In re Am. Med. Utilization Mgmt. Corp.

• Decision Date: 02 July 2013
• Citation: 494 B.R. 626
• Parties: In re American Medical Utilization Management Corporation, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

494 B.R. 626

In re American Medical Utilization Management Corporation, Debtor.

United States Bankruptcy Court, E.D. New York.

11-43573-CEC

Filed July 2, 2013

Avrum J. Rosen, The Law Offices of Avrum J. Rosen, PLLC, Huntington, NY, Attorneys for the Ch. 11 Trustee

C. Steve Okenwa, Esq., C. Steve Okenwa, P.C., New York, NY, Attorneys for C. Steve Okenwa, P.C.

Chapter 11

DECISION

CARLA E. CRAIG, Chief United States Bankruptcy Judge

This matter comes before the Court on the motion of David J. Doyaga (the “Trustee”), the chapter 11 trustee of American Medical Utilization Management Corporation (the “Debtor”), to hold C. Steve Okenwa, Esq. (“Mr. Okenwa”) and C. Steve Okenwa, P.C. (the “Okenwa Firm,” and together with Mr. Okenwa, the “Respondents”) in contempt for violating the automatic stay imposed under 11 U.S.C. § 362(a)¹ by restraining funds which the Debtor was entitled to receive from the New York State Department of Health, in an effort to collect a pre-petition claim. The Trustee seeks compensatory damages consisting of the Trustee's attorney's fees and costs, and the attorney's fees and costs incurred by the Debtor's post-petition lender, as well as punitive damages.

At the commencement of the trial held on January 16, 2013, Mr. Okenwa moved for the Court's recusal, arguing that statements made during a hearing held on November 20, 2012 showed that the Court had decided in the Trustee's favor prior to the trial. Mr. Okenwa also argues that any violation of the automatic stay was not willful, and that in any event, attorneys' fees and costs do not constitute actual damages.

Recusal is not warranted for reasons that will be discussed below. With respect to the merits of the motion, because Mr. Okenwa took no meaningful action to lift the restraint upon receiving actual notice of the Debtor's bankruptcy filing, the Respondents are liable to the Trustee for compensatory damages for violating the automatic stay. However, because the estate is not liable for the lender's attorney's fees and costs, given that the restraining notice did not constitute an event of default under the post-petition financing agreement, the Respondents are not liable for the lender's attorney's fees and costs. Because the Respondents' conduct does not rise to the level of particularly egregious creditor misconduct warranting punitive damages, the Trustee's request for punitive damages is denied.

JURISDICTION

This Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1996, as amended by order dated December 5, 2012. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Bankruptcy Rule 7052.

BACKGROUND

I. Undisputed Facts

The following relevant facts are undisputed or are matters of which judicial notice may be taken.

On April 28, 2011, the Debtor, a healthcare provider, filed a voluntary petition under chapter 11 of the Bankruptcy Code. This was the Debtor's third bankruptcy filing.² Mr. Okenwa was not listed in the Debtor's schedules as a creditor.

On July 8, 2011, Adrian George, John Davis, and Shurod Brown, creditors or holders of equity interests in the Debtor, filed a joint motion for the appointment of a chapter 11 trustee. On July 22, 2011, the United States Trustee filed a motion to dismiss the case with prejudice for two years. The Debtor did not oppose either motion. On October 18, 2011, the Trustee was appointed.

By order dated April 20, 2012, the Trustee was authorized to retain Doyaga & Shaefer as counsel pursuant to § 327. The Trustee later retained The Law Office of Avrum J. Rosen, PLLC as counsel pursuant to § 327, which was approved on June 13, 2012.

On October 23, 2012, the Trustee, by his attorney Avrum J. Rosen (“Mr. Rosen”), filed an application for an order to show cause to vacate a Subpoena Duces Tecum With Restraining Notice (the “Restraining Notice”), issued by the Respondents and served upon the Debtor and the New York State Department of Health (the “Department of Health”), to collect a post-petition judgment obtained by the Okenwa Firm against the Debtor in New York state court based upon a pre-petition debt. The Trustee also sought an order directing the Department of Health, and any other party owing funds to the Debtor, to remit the funds to the Debtor despite the Restraining Notice. The Trustee sought to hold the Respondents in contempt for failing to vacate the Restraining Notice upon receiving actual notice of the Debtor's pending bankruptcy case.

A hearing on the Trustee's application was held on October 25, 2012, at which Mr. Okenwa appeared by telephone. Mr. Okenwa did not oppose the vacatur of the Restraining Notice. That same day, the Court issued an order vacating the Restraining Notice and declaring it “void and of not effect” because it was issued post-petition for a pre-petition debt in violation of the automatic stay. (Order, ECF No. 207.) The Order also vacated the post-petition judgment obtained by the Okenwa Firm on May 3, 2012 as it applied to the Debtor, and declared it “void and of no effect.” (Order, ECF No. 207.) The Order scheduled a hearing for November 20, 2012 to determine whether the Respondents should be held in contempt for violating the automatic stay, and whether monetary sanctions and attorneys' fees should be awarded.

II. Trustee's allegations of fact

The Trustee submitted direct testimony of Mr. Rosen by affirmation in support of the motion. In his affirmation, Mr. Rosen testified that, on October 12, 2012, the Debtor was served with the Restraining Notice. (Am. Trial Affirmation ¶ 3, ECF No. 233; Pre-trial Stmt. at 2 ¶ 5, ECF No. 232.) Mr. Rosen mailed a letter to Mr. Okenwa on October 12, 2012, informing him of the Debtor's bankruptcy filing and advising him of the pendency of the automatic stay. (Application in Supp. ¶ 1, ECF No. 203; Am. Trial Affirmation ¶ 4, ECF No. 233; Pre-trial Stmt. at 2 ¶ 2, Ex. 2, ECF No. 232.) On October 22, 2012, the Debtor's management learned that a restraining notice had also been served on the Department of Health, and that the next payment from the Department of Health notifying the Debtor of the restraint, which the Debtor needed to make payroll and to pay operating expenses, was restrained. (Am. Trial Affirmation ¶ 5, ECF No. 233; Pre-trial Stmt. at 3 ¶ 3, ECF No. 232.) Mr. Rosen testified that, upon learning of the letter from the Department of Health, notifying the Debtor of the restraint, on October 22, he called Mr. Okenwa to inform him that the Debtor was in bankruptcy and that the restraint violated the automatic stay, but that Mr. Okenwa refused to believe him. (Am. Trial Affirmation ¶ 6, ECF No. 233; Pre-trial Stmt. at 3 ¶ 4, ECF No. 232.) Mr. Rosen further testified that he asked Mr. Okenwa for his email address or fax number to send him proof of the Debtor's bankruptcy case, but Mr. Okenwa refused to provide them. (Am. Trial Affirmation ¶ 6, ECF No. 233; Pre-trial Stmt. at 3 ¶ 4, ECF No. 232.) Mr. Rosen testified that he informed Mr. Okenwa that the Debtor might not be able to pay its employees' payroll on October 26, 2012 unless the restraint was lifted. (Am. Trial Affirmation ¶ 8, ECF No. 233; Pre-trial Stmt. at 3 ¶ 6, ECF No. 232; Tr.³ 1/16/13 at 40:20–21, 41:1–6.) Mr. Rosen further testified that he informed Mr. Okenwa that he should “do whatever research he wanted to do, and ... get back to me at the end of the day on Monday, October 22, 2012 as to what he was doing, otherwise I would have to move by Order to Show Cause to hold him in contempt and to have the funds released.” (Am. Trial Affirmation ¶ 9, ECF No. 233; Pre-trial Stmt. at 4 ¶ 9, ECF No. 232.) Mr. Rosen testified that he next spoke to Mr. Okenwa on October 23, when Mr. Okenwa stated that he was on vacation in Florida, and “made it clear that he was not lifting the restraint, would not be back until Friday [October 26, 2012], and would take no action before that date.” (Am. Trial Affirmation ¶ 11, ECF No. 233; Pre-trial Stmt. at 4 ¶ 11, ECF No. 232.)

Based upon the Respondents' refusal to take immediate action to vacate the Restraining Notice, the Trustee sought emergency relief from the Court on October 23, 2012, because “without the restraint being lifted, it is clear that the other funds due to the Debtor will be restrained and that the Debtor will probably not have sufficient funds to make payroll and meet other operating expenses.” (App. in Supp. of Order to Show Cause ¶ 8, ECF No. 203.)

III. The Respondents' allegations of fact

The Respondents submitted Mr. Okenwa's affirmation in opposition to the Trustee's motion. In his affirmation, Mr. Okenwa testified that he was first contacted by Mr. Rosen on October 23, 2012, while he was in Florida on vacation with his twin four year old children. (Affirmation in Opp'n ¶¶ 9, 11, ECF No. 213; Pre-trial Stmt. at 8 ¶ 4, ECF No. 232.) Mr. Okenwa testified that, because the Trustee's counsel “came across as pompous and arrogant,” he did not believe that the Debtor was in bankruptcy. (Affirmation in Opp'n ¶ 10, ECF No. 213; Pre-trial Stmt. at 8 ¶ 3, ECF No. 232.) Okenwa testified that he advised the Trustee's counsel that (1) he was on vacation; (2) he did not have any notice of the bankruptcy filing, (3) any violation was of the automatic stay unintended; and (4) he did not have access to a computer. (Affirmation in Opp'n ¶ 11, ECF No. 213; Pre-trial Stmt. at 8 ¶ 4, ECF No. 232.) He further stated that he informed the Trustee's counsel that he “would be back to New York on Friday, October 26, 2012, and that upon [his] return, [he] would investigate [the Trustee's counsel's] claims, and if true, take actions to vacate the Restraining Notice.” (Affirmation in Opp'n ¶ 11, ECF No. 213; Pre-trial Stmt. at 8 ¶ 4, ECF No. 232.) Mr. Okenwa testified that Mr. Rosen did not inform him that the...