Halas v. Platek
| Decision Date | 27 September 1999 |
| Docket Number | No. 98 C 8189.,98 C 8189. |
| Citation | 239 BR 784 |
| Parties | James C. HALAS, Appellant, v. David PLATEK, and Regan Ebert, Appellees. |
| Court | U.S. District Court — Northern District of Illinois |
David P. Lloyd, Brookfield, IL, for plaintiff.
Don Hamilton, Melrose Park, IL, for defendant.
David F. Platek, pro se.
Section 362(a) of the Bankruptcy Code mandates that an automatic stay shall operate upon the filing of a bankruptcy petition, see 11 U.S.C. § 362(a), while § 362(h) provides a remedy for willful violations of the automatic stay, see 11 U.S.C. § 362(h). Specifically, § 362(h) states that "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." 11 U.S.C. § 362(h). The issue before the court is a novel one: whether state courts have jurisdiction to impose § 362(h) sanctions.
James Halas, a former Chapter 13 debtor, moved for § 362(h) sanctions before the Bankruptcy Court. Halas argued that mandatory sanctions under § 362(h) were warranted against Regan D. Ebert and David F. Platek, two lawyers who were involved in a state court battery action against him, for violating an automatic stay while his bankruptcy case was pending. The Bankruptcy Court denied Halas' motion, finding that res judicata applied because Halas had presented a similar request for relief before the state court. Halas now appeals.
As explained below, this court concludes that the state court lacked jurisdiction to impose a § 362(h) sanction. Accordingly, res judicata did not apply, and the decision of the Bankruptcy Court is reversed and remanded.
The Bankruptcy Court recited the relevant facts and explained its reasoning during a hearing on June 8, 1998, and in an Opinion and Order dated November 14, 1998, see In re Halas, 226 B.R. 618 (Bankr.N.D.Ill.1998). A brief summary follows.
On May 17, 1995, Ebert filed a battery action against Halas on behalf of Robert France. Eight days later, on May 25, 1995, Halas, allegedly unaware of the battery action against him, filed for bankruptcy under Chapter 13 of the Bankruptcy Code. Despite the pendency of Halas' bankruptcy case and its automatic stay, Ebert obtained a default judgment against Halas on the state court action on January 11, 1996 for $8,107.
On February 10, 1996, Halas allegedly learned of the state court proceedings for the first time, after the state court ordered Ebert to send Halas notice of the default judgment on January 17, 1996. And on February 15, 1996, Halas notified Ebert of his pending bankruptcy case; it was only at that point did France, Ebert, and Platek become aware of Halas' pending bankruptcy. In April 1996, Halas' bankruptcy case was dismissed, and it was closed in May 1996. Ebert later transferred her file on the state court case to Platek to enforce the judgment. In September 1996, Platek served a wage deduction on Halas' employer. Halas ultimately lost approximately $5,400 in garnished wages.
In April 1997, Halas moved to vacate the judgment in state court on the grounds that it was void because it was entered while the automatic stay was pending. In that same motion, Halas requested a return of all monies collected pursuant to the default judgment, a stay of any further collection, and any other relief the state court might deem just and equitable. On December 11, 1997, the state court granted Halas' motion to vacate, contingent on his payment of the legal fees of Ebert and Platek, but denied Halas' request for further relief. In January 1998, the state court amended its order, making the vacation absolute but still ordering Halas to pay the legal fees of Ebert and Platek.
In May 1998, Halas moved for § 362(h) sanctions in the Bankruptcy Court against Ebert and Platek based on their alleged violations of the automatic stay and his resulting harm. Specifically, Halas sought sanctions based on the failure of Ebert and Platek to vacate the state court judgment upon receiving notice of his bankruptcy case.1 Further, Halas argued that the failure of Ebert and Platek to restore the status-quo upon notice of the stay violation warranted sanctions.
On May 14, 1998, the Bankruptcy Court agreed to re-open Halas' bankruptcy case solely to hear his § 362(h) motion. At hearings in early June 1998, the Bankruptcy Court first deemed the entry of the state court judgment an absolute nullity because it was a violation of the stay. After hearing testimony and arguments, the Bankruptcy Court found that Ebert did not willfully violate the stay because she had ceased working on the state court judgment upon notice of Halas' bankruptcy case. Tr. Hearing of June 8, 1998, at 95. The Bankruptcy Court, however, found that Platek, in pursuing execution of the state court judgment, and in defending that judgment, committed a willful violation of the stay. See id. at 106.
Nonetheless, the Bankruptcy Court concluded that the state court had concurrent jurisdiction to impose § 362(h) sanctions, see id. at 103-04, and thus, res judicata barred Halas' motion for sanctions at bar. See id. at 107-08. The Bankruptcy Court reasoned:
Even though § 362(h) sanctions were not expressly sought in state court in so many words, I believe that the substance of all remedies that might have been sought, in addition to the ones expressly sought in the state court in terms of vacating the judgment and getting monies back that were collected by garnishment, and those inferentially sought in state court, for, "any other relief that the court deems just and equitable," means that Mr. Halas had his petition before a court authorized to give complete relief. He took a bite at the apple and he didn\'t like the taste of the result. And in that sense, the determination with the state judge is res judicata of the issues represented here, seeking sanctions for willful violation of the automatic stay.
Id. at 105. Additionally, the Bankruptcy Court, sua sponte, vacated its earlier order that re-opened Halas' bankruptcy case on the ground that it had been improvidently entered. See id. at 108-09.2
Halas then moved for a rehearing on June 18, 1998, arguing that he could not have asserted his § 362(h) motion for sanctions before the state court because violations of an automatic stay fall within the exclusive jurisdiction of the bankruptcy court. In an Opinion and Order, the Bankruptcy Court denied the motion, repeating and supplementing its earlier reasoning. The court concluded that under 28 U.S.C. § 1334(b),3 the state court had concurrent jurisdiction to impose a § 362(h) sanction and found that Halas had "litigated a similar motion for sanctions at the state level." 226 B.R. at 623.
On the issue of jurisdiction, the Bankruptcy Court rejected dicta in Martin-Trigona v. Champion Fed, S & L, 892 F.2d 575, 577 (7th Cir.1989) that bankruptcy courts have exclusive jurisdiction to decide whether to impose § 362(h) sanctions. See id. at 621-22. The Bankruptcy Court reasoned that the court in Martin-Trigona blurred the distinction between the provision providing exclusive jurisdiction to bankruptcy courts, § 1334(a), and the provision which provides for non-exclusive jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11," § 1334(b). See id.
The Bankruptcy Court also rejected Halas' argument that the state court was unable to issue sanctions because the case before it was void as a result of the automatic stay. The Bankruptcy Court reasoned that because the state court action was filed before Halas filed for bankruptcy, it was not filed in violation of the stay. See id. at 622. Specifically, the Bankruptcy Court found that "although entry of the default judgment after bankruptcy filing was a stay violation, mere continued pendency of the state court action was not in violation of the stay." Id. Finally, the Bankruptcy Court concluded, in the alternative, that comity would prevent it from hearing Halas' § 362(h) motion for sanctions. See id. at 623 (citing 28 U.S.C. § 1334(c)).
Halas now appeals, presenting three issues for review: (1) whether the Bankruptcy Court erred in concluding that Ebert did not willfully violate the stay; (2) whether res judicata barred his § 362(h) motion for sanctions; and (3) whether the Bankruptcy Court abused its discretion by vacating its earlier order to re-open his case and then ordering the case reclosed. It is important to note that typical of the prior history of this case, it is unclear whether Platek is aware of Halas' appeal. And if Platek did receive notice of this appeal, he provides no explanation for his failure to file a response brief.
The district court reviews a bankruptcy court's factual findings for clear error and its conclusions of law de novo. See In re Scott, 172 F.3d 959, 966 (7th Cir.1999). "De novo review requires the district court to make an independent examination of the bankruptcy court's judgment without giving deference to that court's analysis or conclusions." Smoker v. Hill & Assocs., Inc., 204 B.R. 966, 971 (N.D.Ind.1997) (citing Moody v. Amoco Oil Co., 734 F.2d 1200, 1210 (7th Cir. 1984)).
The threshold issue is whether a state court has jurisdiction to impose sanctions under § 362(h). In other words, the question is whether a § 362(h) motion for sanctions falls under the exclusive jurisdiction of the bankruptcy court pursuant to § 1334(a) or under the non-exclusive jurisdictional provision of § 1334(b). Section 1334 provides, in relevant part:
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