Opinion
Case No. 98-10301-SSM, Adversary Proceeding No. 99-1002
July 6, 1999
Michael H. Ditton, Esquire, Alexandria, VA, Plaintiff pro se
James A. Murphy, Esquire, LeClair Ryan, P.C., Richmond, VA, of Counsel for defendant Capital One
Robert L. Deichmeister, Esquire, Fagelson, Schonberger, Payne Deichmeister, Fairfax, VA, of Counsel for defendant American Express Centurion Bank
C. Thomas Brown, Esquire, Silver Brown, P.C., Fairfax, VA, of Counsel for defendant Crestar Bank
Cindra M. Dowd, Esquire, Glasser and Glasser, PLC, Norfolk, VA, of Counsel for defendants Bank of America National Trust and Savings Assn. and Federal Home Loan Mortgage Corporation
Carol T. Stone, Esquire, Jordan Coyne Savits, L.L.P., Fairfax, VA, of Counsel for defendant United Creditors Alliance
MEMORANDUM OPINION
This matter is before the court on a motion for summary judgment by Crestar Bank ("Crestar"), one of the defendants in this adversary proceeding. Hearings were held in open court on June 15, 1999, and July 6, 1999. The plaintiff was present in person and represented himself. Crestar was present by counsel.
Background
The background of this adversary proceeding is set forth at some length in this court's memorandum opinion of March 31, 1999, and need not be repeated in detail. To briefly summarize, at bottom this is a dispute over a $75.00 fee that Crestar charged the debtor's checking account after Crestar was served with a garnishment summons. Although the garnishment was ultimately dismissed and the garnished funds returned to the debtor's accounts, Crestar refused to waive or restore the $75.00 fee.
Since that opinion, a consent order has been entered voluntarily dismissing the claims against American Express Centurion Bank and United Creditors Alliance.
The amount of the garnishment summons was $10,369.00. The debtor had three accounts with Crestar. On November 24, 1997, Crestar deducted $797.10 from the debtor's personal checking account. On November 26, 1997, it deducted $500.70 from the debtor's office account and $2.26 from the debtor's personal savings account. On November 28, 1997, it deducted an additional $496.21 from the personal checking account. On December 9, 1997, it mailed a check for $1,721.36 (the sum of the deductions less $75.00) to the clerk of the City of Richmond General District Court. After the garnishment was dismissed, Crestar credited $1,218.40 to the personal checking account ($75.00 less than had been deducted), $500.70 to the office account, and $2.26 to the savings account. It subsequently refunded $58.00 in charges it had imposed against the account for a returned check and for a preauthorized draft it paid while the garnishment was in effect. During the period the garnishment was in effect, seven checks the debtor had written in the aggregate amount of $340.22 were returned unpaid; one of these was subsequently paid when it was presented a second time. Oddly, Crestar did honor a preauthorized draft by America On-Line (AOL) during the period the garnishment was in effect, creating a negative balance in the account.
Prior to filing his bankruptcy petition, the debtor had brought suit in state court against both Crestar and the judgment creditor (Capital One Financial Corporation) who had instituted the garnishment. That action sought $140,000 in damages for "violations of Federal Telephone Consumer Protection Act, Federal Fair Debt Collections Practices Act, fraud, conversion, statutory conspiracy, abuse of process, [and] use of intercepted wire, oral and/or electronic communications." The debtor's chapter 7 petition was filed in this court on January 13, 1998.
The description of the action is taken from the debtor's schedules in his bankruptcy case. Crestar was a defendant with respect to two counts, one (Count VIII) for conversion and one (Count IX) for fraud. The essential facts pleaded in the motion for judgment were that Capital One had issued the debtor a Visa credit card in April 1995; that after the debtor was unable to make the required payments, the account was canceled in December 1996; that Capital One Financial Services, Inc. (apparently an affiliate) made harassing telephone calls in an effort to collect the debt; that Capital One brought an action in the General District Court for the City of Richmond to collect the debt, notwithstanding that the debtor resided in Prince William County; that after obtaining the judgment, Capital One falsely informed the debtor that it had recorded its judgment in Prince William County; that Capital One caused a garnishment to issue from the General District Court for the City of Richmond against Crestar Bank; that Crestar Bank, in response to the garnishment summons, withdrew all funds (totaling $1,796.36) from the debtor's three accounts (including his attorney at law account), causing a number of checks to bounce; that Crestar billed the debtor, as a purported extension of credit, $10,378.99; that the garnishment was ultimately quashed by the issuing court approximately twenty days later; and that Crestar, before recrediting the account, deducted a $75.00 garnishment service charge.
Although the schedules listed the debtor's claim against Crestar as an asset, Crestar was not listed as a creditor or given notice by the clerk of the filing of the bankruptcy case. Eight days later (January 21, 1998), Capital One and Crestar each filed demurrers in the state court action. Crestar's demurrer asked the state court "to dismiss this action . . . with prejudice [and] to award it its costs herein incurred, including a reasonable attorney's fees pursuant to [Va. Code Ann. §] 8.01-271.1[.]" On March 12, 1998, the debtor filed a suggestion of stay in bankruptcy. There is no evidence that Crestar had any actual knowledge of the bankruptcy filing prior to its receipt of the suggestion of bankruptcy. The hearing on Crestar's and Capital One's demurrers was held on March 20, 1998. The debtor, who had moved to Colorado, was not present. A court reporter was apparently not present, but according to the unrebutted affidavit of Crestar's counsel, the state court judge, after being advised of the suggestion of bankruptcy, ruled that the automatic stay did not prevent consideration of the demurrers. With respect to Crestar, the court dismissed the fraud count with prejudice and dismissed the conversion count with leave to amend. The unrebutted affidavit of Crestar's counsel is that no oral request was made at the hearing for an award of attorney's fees against the debtor, and the proposed order tendered by Crestar's counsel did not contain language that would have awarded such fees. An order reflecting the state court's ruling was entered on March 23, 1998. The debtor filed a motion for reconsideration on April 14, 1998, but never noticed it for a hearing. The chapter 7 trustee thereafter filed a "disclaimer" with the state court disclaiming any interest in the litigation (which the debtor had claimed exempt). The debtor's subsequent appeal to the Supreme Court of Virginia was dismissed by that court on October 28, 1998.
In his disclaimer, the chapter 7 trustee took the position that the cause of action ceased to be property of the bankruptcy estate on March 16, 1999, the date the debtor's claim of exemption became incontestable. This court, in its prior opinion, held that the correct date was March 17, 1999.
On the date the debtor filed his chapter 7 petition, his personal checking account at Crestar had a balance of $233.24. In the following two weeks, Crestar honored a preauthorized debit for the debtor's America On-Line account in the amount of $24.95 as well as three checks presented for payment in the amounts, respectively, of $96.25, $30.00, and $200.00. The last of these, which was paid on January 23, 1998, created a negative balance in the amount of $117.96, and, in addition, Crestar charged an overdraft fee in the amount of $29.00. Although the debtor subsequently made two deposits, the account remained slightly overdrawn in the amount of $6.96, and a subsequent $24.95 debit by AOL (together with another $29.00 overdraft fee by Crestar), resulted in a negative balance on February 18, 1998, in the amount of $60.91. On March 5, 1998, Crestar closed the account. On May 4, 1998, a collection agency acting on Crestar's behalf sent the debtor a dunning notice for $60.91. There is no evidence that any further direct action was taken to collect the alleged debt, although Crestar did report the account as unsatisfactory to several credit reporting and check authorizing services.
A summary of the activity in the account for the entire period from November 25, 1997, (immediately prior to the garnishment) through March 5, 1998, (when the account was closed) is attached as an exhibit to this opinion.
The present action was filed by the debtor on January 5, 1999, against Crestar and a number of other defendants seeking, among other relief, an award of monetary damages against Crestar for willful violation of the automatic stay and a determination that the post-petition dismissal of his state court action against Crestar and Capital One was void as a violation of the automatic stay. This court, in its memorandum opinion of March 31, 1999, rejected the latter claim as a matter of law and also ruled that Crestar's refusal to pay the disputed $75.00 claim did not constitute a willful violation of the stay. The opinion left for consideration, either at trial or on summary judgment, the issue of whether Crestar, by asking in its pleadings for an award of attorney's fees and by closing the debtor's bank account post-petition and thereafter sending a dunning notice, violated the automatic stay.
Discussion I.
Under Federal Rule of Civil Procedure 56(c), as incorporated by Federal Rule of Bankruptcy Procedure 7056, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In ruling on a motion for summary judgment, a court should believe the evidence of the non-movant, and all justifiable inferences must be drawn in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). At the same time, the Supreme Court has instructed that summary judgment "is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1985). Additionally, not every dispute as to the facts will preclude the entry of summary judgment, but only those disputes over facts that might affect the outcome of the suit under the governing law. Anderson at 248, 106 S.Ct. at 2510. Although a moving defendant has the burden of showing that there is no genuine issue of fact, the plaintiff is not thereby relieved of his own burden of producing in turn evidence that would support a jury verdict. Id. at 256, 106 S.Ct. at 2514.
As noted above, this court has previously determined that Crestar's post-petition demurrer seeking dismissal of the debtor's pre-petition suit did not violate the automatic stay or render the resulting dismissal of the debtor's suit void. This court also ruled that, where there was a bona fide dispute as to whether Crestar was entitled to charge the debtor the $75.00 fee for processing the garnishment, the mere refusal to credit his account in that amount after he filed for bankruptcy did not violate the automatic stay. The reasons for those rulings are fully set forth in the memorandum opinion of March 23, 1999, and will not be repeated. The only issues left open by the prior opinion were whether the inclusion of the prayer for attorney's fees in the demurrer, the sending of the $60.91 dunning notice post-petition, and the closing of the debtor's bank account post-petition violated the automatic stay. Each of these issues will be addressed in turn.
While the debtor vigorously argues that the charge was not authorized by his contract with the bank, there is no question that it was included on Crestar's published schedule of charges and permitted under its published Rules and Regulations for Deposit Accounts. Whether, absent a signed writing by the debtor agreeing to such terms, they could be contractually enforced against him is simply not an issue before this court since, as explained in the prior ruling, this court has no jurisdiction over the debtor's claims against Crestar other than his claim that its actions violated the automatic stay. In this connection, there is not the slightest suggestion in the summary judgment record that Crestar did not believe in good faith that it was entitled to charge the debtor's account for processing the garnishment, even though the garnishment was subsequently dismissed. The debtor makes much of the fact that the charge was not specifically listed on his monthly account statements covering the period in question. However, it was prominently noted on the debit memo mailed to the debtor after the garnishment summons was received.
A. The Request for Attorney's Fees
The filing of a bankruptcy petition creates an automatic stay of, among other actions, "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case[.]" § 362(a)(6), Bankruptcy Code. Under § 362(h), Bankruptcy Code, "[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" (emphasis added). It has been held that a violation of the automatic stay is "willful" when the creditor "knows of the debtor's bankruptcy and intentionally engages in acts later found to violate the stay." In re Peterkin, 102 BR. 50, 53 (Bankr.E.D. N.C. 1989). As set forth in this court's previous opinion, any demand for attorney's fees would necessarily have been grounded in the debtor's prepetition activity in filing the lawsuit For that reason, the demand for attorney's fees would necessarily have constituted a claim "arising" before the filing of the bankruptcy petition, and any attempt to "assess" or "collect" such fees post-petition with knowledge of the bankruptcy filing would provide grounds for recovery of damages under § 362(h).
The statute cited in the demurrer, Va. Code Ann. § 8.01-271.1, is Virginia's analog to Fed.R.Civ.P. 11. It allows a court to award monetary sanctions, including reasonable attorney's fees, against a party filing a pleading that is not well-grounded in fact or law or which is filed for an improper purpose, such as to harass or annoy.
As discussed above, Crestar was not listed as a creditor in the debtor's schedules and was not mailed notice of the commencement of the debtor's case. The demurrer, with its demand for attorney's fees, was filed only eight days after the filing of the bankruptcy petition. Crestar's affidavit that it was unaware of the bankruptcy filing until it received a copy of the suggestion of bankruptcy on or about March 12, 1998, stands unrebutted. While the debtor disputes that point, he has pointed to no evidence establishing Crestar's earlier knowledge of the bankruptcy filing, and, in particular, knowledge on or before January 21, 1998, the date the demurrer was filed. When a motion for summary judgment is made and supported as provided in Rule 56, an adverse party "may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in [the] rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). Based on the summary judgment record, there simply is no evidentiary basis for an assertion that Crestar was aware of the debtor's bankruptcy filing at the time it filed its demand for attorney's fees. Accordingly, the debtor is unable to show that any technical violation of the stay arising from such demand was "willful" as required by § 362(h). As noted above, the unrebutted evidence is that Crestar did not ask for attorney's fees at the hearing on March 20, 1998 — by which time it concededly was aware of the bankruptcy — and the draft order it tendered to the court sustaining the demurrer did not contain any provision for an award of attorney's fees. In short, there is simply no evidentiary basis in the record upon which a trier of fact could conclude that Crestar willfully pressed a claim for attorneys fees in violation of the automatic stay.
B. The $60.91 Dunning Notice
As discussed above, Crestar, through a collection agency, sent the debtor a notice on May 4, 1998, to collect $60.91 Crestar claimed the debtor owed following Crestar's closing of his account. The debtor's attempt to characterize this as an effort to collect a prepetition claim is simply not supported by the record. The claim clearly arose from Crestar's honor, post-petition, of checks written on the account. As noted, the debtor's checking account had a positive balance of $233.24 on the date the bankruptcy petition was filed. It did not go into overdraft status until January 23, 1998, some 10 days later, when Crestar paid a $200.00 check that the debtor had written. That check would have caused the account to go negative even had Crestar previously refunded the $75.00 garnishment fee. It is true that, coupled with the subsequent deposits made by the debtor, the disputed $75.00 would have left the account with a modest positive balance of $43.09 on March 5, 1998, the day the account was closed, but that is not the issue. The $75.00 garnishment fee had already been fully "collected," at the latest, on December 18, 1997 (26 days prior to the bankruptcy filing) when Crestar restored the garnished funds to the debtor's accounts less that sum. Thus, the May 4, 1998, notice cannot in any sense be characterized as an attempt by Crestar to "collect" on account of its prepetition $75.00 "claim" against the debtor. Rather, the "claim" asserted in the May 5, 1998, notice clearly arose from post-petition account activity. Since the notice did not seek to collect a prepetition claim, the sending of the notice, without more, did not violate either the automatic stay or the discharge injunction.
Since the debtor received a discharge on April 23, 1998, the automatic stay, as such, was no longer in effect. See § 362(c)(2), Bankruptcy Code (stay of actions against debtor terminates when debtor is granted or denied a discharge). The automatic stay was replaced, however, by the discharge injunction of § 524(a)(2), Bankruptcy Code, which prohibits, among other things, any act "to collect, recover or offset any [discharged] debt as a personal liability of the debtor[.]" Since the only debts discharged in a chapter 7 case are (with certain exceptions not relevant here) those that "arose before the date of the order for relief," § 727(b), Bankruptcy Code, the same analysis would apply to a violation of the discharge injunction as to a violation of the automatic stay.
Whether the check was written pre- or post-petition is immaterial, since the mere delivery of a check to a payee does not operate as an assignment of funds in the account upon which the check is written. Va. Code Ann. § 8.3A-408. See Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992) (when payment is by check, a "transfer" occurs, for preference purposes, on the date the check clears).
Because the court is concerned in this action only with the automatic stay and the discharge injunction, the court need not reach the issue as to whether the $60.91 claim has legal merit and need not address the accounting entries on the debtor's checking account statement showing a "service charge refund" and "adjustment to close account" in the aggregate amount of $60.91 and a final account balance of zero. As noted above, Crestar has apparently taken no action to pursue the claim aside from reporting it to credit reporting agencies.
C. The Closing of the Debtor's Checking Account
As discussed above, Crestar closed the debtor's bank account on March 5, 1998. On that date, the automatic stay, which among other things prohibits "any act . . . to exercise control over property of the estate," was still in effect, since the debtor had not yet received his discharge, and the time for objecting to his claimed exemption of the checking account had not yet expired. Property of the bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." § 541(a)(1), Bankruptcy Code. Whether an account constitutes a property interest separate and distinct from the funds in the account is an intriguing question, but one which the court need not reach. As discussed above, there is no evidence in the record that Crestar was aware, prior to March 12, 1998, that the debtor had filed for bankruptcy. Thus the closing of the account on March 5, 1998, could not have constituted a "willful" violation of the stay and therefore cannot give rise to a claim for damages under § 362(h), Bankruptcy Code. Additionally, the closing of the account, for the reasons stated above concerning the dunning notice, cannot be characterized as an effort to collect a prepetition claim against the debtor, since the claim, if any, arose post-petition.
D. The $10.378.99 Demand Letter
One additional point requires brief discussion, if only because the court continued the original summary judgment hearing to allow discovery on the issue. Following service of the garnishment summons, Crestar, in one of the more bizarre aspects of this whole controversy, sent the debtor a notice on December 5, 1997, advising him that his personal checking account had a balance of minus $10,378.99, and demanding that he pay that amount to the bank based on a "credit-based relationship."
Under Virginia law, service of a garnishment summons perfects a lien not only against all funds due the judgment debtor on the date the garnishment process is served on the garnishee, but also all funds coming into the garnishee's hands prior to the return date of the garnishment process. Canfield v. Simpson (In re Jones), 47 B.R. 786, 789 (Bankr. E.D. Va. 1985). Since the garnishment summons served on Crestar was for a much larger amount ($10,369.00) than the total amount in the debtor's three accounts ($1,796.36), it is not surprising that Crestar would put some form of bookkeeping "hold" on the account to ensure that any deposits made to the account prior to the return date were properly paid over in obedience to the garnishment summons. However, nothing in the nature of garnishment under Virginia law created a legal liability on Crestar's part to pay the judgment creditor any sum in excess of what it owed the debtor, nor did mere service of a garnishment summons for more than the account balance create, in accounting terms, a negative balance in the account or in any sense legally obligate the debtor to place funds in the account so that Crestar would be able to pay over the full amount of the garnishment.
Crestar's interrogatory responses explain the bank's administrative procedures as follows:
Once a garnishment is received . . .[a] hard hold is immediately placed on the account for the full amount of the garnishment which, if the garnishment is in excess of the amount in the account, creates a negative available account balance in the account. In addition to the hold funds are removed from the customer's account which are placed in a general ledger account until disposition of the garnishment. All of the funds are removed from the account except for $0.01. As a result, after the funds are removed or "suspended" the current account balance would be $0.01.
The response further explains that the "hold" for the full amount of the garnishment is removed on the return date of the garnishment summons. In the debtor's case, according to Crestar, a computer system at the bank which was intended to identify accounts with a negative "current account balance" and send a collection letter instead erroneously latched on to the negative "current available balance" for the debtor's account and generated the December 5, 1997, collection notice. Crestar concedes this notice was in error and should not have been sent. According to Crestar's interrogatory responses, the problem with the computer system has since been corrected, and in any event, the $10,378.99 "hold" was removed from the account after the garnishment was dismissed on December 16, 1997.
There is no evidence in the summary judgment record even remotely suggesting that any demand was ever made by Crestar after December 16, 1997 — let alone after the bankruptcy filing — with respect to the erroneous $10,378.99 claim, or that any action Crestar took after the bankruptcy filing had the slightest connection with that claim. Regardless, therefore, of the circumstances that resulted in the sending of the December 5, 1997, notice, Crestar's action in sending it simply does not implicate the automatic stay.
II.
Because the debtor has not pointed to any evidence that would sustain a finding that the post-petition demand for attorneys fees, the post-petition (indeed, post-discharge) sending of the dunning notice, or the post-petition closing of the debtor's checking account constituted willful violations of either the automatic stay or the discharge injunction, summary judgment for Crestar is appropriate. Accordingly, a separate order will be entered dismissing the remaining count (Count VIII) against Crestar.
Count VIII is mistakenly labeled as a second Count VII in the complaint.
Checking Account Analysis
Michael H. Ditton
Crestar Acct. #82234-751 2 Date Description Credits Debits Balance Chapter 13 filed 1/13/98
11/25/97 Balance $848.76 11/25/97 Deposit (ATM) $596.21 $1,444.97 11/25/97 Ck #960 $113.01 $1,331.96 11/25/97 Ck #958 $21.55 $1,310.41 11/25/97 Ck #962 $17.00 $1,293.41 11/26/97 Deduction (garnishment) $797.19 $496.22 11/28/97 Deduction (garnishment) $496.21 $0.01 12/4/97 returned check fee $29.00 $(28.99) 12/16/97 AOL preauthorized draft $24.95 $(53.94) 12/17/97 overdraft fee $29.00 $(82.94) 12/18/97 Credit (garnishment) $722.19 $639.25 12/18/97 Credit (garnishment) $496.21 $1,135.46 12/18/97 Ck #961 $22.00 $1,113.46 12/19/97 Deposit $900.00 $2,013.46 12/19/97 Ck # 966 $205.00 $1,808.46 12/22/97 refund overdraft fee $58.00 $1,866.46 12/22/97 Ck #972 $585.00 $1,281.46 12/22/97 Ck #974 $210.00 $1,071.46 12/22/97 Ck #968 $200.00 $871.46 12/22/97 Ck #973 $9.40 $862.06 12/22/97 Ck #971 $96.25 $765.81 12/23/97 Ck #969 $30.73 $735.08 12/24/97 ATM withdrawal $41.00 $694.08 12/24/97 Ck #970 $48.00 $646.08 12/29/97 ATM withdrawal $41.00 $605.08 12/29/97 Ck #976 $17.00 $588.08 12/29/97 Ck #981 $15.62 $572.46 12/30/97 Ck #980 $40.62 $531.84 12/30/97 Ck #975 $22.00 $509.84 12/30/98 Ck #978 $20.15 $489.69 12/30/97 Ck #977 $14.93 $474.76 12/31/97 Ck #982 $256.43 $218.33 1/2/98 Ck #986 $34.49 $183.84 1/2/98 Ck #984 $18.75 $165.09 1/2/98 Ck #987 $17.91 $147.18 1/5/98 Deposit $300.00 $447.18 1/5/98 ATM withdrawal $51.00 $396.18 1/5/98 withdrawal $50.00 $346.18 1/5/98 ATM withdrawal $41.50 $304.68 1/5/98 Ck #985 $242.95 $61.73 1/5/98 Ck #983 $17.03 $44.70 1/6/98 Deposit $200.00 $244.70 1/12/98 Ck #989 $11.46 $233.24 — — 1/16/98 AOL preauthorized draft $24.95 $208.29 1/21/98 Ck #991 $96.25 $112.04 1/21/98 Ck #992 $30.00 $82.04 1/23/98 Ck #988 $200.00 $(117.96) 1/26/98 Deposit $50.00 $(67.96) 1/26/98 overdraft fee $29.00 $(96.96) 2/4/98 inc0oming wire transfer $100.00 $3.04 2/4/98 wire transfer fee $10.00 $(6.96) 2/18/98 AOL preauthorized draft $24.95 $(31.91) 2/19/98 overdraft fee $29.00 $(60.91) 3/5/98 "service charge refund $35.96 $(24.95) to close acct" 3/5/98 "adj to close $24.95 $0.00 unsatisfactory acct"