Better Homes of Va. v. Budget Service Co.
| Decision Date | 23 August 1985 |
| Docket Number | Civ. A. No. 85-312-N,85-353-N. |
| Citation | 52 BR 426 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | BETTER HOMES OF VIRGINIA, INC., Plaintiff, v. BUDGET SERVICE COMPANY, et al, Defendants. In re BETTER HOMES OF VIRGINIA, INC., a/k/a A-1 Enterprises, Inc., a/k/a A-1 Supply Company, Inc., a/k/a A-1 Commercial Roofing, Inc. |
Michael S. Weisberg, Norfolk, Va., for plaintiff.
R. Clinton Stackhouse, Jr., Stackhouse, Rowe & Smith, Norfolk, Va., Stephen F. Shames, Shames & Byrum, Chesapeake, Va., for defendants.
This appeal from the United States Bankruptcy Court for the Eastern District of Virginia concerns the statutory and constitutional authority of a bankruptcy judge to enforce the automatic stay provisions of 11 U.S.C. § 362(a) by the use of civil contempt proceedings.
The Bankruptcy Court found that the actions of the defendant constituted civil contempt and, under 11 U.S.C. § 362(h), awarded to Better Homes of Virginia, Inc. (Better Homes) actual damages of $350.00, attorney's fees of $1,162.50, and punitive damages of $10,000. The Bankruptcy Court also fined defendants Bunch and Budget $15,000, jointly and severally.
Additionally, the Bankruptcy Court certified to this Court that the actions of defendants Budget Service Company (Budget) and Allen Bunch constituted criminal contempt. This Court has already set the criminal contempt charges for hearing, and will decide those issues at that time.
At present, the only issue before the Court is the civil contempt order entered by the Bankruptcy Court against the defendants on May 13, 1985. After reviewing the facts developed below and giving careful consideration to the arguments raised by appellants Budget and Bunch, this Court hereby AFFIRMS the Bankruptcy Court's award of actual and punitive damages and attorney's fees. This Court concludes, however, that the imposition of a fine was not within the authority of the Bankruptcy Judge and hence REVERSES the order insofar as that fine is concerned.
On October 31, 1984, Better Homes filed a petition for relief under Chapter 11 of the Bankruptcy Code and, by operation of law, an automatic stay went into effect. 11 U.S.C. § 362(a). Prior to the filing of this petition, Better Homes had leased three vehicles from appellant Budget Service Company. Appellant Allen Bunch, President of Budget, called Richard Green, President and sole stockholder of Better Homes, about delinquent rent payments on the three vehicles. Green assured Bunch that he would try to satisfy his obligations but that, in light of his bankrupt status, all inquiries should be referred to his attorney. Bunch later received written notice of the Chapter 11 proceeding by mail. The record also indicates that Bunch spoke with appellee's attorney about the existence and effect of the Chapter 11 filing and the automatic stay.
Ignoring the notice he had admittedly received, Bunch resorted to self-help in an effort to reclaim the vehicles. On March 25, 1985, he and a companion arrived at Better Homes' business premises and proceeded to drive off with one of the leased trucks. In an effort to stop Bunch, one of Better Homes' employees was injured.
The following morning Bunch returned for the two other vehicles with two men, one of whom was armed with a gun. Bunch drove a vehicle onto Better Homes' premises, and thus blocked the driveway and prevented Better Homes' employees from leaving on their work assignments. After arguing with Green, Bunch summoned the police who told both Bunch and Green that the matter was civil in nature and advised them to consult their attorneys. On the day of this last confrontation, Better Homes filed a motion for an order to show cause why Budget and Bunch should not be held in contempt for violating the automatic stay. The order was entered by the Bankruptcy Court on March 26, 1985 and a hearing was held on April 10. As noted, on May 13, 1985, the Bankruptcy Court entered the civil contempt order that forms the basis for this appeal.
Appellants Budget and Bunch contend: (1) that a civil contempt proceeding is not a "core" proceeding in bankruptcy and the order entered was thus beyond the statutory authority of the Bankruptcy Court; (2) that the Bankruptcy Amendments and Federal Judgeship Act of 1984 removed from the Bankruptcy Court whatever civil contempt power they may have had before those acts; (3) that the exercise of civil contempt powers by Bankruptcy Judges violates the Constitution. U.S. Const. Art. II; and (4) that the order which included an award of punitive damages and a fine, was criminal in nature and thus beyond the authority of the Bankruptcy Court. This Court will address these contentions in turn.
(1) Core Proceeding.
Under 11 U.S.C. § 105(a), the Bankruptcy Court is empowered to "issue any order, process, or judgment necessary or appropriate to carry out the provisions of the bankruptcy code." An automatic stay is necessary; otherwise the debtor's assets may be reclaimed or disposed of before the case can proceed to adjudication and the Bankruptcy Court's eventual order would be rendered meaningless. Congress recognized this problem when it stated: "the automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws." H.Rep. No. 95-595, 95th Cong., 1st Sess. (1977), U.S.Code Cong & Admin.News 1978, 5787 (discussing 11 U.S.C. § 362). The only way for the Bankruptcy Court to put teeth behind its stay is through the threat of contempt proceedings. A court must have a way to enforce its orders, see Wood v. Georgia, 370 U.S. 375, 380, 383, 82 S.Ct. 1364, 1367, 1369, 8 L.Ed.2d 569 (1962); and the contempt order is an appropriate way to carry out the purpose of 11 U.S.C. § 362. See In re Johns-Manville Corp., 26 B.R. 919 (Bankr. S.D.N.Y.1983); cf. Fernos-Lopez v. U.S. District Court, 599 F.2d 1087 (1st Cir. 1979).
The powers conferred by 11 U.S.C. § 105(a) are, however, limited by the provisions of Title 28. See 11 U.S.C. § 105(c). Section 157 of Title 28 provides in relevant part:
(b)(1) Bankruptcy judges may hear and determine all cases under title 11 11 USCS §§ 101 et seq. and all core proceedings arising under title 11 11 USCS §§ 101 et seq. or arising in a case under title 11 11 USCS §§ 101 et seq. referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title 28 USCS § 158. (c)(1) A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11 11 USCS §§ 101 et seq.. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge\'s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
Under this section, a Bankruptcy Court may hear only matters going to the core of the primary bankruptcy case; collateral matters must be heard by the District Court. Appellant contends that a proceeding to enforce an automatic stay by means of civil contempt is not a "core" proceeding within the meaning of 28 U.S.C. § 157 and thus beyond the scope of the Bankruptcy Court's powers.
First, as discussed above, the automatic stay provision of § 362 plays a central role in the administration of the Bankruptcy Code. The Supreme Court has, in fact, found that a proceeding for civil contempt for violation of an injunction "should be treated as part of the main cause"; i.e., as a "core" proceeding. Leman v. Krentler-Arnold Hinge Last Co., 284 U.S. 448, 454, 52 S.Ct. 238, 241, 76 L.Ed. 389 (1932). Second, to the extent the legislative history reflects Congress' intent, it indicates the "core proceeding" limitation was inserted primarily to prevent bankruptcy judges from adjudicating state-law causes of action. See Statement of the Hon. Orrin G. Hatch Upon Consideration of the Conference Report On H.R. 5174 From the Senate Committee On the Judiciary, 98th Cong., 2d Sess. (1984) at 594-96; see also discussion, infra, of Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). This limitation was not intended to exclude civil contempt actions from the Bankruptcy Court's authority.
Third, appellant's view of § 157 would make largely meaningless the distinction between criminal and civil contempt drawn by Congress in 28 U.S.C. § 1481. Section 1481 grants the Bankruptcy Court "the powers of a court of equity, law, and admiralty" but limits the court's power to punish a criminal contemnor to situations where the contemptuous conduct occurred in the judge's presence. Clearly implied by this language is Congress' intent to leave unrestricted the statutory grant of power in 11 U.S.C. § 105 as to civil contempt. This reasoning is buttressed by the language of § 105 which provides that the "court may issue any order that is necessary or appropriate to carry out the provisions of this title." As discussed above, civil or coercive contempt actions are "necessary" and "appropriate" to effectuate 11 U.S.C. § 362; however, criminal contempt actions are necessary only to vindicate the dignity of the court and are collateral to the bankruptcy proceeding. See In Re Crabtree, 39 B.R. 702 (Bankr.E.D.Tenn. 1984); cf. Bray v. United States, 423 U.S. 73, 96 S.Ct. 307, 46 L.Ed.2d 215 (1975) ().
(2) Bankruptcy Amendments and Federal Judgeship Act of 1984.
Appellant asserts that conflicting provisions of the Bankruptcy Amendments and Federal Judgeship Act of 1984 leave 28 U.S.C. § 1481 a nullity. This assertion is...
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