, bona fide sale. Accordingly, Debtor's request for actual and punitive damages against all three Defendants is denied. II. DEBTOR HAS NOT PROVEN THAT CALIFORNIA FEDERAL OR VERDUGO VIOLATED THE COVENANT OF GOOD FAITH AND FAIR DEALING. Debtor's second claim, asserted solely against California Federal and Verdugo, is for breach of the covenant of good faith and fair dealing. Debtor does not state whether he believes this claim sounds in contract or tort; however, under Freeman, no tortious remedy is available for breach of the covenant. Therefore, if Debtor has a remedy at all, it sounds only in contract. This Court finds, however, that Debtor's claim for the breach of the covenant of good faith and fair dealing is not meritorious. Alleging a breach of the covenant presupposes the existence of a contract, from which the covenant is derived. In this case, the only contract in evidence between California Federal and Debtor is the original promissory note. However, Debtor has not shown that California Federal and/or Verdugo undertook any actions which would unfairly deprive Debtor of benefits under the promissory note. What Debtor cites as examples of the covenant's breach, i.e., California Federal's "refusal" to allow him to keep the Herlong Property after default and its previous attempts to have the property sold, are perfectly permissible under the promissory note and state law. Once Debtor breached his duty to pay under the note, California Federal was not obligated to refrain from exercising its state law rights, except to the extent modified by Debtor's bankruptcy. Here, California Federal properly pursued its rights by initiating two relief from stay motions, one in each of Debtor's bankruptcies. In Debtor's second bankruptcy, it obtained the July Order, drafted by Debtor and/or his attorney, appearing to California Federal's attorney to permit California Federal relief from stay if Debtor failed to comply with the Order's terms. Although this erroneous interpretation lead to a violation of Debtor's stay, Debtor has not shown why such an interpretation deprived Debtor of any benefits under the promissory note. Debtor has not demonstrated that California Federal acted in bad faith in reliance on its counsel's reasonable interpretation of this Order or that it undertook any actions to deprive Debtor of his rights under the promissory note. Accordingly, this Court finds that Debtor has not proven that California Federal and/or Verdugo breached the covenant of good faith and fair dealing implicit in its promissory note with Debtor. III. NEITHER CALIFORNIA FEDERAL, VERDUGO NOR SARUP ARE GUILTY OF INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS. Debtor's third claim, asserted against all three Defendants, is for intentional infliction of emotional distress. With respect to Sarup, Debtor provides no evidence of any conduct which could properly be termed "outrageous." For example, Debtor testified that he was humiliated when, in view of his children, he attempted to collect rent from the Herlong Property tenant, but was rebuffed by Sarup. As a result, Debtor alleges that he had to borrow money from friends and family. However, Sarup's simple refusal to allow Debtor to collect rent from the Herlong Property, given his purchase of the property earlier that same day, is hardly outrageous. Even Debtor does not allege that Sarup employed obscene or inappropriate language in his refusal, or that Sarup, in any way, threatened either Debtor or his children. The fact that Sarup waited some six months to remit the August rent to Debtor, even after learning of a problem with the foreclosure sale, is likewise not "outrageous" conduct. This Court found that Sarup's testimony regarding his reliance on Jaenike's advise about the effect of the July Order to be credible; nothing here suggests that Sarup was proceeding other than on the good faith belief that Jaenike, an experienced bankruptcy attorney, knew what the law required. Similarly, with respect to California Federal and Verdugo, Debtor provides no evidence of any conduct which this Court finds "extreme" or "outrageous." As noted earlier, this is an example of a technical violation of the stay, one in which mistake and inadvertence on the part of California Federal's counsel, rather than malice, were to blame. The alleged misdeeds of California Federal which Debtor claims to be outrageous include: Jaenike's misrepresentations on the two cover sheets prepared for the March 25 and June 17 relief from stay hearings; Jaenike's "deliberate" mailing of his declaration (alleging non-receipt of the first payment required by the July Order) to Debtor at an incorrect address; and California Federal's attempts to (in Debtor's words) "force" Debtor to sell the Herlong Property. Each of these assertions, under the particular facts of this case, falls short of the outrageous conduct required to prove a claim for intentional infliction of emotional distress. First, this Court found credible Jaenike's testimony that the misrepresentations on both cover sheets resulted from inadvertence. There is nothing to suggest that Jaenike was deliberately attempting to mislead this Court; rather, it resulted from careless oversight on Jaenike's part. While unfortunate and regrettable, such oversights are not outrageous. Secondly, the mailing of Jaenike's declaration to Debtor at an incorrect address appears also to be the result of mistake and oversight, as to which Jaenike credibly and persuasively testified. On this point, too, the Court found does not find Jaenike's actions outrageous. Finally, California Federal's attempts to exercise its rights by trying, in Debtor's words, to "force" a sale of the Herlong Property is not outrageous. At the time of the sale, California Federal relied on the July Order, which Debtor and/or his attorney, had prepared, and which was obtained after two relief from stay hearings. Debtor argues that Jaenike's declaration was filed in bad faith and that Jaenike actually received the first payment due under the July Order, but disregarded receipt to "force" a sale. Other than his testimony that the mailed payment was not returned to him, however, Debtor has presented no evidence to support this claim. Contrary to Debtor's position, Jaenike testified that he never received the payment, which testimony this Court found to be credible and persuasive. Moreover, Debtor testified that, four days after the due date for the payment's receipt, he was told by Jaenike's secretary Flores that the payment had not been received by Jaenike's office. Therefore, this Court finds no evidence of such allegedly outrageous misconduct by Jaenike. CONCLUSION For the reasons stated herein, this Court denies all of Debtor's claims, to wit: (1) willful violation of the stay by Sarup, (2) damages for the violation of the stay by California Federal and Verdugo (no actual damages were proven); (3) breach of the covenant of good faith and fair dealing by California Federal and Verdugo; and (4) intentional infliction of emotional distress by California Federal, Verdugo and Sarup. Counsel for California Federal shall prepare and submit to the Court a form of judgment consistent with this Memorandum Decision after providing it to Debtor and Sarup for their review. Dated: ____________________________ ARTHUR S. WEISSBRODT UNITED STATES BANKRUPTCY JUDGE CANB DocumentsNorthern District of California