In re: Jill Suzann Medley

FILED
FEB 13 2023
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-22-1167-FLC
JILL SUZANN MEDLEY,
Debtor. Bk. No. 6:20-bk-11768-SY
PRECISION BUSINESS CONSULTING,
LLC,
Appellant,
v. MEMORANDUM*
JILL SUZANN MEDLEY,
Appellee.
Appeal from the United States Bankruptcy Court
for the Central District of California
Scott H. Yun, Bankruptcy Judge, Presiding
Before: FARIS, LAFFERTY, and CORBIT, Bankruptcy Judges.
INTRODUCTION
Precision Business Consulting, LLC (“Precision”) appeals the
bankruptcy court’s determination that it violated the automatic stay when
it attempted to collect a real estate sales commission claimed by chapter 13 1
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
Unless specified otherwise, all chapter and section references are to the
1
Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal
debtor Jill Suzann Medley. It argues that it was a “factor” that owned
Ms. Medley’s right to receive the commission, rather than a creditor with a
security interest in the commission; thus, the commission was not property
of the bankruptcy estate and not subject to the automatic stay.
The bankruptcy court held an evidentiary hearing and determined
that Precision was a secured creditor and that its attempts to collect the
commission violated the automatic stay. The court sanctioned Precision
$20,000 to compensate Ms. Medley for a portion of her attorneys’ fees.
We discern no reversible error and AFFIRM.
FACTS
A. Prepetition events
Ms. Medley is a licensed real estate broker. She listed for sale a
property located in Lake Elsinore, California (the “Property”), owned by
Sun O. Park. In or around March 2019, Ms. Park accepted an offer to
purchase the Property.
About a month later, Ms. Medley entered into a set of agreements
with Precision. Under the agreements, Ms. Medley assigned a portion of
the anticipated commission ($46,753) to Precision, and Precision agreed to
make an immediate “advance” to Ms. Medley of $35,070 and pay an
additional $7,010 when it received the commission. The agreements
referred to Precision as the assignee and purchaser of the commission, but
Rules of Bankruptcy Procedure.
2
they also created a security interest, not only in that commission, but also
in all of Ms. Medley’s other commissions. Ms. Medley also agreed to let
Precision hold the deed to her house as additional collateral. The
agreements obligated Ms. Medley to assign replacement commissions to
Precision if Ms. Park’s sale did not close. Further, Ms. Medley was
responsible for “full liability in the event settlement fails to occur pursuant
to the terms of [Ms. Park’s pending purchase contract].”
The anticipated sale did not close. Ms. Medley withdrew the sale
listing for the Property, allegedly because Ms. Park changed her mind
about selling the property.
B. Ms. Medley’s bankruptcy case
The day after she withdrew the sale listing, Ms. Medley filed a
chapter 13 petition. She did not list Precision as a creditor on her schedules
or creditor mailing list. However, she listed an affiliated business, Escrow
Cash Advance, LLC, as holding a claim (arising from a separate
transaction) and included Escrow Cash Advance on the mailing list at the
same address as Precision. James Cooper is the CEO of Precision and also
works for Escrow Cash Advance.
Precision filed a proof of claim contending that it held a secured
claim of $53,405.32. The proof of claim indicated an 18% annual interest
rate and included a handwritten notation claiming “default interest”
totaling nearly $6,000. Mr. Cooper, on behalf of Precision, signed the proof
of claim and checked the box indicating “I am the creditor.”
3
Ms. Medley objected to Precision’s proof of claim, contending that
Precision’s debt was properly a general unsecured claim. She disclosed
that, after she filed her petition, she had relisted the Property and
anticipated receiving a commission totaling approximately $75,000 within a
month.
In response to Ms. Medley’s objection to the proof of claim, Precision
argued that it was not a lender; rather, it was “a factoring company that
purchases receivables . . . . Factors don’t loan money.” It said that it became
immediately entitled to its portion of the commission when Ms. Medley
procured a buyer for the Property prepetition. Therefore, Precision argued
that it owned the assigned portion of the commission and that Ms. Medley
and her bankruptcy estate did not own that portion. Precision also argued
that it was a secured creditor because it secured its purchase of the
receivable with a UCC filing.
In the meantime, Precision took steps to obtain payment of the
commission on the new sale of Ms. Park’s property. Mr. Cooper made
demands on Ms. Park, Ms. Medley, the escrow agent for Ms. Park’s sale,
and the sellers of other properties that Ms. Medley had listed for sale.
Precision did not seek or obtain relief from the automatic stay.
Later, the bankruptcy court dismissed Ms. Medley’s chapter 13 case.
At some point thereafter, the sale of the Property closed, and Ms. Medley
retained the entire commission for herself.
4
C. The order to show cause
Ms. Medley filed a motion for an order to show cause why Precision
should not be held in contempt for violation of the automatic stay. She
argued that Precision had notice of her March 2020 bankruptcy filing, yet it
directly contacted her and Ms. Park, demanding payment of the
commission earned postpetition. She cited §§ 362(k) and 105 and requested
that the court impose civil contempt sanctions of $20,000 for violation of a
court order.
Precision opposed the motion. It argued that Precision was a factor
that owned a portion of the commission, not a lender whose collateral
included the commission. Precision argued that it did not violate the
automatic stay because it only acted to protect its own asset that it had
purchased prepetition.
At the hearing on the motion, the bankruptcy court asked
Ms. Medley’s counsel whether she wished to seek a remedy for the stay
violation under § 362(k), in which event she would have to commence an
adversary proceeding, or instead seek sanctions in civil contempt
proceedings under § 105, in which case she would have to ask the court to
issue an order to show cause. Counsel responded that Ms. Medley would
proceed in an adversary proceeding. But she evidently changed her mind
because she did not commence an adversary proceeding; rather, she merely
refiled a substantially similar motion.
The bankruptcy court granted the motion and entered an order (the
5
“OSC”) requiring Precision to “show cause why the court should not
impose civil contempt sanctions against [Precision] in an amount up to
$20,000 under the court’s inherent sanctioning authority for violating the
automatic stay . . . .” The OSC did not cite § 362(k), but the court
“reserve[d] the right to impose alternate sanctions or sanctions on alternate
grounds as may be warranted by the evidence or argument presented in
connection with this order to show cause.”
Precision responded to the OSC and repeated its earlier arguments; it
did not claim that Ms. Medley had to commence an adversary proceeding.
In her reply memorandum, Ms. Medley argued that, under the Ninth
Circuit’s “transfer-of-risk” test, Precision was in reality a secured creditor
and not a buyer of the commission.
The bankruptcy court required the parties to submit a joint pretrial
stipulation. Ms. Medley eventually submitted a proposed pretrial
stipulation, apparently without Precision’s input or cooperation. The
pretrial stipulation included Ms. Medley’s eleven exhibits but did not list
any for Precision.
In February 2022, the bankruptcy court held a continued pretrial
conference and scheduled an evidentiary hearing. The court directed
Precision to file a trial brief laying out its legal argument that it was a factor
that could not violate the automatic stay. It also approved the pretrial
stipulation as submitted (i.e., with the admitted facts and without
Precision’s input as to exhibits, witnesses, and legal and factual issues).
6
Precision does not challenge that order in this appeal.
The parties filed their respective trial briefs, although Precision filed
its brief late, only two days before trial.
D. The evidentiary hearing
The bankruptcy court held the evidentiary hearing on March 16,
2022. Ms. Medley and Mr. Cooper were the only witnesses who testified.
The bankruptcy court admitted all of the exhibits previously identified by
Ms. Medley and precluded Precision from introducing additional exhibits
or making oral motions.
Ms. Medley testified about the correspondence that she and her
clients received from Precision. She said that Mr. Cooper threatened her
multiple times on the phone and came to her residence and pounded on
her door. She testified that she considered the advance a loan. She
explained that she was “borrowing funds from the future, that I could pay
back soon as one of my properties sold, and I identified which property
that would be.”
Mr. Cooper testified that he sent correspondence to Ms. Park and
Ms. Medley to preserve Precision’s legal rights to the commission. He
denied that he ever called Ms. Medley to discuss the commission, went to
her residence, or threatened her. Rather, he testified that Ms. Medley called
him postpetition and assured him that he would be paid at the close of
escrow. Instead, when she received and kept the commission, “she stole the
money.”
7
Mr. Cooper requested that “we state for a matter of record that I’m a
secured creditor[.]” His counsel agreed but also qualified, “[J]ust to be
clear, we dispute that [Precision] is a lender.”
Mr. Cooper testified that Precision “exclusively acts as a factor. . . . It
has never once done a loan.” He explained why he believed that Precision
was not a lender and its portion of the commission was not part of the
bankruptcy estate subject to the automatic stay.
The bankruptcy court made an extensive oral ruling at the conclusion
of the hearing and at a further hearing on Precision’s objection to
Ms. Medley’s proposed order. The court determined that Precision had
received actual notice of Ms. Medley’s bankruptcy filing.
The bankruptcy court rejected Precision’s position that it was a factor
that had purchased the account receivable prepetition, rather than a
secured creditor holding a claim subject to the automatic stay. It relied on
Precision’s judicial admissions that it was a creditor in both its filings and
Mr. Cooper’s testimony. It also held that, while Precision attempted to label
its transaction as a true purchase, the transaction was in substance a
disguised financing agreement.
The bankruptcy court thus concluded that Precision willfully violated
the automatic stay when Mr. Cooper, on behalf of Precision, made
demands on Ms. Park and Ms. Medley.
The court held that, under the U.S. Supreme Court’s decision in
Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), an objective standard applies to
8
stay violations, and a subjective good-faith belief will not negate a
violation. It continued, “I don’t think there’s a real honest objective good-
faith belief that [Precision] could rely on to say it shouldn’t be sanctioned.”
The bankruptcy court awarded a sanction of $20,000. It observed that
Ms. Medley’s counsel had provided evidence of about $26,000 of attorneys’
fees and that, even if some of those fees were unreasonable, the amount
would be at least $20,000. The court repeatedly stated that it wished it
could award a larger sanction but believed that it could not because the
OSC sought only that amount.
In its written order, the bankruptcy court decided that “$20,000
amounts to an appropriate civil sanction award in the context of this case
for Precision’s willful violation of the automatic stay under 11 U.S.C.
§ 362(k).” The court ordered Precision to “pay a civil sanction for actual
damages incurred by [Ms. Medley] in the form of her attorney’s fees and
costs in the amount of $20,000 . . . .”
Precision timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(a) and (b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in sanctioning Precision for
violation of the automatic stay.
9
STANDARDS OF REVIEW
“A bankruptcy court’s determination that the automatic stay was
violated is a question of law subject to de novo review.” Yellow Express, LLC
v. Dingley (In re Dingley), 514 B.R. 591, 595 (9th Cir. BAP 2014), aff’d on other
grounds, 852 F.3d 1143 (9th Cir. 2017). “De novo review requires that we
consider a matter anew, as if no decision had been made previously.”
Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014).
We review for an abuse of discretion the bankruptcy court’s
imposition of contempt sanctions. Knupfer v. Lindblade (In re Dyer), 322 F.3d
1178, 1191 (9th Cir. 2003); Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210,
1213 (9th Cir. 2002) (“The amount of sanctions imposed for a willful
violation of the stay is reviewed for an abuse of discretion.”). A bankruptcy
court abuses its discretion if it applies an incorrect legal standard or
misapplies the correct legal standard, or if its factual findings are illogical,
implausible, or without support from evidence in the record. United States
v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).
We review the court’s underlying factual findings, including whether
the violation was willful, for clear error. Eskanos & Adler, P.C., 309 F.3d at
1213. Findings of fact are clearly erroneous only if they are illogical,
implausible, or without support in the record. Retz v. Samson (In re Retz),
606 F.3d 1189, 1196 (9th Cir. 2010). We give particular deference to the
bankruptcy court’s credibility findings. Id. If two views of the evidence are
possible, the court’s choice between them cannot be clearly erroneous.
10
Anderson v. City of Bessemer City, 470 U.S. 564, 573-74 (1985).
We may affirm on any basis supported by the record. Black v. Bonnie
Springs Family Ltd. P’ship (In re Black), 487 B.R. 202, 211 (9th Cir. BAP 2013).
DISCUSSION
A. The bankruptcy court did not err in determining that Ms. Medley’s
right to receive the commission was subject to the automatic stay.
1. The transaction was a secured loan in substance.
Precision’s primary argument on appeal is that it was a “factor” that
purchased and owned the right to receive a portion of the commission, not
a lender that made a loan secured by the commission. The bankruptcy
court did not err when it ruled against Precision.
“Factoring” is described as “[t]he buying of accounts receivable at a
discount. The price is discounted because the factor (who buys them)
assumes the risk of delay in collection and loss on the accounts receivable.”
Produce Pay, Inc. v. FVF Distribs. Inc., 468 F. Supp. 3d 1304, 1309 n.3 (S.D.
Cal. 2020) (quoting BLACK’S LAW DICTIONARY 612 (7th ed. 1999)).2
The bankruptcy court applied the familiar principle that the legal
consequences of a transaction are based on its economic substance rather
than its form. California courts have applied this principle in many
2
Similarly, the California Financial Code defines “factoring” as “an accounts
receivable purchase transaction that includes an agreement to purchase, transfer, or sell
a legally enforceable claim for payment held by a recipient for goods the recipient has
supplied or services the recipient has rendered that have been ordered but for which
payment has not yet been made.” Cal. Fin. Code § 22800(i).
11
contexts, such as usury. See Boerner v. Colwell Co., 21 Cal. 3d 37 (1978) (“A
loan . . . is the delivery of a sum of money to another under a contract to
return at some future time an equivalent amount with or without an
additional sum agreed upon for its use; and if such be the intent of the
parties the transaction will be deemed a loan regardless of its form.”).
The same basic principle applies to transactions involving accounts
receivable. Whether a transaction is a sale or loan is a factual determination
that is based on the substance of the agreement:
Accounts receivable financing is an uncertain area in the
usury law and no exact tests have been formulated. The
question whether a transaction is a sale or a usurious loan is
one of fact and the trier of fact should look to substance
rather than to form. We must determine whether there is any
substantial evidence to support the findings and, where a
finding of either a loan or a sale can be inferred from the facts,
we may not substitute our judgment for that of the trial court.
Baruch Inv. Co. v. Huntoon, 257 Cal. App. 2d 485, 492 (1967) (citations
omitted) (emphasis added).
The Ninth Circuit discussed factoring in another context in S & H
Packing & Sales Co. v. Tanimura Distribution, Inc., 883 F.3d 797 (9th Cir. 2018)
(en banc). The plaintiffs were growers who had sold produce to a
distributor on credit. The distributor in turn resold the produce on credit
and “sold” the resulting accounts receivable to a factor. The distributor’s
business failed, and it did not pay the growers. The growers sued the
distributor and the factor, arguing that the distributor held the produce
12
and the proceeds of its sale in trust under the Perishable Agricultural
Commodities Act (“PACA”) and that the distributor’s “sale” of the
proceeds of the produce to the factor was a violation of the PACA trust.
The parties agreed that a PACA trustee (such as the distributor) may sell
assets of a PACA trust (such as produce and its proceeds) on commercially
reasonably terms without breaching the PACA trust. But the court held
that this rule applies only if the transaction was a “true sale” and not a
secured loan. Id. at 801-02.
The court observed that the agreement between the distributor and
the factor was styled as a sale but “involved some hallmarks of a secured
lending arrangement[.]” Id. at 799. For example, the factor “was granted
security interests in accounts receivable and all other asset classes except
inventory; UCC financing statements were filed; other debts were
subordinated; and there was a measure of recourse for [the factor] against
[the distributor] if [the factor] could not collect from [the distributor’s]
customers . . . .” Id. In particular, the Ninth Circuit held “that a transfer of
the primary or direct risk of non-payment on the accounts is the hallmark
of a true sale.” Id. at 808. 3
In this case, the substance of the transaction and the parties’ intent
support the bankruptcy court’s finding that the agreement was a disguised
3
Although S & H Packing & Sales concerned a PACA transaction, there is no
reason to think that its analysis of whether a factoring agreement is a “true sale” or
actually a secured loan is inapplicable in other contexts.
13
loan. Although Precision sometimes called the transaction a “sale,” the
substance of the agreement was otherwise. Ms. Medley agreed that she
would “have full liability in the event settlement fails to occur.” Thus, she
bore the entire risk that the commission would not be paid; Precision bore
that risk only indirectly, to the extent that Ms. Medley might be unable to
pay Precision if she did not receive the commission. Ms. Medley also
expressly granted Precision a security interest, not only in the commission
against which Precision made an advance, but also in all of her present and
future accounts receivable and her residence. She testified that she believed
that she was “borrowing funds from the future” that she had to repay.
Although Mr. Cooper testified otherwise, the bankruptcy court found him
not credible.
Furthermore, Precision’s conduct and admissions support the
bankruptcy court’s finding that the transaction was a loan in substance. It
repeatedly identified itself as a secured creditor, including in its proof of
claim. The proof of claim also demanded 18% interest on the debt. At trial,
Mr. Cooper insisted that he would “stipulate” that Precision is a secured
creditor.4
4Standing alone, this factor might not be determinative. Article 9 of the Uniform
Commercial Code provides that it applies to (among other things) “[a] transaction,
regardless of its form, that creates a security interest in personal property or fixtures by
contract” and “[a] sale of accounts, chattel paper, payment intangibles, or promissory
notes” (subject to certain exceptions). Cal. Com. Code §§ 9109(a)(1), (a)(3), (d)(4)-(7). In
other words, some “true sales” of accounts are governed by Article 9 and some “true
buyers” are treated as “secured parties.” But this does not detract from the bedrock
14
Based on these factors, the bankruptcy court did not err when it
found that the agreement was not a true sale, but rather a secured loan, and
that the right to receive the commission was property of the bankruptcy
estate protected by the automatic stay.5 We must not second-guess that
finding. See W. Pico Furniture Co. v. Pac. Fin. Loans, 2 Cal. 3d 594, 603-04
(1970) (“[T]he role of an appellate court is to determine whether there is
any substantial evidence to sustain the finding of the trier of fact, and,
where a finding of either a loan or a sale can be inferred from the facts, we
may not substitute our judgment for that of the trial court.” (cleaned up)).
2. The bankruptcy court did not err in ruling on a contested
matter rather than an adversary proceeding.
Precision argues that the bankruptcy court erred in deciding this
matter as a contested matter because Rule 7001(2) requires an adversary
proceeding to determine the recharacterization of a debt. It relies on our
unpublished decision in Jahr v. Frank (In re Jahr), BAP No. EW-11-1538-
MkHJu, 2012 WL 3205417, at *4 (9th Cir. BAP Aug. 1, 2012), which also
concerned a stay violation, for the proposition that a Rule 7001(2)
proceeding “must be brought as an adversary proceeding. And it is settled
principles that substance controls over form, and that a transaction labeled as a sale
should be treated as a secured loan if that is its substance.
5
Precision argues that Ms. Medley earned the commission when she procured a
ready, willing, and able buyer, and that she was entitled to the commission on the
petition date. We need not address this argument. No matter when Ms. Medley earned
the commission, Precision did not own it, and the automatic stay barred Precision’s
efforts to seize it.
15
law in this circuit that it is error for a bankruptcy court to determine
property interests outside of an adversary proceeding.”
Precision’s argument exposes some confusion in the record. The
bankruptcy court initially said that, if Ms. Medley wished to proceed under
§ 362(k), she would have to commence an adversary proceeding. But even
though Ms. Medley opted to file a motion commencing a contested matter
rather than a complaint commencing an adversary proceeding, and even
though the court did not cite § 362(k) in its OSC, the court relied on that
section in its written ruling.
Nevertheless, we disagree that an adversary proceeding was required
in this case.
First, Precision never requested an adversary proceeding. Even when
the bankruptcy court spent considerable time weighing an adversary
proceeding versus a contested matter, Precision remained silent. 6 It has
waived this point of error.
Second, even if the bankruptcy court should have required an
adversary proceeding, its failure to do so was harmless. Id. at *5 (“If the
bankruptcy court’s circumvention of the adversary proceeding
requirement was harmless, this Panel need not reverse on that basis.”). We
are to consider whether:
(1) the material facts were few and undisputed, (2) the
6
At oral argument, this Panel asked Precision’s counsel to identify where in the
record Precision demanded an adversary proceeding. Counsel conceded that there was
no demand.
16
dispositive issues were pure questions of law, (3) neither party
expressed any discontent with the contested matter procedures
the bankruptcy court utilized, and (4) this Panel was “satisfied
that neither the factual record nor the quality of the
presentation of the arguments would have been materially
different had there been an adversary proceeding.”
Id. (quoting Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 550 (9th Cir.
BAP 2002)).
Precision was not prejudiced. Considering the first two Munoz
factors, although there were factual disputes, the court held an evidentiary
hearing to resolve them, and Precision does not identify any relevant
differences between that evidentiary hearing and a trial in an adversary
proceeding. Considering the third and fourth factors, neither party
expressed dissatisfaction with the nature of the proceedings at the time or
demanded an adversary proceeding. Given that Precision did not
participate in the joint pretrial stipulation, ignored the court’s orders, and
was unprepared for the evidentiary hearing, an adversary proceeding
would not have changed the outcome.
B. The bankruptcy court did not err in sanctioning Precision.
We must first ascertain the legal basis on which the bankruptcy court
relied. In this respect, the record is not perfectly clear.
In its oral ruling, the court suggested that it would rely on its civil
contempt power. But the written order refers to “civil contempt sanctions”
only in passing; the last (and most explicit) paragraph of the order refers
17
only to a “civil sanction” under § 362(k), and not a “civil contempt
sanction.” The change in the court’s rationale between its oral rulings and
its final written order does not warrant any relief on appeal. See Rawson v.
Calmar S.S. Corp., 304 F.2d 202, 206 (9th Cir. 1962) (“The trial judge is not to
be lashed to the mast on his off-hand remarks in announcing decision prior
to the presumably more carefully considered deliberate findings of fact.”).
Accordingly, we will evaluate the order under § 362(k).
That section provides that, subject to an exception that does not apply
here, “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.”
See Am.’s Servicing Co. v. Schwartz-Tallard (In re Schwartz-Tallard), 803 F.3d
1095, 1100 (9th Cir. 2015) (en banc) (discussing the history and liberal
application of § 362(k) and stating “that Congress sought to encourage
injured debtors to bring suit to vindicate their statutory right to the
automatic stay’s protection, one of the most important rights afforded to
debtors by the Bankruptcy Code”). In other words, § 362(k) “makes an
award of actual damages and attorney’s fees mandatory, and grants
bankruptcy courts the discretion to impose punitive damages in
appropriate cases.” Id. at 1099.
The record supports a determination that the elements of § 362(k) are
met.
First, there is no question that Ms. Medley is an “individual.”
18
Second, as we have discussed, we agree with the bankruptcy court
that Precision violated the stay. Precision does not deny that, if the right to
receive the commission was property of the estate, Precision’s efforts to
intercept the commission violated the automatic stay. 7 See § 362(a)(3), (6).
Third, the bankruptcy court’s findings are sufficient to support a
determination that Precision’s violation was “willful.” In this circuit, “[a]
willful violation is satisfied if a party knew of the automatic stay, and its
actions in violation of the stay were intentional.” Koeberer v. Cal. Bank of
Commerce (In re Koeberer), 632 B.R. 680, 687 (9th Cir. BAP 2021) (quoting
Eskanos & Adler, P.C., 309 F.3d at 1215); see also Morris v. Peralta (In re
Peralta), 317 B.R. 381, 389 (9th Cir. BAP 2004) (“No specific intent is
required; a good faith belief that the stay is not being violated is not
relevant to whether the act was ‘willful’ or whether compensation must be
awarded.” (cleaned up)).
Precision does not seriously deny that it had actual knowledge of
Ms. Medley’s bankruptcy filing. Although Precision was not initially
7
Precision argues that the U.S. Supreme Court’s decision in City of Chicago v.
Fulton, 141 S. Ct. 585 (2021), supports its position that it did not violate the automatic
stay, because Mr. Cooper’s communication with Ms. Park and Ms. Medley sought only
to preserves the status quo. But Fulton is inapplicable; it concerned whether the
automatic stay requires a creditor in possession of estate property to return that
property to the debtor. The Court held that passive retention of such property does not
violate the stay. Id. at 589 (“The question in this case is whether an entity violates that
prohibition by retaining possession of a debtor’s property after a bankruptcy petition is
filed. We hold that mere retention of property does not violate § 362(a)(3).”). Unlike the
City of Chicago, which did nothing, Precision took active steps to collect its debt.
19
scheduled as a creditor or included in the creditor matrix, it filed a timely
proof of claim. The joint pretrial statement also included as an admitted
fact that Precision received proper notice of the bankruptcy case.
Similarly, Precision cannot deny that its acts were intentional.
Mr. Cooper did not contact Ms. Park, Ms. Medley, the escrow agent for
Ms. Park’s sale, and Ms. Medley’s other clients by mistake.
In its oral ruling, the bankruptcy court focused on civil contempt
rather than § 362(k). The court did not refer to the Ninth Circuit’s definition
of “willful” for an automatic stay violation under § 362(k). Instead, the
bankruptcy court cited the standard enunciated in Taggart for civil
contempt sanctions based on a violation of the discharge injunction. 139 S.
Ct. at 1804 (“A court may hold a creditor in civil contempt for violating a
discharge order where there is not a ‘fair ground of doubt’ as to whether
the creditor’s conduct might be lawful under the discharge order.”).
Taggart concerned the discharge injunction and did not decide what
standard applies when sanctions are sought under § 362(k) for a violation
of the automatic stay. Id. at 1803-04.
The bankruptcy court held that this standard was met because there
was no “real honest objective good-faith belief that [Precision] could rely
on to say it shouldn’t be sanctioned.” This satisfies the Taggart standard
that there be “no objectively reasonable basis for concluding that [the
violator’s] conduct might be lawful.” See id. at 1799.
Although the court’s analysis in its oral ruling did not focus on
20
§ 362(k), its findings establish that Precision harbored the mental state
required under § 362(k). The bankruptcy court must have found, even if
only implicitly, that Precision’s “actions in violation of the stay were
intentional.” Eskanos & Adler, P.C., 309 F.3d at 1215.
Accordingly, § 362(k) required the bankruptcy court to award “actual
damages, including costs and attorneys’ fees . . . .” “Only an award of fees
reasonably incurred is mandated by the statute; courts awarding fees
under § 362(k) thus retain the discretion to eliminate unnecessary or
plainly excessive fees.” In re Schwartz-Tallard, 803 F.3d at 1101.
In its written order, the court explained that it was allowing “actual
damages incurred by [Ms. Medley] in the form of her attorney’s fees and
costs in the amount of $20,000.” In its oral comments, the court stated that
it had reviewed the requested fees, considered Precision’s objections,
identified improper billing entries that would warrant minor reductions,
and ultimately determined that the reasonable total fees exceeded the
$20,000 cap. This explanation is adequate. See Moreno v. City of Sacramento,
534 F.3d 1106, 1111 (9th Cir. 2008) (holding that the explanation of a fee
award “need not be elaborate, but it must be comprehensible”).8
8
Precision argues that the bankruptcy court erred by ignoring Ms. Medley’s
abuse of the bankruptcy system. But the bankruptcy court did consider Ms. Medley’s
conduct and rightly concluded that it did not change her entitlement to the automatic
stay or Precision’s violation of the stay. Precision also argues that the bankruptcy court
should have considered Ms. Medley’s failure to mitigate her damages. But the
bankruptcy court reviewed the fees and concluded that the award was reasonable.
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Considering that Ms. Medley had requested about $26,000 of fees, and the
litigation against Precision included a full-day trial, the court did not
commit clear error when it found that Ms. Medley’s reasonable attorneys’
fees were $20,000.
It is true that, in its oral ruling, the court referred to divergent legal
grounds for the amount of its award, and some of those reasons would
have been erroneous. For example, the court repeatedly suggested that it
wished to punish Precision or deter it from similar conduct in future cases.
But the court did not expressly or implicitly make the findings that would
support an award of punitive damages under § 362(k). Elsewhere, the court
said that Precision could “purge its contempt” by paying the $20,000
sanction. This suggests that the court may have thought that it could justify
the $20,000 award as a coercive sanction. But § 362(k) does not mention
coercive sanctions and, in any event, a flat, nonreducible fine cannot be
justified as a coercive measure.
On appeal, we review the court’s final written findings, and we
disregard any prior inconsistent oral comments. See Rawson, 304 F.2d at
206. The court’s award of $20,000 of attorneys’ fees under § 362(k) was
correct.
CONCLUSION
The bankruptcy court did not err in holding that the commission was
subject to the automatic stay and that Precision violated the stay and in
awarding $20,000 as compensation for Ms. Medley’s attorneys’ fees. We
22
AFFIRM.
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