Duby v. U.S.

• Decision Date: 28 June 2011
• Docket Number: BAP Nos. NH 10–052,NH 10–057, Adversary No. 08–01160–LHK., Bankruptcy No. 03–13502–JMD
• Citation: 451 B.R. 664
• Parties: Dorothy R. DUBY, Debtor.Dorothy R. Duby, Plaintiff–Appellant/Cross–Appellee,v.United States of America, Defendant–Appellee/Cross–Appellant.
• Court: U.S. Bankruptcy Appellate Panel, First Circuit

451 B.R. 664

Dorothy R. DUBY, Debtor.Dorothy R. Duby, Plaintiff–Appellant/Cross–Appellee,

v.United States of America, Defendant–Appellee/Cross–Appellant.

BAP Nos. NH 10–052

NH 10–057

Bankruptcy No. 03–13502–JMD

Adversary No. 08–01160–LHK.

United States Bankruptcy Appellate Panel of the First Circuit.

June 28, 2011.

Terrie Harman, Esq., Portsmouth, NH, on brief, for Plaintiff–Appellant/Cross–Appellee.Michael McCormack, Esq., on brief, for Defendant–Appellee/Cross–Appellant.Before HILLMAN, FEENEY, and BAILEY, United States Bankruptcy Appellate Panel Judges.HILLMAN, U.S. Bankruptcy Appellate Panel Judge.

The plaintiff-appellant / cross-appellee, Dorothy R. Duby (the “Debtor”), and the defendant-appellee / cross-appellant, United States of America, Department of Agriculture (the “USDA”), appeal from the bankruptcy court's final judgment and order dated July 21, 2010, awarding the Debtor $11,848.50 for attorney's fees for a violation of the automatic stay and $3,000.00 as a sanction for a violation of the discharge injunction. The issues presented on appeal are: (1) whether the bankruptcy court erred, as a matter of law, in ruling that the Debtor was barred from recovering emotional distress damages for violations of the automatic stay and discharge injunction from the USDA; (2) whether the bankruptcy court erred when it concluded that the Debtor was entitled to recover attorney's fees despite not having incurred any other recoverable damages; and (3) whether, in light of the express prohibition of punitive damage awards against the United States under 11 U.S.C. § 106(a)(3), the bankruptcy court erred in awarding a $3,000.00 sanction. For the reasons set forth below, we AFFIRM IN PART and REVERSE IN PART.

BACKGROUND

The facts necessary to decide this appeal are undisputed. The Debtor filed a voluntary Chapter 7 petition on October 14, 2003. On Schedule F—Creditors Holding Unsecured Nonpriority Claims (“Schedule F”), the Debtor listed the USDA as an unsecured nonpriority creditor in the amount of $1,800.00. Despite having received actual notice of the Debtor's bankruptcy petition and the automatic stay, the USDA sent her eight monthly billing statements that each reflected a payment due of $11.50 and a due date of February 26, 2006, while her case was pending. On July 15, 2004, the Debtor received a discharge.

The USDA received notice of the Debtor's discharge on July 30, 2004. Due to an internal error at the USDA, however, the Debtor's loan was incorrectly treated as if it were secured by a mortgage and had survived the discharge. As such, between July 15, 2004, and April 13, 2006, the USDA sent the Debtor an additional seventeen monthly statements reflecting a payment of $11.50 due February 28, 2006, one statement reflecting a payment of $23.46 due March 28, 2006, and one statement reflecting a payment of $35.42 due April 28, 2006. On March 29, 2006, the Debtor received a Notice of Payment Default, indicating that her account was in default, that the default had been reported to a credit reporting service, and that she was at risk of losing her home. Additionally, the USDA repeatedly called the Debtor during the same post-discharge period seeking to collect the debt.

On April 26, 2006, Debtor's counsel contacted the USDA by telephone to discuss the post-discharge account statements and phone calls received by the Debtor. As a result of the call, the USDA immediately corrected its records to reflect that the debt was not secured, did not survive bankruptcy, and was discharged. Two days later, the USDA sent the Debtor a letter apologizing for the inconvenience, indicating that her loan would be cancelled and explaining that she would not receive any further calls regarding the matter. On June 27, 2006, the USDA sent a final letter stating that the cancellation of her loan was complete.

On June 2, 2006, the Debtor's counsel sent a letter to the USDA demanding attorney's fees of $1,365.00 and emotional distress damages in the amount of $5,000.00 resulting from the USDA's admitted violations of the automatic stay. In response, the USDA advised the Debtor to submit a tort claim and enclosed the requisite form. In the months that followed, the Debtor's counsel continued to send demand letters to the USDA, each time increasing the legal fees sought. On January 10, 2007, the USDA, through counsel, sent a letter to the Debtor's counsel asserting that she was not entitled to emotional distress damages in light of the decision of the United States Court of Appeals for the First Circuit in United States v. Rivera Torres (In re Rivera Torres), 432 F.3d 20 (1st Cir.2005), and that in the absence of a claim presented in accordance with the Federal Tort Claims Act, 28 U.S.C. § 2401(b), the USDA was unable to authorize payment of any claim she might have.

On December 3, 2008, the Debtor reopened her bankruptcy case and commenced an adversary proceeding in the bankruptcy court, alleging violations of both the automatic stay and the discharge injunction. In the fall of 2009, the Debtor moved for partial summary judgment on the issue of liability and the USDA filed a cross-motion seeking dismissal of the entire complaint. On February 22, 2010, the bankruptcy court issued a Memorandum Opinion (the “Liability Decision”) and order granting each motion in part, finding that the USDA violated both the automatic stay and the discharge injunction, but concluding that 11 U.S.C. § 106(a)(3) and the First Circuit's In re Rivera Torres decision barred the Debtor's claims for punitive and emotional distress damages, respectively, against the USDA. The bankruptcy court scheduled a further hearing with respect to the Debtor's actual damages and attorney's fees, reserving the question of whether damages for a violation of the discharge injunction were appropriate in this case. The Debtor sought leave to appeal the Liability Decision, but the Panel denied her request and the appeal was dismissed as interlocutory on April 13, 2010.

On May 27, 2010, the bankruptcy court held an evidentiary hearing on damages, at which the Debtor and her counsel testified. The bankruptcy court took the matter under advisement and the parties filed post-trial briefs. On July 21, 2010, the bankruptcy court issued a Memorandum Opinion and order in which it awarded attorney's fees in the amount of $11,848.50 for the violation of the automatic stay and $3,000.00 as a sanction for the violation of the discharge injunction. While the bankruptcy court recognized that the Debtor did not provide evidence of any collectible damages other than attorney's fees, it held the Debtor was entitled to reasonable attorney's fees even in the absence of other damages, noting that “the [Debtor] in this case made an attempt to settle the issue without proceeding with litigation, but the USDA refused.” Although the Debtor sought to recover $74,039.00 in attorney's fees for 448.20 hours, the bankruptcy court awarded fees limited to approximately 80 hours of work and applied the rate allowable under the Equal Access to Justice Act, 28 U.S.C. § 2412, adjusted for inflation. The bankruptcy court reasoned that the Debtor should be awarded $4,836.00 for 39.90 hours spent during the period in which settlement was offered and rejected, and an additional $7,012.50 for 40 hours spent filing and prosecuting the Debtor's complaint. With respect to the violation of the discharge injunction, the bankruptcy court held that a $3,000.00 sanction award was necessary “to prevent further violations.”

The Debtor filed a timely Notice of Appeal on August 4, 2010, and the USDA filed a cross-appeal on August 17, 2010.

JURISDICTION

The Panel may hear appeals from “final judgments, orders and decrees” pursuant to 28 U.S.C. § 158(a)(1). Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.), 218 B.R. 643, 645 (1st Cir. BAP 1998). “A decision is final if it ‘ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.’ ” Id. at 646 (quoting Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945)). The Panel is duty-bound to determine its jurisdiction before proceeding to the merits even if not raised by the litigants. See Boylan v. George E. Bumpus, Jr. Constr. Co., Inc. (In re George E. Bumpus, Jr. Constr. Co., Inc.), 226 B.R. 724 (1st Cir. BAP 1998). “Generally, orders finding violations of the automatic stay and imposing sanctions are final appealable orders.” Heghmann v. Indorf (In re Heghmann), 316 B.R. 395, 400 (1st Cir. BAP 2004). Although the February 22, 2010 order establishing the USDA's liability for violations of the automatic stay and discharge injunction was not final when it was entered, it became final upon the entry of the July 21, 2010 order when the bankruptcy court awarded damages for those violations because all outstanding issues were resolved.

STANDARD OF REVIEW

On appeal, the bankruptcy court's findings of fact are reviewed pursuant to the clearly erroneous standard, and its conclusions of law de novo. See Lessard v. Wilton–Lyndeborough Coop. School Dist., 592 F.3d 267, 269 (1st Cir.2010). “A finding is ‘clearly erroneous' when, although there is evidence to support it, the reviewing court is left with the definite and firm conviction that a mistake has been committed.” Padilla–Mangual v. Pavía Hosp., 516 F.3d 29, 31 (1st Cir.2008) (quoting Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)) (internal quotation marks omitted); Melendez–Garcia v. Sanchez, 629 F.3d 25, 41 (1st Cir.2010). “[A] bankruptcy court's assessment of damages for violations of the automatic stay is reviewed for an abuse of discretion.” In re Heghmann, 316 B.R. at 400; see also Varela v. Ocasio (In re Ocasio), 272 B.R. 815, 822 (1st Cir. BAP 2002). This Bankruptcy Appellate Panel has previously characterized the “abuse of discretion” standard as follows:

Judicial discretion is necessarily...