Court Opinion

ID: 4649864
Source: CourtListenerOpinion
Date Created: 2021-01-07 22:00:41.524719+00
Date Added: 2024-06-11T08:01:28.272295
License: Public Domain

FILED
                                                                             JAN 7 2021
                           NOT FOR PUBLICATION
                                                                       SUSAN M. SPRAUL, CLERK
                                                                          U.S. BKCY. APP. PANEL
                                                                          OF THE NINTH CIRCUIT

              UNITED STATES BANKRUPTCY APPELLATE PANEL
                        OF THE NINTH CIRCUIT

In re:                                                BAP Nos. NV-20-1057-BGTa
WILLIE N. MOON and ADNETTE M.                                  NV-20-1070-BGTa
GUNNELS-MOON,                                                  (Cross-Appeals)
             Debtors.
                                                      Bk. No. 13-bk-12466-MKN
RUSHMORE LOAN MANAGEMENT
SERVICES, LLC,
               Appellant/Cross-
               Appellee,
v.                                                    MEMORANDUM*
WILLIE N. MOON; ADNETTE M.
GUNNELS-MOON,
               Appellees/Cross-
               Appellants.

                Appeal from the United States Bankruptcy Court
                          for the District of Nevada
                  Mike K. Nakagawa, Bankruptcy Judge, Presiding

Before:       BRAND, GAN, and TAYLOR, Bankruptcy Judges.

          *
         This disposition is not appropriate for publication. Although it may be cited for
 whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
 value, see 9th Cir. BAP Rule 8024-1.
                                  INTRODUCTION

      Willie Moon and Adnette Gunnels-Moon filed a chapter 131 case to save

their home ("Residence"). They avoided the second lien on the Residence held

by Rushmore Loan Management Services, LLC ("Rushmore"), and the court

confirmed their plan. After confirmation, the Moons received telephone calls

and correspondence from Rushmore seeking to collect on the second

mortgage. Willie informed Rushmore of their bankruptcy case, but the

collection efforts continued. For Rushmore's willful violation of the automatic

stay, the bankruptcy court awarded the Moons $100,742.10 in compensatory

damages, which included $100,000 for Willie's emotional distress, and

$200,000 in punitive damages. The bankruptcy court did not award damages

for violation of the discharge injunction.2 Rushmore appeals the bankruptcy

court's ruling with respect to Willie's damages, the punitive damages award,

and the court's decision to allow testimony from the Moons' expert witness.

The Moons appeal the bankruptcy court's denial of damages for Rushmore's

violation of the discharge injunction. We AFFIRM in part, REVERSE in part,

and VACATE and REMAND in part.

      We conclude that Rushmore did not violate Willie's automatic stay, and

       1
       Unless specified otherwise, all chapter and section references are to the
 Bankruptcy Code, 11 U.S.C. §§ 101-1532.
       2
          The bankruptcy court has since awarded the Moons their attorney's fees, which
 is the subject of another appeal. See BAP Nos. NV-20-1144-BTF & NV-20-1155-BTF. This
 Memorandum is entered concurrently with the Memorandum in those related appeals.

                                            2
so he was not entitled to any compensatory damages under § 362(k)(1).

Rushmore did not seek to obtain possession of property of Willie's estate.

The violations occurred post-confirmation. There was no violation as to the

Residence. It was owned by Adnette, not Willie, and it had revested in

Adnette when the violations occurred. Willie's interest in the Moons'

community income also revested at confirmation, except to the extent

necessary to fund plan payments. Furthermore, there was no violation of

Willie's stay with respect to the efforts to collect Rushmore's debt. The debt

was Adnette's alone. Therefore, we REVERSE the $100,000 award in

compensatory damages to Willie.

      While we AFFIRM the bankruptcy court's ruling that Adnette was

entitled to punitive damages, we VACATE and REMAND the amount of that

award for the court to review given that we are reversing the damages award

to Willie. Further, we AFFIRM the court's denial of damages for violation of

the discharge injunction. Finally, we AFFIRM the court's allowance of

testimony from the Moons' expert witness.

      I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A.    Background of the parties

      The Moons are in their seventies and have been married since 1998.

Willie retired from truck driving in 2007; Adnette works as a library aide at

an elementary school. Both Willie and Adnette have health issues. Willie is a

Vietnam veteran and suffers from post traumatic stress disorder as a result of

                                        3
his military service. In addition, Willie has chronic obstructive pulmonary

disease, diabetes, high cholesterol, hypertension, and asthma. His conditions

require him to take a number of prescribed and over-the-counter medications

daily. Adnette has high cholesterol, hypertension, and asthma, for which she

takes several prescribed medications.

      In 2005, Adnette and her daughter purchased the Residence where

Adnette and Willie live. Willie quitclaimed any community interest he had in

the Residence to Adnette in 2005. In 2007, Adnette refinanced the Residence

in her name only, taking out two loans. Rushmore began servicing the second

loan in January 2012. No payments have been made on the Rushmore loan

since November 2012.

B.    Chapter 13 case

      Unable to remain current on both mortgages, the Moons filed a chapter

13 bankruptcy case on March 26, 2013. They listed the Residence with a value

of $120,000 subject to two liens: the first in favor of Chase for $154,000; the

second in favor of Rushmore for $73,000.3 The bankruptcy notice was sent by

mail to creditors listed on the creditor matrix.

      Thereafter, the Moons moved to value the Residence under § 506(a) to

strip off Rushmore's entirely unsecured lien. Rushmore did not respond.

After a hearing, the bankruptcy court entered an order granting the valuation

       3
         Chase filed a secured proof of claim for $256,581.76. Rushmore did not file a
 proof of claim.

                                             4
motion. Rushmore, as an unsecured creditor, would receive pro-rata payment

along with other general unsecured creditors.

     On April 7, 2014, the bankruptcy court entered an order confirming the

Moons' amended chapter 13 plan ("Plan"). The 36-month Plan provided for

monthly payments of $500.00. General unsecured creditors would receive

pro-rata $9,542.83. The Plan noted that the Moons had successfully stripped

off Rushmore's second lien. The chapter 13 trustee's notice of proposed

distribution stated that Rushmore had not filed a proof of claim and,

therefore, would receive $0.00 under the Plan.

     In August 2016, the trustee filed a final report indicating that all Plan

payments had been made. The bankruptcy court entered an order of

discharge for the Moons on September 28, 2016, discharging their prepetition

unsecured debt including the debt owed to Rushmore. A final decree closing

the case was entered on October 3, 2016.

     As it turns out, no documents filed during the Moons' chapter 13 case

— the bankruptcy notice, any motions, applications, notices of hearings, court

orders or other papers — were served on Rushmore due to an address error.

The address error stemmed from a mistake made in the creditor matrix when

the case was filed and continued throughout the case.

C.   Contempt Motion

     After reopening their bankruptcy case, the Moons filed a motion for

contempt, seeking to hold Rushmore in contempt for violation of the

                                       5
automatic stay under § 362(a) and the discharge injunction under § 524(a)(2)

("Contempt Motion"). The Moons alleged that, between November 2013 and

October 2018, Rushmore sent a multitude of correspondence including

monthly mortgage statements and other collection letters. All of Rushmore's

correspondence was addressed only to Adnette. The Moons also alleged that,

during the same five year period, Rushmore made "hundreds" of calls to the

Residence telephone asking for payment. The Moons sought damages for

their emotional distress, punitive damages, and attorney's fees. Because the

address error had now been corrected by the Moons' new bankruptcy

attorney, Rushmore was served with and received the Contempt Motion.

      The bankruptcy court scheduled a two-day evidentiary hearing, and set

deadlines for submission of declarations, exhibits, and additional briefs.

Despite having several months to do so, Rushmore never filed a substantive

response to the Contempt Motion. The Moons submitted their direct

testimony declarations from Willie, Adnette, and expert witness, John Rao.

Rushmore submitted a direct testimony declaration from its only witness,

Anthony Younger, a Rushmore employee.

      All four witnesses were subject to cross-examination of their direct

testimony at the evidentiary hearing. After the witnesses' testimony and the

parties' closing arguments, the court took the matter under submission.

D.    The bankruptcy court's ruling on the Contempt Motion

      The bankruptcy court entered an Order and Memorandum Decision

                                       6
granting the Contempt Motion and awarding the Moons $100,742.10 in

compensatory damages and $200,000 in punitive damages for Rushmore's

willful violation of the automatic stay under § 362(k)(1). In re Moon, 613 B.R.

317, 361 (Bankr. D. Nev. 2020). The court declined to award the Moons

damages for Rushmore's violation of the discharge injunction under

§ 524(a)(2) and § 105(a) because the Moons had not established when

Rushmore became aware of the discharge order.

      The court determined that Rushmore willfully violated the automatic

stay with its collection efforts. Id. at 346-50.4 The court found that Rushmore

received notice of the Moons' bankruptcy on December 20, 2014, when Willie

told the Rushmore representative in a phone call to the Residence that he and

Adnette were "in a chapter 13," which was confirmed by the representative's

notation in the loan file. The court found that Rushmore intentionally acted to

collect the debt through its telephone calls to the Residence and its mailings

of mortgage statements and other collection letters. During the 648-day

period between December 20, 2014, and the discharge date of September 28,

2016, the court found that Rushmore made "hundreds" of telephone calls to

the Residence and mailed at least 50 mortgage statements and other collection

letters. Because Willie was the one who answered Rushmore's calls and

       4
          The bankruptcy court apparently found that Rushmore violated § 362(a)(4), (5)
 and (6). Id. at 340. Although it cited to § 362(a)(3), in addition to (4) and (5), when
 discussing (3) the court quoted language from (6). Id. In any case, as we explain below,
 the court erred in determining that Rushmore violated any provision of § 362(a) as to
 Willie.

                                             7
handled the Moons' daily mail, the court found that Willie suffered

significant harm that was caused by Rushmore's automatic stay violations

and awarded him $100,000 for his emotional distress. Id. at 356-57. The court

declined to award Adnette emotional distress damages, because she testified

that her distress was caused by Rushmore's discharge injunction violations,

not stay violations. Id. at 356. The court also awarded punitive damages,

finding Rushmore's policies and conduct "reprehensible." Id. at 359-61. These

timely cross-appeals followed.

                             II. JURISDICTION

     The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(1) and (2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                 III. ISSUES

1.   Could Willie recover damages under § 362(k)(1)?

2.   Did the bankruptcy court abuse its discretion in awarding $200,000 in

punitive damages?

3.   Did the bankruptcy court abuse its discretion by allowing Rao to testify

as an expert witness?

4.   Did the bankruptcy court abuse its discretion by not awarding the

Moons discharge injunction violation damages?

                        IV. STANDARDS OF REVIEW

     Rushmore contends that Willie lacked standing to sue for damages

under § 362(k)(1). Because Rushmore challenges the bankruptcy court's legal

                                       8
determination about the scope of § 362(k)(1), a de novo standard of review

applies. See Chugach Timber Corp. v. N. Stevedoring & Handling Corp. (In re

Chugach Forest Prods., Inc.), 23 F.3d 241, 244 (9th Cir. 1994). "De novo review

requires that we consider a matter anew, as if no decision had been made

previously." Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP

2014) (citations omitted).

      We review the amount of sanctions imposed for a willful violation of

the automatic stay for abuse of discretion. Eskanos & Adler, P.C. v. Leetien, 309

F.3d 1210, 1213 (9th Cir. 2002). We review for clear error the bankruptcy

court's factual findings in support of a punitive damages award. See Bergen v.

F/V St. Patrick, 816 F.2d 1345, 1347 (9th Cir. 1987), opinion modified on reh'g, 866

F.2d 318 (9th Cir. 1989). Factual findings are clearly erroneous if they are

illogical, implausible, or without support in the record. Retz v. Samson (In re

Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).

      We review a bankruptcy court's decision to admit expert testimony for

abuse of discretion. See Primiano v. Cook, 598 F.3d 558, 563 (9th Cir. 2010), as

amended (Apr. 27, 2010).

      A bankruptcy court abuses its discretion if it applies the wrong legal

standard, or misapplies the correct legal standard, or makes factual findings

that are illogical, implausible, or without support in inferences that may be

drawn from the facts in the record. United States v. Hinkson, 585 F.3d 1247,

1261-62 (9th Cir. 2009) (en banc).

                                         9
                                   V. DISCUSSION

      Rushmore does not challenge the bankruptcy court's ruling that it

willfully violated the automatic stay with its collection efforts or the award of

compensatory damages of $742.10. It challenges only the award of emotional

distress damages to Willie, the award of punitive damages, and the court's

decision to allow Rao to testify as an expert witness. The Moons challenge the

bankruptcy court's decision to not award damages for Rushmore's violation

of the discharge injunction. We address each argument in turn.

A.    Willie cannot recover damages under § 362(k)(1).

      Rushmore argues that the bankruptcy court erred by awarding Willie

damages under § 362(k)(1).5 Rushmore argues that its collection efforts could

not have violated Willie's stay, since the debt was not his, the Residence was

not his, and the Moons' community income was no longer property of either

Willie's or Adnette's bankruptcy estates at the time Rushmore was said to

have violated the automatic stay.

      The bankruptcy court did not address this threshold issue, even though

Rushmore raised it at the evidentiary hearing. We asked for further briefing

on the matter at oral argument.

      Section 302(a) provides that the filing of a joint bankruptcy petition by

       5
          Section 362(k)(1) provides, in relevant part, "an individual injured by any
 willful violation of a stay provided by this section shall recover actual damages,
 including costs and attorneys’ fees, and, in appropriate circumstances, may recover
 punitive damages."

                                            10
spouses does not create one bankruptcy estate, made up of their combined

assets and liabilities. Rather, it creates two separate estates, one for each

spouse. Ageton v. Cervenka (In re Ageton), 14 B.R. 833, 835 (9th Cir. BAP 1981).

Each estate consists of its own property separately protected by the automatic

stay. See 1 Henry J. Sommer & Margaret Dee McGarity, Collier Family Law and

the Bankruptcy Code ¶ 1.03[5] (2020). Further, the joint administration of a case,

as opposed to a consolidation, does not affect whatever claims creditors have

against either spouse individually. In re Fernandes, 346 B.R. 521, 522 (Bankr. D.

Nev. 2006). No consolidation occurred in this case. Hence, Willie's and

Adnette's debts and estates remained separate — and so did the automatic

stays protecting them and their respective estates.

      Notwithstanding the general rule of separate estates, in a community

property state such as Nevada each spouses' estate "consists of virtually all

the community property of the joint debtor's spouse." In re Ageton, 14 B.R. at

835. Property of the estate includes "[a]ll interests of the debtor and the

debtor's spouse in community property as of the commencement of the case

that is under the sole, equal, or joint control of the debtor[.]" § 541(a)(2)(A).

The only potential community property of relevance is the Residence and the

Moons' income.

      Starting with the income, in Nevada, "wages of either spouse during

marriage are considered to be community funds regardless of which spouse

earns the greater income or which spouse supports the community." Norwest

                                         11
Fin. v. Lawver, 849 P.2d 324, 326 (Nev. 1993) (citing Robison v. Robison, 691 P.2d

451, 453 (Nev. 1984)). As with all community property in Nevada, each

spouses' interest is under the joint control of both spouses. In re Field, 440 B.R.

191, 195 (Bankr. D. Nev. 2009) (citing NEV. REV. STAT. §§ 123.225 & 123.230

and Soper v. Crystal Palace Gambling Hall, Inc. (In re Crystal Palace Gambling

Hall, Inc.), 36 B.R. 947, 950 (9th Cir. BAP 1984)). Thus, given that joint control

and the joint filing, Willie's and Adnette's interests in the community income

became property of each of their estates when they filed their petition. See id;

§ 541(a)(2)(A).

      Whether the Residence became property of Willie's estate, however, is

not as clear. Although Willie testified that he contributed to the Chase

mortgage payments, it is undisputed that he quitclaimed his community

interest in the Residence to Adnette in 2005. In Nevada, "a spouse to spouse

conveyance of title to real property creates a presumption of gift that can only

be overcome by clear and convincing evidence." Kerley v. Kerley, 910 P.2d 279,

280 (Nev. 1996) (citations omitted). Whether the fact Willie made some

payments on the Chase mortgage would rebut the presumption of gift by a

clear and convincing standard is unclear. This issue was not sufficiently

litigated before the bankruptcy court. However, whether or not Willie had a

community interest in the Residence as of the petition date is of no

consequence in this unusual case.

      Turning now to whether Rushmore violated Willie's automatic stay, the

                                        12
only provisions of § 362(a) that could plausibly apply here are (3), (4), (5) and

(6). To begin, § 362(a)(4) and (5) — any act to enforce a lien against property

of the estate or property of the debtor — are inapplicable to both Willie and

Adnette, because Rushmore did not take any actions to foreclose its lien; it

only sought payment. We also can eliminate § 362(a)(6) as to Willie — any act

to collect a prepetition claim against the debtor — because Rushmore never

had a claim against Willie, only Adnette as the borrower.

      That leaves § 362(a)(3) — whether Rushmore's repeated requests for

payment were "act[s] to obtain possession of property of the estate or of

property from the estate or to exercise control over property of the estate."6

Assuming § 362(a)(3) even applies to a prepetition debt,7and Willie had a

community interest in the Residence, which was not established on the

record, we agree with Rushmore that the Residence revested in the Moons (or

at least Adnette) upon confirmation of the Plan in April 2014 by virtue of

        6
         While not relevant to our decision, Rushmore argues that only the trustee has
 standing to allege violations of the automatic stay relating to property of the estate
 under § 362(a)(3), citing Zavala v. Wells Fargo Bank, N.A. (In re Zavala), 444 B.R. 181, 190-
 91 (Bankr. E.D. Cal. 2011). Rushmore's argument is misplaced. Zavala was a chapter 7
 case, which is different from chapter 13.
        7
         Although the statute is not expressly limited to postpetition debts or creditors,
 we could not locate, and the parties did not cite, a case where a court applied § 362(a)(3)
 to a prepetition creditor. Presumably, this is because a claim against a prepetition
 creditor seeking payment postpetition can generally be brought under § 362(a)(6).
 However, given the unusual facts of this case, that provision did not apply to Willie.

                                               13
§ 1327(b) and the Plan.8 As a result, the Residence was no longer "property of

the estate" and protected by the automatic stay in December 2014, when

Rushmore was deemed to have knowledge of the Moons' bankruptcy and to

have violated the stay with its collection efforts thereafter until discharge.9

§ 362(c)(1).

      Willie also cannot establish that Rushmore violated his stay under

§ 362(a)(3) with respect to the community income. It revested in the Moons at

confirmation, except for the amount of funds necessary to fulfill the Plan. Cal.

Franchise Tax Bd. v. Kendall (In re Jones), 657 F.3d 921, 928 (9th Cir. 2011)

(addressing the interplay between § 1306(a) and § 1327(b) and holding that,

because debtor did not elect in her plan anything contrary to § 1327(b), she

once again became the owner of her property at confirmation, "except as to

those sums specifically dedicated to fulfillment of the plan"). The portion of

the Moons' post-confirmation income necessary to make the plan payments

remained property of the estate and protected by the automatic stay.10 But the

        8
         Section 1327(b) provides: "Except as otherwise provided in the plan or the order
 confirming the plan, the confirmation of a plan vests all of the property of the estate in
 the debtor." The Plan, which is a form plan for the District of Nevada, states: "Any
 property of the estate scheduled under § 521 shall revest in the Debtor upon
 confirmation."
        9
            This is also true with respect to § 362(a)(4).
        10
          We note that the Panel in California Franchise Tax Board v. Jones (In re Jones), 420
 B.R. 506, 514-15 (9th Cir. BAP 2009), aff'd on other grounds, 657 F.3d 921 (9th Cir. 2011),
 adopted the "estate termination" approach, which dictates that upon confirmation all
                                                                                  (continued...)

                                                 14
balance of that post-confirmation income belonged to them and was not

protected by the automatic stay. Id.; § 362(c)(1).11And the Moons did not

establish that the loss of any potential mortgage payments to Rushmore

would have jeopardized their ability to meet their obligations under the Plan.

See In re Heath, 115 F.3d at 524.

      Given that no provision of § 362(a) applied to Willie with respect to

Rushmore, Willie could not sue Rushmore for damages under § 362(k)(1) and

the bankruptcy court erred in concluding otherwise.12As a result, on the

      10
        (...continued)
 property revests in the debtor and estate property is terminated unless the plan
 provides otherwise. On appeal, the Circuit Panel declined to adopt the estate
 termination, or any other, approach, holding that, unless the debtor elects otherwise in
 the plan all property of the estate revests in the debtor upon confirmation, "except as to
 those sums specifically dedicated to fulfilment of the plan." In re Jones, 657 F.3d at 928.
        Despite its reluctance to adopt any of the four approaches courts have taken with
 respect to estate property and the interplay between § 1306 and § 1327(b), the Circuit
 Panel's holding in Jones is essentially the "estate transformation" approach, which
 dictates that only property needed to fund the plan remains estate property upon
 confirmation; all other property revests in the debtor. See Black v. U.S. Postal Serv. (In re
 Heath), 115 F.3d 521, 524 (7th Cir. 1997) (adopting the "estate transformation" approach).
 Therefore, while the Circuit Panel did not expressly overrule our decision in Jones, our
 holding with respect to the estate termination approach is in question. However, we
 need not decide that issue here, because Willie's claim fails under either approach.
           11
          The Plan's language — "The future earnings of Debtor shall be submitted to the
 supervision and control of Trustee as is necessary for the execution of the plan" — does
 not help the Moons. Such language only gives the trustee a basis for monitoring and
 requiring execution of the provisions of the Plan. It does not negate the revesting of
 property at confirmation in accordance with § 1327(b). In re Jones, 420 B.R. at 516-17.
           12
                Rushmore did, however, violate the automatic stay as to Adnette under
                                                                                  (continued...)

                                                 15
current record, the court's award of $100,000 to Willie for his emotional

distress cannot stand.

B.    The bankruptcy court did not abuse its discretion in awarding
      punitive damages.

      Punitive damages may be awarded under § 362(k)(1) for a willful

violation of the automatic stay in "appropriate circumstances." The Ninth

Circuit requires a showing of reckless or callous disregard for the law or

rights of others for an award of punitive damages under § 362(k)(1). See

Goichman v. Bloom (In re Bloom), 875 F.2d 224, 228 (9th Cir. 1989) (applying

former § 362(h)). In awarding punitive damages, a court should consider:

(1) the degree of reprehensibility of the defendant's misconduct; (2) the

disparity between the harm suffered by the plaintiff and the punitive

damages award; and (3) the difference between the punitive damage award

and the civil penalties authorized or imposed in comparable cases. Ariz. v.

ASARCO LLC, 773 F.3d 1050, 1054 (9th Cir. 2014) (citing State Farm Mut. Auto.

Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003) ("State Farm") (citing BMW of N.

Am., Inc. v. Gore, 517 U.S. 559, 575 (1996))).

      "Generally speaking, there are two underlying purposes for punitive

damage awards: to punish outrageous conduct and to deter future similar

conduct." Orian v. Asaf (In re Orian), No. CC-18-1092-SFL, 2018 WL6187784, at

*13 (9th Cir. BAP Nov. 27, 2018) (citations omitted). In reviewing a punitive

      12
        (...continued)
 § 362(a)(6), which it does not dispute.

                                           16
damages award, the goal is to determine "whether the punitive damages

achieved their ultimate objectives of deterrence and punishment, without

being unreasonable or disproportionate." S. Union Co. v. Irvin, 563 F.3d 788,

791 (9th Cir. 2009).

      Before we address the amount of punitive damages the bankruptcy

court awarded, we look first to the evidentiary record and the court's decision

that punitive damages were warranted. Younger, Rushmore's Legal

Proceeding Specialist, testified that Rushmore utilizes a bankruptcy policy

manual and a bankruptcy procedures manual. The policy manual provides

that notice of a borrower's bankruptcy can be of any nature, written or oral,

and by telephone or in person, and states that Rushmore will act promptly in

response to a notice of any nature that a borrower is in bankruptcy. Despite

this seemingly broad notice policy, Rushmore's procedures manual provides

that notice of a borrower's bankruptcy filing is only acknowledged if

Rushmore receives it through one of five methods: (1) Foreclosure Specialist;

(2) Foreclosure Attorney; (3) Borrower phone call; (4) Mail; and (5) ACCER —

a bankruptcy filing notification service.

      Younger testified that notice of a borrower's bankruptcy by a telephone

call from an "unauthorized" party would not be recognized, because

Rushmore considers an unauthorized party as an unreliable and unverifiable

source. Younger testified, if an unauthorized party informs a Rushmore

representative that a borrower is in bankruptcy, the representative makes a

                                       17
notation in the file that the comment was received but does not conduct a

PACER search. Rather, Rushmore attempts to contact the borrower to

confirm the bankruptcy. That is what happened here. Willie, an unauthorized

third party not recognized in Rushmore's procedures manual, provided the

bankruptcy notice, so no PACER search was done. And, because Rushmore

was unable to verify the bankruptcy with Adnette, it continued to service the

loan as normal.

      The bankruptcy court found, while Rushmore's policies acknowledged

the fundamental importance of the automatic stay to its borrowers, putting it

on fair notice of the consequences under § 362(k), Rushmore adopted express

procedures to narrow the sources of bankruptcy information that it is willing

to acknowledge, and does not even tell its borrowers what those sources are.

In re Moon, 613 B.R. at 359-60. Specifically, the court found that Rushmore had

an unwritten policy or procedure for deeming sources as "unauthorized"

parties whose information will not deter or prevent it from violating the

bankruptcy protections of its borrowers. Id. at 360. The court was particularly

troubled by Rushmore's failure to follow up on the representative's notation

in the loan file that the Moons were in bankruptcy, in spite of Rushmore's

expressly stated policy that it "will act promptly in response to notice of any

nature, whether written or oral (telephonic or in person), that a borrower has

filed for bankruptcy protection." Id. at 346-47. The court found Rushmore's

procedures especially egregious considering that the sources of notification

                                       18
specified in its procedures manual were not limited to just the borrower; four

of the five sources were non-borrower sources. Thus, for Rushmore to

suggest that a borrower's spouse would be an unauthorized third party while

multiple non-borrower, third-party sources would be authorized sources of

notification was "absurd at best." Id. at 347-48. Ultimately, the court found

Rushmore's conduct "reprehensible," and that its formalized procedures were

used in this case "to maintain a veil of ignorance of the Chapter 13 proceeding

of its borrower." Id. at 360. Therefore, under the circumstances, the court

concluded that punitive damages were warranted in the amount of $200,000.

      Rushmore argues that the bankruptcy court's interpretation of its

policies was implausible, and that it did not show reckless disregard for the

Moons' rights. Rushmore argues that its policies do not limit notification of a

bankruptcy to only the five sources listed considering the permissive

language therein: "Notification of a new bankruptcy filing can come through

the following sources." However, Younger testified that a bankruptcy notice

from even a borrower's spouse who lives in the home with the borrower will

not trigger a PACER search to verify the information. Younger testified that

the only step Rushmore takes to verify that the borrower has filed for

bankruptcy when the information comes from an unauthorized source,

including a borrower's spouse, is to note the file and continue to call the

borrower. And if that is unsuccessful, it services the loan as normal.

      Rushmore also argues that its policies suggest an intention to keep it

                                       19
informed about bankruptcies, rather than willfully blind to them, because it is

subscribed to ACCER — an automated notification service that provides

daily alerts of consumer bankruptcy filings. No one explained why ACCER

failed in this case. While this argument has some surface appeal, it does not

remedy the fact that Rushmore's institutional policy of disregarding a

bankruptcy notice from an "unauthorized" third party is contrary to the law.

      Notice of a bankruptcy filing need not be formal for knowledge of the

automatic stay and for purposes of a willful stay violation. See Eden Place, LLC

v. Perl (In re Perl), 513 B.R. 566, 576 (9th Cir. BAP 2014) (knowledge of the

bankruptcy filing equates to knowledge of the automatic stay), rev'd on other

grounds, 811 F.3d 1120 (9th Cir. 2016). Informal notice suffices. Id. (citing

Ozenne v. Bendon (In re Ozenne), 337 B.R. 214, 220 (9th Cir. BAP 2006) (citing

Morris v. Peralta (In re Peralta), 317 B.R. 381, 389 (9th Cir. BAP 2004))). Clearly,

Willie's informal notice in the December 20, 2014 phone call sufficed and

constituted actual notice to Rushmore. Once Rushmore had actual notice of

the bankruptcy, it had a duty to ascertain the correctness of the information,

not disregard it. Rushmore also had the responsibility to ensure that the stay

was not violated. See Sternberg v. Johnston, 595 F.3d 937, 945 (9th Cir. 2010)

(the automatic stay imposes an affirmative duty of compliance on nondebtor

parties), as amended, overruled on other grounds by Am. Servicing Co. v. Schwartz-

Tallard ( In re Schwartz-Tallard), 803 F.3d 1095, 1100 (9th Cir. 2015) (en banc);

Walters v. Sherwood Mun. Ct. (In re Walters), 219 B.R. 520, 526 (Bankr. W.D.

                                         20
Ark. 1998) ("Being advised of the filing of a bankruptcy case in any form

places a creditor on notice of the bankruptcy filing. Upon being advised, even

informally by telephone, of the bankruptcy case, the creditor is on notice of

the bankruptcy. The creditor has an affirmative duty to ascertain the

correctness of the information or advice; it may not disregard information of

the bankruptcy case.") (emphasis in original).

      A sophisticated loan servicer like Rushmore with a policy that

intentionally limits the means by which it gains knowledge of a bankruptcy

filing supports a finding of reckless or callous disregard for the law and the

rights of its borrowers. That no PACER search was done here is not just a

one-off case of negligence. No PACER search was done as a matter of an

intentional yet flawed institutional policy. As the bankruptcy court noted,

"limiting the sources of knowledge of a bankruptcy is as foolish as it is

perilous[.]" In re Moon, 613 B.R. at 348 n.49. Accordingly, the bankruptcy

court's interpretation of Rushmore's policies and procedures was not

"implausible," and we see no clear error as to its finding that the case

warranted punitive damages.

      Rushmore argues that an award of $200,000 was excessive and

disproportionate and not necessary to deter it from future stay violations.

Rushmore cites a variety of stay violation cases involving lesser awards. The

bankruptcy court as the fact finder has considerable discretion in fixing

damages. Prof'l Seminar Consultants, Inc. v. Sino Am. Tech. Exch. Council, Inc.,

                                        21
727 F.2d 1470, 1473 (9th Cir. 1984).

         An award of punitive damages often bears a relationship to the amount

of compensatory damages awarded and may take the form of a multiplier of

the compensatory damage award. State Farm, 538 U.S. at 424-25; Prof'l Seminar

Consultants, Inc., 727 F.2d at 1473 (punitive damages award must reasonably

relate to compensatory damages). As the Ninth Circuit Court of Appeals

recently noted in Ramirez v. TransUnion LLC, 951 F.3d 1008 (9th Cir. 2020),

cert. granted in part sub nom. TransUnion LLC v. Ramirez, No. 20-297, 2020 WL

7366280 (U.S. Dec. 16, 2020), while "[t]here is no bright-line rule about the

maximum ratio due process permits between the harm suffered by the

plaintiff (i.e., the compensatory damages) and the punitive damages," the

Supreme Court has noted that "punitive 'awards exceeding a single-digit

ratio' will rarely satisfy due process, and punitive awards exceeding four

times the amount of compensatory damages 'might be close to the line of

constitutional impropriety.'" Id. at 1036-37 (quoting State Farm, 538 U.S. at

425). On the other hand, "[a] ratio higher than 4 to 1 may be upheld where 'a

particularly egregious act has resulted in only a small amount of economic

damages.'" Id. (quoting State Farm, 538 U.S. at 425) (quoting Gore, 517 U.S. at

582)).

         In fixing the punitive damages at $200,000, the bankruptcy court

decided not to apply a large multiplier because Rushmore did not formally

initiate or complete foreclosure proceedings. Hence, it was applying only a

                                         22
modest single-digit multiplier of 2.0. In re Moon, 613 B.R. at 360-61.

      We would have had little trouble affirming the bankruptcy court's

punitive damages award of $200,000 based on the Moons' compensatory

damages of $100,742.10, because we perceive no error in its finding that

Rushmore's conduct in this case was "reprehensible." However, because we

reverse the award of damages to Willie, we must remand the punitive

damages award so the bankruptcy court can reconsider the amount in light of

the significantly reduced compensatory award. Nonetheless, bankruptcy

courts may consider the amount of attorney's fees and costs in determining

the size of a punitive damages award under § 362(k)(1). See Diviney v.

Nationsbank of Tex., N.A. (In re Diviney), 225 B.R. 762, 777 (10th Cir. BAP 1998)

(holding that attorney's fees and costs may be considered when determining

the punitive damages ratio, because fees and costs are a component of "actual

damages" under former § 362(h)).

C.    The bankruptcy court did not abuse its discretion by allowing Rao to
      testify as an expert witness.

      Rushmore objected to Rao testifying as an expert witness for the Moons

but its objection was overruled. Rao is an attorney at the National Consumer

Law Center, with extensive experience in bankruptcy and the mortgage

servicing industry. His testimony was presented to address Rushmore's

actions as compared to mortgage servicing industry standards.

      Rao testified that, upon being notified of a borrower's bankruptcy case,

mortgage industry standards dictate that a representative notify a supervisor

                                        23
or bankruptcy specialist or attempt to verify the case's existence through

PACER. Rao testified that it would not matter whether the representative

spoke with the borrower or someone else and that Rushmore's conduct of

only noting a possible bankruptcy filing in the file without verifying it on

PACER was inconsistent with industry standards.

      The bankruptcy court found that Rao's testimony was reliable and

relevant to the court's understanding of the evidence presented in the case. In

re Moon, 613 B.R. at 333. Rushmore argues that the court abused its discretion

by overruling its objection and allowing Rao to testify because (1) his

opinions were entirely based on his own personal experience in the mortgage

servicing business and in consumer bankruptcies, but he did not explain how

he came to his conclusions, (2) he failed to show his methodology comported

with any accepted professional standards, and (3) his opinion was essentially

that Rushmore violated bankruptcy law — something the court itself was

charged with determining. Thus, argues Rushmore, Rao could not have been

helpful to the trier of fact.

      It is the bankruptcy court's duty to act as a "gatekeeper" to exclude junk

science that does not meet Federal Rule of Evidence 702's reliability

standards. See Ellis v. Costco Wholesale Corp., 657 F.3d 970, 982 (9th Cir. 2011).

Rushmore failed to depose Rao, or file any substantive opposition to the

Contempt Motion or a trial brief to address his (or anyone else's) direct

testimony. At any rate, the only testimony Rao provided that is relevant on

                                         24
appeal is that, once Rushmore received actual notice of the Moons'

bankruptcy from the December 20, 2014 telephone call, industry standards

required that the matter be referred to a supervisor or bankruptcy specialist

or that the bankruptcy be verified through PACER. The court could have

decided these issues without the benefit of Rao's testimony. Evidence of the

subject phone call was in Rushmore's own records. Further, bankruptcy law

dictates that once Rushmore received actual notice of the Moons' bankruptcy

filing from Willie it had a duty to verify that information. The court stated at

the evidentiary hearing that it was not considering Rao's testimony that went

beyond the scope of expert testimony. However, even if the court did

consider such testimony to reach the conclusions that it did on these issues,

such error was harmless. See Lakhany v. Khan (In re Lakhany), 538 B.R. 555, 559

(9th Cir. BAP 2015) (we can ignore harmless errors and affirm on any ground

supported by the record).

D.    The bankruptcy court did not abuse its discretion by not awarding
      the Moons discharge injunction violation damages.

      When a discharge order is entered the automatic stay is replaced by the

discharge injunction, which operates as a permanent injunction against

enforcement of all discharged debts. § 524(a)(2); Taggart v. Lorenzen, 139 S.Ct.

1795, 1800 (2019). A party who knowingly violates the discharge injunction

under § 524(a)(2) can be held in contempt under § 105(a). Taggart, 139 S.Ct. at

1801; ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996, 1007 (9th Cir.

                                        25
2006). As one Panel recently noted:

      To find a party in civil contempt, the movant must prove by clear
      and convincing evidence that the alleged contemnor violated a
      specific and definite order of the court. Knupfer v. Lindblade (In re
      Dyer), 322 F.3d 1178, 1190-91 (9th Cir. 2003). The bankruptcy court
      must also find that the contemnor had sufficient notice of the
      order's terms and the fact that sanctions would follow a failure to
      comply. Hansbrough v. Birdsell (In re Hercules Enters., Inc.), 387 F.3d
      1024, 1028 (9th Cir. 2004).

Bateman v. GemCap Lending I, LLC (In re Bateman), Nos. HI-18-1302-TaSKu,

HI-18-1306-TaSKu, HI-18-1307-TaSKu, 2019 WL 3731532, at *6 (9th Cir. BAP

Aug. 7, 2019).

      The Moons contend the bankruptcy court failed to identify the correct

legal standard in holding that it would not award damages because it could

not determine when Rushmore became aware of the discharge. Specifically,

the Moons argue, because Rushmore had actual knowledge of the bankruptcy

it had actual, or at least constructive, knowledge of the discharge, and the

court erred in holding that Taggart insulated Rushmore from liability for

continuing the same conduct after discharge. Put simply, the Moons argue

that we should impute knowledge of the discharge order to Rushmore as of

September 28, 2016, and remand the matter to the bankruptcy court to award

damages for Rushmore's discharge injunction violation based on that date.

      We disagree with the Moons' contention that Taggart addressed a

creditor's knowledge of the existence of the discharge order; the creditor's

                                         26
knowledge in that case was undisputed. Here, the bankruptcy court found

that the discharge order was sent to Rushmore but at an incorrect address.

Rushmore also denied receiving it. The only direct evidence of Rushmore's

knowledge of the discharge order was Willie's testimony, which the court

found to be credible. Willie testified that, after the discharge was entered, he

had another telephone conversation with a Rushmore representative and told

him about the discharge, but the representative rebuffed him. Willie,

however, could not recall when that conversation occurred, and there was no

notation in Rushmore's records describing such a telephone conversation. No

other witness testified to this call, and no documentary evidence was offered

to corroborate Willie's testimony about the call. Willie also testified that he

returned certain mail received from Rushmore and indicated on the envelope

that he and Adnette had filed for bankruptcy and received a discharge. No

envelopes offered into evidence reflected any bankruptcy information.

      Given the record, the bankruptcy court said it could find only that

Rushmore was informed of the Moons' discharge at "some point" between

September 28, 2016 and October 15, 2018. What the Moons failed to prove by

clear and convincing evidence was "when." Because they could not prove

when Rushmore became aware of the discharge order, there was a "'fair

ground of doubt as to the wrongfulness' of Rushmore's post-discharge

conduct,'" and the court declined to award damages. In re Moon, 613 B.R. at

351-52 & n.59 (quoting Taggart, 139 S.Ct. at 1801).

                                        27
      We also disagree with the Moons' contention that the bankruptcy court

felt constrained by Taggart to award damages for the discharge injunction

violation. The court did not appear to question that Rushmore in fact had

knowledge of the discharge order and that its post-discharge collection efforts

violated it. But, for the purpose of calculating damages, the Moons had to

prove a date certain for when that occurred, given that Rushmore was not

served with the discharge order and the debtor's burden to establish a

violator's knowledge of the order by clear and convincing evidence. Even

assuming a PACER search could have revealed the discharge order, the

question is "when" did Rushmore conduct that hypothetical search? Without

a date, it is unknown what collection efforts occurred after Rushmore knew

about the discharge for the purpose of determining damages. As the

bankruptcy court observed, if Rushmore learned of it just before it ceased

servicing the loan, Rushmore's communications did not constitute a violation

of the discharge injunction over a significant period of time.

      On this record, we conclude that the bankruptcy court's finding that the

Moons had not established when Rushmore became aware of the discharge

order was not illogical, implausible, or without support in the record. In re

Retz, 606 F.3d at 1196.

      Alternatively, the Moons argue that the bankruptcy court could have

awarded damages for Rushmore's continuing violation of the automatic stay,

considering that Rushmore continued engaging in the same misconduct after

                                       28
the discharge. While case law recognizes the concept of a continuing stay

violation, such cases are generally limited to a situation where the creditor

has failed, or has allegedly failed, to perform an affirmative act to undo an

earlier stay violation, such as return property seized postpetition (Snowden v.

Check into Cash of Wash. Inc. (In re Snowden), 769 F.3d 651 (9th Cir. 2014)),

rescind a postpetition foreclosure sale (Oya v. Wells Fargo, N.A. (In re Oya),

No. SC-19-1095-BKuL, 2019 WL 5390007 (9th Cir. BAP Oct. 18, 2019)), or

dismiss a postpetition lawsuit (In re Orian, 2018 WL 6187784). The bankruptcy

court acknowledged this, finding that, because Rushmore had not received

any loan payments from the Moons, there was no suggestion of a continuing

violation of the automatic stay (or of the discharge injunction). In re Moon, 613

B.R. at 339 n.31. Thus, we are not persuaded that this case involves a

continuing stay violation entitling the Moons to damages beyond those

awarded to Adnette.

      Accordingly, we conclude that the bankruptcy court did not abuse its

discretion by not awarding the Moons damages for a discharge injunction

violation.

                               VI. CONCLUSION

      For the reasons stated above, we AFFIRM the bankruptcy court's

decision that Rushmore willfully violated the automatic stay as to Adnette

and to award her compensatory damages of $742.10, but we REVERSE the

court's decision awarding Willie $100,000 for his emotional distress. We

                                        29
further AFFIRM the court's decision to allow Rao to testify as an expert

witness, and its decision denying the Moons discharge injunction violation

damages. Finally, while we AFFIRM the court's decision to award punitive

damages, we VACATE and REMAND that decision with respect to the

amount awarded given the reduced compensatory damages.

                                      30