JAMES J. ROBINSON, Bankruptcy Judge.
Cynthia Boone Goodson ("Boone") initiated a lawsuit (the "Lawsuit") against her ex-husband, Roy A. Goodson (the "Debtor") by filing a Petition for Rule Nisi (the "Nisi Petition") in the Jefferson County, Alabama Circuit Court (the "Circuit Court") to collect a monetary property settlement awarded to her in their divorce.
The Debtor filed a motion (Doc. 16, and herein the "Motion") asking this bankruptcy court to hold the Respondents in contempt for violating the automatic stay and to award damages and expenses, including attorney's fees, pursuant to Code § 362(k). The Respondents filed their Response in opposition to the Motion
The court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the General Order of Reference, as amended, entered by the United States District Court for the Northern District of Alabama. This proceeding is a contested matter under Federal Rule of Bankruptcy Procedure 9014 that arose in a case filed under Title 11, and seeks damages for an alleged violation of the automatic stay under Code § 362, and is, therefore, a core proceeding under 28 U.S.C. § 157(b)(1).
Pursuant to an April 2, 2014 Agreement (the "Agreement"), which was incorporated into the Final Decree of Divorce dissolving Boone's and the Debtor's marriage, the Debtor agreed to pay Boone $60,000 in monthly installments of $1,000 each for 60 months, and $6,000 to Shockley for Boone's attorney's fees, also payable in monthly installments.
On December 23, 2014 Boone filed the Nisi Petition
At the same time the Nisi Petition was pending, Boone was also pursuing a sheriff's sale of the Debtor's residence, funeral home business, and automobile in an attempt to collect the Obligation. The sheriff's sale was imminent, and was being advertised when the Debtor filed his bankruptcy case. His bankruptcy stayed the sale.
The trial of Boone's Nisi Petition commenced September 25, 2017, almost three years after it was filed. When the trial began, the Debtor's attorney argued that the Nisi Petition should be dismissed because the parties' Agreement effectively gave Boone a judgment as demonstrated by the imminent sheriff's sale of the Debtor's home, automobile, and funeral home business.
In response to the argument that Boone's only recourse was to levy against the Debtor's property to satisfy the Obligation, the Circuit Judge stated, "And so it's your position that . . . this Court cannot . . . entertain a civil contempt action. . . ." (Trans. 9, emphasis added.)
As the trial progressed, in response to an evidentiary issue, the Circuit Judge stated, "I'll let you all go into some background information to help understand anything that the Court would need to understand to make a determination as far as any kind of civil contempt." (Trans. 58, emphasis added.) The Circuit Judge warned the Debtor that he was being confronted with two options: "You know they're trying to get you to pay over $39,000, right or go to jail; right?"
As the first day of trial came to a close, there was a colloquy among the attorneys, the Debtor, and the Circuit Judge. The substance of their conversation was that the trial would be continued to October 10—a Tuesday—and if the Debtor paid the balance of the Obligation, including Shockley's attorney's fees, the case could be dismissed. Much of the conversation centered on whether the Debtor could come up with the necessary funds, by borrowing them if necessary, before the scheduled sheriff's sale of his property, including his funeral home business. When the adjournment was announced, the Circuit Judge urged the Debtor to pay the Obligation before October 10 so the Lawsuit could be dismissed. The Circuit Judge instructed the Debtor, "I don't want to see you on Tuesday. Am I going to see you on Tuesday, October 10?" (Trans. 125). The Debtor responded: "So if I pay it, I don't have to come, that's what you're saying?" (Id.) The Circuit Judge confirmed that if he paid Boone and Shockley, then a motion to dismiss the Lawsuit could be filed. (Id.) Moreover, the Circuit Judge reminded the Debtor that he needed to pay Boone and Shockley to avoid the sheriff's sale of his funeral home, which, the Circuit Judge emphasized, would be bad for his business. (Trans. 119-20.)
The Circuit Judge explained Boone's position to the Debtor: "These people [the Respondents] want to know when they're going to have their money." (Trans. 116.) And she instructed the parties that, "I'm going to give you time—y'all time to figure out the numbers, figure out the interest and time for him to pay the money. Don't pay no money when you come to court. What I'm hoping for is y'all to come in here for trial and somebody say, hey, the issue is resolved.. . ." (Trans. 121.) No mention was made of criminal contempt, nor was there any mention that the Debtor was in danger of incarceration as a means of vindicating the court's authority regardless of whether he paid the Obligation. The entire hearing, and especially the Circuit Judge's closing remarks, unequivocally established that paying the Obligation would completely resolve the Lawsuit and Nisi Petition—and stop the sheriff's sale.
After the adjournment, the Debtor tried to borrow the money to pay the Obligation, but could not acquire sufficient funds before the resumption trial, and on October 8, two days before the trial was set to resume, he filed a chapter 13 bankruptcy petition, and his attorney filed a Suggestion of Bankruptcy with the Circuit Court. (Doc. 16, Ex. 3.) The chapter 13 plan filed by the Debtor proposed to pay all of his debts in full (as a 100% repayment plan), including his Obligation to Boone. (Doc. 58.)
When the trial resumed on October 10, the Circuit Judge was initially not aware the Debtor had filed bankruptcy. The Circuit Judge instructed Shockley to continue with her cross-examination of the Debtor, but the Debtor's attorney interrupted and announced that his client had filed a chapter 13 bankruptcy case during the hiatus while the trial was continued, and as a consequence the trial was stayed under Code § 362. Shockley agreed—at least initially—and conceded she "probably [would be] found by the Bankruptcy Court to be in contempt if I continued this action today." (Trans. 131-33.) According to Shockley's testimony, upon learning of the Debtor's bankruptcy, the Circuit Judge became "visibly upset"
The Circuit Judge's decision to hold the Debtor in criminal contempt was predicated on the Debtor's "interruption" of the trial by filing bankruptcy:
(Trans. 138-39.)
(Trans. 140.)
Without question, the Circuit Judge's decision to elevate a civil proceeding to a criminal prosecution was in retaliation for the Debtor's having filed bankruptcy, and the leap from a civil to a criminal proceeding was an undisguised attempt to sidestep federal bankruptcy court jurisdiction by simply changing the label describing the proceeding. The Circuit Judge was not about to allow the Debtor to circumvent her court's jurisdiction by filing bankruptcy:
(Trans. 133-34.)
Notably, the Circuit Judge told the Debtor at the end of the first day of trial that she was doing him a favor and that if he paid, he did not have to return to court on Tuesday. The Circuit Judge's own synopsis of the matter—pay and avoid jail—established that the proceeding embodied the very essence of civil contempt.
The Circuit Judge's disdain for the Debtor appeared to be triggered in large part by Boone's argument that after the divorce, the Debtor serendipitously gained the ability to pay the Obligation, but failed to do so. The Debtor owned and operated two small-town funeral homes; one in Anniston and the other in Roanoke. After the divorce, the Roanoke location suffered substantial fire damage and the Debtor, or at least his business entity that owned the funeral home, received an insurance settlement. Most of the settlement money was used to repair the fire damage, but a sizable portion was used by the Debtor to purchase a personal home and automobile, which cost more than enough to have satisfied his Obligation owing to Boone. The Debtor offered that he did not use the insurance money to pay Boone because he had a fiancé, and needed a home to live in when they married, and the automobile was used in his business.
The Circuit Judge ultimately found the Debtor in criminal contempt, and sentenced him to 145 days in the Jefferson County jail, of which seven days were to be served and the balance suspended.
The Debtor, having anticipated that the civil contempt hearing would be held in abeyance as a result of his bankruptcy, was instead escorted from the courtroom directly to jail. Once behind bars, the Debtor slept on a metal bed with no mattress, and wore a jailhouse jumpsuit soiled with fecal matter left by its previous user. The Debtor is a 65-year-old funeral director, who suffers from diabetes, high blood pressure, sleep apnea, and a heart condition, who was never before incarcerated. When he expressed to the Circuit Judge that he needed his medications, he was informed that he should have brought them with him. He suffered without prescribed medications for two days before the jailhouse nurse allowed his family to bring his medication. The Debtor was required to eat six small meals a day to regulate his blood sugar, but received only the standard three meals while incarcerated, until the last two nights, when he was allowed a bologna sandwich at 2 a.m. When the jailhouse nurse checked his blood pressure, it was high but he was informed, "You're not dying." He asked to be taken to the hospital and was refused. The Debtor was frightened and physically stressed. He was without his c-pap machine until the second night, but was required to plug it into the same outlet as the television used by the guards, and he had to ring a buzzer to ask the guards to turn the power back on whenever they turned off the television that also turned off his c-pap. He feared annoying the guards with these requests, but had no choice.
While the Debtor was in jail, he was unable to oversee his funeral home business and was forced to employ a substitute funeral director and embalmer at a cost of $6,500. The Debtor served four days in the county jail, and was released on the order of another Circuit Court judge after the Debtor's lawyer filed a writ for habeas corpus, which Shockley, if not her client, supported.
On October 11, 2017, three days after the Debtor filed bankruptcy and the day after the Circuit Judge entered the order jailing the Debtor, the Circuit Judge entered another order, again sua sponte, declaring the $60,000 Obligation owing by the Debtor to Boone was to "be treated for all intents and purposes as a spousal support obligation" notwithstanding that it was designated a property settlement by the parties in their Agreement. Boone's Nisi Petition did not seek a reclassification of the $60,000 Obligation from a property settlement to a support obligation.
Code § 362(a)(1) imposes the automatic stay and provides, in pertinent part, that, "Except as provided in subsection (b) of this section, a [bankruptcy] petition . . . operates as a stay, applicable to all entities, of . . . the commencement or continuation . . . of a judicial . . . action or proceeding against the debtor that was or could have been commenced before the commencement of the [bankruptcy] case . . . to recover a claim against the debtor that arose before the commencement of the [bankruptcy] case. . . ." An action to collect a debt awarded to a former spouse in a divorce proceeding, whether the debt is for support or a property settlement, is subject to the automatic stay unless an exception applies.
The Code further provides that ". . . an 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." Code § 362(k)(1) (emphasis added). A stay violation is willful if a creditor knew of the stay and took a deliberate action that violated the stay. In re Davis, 201 B.R. 835, 837 (Bankr. S.D. Ala. 1996). No specific intent is required, and a good-faith belief that the stay does not apply is no defense. In re Caffey, 384 B.R. 297, 304 (Bankr. S.D. Ala. 2008), subsequently aff'd, 384 Fed. Appx. 882 (11th Cir. 2010). Emotional distress damages are appropriate for a stay violation if the emotional harm's connection to the stay violation is "clearly established" or "readily apparent." Id. at 309 (quoting In re Bishop, 296 B.R. 890, 897 (Bankr. S.D. Ga. 2003)).
The Eleventh Circuit recently held that the actual damages recoverable by a debtor who suffered damages from a creditor's stay violation under Code § 362(k) include those attorney fees incurred not only in stopping the violation, but also attorney fees and costs incurred in prosecuting a damages action and defending the damages on appeal; something of a statutory shift from the American Rule. Mantiply v. Horne (In re Horne), 876 F.3d 1076, 1081 (11
The first exception to the automatic stay, and the exception raised as a defense by the Respondents in this case, is "the commencement or continuation of a criminal action or proceeding against the debtor."
Proceedings for contempt may be either criminal or civil, depending on the purpose of the sanction. Jove Eng'g, Inc. v. IRS (In re Jove Eng'g, Inc.) 92 F.3d 1539, 1557-58 (11
In Caffey, the state court set a purge amount in its final judgment order, which the Eleventh Circuit found to be completely consistent with civil contempt rather than criminal contempt. Id. In the instant case, the Circuit Judge's post-bankruptcy order finding the Debtor in contempt did not contain a purge amount; however, at the end of the first day of trial, before the Circuit Judge sua sponte converted the civil proceeding into a post-bankruptcy criminal prosecution, she told the Debtor in no uncertain terms that if he paid his former wife what he owed her, the case would be dismissed and he would not need to return to court. During the first day of trial, the Circuit Judge explained to the Debtor that he had two options: pay the Obligation to Boone or face incarceration.
Likewise, during the first day of trial, Shockley and the Circuit Judge repeatedly referred to the rule nisi proceeding as one for civil contempt, not criminal contempt. The pre-bankruptcy purge amount stated on the record by the Circuit Judge was the amount required to pay the Obligation in full. Under the guidance of Caffey, if the prosecution was truly for criminal contempt and the vindication of the Circuit Court's authority, it could not have been resolved by payment of the money owing to Boone. Before the trial resumed the second day, the Debtor filed bankruptcy, and if the Circuit Court and Respondents had honored the automatic stay, as they were required to do, the collection efforts pursued by Boone in the civil Lawsuit would have immediately stopped and so would have the trial; it would have never regressed into a fabricated criminal prosecution.
If the Respondents were not satisfied with the Debtor's proposal to pay Boone through his chapter 13 plan, they should have sought stay relief under Code § 362(d) or asked the bankruptcy court to abstain pursuant to 28 U.S.C. § 1334(c)(1). The mandate of the automatic stay and a bankruptcy court's jurisdiction are not so flimsy that they can be circumvented by a simple play on words and stay-avoidance shenanigans. The exclusive jurisdiction over bankruptcy cases, and until relinquished, proceedings under the Code, bestowed by Congress on the federal courts cannot be so easily subverted. 28 U.S.C. § 1334(a). As mentioned, creditors who believe debtors are abusing bankruptcy protection, including hiding behind the automatic stay in bad faith, may seek stay relief or abstention in the bankruptcy court. The Respondents' post-bankruptcy scheme, even with the Circuit Court's blessing, to sidestep the automatic stay, constituted blatant disrespect for established federal law and this bankruptcy court, and is cause for sanctions.
In a recent bankruptcy case where the state court judge referred to the debtor's contempt as both civil and criminal, the bankruptcy court, citing Caffey, found the contempt was only civil in nature, and thus subject to the automatic stay, notwithstanding the state court's dual label:
In re Shelnut, 2017 WL 1078535, *8 (Bankr. S.D. Ga. 2017) (emphasis added). The bankruptcy court in Jordahl v. Dyal (In re Jordahl), 555 B.R. 861, 864 n. 1 (Bankr. S.D. Ga. 2016) further explained that the purpose of the sanction controls: "Contempt proceedings may be either civil or criminal, depending on the purpose of the sanction. Souther v. Tate (In re Tate), 521 B.R. 427, 440 (Bankr. S. D. Ga.2014) (citing Jove Eng'g, Inc. v. IRS (In re Jove Eng'g, Inc.), 92 F.3d 1539, 1557-58 (11th Cir.1996)). When the sanction is punitive and imposed to uphold the dignity of the court, the contempt proceeding is criminal. Id. Where, as here, the sanction is intended to compensate the complainant and coerce the contemnor's compliance with the court's order, the contempt is civil."
A decision relied upon by the Respondents supports this court's finding that the Lawsuit was a civil contempt proceeding. The Respondents submitted a copy of an opinion entered in In re Hefty, Case Number 13-71974 (Bankr. W.D. Ark. 2013). That opinion confirmed that where "the debtor can avoid incarceration by taking some additional action or that the purpose of the Order is to coerce compliance with a previous order," then the matter is one of civil contempt. The record demonstrates that the Lawsuit was in exactly such posture, by the Circuit Judge's own directives, immediately before the Debtor filed bankruptcy.
The other decisions cited by the Respondents are similarly inapposite. They stand for the proposition that a true criminal contempt proceeding related to a divorce action is excepted from the automatic stay under Code § 362(b)(1). However, those cases do not stand for the proposition that a state court can proceed post-bankruptcy in a civil contempt proceeding by simply changing the nomenclature of the action from civil to criminal and thereby avoid the automatic stay.
On October 8, immediately upon the filing of the Debtor's bankruptcy petition, the collection efforts initiated by Boone's Nisi Petition were stayed—everything related to that debt-collection action should have come to a complete and absolute halt. "Arguably the most powerful of protections under the Bankruptcy Code, the stay prohibits almost all judicial proceedings and other collection or enforcement attempts against the debtor, the debtor's property, or property of the bankruptcy estate. See 11 U.S.C. § 362(a). Specific to the matter here, the stay applies to civil contempt proceedings." Jordahl, 555 B.R. at 864 (citing Goodman v. Albany Realty Co. (In re Goodman), 277 B.R. 839, 841-42 (Bankr. M.D. Ga. 2001); and citing Mitchell Constr. Co. v. Smith (In re Smith), 180 B.R. 311, 319 (Bankr. N.D. Ga. 1995)). Other than the administrative formality of announcing that the trial of the civil contempt rule nisi Lawsuit would not resume due to the bankruptcy stay, any further action with respect to the Debtor's Obligation was an intentional stay violation. In fact, the Debtor was not even required to attend the second day of trial. Actions taken by creditors and courts in violation of the stay are void ab initio and of no force or effect. United States v. White, 466 F.3d 1241, 1244 (11
The Respondents want this court to recognize as legitimate the Circuit Court's transformation of the civil contempt Lawsuit to a criminal proceeding. But via the immediate imposition of the automatic stay, the Lawsuit stopped when the Debtor filed bankruptcy; there was no grace period during which the Lawsuit could be altered to a criminal proceeding. If there were truly grounds to hold the Debtor in criminal contempt (and this court cannot find any, but that is beside the point), a new proceeding needed to be commenced. Post-bankruptcy, the Lawsuit could not proceed for any purpose other than administrative housekeeping that paid homage to the automatic stay.
The Respondents were complicit with the Circuit Judge in resuming the trial, and willfully and intentionally elected to proceed when given the option to stop, even after Shockley correctly announced that by doing so she might be found in contempt by a bankruptcy court for violating the stay. And although it is too late to order the release of the Debtor from jail, the Circuit Court's post-bankruptcy, second-day hearing, along with the orders dated October 10 and 11, respectively (Doc. 16, Exs. 4 and 5) are void and of no effect.
Respondents also contend that this bankruptcy court cannot question the Circuit Court's post-bankruptcy invocation of the "criminal" contempt label based on the Rooker-Feldman doctrine. Such reliance is misplaced and ignores the critical timing requirement for the doctrine to apply. "Under the Rooker-Feldman doctrine, federal [courts] do not have jurisdiction to review state court decisions. The doctrine's boundaries are not always clear, but they are clearly narrow. Rooker-Feldman applies only in `cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the [federal] court proceedings commenced and inviting [federal] court review and rejection of those judgments.'" May v. Morgan County, 878 F.3d 1001, 1005 (11
Exxon Mobil made it clear that "the state court must have rendered judgment before the district court proceedings commenced." Id. It is undisputed that the "ruling" that attempted to convert the Lawsuit into a "criminal" proceeding, and the ruling that found the Debtor in contempt and resulted in his incarceration, were made after the bankruptcy petition was filed and the automatic stay had gone into effect. Thus, Rooker-Feldman does not apply here. In any event, this court is not reviewing or reversing the merits of the Circuit Court's post-bankruptcy hearing and rulings. To the contrary, this court instead finds that the convening of the post-bankruptcy hearing, along with the rulings and orders that resulted from that hearing, were void as having been done in violation of the automatic stay, regardless of their purported content. The Lawsuit, as it existed at the moment the Debtor filed bankruptcy, was strictly one for civil contempt, and it therefore was stayed automatically upon the filing of the Debtor's chapter 13 petition. To proceed at all in the Lawsuit after the bankruptcy was filed was to proceed too far.
The Respondents cite cases in support of the Circuit Judge's having the ability to decide if the automatic stay applied to the Lawsuit, but this court does not find them persuasive. In response to those cases, this court agrees with and adopts the reasoning of Judge Sacca, United States Bankruptcy Judge for the Northern District of Georgia, who wrote:
In re Cole, 552 B.R. 903, 908-09 (Bankr. N.D. Ga. 2016); see also In re Long, 564 B.R. 750 (Bankr. S.D. Ala. 2017) (adopting the reasoning in Cole); and see In re Clarke, 373 B.R. 769, 771 (Bankr. S.D. Fla. 2006) ("Rooker-Feldman doctrine does not abrogate the bankruptcy court's authority to enforce the automatic stay.").
Having found a willful stay violation, the court next turns to damages. Code § 362(k) mandates an award of actual damages that result from a willful stay violation. Although neither side raised the issue, before imposing sanctions for stay violations in cases involving domestic support obligations, bankruptcy courts should consider abstention in some narrow circumstances. Caffey, 384 Fed. Appx. at 885 (citing Carver v. Carver, 954 F.2d 1573, 1579-80 (11
The Debtor's incarceration prohibited him from operating his funeral home, both as manager and embalmer, and he incurred the expense of employing someone to take his place. A small-town funeral director's business is necessarily harmed, and along with it his means of earning a living and paying his bills, when news of his incarceration spreads. Thus, the Debtor's income, property of the estate that should be used to pay creditors under the Debtor's plan, was instead diverted and used to pay someone else to keep the Debtor's funeral home in operation for the days he was in jail. The harm to his business reputation and future business is impossible to measure but is certainly real. Moreover, the Debtor is not using his bankruptcy as a means to avoid paying Boone. To the contrary, his plan proposes to pay all his creditors, including Boone, in full. And if the automatic stay had not stopped the sheriff's sale pursued by Boone, it is likely the Debtor's funeral home business would have been sold on the courthouse steps, and he would have been without means to pay his other creditors through his chapter 13 plan. At 65 years of age, it is doubtful the Debtor could find another means to support himself, much less to pay his creditors, including Boone.
Thus the expense of hiring a substitute funeral director and embalmer while the Debtor was incarcerated are actual damages. According to the Debtor's uncontested testimony, those expenses totaled $6,500.00.
The emotional distress suffered by the Debtor when forced to endure four days' incarceration in a county jail under the conditions he described is readily apparent and unquestionably connected to the stay violation. In re Bishop, 296 B.R. 890, 897 (Bankr. S.D. Ga. 2003). Based upon the Debtor's undisputed testimony, the harm he suffered was emotional and physical, and was severe. The court concludes that $20,000 ($5,000 for each day's incarceration) is adequate and reasonable to compensate the Debtor for the emotional and physical destress he suffered. No doubt the Debtor's business reputation was harmed and he probably will lose business as a result, but determining the amount of lost business is too speculative and the court will not award damages for the same. Additionally, the court concludes that the Respondents' choice to proceed with the Circuit Court Lawsuit knowing it would likely conclude with the Debtor's incarceration warrants the imposition of punitive damages. The court assesses punitive damages in the amount of $15,000.
The compensatory damages for the substitute funeral director, emotional and physical destress, together with the punitive damages, total $41,500 and shall be offset, pro-rata, against the claims filed by Boone and Shockley, respectively, in the Debtor's bankruptcy case.
The Debtor's actual damages also include his expenses that are directly attributable to the stay violation, most notably his attorney's fees and costs, incurred in his unsuccessful attempt during the second day of trial to enforce the automatic stay in the Circuit Court Lawsuit (other than the initial announcement that the Debtor had filed bankruptcy), and to gain his release from jail. Likewise, he is entitled to recover the attorney's fees and costs he incurred prosecuting his Motion. Those expenses, in an amount to be determined by separate order, shall be paid, in cash, and assessed against Boone and Shockley, as their joint and several liability.
In the order entered in conformity with this opinion, the court will set a hearing at which it will consider the amount of attorney's fees and costs recoverable in cash by the Debtor as actual damages in addition to those described above. Within twenty-one (21) days from the entry of this opinion and related order, the attorneys for the Debtor (including his Circuit Court attorneys who incurred fees on the second day of trial and represented the Debtor in obtaining his release from jail) shall file applications complying with Federal Rule of Bankruptcy Procedure 2016 and the court's local rules, itemizing the fees and expenses incurred relative to the these matters. The Respondents will have an opportunity to respond and be heard in opposition to the reasonableness and necessity of the fees.
(Trans. 143-144). To this offer, Shockley declined to continue and replied, "Yes, ma'am. We'll go forward." (Trans. 144). At the hearing before this bankruptcy court, Boone testified that she was in complete agreement with the decision to go forward with the trial.