Opinion
Case No. 8:19-bk-03452-RCT
01-06-2021
In re: Catherine Musto, aka Catherine Wilson Musto Debtor.
Chapter 7 MEMORANDUM DECISION AND ORDER GRANTING MOTION FOR SANCTIONS AGAINST K. DEAN KANTARAS , P.A. FOR VIOLATION OF THE DISCHARGE INJUNCTION
THIS CASE is considered following trial on Debtor's Motion for Sanctions for Violation of the Discharge Injunction (Doc. 16) (the "Motion"). Debtor reopened her chapter 7 case for the purpose of prosecuting the Motion against K. Dean Kantaras, P.A. (the "Law Firm"), which represented Debtor in state court in a marriage dissolution proceeding.
As clarified on summary judgment, the Motion was filed as against Mr. Kantaras individually, rather than the Law Firm. But as it was uncontested that Mr. Kantaras was not a creditor in his own right and that the Court had jurisdiction over the Law Firm, the Court deemed the Motion as filed against the Law Firm. At trial, Debtor made no argument as to why Mr. Kantaras might be held individually liable.
Prior to trial, the Court granted Debtor partial summary judgment on the issues of the Law Firm's notice of the commencement of the bankruptcy and entry of the discharge. The Court denied summary judgment on the issue of whether there might be "fair ground of doubt" that the Law Firm's contacts with the Debtor were lawful under the discharge order.
Doc. 36.
Taggart v. Lorenzen, ___ U.S. ___, 139 S. Ct. 1795, 1804 (2019).
At trial, the Law Firm conceded that its conduct likely violated the discharge order, allowing the parties to focus the trial on the issue of the appropriate sanction. The Court heard the testimony of Debtor Catherine Musto, the Law Firm's principal K. Dean Kantaras, and Grace Samarkos, an associate attorney with the Law Firm. The Court also admitted into evidence, without objection, Debtor's proffered exhibits, save her Affidavit of Verification regarding claimed emotional distress damages.
Doc. 45 (annotated exhibit list); see Doc. 32 (Debtor's Exs. 1-10 ("D's Ex. ___")); Doc. 44 (D's Ex. 15). D's Ex. 11-14 are audio recordings of voicemails received by Debtor and left by the Law Firm on Nov. 19, 2019, Nov. 22, 2019, Dec. 9, 2019, and Jan. 8, 2019, respectively.
After reviewing the pleadings and the evidence, considering the arguments, and being otherwise fully advised in the premises, the Court finds that the Motion should be granted and that the Law Firm should be required to pay sanctions in the total amount of $10,570.
Findings of Fact
Debtor commenced this chapter 7 case on April 16, 2019, scheduling the Law Firm on Schedule F with an unsecured claim for "legal fees" in an unknown amount. The Law Firm was included on the list of creditors filed pursuant to Fed. R. Bankr. P. 1007(a) and received the notice of commencement of the case. Debtor received her chapter 7 discharge on July 23, 2019. The Law Firm was notified of the Debtor's discharge.
Doc. 1.
Doc. 5.
Doc. 9.
Doc. 11.
Between August 5, 2019 and January 14, 2020, the Law Firm contacted Debtor on nine occasions requesting payment for attorney's fees incurred before the bankruptcy. These contacts consisted of emails, over half of which were accompanied by a phone call. The emails, though friendly in tone, had attached an invoice and credit card authorization form and made no mention of the status of her ongoing case. Nor did the emails contain any language that the Law Firm was merely preserving its rights to collect the balance from Debtor's former spouse as ordered by the state court.
D's Exs. 3, 6, 9, 11-14, & 15. The Court views the phone calls and voicemails, which followed up on certain of the emails, as part of a single violation with the underlying email.
Rather troubling is that the contacts continued notwithstanding Debtor's early attempts to remind the Law Firm of her bankruptcy discharge. In response to the first of these contacts, Debtor had a phone conversation with a representative of the Law Firm, a conversation that the Law Firm promptly memorialized by email. Shortly thereafter, Debtor again reminded the Law Firm of her bankruptcy discharge in a certified letter which accompanied the executed copy of a motion for contempt against Debtor's former spouse that the Law Firm sought to file in the state court. Debtor went so far as to include a copy of the discharge order with her letter. Nevertheless, the Law Firm continued to attempt to collect the discharge debt without reservation.
D's Ex. 3.
D's Ex. 5. The Law Firm filed the motion for contempt in September of 2019. The state court held a hearing on the motion on January 24, 2020, at which Debtor and Ms. Samarkos appeared.
Debtor testified that the Law Firm's collection attempts made her feel stressed, depressed, and angry. She stated the emails and calls made her feel "like a loser" and "horrible;" she never felt like they were "friendly reminders." Debtor believed that the matter would "never go away." But after the first contact in August 2019, she largely ignored the emails and calls and declined to respond further to the Law Firm.
On January 22, 2020, Debtor's counsel sent the first of two cease and desist letters. It was at this point that Mr. Kantaras personally became aware of the matter. To his credit, Mr. Kantaras took quick action and the Law Firm's demands for payment ceased. However, because Debtor's demand for sanctions confused him, he declined to remit the requested payment and, unfortunately, failed to address the matter directly with Debtor's counsel.
D's Ex. 1.
When the Law Firm did not respond to the first cease and desist letter, Debtor's counsel sent a second letter on February 20, 2020. When, again, Debtor's demands were ignored, Debtor moved to reopen this case and filed the Motion.
D's Ex. 2.
Docs. 13 & 16.
Discussion
Under 11 U.S.C. § 524(a)(2), a bankruptcy discharge "operates as an injunction against the commencement or continuation of . . . an act[] to collect . . . any such [discharged] debt as a personal liability of the debtor[.]" The discharge injunction is enforced through section 105 of the Bankruptcy Code, which "grants statutory contempt powers in the bankruptcy context." "Together, sections 524(a)(2) and 105(a) 'authorize a court to impose civil contempt sanctions [for attempting to collect a discharged debt] when there is no objectively reasonable basis for concluding that the creditor's conduct might be lawful under the discharge order.'" Said differently, a bankruptcy court may sanction a creditor for violating the discharge injunction where there is "no fair ground of doubt" that that the creditor's actions were lawful under the discharge order.
Statutory references are to 11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code"), unless otherwise noted.
Roth v. Nationstar Mortg., LLC (In re Roth), 935 F.3d 1270, 1275 (11th Cir. 2019) (quoting Hardy v. United States (In re Hardy), 97 F.3d 1384, 1389-90 (11th Cir. 1996).
Id. (quoting Taggart, 139 S. Ct. at 1801) (alteration in original).
Taggart, 139 S. Ct. at 1804; see In re Roth, 935 F.3d at 1275.
The analysis is two-fold. The Court first must determine if the challenged action violates the discharge injunction by asking "whether the objective effect of the creditor's action is to pressure a debtor to repay a discharged debt." If so, the Court then must determine if the violation is sanctionable by deciding if "there is no fair ground of doubt as to whether the [discharge] order barred the creditor's conduct."
Green Point Credit, LLC v. McLean (In re McLean), 794 F.3d 1313, 1322 (11th Cir. 2015).
In re Roth, 935 F.3d at 1276 (quoting Taggart, 139 S. Ct. at 1799) (emphasis in original).
Here, the Court easily concludes that the Law Firm's contacts with the Debtor had the "objective effect" of pressuring Debtor to pay the discharged debt. And even if the Law Firm had not conceded the point, the Court also easily concludes that the Law Firm's actions were barred under the discharge order. This is not to say that the Court finds that the Law Firm acted in bad faith. Rather, it appears that these unfortunate circumstances arose because of administrative errors, errors which were promptly corrected by Mr. Kantaras upon his review of the first cease and desist letter. Nevertheless, under the law, the Law Firm's conduct is sanctionable. The Court now must determine what sanctions are appropriate.
In re Roth, 935 F.3d at 1276; see In re McLean, 794 F.3d at 1321-22.
As noted, a bankruptcy court enforces the discharge injunction pursuant to its broad statutory contempt powers provided by § 105(a) of the Code. "[C]ourts have long imposed civil contempt sanctions to 'coerce the defendant into compliance' with an injunction or 'compensate the complainant for losses' stemming from the defendant's noncompliance with an injunction." "The measure of the court's power in civil contempt proceedings is determined by the requirements of full remedial relief." Section 105(a) authorizes the Court to "award monetary and other forms of relief . . . to the extent such awards are 'necessary or appropriate' to carry out the provisions of the Bankruptcy Code."
See, e.g., In re Wasson, No. 6:06-bk-02669-ABB, 2007 WL 4322444, at *2 (Bankr. M.D. Fla. Apr. 13, 2007).
Taggart, 139 S. Ct. at 1801 (quoting United States v. United Mine Workers, 330 U.S. 258, 303-04 (1947)); see In re McLean, 794 F.3d at 1323.
F.T.C. v. Leshin, 719 F.3d 1227, 1231 (11th Cir. 2013) (quoting McComb v. Jacksonville Paper Co., 336 U.S. 187, 193 (1949)).
Jove Eng'g, Inc. v. I.R.S., 92 F.3d 1539, 1554 (11th Cir. 1996) (discussing bankruptcy courts' statutory contempt powers under section 105).
To begin, the Court rejects the Law Firm's contention that sanctions are not appropriate as they are not necessary to coerce compliance with the discharge injunction. Certainly, having ceased its collection efforts, the Law Firm is now in compliance with the discharge order and it need not be compelled further. But that is not quite the whole story. In the context of a discharge violation, civil sanctions may be imposed either to coerce compliance with the order of discharge or to compensate the debtor for losses sustained by the creditor's violation. While a creditor may avoid the former type of sanction through compliance, it does not necessarily follow that its belated compliance avoids the latter type.
As it happens, Debtor does not seek coercive sanctions but rather seeks compensatory sanctions in the forms of emotional distress damages and the recovery of her attorney's fees and costs. Both forms are available as potential sanctions under § 105 for a violation of the discharge injunction. But both are subject to specific governing standards.
See In re McLean, 794 F.3d at 1325 ("[B]ankruptcy courts generally have authority to award compensatory sanctions for emotional distress caused by a violation of the discharge injunction."); Badovick v. Greenspan (In re Greenspan), No. 10-8019, 2011 WL 310703, at *5 (B.A.P. 6th Cir. Feb. 2, 2011) ("Reasonable attorney fees are an appropriate sanction for violation of the discharge injunction."); In re Mooney, 340 B.R. 351, 360-61 (Bankr. E.D. Tex. 2006) (listing cases and types of awards provided).
See, e.g., In re McLean, 794 F.3d at 1325-26 (emotional distress); In re Plummer, 513 B.R. 135, 148 (Bankr. M.D. Fla. 2014) (attorney's fees and costs).
Sanctions for emotional distress are not available as a matter of course and instead are appropriate only in limited circumstances. To support such a sanction award, a debtor must "(1) show she suffered significant emotional distress, (2) clearly establish the significant emotional distress, and (3) demonstrate a causal connection between that significant emotional distress and the violation of the discharge injunction." In this case, the Court finds that Debtor did not meet this exacting standard.
In re Deemer, 602 B.R. 770, 777-78 (Bankr. M.D. Ala. 2019) (quoting In re McLean, 794 F.3d at 1325-26); cf. Lodge v. Kondaur Capital Corp., 750 F.3d 1263, 1271 (11th Cir. 2014) (discussing the standard for emotional distress damages in the analogous context of a violation of the automatic stay).
Debtor's testimony, while credible, did not evidence the type of significant emotional distress required to support an award of emotional distress sanctions, nor did she show that the distress alleged was causally connected to the Law Firm's violation of the discharge injunction. Debtor stated that her anxiety and depression were rooted in her divorce proceedings, during which, incidentally, she began taking medications to address those conditions. Further, Debtor was upset by numerous things occurring in her life beyond these incidents. And she largely ignored the Law Firm's communications after the first in August 2019. Although Debtor stated that the Law Firm's contacts made her felt stressed and angry, such generalized statements typically do not support a finding that a debtor experienced significant emotional distress. Last, while not dispositive of the issue, the Law Firm's conduct was not the type of egregious conduct that might make it readily apparent that Debtor suffered significant emotional distress.
See Lodge, 750 F.3d at 1266, 1271-72.
While the Court finds that Debtor is unable to demonstrate the requisite significant emotional distress, it need not and will not simply overlook Debtor's statutory right to be free of collection attempts in violation of the discharge injunction. This is particularly true here because Debtor twice took the unnecessary step to remind the Law Firm of her bankruptcy discharge and the Law Firm, despite documenting Debtor's caution, continued its efforts to collect on the discharge debt.
Section 105 authorizes the Court to fashion an appropriate remedy when "necessary or appropriate" to enforce the provisions of the Bankruptcy Code. On these facts, the Court finds that to vindicate the violation of her statutory rights, nominal damages should be awarded to the Debtor. The Court therefore awards Debtor $50.00 for each of the nine violations for a total award of $450.00.
Attorney's fees and costs incurred by debtors in seeking to enforce the discharge injunction are recoverable as sanctions, provided those sums are reasonable. Reasonableness of attorney compensation is determined pursuant to § 330 of the Bankruptcy Code. The Court's consideration generally begins with the lodestar analysis, whereby the reasonable number of hours expended on necessary services is multiplied by a reasonable hourly rate. The Court may then adjust the lodestar, either in terms of the hours expended or the hourly rate or both, by taking into consideration the factors articulated in Johnson v. Georgia Highway Express, Inc. (the "Johnson Factors").
See, e.g., In re Deemer, 602 B.R. at 777-78; In re Plummer, 513 B.R. at 148.
See, e.g., In re Plummer, 513 B.R. at 148; In re Blue Stone Real Estate, 487 B.R. 573, 575-76 (Bankr. M.D. Fla. 2013).
488 F.2d 714 (5th Cir. 1974).
See, e.g., In re Blue Stone Real Estate, 487 B.R. at 575-76; In re United Maint. of Auburndale, Inc., 226 B.R. 275, 277 (Bankr. M.D. Fla. 1998).
As directed at the close of trial, Debtor's counsel submitted an attorney's affidavit with billing records attached. The billing records demonstrate that Debtor's counsel expended 32.20 hours while his paralegal spent 33.45 hours. Counsel's billable rate is $250 per hour while his paralegal's rate is $125 per hour. Using these figures, the Court calculates a lodestar of $12,231.25. Costs claimed are $120, for total sought of $12,351.25.
Doc. 50.
The Court located an error in a time entry for counsel's paralegal dated September 14, 2020 which was billed at counsel's rate. The error artificially inflated the total by $312.50.
The Law Firm does not contest the costs claimed or that the hourly rates charged are unreasonable but takes issue with the reasonableness and necessity of the hours expended. The Law Firm argues that certain actions taken were unnecessary or hours expended excessive given, among others, that the Law Firm ceased contacting the Debtor upon receipt of the first cease and desist letter and that summary judgment was denied save for matters conceded by the Law Firm. The Court agrees, in part.
Doc. 48.
To begin, the Court notes that time expended was split almost evenly between Debtor's counsel and his paralegal, and the records indicated that the work performed was appropriately managed as between them to minimize costs. And the Court accepts and appreciates counsel's representation that some services provided may not have been captured by the billing records.
For example, the billing records do not reflect counsel's time in preparing either cease or desist letter or for appearing at the preliminary hearing on the Motion.
However, the Court finds that services related to the motion to reopen and the motion for summary judgment were excessive. As to the latter, the Court's reasoning differs from the Law Firm's argument. The Law Firm's argument rests largely on the fact that summary judgment was not successful beyond the issues it conceded. But "the Code does not permit the Court to look back, with the benefit of hindsight, at all unsuccessful efforts." The issue for the Court lies principally in the fact that a significant portion of counsel's summary judgment motion makes arguments for recovery of damages under 11 U.S.C. § 362(k), which does not apply in the context of a violation of the discharge injunction. And Debtor's arguments were conclusory and generally without appropriate evidentiary support. Therefore, the Court reduces the total compensable hours by 2.5 attorney hours and 6.5 paralegal hours. Using these revised figures, the Court calculates a new lodestar of $10,793.75.
In re Watts, No. 09-30663-WRS, 2011 WL 565659, at *1 (Bankr. M.D. Ala. Feb. 8, 2011).
Upon careful review of the billing records, together with the record, and with consideration of the Johnson Factors, the Court finds that a reasonable attorney's fees and costs award to be $10,000. In adjusting the revised lodestar downward, the Court considers that the litigation in this matter was likely and unnecessarily complicated by Debtor's counsel unsubstantiated demands for damages and attorney's fees in his cease and desist letters. This is not to say that a sanction demand was wholly inappropriate. But as Mr. Kantaras did, the Court questions the statements that imply, without appropriate qualification, that the Court had ruled that the matter was subject to sanctions in a per se amount. The Court also considers that this case did not present novel or difficult questions of law, nor for that matter particularly difficult questions of fact. Similar cases have come before the Court that were resolved successfully without the need for protracted litigation. Finally, the Court considers that the evidence in this case is rather a far cry from those where emotional distress sanctions were found to be appropriate. Without doubt, debtors have the right to seek emotional distress sanctions for violations of the discharge injunction if they so desire. But it is also incumbent upon their counsel to examine the evidence carefully and objectively in light of the exacting governing standard and, where appropriate, educate their clients and conduct the litigation proportionately.
For these reasons, it is ORDERED, ADJUDGED AND DECREED:
1. The Motion (Doc. 16) is GRANTED.
2. The Law Firm, K. Dean Kantaras, P.A., is ordered to pay the sum of $450.00 to the Debtor representing nominal damages for the Law Firm's violation of the discharge injunction and the sum of $10,120.00 to Debtor's counsel for the attorney's fees and costs incurred to remedy the violation, for a total sanction of $10,570.00. These sums shall be payable within thirty (30) days from entry of this Order.
3. A separate judgment in favor of the Debtor and against the Law Firm in the total amount of $10,570.00 shall be entered contemporaneously.
ORDERED.
Dated: January 06, 2021
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Service of this Order other than by CM/ECF is not required. Local Rule 9013-3(b).