Opinion
District Court Cause No. 1:03-cv-2064-JDT-TAB, Bankruptcy Court Cause No. 03-21333-AJM-13.
September 13, 2004
ENTRY ADDRESSING BANKRUPTCY APPEAL
Citizens Gas Coke Utility ("Citizens Gas") brings this action against James Thomas Mathews and Robin Eileen Mathews ("the Mathews") appealing two orders of the bankruptcy court. Specifically, Citizens Gas contends that the bankruptcy court erred in the following ways: ordering Citizens Gas to reconnect the Mathews' residential gas service; ruling that evidence of the Mathews' pre-petition gas service history was not relevant to the determination of whether the Mathews' gas service should be reconnected post-petition; and, finding Citizens Gas in contempt and ordering the company to pay compensatory damages and attorney fees. Citizens Gas has also moved to strike a portion of the Mathews' appellate brief. Having considered the record on appeal, the parties' arguments and the law, the court decides as follows.
I. Background
From November 1999 through April 2003, Citizens Gas disconnected the Mathews' residential gas service seven times due to the Mathews' failure to pay amounts due and owing to Citizens Gas. (Tr. of Dec. 23, 2003 Hr'g, Ex. C.) The most recent disconnection occurred on April 30, 2003. ( Id.)
On November 12, 2003, with their gas service still disconnected, the Mathews filed a petition for relief pursuant to Chapter 13 of the United States Bankruptcy Code, listing Citizens Gas as a creditor. (Tr. of Dec. 23, 2003 Hr'g ("Hr'g Trans.") at 4.) Approximately two days after filing the bankruptcy petition, Ms. Mathews telephoned Citizens Gas and asked that the Mathews' gas service be reconnected. (Hr'g Trans. at 7-8, 15-16.) A Citizens Gas representative informed Ms. Mathews that the company would not reconnect the service until the Mathews paid a security deposit of $125. (Hr'g Trans. at 4-5, 19.) Ms. Mathews testified she "agreed" to the deposit, though neither she nor her husband paid it. (Hr'g Trans. at 5.)
On November 26, 2003, someone at Citizens Gas entered a notation on the Mathews' gas service record of the Mathews' November 12 bankruptcy filing. (Hr'g Trans., Ex. A.)
On December 5, 2003, Ms. Mathews appeared in person at the Citizens Gas main office and again asked for her gas service to be reconnected. (Hr'g Trans. at 5.) A Citizens Gas representative told Ms. Mathews that the company knew about her bankruptcy filing, but would not reconnect service until a security deposit was paid — though this time, the representative demanded a deposit amount of $430. (Hr'g Trans. at 5.)
On December 18, 2003, the Mathews filed a motion for contempt, seeking an order to restore gas service, an order holding Citizens Gas in contempt for violating 11 U.S.C. § 366(a) and a hearing to determine a reasonable security deposit pursuant to 11 U.S.C. § 366(b). The next day, the bankruptcy court issued an order requiring Citizens Gas to immediately reconnect the Mathews' gas service and setting a hearing for December 23, 2003 ("Reconnect Order").
As discussed below, Section 366(a) provides that a utility may not refuse service to the debtor solely on the basis of the commencement of a bankruptcy case or on the basis that the debtor failed to pay a pre-petition debt to the utility. See 11 U.S.C. § 366(a). Section 366(b) provides that the utility is entitled to alter, refuse, or discontinue service if the debtor, within 20 days after the date of the order for relief, fails to furnish "adequate assurance of payment, in the form of a deposit or other security, for service after such date." 11 U.S.C. § 366(b).
At the December 23 hearing, the bankruptcy court heard testimony and received documents into evidence. Citizens Gas sought to introduce a business record substantiating the seven pre-petition disconnections of the Mathews' gas service, but the court refused to admit the evidence on the grounds that the evidence was irrelevant under Section 366. (Hr'g Trans. at 12-14.) On January 13, 2004, the bankruptcy court issued an order requiring the Mathews to pay a security deposit in the amount of $220, holding Citizens Gas in contempt for failing to reconnect the gas service, and requiring Citizens Gas to pay the Mathews $370 in compensatory damages and $300 in attorney fees ("Contempt Order").
Citizens Gas filed timely appeals of both the Reconnect Order and the Contempt Order, which this court subsequently consolidated into the present appeal.
II. Jurisdiction
Neither party disputes this Court's jurisdiction, but the Court has an independent duty to ensure that it exists. See, e.g., Int'l Ins. v. Caja Nacional De Ahorro y Seguro, 293 F.3d 392, 395-96 (7th Cir. 2002).
Citizens Gas invokes this court's jurisdiction via 28 U.S.C. § 158(a)(1) ("The district courts of the United States shall have jurisdiction to hear appeals . . . from final judgments, orders, and decrees [issued by bankruptcy courts]."). Neither the Reconnect Order nor the Contempt Order concluded the bankruptcy proceeding, but that type of finality is not required by Section 158(a)(1). "In the bankruptcy context, . . . finality does not require a final order concluding the entire bankruptcy proceeding; certain orders entered prior to the conclusion of the bankruptcy proceeding will be deemed final. Where an order terminates a discrete dispute that, but for the bankruptcy, would be a stand-alone suit . . ., the order will be considered final and appealable." In re Rimsat, Ltd., 212 F.3d 1039, 1044 (7th Cir. 2000) (citations omitted).
Together, the Reconnect and Contempt Orders terminated the discrete dispute between the Mathews and Citizens Gas concerning whether and under what terms the Mathews gas service should be connected post-petition. Any claim Citizens Gas may have for amounts owing by the Mathews pre-petition is an entirely separate matter, governed by different provisions of the Bankruptcy Code. Moreover, the finding of contempt and the imposition of damages and attorney fees disposed of all the issues related to the Mathews' contempt motion. See U.S. ex rel. Small Bus. Admin. v. Torres, 142 F.3d 962, 969 (7th Cir. 1998) ("An order finding a party in civil contempt disposes of all the issues raised . . . if it includes both a finding of contempt and the imposition of a sanction.") (quoting Motorola, Inc. v. Computer Displays Int'l, Inc., 739 F.2d 1149, 1154 (7th Cir. 1984)).
Finally, it is worth noting that the Supreme Court's holding in Cunningham v. Hamilton County, Ohio, 527 U.S. 198 (1999), does not alter the well-settled law espoused in Torres and Motorola, at least when applied to the facts of this case. Cunningham holds that sanction orders are not automatically appealable prior to final judgment. The Seventh Circuit has indicated (without reaching the issue) that Cunningham's holding may apply in the bankruptcy context. See In re Rimsat, 212 F.3d at 1044 ("Dicta in In re Wade, 991 F.2d 402, 406 (7th Cir. 1993), suggests that [bankruptcy] sanctions orders fall into this category [of immediately appealable orders], but it is unclear whether such a position can be maintained in the wake of Cunningham. . . ."). Yet regardless of whether Cunningham applies in the bankruptcy context, it does not affect the court's jurisdiction in this case. Cunningham dealt with the immediate appealability of a Federal Rule of Civil Procedure 37(a) sanction against an attorney for discovery violations. See Cunningham, 527 U.S. at 200. In reaching its decision, the Court noted "the significant differences between a finding of contempt and a Rule 37(a) sanctions order. Civil contempt is designed to force the contemnor to comply with an order of the court. In contrast, a Rule 37(a) sanctions order lacks any prospective effect and is not designed to compel compliance." Id. at 207 (quotation and citation omitted). Thus while a Rule 37(a) sanction is not immediately appealable because it lacks "any prospective effect and is not designed to compel compliance," the Court implied that a contempt order would be immediately appealable because its order is designed to compel compliance. In this case, as discussed below, the bankruptcy court's finding of contempt was designed at least in part to compel Citizens Gas to comply with Section 366.
III. Motion to Strike
Citizens Gas moves to strike a portion of the Mathews' brief submitted in this appeal. Specifically, Citizens Gas asks the court to strike the entire "Statement of the Facts" portion of the Mathews' brief for failure to include citations to the record, or, alternatively, to strike all facts alleged in the "Statement of the Facts" which are based on matters outside the record on appeal.
While Federal Rule of Bankruptcy Procedure 8010(a)(2) requires the appellee to include appropriate references to the record in its statement of the facts, the court will excuse the Mathews' failure to cite to the record in this instance. The record is relatively brief, and for the most part, the Mathews' statement of the facts mirrors the statement of facts in Citizens Gas' brief (which does contain citations to the record).
However, the court will not excuse the Mathews' inclusion of factual assertions which have no support in the record on appeal. See Holmberg v. Baxter Healthcare Corp., 901 F.2d 1387, 1392 n. 4 (7th Cir. 1990) (striking portions of brief referring to facts outside the record). These assertions concern purported conversations between the Mathews' counsel and Citizens Gas' counsel. The Mathews concede that their factual assertions specified in Citizens Gas' Motion to Strike were outside the record, and they have made no effort to supplement the record to substantiate those assertions.
Thus, Citizens Gas' Motion to Strike is GRANTED IN PART and DENIED IN PART. The factual assertions in the Mathews' brief which refer to matters outside the record on appeal will be STRICKEN.
IV. Standard of Review
"For purposes of standard of review, decisions by judges are traditionally divided into three categories, denominated questions of law (reviewable de novo), questions of fact (reviewable for clear error), and matters of discretion (reviewable for `abuse of discretion')." Pierce v. Underwood, 487 U.S. 552, 558 (1988). This action involves the bankruptcy court's interpretation of 11 U.S.C. § 366, a question of law; its issuance of a contempt order, a matter of discretion; and, its exclusion of evidence, also a matter of discretion. See In re Rimsat, Ltd., 212 F.3d 1039, 1046 (7th Cir. 2000) (decision by bankruptcy court to impose sanctions reviewed under the abuse of discretion standard); U.S. ex rel. Small Bus. Admin. v. Torres, 142 F.3d 962, 969 (7th Cir. 1998) (finding of contempt reviewed under the abuse of discretion standard); Kelly v. Mun. Courts of Marion County, 97 F.3d 902, 913 (7th Cir. 1996) (ruling excluding evidence reviewed under the abuse of discretion standard).
V. Discussion
A. Section 366
At the center of this dispute is the meaning of Section 366 of the Bankruptcy Code. The statute provides:
(a) Except as provided in subsection (b) of this section, a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due.
(b) Such utility may alter, refuse, or discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order for relief, furnishes adequate assurance of payment, in the form of a deposit or other security, for service after such date. On request of a party in interest and after notice and a hearing, the court may order reasonable modification of the amount of the deposit or other security necessary to provide adequate assurance of payment. 11 U.S.C. § 366.
The filing of a voluntary bankruptcy petition constitutes the "order for relief," as the phrase is used in the Bankruptcy Code. See 11 U.S.C. § 301; In re Tynan, 773 F.2d 177, 179 (7th Cir. 1985); In re Glenn, 760 F.2d 1428, 1437 n. 6 (6th Cir. 1985); In re Knize, 210 B.R. 773, 778 (Bankr. N.D. Ill. 1997).
It is undisputed that pursuant to Section 366(b), a utility has a right to demand a security deposit for post-petition service, and that if the debtor or trustee does not furnish this deposit within 20 days after the filing of the bankruptcy petition, the utility may refuse or disconnect service on the 21st day or any day thereafter. The bankruptcy court expressly stated this at the contempt hearing. (Hr'g Trans. at 28.) At issue is under what circumstances a utility may refuse service to a debtor during the first 20 days after the filing of the petition.
During the first 20 days, Section 366(a), by its clear language, prevents a utility from refusing to provide service if the basis for the refusal is either: (1) the commencement of the bankruptcy case, or, (2) the debtor's failure to pay for pre-petition services. Citizens Gas argues that Section 366(a) does not forbid a utility from refusing service for any other valid reason. The court agrees. For instance, other courts have held that Section 366 does not prevent a utility from refusing service to a debtor on the basis that, prior to filing the bankruptcy petition, the debtor illegally tampered with service lines and utility company equipment. See Memphis Light, Gas Water Div. v. Farley, 135 B.R. 292, 294 (W.D. Tenn. 1991) (recognizing "that the possibility of endangerment to the public, the debtor, the debtor's family, and employees of the utility company is a factor that cannot be overlooked in weighing the need of the utility company to exercise deterrent action for such illegal use"); Hendrickson v. Phila. Gas Works, 672 F. Supp. 823 (E.D. Pa. 1987) (same); In re Morris, 66 B.R. 28, 29 (E.D. Mich. 1986) (same).
Citizens Gas argues that it had a valid reason for refusing the Mathews service (absent a security deposit) within the initial 20-day window: due to the fact that the Mathews' gas service had been disconnected numerous times, the Mathews were not creditworthy. The company relies upon the Standards of Service of the Indiana Utility Regulatory Commission ("IURC"), which allows a utility to refuse to provide service without a security deposit if the applicant is not creditworthy. The IURC Standards of Service provide that an applicant may be deemed not creditworthy if the applicant had been a customer of the utility, and the utility disconnected service "for nonpayment of a bill for services rendered by that utility." 170 IND. ADMIN. CODE 5-1-15(b)(1)(C).
It is clear that Citizens Gas relies upon this definition of "creditworthy" in the IURC Standards of Service. For instance, in its brief, Citizens Gas states: "[T]he Debtors' residential gas service had been disconnected not less than seven times due to the Debtors' failure to pay amounts due and owing to Citizens Gas." (Br. of Appellant Citizens Gas and Coke Utility at 4 (citation omitted) (emphasis added).) It then states: "Based on the Debtors' creditworthiness, Citizens Gas advised [the Mathews] that it would reconnect gas service after the Debtors provided a security deposit. In accordance with the IURC Standards of Service, because of the Debtors' previous disconnections, Citizens Gas required the payment of a security deposit prior to the reconnection of the Debtors' gas service." ( Id. (citations omitted) (emphasis added).)
Citizens Gas argues that its refusal of service because of the Mathews' lack of creditworthiness is a reason entirely different than either of the two reasons prohibited by Section 366(a) of the Bankruptcy Code (i.e., (1) the commencement of the bankruptcy case, or, (2) the debtor's failure to pay for pre-petition services). The court disagrees. Under the facts of this case, the distinction between the Mathews' failure to pay for pre-petition services (which cannot be the basis for refusing service during the first 20 days under Section 366), and the Mathews' "creditworthiness" under the IURC Standards of Service, is illusory. One is directly linked to the other, making it a distinction without a meaningful difference. The sole reason the Mathews are "uncreditworthy" under the Standards of Service is that Citizens Gas disconnected their service "for nonpayment of a bill for services rendered by [Citizens Gas]." 170 IND. ADMIN. CODE 5-1-15(b)(1)(C). The sole reason Citizens Gas disconnected the Mathews' service was one of the prohibited reasons in Section 366(a): that the Mathews failed to pay "a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due." 11 U.S.C. § 366(a). In other words, because the Mathews failed to pay Citizens Gas for pre-petition services — which led directly to the disconnections and "uncreditworthy" rating — Citizens Gas refused to provide service (absent a deposit) during the initial 20-day window.
If IURC Standards of Service authorized Citizens Gas to refuse the Mathews' service without a deposit during the initial 20-day window, Section 366 prohibited it. To the extent the IURC Standards of Service conflict with the Bankruptcy Code under these facts, the Bankruptcy Code prevails. See Ocasek v. Manville Corp. Asbestos Disease Compensation Fund, 956 F.2d 152, 154 (7th Cir. 1992) ("[I]it is well settled that the Supremacy Clause dictates that when state law is contrary to federal bankruptcy law, the bankruptcy provisions prevail.") (citations omitted).
Another way of stating the requirement of Section 366(a) is that, for the first 20 days, a utility is obligated to pretend that the debtor did not file a bankruptcy petition, and that the debtor timely paid all of his bills for pre-petition utility service. See Whittaker v. Phila. Elec. Co., 92 B.R. 110, 115 (E.D. Pa. 1988) ("Section 366(a) provides that a utility may not discriminate against a debtor on the basis of a pre-petition debt. In other words, a debtor should be considered as a new customer, one without debts or an unfavorable credit history.") (emphasis in original), aff'd, 882 F.2d 791 (3rd Cir. 1989). In this case, based on all the evidence in the record, if the Mathews had timely paid their Citizens Gas bills for pre-petition service, they would not have had their service disconnected and they would have been deemed "creditworthy" as defined in the IURC Standards of Service, and no deposit could have been required under the IURC Standards. Therefore, under Section 366, the Mathews should not have been obligated to pay a deposit in order to have gas service for the first 20 days after filing their bankruptcy petition.
In support of its argument, Citizens Gas relies primarily upon In re Roberts, 29 B.R. 808 (E.D. Pa. 1983). Roberts held that Section 366 did not prohibit a phone company from refusing service absent a security deposit within the initial 20-day window if the debtor was a former customer who "ha[d], prior to the filing of a petition in bankruptcy, been terminated from Bell residential service in accordance with the applicable tariffs allowing for termination of service due to the failure to establish or maintain a satisfactory credit rating." Id. at 810. It is not entirely clear from the terse two-page Roberts opinion that the applicable Pennsylvania tariffs define "credit rating" in the same manner as the IURC Standards of Service — specifically, whether the debtors received their unsatisfactory credit ratings solely because they had their utility service disconnected for failing to pay the utility for pre-petition services. To the extent that is the case, this court disagrees with Roberts. The Roberts court reasoned that to read Section 366 the other way "would be to turn the bankruptcy petition into a means of extracting greater services from Bell than it is required to give under the applicable Pennsylvania Public Utility Commission Tariffs." Id. But Roberts cites no authority indicating why the Supremacy Clause would not make such a result permissible. The Bankruptcy Code was enacted to provide debtors with protections not necessarily present in state laws. Cf. Perez v. Campbell, 402 U.S. 637, 648 (1971) (one of the primary purposes of the Bankruptcy Act is to give debtors "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt") (citations omitted). Further, the burden the Code places on a utility is relatively minor: Section 366(b) limits a utility's risk to only the initial 20 days after the filing of the bankruptcy petition — after which time, service may be denied absent a deposit.
A few years after Roberts, in the same district, the bankruptcy court in In re Whittaker, 84 B.R. 934 (Bankr. E.D. Pa. 1988), when faced with similar facts, expressly rejected the above reasoning of the Roberts court. See Whittaker, 84 B.R. at 941-42. (Notably, the Seventh Circuit recently cited Whittaker for the proposition that "a public utility is not permitted to refuse to restore service because of nonpayment of fees incurred before the filing of a bankruptcy petition." In re Crawford, 324 F.3d 539, 543 (7th Cir. 2003) (citing, inter alia, 11 U.S.C. § 366(a); Whittaker, 84 B.R. at 942).) Whittaker was affirmed by the district court, 92 B.R. 110 (E.D. Pa. 1988), and the Third Circuit, 882 F.2d 791 (3rd Cir. 1989). The Third Circuit held: "[A] utility that has terminated service prior to the filing of a bankruptcy petition due to the non-payment of service bills is required by § 366 of the Bankruptcy Code to restore service after a petition for bankruptcy is filed, and before securing payment of adequate assurance if the debtor so requests within 20 days of the order granting relief." Whittaker, 882 F.2d at 793; see also Robinson v. Mich. Consol. Gas Co. Inc., 918 F.2d 579, 588 n. 8 (6th Cir. 1990) ("[E]ven where a utility has terminated service before a bankruptcy petition has been filed due to non-payment of bills, the plain language of section 366(b) requires the utility to restore service before securing adequate assurance of payment if the debtor or trustee so requests within 20 days of the order granting relief in bankruptcy.") (citing Whittaker, 882 F.2d at 794); In re Tarrant, 190 B.R. 704, 707-08 (Bankr. S.D. Ga. 1995) (same). In reaching this conclusion, the Third Circuit relied upon the text of Section 366(a) and 366(b) being read "literally and together." Whittaker, 882 F.2d at 794. The court also noted that its holding produces a result consistent with the purposes of the Bankruptcy Code:
It is not surprising in this context, that Congress would provide the same protection for a debtor whose service is cut off the day before he files a petition as it provided for the debtor who manages to get his petition filed just before his service is terminated. Regardless of the sequence of these two events, Congress apparently wanted a debtor to have access to essential utility services for a short period of time while avenues for the provision of adequate assurance could be pursued.Id. By contrast, the interpretation of Section 366 advanced by Citizens Gas would produce the anomalous result that had the Mathews filed their bankruptcy petition a day before their gas service was disconnected, they would have been protected by Section 366's 20-day grace period, whereas, had they filed a day after the disconnection (or many days after, as actually happened), they would not receive that grace period.
Thus, the bankruptcy court correctly held that, upon being requested to reconnect the Mathews' service, and having notice of the Mathews' bankruptcy filing, Citizens Gas was obligated under Section 366 to reconnect service without insisting on prior receipt of a security deposit, at least for the duration of the initial 20-day window.
It is undisputed that the Mathews requested Citizens Gas to reconnect their service approximately two days after they filed their bankruptcy petition. It is also undisputed that well within the initial 20-day window after filing, Citizens Gas had actual notice that the Mathews had filed a bankruptcy petition: the Mathews' listed Citizens Gas as a creditor in the Mathews' filing, and as of November 26, Citizens Gas had noted the Mathews' filing on their account record.
It is worth noting that at the contempt hearing, while counsel for Citizens Gas initially presented its interpretation of Section 366 argued before this court, he then told the bankruptcy court that Citizens Gas had, in fact, already agreed with the Mathews' counsel "to the interpretation [of Section 366] whereby we would agree to have the debtors' service . . . turned on upon the filing of the bankruptcy. Basically, [the debtors] need to call in, ask for service, and that within 20 days they're required . . . to pay a deposit." (Hr'g Trans. at 19.) Later, Citizens Gas counsel reiterated, "[W]e've agreed to interpret [Section 366] consistent with debtors' counsel. We have agreed to apply it this way amongst all . . . bankrupt customers calling in. . . . We agree that . . . we will turn on the gas service of any debtor within the first 20 days without the necessity of any deposit being filed as a prerequisite to that gas service." ( Id. at 23-24.) However, on appeal, the Mathews have not argued that Citizens Gas waived its Section 366 argument.
It follows from the discussion above that the bankruptcy court did not err in ruling that the evidence of the prior disconnections (caused solely by the Mathews' failure to pay for pre-petition gas service) was irrelevant. If evidence only tends to show one of Section 366(a)'s two prohibited reasons for denying service, then it is within a bankruptcy court's discretion to exclude it as irrelevant. The bankruptcy court's decision to exclude evidence of the Mathews' pre-petition gas service disconnections will be AFFIRMED.
The evidence of the prior disconnects — while irrelevant to whether Section 366 required the Mathews' gas to be reconnected during the initial 20-day window — may have been relevant in determining the amount of the security deposit under 366(b), since, in this area of federal law, the IURC Standards of Service are only instructive but not controlling. However, Citizens Gas has not challenged the amount of the deposit (which was determined, based on Citizens Gas' suggestion, according to the Standards of Service), so the issue is waived.
B. Reconnect Order
Citizens Gas also argues that the bankruptcy court erred in issuing the Reconnect Order ex parte, four days prior to the hearing. It is true, as discussed above, that Section 366(a) allows a utility to refuse service absent a security deposit during the initial 20-day window for any valid reason other than the two enunciated ones in Section 366(a) (i.e., the filing of the bankruptcy action and non-payment for past services). For instance, a utility may refuse service to a debtor who had previously illegally tampered with gas lines. So, as a general matter, a utility should have an opportunity to present its valid reason for refusing service prior to being compelled to do so, even during the initial 20-day period. But any error which the bankruptcy court may have made in this case was harmless, since when Citizens Gas did have an opportunity to be heard, its sole reason for refusing service — the Mathews' "lack of creditworthiness" — was merely a restatement of one of the prohibited reasons in Section 366(a), nonpayment for past services.
Citizens Gas did not object to the Reconnect Order on the grounds that the bankruptcy court issued the Reconnect Order after the expiration of the initial 20-day window. Section 366 only allows debtors gas service for 20 days without having to provide a security deposit or other "adequate assurance of payment." 11 U.S.C. § 366(b). But given Citizens Gas' violation of Section 366 — which is the reason the Mathews' gas service had not been reconnected during the 20-day window — the bankruptcy court was authorized to "cure" this violation with the Reconnect Order. See 11 U.S.C. § 105(a) ("The court may issue any order . . . that is necessary or appropriate to carry out the provisions of this title."). This is especially true since, four days later, the court ordered a security deposit to be paid under Section 366(b). Therefore, even if Citizens Gas had not waived this issue, the bankruptcy court acted properly in issuing the Reconnect Order. The bankruptcy court's issuance of the Reconnect Order will be AFFIRMED.
C. Contempt Order
Finally, Citizens Gas argues that the bankruptcy court erred when it held the company in contempt. A bankruptcy court has the authority to find parties in civil contempt. See 11 U.S.C. § 105(a) ("The [bankruptcy] court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process."); see also Cox v. Zale Del., Inc., 239 F.3d 910, 916-17 (7th Cir. 2001) (bankruptcy courts have power to determine civil contempt) (citing, inter alia, § 105); In re Rimsat, Ltd., 212 F.3d 1039, 1049 (7th Cir. 2000) (bankruptcy court may sanction parties and attorneys "pursuant to its statutory authority under 11 U.S.C. § 105(a) as well as its inherent powers"); In re Volpert, 110 F.3d 494, 500 (7th Cir. 1997) ("Section 105 grants broad powers to bankruptcy courts to implement the provisions of Title 11 and to prevent an abuse of the bankruptcy process.").
But all findings of contempt must be based on a prior court order which the party in contempt violated. See Grove Fresh Distribs., Inc. v. John Labatt, Ltd., 299 F.3d 635, 641 (7th Cir. 2002) ("To hold [a party] in civil contempt, the district court must be able to point to a decree from the court which sets forth in specific detail an unequivocal command which the party in contempt violated.") (quotations omitted) (citing Jones v. Lincoln Elec. Co., 188 F.3d 709, 738 (7th Cir. 1999)); D. Patrick, Inc. v. Ford Motor Co., 8 F.3d 455, 460 (7th Cir. 1993) ("In order to prevail on a contempt petition, the complaining party must demonstrate by clear and convincing evidence that the respondent has violated the express and unequivocal command of a court order.") (emphasis in original) (citation omitted).
So the issue becomes whether the bankruptcy court's contempt finding was based upon a prior court order which Citizens Gas violated. Certainly, there is a prior court order in this case: the Reconnect Order. And, at least for the four days between the date it was issued and the contempt hearing, Citizens Gas failed to take any steps to obey the Reconnect Order. And at the hearing, the bankruptcy court did question the Citizens Gas lawyer about why the Reconnect Order was not obeyed during those four days.
However, when looking at the wording of the bankruptcy court's oral ruling, the wording of the subsequent Contempt Order, and the manner the court calculated the damages, it becomes clear that the bankruptcy court found Citizens Gas in contempt not for failing to obey the Reconnect Order, but for failing to obey Section 366. Specifically, at the conclusion of the contempt hearing, the bankruptcy court stated to Citizens Gas' attorney,
[Ms. Mathews] goes [to Citizens Gas] two days after filing the bankruptcy, apparently requests to have the service put back on. You don't do it. You should have done it. I think it's clear. Apparently there have been problems before, but be that as it may, . . . I think the utility is in contempt. I think they are in contempt, . . . you can't try to extract some sort of a deposit or request and premise her utilities on that basis within the first 20 days. You just have an obligation under the Code to do it.
(Hr'g Trans. at 28-29.) The Contempt Order itself makes the basis of the contempt finding unmistakably clear:
1. Citizens Gas Coke Utility shall be held in contempt for its willful violation of Section 366 of Title 11 of the United States Code for failing to restore natural gas service to the Debtors in compliance therewith.
2. The Debtors are entitled to damages of $370.00 to compensate them for the hardships they endured due to the Creditor's contemptuous disregard of Section 366 of Title 11 of the United States Code.
3. The Debtors' attorneys, Tom Scott and Associates, are entitled to their reasonable attorneys' fees of $300.00 for the time and effort to bring the Creditor's contemptuous disregard of Section 366 of Title 11 of the United States Code to the Court's attention.
Finally, the amount of $370 in damages was determined by reference to Ms. Mathews' testimony at the hearing of the expenses she incurred because of not having "gas service since [she] filed the [bankruptcy] case." (Hr'g Trans. at 6 (emphasis added).) (Specifically, she testified that she spent $300 buying space heaters and an extra $70 in electricity to operate the space heaters. ( Id.)) The bankruptcy court was not basing its contempt finding on the four days Citizens Gas failed to obey the Reconnect Order, but on the four (or more) weeks in which Citizens Gas failed to comply with the mandate of Section 366.
But as set forth above, all findings of contempt must be based on a prior court order which the party in contempt violated. Could it be that Section 366 operates sufficiently like a court order that a violation of it may be the basis of a contempt finding?
Some courts have been persuaded by a somewhat similar argument: at least three Circuits have ruled that a bankruptcy court may hold a person in contempt for willfully violating the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362. See In re Dyer, 322 F.3d 1178, 1191 (9th Cir. 2003); Jove Eng'g v. IRS, 92 F.3d 1539, 1546 (11th Cir. 1996); Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47, 53 (2nd Cir. 1976), cert. denied, 429 U.S. 1093, reh'g denied, 430 U.S. 976 (1977). These courts reason that the automatic stay is comparable to an automatic injunction. As the Ninth Circuit stated, "[b]ecause the metes and bounds of the automatic stay are provided by statute and systematically applied to all cases, there can be no doubt that the automatic stay qualifies as a specific and definite court order." In re Dyer, 322 F.3d at 1191.
Subsequently, the Second Circuit held that the 1984 enactment of Section 362, subsection (h), has altered this rule. See In re Crysen/Montenay Energy Co., 902 F.2d 1098, 1104 (2nd Cir. 1990). Subsection (h) of 11 U.S.C. § 362 provides that "[a]n individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." An individual aggrieved by another's violation of the automatic stay no longer needs to call upon a bankruptcy court's contempt powers, but may seek a remedy pursuant to Section 362(h). Section 366, however, contains no provision comparable to Section 362(h).
The Seventh Circuit has not ruled on this Section 362 issue. The bankruptcy court in In re Rimsat, 208 B.R. 910 (Bankr. N.D. Ind. 1997), considered the issue and decided a violation of Section 362 could not provide the basis for a contempt action. See id. at 913 ("[E]ven though a statute may clearly create a legal obligation, the failure to fulfill that obligation will not support a finding of civil contempt unless there is also a court order turning that statutory duty into a judicial command"). The court based its holding on In re Sixth Wisconsin Tower, 108 F.2d 538 (7th Cir. 1939), wherein the Seventh Circuit stated it had "no hesitancy in concluding that the [contempt] proceeding can not rest upon something that transpired in the court under the guise that it had the effect of an order." In re Sixth Wis. Tower, 108 F.2d at 540. But as the Rimsat court notes, much more recently, the Seventh Circuit hinted that it might consider the automatic stay to be a judicial order for the purposes of the contempt analysis. See Cent. States Pension Fund v. Slotky, 956 F.2d 1369, 1376 (7th Cir. 1992) ("But even if the demand violated the automatic stay, all that this would mean, it seems to us, so far as bears on this case (for the violation might of course expose the violator to contempt proceedings, as with any other violation of a judicial order), is that the pension plan could not proceed against Stevens unless the bankruptcy judge lifted the stay."). Yet Rimsat concluded this parenthetical aside does not mean the Seventh Circuit is prepared to abandon its requirement of a court order for a finding of contempt, "[g]iven the clarity with which the Seventh Circuit has repeatedly insisted upon the existence of a court order specifically commanding particular action as a prerequisite for civil contempt." Rimsat, 208 B.R. at 913 n. 2. And even if the Seventh Circuit determined that parties may be held in contempt for violating the automatic stay provision of Section 362, the issue would remain of whether the Seventh Circuit would further expand the definition of "court order" to include the requirements of Section 366.
Three courts have considered the issue of whether a court may find a utility in contempt for violating Section 366, and all have held that it may not. See In re Whittaker, 882 F.2d 791 (3rd Cir. 1989) (affirming the district court, which also ruled on the issue); In re One Stop Realtour Place, Inc., 268 B.R. 430 (Bankr. E.D. Pa. 2001); cf. Matter of Tabor, 46 B.R. 677, 680 (Bankr. S.D. Oh. 1985) (contempt appropriate when utility repeatedly violated prior court-issued superintendency order setting the appropriate security deposit for public utilities pursuant to Section 366(b)).
In Whittaker, the district court held that the debtors were not entitled to a finding of contempt or an award of attorney fees despite the utility's violation of Section 366:
I conclude that the violation of § 366 was not conduct[ed] in contempt of a court order. Courts have held parties in contempt for the violation of the automatic stay provision of the bankruptcy code, 11 U.S.C. § 362, because of the special nature of that provision. The automatic stay is comparable to an automatic injunction. It acts as a specific and definite order of a court to restrain creditors from continuance of judicial process or collection efforts against the debtor. However, section 366 is not comparable to an automatic injunction, nor is it a court order of any kind.92 B.R. 110, 117 (E.D. Pa. 1988) (citation omitted). In affirming, the Third Circuit quoted an abbreviated portion of this language from the district court and stated, "We agree and decline to disturb this portion of the judgment." 882 F.2d at 796-97.
In a recent case, In re One Stop Realtour Place, Inc., 268 B.R. 430 (Bankr. E.D. Pa. 2001), the bankruptcy court, as it is required to do, followed the Third Circuit's opinion in Whittaker, and held that the contempt remedy is not available to a debtor when the utility has violated Section 366. However, the bankruptcy court did "hold that a debtor is entitled to compensatory damages suffered as a result of a Section 366 violation." In re One Stop Realtour Place, 268 B.R. at 441. The bankruptcy court noted that while Section 366 provides no such express remedy, it would imply one. The court gave two reasons for its decision: (1) the bankruptcy court in Whittaker, 84 B.R. 934, 946 (Bankr. E.D. Pa. 1988), implied such a remedy (albeit without discussion of its reasoning; and the issue was not raised on appeal, so the Third Circuit declined to decide it, 882 F.2d at 797); and, (2) "[a]rguably, the Court's authority under Section 105(a) of the Bankruptcy Code could . . . serve as the basis for awarding damages for a Section 366 violation." In re One Stop Realtour Place, 268 B.R. at 441 n. 35.
In this case, by contrast to In re One Stop Realtour Place, the bankruptcy court did not base its award of damages on Section 105(a) (instead relying upon its contempt powers), so this court need not decide whether Section 105(a) could serve as a basis for awarding damages and attorney fees for a Section 366 violation. Further, if the bankruptcy court wishes to award damages and fees pursuant to Section 105(a) or on some basis other than contempt, it should have the first opportunity to do so.
And, unlike the court in In re One Stop Realtour Place, this court declines to find an implied remedy of compensatory damages in Section 366 itself. As mentioned above, in 1984, Congress amended the automatic stay provision, Section 362, to expressly provide remedies for violations of the stay. See 11 U.S.C. § 362(h). But Congress left Section 366 without such a remedy provision.
But, even if a bankruptcy court is empowered to issue a contempt order based on a party's violation of Section 366, the bankruptcy court in this case erred in issuing the Contempt Order. In order "[t]o hold a party in contempt, the . . . court must be able to point to a decree from the court which set[s] forth in specific detail an unequivocal command which the party in contempt violated." Stotler and Co. v. Able, 870 F.2d 1158, 1163 (7th Cir. 1989) (internal quotations and citations omitted) (emphasis added); see also United States v. ITT Cont'l Baking Co., 420 U.S. 223, 237 (1975) (a party can only be held in contempt for behavior clearly prohibited by a court order "within its four corners"); D. Patrick, Inc. v. Ford Motor Co., 8 F.3d 455, 460 (7th Cir. 1993) (same).
Section 366's application to the facts of this case cannot reasonably be considered an unequivocal command As discussed above, Citizens Gas presented a reasonable argument for its interpretation of Section 366, even if both the bankruptcy court and this court ultimately rejected it. Moreover, In re Roberts, 29 B.R. 808 (E.D. Pa. 1983), squarely supports Citizens Gas' interpretation.
Therefore, even if the bankruptcy court was empowered to find a party in contempt for violating Section 366, it abused its discretion in doing so in this case. Accordingly, the bankruptcy court's finding of contempt, including the attendant award of damages and attorney fees, will be REVERSED. The portion of the Contempt Order related to the setting of the security deposit has not been challenged and is unaffected by this ruling.
VI. Conclusion
For the foregoing reasons, Citizens Gas' Motion to Strike is GRANTED IN PART and DENIED IN PART. The factual assertions in the Mathews' brief which refer to matters outside the record on appeal are STRICKEN.
Also for the foregoing reasons, the bankruptcy court's Reconnect Order and related evidentiary ruling will be AFFIRMED. The bankruptcy court's finding of contempt, including the attendant award of damages and attorney fees, will be REVERSED. Judgment will be issued accordingly.
ALL OF WHICH IS ORDERED.