United States District Court, D. Oregon
JONATHON ELDON HUNSAKER and CHERYL LYNN HUNSAKER, Plaintiffs-Appellees,
UNITED STATES, Defendant-Appellant.
OPINION AND ORDER
Michael McShane United States District Judge.
Internal Revenue Service (IRS) appeals the bankruptcy
court's judgment awarding Jonathon and Cheryl Hunsaker
emotional distress damages under 11 U.S.C. § 362(k). The
bankruptcy court concluded the IRS's repeated violations
of the automatic stay caused the Hunsakers significant
emotional harm. The IRS argues any emotional distress
suffered by the Hunsakers was too fleeting or insignificant
to support an award of emotional distress damages under
§ 262(k). Because the bankruptcy court neither erred nor
abused its discretion in awarding emotional distress damages
to the Hunsakers, the bankruptcy court's judgment is
Hunsakers filed for Chapter 13 bankruptcy protection on
November 5, 2012. Their filing triggered the automatic stay
contained in 11 U.S.C. § 362(a). The automatic stay
blocks creditors from collection attempts outside of
court-supervised reorganization proceedings. In this case,
the parties agree the IRS violated the automatic stay four
December 2, 2013, the IRS sent the first of four notices to
the Hunsakers demanding payment for back taxes. The notice
bore the headlines “Final Notice” and
“Notice Of Intent to Levy And Notice Of Your Right To A
Hearing.” The IRS sent three similar notices on
February 10, 2014, September 1, 2014, and December 8, 2014.
Each notice violated the automatic stay. After each notice,
the Hunsakers contacted their attorney and the attorney
contacted the IRS notifying it of the automatic stay. The
Hunsakers alleged the violations caused them significant
emotional harm. As the Hunsakers' claim is not barred by
sovereign immunity, see Hunsaker v. United States,
902 F.3d 963, 971 (9th Cir. 2018), this Court now addresses
the bankruptcy court's emotional damages award.
Court reviews the bankruptcy court's findings of fact for
clear error “and review[s] for abuse of discretion the
[bankruptcy] court's decision whether to award emotional
distress damages and, if so, how much to award.” In
re Dawson, 390 F.3d 1139, 1150 (9th Cir. 2004) (internal
citations omitted). A bankruptcy abuses its discretion if it
bases its decision on an incorrect legal rule, or if applies
the correct rule but its “application of the correct
legal standard was (1) illogical, (2) implausible, or (3)
without support in inferences that may be drawn from the
facts in the record.” United States v.
Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009).
receive emotional distress damages resulting from a violation
of the automatic stay, a plaintiff “must suffer (1)
suffer significant harm, (2) clearly establish the
significant harm, and (3) demonstrate a causal connection
between that significant harm and the violation of the
automatic stay (as distinct, for instance, from the anxiety
and pressures inherent in the bankruptcy process).”
Dawson, 390 F.3d at 1149. Even if the violation was
not egregious, and even in the absence of corroborating
evidence, emotional damages are available if “the
circumstances . . . make it obvious that a reasonable person
would suffer significant emotional harm.” Id.
at 1150 (citing In re Flynn, 185 B.R. 89, 93 (S.D.
bankruptcy court applied the three-part Dawson test.
In doing so, it noted that despite the automatic stay, the
Hunsakers received four notices from the IRS. ECF 13-10, 2.
The notices demanded payment and threatened imminent
enforcement should the Hunsakers not make the payment.
Id. Two of the notices threatened to levy Mr.
Hunsaker's social security benefits, and another
threatened to levy the Hunsakers' state tax refund.
Id. After the first notice, the notices continued
even though the Hunsakers' attorney contacted the IRS
following each notice. Id. The bankruptcy court
reasonably found that the Hunsakers believed that if the IRS
took the threatened actions in the notices, it would
jeopardize their Chapter 13 reorganization efforts. This
finding is supported by the record. See ECF 13-9
43:7-21 (Ms. Hunsaker testified at being “quite
shocked” upon receiving the notices because the IRS
agreed to the reorganization plan “and now they're
telling it's the full amount. And these are the big guys.
They're the IRS, so they can do- I am under the
impression they can do what they're going to do.”).
bankruptcy court did not clearly err in finding that both the
Hunsakers experienced credible and significant emotional
harm. Evidence introduced at trial supports a finding that
following each notice, Mrs. Hunsaker experienced day-long
migraine headaches, stiffening of her neck, appetite loss,
and added anxiety and frustration. Id. at 21:10-14,
40:15-23, 44:21-22, 45:6-9, 52:8-15, 53:21-24. Also, from the
notices, Mr. Hunsaker experienced loss of appetite and extra
stress over his wife's harm. Id. at 30:14-20,
40:21-23, 52:23-25. They both feared losing Mr.
Hunsaker's social security income because the IRS
threatened to levy his social security benefits. Id.
at 18:14-25, 32:6-11, 47:3-15. This would have rendered the
Hunsakers' Chapter 13 plan unfeasible. See Id.
at 31:6-9, 47:3-15. Mr. Hunsaker would have lost significant
additional income on top of the previous loss of income that
led to bankruptcy. Id. at 30:8-20, 47:3-15. The
notices are stressors distinct from bankruptcy's inherent
pressures and would not have existed but for the IRS'
repeated automatic stay violations. See Id. at
43:11-16 (Ms. Hunsaker testified that “we thought
everything was in control. We were making our bankruptcy
payments” and then the notices arrived demanding
bankruptcy court did not abuse its discretion in awarding
emotional damages to the Hunsakers. The bankruptcy court
applied the correct legal rule: Dawson, 390 F.3d at
1149 (referring to the three-part test above). ECF 13-10
4:15-16. And, it applied Dawson logically, finding
that the record and the testimony established that the
IRS's repeated violations caused the Hunsakers
significant emotional harm. Id. at 5:22-26, 6:1-14.
The bankruptcy court noted the Hunsakers' prayer for
“a modest award of $5, 000 for the two of them.”
Id. at 6:15-16. It noted the significant, but
“not overwhelming” nature of the Hunsakers'
damages. Id. at 6:18. In awarding the Hunsakers'
damages, it cited the record and exercised its reasoned
judgment to reduce the award by $1, 000, resulting in a $4,
000 award. See Id. at 6:21-22. The award compensated
Mrs. Hunsaker $3, 000 for her more intense harm. Id.
at 6:21. Because the bankruptcy court applied the correct law
and logically based its decision off testimony and the
record, this Court affirms the Hunsakers' $4, 000
emotional damages award.
bankruptcy court neither erred nor abused its discretion in
awarding emotional distress damages to the Hunsakers. Thus,