Can the Bankruptcy Code Preempt State Law Claims for Conduct Violating a Stay In Bankruptcy ?
In Smith v. Mitchell Construction Co., 225 Ga. App. 383 [(481 S.E.2d 558)] (1997), the Court considered for the first time whether the Bankruptcy Code preempts state law claims for conduct violating a stay in bankruptcy.
The Code provides:
"An individual injured by any willful violation of a stay . . . shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." 11 USC 362 (h). Smith's creditor filed suit in DeKalb Superior Court and obtained a judgment against Smith, then served him with post-judgment discovery material.
Smith filed a bankruptcy petition, but the creditor did not receive proper notice of the filing and successfully moved to have Smith held in contempt for discovery violations.
Smith spent 29 hours in detention, and after his release, he moved the bankruptcy court for sanctions against the creditor for violating the automatic stay.
The bankruptcy court granted the motion and sanctioned the creditor $ 5,000.
Smith then sued the creditor and its attorneys in Fulton County State Court, alleging false arrest, negligence, assault, and intentional infliction of emotional distress.
The state court judge granted summary judgment to the defendants, announcing from the bench that the claims were barred by federal preemption.
The Court affirmed that order, concluding that 11 USC 362 (h) of the Bankruptcy Code preempted Smith's state law claims against his creditor and its lawyers for the actions they took in violation of Smith's bankruptcy stay.
The need for uniformity in bankruptcy matters was recognized even by the framers of the Constitution, who granted Congress the power to "establish . . . uniform Laws on the subject of Bankruptcies throughout the United States" in Art. I, 8, cl. 4.
From this long-recognized need for uniformity; from the comprehensive structure of the current Bankruptcy Code; and from Congress' inclusion in that structure of 362 (h), which provides a remedy for stay violations, we infer Congress' intent to effectuate two related principles:
Creditors should be held to a uniform standard of conduct when dealing with bankruptcy debtors, and the bankruptcy courts are the only institutions capable of fashioning such a uniform standard. Smith, supra, 225 Ga. App. at 386.