THOMAS J. TUCKER, Bankruptcy Judge.
This opinion concerns the scope of the "criminal action or proceeding" exception to the automatic stay, contained in 11 U.S.C. § 362(b)(1). The case came before the Court for hearing on August 24, 2011 on two motions. This opinion concerns one of those motions, namely the Debtor's motion entitled "Motion for Sanctions for Violation of the Automatic Stay" (Docket # 28, the "Motion"). For the reasons stated below, the Court will grant this Motion in part, and deny it in part.
In her Motion, the Debtor, Liudmila Storozhenko, seeks damages against a state court receiver, David Findling, based on 11 U.S.C. § 362(k)(1),
The pre-bankruptcy history between Findling and the Debtor is rather long and complicated, but the story can be simplified for purposes of this opinion. Findling was appointed by the Oakland County Circuit Court as a receiver in two related divorce cases—first, in the divorce case filed in 2006 between Vladimir Nozhnik and Esfir Nozhnik; and second, in the divorce case filed in 2009 between Vladimir Nozhnik and the Debtor (which case is referred to sometimes in this opinion as the "State Court Case"). After Vladimir Nozhnik was divorced from Esfir Nozhnik, in the 2006 case, he married the Debtor. The Debtor later sought a divorce from Vladimir, by filing the second divorce case, in 2009.
Findling alleged in his Criminal Contempt Motion that there were three different orders, all entered in the Debtor's 2009 divorce case, that contained injunctions restricting what the Debtor could do with her assets, including a personal injury claim that the Debtor filed in 2009 against several third parties.
In his capacity as receiver, Findling claims to be a creditor of the Debtor. Among other possible claims, Findling obtained a judgment against the Debtor in the 2009 divorce case, based on a finding of civil contempt, in the amount of $106,144.73. That state court judgment was entered on June 22, 2011, one day before the Debtor filed her bankruptcy case.
In the Criminal Contempt Motion, Findling alleged that the Debtor settled her personal injury claim, and received $46,862.08 in settlement proceeds, on or about March 22, 2011. Findling alleged that these actions by the Debtor violated the three previous injunctions entered by the state court. Findling asked the state court to grant the following relief against the Debtor:
This Court has subject matter jurisdiction over this case and over this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This contested matter is a core proceeding under 11 U.S.C. § 157(b)(2)(A) and (O), and because it is a proceeding "arising under title 11" within the meaning of 11 U.S.C. §§ 157(a) and 157(b)(1). It "aris[es] under title 11" because it "involve[s] a cause of action created or determined by a statutory provision of title 11," namely, 11 U.S.C. § 362(k)(1). See Allard v. Coenen (In re Trans-Industries, Inc.), 419 B.R. 21, 27-28 (Bankr. E.D.Mich.2009).
Findling admits that he knew of the Debtor's pending Chapter 7 bankruptcy case when he filed the Criminal Contempt Motion in the state court. But he argues that this was not a violation of the automatic stay under 11 U.S.C. § 362(a), because of the "criminal action or proceeding" exception to the automatic stay in 11 U.S.C. § 362(b)(1). That section states that "the filing of a petition ... does not operate as a stay—(1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor."
Findling argues that under the case law interpreting this stay exception, his filing of the Criminal Contempt Motion must be deemed the commencement of a "criminal action or proceeding," and therefore not subject to the automatic stay. This is so, according to Findling, because his "primary motivation" in filing the Criminal Contempt Motion was not to collect a pre-petition debt owed by the Debtor, but rather to uphold the authority of the state court by seeking criminal punishment of the Debtor for violation of the state court's orders.
Debtor, on the other hand, argues that Findling's motive in filing the Criminal Contempt Motion, at least in part, was to collect a pre-petition debt. Because of this, Debtor says, the "criminal action or proceeding" exception in § 362(b)(1) does not apply, and Findling's action violated the automatic stay.
Initially, the Court holds that if and to the extent the "criminal action or proceeding" exception does not apply, then Findling did violate the automatic stay under 11 U.S.C. § 362(a)(1), and possibly other provisions of § 362(a). Findling does not dispute this, and this is so because, at a minimum, Findling's filing the Criminal Contempt Motion, after the Debtor filed bankruptcy, was "the commencement... of a judicial ... action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title[.]" 11 U.S.C. § 362(a)(1). All of the Debtor's conduct that Findling's Criminal Contempt Motion alleges constituted the contempt occurred on or about March 22, 2011, according to Findling's motion.
As noted above, Findling admits that he knew of the Debtor's bankruptcy filing before he filed the Criminal Contempt Motion on July 20, 2011. Findling is an experienced bankruptcy attorney, and as he admits, he certainly knew that the automatic stay arose under § 362(a) upon the filing of Debtor's bankruptcy case. Thus, if Findling's conduct is found to have violated the automatic stay, such violation must be deemed be a "willful" violation within the meaning of 11 U.S.C. § 362(k)(1). See, e.g., In re Sharon, 234 B.R. 676, 687-88 (6th Cir. BAP 1999) (a "willful" stay violation occurs when "the creditor knew of the stay and violated the stay by an intentional act;" intent to violate stay is not necessary).
The question therefore becomes whether and to what extent the § 362(b)(1) "criminal action or proceeding" exception to the automatic stay applies. On this question, the Court takes a different view of the law than the parties do. As explained below, the Court finds it unnecessary to determine what Findling's actual motives were, or what his "primary motivation" was, for filing the Criminal Contempt Motion.
The Court must begin by noting the distinctions between a criminal contempt proceeding, and a civil contempt proceeding. A Sixth Circuit case that provides thorough guidance on this subject is United States v. Bayshore Associates, Inc., 934 F.2d 1391 (6th Cir.1991). Bayshore was not a bankruptcy case, but it supplies the principles this Court must use to determine whether and to what extent Findling's Criminal Contempt Motion is a "criminal action or proceeding" within the meaning of § 362(b)(1), as opposed to a civil contempt proceeding. To the extent Findling's criminal contempt motion is the latter, he has violated the automatic stay.
Bayshore held several things relevant to this case. First, it held that in determining whether any particular contempt proceeding or contempt sanction is criminal in nature, as opposed to civil, the trial court's characterization of the proceeding as either civil or criminal is not determinative. 934 F.2d at 1401. The court must "look to the purpose and character of the sanctions imposed, rather than to the label given to the proceeding by the court below." Id., quoting In re Kave, 760 F.2d 343, 351 (1st Cir.1985).
Second, the same conduct—for example, violation of a court's order—"may be subject to both criminal and civil contempt sanctions." See id. at 1400.
Third, a single contempt order may contain both criminal and civil sanctions, and if it does, "the two types of sanctions are severable" such that the portions of a contempt order that are criminal may be vacated, if procedures required in a criminal contempt action were not followed, while leaving intact the civil contempt sanctions portion of the order. Id.
Fourth, civil contempt is remedial in nature, while criminal contempt is punitive:
Id. (citations edited).
Fifth, incarceration can be either a civil contempt sanction or a criminal contempt sanction, depending upon the nature of the incarceration:
Id. (citations edited).
Sixth, a fine for contempt, including monetary relief labeled as criminal restitution, can be either criminal or civil. As the Sixth Circuit explained, in Bayshore:
Id. at 1400-01 (citations edited).
The Court now applies these principles to Findling's Criminal Contempt Motion. The motion was labeled as a motion to hold the Debtor in criminal contempt. This label, however, is not determinative. In assessing the purpose and character of the sanctions requested by Findling in his contempt motion, the Court concludes that the Motion seeks both criminal contempt sanctions and civil contempt remedies.
The criminal contempt sanctions are those listed in subparts (a) through (c) in the prayer for relief, on the last page of Findling's Criminal Contempt Motion, previously quoted in Section I of this opinion. The request to hold Debtor in criminal contempt, contained in subparagraph (a), is clearly a criminal contempt sanction. The request to require Debtor to pay "the criminal fine of $7,500 pursuant to MCL 600.1715(1)," contained in subpart (b), is a request for a criminal contempt fine, because such fine would be payable to the Court, rather than to the complainant, Findling, and because such fine is in an amount set by the Michigan statute for criminal contempt. It is not based upon or tied in any way to the damages caused by Debtor's alleged violation of the state court orders. The Michigan statute includes a fine of not more $7,500.00 and expressly labels it as "punishment for contempt." Mich.Comp.Laws § 600.1715(1).
The jail sentence of 93 days, "pursuant to MCL 600.1715(1)," requested in subpart (c) of Findling's Criminal Contempt Motion, is also a criminal contempt sanction, rather than incarceration that can be viewed as civil in nature. The Michigan statute cited by Findling in his request permits, as "punishment for contempt," "imprisonment which, except in those cases where the commitment is for the omission to perform an act or duty which is still within the power of the person to perform, shall not exceed 93 days, ... in the discretion of the court." Id. In requesting this maximum 93-day imprisonment, Findling clearly is seeking a criminal contempt sanction. It is punitive in nature (criminal) rather than remedial (civil), because the sentence is limited to imprisonment for a definite period, and the requested imprisonment is not conditioned such that the Debtor may avoid incarceration by performing some affirmative act required by the state court's previous orders. Bayshore, 934 F.2d at 1400. There is no indication in Findling's request for this incarceration that "the contemnor can avoid the sentence imposed on [her], or purge [herself] of it by complying with the terms of the original order."
The relief requested in subpart (d) of Findling's contempt motion is civil, not criminal. There Findling requests that the Debtor be required to pay "criminal restitution" in the amount of $46,862.08 "together with Receiver's fees and costs incurred in the investigation of her contempt and the prosecution of same." Although Findling designated this relief as "criminal restitution," it is not one of the forms of relief that the Michigan contempt statute, Mich.Comp.Laws § 600.1715, lists as one of the possible remedies to "punish" criminal contempt. Restitution is not mentioned in this statute at all. And this is not a criminal contempt sanction under the principles set forth in the Bayshore case. This sanction is clearly designed to be remedial and compensatory, and therefore is a civil contempt sanction, notwithstanding the "criminal restitution" label that Findling places on it. Monetary relief for contempt that is remedial, for the benefit of the complainant, and that is designed to compensate the injured complainant, is in the nature of civil contempt, rather than criminal contempt. Bayshore, 934 F.2d at 1400 (quoted above).
Findling's request for his fees and costs incurred is obviously compensatory and remedial. The $46,862.08 amount requested by Findling as part of the "criminal restitution" relief is also compensatory—it is the exact amount alleged by Findling to have been received and retained by the Debtor in violation of the underlying state court orders.
For these reasons, the Criminal Contempt Motion filed by Findling must be viewed as including both criminal contempt components and a civil contempt component, and therefore as having commenced a contempt proceeding that is both criminal and civil. The contempt proceeding Findling initiated is a civil contempt proceeding, under Bayshore and for purposes of § 362(b)(1), to the extent Findling's contempt motion seeks "criminal restitution" (subpart (d) of the relief requested in Findling's motion). In seeking that relief, therefore, Findling does not have the benefit of the "criminal action or proceeding" exception to the automatic stay in § 362(b)(1), and he has violated the automatic stay. It follows that any further pursuit by Findling in the state court of such relief, and any award of such relief by the state court, would also violate the automatic stay.
To the extent of all of the other relief sought by Findling's Criminal Contempt Motion, the Motion is protected by the "criminal action or proceeding" exception of § 362(b)(1), and Findling did not violate the automatic stay. It follows that Findling may continue to pursue such relief in the state court, without violating the automatic stay.
To the extent Findling's Criminal Contempt Motion has been found to be criminal in nature, under Bayshore, as just described, Findling's motives in filing the motion are immaterial. Findling does not lose the benefit of § 362(b)(1) to the extent he filed a contempt motion that is truly a criminal contempt proceeding, even if his primary motive, or his sole motive, was to try to pressure or force the Debtor into
In so concluding, the Court acknowledges that there is a split in the reported cases over the relevance, if any, of a creditor's motives in this context. Some cases hold that if a creditor's primary motive in pursuing criminal charges against a bankruptcy debtor is to collect a prepetition debt, then such action by the creditor violates the automatic stay, and is not protected by the § 362(b)(1) exception. See, e.g., Dorsey v. Prokos Check Cashing (In re Dorsey), 373 B.R. 528, 531-32 (Bankr. N.D.Ohio 2007), citing Batt v. American Rent-All (In re Batt), 322 B.R. 776, 779 (Bankr.N.D.Ohio 2005).
Other cases, including an en banc decision of the Ninth Circuit, hold that such a creditor's motives are irrelevant, and that the § 362(b)(1) exception applies to any criminal proceeding, even if it was pursued by the creditor solely to collect on a prepetition debt. And these cases do not consider the creditor's motives in determining whether the state court action is criminal in nature, rather than civil. See, e.g., Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1085-87 (9th Cir.2000) (en banc); Pickett v. Quinn (In re Pickett), 321 B.R. 663, 668 (Bankr.D.Vt. 2005); In re Bibbs, 282 B.R. 876, 878-79, 880 (Bankr.E.D.Ark.2002)(collecting numerous cases on both sides of the issue, but following Gruntz).
In Gruntz, for example, a bankruptcy debtor was charged and convicted under two California Penal Code sections, one for failure to support dependent children, and one for failing to obey a state court order. The prosecutions had been instigated by the debtor's ex-wife. 202 F.3d at 1077. The debtor argued that this violated the automatic stay, because "the purpose of the criminal actions against him is debt collection." Id. at 1085. The Ninth Circuit noted that the debtor's argument was supported by an earlier Ninth Circuit decision, Hucke v. Oregon, 992 F.2d 950 (9th Cir.1993). Id. And the court noted that "[b]ankruptcy courts have attempted an array of tests for assaying any hint of a collector in the prosecutor's guise, such as examining the primary motivation for the prosecution or applying a `bad faith' test." Id. at 1085 n.10 (citations omitted). But the Gruntz court rejected this approach, and overruled its earlier decision in Hucke, id. at 1085-87, reasoning as follows:
Id. at 1085 (footnote and some citations omitted).
This Court finds the reasoning of the Gruntz case persuasive, and follows it. The Court therefore concludes that Findling's motives in filing the Criminal Contempt Motion are not relevant to the issue of whether and to what extent that motion is deemed to be a "criminal action or proceeding" under the automatic stay exception in § 362(b)(1).
The Court concludes that Findling willfully violated the automatic stay, to the extent described above. It follows that Debtor is entitled to an order requiring Finding to pay Debtor any "actual damages, including costs and attorneys' fees," suffered by the Debtor because of Findling's stay violation. The Court's order will provide a procedure for Debtor to file an itemization of such claimed damages, including costs and attorney fees, and for Findling to file any objections he may have to the amount and reasonableness of such claimed damages. 11 U.S.C. § 362(k)(1).
Debtor's Motion also requested that the Court award punitive damages against Findling. This case does not present "appropriate circumstances" for punitive damages under § 362(k)(1). Punitive damages for a willful stay violation are awarded in response to "particularly egregious conduct for both punitive and deterrent purposes.... To recover punitive damages, the defendant must have acted with actual knowledge that he was violating the federally protected right or with reckless disregard of whether he was doing so.'" In re Timbs, 178 B.R. 989, 998 (Bankr.E.D.Tenn.1994) (citations omitted). Under the circumstances, the Court finds that Findling's conduct in violating the automatic stay was not egregious. And there is no evidence that Findling acted with actual knowledge that he was violating the automatic stay or with reckless disregard of whether he was doing so. In the Court's discretion, therefore, the Court declines to award any punitive damages for Findling's willful stay violation.
Finally, the Debtor requested during the August 24 hearing, but not in her Motion, that this Court enjoin Findling from any further prosecution of his Criminal Contempt Motion, whether such prosecution would be a violation of the automatic stay or not. To the extent the continued prosecution of the Criminal Contempt Motion would not be a violation of the automatic stay, as described above, Debtor asks that the Court enjoin Findling from prosecuting the motion, based on this Court's authority under 11 U.S.C. § 105(a).
The Court will not grant any such injunctive relief at this time, for the following reasons. First, Debtor's Motion did not request any injunctive relief. Second, to the extent Debtor seeks an injunction against Findling based upon § 105(a), Debtor must do so by filing an adversary
To the extent Debtor seeks an order enjoining Findling from violating the automatic stay in the future, by continuing to prosecute the civil part of his Criminal Contempt Motion, such injunctive relief is unnecessary. The Court has now made clear to Findling that such conduct is prohibited by the automatic stay. As a practical matter, an injunction would add nothing to that already-existing prohibition, which Findling should now clearly understand. The Court presumes that Findling, an attorney who regularly practices in this Court, will not violate the automatic stay in the future. And if he does, the Court could fully remedy such a violation after it occurs.
For the reasons stated in this opinion, the Court will grant Debtor's Motion in part, and deny it in part, by separate order.
United States v. Edward Rose & Sons, 384 F.3d 258, 261 (6th Cir.2004) (citations omitted).
