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After a creditor hires a repossession company to repossess a vehicle for nonpayment, lots of things can go wrong. But, which party is liable for those wrongs: the creditor or the repossession company? The creditor will want to pin the blame on the repossession company, but, as a recent case indicates, the creditor will not always be successful.

Mr. Transmission repaired a truck owned by Jimmy Ramirez. Mr. Transmission accepted two post-dated checks from Ramirez to pay for the repairs, but Ramirez later cancelled those checks. Mr. Transmission hired Texas Mechanical Collection Service to repossess the truck, which was subject to Mr. Transmission's mechanic's lien. Three months later, Ramirez filed for bankruptcy. Seven months after the bankruptcy filing, Texas Mechanical repossessed the truck and stored it at an open storage yard owned by a third party.

Approximately four days after the repossession, Mr. Transmission informed Texas Mechanical that the truck was subject to the automatic stay in Ramirez's bankruptcy case and instructed Texas Mechanical to return the truck to Ramirez. Texas Mechanical refused to return the truck until Mr. Transmission paid the fees for its repossession services. Texas Mechanical held the truck for approximately four months until it finally returned the truck to Ramirez.

While the truck was in Texas Mechanical's possession, it was damaged. The body of the truck was covered with specks of white paint, the rear bumper was dented and scratched, the front license plate was dented, the seats were ripped, the entire dash board was removed, there were large amounts of trash in the bed and back seat of the truck, and the tires were changed. Ramirez sued Mr. Transmission and Texas Mechanical for violating the automatic stay, the Fair Debt Collection Practices Act, and the Texas Debt Collection Act. Texas Mechanical filed a cross-complaint against Mr. Transmission for reimbursement of the costs and expenses it incurred in connection with the repossession.

The U.S. Bankruptcy Court for the Southern District of Texas first found that Mr. Transmission had sole liability for all damages resulting from violation of the automatic stay that occurred before the date on which Texas Mechanical had knowledge of Ramirez's bankruptcy case. Mr. Transmission and Texas Mechanical were jointly and severally liable for all damages that occurred on or after that date. Because there was no evidence of damages before the date on which Texas Mechanical learned of the bankruptcy, the court concluded that Mr. Transmission and Texas Mechanical were jointly and severally liable for all of Ramirez's actual damages and his attorney's fees and costs.

Mr. Transmission argued that its liability should be limited to the damages that occurred prior to instructing Texas Mechanical to return the truck to Ramirez. The court agreed that once Mr. Transmission instructed Texas Mechanical to return the truck, the agency relationship terminated, and Texas Mechanical was no longer acting within the scope of its agency. However, the court noted that termination of the agency relationship with Texas Mechanical did not shield Mr. Transmission from liability for actions it set into motion during the agency relationship. Because the fees incurred by Texas Mechanical's collection efforts were a consequence of Mr. Transmission's failure to timely inform Texas Mechanical of the bankruptcy, Mr. Transmission had a contractual duty to pay Texas Mechanical for its services and was liable for any damage that resulted from its failure to pay the fees. The court also noted that, under agency law, Mr. Transmission bore the risk that Texas Mechanical exceeded the scope of its authority. Even though Mr. Transmission told Texas Mechanical to return the truck, it had a duty to go beyond this instruction and to pay the fees needed to ensure that the truck was returned.

The court went on to find that Mr. Transmission was liable to Ramirez under a constructive bailment theory for the physical damage to the truck while it was in Texas Mechanical's possession. The court found that Texas Mechanical, as an agent of Mr. Transmission, was also liable for damage to the truck that occurred in an open storage yard that was accessible to other wrecker drivers.

The court also concluded that Texas Mechanical violated FDCPA Section 1692e(5) by threatening to take an action that could not legally be taken or that was not intended to be taken. The court noted that Section 1692e(5) can be violated when an illegal action is taken, regardless of whether there is also a threat of illegal action. Texas Mechanical violated this section by refusing to return the truck while knowing that its refusal was in violation of the automatic stay. The court also concluded that Texas Mechanical violated FDCPA Section 1692f - which prohibits a debt collector from using unfair or unconscionable means to collect a debt - by keeping the truck for four months after being told to return it. The court did not find any violations of the TDCA.

In addition to actual damages of $9,444 and attorneys' fees and costs, the court found that Ramirez was entitled to punitive damages under the Bankruptcy Code, but that such damages should be determined at an evidentiary hearing. The court also found that Mr. Transmission was liable to Texas Mechanical for $5,584 for its repossession and storage charges.

So, the creditor not only has to pay the repossession company for a repossession that should never have taken place because of the truck owner's bankruptcy, but it is also jointly and severally liable with the repossession company for the truck owner's actual damages, costs, attorneys' fees, and punitive damages. Just because a creditor passes a repossession off to a separate company does not necessarily absolve it of liability if something goes wrong, especially if the creditor was at fault.

In re Ramirez (Ramirez v. Mr. Transmission), 2014 Bankr. LEXIS 2012 (Bankr. S.D. Tex. May 6, 2014).

Shelley B. Fowler is a Managing Editor of CARLAW, HouseLaw, PrivacyLaw, and Spot Delivery. Shelley can be reached at 410-865-5406 or by e-mail at rfowler@hudco.com.