The corporate debtor, WVF Acquisition, provides internet access services to customer in North America and Europe.The debtor purchases access through creditor WBS, which in turns acquires access through Sprint Nextel. Creditor, WBS, strong arms the debtor by discontinuing services and demanding a general release before agreeing to reinstate those services. Debtor is in Chapter 11, and the services are essential to its survival. The tactics of the creditor did not sit well with Judge Kimball in the Southern District of Florida.
The case is In re WVF Acquisition, LLC, --- B.R. ---, 2009 WL 4281487, Bkrtcy. S.D. Fla. 2009. The judge wasted little time in finding a stay violation, finding it to be wilful, and awarding punitive damages. The more troublesome issue for the court was whether it was empowered under Section 105 of the Bankruptcy Code to award punitive damages in a case involving a corporate debtor, and if so, what damages were appropriate on the facts of the case (turns out 50,000 dollars was a nice round figure).
The creditor argued that Jove Eng.'g., Inc. v. IRS, 92 F.2d 1539 (11th Cir. 1996) effectively precluded the bankruptcy court from awarding punitive damages to a corporate debtor for a 362(k) violation. This because Section 362(k) specifically limits its application to an individual.
Judge Kimball decided, however, that the court had the inherent authority under Section 105 of the Bankruptcy Code to enter an award of punitive damages. The court was convinced that the decision of the Eleventh Circuit in Jove was never intended to limit a bankruptcy court's contempt authority under Section 105. At this writing I don't know if the decision has been appealed, but given the amounts involved an appeal may well be forthcoming. If so, I'll follow up with subsequent posts.
