Archer v. Macomb County Bank
| Decision Date | 11 August 1988 |
| Docket Number | No. 87-1336,87-1336 |
| Citation | 853 F.2d 497 |
| Parties | 19 Collier Bankr.Cas.2d 1279, Bankr. L. Rep. P 72,400 David ARCHER, Plaintiff-Appellee, v. MACOMB COUNTY BANK, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
John P. Frazer, III (argued), D'Agostini, McKinnon, Sable and Ruggeri, Mt. Clemens, Mich., for defendant-appellant.
J. Thomas McGovern, Mary Roy Kelly (argued), for plaintiff-appellee.
Before MARTIN, MILBURN, and GUY, Circuit Judges.
Macomb County Bank appeals the district court's order affirming the bankruptcy court's decision which found the bank in contempt of an automatic stay entered pursuant to 11 U.S.C. Sec. 362(a) and which assessed damages against the bank for its willful violation of that stay. We reverse and remand.
On July 12, 1985, David Leland Archer and Mildred Kaye Archer filed a joint petition for protection from creditors under Chapter 11 of the United States Bankruptcy Code. Pursuant to the petition, the Archers were appointed debtors in possession for all purposes allowed under the Bankruptcy Code. One of the assets of the bankruptcy estate is a 60-acre farm on which the couple manage a horse breeding and training business. The farm is subject to a first mortgage held by the bank.
Upon the filing of the Archers' voluntary bankruptcy petition, the bankruptcy court issued an automatic stay order against all of the Archers' creditors. Such a stay prohibits any further collection proceedings without prior approval of the bankruptcy court. 11 U.S.C. Sec. 362. Pursuant to the Bankruptcy Code, notice of the filing of the petition and of the automatic stay was mailed to all of the Archers' creditors, including the bank which was listed in the bankruptcy schedules and on the mailing matrix used by the bankruptcy court to address envelopes in which the notices were mailed.
The bank, though, apparently ignored this notice. In January 1986, more than five months after the Archers filed for bankruptcy, the bank began foreclosing on the mortgage by publishing a notice of foreclosure sale in a local newspaper. Shortly thereafter, the Archers' attorney contacted the bank and demanded that the foreclosure proceedings and publications be stopped immediately. The bank refused this request, allowing publication of the announcement of the mortgage foreclosure sale on three subsequent occasions.
Finally, on February 11, 1986, the Archers turned to the bankruptcy court for relief. The following day the bankruptcy court issued an order to show cause, and it set a hearing for February 28, 1986. Only at the hearing did the bank submit a written response to the Archers' motion, and the bank produced no witnesses to support its response to either the show cause order or to the Archers' claim for damages.
After hearing from the respective counsel, the bankruptcy court found that the bank violated the automatic stay order. Then, after denying the bank's request to postpone the hearing, the bankruptcy court allowed the Archers to establish the amount of business that was lost as a result of the bank's misconduct. The bankruptcy court then concluded that the Archers lost 10 breeding contracts at $950 each and nine training contracts each worth $300 per month for 12 months. Including attorneys' fees in the amount of $1,942.50, the total award entered in favor of the Archers was $43,842.50.
The bankruptcy court's findings were affirmed by the district court, and the bank now renews its appeal in this court.
The bank essentially advances two arguments. First, the bank maintains that the bankruptcy court committed reversible error by immediately conducting a hearing on the issue of damages when it had only received notice of a hearing regarding its alleged contempt of the automatic stay. Second, the bank argues that the evidence offered by Archer was insufficient to support the amount of damages awarded by the bankruptcy court. While we do not believe the bankruptcy court erred by receiving testimony on the issue of damages at the show cause hearing, we are convinced that the amount of damages awarded lacks a sufficient factual foundation.
The bank claims that the bankruptcy court's refusal to postpone the damages hearing effectively violated its constitutional right to due process because the bank had not received notice that such a hearing was going to take place. This argument is untenable for several reasons.
First, the title of the Archers' motion to show cause, a motion which was sent to the bank more than two weeks before the hearing was held, indicated that they were seeking damages and attorneys' fees, and the motion itself contained specific allegations regarding the losses suffered as a result of the bank's deliberate misconduct. Moreover, the bank's written response was entitled "Answer To Motion For Order To Show Cause Why Defendant Should Not Be Held In Contempt of Automatic Stay Order Issued Pursuant to 11 U.S.C. 362(a) And For Damages And Attorneys Fees Pursuant To 11 U.S.C. 362(h)." (emphasis added).
More fundamentally, the bank's contention that it asked the bankruptcy court to postpone the damages hearing because it was not prepared for that aspect of the case is not supported by the record. The transcript merely shows that, when it appeared that the court was going to find the bank in contempt of the automatic stay, the bank's counsel asked the court to postpone the hearing because counsel was appearing at that time as a replacement for the attorney who had actually been handling the matter. The bank's attorney never stated that he was unprepared to litigate the damages issue because adequate notice had not been afforded. The reason he gave for requesting the postponement was so that the bank could obtain the testimony of bank personnel regarding the issue of whether the bank received proper notice of the automatic stay. On the bank's claim that it did not have notice that the bankruptcy court would conduct a hearing on the issue of damages, the record clearly supports the finding of the bankruptcy court.
Accordingly, it was proper for the bankruptcy court to conduct a hearing on damages immediately after having decided the contempt issue. On the amount of damages awarded by the bankruptcy court, however, we reluctantly find the court's conclusion to be erroneous.
The bank contends that the bankruptcy court erred in awarding damages for the loss of breeding and training contracts because there was no proof that the claimed losses were caused by the bank's violation of the automatic stay order. The bank also argues that the amount of damages awarded was excessive because the evidence offered to support the award was speculative. We agree with both of these contentions.
Under 11 U.S.C. Sec. 362(h), "[a]n 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 bankruptcy court's decision with respect to the amount of damages constitutes a...
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