In re Cox, Bankruptcy No. 85-147-Orl-BK-GP

• Citation: 53 BR 829
• Decision Date: 15 October 1985
• Docket Number: Bankruptcy No. 85-147-Orl-BK-GP
• Parties: In re James P. COX, Nancy A. Cox, Debtors.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida

53 B.R. 829 (1985)

In re James P. COX, Nancy A. Cox, Debtors.

Bankruptcy No. 85-147-Orl-BK-GP

United States Bankruptcy Court, Middle District Florida, Orlando Division.

October 15, 1985.

Michael G. Williamson, Kenneth L. Mann, Orlando, Fla., for debtors.

James L. Simon, Orlando, Fla., for Executone.

ORDER FINDING EXECUTONE OF FLORIDA, INC., IN CONTEMPT OF COURT, WITHHOLDING SANCTIONS, AND GRANTING LIMITED RELIEF FROM THE DISCHARGE INJUNCTION

GEORGE L. PROCTOR, Bankruptcy Judge.

This matter is before the Court on debtor's motion for Order of Contempt against Executone of Florida, Inc., (Executone). The motion seeks a finding that Executone is in contempt for violating 11 U.S.C. § 362 when Executone sought injunctive relief and damages against debtor, Nancy A. Cox (Cox), in a state court action based on debtor's breach of an employment contract. In response to debtor's motion, Executone filed a motion for Relief from the Automatic Stay to proceed with the pending state court suit. This motion for relief from the automatic stay was withdrawn after debtor received her discharge. Executone thereafter filed an Alternative Motion for Relief from the Discharge Injunction of 11 U.S.C. § 524.

There are two main issues before the Court:

(1) whether Executone should be found in contempt of court for violating 11 U.S.C. § 362 when it continued with the state court action after receiving notice of the bankruptcy proceeding;

(2) whether the damages and injunctive relief sought by Executone constitute a "claim" which has been discharged under 11 U.S.C. § 524.

Before the Court addresses these issues it must first make preliminary findings of fact. Debtor entered employment with Executone on or about August 17, 1984. She voluntarily entered into an employment contract which included a "non-competition" clause. This clause covered the counties of Orange, Osceola, Seminole, Brevard, Volusia, Lake, Marion and Sumpter, and precluded debtor from working with any business in direct competition with Executone for a period of 12 months commencing on termination of her employment. On November 15, 1984, Cox terminated her employment with Executone. Cox then entered employment with Office Automation, Inc., a competitor of Executone in the affected counties in January, 1985. Executone asserts that during her employment with them, debtor learned every aspect of Executone's phone system and communication services business. Cox continues to be employed by Office Automation, Inc.

On February 6, 1985, Cox filed a voluntary petition under 11 U.S.C. Chapter 7. In her schedules, debtor listed a possible contingent liability to Executone arising out of the employment contract. On or about February 22, 1985, Executone filed suit in the Circuit Court of the Ninth Judicial Circuit of Orange County, Florida, naming debtor and Office Automation, Inc., as defendants. On May 15, 1985, debtor filed a suggestion of bankruptcy in this suit and moved to dismiss it. At a hearing on the motion to dismiss, Executone orally waived any right to damages for debtor's pre-petition breaches but reserved its right to damages for any post-petition breaches. The Circuit Judge denied the motion to dismiss and ordered debtor to answer the complaint.

In its memorandum of law opposing debtor's motion for contempt, Executone asserts that this Court is collaterally estopped from relitigating the state court's decision which denied debtor's motion to dismiss. The Court finds that it is not collaterally estopped from determining the issues involved in the Motion for Order of Contempt and Motion for Relief from the Discharge Injunction which is before it. All these issues were not before the state court; therefore, this Court will deal with the entire matter on the merits.

I. CONTEMPT ISSUE

There is no question that Executone technically violated the automatic stay when it instituted the state court action against debtor based on breach of the employment contract. The question before the Court, however, is whether Executone should be found in contempt of court for continuing with the state court action once it learned of the Order for Relief.

Sanctions for contempt are inappropriate under the Bankruptcy Code where a mere technical violation of the stay has occurred or where the litigant has acted in good faith. In re Bray Enterprises, Inc., 38 B.R. 75 (Bkrtcy.D.Vt.1984). These situations lack the element of wilfullness or maliciousness that is usually required before a court will issue contempt sanctions. In the instant matter, it is undisputed that Executone's first knowledge of the Order for Relief came when debtor filed a suggestion of bankruptcy in the state court action. The Court will not impose sanctions on Executone for filing the state court action since this was an inadvertent violation of the stay.

As to continuing with the state court action once the suggestion of bankruptcy was filed, this Court finds that Executone acted in good faith. It appears from Executone's argument that it believed debtor breached the employment contract each day she worked for Office Automation, Inc. Based on this assumption of a separate and distinct breach each work day, Executone waived any right to damages for the alleged pre-petition breaches while proceeding to litigate its rights to any post-petition damages. Although the Court questions the wisdom of this decision, it finds that Executone did not wilfully or maliciously violate the automatic stay. No sanctions will be imposed. This finding of good faith precludes the Court's need to address the issue of whether Executone's actions in continuing with the state court action after waiving its right to any pre-petition damages violated 11 U.S.C. § 362.

II. DISCHARGE ISSUE

Section 727(b) states that all debts or liabilities on a claim which arose prior to the date the Order for Relief is entered are discharged whether or not a proof of claim was filed or the claim was allowed. See 11 U.S.C. § 101(11). Section 524 enforces the discharge in § 727(b) by enjoining any commencement or continuation of an action against the debtor based on a debt or claim discharged. The question the Court must first address is whether the monetary damages and injunctive relief sought by Executone constitutes a claim that could be discharged.

Section 101(4) defines "claim" to mean:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;

11 U.S.C. § 101(4).

A. Actual and Punitive Damages.

Clearly, the actual and punitive damages sought by Executone constitute a "right to payment" under § 101(4)(A). Damages are the estimated monetary equivalent of the injury sustained. Since the right to these damages arose pre-petition, the Court would normally stop at this point and find the damage claim discharged. However, Executone precludes this initial finding by asserting that a separate...