Opinion
Case No. 98-10301-SSM, Adversary Proceeding No. 99-1002
October 12, 1999
Michael H. Ditton, Esquire, Alexandria, VA, Plaintiff pro se
James A. Murphy, Esquire, LeClair Ryan, P.C., Richmond, VA, of Counsel for defendant Capital One
C. Thomas Brown, Esquire, Silver Brown, P.C., Fairfax, VA, of Counsel for defendant Crestar Bank
Cindra M. Dowd, Esquire, Glasser and Glasser, PLC, Norfolk, VA, of Counsel for defendants Bank of America National Trust and Savings Assn. and Federal Home Loan Mortgage Corporation
MEMORANDUM OPINION
This matter is before the court on a motion for summary judgment filed by defendants Bank of America National Trust and Savings Association ("Bank of America") and Federal Home Loan Mortgage Corporation ("Freddie Mac"). A hearing on the motion was held on September 10, 1999. The moving defendants were present by counsel. The plaintiff was present in person and represented himself. At the conclusion of the hearing, the court took the motion under advisement and gave the parties ten days to submit additional information concerning a hearing that took place in state court. The parties have done so, and the motion is now ripe for determination.
Background
The background of this case is set forth at length in this court's prior opinion of March 31, 1999, and will be repeated only to the extent necessary to place the present issues in context. Briefly, Freddie Mac was the holder of a purchase-money promissory note secured by the plaintiff's residence located at 4515 Canary Court, Woodbridge, Virginia. The loan had originally been made by Ameribanc Savings Bank, which endorsed the note to Freddie Mac but continued to service the loan. Ameribanc subsequently merged with First Union Mortgage Corporation ("First Union"). In early 1996, the plaintiff became convinced that the law firm by which he was formerly employed had planted listening and surveillance devices in the house, and he stopped making mortgage payments to First Union. According to his affidavit, he contacted First Union and asked for its assistance in removing the listening devices. In January 1997, First Union assigned the deed of trust and servicing rights to Bank of America, which shortly thereafter commenced foreclosure proceedings. The foreclosure sale was set for May 7, 1997. The plaintiff filed a bill of complaint in the Prince William County Circuit Court on May 2, 1997, seeking to enjoin the foreclosure, but was apparently unable to get a temporary restraining order or preliminary injunction. At the sale, no bidders were present, and the substitute trustee accepted the lender's written "one-price" bid of $91,563.93, which was the full amount due on the note plus the foreclosure costs. The memorandum of sale executed by the substitute trustee recites that the purchaser was "Bank of America of California, noteholder." Later that same day, the trustee executed a deed conveying title to Freddie Mac and wrote a letter to Bank of America advising it that Freddie Mac was the foreclosure purchaser. The deed to Freddie Mac was not recorded until June 18, 1997, nearly seven weeks later. On July 30, 1997, Freddie Mac brought an unlawful detainer action against the debtor seeking possession of the property. A trial was ultimately held in the Circuit Court of Prince William County on December 16, 1997. The Circuit Court granted Freddie Mac possession, and on January 2, 1998, the plaintiff was evicted from the Canary Court residence.
The plaintiff will also be referred to in this opinion as "Mr. Ditton" and "the debtor."
See Va. Code Ann. § 55-59.4(A)(1) (Michie 1998) (procedure for written one-price bids). A broker's opinion of value obtained by Bank of America prior to the sale had valued the property at $111,000.00.
In the interim, the plaintiff had dismissed his original bill of complaint and filed a new chancery suit in the Circuit Court of Prince William County on November 18, 1997, against Bank of America, Freddie Mac, Mortgage Guaranty Insurance Corporation ("MGIC") and the substitute trustees under the deed of trust seeking to set aside the foreclosure and recover damages. MGIC filed a demurrer, which was sustained at a hearing held on January 9, 1998, at which the plaintiff was present.
MGIC had issued a mortgage insurance policy with respect to the loan and had paid Freddie Mac $22,953.61 for the claimed loss on foreclosure.
Four days later — January 13, 1998 — the plaintiff filed a voluntary chapter 7 petition in this court and moved to Colorado. Bank of America was listed as a creditor and was mailed a copy of the notice of commencement of case, which it says it received on February 12, 1998. Freddie Mac was not listed as a creditor. On his schedules, the plaintiff listed the suit against Bank of America, Freddie Mac and MGIC as an asset and claimed it exempt.
An order reflecting the Circuit Court's ruling with respect to MGIC's demurrer was entered on February 6, 1998. That order dismissed the bill of complaint without prejudice to the filing of an amended bill of complaint within 21 days. An amended bill of complaint was not filed, and on March 6, 1998, Bank of America and Freddie Mac filed a motion to dismiss. The motion included a prayer for attorney's fees based on the plaintiff's "failure to prosecute" his suit. On March 12, 1998, the plaintiff filed a suggestion of bankruptcy with the Circuit Court. After Mr. Ditton was granted a discharge on April 23, 1998, Bank of America and Freddie Mac filed with the Circuit Court a copy of the discharge, as well as a "disclaimer" executed by the bankruptcy trustee, and on May 8, 1998, a final decree was entered by the Circuit Court dismissing the bill of complaint with prejudice. Mr. Ditton was not present at the hearing. Although a court reporter was present, no transcript of the hearing was prepared. The proposed decree tendered by Bank of America and Freddie Mac at the hearing contained a provision for an award of counsel fees. An affidavit by counsel who represented Bank of America and Freddie Mac at the hearing states that she made a brief pitch for an award of attorney's fees but was rebuffed by the chancellor, who stated his belief that there was no basis for such an award. The chancellor inserted "$0.00" into the spaces provided for an award of fees before signing the decree.
The present action, which was filed on January 5, 1999, asserts claims against a variety of defendants. The claims against Bank of America and Freddie Mac may be summarized as follows:
Count II Damages and sanctions against Bank of America and Freddie Mac for violating the automatic stay.
Count V Vacate and declare void the order dismissing the chancery suit against Freddie Mac and Bank of America.
Count VII Vacate and declare void the order dismissing the debtor's appeal of Freddie Mac's eviction action.
Counts V and VII have been previously dismissed for failure to state a claim for relief, first because the automatic stay does not prohibit the defendant in a prepetition suit brought by the debtor from continuing to defend against the suit; and second, because the debtor's causes of action had ceased to be property of the bankruptcy estate prior to the date the orders were entered dismissing them. The court declined, however, to dismiss Count II, because it appeared that the demand for attorneys fees was based on the debtor's prepetition conduct in bringing suit and thus constituted the assertion of a prepetition claim against the debtor. The present motion for summary judgment focuses on two issues: (a) whether in fact the demand for attorneys' fees constituted a pre-petition claim; and (b) whether the plaintiff has shown that he suffered any damages.
Discussion I.
Under Federal Rule of Civil Procedure 56(c), as incorporated by Federal Rule of Bankruptcy Procedure 7056, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In ruling on a motion for summary judgment, a court should believe the evidence of the non-movant, and all justifiable inferences must be drawn in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). At the same time, the Supreme Court has instructed that summary judgment "is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1985). Additionally, not every dispute as to the facts will preclude the entry of summary judgment, but only those disputes over facts that might affect the outcome of the suit under the governing law. Anderson at 248, 106 S.Ct. at 2510.
II. A.
Section 362(h), Bankruptcy Code, allows an individual debtor who is injured by a willful violation of the automatic stay to recover from the offending creditor compensatory damages, punitive damages, and attorney's fees. As stated in this court's prior memorandum opinion, a violation of the automatic stay is "willful" where the creditor is aware of the bankruptcy filing and intentionally engages in conduct that violates the stay. In re Peterkin, 102 B.R. 50, 53 (Bankr. E.D. N.C. 1989); In re Manuel, 212 B.R. 518, 519 (Bankr. E.D. Va. 1997) ("A `willful violation' does not require a specific intent to violate the automatic stay. Rather the statute provides for damages upon a finding that the defendant knew of the automatic stay and that the defendant's actions which violated the stay were intentional"). See Budget Service Co. v. Better Homes of Va., 804 F.2d 289, 292-93 (4th Cir. 1986) (affirming award of sanctions under § 362(h) where the creditor "knew of the pending petition and intentionally attempted to repossess the vehicles in spite of it").
There is a wrinkle in this case, since the hearing at which the dismissal order was tendered occurred after the debtor received his discharge. The automatic stay, as it affects actions against the debtor on account of a prepetition claim, terminates upon entry of a discharge. § 362(c)(2)(C), Bankruptcy Code. The automatic stay is replaced, however, by the discharge injunction of § 524(a)(2), Bankruptcy Code, which prohibits "the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset [a discharged] debt as a personal liability of the debtor." While the Bankruptcy Code does not expressly create a private right of action to recover damages for violation of the discharge injunction, there can be little doubt that a willful act to collect a discharged debt would constitute contempt. See Burd v. Walters, 868 F.2d 665, 669 (4th Cir. 1989) (bankruptcy court has civil contempt powers to carry out the provisions of the Bankruptcy Code). Sanctions for civil contempt may include compensation to the injured party for damages incurred by reason of the violation. In re Keene Corp., 168 B.R. 285, 288-89 (Bankr. S.D. N.Y. 1994).
B.
Bank of America's own records show that it had received the notice of commencement of the plaintiff's bankruptcy case (and thus had actual knowledge of his bankruptcy filing) no later than February 12, 1998. The motion to dismiss — with its request for an award of attorney's fees — was filed on March 6, 1998. Since Bank of America was the servicing agent for Freddie Mac with respect to the loan, its knowledge of the bankruptcy is imputed to Freddie Mac. Moreover, regardless of whether Bank of America chose to share that knowledge with its own attorney (who was also the attorney for Freddie Mac), the attorney acquired actual knowledge of the bankruptcy no later than March 12, 1998, when she received the suggestion of bankruptcy mailed by the plaintiff. Thus, both at the time attorney's fees were initially requested as part of the motion to dismiss, and also when fees were requested at the May 8, 1998, hearing, Bank of America and Freddie Mac had actual knowledge of the plaintiffs bankruptcy. Accordingly, the demand for attorney's fees was "willful" and constituted a violation of the automatic stay (or, after April 23, 1998, the discharge injunction) unless, as Bank of America and Freddie Mac argue, the claim for attorney's fees was based solely on the debtor's post-petition conduct.
But see Atlas Machine Iron Works, Inc. v. Bethlehem Steel Corp. (In re Atlas Machine Iron Works, Inc.), No. 96-16755, 1998 Bankr. LEXIS 1212 (Bankr. E.D. Va. July 31, 1998) (St. John, J.) (declining to superimpose agency law onto § 362(h) in order to find principal liable for auctioneer's continued advertising of foreclosure sale after debtor filed chapter 11 case).
The specific basis of the request for attorney's fees, as set forth in the motion to dismiss, was as follows:
7. The failure of the Complainant to proceed forward with his case and file his Amended Bill of Complaint as ordered by the Court is grounds to dismiss the Complainant's case with prejudice as to all of the defendants.
8. The Defendants have been caused to suffer attorney's fees and costs in defending this case, including attorney's fees and costs in bringing this motion, which attorney's fees and costs should be paid by the Complainant for his failure to prosecute the case.
prayer for relief then went on to request that Bank of America and Freddie Mac "be awarded all of their attorney's fees and costs incurred in this case, including their attorney's fees and costs incurred in bringing this motion before the court" (emphasis added).
There can be little doubt that, had the debtor failed to comply with a duty arising post-petition in the course of the litigation — for example, to provide discovery — a request for sanctions to redress that failure would not have constituted an act to collect a prepetition claim. Here, however, the state court did not order the debtor to amend his pleadings; it simply granted him leave to do so. Notwithstanding the strained attempt to characterize the fee request as emanating from the debtor's post-petition "failure to prosecute" his action, it is clear from the motion that Bank of America and Freddie Mac sought reimbursement, not merely of the fees they had incurred subsequent to the February 6, 1998, order sustaining MGIC's demurrer, but of all fees they had incurred in the case, including those incurred prepetition. In short, Bank of America and Freddie Mac were plainly seeking compensation, not for some supposed trouble to which they had been put by reason of the debtor's failure to amend his bill of complaint, but rather for having to defend what they regarded as a baseless suit from its inception. Since the commencement of the suit occurred prepetition, the request for sanctions constituted an act to collect a prepetition claim and violated the automatic stay.
C.
Nevertheless, even though the request for attorney's fees constituted, at the very least, a technical violation of the automatic stay, there can be no recovery under § 362(h) in the absence of actual loss. In re Palumbo Family Ltd. Partnership, 182 B.R. 447, 471 (Bankr. E.D. Va. 1995) ("[A]bsent proof of injury, a technical violation of the automatic stay, no matter how willful, is not enough to support an award of damages"); Whitt v. Philadelphia Housing Authority (In re Whitt), 79 B.R. 611, 616 (Bankr. E.D. Pa. 1987) (no damages would be awarded for violation of the automatic stay in sending out statements for prepetition rent delinquencies where debtor "was not the least bit intimidated" and no other action was taken); In re Tall, 79 B.R. 291, 294 (Bankr. S.D. Ohio 1987) (although creditor violated discharge injunction by continuing to send bills for discharged debt, no damages would be awarded where no loss resulted). It is axiomatic that, to support an award of compensatory damages, there must be some measurable loss to the plaintiff from the defendant's improper acts. In re Walters, 41 B.R. 511, 516 (Bankr. W.D. Mo. 1984) (purpose of compensatory damages for violation of the stay is to restore the status quo and grant the injured party the value of its loss). In the present case, despite the request for attorneys fees, no fees were in fact awarded, and Bank of America and Freddie Mac did not further pursue the matter. Mr. Ditton was not at the hearing and, aside from the suggestion of bankruptcy, did not file pleadings or a brief in opposition to the motion to dismiss. Accordingly, he was never put to quantifiable trouble or expense in opposing the award that was never made. While his affidavit and responses to interrogatories assert that he was shocked and distressed when he received the motion to dismiss, and even more distressed to learn that the order was entered, the entirety of the damages he describes flow, not from the request for sanctions, but from the dismissal of his lawsuit. As this court has already held in the prior memorandum opinion, however, the motion to dismiss, by itself, did not violate the automatic stay. Since the plaintiff has not forecast evidence that would support a claim for damages in any amount arising from the (unsuccessful) request for attorney's fees, as opposed to the (successful) motion for dismissal, the court is constrained grant summary judgment for Bank of America and Freddie Mac.
Even in the absence of actual loss, punitive damages might be appropriate in certain circumstances to punish an attempted, though unsuccessful, violation of the stay. See Brown v. Town Country Sales and Service, Inc. (In re Brown), 237 B.R. 316, 321 (imposition of punitive damages requires more than mere willful violation of the automatic stay; creditor's conduct must be egregious or evidence callous or reckless disregard for the law). Additionally, to the extent that a debtor reasonably incurs attorney's fees to prevent a recurrence of the creditor's conduct or to restore the status quo, such fees would plainly be compensable. Suffice it to note that Bank of America and Freddie Mac did not further pursue the question of attorney's fees — such as by filing a motion for reconsideration or appealing the final decree — so that there was and is no threat of a further violation. That being the case, the court need not reach the question of whether the debtor, as a licensed attorney representing himself, would be entitled to fees for the time expended in preparing and presenting his own case. See Erickson v. Bd. of Education of Baltimore County, 162 F.3d 289 (4th Cir. 1998). Additionally, the conduct of Bank of America and Freddie Mac in requesting attorney's fees does not come even close to the required level of misconduct that would support an award of punitive damages.
D.
A separate order will be entered granting summary judgment to Bank of America and Freddie Mac on Count II. Since this ruling disposes of the last remaining claim in the case, a final judgment will be entered dismissing the plaintiff's complaint.