Karen Russell v. Jason Caffey , 384 F. App'x 882 ( 2010 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 09-15360 ELEVENTH CIRCUIT
JUNE 23, 2010
Non-Argument Calendar
JOHN LEY
________________________
CLERK
D. C. Docket No. 08-00450-CV-1-CG-B,
BKCY No. 07-12132-MAH
IN RE:
JASON A. CAFFEY,
Debtor,
__________________________________________________________________
KAREN RUSSELL,
Plaintiff-Appellant,
versus
JASON CAFFEY,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Alabama
_________________________
(June 23, 2010)
Before DUBINA, Chief Judge, CARNES and MARCUS, Circuit Judges.
PER CURIAM:
Appellant Karen Russell appeals the bankruptcy court order awarding
damages to debtor Jason Caffey under 11 U.S.C. § 362(k) (2006) due to Russell’s
violation of the automatic stay. The district court affirmed the bankruptcy court’s
award. We affirm the district court order because we conclude that Russell’s
conduct, including her failure to move to stay the outstanding state arrest warrant
that she had procured for Caffey in her domestic support case, willfully
contravened the automatic stay within the meaning of the statute.
I. BACKGROUND
Russell sued Caffey in Alabama state court to recover unpaid child support.
Caffey failed to appear at the July 2007 hearing, so the state court orally
determined his liability and ordered that he be held in contempt. Shortly thereafter,
on August 3, 2007, Caffey filed for bankruptcy protection in the Southern District
of Alabama. On August 8, 2007, the state court judge signed the written order
concerning Caffey’s child support obligations and, on August 17, 2007, executed a
writ of arrest.
Mobile County Sheriff’s Deputies arrested Caffey on September 24, 2007,
and held him until October 4, 2007, when his counsel could arrange for his release
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by agreeing to pay Russell and her attorneys certain negotiated sums. Caffey later
instituted an adversarial proceeding against Russell in his bankruptcy case because
he contended that her conduct violated the automatic stay imposed by the
bankruptcy code. See 11 U.S.C. § 362(a). The bankruptcy court awarded Caffey
damages based on his arrest, and that order is now at issue in this appeal.
II. STANDARD OF REVIEW
As the second court reviewing the bankruptcy court order, we review the
legal conclusions made by the bankruptcy and district courts de novo and review
the bankruptcy court’s factual findings for clear error. In re Int’l Admin. Serv.,
Inc., 408 F.3d 689, 698 (11th Cir. 2005).
III. DISCUSSION
A. Notice and Service of the Adversarial Bankruptcy Proceeding
Russell first contends that the judgment against her is void because Caffey
never properly advised her of the adversarial proceeding regarding the stay
violation. The bankruptcy court found that Russell had waived her objection to the
absent service because her attorneys of record participated in the adversarial
proceedings. See Fed. R. Civ. P. 12(h) (objections to insufficient service of
process are deemed waived if not first made in a Rule 12 motion or responsive
pleading). Russell further disputes the finding that her attorneys had the authority
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to waive the defense on her behalf. We note, however, that a presumption of
authority arises when a licensed attorney makes an appearance on behalf of a
client. See Dorey v. Dorey, 609 F.2d 1128, 1131 n.5 (5th Cir. 1980).
Russell argues that her attorney’s lack of admission to the bankruptcy court
established an implicit limitation on the attorney’s authority to represent her in the
adversarial dispute. Russell cites no authority for the proposition that an attorney’s
authority is bounded by his bar and court admissions, and we find nothing in the
record that reflects such an understanding between the attorney and Russell or the
bankruptcy court. Nothing in the record suggests that the bankruptcy court’s
findings regarding waiver and agency were clearly erroneous.
B. Violation of the Bankruptcy Stay
1. Notice of the Bankruptcy Proceeding
Russell next contends that she could not have willfully violated the stay
because she never received notice of Caffey’s bankruptcy petition. The bankruptcy
court found that, despite the lack of personal notice delivered to Russell, Caffey
did sufficiently deliver notice to Russell’s attorneys. In her brief, Russell does not
dispute this finding so much as she disputes its legal consequence—she contends
that personal service was required, and that such service must have been made
before the state court entered its final judgment.
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The bankruptcy court correctly determined that the notice given to Russell’s
attorneys sufficiently gave her knowledge of Caffey’s bankruptcy petition. See
Cooper v. Lewis, 644 F.2d 1077, 1082 (5th Cir. Unit A May 1981) (noting that a
party is considered to have notice of all facts conveyed to his attorney). Moreover,
Russell’s complaint that the notice did not come before the state court entered its
final judgment is inapposite because she never acted on that notice in the
approximately 47 days between the execution of the arrest warrant and Caffey’s
arrest. She continued to violate the stay by extracting money and promises of
future payments from Caffey long after her attorneys received notice of his
bankruptcy petition. Given these facts, there is no clear error in the bankruptcy
court’s finding that Russell knew about Caffey’s bankruptcy filing.
2. Carver abstention
In Carver v. Carver, 954 F.2d 1573, 1579-80 (11th Cir. 1992), we held that
in some narrow circumstances, bankruptcy courts ought to abstain from imposing
sanctions for violations of the automatic stay where the underlying actions
involved domestic support obligations. Russell contends that the bankruptcy court
should have abstained from imposing sanctions in this case because, as in Carver,
the offending conduct involved an attempt to obtain past due support obligations.
There are several factual differences between the case here and those in
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Carver that led us to mandate abstention. First, in Carver, we found that the
debtor’s other creditors were not harmed by the post-petition collection action and
the debtor’s arrest. 954 F.2d at 1580. Here, the bankruptcy court specifically
found that the arrest and imprisonment of Caffey harmed his other creditors
because it limited his income opportunities and therefore reduced the assets
available to pay his debts. Second, there is no indication that Caffey intended to
use his bankruptcy petition as a “weapon” to avoid his support obligations, unlike
the debtor in Carver who filed for bankruptcy without notifying the creditor he
later sued for violating the automatic stay. See id.Third, the record shows that Caffey was forthright about the pending
bankruptcy proceedings at his release hearing, unlike the debtor in Carver who
stayed silent about his bankruptcy at his contempt hearing in order to, we surmised,
preserve his future adversarial claim against the creditor. See id. Finally, we note
that, on the whole, the concern about bankruptcy courts interfering with essential
state court functions like domestic support obligations is not triggered in a case like
this where the imposition of sanctions has no effect on the validity of the state
court judgment.
3. Civil or Criminal Contempt
Russell argues that the contempt action she pursued against Caffey was for
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criminal contempt, not civil contempt, and was therefore not subject to the
automatic stay under 11 U.S.C. § 362(b)(1). Russell’s legal assertion depends on a
factual question—whether the state court contempt order contained a purge
amount. Russell asserts that the order contained no purge amount and was thus a
criminal sanction. The record in this case contradicts Russell’s contention. The
state court clearly set a purge amount in its August 8, 2007, final judgment order.
(Bankr. R. 2, Exh. A., ¶ 6.) Given the record, we conclude that the bankruptcy
court did not clearly err in finding that the state court contempt action was civil in
nature and thus subject to the automatic stay.
4. Judicial Estoppel
Russell contends that Caffey ought to be judicially estopped from claiming a
violation of the bankruptcy stay because he failed to raise the stay in negotiating
his release following arrest. One of the factors we evaluate in applying judicial
estoppel is “whether a party succeeded in persuading a court to accept an earlier
position, so that judicial acceptance of an inconsistent position in a later
proceeding would create the perception that either the first or the second court was
misled.” Stephens v. Tolbert, 471 F.3d 1173, 1177 (11th Cir. 2006) (internal
quotation marks omitted). Russell has failed to point out anything in the record
that shows Caffey succeeded in persuading the state court to do anything in the
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absence of the stay—he obtained his release from prison only after agreeing to pay
Russell and her attorneys tens of thousands of dollars. Nothing in the record
indicates that Caffey argued that the bankruptcy stay did not apply in negotiating
his release and, even if he had done so, nothing indicates that he would have
gained anything from such a position. Judicial estoppel does not apply on these
facts.
F. Conduct Violating the Stay
Russell finally disputes the sanctions imposed on her because she asserts that
they penalize her inaction. She claims that once the state court orally rendered its
judgment of contempt before Caffey’s bankruptcy petition, she had no affirmative
duty to delay the contempt order and arrest warrant because they materialized after
her involvement in the proceedings ceased.
We are doubtful of Russell’s legal assertion about her responsibilities. See
11 U.S.C. § 362(a)(1) (prohibiting “the commencement or continuation” of judicial
process to recover a debt); In re Scroggin, 364 B.R. 772, 781 (B.A.P. 10th Cir.
2007) (holding that a “refusal to take affirmative action to get the garnishment
stopped” is a willful violation of the automatic stay); In re Johnston, 321 B.R. 262,
282–86 (D. Ariz. 2005) (holding that creditor had affirmative duty to move to
vacate state court contempt and arrest orders that were not themselves issued in
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violation of the automatic stay); 2 Alan N. Resnick & Henry J. Sommer, Collier
Bankruptcy Manual ¶ 362.03[4] (3d ed. 2009) (“[L]evy of execution, restraining
orders, civil arrest orders and exercise of any other postjudgment remedies are
stayed.”). Even assuming that Russell had no affirmative duty to vacate the
outstanding orders, the record demonstrates that Russell actively violated the stay
after the arrest warrant was executed. She opposed Caffey’s release from prison
after being informed of his pending bankruptcy and negotiated $80,000 in
payments from Caffey as a condition of his release. This is precisely the type of
conduct that the automatic stay seeks to prevent, and the bankruptcy court did not
clearly err in finding this to be a willful violation of the stay.
IV. CONCLUSION
The bankruptcy court did not clearly err in finding that Russell willfully
violated the automatic stay. Through her attorneys, Russell had notice of both
Caffey’s bankruptcy proceeding and the adversarial suit against her. She violated
the stay by failing to vacate the state court orders and by extracting payments from
Caffey in exchange for his release. Accordingly, we affirm the district court’s
order affirming the bankruptcy court’s order awarding damages to Caffey.
AFFIRMED.
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