Opinion
Case No. 2:99-CV-119, Chapter 7
October 12, 1999
OPINION
Appellant, Stanton Eugene Bigham ("Bigham"), appeals from the bankruptcy court's May 17, 1999, order denying Bigham's motion for damages, costs, attorney fees, and punitive damages pursuant to 11 U.S.C. § 362 and 524 against Equipment Leasing Specialists, Inc. ("ELSI"). For the reasons stated below, the Court will affirm.
Bigham has not appealed the bankruptcy court's order with respect to ELSI's counsel, Lori J. Frank, P.C.
Facts
On November 27, 1996, Bigham filed a bankruptcy petition under Chapter 7 of the United States Bankruptcy Code. The case was assigned to Judge Jo Ann C. Stevenson. At the time Bigham, filed the case, he was one of nine individuals who had personally guaranteed the obligations of Superior Mobil X-Ray, Inc. ("Superior") under an equipment lease with ELSI. However, ELSI did not receive notice of the bankruptcy because Bigham did not list ELSI as a creditor. The bankruptcy case was closed on October 22, 1997.
On May 21, 1998, Bigham filed a motion to reopen his bankruptcy case pursuant to 11 U.S.C. § 350 in order to discharge his debts to certain creditors, including ELSI, who had been omitted from the schedules. On August 27, 1998, Judge Stevenson entered an order which provided that the case would be reopened only if one or more of the omitted creditors filed an adversary proceeding objecting to dischargeability on or before October 27, 1998. A copy of the order was apparently served on ELSI and the other creditors identified in the order. None of the creditors filed an adversary proceeding. Therefore, on November 5, 1998, Judge Stevenson entered an order denying Bigham's motion to reopen his bankruptcy case as moot and discharging the debts of the omitted creditors. The order was served on the omitted creditors.
Sometime in January 1999, ELSI forwarded its file on the Superior Mobil X-Ray, Inc. debt to attorney Lori J. Frank ("Frank") for collection. During the last week of January, Frank left a telephone message on Bigham's answering machine regarding the debt. On February 8, 1999, Frank's office sent a letter to Bigham on behalf of ELSI stating that her firm had been retained by ELSI to collect the Superior debt.
The letter requested that Bigham contact Frank's office "immediately upon receipt of the letter," and advised that "[f]ailure to respond [would] result in immediate legal action to be taken" against Bigham. (Letter from Targosz to Bigham of 2/8/99, Appeal R. Doc. 10.) On February 9, 1999, Frank left another telephone message for Bigham. On February 24, 1999, Bigham's counsel sent a copy of Judge Stevenson's November 5, 1998, order discharging the ELSI debt to Frank.
According to Frank, Bigham's counsel did not include a cover letter explaining the order or referencing the February 8 letter from Frank's office. On March 12, 1999, Frank's office sent Bigham another letter that essentially reiterated the statements in the February 8 letter. (See Letter from Targosz to Bigham of 3/12/99, Appeal R. Doc. 15.)
On March 29, 1999, Bigham filed a motion to reopen his bankruptcy case to allow him to file a motion pursuant to 11 U.S.C. § 362 for damages, costs, and attorney fees and punitive damages against Frank. On March 31, 1999, Judge Stevenson granted Bigham's motion and entered an order reopening Bigham's case "for the limited purpose of allowing [Bigham's] counsel to proceed against Lori J. Frank, P.C. for recovery of damages, costs, attorney fees, and punitive damages pursuant to 11 U.S.C. § 362.11 (3/31/99 order, Appellant's Br. Ex. 3.) On April 2, 1999, Bigham filed a motion for damages, costs, attorney fees and punitive damages pursuant to 11 U.S.C. § 362 against Lori J. Frank, P.C. Bigham filed an amended motion on May 3, 1999, which sought relief against both Lori J. Frank, P.C. and ELSI pursuant to both 11 U.S.C. § 362 and 524.
A hearing on Bigham's motion was held on May 11, 1999, before Bankruptcy Judge James D. Gregg. At the conclusion of the hearing, Judge Gregg denied the motion on the basis that the letters constituted technical violations which did not cause Bigham any actual damages. Judge Gregg reasoned:
If there are a letter or two from a collection agency, I don't see any harm to the debtor. I don't like it; the Code doesn't want that; but mistakes happen. Here we have two letters going out. We have a cure. We have an apology. That's sufficient.
(5/11/99 Hr'g Tr. at 17, Appeal R. Doc. 8.)
Standard of Review
The standard which a district court applies in reviewing a bankruptcy court's award or denial of sanctions is the abuse of discretion standard. Braun v. Champion Credit Union (In re Braun), 152 B.R. 466, 469 (1993). Reversal is required under this standard only if "the district court has a definite and firm conviction that the bankruptcy court committed clear error of judgment in a conclusion it reached." Id.
A clear error of judgment may include either an erroneous view of the law or a clearly erroneous assessment of the evidence. See id.
Discussion
Bigham raises two grounds for reversal of the order denying his motion for sanctions. First, he contends that the bankruptcy court should have found that ELSI was in violation of the discharge injunction set forth in 11 U.S.C. § 524 based upon the letters sent and telephone calls made by Frank or her office. Second, he contends that Judge Gregg erred by hearing his motion because the case was assigned to Judge Stevenson, who handled all previous proceedings. The Court will address each argument separately.
I. Denial of Sanctions
Even though his amended motion requested relief under both 11 U.S.C. § 524 and 11 U.S.C. § 362, Bigham concedes for purposes of this appeal that the applicable statute for determining whether sanctions are appropriate is § 524 rather than § 362(h). Under 11 U.S.C. § 524 (a)(2), A discharge in a case under title [11]
* * *
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived. . . . 11 U.S.C. § 524(a)(2).
Unlike 11 U.S.C. § 362, which creates the automatic stay during the pendency of a bankruptcy case, § 524, which creates the discharge injunction, does not expressly authorize any type of relief other than an injunction. See In re Arnold, 206 B.R. 560, 567 (Bankr.N.D.Ala. 1997) (mem. op.). However, courts have imposed sanctions for violations of § 524 based either on their inherent contempt power or on their statutory contempt powers under 11 U.S.C. § 105. See In re Borowski, 216 B.R. 922, 925 (Bankr.E.D.Mich. 1998) (mem. op.) Arnold, 206 B.R. at 567.
The express remedies provided under § 362 for violation of the automatic stay include "actual damages, costs and attorneys' fees, and, in appropriate circumstances, . . . punitive damages." 11 U.S.C. § 362(h).
Where a violation is willful, compensatory damages will be awarded. See In re Timbs, 178 B.R. 989, 997 (Bankr.E.D.Tenn. 1994) (mem. op.) A violation is "willful" if it is based on a "`deliberate and intentional act done with the knowledge that the act is in violation of the stay.'" Leber v. Illinois Dep't of Revenue (In re Leber), 134 B.R. 911, 917 (Bankr. N.D. Ill. 1991) (mem. op.) (quoting In re Forty-Eight Insulations, Inc., 54 B.R. 905, 909 (Bankr.N.D.Ill. 1985)).
The movant bears the burden of proving by clear and convincing evidence that an alleged violation was willful. Arnold, 206 B.R. at 568.
In Hardy v. United States (In re Hardy), 97 F.3d 1384 (11th Cir. 1996), the Eleventh Circuit found that violations of the § 524 post-discharge injunction should be addressed under the statutory contempt powers granted by § 105 of the Bankruptcy Code rather than the court's inherent contempt powers. See Hardy, 97 F.3d at 1389-90. The court found that the test for determining whether a violation of the discharge injunction was willful is whether: (1) the creditor was aware of the bankruptcy and hence, the discharge injunction; and (2) whether the creditor intended the actions which violated the injunction. See id. at 1390. Applying that test to the case at hand, the Hardy court remanded the case to the district court for factual determinations regarding whether the creditor the Internal Revenue Service — received notice of the debtor's discharge in bankruptcy and whether the creditor intended the actions which violated the discharge injunction. See id. at 1390.
Knowledge of the bankruptcy or of a particular order is also a requirement for willful conduct where a court invokes its inherent contempt powers. See In re Sielaff, 164 B.R. 560, 568-69 (Bankr.W.D.Mich. 1994).
In this case, it is undisputed that Bigham did not list ELSI as a creditor and, therefore, that ELSI could not have been aware of Bigham's bankruptcy or his discharge at least prior to August 1998, when Bigham's motion to reopen the bankruptcy case and Judge Stevenson's order conditionally reopening the case were served on ELSI at the address of 3622 Oak Grove Road, Suite B, Howell, Michigan 48843. However, at the hearing, ELSI presented evidence showing that at the time Judge Stevenson's orders were served, ELSI was not located at the 3622 Oak Grove Road address. (See Donovan Aff. ¶¶ 3, 4, Appeal R. Doc. 20.) In addition, ELSI's evidence indicated that except for the motion for damages filed by Bigham's counsel against Frank and ELSI, ELSI had not received any notice of Bigham's bankruptcy. (See id. ¶¶ 5, 6.) This evidence adequately demonstrated that ELSI in fact did not have notice of the bankruptcy.
Bigham contends that the statement sent by ELSI to superior on June 15, 1998, and the Michigan Consumer Industry Services Corporate Record, both of which are attached to Bigham's brief, refute ELSI's contention that its address was not 3622 Oak Grove Road, Suite B, Howell, Michigan. While this evidence does contradict ELSI's assertion, the court will not consider it because it was not presented to the bankruptcy court and is not a part of the record.
Moreover, the evidence indicated that even though Bigham's counsel sent a copy of Judge Stevenson's November 5, 1998, order to Frank, Frank did not realize that the notice pertained to her Superior collection file until after the March 12, 1999, letter was sent to Bigham, primarily because Bigham's counsel failed to include a cover letter stating why the order was being sent to Frank.
Notably, neither Bigham nor his counsel took any steps to contact Frank by telephone to explain that the debt had been discharged even though her office telephone number was readily available. Rather, even though he had incurred no damage as a result of the collection letters, Bigham proceeded to file a motion for sanctions without first attempting to alert ELSI to its mistake through a simple telephone call. In that regard, this case differs somewhat from In re Hill, 222 B.R. 119 (Bankr.N.D.Ohio 1998) (mem. op.), in which the bankruptcy court found that even though the creditor's violation was relatively minor and the debtor had suffered no damage beyond the annoyance of receiving a collection letter, the debtor was still entitled to recover her attorneys fees. See Hill, 222 B.R. at 124. In that case, a collection agency hired by the creditor sent a collection letter to the debtor after the debt had been discharged. There was no dispute that the creditor had received actual notice of the bankruptcy, but because of an error, had failed to cease collection on the account. In response to the letter, the debtor's husband contacted the collection agency and advised the representative that the debt had been discharged. The representative was rude to the husband and apparently lead the husband to believe that collection efforts would continue. The court concluded that the collection letter, coupled with the debt collector's response to the debtor's husband's phone call, constituted a willful violation of the discharge injunction. See id. The instant case is thus distinguishable from Hill not only because ELSI was not aware of the bankruptcy but also because, except for the collection letter which was sent out by mistake and could have been addressed through a telephone call by Bigham or his counsel, there is no evidence that ELSI led Bigham to believe that it would persist in its collection efforts despite actual notice from Bigham that the debt had been discharged. Because the evidence did not demonstrate a willful violation of the injunction, the bankruptcy court did not abuse its discretion in denying Bigham's motion for sanctions.
II. Assignment to Judge Gregg
Bigham's second argument is that Judge Gregg erred in hearing and deciding the motion because the case was assigned to Judge Stevenson and she had more familiarity with the case.
Bigham cites no relevant authority for his proposition that, in the bankruptcy context, he is entitled to have a particular motion heard by a particular judge. In addition, except for arguing that Judge Gregg was biased against granting the type of motion that Bigham was bringing, Bigham has failed to demonstrate that Judge Gregg harbored any particular prejudice toward Bigham or his counsel, and Bigham has not presented any circumstance to this Court which suggests that the result might have been different had Judge Stevenson decided the motion.
Finally, the Court also rejects Bigham's argument because Bigham did not object to Judge Gregg hearing the motion.
Conclusion
For the foregoing reasons, the Court will affirm the bankruptcy court's order denying Bigham's motion for damages, costs, attorney fees, and punitive damages.