DAVID T. THUMA, Bankruptcy Judge.
As set out in an opinion entered February 10, 2017, the Court concluded that Defendants violated the discharge injunction under 11 U.S.C. § 524 by attempting to foreclose on real property that Plaintiff redeemed post-discharge. The Court entered partial summary judgment on that issue. Now before the Court is whether to award Plaintiff damages for Defendants' violation of the discharge injunction, and/or for violating a separate Court order.
In 2008, Fred Van Winkle brought an action in state court against Belleview Valley Land Co., John Williams, and Ellen B. Williams. Defendants filed a counterclaim.
On August 13, 2010, Defendants obtained a money judgment against Van Winkle for $243,944.31 (the "Original Judgment"). This amount was augmented on February 4, 2011 by a $17,711.93 award of attorney fees and costs.
Defendants filed transcripts of judgment in Otero and Lincoln Counties on August 17, 2010, creating judgment liens on Van Winkle's real estate in those counties. At the time Van Winkle owned, inter alia, certain land in Otero County, New Mexico (the "Subdivision Property") and a condominium in Ruidoso, New Mexico (the "Condominium").
Van Winkle filed this chapter 7 case on May 21, 2013. Defendants received notice of the bankruptcy filing.
On Van Winkle's Schedule A, he listed several parcels of real property, including the Subdivision Property and the Condominium.
Van Winkle claimed $60,000 of the equity in the Condominium as exempt under New Mexico's homestead exemption, N.M.S.A. § 42-10-9. The Condominium is encumbered by a first mortgage, held at that time by First National Bank of Ruidoso.
On August 26, 2013, the Court granted Van Winkle a chapter 7 discharge (the "Discharge Order"). Defendants were aware of the Discharge Order, and referred to it in state court filings.
On September 23, 2013, Van Winkle filed a motion in this Court to avoid Defendants' judicial lien on the Condominium, arguing that the lien impaired his homestead exemption. Defendants responded on October 8, 2013.
Van Winkle died on April 28, 2014. His daughter, plaintiff Tammy Sprague, was appointed as the personal representative of his probate estate.
On November 14, 2014, the Court ruled that Van Winkle's death did not affect his heirs' ability to exempt the Condominium or avoid the judicial lien. On January 27, 2015, Plaintiff and Defendants thereafter entered into a Stipulated Order Resolving Motion to Avoid Judicial Lien of Belleview Valley Land Co., John Williams and Ellen B. Williams (the "Stipulated Order"). The Stipulated Order provides in part:
On March 20, 2015, Plaintiff filed a motion to compel the trustee to abandon both the Condominium and a statutory right to redeem the Subdivision Property.
In December, 2010, Defendants had commenced an action in state court to foreclose their judgment lien on the Subdivision Property (the "Subdivision Foreclosure Action"). The action was stayed by the bankruptcy filing.
On December 4, 2013, the Court entered an order modifying the automatic stay so Defendants could complete the Subdivision Foreclosure Action. On May 22, 2014, the state court entered a final judgment foreclosing Defendants' judgment lien on the Subdivision Property. The judgment provided that, in the event of a deficiency, the Court could not enter a deficiency judgment against Van Winkle individually.
A special master held a sale of the Subdivision Property on July 8, 2014. Defendants John and Ellen Williams were the high bidders, credit bidding $67,000 of their judgment. On July 28, 2014, the state court entered an Amended Order Approving Special Master's Report & Granting Deficiency Judgment, which included a deficiency judgment of $271,905.61, plus 8.75% interest. The amended order, submitted by Defendants, provides:
On April 20, 2015, Plaintiff filed in the Subdivision Foreclosure Action a petition to redeem the Subdivision Property. She deposited money in the court registry.
Defendants responded to the petition for redemption by, inter alia, filing a complaint to foreclose their deficiency judgment lien on the redeemed Subdivision Property, and asking for a summary judgment of foreclosure. Defendants took the position that Plaintiff's right of redemption was subject to Defendants' right to full payment of the deficiency judgment, and/or their right to foreclose the remaining judgment lien on the redeemed property.
The redemption remains pending; Defendants still have title to the Subdivision Property.
On May 19, 2015, Defendants filed an amended complaint in state court to foreclose their mortgage and judgment lien on the Condominium (the "Condominium Foreclosure Action"). The prayer for relief states:
Plaintiff has incurred attorney fees as follows:
Mr. Moberly charged an hourly rate of $200, and spent a total of approximately 43.1 hours on the Otero and Lincoln county cases.
Mr. Arvizu billed $225 per hour, and spent 108.90 hours on this case.
Plaintiff has spent 84.61 hours working on this matter. She asks the Court to award her compensation at the rate of $40 per hour, for a total of $3,384.50.
Plaintiff asserts that, during the time redemption has been delayed by Defendants' violation of the discharge injunction, the Subdivision Property has suffered the following damage:
There is no private right of action under § 524(a)(2) when a creditor violates the discharge injunction. In re Otero, 498 B.R. 313, 319 (Bankr. D.N.M. 2013) (surveying the case law). The remedy lies in a contempt proceeding, pursuant to which the Court may assess sanctions. In re Paul, 534 F.3d 1303, 1306-1307 (10
Plaintiff has the burden of proving a violation of the discharge injunction by clear and convincing evidence. In re Zilog, Inc., 450 F.3d 996, 1007 (9
To sanction a party for violating § 524(a), a court must determine that the creditor's actions were willful, "i.e., whether the creditor deliberately acted with [actual] knowledge of the bankruptcy case." In re Martin, 474 B.R. 789, at *6 (6
Martin, 474 B.R. 789, at *6. See also In re Culley, 347 B.R. 115, *5 (10
"In cases in which the discharge injunction was violated willfully, courts have awarded debtors actual damages, punitive damages and attorney's fees." 4 Collier on Bankruptcy (16
The Court finds and/or concludes that Defendant willfully violated the discharge injunction. Defendants were well aware that the injunction had been entered. They were active in the bankruptcy case, and never denied knowledge of the injunction. Their state court pleadings show that they knew about the discharge injunction.
Further, Defendants' actions that violated the discharge injunction (e.g. seeking to foreclose on the redeemed Subdivision Property) were intentional, as opposed to accidental or unintended. Defendants' argue that they thought their actions did not violate the discharge injunction. This is a difficult position to defend, given the lack of supporting authority. Regardless, Defendants' beliefs about legality are irrelevant. "A creditor's mistaken belief that its actions were lawful or did not violate § 524(a) is not a defense to a contempt action." Martin, 474 B.R. 789, at *6, citing McCool v. Beneficial (In re McCool), 446 B.R. 819, 823 (Bankr. N.D. Ohio 2010). See also In re Atlantic Medical Management Services, Inc., 387 B.R. 654, 662 (Bankr. E.D. Pa. 2008), citing Cuffee v. Atlantic Business and Community Development Corporation (In re Atlantic Business and Community Corporation), 901 F.2d 325 (3rd Cir.1990); In re Bloom, 875 F.2d 224, 227 (9
Defendants argue that it is not a willful violation of the discharge injunction if even a minority of courts support their position. Whether or not that argument has any merit, there are no cases supporting Defendants' position.
The Court concludes that Plaintiff is entitled to recover reasonable
In determining a reasonable sanction, courts do not distinguish between state court attorney fees spent responding to a violation and bankruptcy court attorney fees incurred to stop it. See, e.g., In re Martin, 474 B.R. 789 (6
The Court has reviewed Mr. Moberly's fee bills. All of the fees are reasonable. Of the total fees, costs, and taxes billed, the Court finds that $4,318.42 was incurred in connection with the discharge injunction violation.
Arvizu Law Office charged $26,728.03 to represent Plaintiff in this matter. The Court finds that all of the charges were incurred to remediate Defendants' violations of the discharge injunction and Stipulated Order. The Court also finds that the fees would have been a fraction of amount charged if Defendants had agreed to let the Court rule on the discharge injunction issue when it first arose. The hours spent on the case are reasonable in light of the complexity of the case and the Defendants' litigiousness. The Court will award $26,728.03 as part of its sanction.
Plaintiff seeks to recover damages for her time and expense as personal representative of the Van Winkle probate estate, but does not seek lost profits from her personal business.
N.M.S.A. § 45-3-719 provides:
The Court finds that under this provision, Plaintiff would be entitled to reimbursement from the probate estate for the time she spent in this matter. The Court further finds that $25 per hour is reasonable compensation for Plaintiff's time. Since Plaintiff spent 84.61 hours working on the matter, the Court will include in the sanction $2,115.25 for the time spent. The Court will require Plaintiff's counsel to file a short statement in this proceeding that, upon Defendants' payment of the sanction, Plaintiff will waive her right to seek reimbursement of $2,115.25 from the probate estate.
The Court finds that Plaintiff did not carry her burden of proving the alleged damages to the Subdivision Property.
With respect to the mobile home roofs, Plaintiff is not an expert, and could not testify about how much it would cost to repair them. She had personal experience about what it recently cost her to fix her "brick and mortar" house, but the costs are not translatable.
Similarly, the only evidence in the record about the cost of repairing the dirt berm is hearsay,
The Court cannot award any amounts for property damage, but notes that Plaintiff may have recourse from the following New Mexico statute:
"If the violation is willful or in reckless disregard of the law, punitive damages are proper. A creditor may be assessed punitive damages if it knew of the federally protected right and acted intentionally or with reckless disregard of that right." In re Culley, 347 B.R. 115 (10th Cir. BAP 2006) (affirming bankruptcy court's award of punitive damages several times higher than actual damages).
As set forth above, the Court found and concluded that Defendants' violation of the discharge injunction was willful. That finding appears to be sufficient to allow an award of punitive damages.
An alternative test to determine whether punitive damages are awardable is to consider (i) the defendant's conduct, (ii) the defendant's ability to pay, (iii) the motives for the defendant's actions, and (iv) any provocation by the debtor. In re Culley, 347 B.R. 115, at *4 (10th Cir. 2006), citing In re Diviney, 226 B.R. at 777. Application of these factors supports the award of punitive damages. As outlined above, Defendants took an aggressive course of action in the state court without a solid legal basis for doing so. Defendants' actions were willful, reckless, and appear somewhat vindictive. Exercising the probate estate's right of redemption is not a provocative act.
The purpose of punitive damages is to deter the offending creditor from continuing to violate the discharge injunction. In re Culley, 347 B.R. 115, at *5.
All things considered, the Court finds and concludes that an award of punitive damages is warranted here. Defendants' conduct was willful and in reckless disregard of the law. Defendants' conduct also comes within the alternative test discussed above. The Court finds and concludes that an award of $16,838.30 in punitive damages is reasonable and appropriate.
Plaintiff seeks contempt sanctions for Defendants' violation of the Stipulated Order. The evidence at the final hearing demonstrated that Defendants violated the Stipulated Order when they sued to foreclose their first mortgage and judgment lien on the Condominium. In their prayer for relief, Defendants asked that $60,000 of the special master's sale proceeds be paid to Plaintiff, with the balance paid to Defendants. Thus, for example, if the Condominium sold for $110,000, Defendants would be paid $50,000. This is contrary to the Stipulated Order. While the language of decretal paragraph 1 of the Stipulated Order is somewhat confusing, when read in tandem with recital 6, the order can only mean that Defendants mortgage and lien interests are limited to $40,000. Their prayer for relief should have been similarly limited. Instead, the prayer for relief was written as though the Stipulated Order had never been entered. Nevertheless, the Court will not assess additional damages because they would be cumulative.
Defendants willfully and/or recklessly violated the discharge injunction and caused actual damages and attorney fees of $33,161.70. To this amount the Court will add a punitive damage award of $16,838.30, for a total judgment of $50,000. The Court will enter a separate final judgment.
