Opinion
Bankruptcy No. 02-30096, Adversary No. 02-7021
August 2, 2002
MEMORANDUM DECISION AND ORDER
The matter before the court is Michael J. Clement's motion for default judgments against the defendants. Each of the defendants filed a response to the motion. Hearing was held on July 23, 2002 in Fargo. Richard Farroh appeared as attorney for the plaintiff, Michael J. Clement. Rebecca Heigaard McGurran appeared as attorney for GF Winnelson Co., Inc. (hereinafter Winnelson Company). Thomas Kuchera appeared on his own behalf. Kuchera is a lawyer.
Clement's complaint seeks damages from each of the defendants for injuries allegedly suffered by him because of the defendants' separate violations of the automatic stay. Clement also sought turnover of exempt property which was being held by Kuchera at the time the complaint was filed.
Clement served summons and complaint on each defendant by mail pursuant to Fed.R.Bankr.p. 7004(b). His service on Winnelson Company was made on Rebecca Heigaard McGurran as `attorney for GF Winnelson Co., Inc.' McGurran is a lawyer in private practice who had represented Winnelson Company in obtaining a money judgment against Clement. There has been no showing by Clement that McGurran is "an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process. . . ." See F.R.Bankr.P. 7004(b)(3)
Neither defendant filed answer or responsive motion. In the complaint, Clement requested the issuance of a temporary restraining order against Winnelson Company, restraining the company for its alleged harassment and collection tactics. On April 25, 2002, the court issued its order denying the request for the temporary restraining order because the complaint failed to meet the requirements of Fed.R.Civ.P. 65. The complaint was neither verified nor supported by affidavit. The order did not dismiss the complaint, which also had sought other relief. McGurran and Kuchera each said they did not file an answer to the complaint because they misread the court's order as dismissing the complaint.
Clement moved for default judgment on June 5, 2002. Notice of the motion and notice of the hearing were served on Kuchera and McGurran. The defendants responded, alleging facts in resistance to the motion for default. Neither defendant has asked to file an answer. Clement asks that he be awarded his costs and attorney's fees as damages for the violations of the automatic stay.
Fed.R.Civ.p. 55 applies in adversary proceedings. F.R.Bankr.P. 7055. When a party against whom affirmative relief is sought fails to plead or otherwise to defend and that fact is "made to appear by affidavit or otherwise, " the clerk shall enter that party's default. Fed.R.Civ.p. 55(a). Prior to obtaining default judgment, there must be entry of default. After entry of default by the clerk, there may be entry of default judgment, either by the clerk pursuant to Fed.R.Civ.p. 55(b)(1) or by the court under Fed.R.Civ.p. 55(b)(2). Dahl v. Kanawha Investment Holding Company, 161 F.R.D. 673, 683 (N.D. Iowa 1995). No default was entered in this proceeding.
Entry of default judgment is within the sound discretion of the court.FTC v. Packers Brand Meats Inc., 562 F.2d 9, 10 (8th Cir. 1977). The court must determine if there is prejudice to plaintiff in denying the motion. Dahl v. Kanawha Investment Holding Company, 161 F.R.D. at 683-84. In relieving a party from a default, the court must consider whether default was willful, whether setting it aside would prejudice the adversary, and whether there is a meritorious defense presented. Id. at 684. The court may conduct a hearing to determine whether or not to enter default judgment. If the court determines that the party is in default, factual allegations, other than those relating to damages, are taken as true. Nonetheless, the court may require proof of facts to establish liability. If the court intends to do so, it should inform the plaintiff in advance of the hearing so that the plaintiff is prepared to offer evidence of liability. McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 229 (1st cir. 1980). Even where there is default, the court must consider whether the facts as unrefuted constitute a claim for relief. Generally, however, a defaulting defendant's recourse is merely to challenge the amount of the recovery. A default does not concede the amount demanded.Flaks v. Koegel, 504 F.2d 702, 706 (2nd Cir. 1974)
Claim Against Kuchera
Clement seeks damages from Thomas Kuchera for violation of the automatic stay. He had also sought return of property. He acknowledges that the property has been returned. Kuchera represented Clement's former spouse in the couple's dissolution proceeding in state court. Kuchera was holding a baseball card collection that belonged to Clement but which was marital property. The collection was awarded to Clement as part of the marital property distribution. In November 2001, before Kuchera turned the collection over to Clement, Winnelson Company levied on it. Kuchera was told by the county sheriff to hold the collection until further order of the state court.
Clement filed his chapter 7 petition on January 22, 2002. He claimed the baseball cards as exempt property. No one objected. Clement's exemption claim became final on March 25, 2002. On February 1, 2002, the sheriff returned the execution as unsatisfied. On April 1, 2002, attorney Farroh wrote to Kuchera asking that he voluntarily return the baseball card collection to Clement (exhibit 1). Farroh pointed out that the levy was no longer effective and that Clement had claimed the cards exempt in bankruptcy. He also advised Kuchera that the bankruptcy trustee had filed a "no asset report. He cautioned Kuchera that if he did not hear from him by April 8, 2002, he would assume that Kuchera did not intend to surrender the cards voluntarily. Farroh filed the adversary proceeding against Kuchera on April 22, 2002. During the first week of May, Kuchera called Farroh, offered to return the cards, and surrendered them to Farroh the same day.
Kuchera contends that the court has no jurisdiction over him because he is not a creditor of Clement nor does he represent one. He says he was holding the cards because of a valid state court execution. He argues that because he was legally holding the cards and was not trying to collect a claim, he did not violate the automatic stay. I conclude that Kuchera did not violate the automatic stay. Section 362(a) of the Bankruptcy Code (Title 11) describes what actions are stayed. The stay protects property of the estate. Once the baseball cards became exempt, they were no longer property of the estate. The automatic stay also protects the debtor from efforts by creditors to recover claims against the debtor or the debtor's property. Kuchera was not attempting to collect a claim. Kuchera should have turned the property over to the trustee when Clement filed bankruptcy. He did not, but the trustee is' not complaining about that.
Nonetheless, Clement had a right to the property once his claim of exemption became final. Kuchera had an obligation to turn the cards over to Clement's attorney, and he does not dispute this. Farroh demanded the cards in his April 1, 2002 letter to Kuchera. The letter did not result in a turnover of Clement's property to him. This proceeding was brought by the debtor. The proceeding is one to recover plaintiff's property wrongfully held by another. The claim is one for conversion. It is not necessary that Clement prove that the conversion was also a violation of the automatic stay. Clement's claim is related to his case. It is not a core proceeding. Clement has impliedly consented to this court determining his claim for relief. "Conversion is a tortious detention of personal property from the owner, or its destruction, or a wrongful exercise of dominion or control over the property inconsistent with or in defiance of the rights of the owner." Sargent County Bank v. Wentworth, 547 N.W.2d 753, 762 (N.D. 1996). Conversion does not require conscious wrongdoing. Paxton v. Wiebe, 584 N.W.2d 72, 78 (N.D. 1998). Kuchera's delay in surrendering the collection to Clement constituted conversion.Id. at 78-79. His surrender of the collection after the complaint was filed mitigated the plaintiff's damages. Plaintiff contended that he was damaged by retention of the collection because at the time he had no income and that the collection was his only valuable asset. Damages caused by conversion are set out in Section 32-03-23 of the North Dakota Century Code. Clement, however, has failed to quantify his damages under either section 32-03-23(1) or (2) of this statute. Also, Clement might be entitled to recover as damages "fair compensation for the time and money properly expended in pursuit of the property." North Dakota Century Code § 32-03-23(3). But this element of damages does not include attorney's fees expended for litigation. Harwood State Bank v. Charon, 466 N.W.2d 601, 605 (N.D. 1991). Exemplary damages are recoverable in conversion actions where there is a showing of oppression, fraud, or malice. Zimprich v. North Dakota Harvestore Systems, Inc., 461 N.W.2d 425, 430-31 (N.D. 1990); North Dakota Century Code § 32-03.2-11(1). I find no proof of oppression, fraud, or malice by Kuchera in the facts before me. Thus, although Kuchera converted Clement's property, I find Clement has failed to prove his damages.
Because Kuchera was wrongfully holding Clement's property at the time the adversary proceeding was filed, I will award Clement judgment for costs. I will ignore the fact that Clement failed to obtain entry of default prior to filing the motion for judgment. The motion for default judgment will be granted. Proper service of the summons and complaint were made on Kuchera. Kuchera failed to file an answer or a responsive motion. He resists the motion for default on the ground he is not a proper party to the proceeding. I conclude that I have jurisdiction of the subject matter, as it is a matter related to the bankruptcy case. I conclude also that I have personal jurisdiction of Kuchera. I believe there was improper joinder of parties in this proceeding. I find there is no just reason to delay the entry of judgment against Kuchera for costs. I will order that separate judgments shall enter that plaintiff Michael J. Clement shall recover the costs of this proceeding from defendant Thomas Kuchera.
Winnelson Company
Clement claims that Winnelson Company violated the automatic stay when one of its employees harassed him on or about February 13, 2002 on a public street in Grand Forks. Clement was with his attorney in an automobile at the time. The employee, Jeff Lundeby, was in a truck which by its signage belonged to or was generally operated in the business of Winnelson Company. Clement complains also that Lundeby, in Lundeby's own vehicle, harassed Clement on subsequent occasions by making comments to Clement about Clement's failure to pay his debt to Winnelson Company. Sometimes the comments were audible; sometimes comments by Lundeby were not understandable because the windows were closed in Lundeby's vehicle. The two men live in the same neighborhood.
Winnelson Company contends that in these situations, Lundeby was not acting within the scope of his authority as an employee, and therefore it cannot be held liable for Lundeby's actions. The company's attorney also stated that when told of the harassment incident, the president of the company ordered Lundeby to stop such action. If this were the only disputed issue, I would deny the motion for default and permit Winnelson Company to file an answer and defend on the merits. Service on Winnelson Company was likely defective. There was no request for entry of default. There has not been extraordinary delay in this case that would prejudice the plaintiff, and it appears that on the issue of vicarious liability, Winnelson Company may have a meritorious defense, and it desires to defend. Although there was an insufficient showing at the hearing that Lundeby was acting within the scope of his employment, i would not dismiss the complaint at this stage of the proceeding because the plaintiff's attorney did not have adequate warning that the court might consider the issue of liability at a hearing on the motion for default judgment. McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 229 (1st Cir. 1980)
However, I do not need to reach the issue. I will assume arguendo that the issue of liability is determined in Clement's favor because of defendant's default. The motion for default judgment was set for hearing, and Clement and his counsel should have expected that they would be required to prove any actual damages under 11 U.S.C. § 362 (h) which permits an individual injured by a willful stay violation to recover actual damages including costs and attorney's fees. I find insufficient proof of actual damages in this case.
Clement testified that he "felt low" because of the verbal abuse by Lundeby. He said he was embarrassed in front of his young son. He said he sought medical treatment for his emotional state and obtained a prescription. He offered no evidence as to the cost of the medical treatment. The only damages quantified in monetary terms were attorney fees. Farroh said he spent nine to ten hours on the proceeding, including work on the baseball card issue. Farroh said he spent two hours on the complaint and service and two hours for the motion and hearing. He said he charges Clement $110.00 per hour.
It appears from the argument of Farroh at the time of the hearing, that plaintiff desires to recover his attorney's fees as damages. The difficulty with this position is that the court may not award attorney's fees where there is insufficient evidence of actual damages. Lovett v. Honeywell, Inc., 930 F.2d 625, 629 (8th Cir. 1991). Attorney's fees may be awarded only to embellish actual damages. Id.
Because of Clement's failure to prove actual damages, the motion for default judgment will be denied and the complaint dismissed. Clement has asked the court permanently to enjoin Winnelson Company from harassing him. There is no need to issue such an injunction. The discharge order serves the same function. If harassment by Lundeby continues and Clement believes he can prove that Winnelson Company is responsible, Clement can seek an order holding Winnelson Company in contempt.
ORDER
IT IS ORDERED that judgment shall enter that Michael J. Clement shall recover from Thomas Kuchera the costs of this proceeding. Separate judgment shall enter accordingly.
IT FURTHER ORDERED that the complaint of Michael J. Clement against GF Winnelson Co., Inc. is dismissed. Separate judgment shall enter accordingly.
SO ORDERED