Michael G. Williamson, Chief United States Bankruptcy Judge.
If what transpired here wasn't so unfortunate, this case would be a comedy of errors. Start with the fact that the Debtor's ex-husband and his lawyers didn't realize the Debtor was able to discharge her marital debt obligations in this chapter 13 case, leading the Debtor's ex-husband to violate the automatic stay by trying to set off $30,000 of the Debtor's (dischargeable) unpaid marital debt obligations against his future alimony obligations. Making matters worse, the Debtor, rather than coming to this Court to stop her ex-husband's efforts, basically spent more than $45,000 to pay lawyers to stop her ex-husband from obtaining a $30,000 judgment, which would have been void anyway because it was obtained in violation of the automatic stay.
Although this Court ruled that the ex-husband's efforts to modify his alimony obligations violated the stay, the Court awarded the Debtor only $6,291.75 in damages—rather
Even assuming that's true, the Supreme Court has long recognized that clients must be held accountable for the acts and omissions of their lawyers. Because the Debtor is held accountable for her lawyer's inactions, the fact that her lawyer may have been responsible for the Debtor's failure to mitigate her damages is not a basis for reconsidering the Court's final judgment.
After more than twenty-five years of marriage, Deborah McGregor and Bruce McGregor divorced in 2010.
Eighteen months after the parties' divorce was final, Deborah filed for chapter 13 bankruptcy. In her bankruptcy petition, Deborah listed Bruce on Schedule F as holding an unsecured claim in an unknown amount.
Ordinarily, the confirmation order would have ended things between the couple, even if unsatisfactorily. But Bruce, presumably unhappy with being stuck with Deborah's share of the marital debt, went back to the divorce court in New Jersey and asked the court to modify his alimony obligations going forward and to award him a credit for Deborah's share of the marital debt that he had already paid (which was close to $20,000 by that point).
Bruce's efforts to modify his alimony obligations violated the automatic stay. To be sure, efforts to modify a domestic support obligation are generally excepted from the automatic stay.
Although it's doubtful Deborah understood the intricacies of § 362(b)(2)(A)(ii) and § 362(a)(7), she credibly claims that she believed Bruce's conduct violated the automatic stay. And based on that belief, she apparently asked her bankruptcy lawyer to stop Bruce's efforts. As Deborah tells it, her bankruptcy lawyer responded that he needed to look into it because, in his view, Bruce's efforts fell within a "gray area." When her bankruptcy lawyer didn't get back to her, Deborah says she went to the chapter 13 trustee, who advised her that he couldn't give legal advice but suggested to her that she sit in her bankruptcy lawyer's office and wait for him.
Rather than press the issue and file something with this Court, Deborah instead told her New Jersey divorce lawyer, whom Deborah claims raised Deborah's bankruptcy with the New Jersey divorce court. There are no filings from Deborah's divorce lawyer in the record. But in response to Bruce's initial request to modify his alimony obligations, the divorce court did order the parties to brief what effect Deborah's bankruptcy case had on Bruce's alimony obligation and the former couple's marital debt.
Whatever doubts the divorce court had about the effect of Deborah's chapter 13 case, if any, apparently were allayed by the brief that Bruce's divorce lawyer submitted in January 2013, which argued (erroneously as it turns out) that Deborah's marital debt obligations were nondischargeable under Bankruptcy Code § 523(a)(15).
It wasn't until a year later, at a hearing on Bruce's request to use the cash surrender value of Deborah's life insurance policy to satisfy the $30,401.26 judgment, that the divorce court (now presided over by a new judge) realized Bruce's collection efforts had, in fact, violated the automatic stay.
So Deborah's marital debt obligations were, in fact, dischargeable under Bankruptcy Code § 1328. And by trying to recoup Deborah's share of the marital debt
Although Judge Yablonsky volunteered that Bruce's actions could warrant sanctions, he declined to impose any because he thought that was something better left for this Court:
Deborah heeded Judge Yablonsky's suggestion and sought sanctions in this Court, though she waited two years to do so.
In October 2016, Deborah filed this proceeding seeking to recover sanctions against Bruce for violating the automatic stay.
Nearly half those damages were for legal fees she incurred in New Jersey. In particular, Deborah paid her New Jersey divorce lawyers more than $33,000 for their services opposing Bruce's modification efforts. She also incurred $12,000 in taxes when she withdrew retirement funds to pay her legal fees. The remainder of her damages primarily consisted of medical expenses for medical problems that Deborah says were caused by the stress of the New Jersey litigation.
After considering the evidence at trial, the Court concluded that Deborah failed to mitigate her damages by not coming to this Court immediately once Bruce tried to modify his alimony obligations. Had she done so, Deborah could have avoided 90% of her damages. Ultimately, the Court awarded Deborah $6,291.75 in damages for the amounts she would have incurred had she immediately notified this Court of Bruce's stay violation:
Deborah now asks this Court to reconsider its ruling.
A party seeking reconsideration of a prior order is held to a high standard: The party seeking reconsideration must demonstrate that (i) controlling law has changed; (ii) newly discovered evidence would merit a different result; or (iii) reconsideration is necessary to correct a clear error of law or fact or to prevent a manifest injustice.
The Court is comfortable it did not make a clear error of law. Courts around the country, including bankruptcy courts in this district, have recognized that debtors have a duty to mitigate damages resulting from a stay violation.
Instead, Deborah essentially contends that the Court made a clear error of fact when it concluded that she failed to do so. In her reconsideration motion, Deborah appears particularly concerned that the Court overlooked her efforts to mitigate her damages because they were not detailed in her counsel's post-trial memorandum.
According to Deborah, when her bankruptcy lawyer refused to act, she went to see the chapter 13 trustee, who (because he cannot give debtors legal advice) suggested that the Debtor plant herself in her bankruptcy lawyer's office. There's no evidence in the record that Deborah did anything at that point to insist her bankruptcy lawyer take some action to stop Bruce's efforts.
The United States Supreme Court has held, in a variety of contexts, that "clients must be accountable for the acts and omissions of their attorneys."
While this rule may produce harsh results at times, it is necessary to give effect to our system of representative litigation:
That rule, enunciated by the Supreme Court, applies with equal force here.
For whatever reason—either because Deborah did not insist that her bankruptcy lawyer take action or because she did and her lawyer to do so—Deborah chose to rely on her New Jersey divorce counsel to raise the issue of her bankruptcy. And when the divorce court did not initially quash Bruce's efforts, Deborah chose to continue litigating the issue. The end result is that not only did Deborah not mitigate her damages, she exacerbated them.
When Bruce first moved to modify his alimony to recoup Deborah's share of the marital debt that he had paid, he was only seeking to recoup $20,000 (though the amount later increased to $30,000). Yet, Deborah chose to incur $33,000 in attorney's fees (plus $12,000 in penalties to withdraw funds to pay her attorney's fees)—all to avoid a judgment that would be void because it was obtained in violation of the stay.
There is no question that Deborah's decision to continue litigating in New Jersey divorce court exacerbated her damages. Deborah lays that decision at the feet of