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Landlord Harassment of Commercial Tenants

By Janice G. Inman
April 02, 2017

Last month, we considered the problem of landlord harassment of commercial tenants, looking first at a law that recently went on the books in New York City to provide a private right of action by tenants against offending landlords; known as the Non-Residential Tenant Harassment law, it is codified as Chapter 9, Title 22 of the New York City Administrative Code. We also began discussion of a case out of bankruptcy court, In re Lansaw v. Zokaites, 2015 Bankr. LEXIS 106 (2015) (affirmed in Zokaites v. Lansaw, 2016 U.S. Dist. LEXIS 33118 (W.D. Pa., Mar. 15, 2016), which deals with one landlord's bad behavior toward his commercial tenant. As discussed last month, in Lansaw, the tenants (and bankruptcy petitioners) complained of certain harassment that occurred prior to the filing of their bankruptcy petition. They failed to obtain relief on those claims, however, as the court found that the landlord's behavior pre-petition, though reprehensible, fell short of crossing the line into lawlessness. Let us turn now to the court's analysis of the landlord's post–bankruptcy-petition behavior.

After the Filing

The post-petition harassing behavior charged by Garth and Deborah Lansaw against landlord Frank Zokaites encompassed several incidents. In one, they said Zokaites entered the leased premises without their permission, to take photos of the property he claimed he was entitled to seize from them for back rent, in accordance with the “Notice of Distraint” he had served upon them. The landlord later padlocked the Landsaws' daycare center's doors, interrupting the operation of their business for several days. Finally, Zokaites wrote a letter to the owner of property the petitioners intended to lease when they moved out of his own property, in which he threatened to sue this person if he rented to the Lansaws. The question whether these actions violated the automatic stay under the Bankruptcy Act had been adjudicated prior to the proceedings before Bankruptcy Judge Thomas P. Agreseti, and Zokaites had been found at fault. Therefore, the only issue before Judge Agreseti was that of the damages that Zokaites should pay to the Lansaws for violation of the Bankruptcy Code's automatic stay provision, and any bankruptcy petitioner injured by the willful violation of the automatic stay “shall recover actual damages, including costs and attorney fees, and, in appropriate circumstances, may recover punitive damages.” 11 U.S.C. § 362(k)(1).

Having lost in his attempt not to be found in violation of the automatic stay, Zokaites admitted that he now owed the petitioners $2,600 in attorney fees — the amount the Lansaws paid their attorney to obtain an injunction against any further harassment by him that would violate the automatic stay. He did not acquiesce to any other type of damages.

Actual Damages

The Lansaws also asked for actual damages, to compensate them for decreased revenue at their day care center and for emotional distress.

Emotional Distress

Judge Agresti found insufficient evidence of lost revenue, so he turned his attention to the question of whether emotional distress damages are recoverable for violation of the Bankruptcy Code's automatic stay even if actual damages are not proven, noting that there is a split in authority on the issue. He looked to a 2008 decision in which the now-Chief Judge of the Bankruptcy Court for the Western District of Pennsylvania, Jeffrey A. Deller, wrote the opinion. In that case, In re Wingard, 382 B.R. 892, 902-04 (Bankr. W.D. Pa. 2008), Judge Deller concluded that the “plain reading” of Section 362(k)(1) permits recovery for emotional distress injury even absent actual damages because the Bankruptcy Code's legislative history indicates that the automatic stay was intended to address not only financial realities, but also “human” concerns, by allowing breathing space for a claimant under financial stress. Relying on Wingard, Judge Agresti concluded that the Lansaws were entitled to seek emotional distress damages even though they were unable to prove that Zokaites had financially or physically harmed them.

This being decided, the court moved on to Zokaites' argument that because the Lansaws presented no expert testimony to bolster their claims of emotional distress (such as the testimony of a psychiatrist), their claim must fail.

Judge Agresti was not concerned that there had been no expert medical testimony, once more relying on Wingard, this time for the proposition that expert testimony concerning emotional injury is not necessary to prove such damages where the complained-of behavior testified to by the victims is so egregious that emotional injury can be inferred. The court made such an inference in this case, concluding that the “patently or obviously egregious” standard of Wingard had been met, so that the testimony of the Lansaws alone — to the effect that one or both of them were having nightmares, were having trouble trusting people and forming or maintaining personal relationships, among other things — could serve as proof of the infliction on them by Zokaites of emotional distress.

Zokaites next argued that several alternative sources of stress besides his actions could have caused the Lansaws' emotional distress. Most of these the court dismissed, including evidence that the Lansaws had suffered carbon monoxide poisoning some years earlier and that this might have made them more sensitive than the average person to the things Zokaites had done. In this regard, Judge Agreseti cited to Tabor v. Miller, 389 F.2d 645, 647-48 (3d Cir. 1968), and its teaching that a plaintiff's extraordinary vulnerability “is not a defense to the issue of causation[,] but merely an occasion for the invocation of the legal maxim that a tortfeasor takes his victim as he finds him and is liable for the full extent of the damage he has inflicted, even if it is greater than he could have foreseen because the victim was particularly susceptible to the injury.” The carbon monoxide poisoning incident and others cited by Zokaites were not enough “to break the claim of causation created by Zokaites' reprehensible and inexcusable conduct directly related to his obligation to honor his responsibilities upon inception of the automatic stay,” the court concluded.

On the other hand, evidence had been presented — through the Lansaws' own testimony — that Zokaites' behavior prior to the bankruptcy filing had initiated the claimed emotional distress. This pre-petition emotional harm could not serve as a basis for recovery of damages for violation of the automatic stay, the court noted. Other sources of stress, including the bankruptcy proceeding itself and the Lansaws' dissatisfaction with their bankruptcy counsel, also needed to be taken into account by the court in settling on a damage amount. Therefore, the court awarded damages for emotional distress only after looking at what other courts had awarded in similar bankruptcy–stay-violation cases (approximately $10,000 to $12,000), then discounting the amount in light of non-actionable pre-petition harm and harm caused by outside stresses. The final amount awarded in emotional distress damages: $7,500.

Punitive Damages

It is with the punitive damages award that the court most soundly punished landlord Zokaites for the harassment of his tenants. The court determined that the Lansaws were entitled to receive punitive damages from their landlord because all of the factors for such award, as described in In re Howard, 2011 U.S. Dist. LEXIS 12612, 2011 WL 578777 at *13 (W.D. Pa. 2011), had been met. In their case, that meant the landlord had:

  1. engaged in outrageous conduct;
  2. with a bad motive;
  3. without provocation by the Lansaws; and
  4. he had the financial means to pay the award.
  5. The next question, then, was what amount of damages should be set. The court looked to several prior decisions in this regard.

The first of these cases involved landlord harassment of a tenant in a similar manner to that complained of in Lansaw. In In re Atlanta Business and Community Corp., 901 F.2d 325 (3d Cir. 1990), the bankruptcy debtor ran a radio station out of its leased premises. After the station's bankruptcy petition was filed, the landlord gave the tenant/debtor a letter telling it that it could no longer operate the business out of the leased property. The landlord also attempted to lock the tenant out the premises and made threats against the tenant's employees to induce them to leave the property. The bankruptcy court's award of compensatory damages in that case was $1,500; punitive damages were set at $5,000.

In In re B. Cohen & Sons Caterers, Inc., 108 B.R. 482 (E.D. Pa. 1989), the debtor's landlord was given relief from the automatic stay so that it could evict the debtor. However, the landlord overstepped the boundaries of legitimate eviction proceedings by selling the debtor's property in order to compensate for missing back rent. Finding the landlord's conduct “oppressive and outrageous,” the court there awarded the debtor $10,000 in punitive damages.

The third case the court considered was In re Aponte, 82 B.R. 738 (Bankr. E.D. Pa. 1988), in which a landlord cut off a tenant's heat after the bankruptcy filing. This action, the Aponte court found, violated the automatic stay because it was meant to press the tenant to leave. In that case, $2,000 in punitive damages was awarded.

Before arriving at a punitive damage amount, Judge Agresti noted that while the above cases were instructive, the fact that all of them were decided more than 20 years earlier meant that the award to the Lansaws should be higher, due to inflation. Ultimately, he awarded the Lansaws punitive damages of $40,000.

The Lansaw court summed up its reasoning behind the actual and punitive damage awards by explaining:

The post filing conduct of the Defendant ranks with the most egregious the Court has personally witnessed while on the Bench or even reviewed in its research when evaluating violations of the automatic stay. Frank Zokaites clearly knew what he was doing, believing at the time (and even at the August trial) that he was above the law and that the constraints of the automatic stay provisions of the Bankruptcy Code posed no impediment to him as he toyed with and harassed the Debtors as they pursued their fresh start in bankruptcy. Clearly this is a case where a financially capable bully, not just in the figurative but also the literal sense, arrogantly attempted to manipulate the system and intimidate the Debtors so he could collect the rent he believed was due even after the bankruptcy was filed.

Obviously, the damages levied against the landlord in Lansaw were not worth any psychological satisfaction he might have derived from pressuring his tenants.

Conclusion

The Lansaw case and the landlord harassment cases cited therein all came out of the bankruptcy court, where harassment of a tenant is not just considered objectionable, but is also clearly unlawful in light of the Bankruptcy Act's automatic stay. Of course, not every landlord-harassed commercial tenant has filed for bankruptcy, so they will often have to resort to laws against trespassing or assault for their remedies. But, as we saw in Part One of this article (see http://bit.ly/2n6nqUf), other means of protecting commercial tenants from bullying landlord behavior may be available, as they are in New York City, where the city's Non-Residential Tenant Harassment law provides aggrieved commercial tenants a private right of action when they are harassed.

Whatever the available remedies, landlords should be made aware of the possible consequences of pressuring their commercial tenants. When such behavior goes too far, the landlord just might have to pay.

*****
Janice G. Inman
is Editor-in-Chief of this newsletter.

Last month, we considered the problem of landlord harassment of commercial tenants, looking first at a law that recently went on the books in New York City to provide a private right of action by tenants against offending landlords; known as the Non-Residential Tenant Harassment law, it is codified as Chapter 9, Title 22 of the New York City Administrative Code. We also began discussion of a case out of bankruptcy court, In re Lansaw v. Zokaites, 2015 Bankr. LEXIS 106 (2015) (affirmed in Zokaites v. Lansaw, 2016 U.S. Dist. LEXIS 33118 (W.D. Pa., Mar. 15, 2016), which deals with one landlord's bad behavior toward his commercial tenant. As discussed last month, in Lansaw, the tenants (and bankruptcy petitioners) complained of certain harassment that occurred prior to the filing of their bankruptcy petition. They failed to obtain relief on those claims, however, as the court found that the landlord's behavior pre-petition, though reprehensible, fell short of crossing the line into lawlessness. Let us turn now to the court's analysis of the landlord's post–bankruptcy-petition behavior.

After the Filing

The post-petition harassing behavior charged by Garth and Deborah Lansaw against landlord Frank Zokaites encompassed several incidents. In one, they said Zokaites entered the leased premises without their permission, to take photos of the property he claimed he was entitled to seize from them for back rent, in accordance with the “Notice of Distraint” he had served upon them. The landlord later padlocked the Landsaws' daycare center's doors, interrupting the operation of their business for several days. Finally, Zokaites wrote a letter to the owner of property the petitioners intended to lease when they moved out of his own property, in which he threatened to sue this person if he rented to the Lansaws. The question whether these actions violated the automatic stay under the Bankruptcy Act had been adjudicated prior to the proceedings before Bankruptcy Judge Thomas P. Agreseti, and Zokaites had been found at fault. Therefore, the only issue before Judge Agreseti was that of the damages that Zokaites should pay to the Lansaws for violation of the Bankruptcy Code's automatic stay provision, and any bankruptcy petitioner injured by the willful violation of the automatic stay “shall recover actual damages, including costs and attorney fees, and, in appropriate circumstances, may recover punitive damages.” 11 U.S.C. § 362(k)(1).

Having lost in his attempt not to be found in violation of the automatic stay, Zokaites admitted that he now owed the petitioners $2,600 in attorney fees — the amount the Lansaws paid their attorney to obtain an injunction against any further harassment by him that would violate the automatic stay. He did not acquiesce to any other type of damages.

Actual Damages

The Lansaws also asked for actual damages, to compensate them for decreased revenue at their day care center and for emotional distress.

Emotional Distress

Judge Agresti found insufficient evidence of lost revenue, so he turned his attention to the question of whether emotional distress damages are recoverable for violation of the Bankruptcy Code's automatic stay even if actual damages are not proven, noting that there is a split in authority on the issue. He looked to a 2008 decision in which the now-Chief Judge of the Bankruptcy Court for the Western District of Pennsylvania, Jeffrey A. Deller, wrote the opinion. In that case, In re Wingard, 382 B.R. 892, 902-04 (Bankr. W.D. Pa. 2008), Judge Deller concluded that the “plain reading” of Section 362(k)(1) permits recovery for emotional distress injury even absent actual damages because the Bankruptcy Code's legislative history indicates that the automatic stay was intended to address not only financial realities, but also “human” concerns, by allowing breathing space for a claimant under financial stress. Relying on Wingard, Judge Agresti concluded that the Lansaws were entitled to seek emotional distress damages even though they were unable to prove that Zokaites had financially or physically harmed them.

This being decided, the court moved on to Zokaites' argument that because the Lansaws presented no expert testimony to bolster their claims of emotional distress (such as the testimony of a psychiatrist), their claim must fail.

Judge Agresti was not concerned that there had been no expert medical testimony, once more relying on Wingard, this time for the proposition that expert testimony concerning emotional injury is not necessary to prove such damages where the complained-of behavior testified to by the victims is so egregious that emotional injury can be inferred. The court made such an inference in this case, concluding that the “patently or obviously egregious” standard of Wingard had been met, so that the testimony of the Lansaws alone — to the effect that one or both of them were having nightmares, were having trouble trusting people and forming or maintaining personal relationships, among other things — could serve as proof of the infliction on them by Zokaites of emotional distress.

Zokaites next argued that several alternative sources of stress besides his actions could have caused the Lansaws' emotional distress. Most of these the court dismissed, including evidence that the Lansaws had suffered carbon monoxide poisoning some years earlier and that this might have made them more sensitive than the average person to the things Zokaites had done. In this regard, Judge Agreseti cited to Tabor v. Miller , 389 F.2d 645, 647-48 (3d Cir. 1968), and its teaching that a plaintiff's extraordinary vulnerability “is not a defense to the issue of causation[,] but merely an occasion for the invocation of the legal maxim that a tortfeasor takes his victim as he finds him and is liable for the full extent of the damage he has inflicted, even if it is greater than he could have foreseen because the victim was particularly susceptible to the injury.” The carbon monoxide poisoning incident and others cited by Zokaites were not enough “to break the claim of causation created by Zokaites' reprehensible and inexcusable conduct directly related to his obligation to honor his responsibilities upon inception of the automatic stay,” the court concluded.

On the other hand, evidence had been presented — through the Lansaws' own testimony — that Zokaites' behavior prior to the bankruptcy filing had initiated the claimed emotional distress. This pre-petition emotional harm could not serve as a basis for recovery of damages for violation of the automatic stay, the court noted. Other sources of stress, including the bankruptcy proceeding itself and the Lansaws' dissatisfaction with their bankruptcy counsel, also needed to be taken into account by the court in settling on a damage amount. Therefore, the court awarded damages for emotional distress only after looking at what other courts had awarded in similar bankruptcy–stay-violation cases (approximately $10,000 to $12,000), then discounting the amount in light of non-actionable pre-petition harm and harm caused by outside stresses. The final amount awarded in emotional distress damages: $7,500.

Punitive Damages

It is with the punitive damages award that the court most soundly punished landlord Zokaites for the harassment of his tenants. The court determined that the Lansaws were entitled to receive punitive damages from their landlord because all of the factors for such award, as described in In re Howard, 2011 U.S. Dist. LEXIS 12612, 2011 WL 578777 at *13 (W.D. Pa. 2011), had been met. In their case, that meant the landlord had:

  1. engaged in outrageous conduct;
  2. with a bad motive;
  3. without provocation by the Lansaws; and
  4. he had the financial means to pay the award.
  5. The next question, then, was what amount of damages should be set. The court looked to several prior decisions in this regard.

The first of these cases involved landlord harassment of a tenant in a similar manner to that complained of in Lansaw. In In re Atlanta Business and Community Corp., 901 F.2d 325 (3d Cir. 1990), the bankruptcy debtor ran a radio station out of its leased premises. After the station's bankruptcy petition was filed, the landlord gave the tenant/debtor a letter telling it that it could no longer operate the business out of the leased property. The landlord also attempted to lock the tenant out the premises and made threats against the tenant's employees to induce them to leave the property. The bankruptcy court's award of compensatory damages in that case was $1,500; punitive damages were set at $5,000.

In In re B. Cohen & Sons Caterers, Inc., 108 B.R. 482 (E.D. Pa. 1989), the debtor's landlord was given relief from the automatic stay so that it could evict the debtor. However, the landlord overstepped the boundaries of legitimate eviction proceedings by selling the debtor's property in order to compensate for missing back rent. Finding the landlord's conduct “oppressive and outrageous,” the court there awarded the debtor $10,000 in punitive damages.

The third case the court considered was In re Aponte, 82 B.R. 738 (Bankr. E.D. Pa. 1988), in which a landlord cut off a tenant's heat after the bankruptcy filing. This action, the Aponte court found, violated the automatic stay because it was meant to press the tenant to leave. In that case, $2,000 in punitive damages was awarded.

Before arriving at a punitive damage amount, Judge Agresti noted that while the above cases were instructive, the fact that all of them were decided more than 20 years earlier meant that the award to the Lansaws should be higher, due to inflation. Ultimately, he awarded the Lansaws punitive damages of $40,000.

The Lansaw court summed up its reasoning behind the actual and punitive damage awards by explaining:

The post filing conduct of the Defendant ranks with the most egregious the Court has personally witnessed while on the Bench or even reviewed in its research when evaluating violations of the automatic stay. Frank Zokaites clearly knew what he was doing, believing at the time (and even at the August trial) that he was above the law and that the constraints of the automatic stay provisions of the Bankruptcy Code posed no impediment to him as he toyed with and harassed the Debtors as they pursued their fresh start in bankruptcy. Clearly this is a case where a financially capable bully, not just in the figurative but also the literal sense, arrogantly attempted to manipulate the system and intimidate the Debtors so he could collect the rent he believed was due even after the bankruptcy was filed.

Obviously, the damages levied against the landlord in Lansaw were not worth any psychological satisfaction he might have derived from pressuring his tenants.

Conclusion

The Lansaw case and the landlord harassment cases cited therein all came out of the bankruptcy court, where harassment of a tenant is not just considered objectionable, but is also clearly unlawful in light of the Bankruptcy Act's automatic stay. Of course, not every landlord-harassed commercial tenant has filed for bankruptcy, so they will often have to resort to laws against trespassing or assault for their remedies. But, as we saw in Part One of this article (see http://bit.ly/2n6nqUf), other means of protecting commercial tenants from bullying landlord behavior may be available, as they are in New York City, where the city's Non-Residential Tenant Harassment law provides aggrieved commercial tenants a private right of action when they are harassed.

Whatever the available remedies, landlords should be made aware of the possible consequences of pressuring their commercial tenants. When such behavior goes too far, the landlord just might have to pay.

*****
Janice G. Inman
is Editor-in-Chief of this newsletter.

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