In re Johnson, BAP No. WY-08-021.

• Decision Date: 10 July 2008
• Docket Number: Bankruptcy No. 04-20861.,Adversary No. 04-02036.,BAP No. WY-08-021.
• Citation: 390 B.R. 414
• Parties: In re Tommy Dean JOHNSON and Candice Ann Johnson, Debtors. Tommy Dean Johnson and Candice Ann Johnson, Plaintiffs-Appellees, v. Keith Smith, individually and as Vice President of M & M Auto Outlet — Wyoming, Inc. and M & M Auto Outlet — Wyoming, Inc., a Wyoming Corporation, Defendants-Appellants.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

390 B.R. 414

In re Tommy Dean JOHNSON and Candice Ann Johnson, Debtors.

Tommy Dean Johnson and Candice Ann Johnson, Plaintiffs-Appellees, v. Keith Smith, individually and as Vice President of M & M Auto Outlet — Wyoming, Inc. and M & M Auto Outlet — Wyoming, Inc., a Wyoming Corporation, Defendants-Appellants.

BAP No. WY-08-021.

Bankruptcy No. 04-20861.

Adversary No. 04-02036.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

July 10, 2008.

Submitted on the briefs:^* Stephen R. Winship of Winship & Winship, PC, Casper, Wyoming, for Defendants-Appellants.

Before BOHANON, BROWN, and KARLIN, Bankruptcy Judges.

OPINION

KARLIN, Bankruptcy Judge.

Appellants appeal the bankruptcy court's award of attorneys' fees to the Debtors, following a remand from this Court. We affirm in part and reverse in part.

I. BACKGROUND

Debtors filed their petition for Chapter 13 relief on May 6, 2004. On May 20, 2004, they filed an adversary complaint against appellants Keith Smith and M & M Auto Outlet — Wyoming, Inc. ("M & M"), alleging violation of the automatic stay. Mr. Smith is the Vice President of M & M, which held a purchase lien on the Debtors' vehicle, a used Chevy truck that they purchased on March 30, 2004. M & M repossessed the truck shortly after the petition was filed, then refused to return it after learning of the pending bankruptcy. After a number of hearings on the Debtors' complaint, the bankruptcy court entered judgment, finding that Mr. Smith and M & M (hereinafter, jointly, "Appellants") had willfully violated the stay, and ordering that the vehicle and clear title be turned over to the Debtors. After a subsequent hearing, the bankruptcy court awarded approximately $6,000 in damages to Debtors for the stay violation.¹ Appellants took an appeal of that judgment to this Court.

On September 7, 2005, this Court issued an unpublished decision on the appeal, affirming in part, reversing in part, and remanding for further proceedings on damages.² The decision affirmed the bankruptcy court's determination that the stay had been violated and its order requiring return of the truck with a clear title to Debtors, but reversed the damages, award as not having been sufficiently supported by the evidence. Appellants appealed this decision to the Tenth Circuit Court of Appeals, which affirmed on August 28, 2007.³ That appeal was fully and finally resolved on October 10, 2007, when the Tenth Circuit issued an order denying Appellants' petition for rehearing.

On February 22, 2007, while the appeal was pending in the Tenth Circuit, the bankruptcy court dismissed the Debtors' main case, based on an unopposed motion by the Trustee alleging that Debtors had failed to make plan payments. Shortly after entry of the Circuit's order denying rehearing, on October 19, 2007, Debtors filed a Request for Setting on Counsel's Fee Application on Remand with the bankruptcy court, in which they sought "[p]erhaps a status conference by phone" in furtherance of the remand, which required further hearing on the amount of damages.⁴ In response, Appellants filed a motion to dismiss the request, based on the previous dismissal of the main case, claiming, both that the motion was moot and that the bankruptcy court lacked subject matter jurisdiction to consider it.

A hearing was held on November 15, 2007, at which the bankruptcy court denied Appellants' motion to dismiss and set the matter for further hearing on the amount of attorneys' fees. On December 11, 2007, Debtors filed a "Supplement to Counsel's Fee's" [sic], to which Appellants objected. A non-evidentiary telephone conference was held on the application on January 31, 2008, and the bankruptcy court issued its order from that hearing on February 5, 2008. Appellants' notice of appeal was timely filed on February 15, 2008.

II. APPELLATE JURISDICTION

Inconsistent captioning and docketing in the bankruptcy court made this Court's determination of jurisdiction somewhat more tedious than usual. This confusion began when Debtors filed their request for hearing in the main case, rather than the adversary proceeding, where the original damages had been awarded. This mistake was compounded by the parties' intermittent captioning for the adversary proceeding without any attempt to correct the docket. Nonetheless, since the appeal was taken from the adversary proceeding and the remand was to the adversary proceeding, all matters relating to the remand should have taken place within the adversary proceeding. We consider any error in the procedural handling of the matter on remand to be harmless.

This Court has jurisdiction to hear timely-filed appeals from final judgments and orders of bankruptcy courts within the Tenth Circuit, unless one of the parties elects to have the district court hear the appeal.⁵ In this case, the notice of appeal was timely filed within ten days of the February 5, 2008 final order. Therefore, since no party to this appeal has elected to have the appeal heard by the district court, this Court has appellate jurisdiction.

III. ISSUES AND STANDARD OF REVIEW

The principal issue on appeal is whether an action for willful violation of the automatic stay survives dismissal of the main bankruptcy case. This is a legal issue that is reviewed by this Court de novo.⁶

An alternative issue is whether the bankruptcy court erred by awarding attorneys' fees based solely on the supplemental application, without holding an evidentiary hearing. As did the prior panel of this Court, we review the bankruptcy court's fee award for abuse of discretion.⁷

IV. DISCUSSION

A. Violation of Stay

Debtors' claim for damages for violation of the automatic stay is based on 11 U.S.C. § 362(h),⁸ which provides 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." Since their claim is created by a provision of the Bankruptcy Code, it "arises under" the Code and the action for damages is a "core proceeding."⁹ Core proceedings are uniquely within the province of the bankruptcy courts.¹⁰ As such, at least some courts have held that core proceedings are not dependent upon the existence of an underlying bankruptcy case.¹¹ However, there are few published decisions that discuss the issue.¹²

In Price, the debtor filed an action in district court alleging that the defendants had willfully violated the stay during one or more of debtor's three previously dismissed bankruptcy cases. The district court dismissed the debtor's § 362 claims on the ground that such claims are dependent upon the existence of a bankruptcy but, alternatively, granted summary judgment to defendants on the ground that debtor had failed to show that the stay violations were willful. Although the Seventh Circuit affirmed the summary judgment, it specifically found that § 362 does create a cause of action that survives termination of the underlying bankruptcy.¹³ In so finding, the court noted that Congress had apparently not given much thought to the willful violation provision that it added to the Code in 1984.¹⁴ However, the court refused to "impose an artificial limit on the breadth of the provision," by construing it simply as a tool for enforcement of the stay that ends when the stay does.¹⁵

The only appellate court to have published a decision on essentially the same issue as the one presented in this appeal is the Ninth Circuit BAP. That court has now held, in at least three cases, that a § 362 claim survives dismissal of the underlying bankruptcy.¹⁶ In Davis, the court reversed the bankruptcy court's dismissal of a pending adversary proceeding due to dismissal of the underlying case, stating:

[D]ismissal of the underlying bankruptcy case does not render moot an action for damages based on willful violation of the automatic stay. Willful violation of the automatic stay is an intentional tort for which compensatory and punitive damages may be awarded. Imposition of damages for willful violation of the automatic stay serves an important purpose even after the underlying bankruptcy case has been dismissed; it provides compensation for and punishment of intentionally wrongful conduct. Stated differently, intentionally wrongful conduct should not be excused merely because the underlying bankruptcy case has been dismissed. Thus, we conclude that "a legally cognizable interest in the outcome of the [adversary proceeding] survives the bankruptcy."¹⁷

The Price court also held that the bankruptcy court had subject matter jurisdiction over the § 362 claim because it "arises under" Title 11. Subsequently, the court reiterated this position in Aheong, noting that arising under jurisdiction "includes proceedings based on a right or cause of action created by title 11."¹⁸

This Court finds these decisions persuasive, and holds that an action for willful violation of the automatic stay survives dismissal of the main bankruptcy case. Damages caused by a willful violation of the automatic stay do not evaporate once the stay is no longer in force, nor does the public policy of preventing such stay violations. Dismissal of such claims under these circumstances would not only allow violators to go unpunished, but would also implicitly condone violation of the stay when it appears the underlying case will be dismissed, but before the remedy phase for the stay violation is completed.

B. Fees Application

Appellants contend that the award of attorneys' fees based on Debtors' supplemental application did not remedy the defects found by the prior BAP panel.¹⁹ The principal reason for the previous vacation and remand of the fee award was that "the admission of the fee statement on the basis of [Debtor's] testimony deprived Appellants of any ability to explore the sufficiency of the statement or the nature of the tasks performed. Only the counsel who performed those tasks...