Eldon Bugg v. Cyril Gray

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 14-6027
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In re: Cyril M. Gray
lllllllllllllllllllllDebtor
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Eldon K.. Bugg; Danny Bugg
lllllllllllllllllllllCreditors - Appellants
v.
Cyril M. Gray
lllllllllllllllllllllDebtor - Appellee
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Appeal from United States Bankruptcy Court
for the Western District of Arkansas - Hot Springs
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Submitted: October 7, 2014
Filed: November 24, 2014
(corrected on December 15, 2014)
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Before FEDERMAN, Chief Judge, KRESSEL and SCHERMER, Bankruptcy
Judges.
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KRESSEL, Bankruptcy Judge
The appellants, Eldon Bugg and Danny Bugg, appeal from an order of the
bankruptcy court finding that they had willfully violated the automatic stay and
awarding actual and punitive damages. For the reasons below, we affirm the award
of actual damages but reverse the award of punitive damages.
BACKGROUND 1
On October 14, 2013, the debtor, Cyril M. Gray, filed a Chapter 13 petition.
At the time of filing, the debtor was living in rental property owned by the Buggs.
According to the Buggs, the debtor had failed to pay any rent since May 2013. On
November 13, 2013, the Buggs filed a motion to “Terminate Stay, Alternatively for
Order of Possession, and Motion for Declaration of Non-Stay and for Immediate
Hearing on Both Motions.” A hearing was set for December 18, 2013.
On December 17, 2013, the debtor filed a motion requesting that the
December 18 hearing be continued. We cannot tell from the record whether the
Buggs either consented to or objected to this continuance. In any case, the hearing
was continued to January 23, 2014. Then, on January 21, 2014, the Buggs made
their own motion to continue the hearing. The court granted the request and the
hearing was postponed again to February 20, 2014.
A hearing on the motion was finally held on February 20, 2014. Apparently
the continuances allowed the parties time to negotiate because when they appeared
in court they announced that a settlement had been reached. They agreed to
modify the stay as to the Buggs, effective fourteen days after the entry of the order.
1
In reciting the background we are hampered by the incomplete record, including
the lack of complete transcripts.
2
It was not until March 19, 2014 that the bankruptcy court issued a written
order regarding the parties’ agreement2. The order specified that the stay was
terminated in regards to the debtor’s interest in his principal residence. The order
also stated that Federal Rule of Bankruptcy Procedure 4001(a)(3) applied,
therefore, the order was not effective until fourteen days after its entry.
Meanwhile, the Buggs apparently believed that the stay terminated on March
6, 2014. They decided that the fourteen day period began running on February 20,
the date of the hearing. Accordingly, on March 8, 2014, the Buggs evicted the
debtor. They changed the locks and five days later they removed his personal
property and towed his truck from the premises, damaging it in the process.
On April 4, 2014, the debtor filed a “Motion for Contempt for Violation of
the Automatic Stay.” After some procedural delays a trial was held on June 10,
2014. Danny Bugg appeared personally. Eldon Bugg did not appear but an
attorney appeared on his behalf for the limited purpose of requesting a
continuance. The request for a continuance was denied and Eldon Bugg’s attorney
was excused. The matter proceeded to trial and at its conclusion a ruling was read
onto the record.
On June 16, 2014, the bankruptcy judge issued an order granting the
debtor’s motion. The order is entitled “Order Granting Motion for Contempt for
Violation of the Automatic Stay at § 362(a).” This is a misnomer. Contempt is not
a remedy for a violation of the automatic stay. Contempt is a remedy for violating
2
The delay in issuing this order was due to the parties’ delay in submitting a
proposed order regarding their agreement.
3
court orders, not statutes. See Sosne v. Reinert & Duree, P.C. (In re Just Brakes
Corp. Sys., Inc.), 108 F.3d 881, 885 (8th Cir. 1997) (citing Moratzka v. VISA (In re
Calstar, Inc.), 159 B.R. 247 (Bankr. D. Minn. 1993)). The bankruptcy court did
not hold the Buggs in contempt. Instead, it is clear that the court awarded the
debtor damages under § 362(k). The Buggs were ordered to (1) return the debtor’s
truck or pay $7,000, jointly and severally, for its value, (2) pay $422, jointly and
severally, for damage sustained to the truck during towing, (3) return all of the
debtor’s personal property or pay $100 per day, jointly and severally, until the
property is returned, (4) pay $300, jointly and severally, for damages incurred from
the disposition of the personal property, (5) pay $2,500, jointly and severally, for
the debtor’s attorney’s fees, and lastly (6) Eldon Bugg was ordered to pay $2,000
to the debtor as punitive damages. The bankruptcy court also reserved the right to
hold the Buggs in contempt at a later time if they did not comply with the order.
On June 24 and June 27, 2014, Danny Bugg and Eldon Bugg, respectively,
filed motions for relief from the June 16, 2014 order. Both motions were denied.
On July 7, 2014, the Buggs filed a timely notice of appeal.
STANDARD OF REVIEW
A bankruptcy court’s findings of fact are reviewed for clear error and its
conclusions of law are reviewed de novo. Johnson v. Fors (In re Fors), 259 B.R.
131, 135 (B.A.P. 8th Cir. 2001) (citing Snyder v. Dewoskin (In re Mahendra), 131
F.3d 750, 754 (8th Cir. 1997)). An award of sanctions is reviewed for an abuse of
discretion. Garden v. Central Nebraska Housing Corp., 719 F.3d 899 (8th Cir.
4
2013) (citing Schwartz v. Kujawa (In re Kujawa), 270 F.3d 578, 581 (8th Cir.
2001)).
JURISDICTION
The Buggs first argue that the bankruptcy court did not have jurisdiction
over the debtor’s motion for contempt. According to the Buggs, their actions only
affected exempt personal property and bankruptcy courts do not have jurisdiction
over property that does not belong to the estate. The Buggs are mistaken.
Subject matter jurisdiction is governed by 28 U.S.C. § 1334, which
provides:
(a) …. the district court shall have original and exclusive
jurisdiction of all cases under title 11.
(b) ….notwithstanding any Act of Congress that confers
exclusive jurisdiction on a court or courts other than the
district courts, the district courts shall have original but
not exclusive jurisdiction of all civil proceedings arising
under title 11, or arising in or related to cases under title
11.
Pursuant to the delegation powers in 28 U.S.C. § 157(a), “[e]ach district
court may provide that any or all cases under title 11 and any or all proceedings
under title 11 or arising in or related to a case under title 11 shall be referred to the
bankruptcy judges for the district.” “Bankruptcy judges may hear and determine
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all cases under title 11 and all core proceedings arising under title 11, or arising in
a case under title 11 …” 28 U.S.C. § 157(b)(1).
In this case, the bankruptcy court had both the jurisdiction and the authority
to decide the debtor’s motion. The debtor initiated an action that hinged solely on
whether there was a willful violation of the automatic stay. This action is created
by 11 U.S.C § 362(k). Thus, it clearly arises under title 11. The bankruptcy court
has jurisdiction to hear “all civil proceedings arising under title 11.” 28 U.S.C. §
1334(b). Additionally, this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2),
which the bankruptcy court had the authority to determine3.
SECTION 362(e)
The Buggs argue that the bankruptcy court could not have properly found
them in violation of the automatic stay because the stay had lapsed by operation of
11 U.S.C. § 362(e)(2) long before they evicted the debtor. Specifically, the Buggs
argue that the stay lapsed on January 12, 2014, 60 days after their November 13,
2013 motion was filed. As a matter of law, if the stay terminated on January 12
then their actions to evict the debtor on March 8 could not have constituted a
violation of the stay.
Section 362(e) provides:
3
Because the bankruptcy court conclusively decided that the automatic stay
had been violated, we are confident that the appealed order is a final order. The
fact that the bankruptcy court reserved the right to hold the Buggs in contempt at
the later time bears no effect on the finality of the order. However, even if this is
not a final order, we grant the Buggs leave to appeal.
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(1) Thirty days after a request under subsection (d) of this
section for relief from the stay of any act against property
of the estate under subsection (a) of this section, such
stay is terminated with respect to the party in interest
making such request, unless the court, after notice and a
hearing, orders such stay continued in effect pending the
conclusion of, or as a result of, a final hearing and
determination under subsection (d) of this section….
(2) Nothwithstanding paragraph (1), in a case under
chapter 7, 11, or 13 in which the debtor is an individual,
the stay under subsection (a) shall terminate on the date
that is 60 days after a request is made by a party in
interest under subsection (d), unless –
(A) a final decision is rendered by the court during the
60-day period beginning on the date of the request; or
(B) such 60 day period is extended ---
(i) by agreement of all parties in
interest; or
(ii) by the court for such specific
period of time as the court finds is
required for good cause, as described
in findings made by the court.
Pursuant to § 362(e)(1), the failure to hold a preliminary hearing within
thirty days of the date of a request for relief would have the effect of terminating
the stay. See Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308 (11th
Cir. 1982). Section 362(e)(2) provides for the automatic termination of the stay in
an individual case if a final decision on the motion is not rendered within 60 days
after a request for relief is made. See In re Aulicino, 400 B.R. 175, 179 (Bankr.
E.D. Pa. 2008).
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Section 362(e) was enacted to protect creditors. The legislative history
highlights Congress’ intent:
“[s]ubsection (e) provides a protection for secured
creditors that is not available under present law. The
subsection sets a time certain within which the
bankruptcy court must rule on the adequacy of protection
provided of the secured creditor’s interest.”
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 344 (1977) (emphasis added). One
court has stated, “[s]ection 362(e) was enacted to prevent the practice under the old
Bankruptcy Act of ‘injunction by continuance.’” Grundy Nat’l Bank v. Virginia
Banker’s Ass’n. (In re Looney), 823 F.2d 788, 792 (4th Cir. 1987).
Waiver
However, this protection for creditors is not absolute. Many courts have
held that it can be waived by the creditor, explicitly or implicitly. An implicit
waiver is generally found when the creditor takes some action which is inherently
inconsistent with adherence to the time constraints of §362(e). For example, the
Eleventh Circuit held that a creditor had implicitly waived his rights when the
creditor failed to object to the absence of a preliminary hearing and also attended
the final hearing beyond the time limits set forth in § 362(e). Borg-Warner
Acceptance Corp. v. Hall, 685 F.2d at 1308; see also In re Ramos, 357 B.R. 669,
673, n.2 (Bankr. S.D. Fla. 2006) (a lender’s request to submit a brief was implicit
consent to hold a final hearing more than thirty days after the motion to modify the
stay was filed); Iseberg v. Exchange Nat’l Bank and Trust Co. of Chicago (In re
Wilmette Partners), 64 B.R. 958, 961 (Bankr. N.D. Ill. 1983) (creditor implicitly
waived its right to object to the timeliness of the hearings when it did not oppose
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the continuance of the hearing beyond the 30 day time limit); Small v. Barclay
Properties (In re Small) 38 B.R. 143, 147 (Bankr. D. Md. 1984) (implied waiver
where creditor filed discovery request to which responses were due beyond the
thirty day period); In re McNeely, 51 B.R. 816, 821 (Bankr. D. Utah 1985) (a
creditor who fails to schedule a final hearing within the 30-day period may
impliedly waive its right to automatic termination under § 362(e)); J.H. Streiker &
Co., Inc. v. SeSide Co., Ltd. (In re SeSide Co. Ltd.), 155 B.R. 112, 117 (E.D. Pa.
1993) (creditor waived the timeliness provisions of § 362(e) by agreeing to a
briefing schedule which prevented the court from ruling within time frame
provided by § 362(e)); In re Aulicino, 400 B.R. 175 (Bankr. E.D. Pa. 2008)
(creditor was deemed to have implicitly consented to the tolling of the § 362(e)
time period when he agreed to a briefing schedule that was beyond of when the
stay was set to expire); Wedgewood Investment Fund, Ltd. v. Wedgewood Realty
Group, Ltd. (In re Wedgewood Realty Group, Ltd.), 878 F.2d 639 (3rd Cir. 1989)
(recognizing implicit waiver when creditor takes some action which is inherently
inconsistent with adherence to the time constraints of section 362(e)).
After a careful review of the record it is clear that the Buggs acted
inconsistently with the time constraints of § 362(e). First, the Buggs did not object
to the debtor’s request for a continuance. While failing to object to a continuance
may seem innocuous, it was enough to convince both the court and the debtor that
the Buggs believed they were still bound by the stay. Their later conduct also
demonstrated that they believed that the stay was still in effect. Not only did the
Buggs continue to work on resolving the matter but they also eventually made their
own motion for a continuance. The Buggs’ request for a continuance, in and of
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itself, flies directly in the face of the argument that the stay had lapsed on January
12. Why would the Buggs ask for a continuance if the motion was moot by
operation of § 362(e)?
After both continuances were granted the Buggs continued to negotiate with
the debtor. As a result, by the time of the final hearing a settlement had been
reached. Again, why did the Buggs come to an agreement with the debtor if the
stay had already terminated? In fact, why did they participate in the hearing at all?
The Buggs cannot suddenly, months later, to the surprise of the court and the
debtor, argue that the stay had expired due to the continuances, one of which they
requested themselves.
Only after the contempt proceedings were initiated did the Buggs argue that
the stay had expired by operation of § 362(e). They are too late. Their actions
were inconsistent with an intent on their part to insist that the court enter either a
final order or an order continuing the stay pending conclusion of the final hearing
within the § 362(e) timeframe. If the Buggs believed that the stay had lapsed on
January 12 then they should have moved to enforce their rights at that time. They
failed to do so and therefore the Buggs have waived any right they may have once
possessed under § 362(e).
Judicial Estoppel
The Buggs are also barred by judicial estoppel from claiming that the stay
had expired under § 362(e). The doctrine of judicial estoppel “protects the
integrity of the judicial process.” Total Petroleum, Inc., v. Davis, 822 F.2d 734,
10
738 n. 6 (8th Cir. 1987). Judicial estoppel is an equitable doctrine invoked by a
court at its discretion. New Hampshire v. Maine, 532 U.S. 742, 750 (2001)
(quoting Russell v. Rolfs, 893 F.2d 1033, 1037 (C.A.9 1990)).
The Supreme Court has laid out three non-exhaustive factors for determining
the applicability of judicial estoppel: (1) the party’s position is clearly inconsistent
with its earlier position; (2) the party succeeded in persuading a court to accept that
party’s 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; and (3) the party seeking to assert an inconsistent position would
derive an unfair advantage or impose an unfair detriment on the opposing party if
not estopped. Id.
The Buggs moved for a continuance and in doing so they represented to the
court that more time was necessary. The court accepted this position and granted
the request. The continuance allowed the Buggs the benefit of extra time to
successfully negotiate with the debtor. On appeal they now inconsistently argue
that they stay had automatically lapsed. Unfortunately for the Buggs, they cannot
change their minds according to what is beneficial for them at the moment.
It seems obvious that the debtor would not have asked for a continuance and
certainly would have objected to the Buggs’ request for a continuance if they were
aware that the Buggs were planning to invoke their rights under § 362(e). To allow
the Buggs to suddenly argue § 362(e) would impose an unfair detriment on the
debtor. For these reasons, the Buggs are barred by judicial estoppel from asserting
their rights under § 362(e).
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DAMAGES FOR VIOLATION OF THE STAY
The Bankruptcy Code provides for the recovery of damages for an
individual injured by a violation of the automatic stay. Specifically, § 362(k)(1)
states, “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.”
A debtor seeking damages under § 362(k) must demonstrate, by a
preponderance of the evidence, that a creditor acted willfully in violation of the
stay and that an injury resulted from that conduct. Carter, et. al., v. First Nat’l
Bank of Crosett (In re Carter), 502 B.R. 333 (B.A.P. 8th Cir. 2013). The Eighth
Circuit has held that “[a] willful violation of the automatic stay occurs when the
creditor acts deliberately with knowledge of the bankruptcy petition.” Knaus v.
Concordia Lumber Co. (In re Knaus), 889 F.2d 773 (8th Cir. 1989) (citing Aponte
v. Aungst (In re Aponte), 82 B.R. 738, 742 (Bankr. E.D. Pa. 1988)). A willful
violation does not require a finding of specific intent. In re Carter, 502 B.R. at
336 (quoting Associated Credit Servs. v. Campion (In re Campion), 294 B.R. 313,
316 (B.A.P. 9th Cir. 2003)). In other words, if the creditor is aware of the
bankruptcy filing, any intentional act that results in a violation of the stay is
willful. See 3 COLLIERS ON BANKRUPTCY ¶ 362.12 (Alan N. Resnick &
Henry J. Sommer eds., 16th ed.)
The Buggs argue that the bankruptcy court’s decision is erroneous because
the act of “safely storing debtor’s personal property and having his truck towed
12
both fall under the specific exception of § 362(b)(4).” However, § 362(b)(4)
permits a governmental unit to commence or continue an action or proceeding to
enforce such governmental unit’s police and regulatory power regardless of §
362(a). Obviously, the Buggs are not a governmental unit, and therefore, this
exception does not apply to them.
The bankruptcy court had to determine two things: (1) whether the Buggs
had knowledge of the bankruptcy petition, and (2) whether the Buggs acted
deliberately. Both of these elements are easily met. First, it is clear that the Buggs
had knowledge of the debtor’s bankruptcy petition. The Buggs themselves do not
argue otherwise. They participated in the proceedings and even filed a motion for
relief from the stay.
Second, it is also undisputed that the Buggs acted deliberately when they
evicted the debtor. A willful violation of the stay does not require a specific
finding of intent to violate the stay, therefore, it is irrelevant that the Buggs were
mistaken as to whether the stay had terminated at the time they evicted the debtor.
It is enough that they acted deliberately when they changed the locks, took
possession of the debtor’s personal property and towed his truck. The bankruptcy
court’s finding that the Buggs willfully violated the automatic stay is not clearly
erroneous.
Actual Damages
The Eighth Circuit has articulated, “[t]o be clearly erroneous, a decision
must strike us as more than just maybe or probably wrong; it must …. strike us as
wrong with the force of a five-week-old, unrefrigerated dead fish.” Papio Keno
Club, Inc. v. City of Papillion (In re Papio Keno Club, Inc.), 262 F.3d 725, 729
13
(8th Cir. 2001) (quoting Parts and Elec. Motors, Inc. v. Sterling Elec., Inc., 866
F.2d 228, 233 (7th Cir. 1988)). In this case, the Buggs have not presented any
evidence that the bankruptcy court’s factual findings as to actual damages were
clearly erroneous. In fact, the Buggs provided an incomplete record with no
exhibits and only partial transcripts. With the incomplete record provided, we
cannot say that the bankruptcy court’s finding of actual damages was clearly
erroneous.
Punitive Damages
If the elements of a willful violation are met “the court must award
compensatory damages then decide whether punitive damages are appropriate.” In
re Anderson, 430 B.R. 882 (Bankr. S.D. Iowa 2010). The Eighth Circuit has held
that appropriate circumstances to award punitive damages requires “egregious,
intentional misconduct on the violator’s part.” Id. (quoting United States v.
Ketelsen (In re Ketelsen), 880 F.2d 990, 993 (8th Cir. 1989)). In determining
whether punitive damages are appropriate, the court may consider “the nature of
the creditor’s conduct, the nature and extent of harm to the debtor, the creditor’s
ability to pay damages, the level of sophistication of the creditor, the creditor’s
motives, and any provocation by the debtor.” In re Anderson, 430 B.R. at 889.
The bankruptcy court ordered Eldon Bugg to pay punitive damages in the
amount of $2,000. In its oral ruling, the bankruptcy court stated that the punitive
damages had been
“occasioned by Mr. Eldon Bugg’s consistent abdication
of responsibility….He’s not here today. He does not get
the benefit of the doubt on credibility for his reasons for
14
not being here, given his constant assertions that he can’t,
his assertions of not knowing about prior hearings for
which it is quite evident that he was very much aware,
and his refusal to be here today, leaving his son
essentially hung out to accept responsibility or, when
appropriate, defer responsibility to Mr. Eldon Bugg,
reflects clearly that he knew exactly what he was
doing….”
The court did not make specific findings of fact as to Eldon Bugg’s motive
or egregious conduct in violating the stay. Eldon Buggs failure to appear at the
June 10 trial does not satisfy the Eighth Circuit test of egregious, intentional
misconduct. For these reasons, we conclude that the bankruptcy court abused its
discretion in awarding punitive damages.
CONCLUSION
The bankruptcy court’s determination that the stay had been violated and its
award of actual damages is affirmed. Its award of punitive damages against Eldon
Bugg is reversed.
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