Opinion
Case No. 02-00981.
July 23, 2008
MEMORANDUM DECISION RE SECOND SANCTIONS MOTION
On May 15, 2007, the court held a hearing to consider, among other matters, imposing sanctions against creditor Conseil Alain Aboudaram, S.A. ("CAASA") pursuant to the Debtor's Motion for Finding of Contempt and Imposition of Sanctions Against [CAASA] for Violation of Automatic Stay (Docket Entry ("DE") No. 88) ("Second Sanctions Motion"). The debtor and his counsel appeared at the hearing. CAASA failed to appear through counsel or otherwise at the hearing. The court heard evidence and the argument of counsel for the debtor.
The following findings of fact and conclusions of law, leading to a denial of the Second Sanctions Motion, supplant the court's oral decision issued at the hearing.
I
The debtor, Jacques de Groote, commenced this case under chapter 11 of the Bankruptcy Code (11 U.S.C.) by filing a voluntary petition under 11 U.S.C. § 301 on May 14, 2002. CAASA was aware of the pendency of the bankruptcy case and received notice of the commencement of the case reciting the terms of the automatic stay and proceeded thereafter to take the acts complained of in the Second Sanctions Motion.
In an oral ruling of September 18, 2002, this court adjudicated the Debtor's Motion to Compel Conseil Alain Aboudaram, S.A. to Release Post-Petition Attachment and for Finding of Contempt and Imposition of Sanctions for Violation of Automatic Stay [DE # 34] ("First Sanctions Motion"). In granting the First Sanctions Motion, the court found that CAASA is subject to the automatic stay, which it plainly violated by serving a post-petition writ to collect a debt. The court supplemented its oral ruling with a written decision entered on October 17, 2003.
The Second Sanctions Motion contends that CAASA attempted, via threats made against the Appian Group Europe SA ("Appian") and Investenergy SA ("Investenergy") to collect amounts allegedly owed by de Groote to CAASA, and to force de Groote to drop his counterclaims against CAASA. Specifically, in September 2002 and again in November 2002, CAASA pressed Appian and Investenergy to pay CAASA on the claim against de Groote and to cause de Groote to drop his counterclaims against CAASA. CAASA threatened that if Appian and Investenergy did not bow to its demands, CAASA would cause to be disclosed in public media confidential information regarding Appian, Investenergy, and related companies, thereby damaging the companies' ongoing business transactions.
The specific facts supporting these allegations were set forth in an affidavit of Jiri Divis, the president of Appian and Investenergy. Divis states that on September 13, 2002, Ivan Moroz, CAASA's Czech representative, visited Antonin Kolacek, Appian's representative in the Czech Republic at Appian's offices in Prague, Czech Republic, and:
threatened to make sensitive disclosures and to interfere with delicate ongoing negotiations between Appian and the present owners of Skoda Holdings, a.s. unless [de Groote] dropped his claims against [CAASA] and paid [CAASA] an amount claimed by [CAASA].
Divis Aff. ¶ 8. Again, on November 1, 2002, CAASA sent Moroz to pay another call on Kolacek, Appian's Czech representative, and Moroz, according to Divis:
Although Divis's statements regarding the threats that Moroz made to Kolacek in this meeting and a later meeting are hearsay, Divis's affidavit (¶¶ 18, 19, 22, and 24) can be read as stating that he same threats were later pressed by CAASA representatives in conversations with Divis.
again threatened to have sensitive information on our companies published in the media unless Investenergy paid [CAASA] an amount claimed by [CAASA] [and] unless Jacques de Groote drops his claims against [CAASA].
Divis Aff. ¶ 9. Specifically, Moroz stated to Kolacek that Appian and Investenergy would be required to make a large payment for de Groote based on CAASA's claims, as well as pay $10 million to settle Overlea's asserted $28 million claim, and "Appian and Investenergy would be required to force de Groote to drop his counterclaims." Divis Aff. ¶ 11.
Henry Politi, a representative of CAASA, told Divis on the morning of November 11, 2002, that:
if de Groote would give up his counterclaims, [CAASA] would be satisfied with the payment of $6 million covering both the alleged claim of Overlea and the $1.9 million on behalf of de Groote, and Politi committed [CAASA] to nondisclosure of the information in return.
Divis Aff. ¶ 24. Then, on the afternoon of November 11, 2002, in another conversation Divis had with Politi:
[CAASA] reduced its demand to $4.5 million, covering both payment of Overlea's alleged claim and the $1.9 million for payment of [CAASA's] claims against Jacques de Groote on condition that de Groote give up his counterclaims.
Divis Aff. ¶ 25. The draft agreement that CAASA prepared and submitted to Divis makes clear that CAASA would sell its claims against de Groote to Investenergy, but only upon receipt of a signed statement by de Groote "by which he declares not having . . . anymore claims whatsovever against CAASA . . . and commit himself to withdraw immediately his whole claims as part of the legal case. . . . "
De Groote alleges that these actions were an effort by CAASA, via blackmail of Appian and Investenergy, to collect a debt allegedly owed by him to CAASA and to interfere with his counterclaims against CAASA, which constituted property of the estate. Beyond that, CAASA's representatives suggested to Appian and Investenergy that upon their acquiring CAASA's claim against de Groote they could recoup the claim out of amounts they would come to owe de Groote as an employee of their companies. Divis Aff. ¶ 21.
De Groote acknowledges that CAASA's threats and disclosures failed to cause him to forego his counterclaim or to pay the claim against him. He contends, however, that in March 2003 they compelled him to discontinue his service as an employee of Appian, Investenergy, and related companies.
II
De Groote's counterclaims against CAASA were property of the estate under 11 U.S.C. § 541(a)(1). In addition, CAASA's claims against de Groote were prepetition claims subject to the automatic stay. The issue presented is whether CAASA's acts violated the automatic stay of 11 U.S.C. § 362(a), and specifically § 362(a)(3) (barring "any act . . . to exercise control over property of the estate"), and § 362(a)(6) (barring "any act to collect . . . or recover a claim against the debtor that arose before the commencement of the case under this title").
As held in Armstrong v. Executive Office of the President, 1 F.3d 1274 (D.C. Cir. 1993), for civil contempt sanctions to be imposed there must be a violation of an order (or a statutory stay) that is clear and unambiguous and the violation must be proven by clear and convincing evidence. The debtor must meet this exacting standard with respect to his pursuit of contempt sanctions regarding the violations of the automatic stay of 11 U.S.C. § 362(a) he alleges pursuant to his Second Sanctions Motion. With respect to sanctions under 11 U.S.C. § 362(h), an individual debtor "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."
Section 362(h) was re-numbered § 362(k)(1) under 2005 amendments to the Bankruptcy Code that are inapplicable here.
III
I was initially inclined to the view that CAASA had violated the automatic stay. But I am now of the view that accepting the debtor's evidence regarding CAASA's communications with Appian and Investenergy as true, that evidence fails to prove a violation of the automatic stay.
A.
CAASA was threatening to press claims against Appian and Investenergy that were held by Overlea, but that conduct does not constitute a violation of the automatic stay. Those claims were neither property of the bankruptcy estate (protected by § 362(a)(3)) nor claims against the estate (pursuit of which would be stayed by § 362(a)(6)).
B.
CAASA was further seeking to extricate itself from litigation over its claim against de Groote by persuading Appian and Investenergy to purchase its claims against de Groote. Incident to those attempts to persuade Appian and Investenergy to purchase CAASA's claims against de Groote, CAASA threatened, whether legally or illegally, to make disclosures that would be adverse to Appian, Investenergy, and related companies, all third parties in which the debtor held no ownership interest. That may have been blackmail of Appian and Investenergy, but it was not blackmail exerted against de Groote as representative of the bankruptcy estate to persuade him to pay the claim from estate funds. Accordingly, in and of itself, that does not constitute a violation of the automatic stay. A creditor's sale of its claim against a debtor does not violate the automatic stay, as the claim against the estate remains intact, with only the holder of the claim changing. Indeed, transfers of claims, whether for consideration or not, are contemplated by the Bankruptcy Rules.See Fed.R.Bankr.P. 3001(e).
C.
In exchange for not pressing those threats of suing on the Overlea claims, and of not making disclosures damaging to Appian and Investenergy, CAASA asked for one other thing of Appian and Investenergy (in addition to a payment of part of the Overlea claims, and the purchase by Appian or Investenergy of CAASA's claims against de Groote), namely, the securing of de Groote's dropping of his counterclaim against CAASA. CAASA desired not to sell its claims (which it could assert as a setoff against the debtor's counterclaims) unless as part of the sale the debtor dropped his counterclaims. Selling the claims would not have extricated CAASA from the litigation if the counterclaim was not dropped.
It is that attempt to obtain a dropping of the counterclaim that de Groote contends was an act to exercise control over property of the estate in violation of § 362(a)(3). According to Divis, he was told that any deal would require Appian and Investenergy to "force" de Groote to drop his counterclaim against CAASA, but there is no evidence that Appian or Investenergy was asked to bring improper pressure on de Groote to drop his counterclaim against CAASA. The "force" that CAASA contemplated could well have been Appian and Investenergy's making a monetary offer for the dropping of the counterclaim that would have been in the bankruptcy estate's best interests, and that de Groote, as a representative of the estate, would be forced, in the exercise of his fiduciary responsibilities, to seek to have the bankruptcy court approve. CAASA left it to Appian and Investenergy to obtain de Groote's release of his counterclaim against CAASA. Appian and Investenergy had ties to de Groote (he was an employee and director of a related company) that might facilitate their reaching an arrangement between them and de Groote that would lead to such a release. But without evidence that CAASA attempted to persuade Appian and Investenergy to bring to bear improper pressure on de Groote to drop his counterclaim, CAASA cannot be said to have attempted to exercise control over the counterclaim. Accordingly, there is no evidence of an act to exercise control over property of the estate in violation of § 362(a)(3).
D.
The debtor's motion can be read as contending that despite the foregoing analysis, this case is different because CAASA blackmailed Appian and Investenergy by threatening that it would disclose confidential information harmful to them. That blackmail might be grounds for Appian and Investenergy to cry foul (as it might have coerced them to pay more for CAASA's claims against de Groote than they were worth), but that is blackmail of Appian and Investenergy, not of de Groote. That does not translate into improper coercion exercised upon de Groote himself.
In any event, de Groote does not claim that CAASA's conduct resulted in Appian or Investenergy pressing him to drop his counterclaim. Indeed, as Divis makes clear in his affidavit, he never had any intention on behalf of Appian and Investenergy of settling with CAASA. Accordingly, there was no coercion exercised on de Groote to drop his counterclaim.
Even if CAASA's blackmailing of Appian and Investenergy had resulted in their communicating with de Groote to see if he would drop his counterclaim against CAASA, there is no evidence that they would have blackmailed de Groote to persuade him to do so. That is to say, there is no evidence that they would not have limited themselves to offering some form of consideration to de Groote for his dropping of the counterclaim, a form of negotiation over resolving litigation that is not barred by the automatic stay.
E.
CAASA suggested to Appian and Investenergy that upon purchasing CAASA's claim against de Groote they could recover that claim from de Groote's salary as an employee of the companies. So long as a bankruptcy case was pending, the automatic stay would have barred such recovery. Had Appian and Investenergy bought CAASA's claims against de Groote, the might have had a claim against CAASA for misrepresenting that they would be able to recover the claim from de Groote's salary. But the misrepresentation itself hardly amounts to a violation of the automatic stay.
IV
In any event, de Groote has failed to prove that the damages arising from his loss of employment were caused by CAASA's acts of allegedly attempting to exercise control over de Groote's counterclaim. As the moving party, de Groote was required to show that CAASA's acts that allegedly violated the automatic stay caused the damages of which he complains. See Archer v. Macomb County Bank, 853 F.2d 497, 500 (6th Cir. 1988) (award for violation of automatic stay set aside as based on undue conjecture because the debtors failed to offer adequate proof that the claimed losses were caused by the creditor's misconduct); Apex Fountain Sales, Inc. v. Kleinfeld, 27 F.3d 931, 936 (3d Cir. 1994) (compensatory damage award for contempt requires a sufficiently specific nexus between the damages sought and the act that constituted contempt); Burke v. Guiney, 700 F.2d 767, 770 (1st Cir. 1983).
If an alleged act of exercising control over an estate asset had resulted in harm to that asset, the causal nexus would exist and de Groote could recover damages for that harm. Here, in contrast, de Groote is claiming damages for an event that was not caused by an actual act of exercising control over property of the estate, but an attempt (he contends) to exercise control over that property, an attempt that was unsuccessful. Because of that context, this matter could have raised an issue regarding just how strong must be the causal nexus between damages to the debtor and an act in violation of the automatic stay in order for the debtor to be entitled to an award of damages. But I need not explore that issue because, as explained below, de Groote ultimately failed to provide sufficient evidence demonstrating any actual nexus, whether weak or strong.
Assuming there was an attempt to exercise control over property of the estate (in violation of the automatic stay), de Groote's vague evidence is insufficient to demonstrate any nexus between that attempt and the damages arising from de Groote's loss of employment. CAASA's actions, de Groote contends, led to his resignation in March 2003 and caused him:
• to lose income of $7,000 per month for which he seeks compensatory damages of $350,000;
• to suffer a loss of status and reputation; and
• to incur $36,035.50 in attorney's fees in pursuing the Second Sanctions Motion.
He further contends that CAASA's actions caused him:
• to lose commissions due from the sale of a coal mine that was the subject of negotiations that de Groote was carrying on for the Appian Group, Investenergy, or related companies; and
• to lose free office space and reimbursement of travel expenses.
But de Groote presented insufficient evidence to establish the amount of any lost commissions, and any free office space and reimbursement of travel expenses would have been necessary only if he had continued as an employee.
In explaining why he resigned from his positions with Appian, Investenergy, or related companies, de Groote states that "Appian Group made it understood that I could not continue to serve in light of CAASA's campaign and threats to disclose highly confidential information." Aff. of Jacques de Groote of May 15, 2007 at ¶ 5. The threats, however, began as early as January 3, 2002, months before de Groote commenced his bankruptcy case (Divis Aff. ¶ 33) and CAASA's campaign against Appian and Investenergy included, Divis believes, CAASA's providing information to a third party:
resulting in a February 2002 claim against one of our companies. This claim for breach of confidentiality is based on [CAASA's] deposition of Jacques de Groote on October 24-27, 2001.
Divis Aff. ¶ 34. There is no evidence that it was not these prepetition events that led Appian and Investenergy to conclude that de Groote's services were no longer desired.
De Groote's statement that "Appian Group made it understood that I could not continue to serve in light of CAASA's campaign and threats to disclose highly confidential information" is too vague to permit the court to ascertain that his termination of employment was caused by CAASA's pressing of Appian and Investenergy to cause de Groote to drop his counterclaims against CAASA. We have no proof of what the real reasons were for Appian and Investenergy making de Groote understand that his services were no longer desired beyond what de Groote says they told him. For all we know, it was de Groote's having disclosed confidential information regarding Appian and Investenergy in a deposition, thereby permitting CAASA to pass that confidential information on to others, that led Appian and Investenergy to conclude that de Groote's services were no longer desired.
In an earlier affidavit accompanying the Second Sanctions Motion, de Groote stated that CAASA "will not stop [its] collection harassment, intimidation and blackmail of me or [Appian and Investenergy] so long as I prosecute my lawful counterclaims," and that, accordingly, "I cannot in good conscience continue to subject the Appian Group to [CAASA's] blackmail and other attacks." De Groote Aff. of Dec. 4, 2002, at ¶ 28. That statement, however, is again too vague to demonstrate that CAASA's acts relating to the counterclaim were the cause of de Groote being told that his services were no longer desired effective March 2003.
Accordingly, at least as to the damages relating to de Groote's loss of employment and harm to his reputation, his evidence did not suffice to carry his burden of proof. Although de Groote incurred attorney's fees, those would not be recoverable either (unless the violation were continuing). See In re Hutchings, 348 B.R. 847 (Bankr. N.D. Ala. 2006); Aiello v. Providian Fin. Corp. (In re Aiello), 231 B.R. 684, 689 (Bankr. N.D. Ill. 1999), aff'd, 257 B.R. 245 (N.D. Ill. 2000), aff'd, 239 F.3d 876 (7th Cir. 2001).
V
In accordance with the foregoing, an order follows denying the Second Sanctions Motion.