In re Johnson, Case No. 14–57104

• Decision Date: 15 February 2018
• Docket Number: Case No. 14–57104
• Citation: 580 B.R. 766
• Parties: IN RE: John Joseph Louis JOHNSON, III, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

580 B.R. 766

IN RE: John Joseph Louis JOHNSON, III, Debtor.

Case No. 14–57104

United States Bankruptcy Court, S.D. Ohio, Eastern Division, Eastern Division at Columbus.

Signed February 15, 2018

Daniel A. DeMarco, Rocco I. Debitetto, Cleveland, OH, Marc J. Kessler, Hahn Loeser & Parks LLP, Columbus, OH, for Debtor.

OPINION AND ORDER AWARDING THE DEBTOR ACTUAL AND PUNITIVE DAMAGES FOR RFF FAMILY PARTNERSHIP, LP's VIOLATION OF THE AUTOMATIC STAY

John E. Hoffman, Jr., United States Bankruptcy Judge

I. Introduction

The Court previously held that RFF Family Partnership, LP ("RFF") willfully violated the automatic stay imposed by § 362(a)(3) of the Bankruptcy Code in the Chapter 11 case of John Joseph Louis Johnson, III (the "Debtor"). In re Johnson , 548 B.R. 770 (Bankr. S.D. Ohio 2016) (" Johnson I "), appeal dismissed for lack of jurisdiction , No. 16–8016 (6th Cir. BAP Jan. 17, 2017). In particular, RFF circumvented this Court in order to procure an arbitration award (the "Arbitration Award") containing findings to the effect that it had a perfected security interest in the Debtor's salary payments under his NHL player contract (the "Player Contract") and findings designed to defeat his claims against RFF. Undeterred by the Debtor's demand that it cease and desist from this course of conduct, RFF then sought a state court order confirming the Arbitration Award and a judgment in its favor (collectively, the "State Court Judgment"). Id. at 775. Because RFF obtained the Arbitration Award and the State Court Judgment with full knowledge of the Debtor's bankruptcy case, its conduct was "willful" for purposes of § 362(k)(1) of the Bankruptcy Code. Id. at 797–98. And because § 362(k)(1) mandates the recovery of reasonable attorneys' fees and expenses incurred as the result of willful violations of the stay, after Johnson I was issued the Court held a damages hearing in part to determine the amount of fees and expenses the Debtor is entitled to recover. The evidence presented during the hearing established the reasonableness of attorneys' fees and expenses in the amount of $422,373.16. Although this is certainly a very large sum, the substantial amount of fees and expenses the Debtor incurred is the result not only of RFF's violation of the stay, but also of its unnecessarily contentious approach to this litigation and its unreasonable rejection of a compromise proposed by the Debtor—a settlement under which RFF would have paid nothing.

During the damages hearing, the Court also heard evidence on the issues of whether it would be appropriate for the Debtor to recover punitive damages and, if so, in what amount. Section 362(k)(1) provides for the recovery of punitive damages in "appropriate circumstances," including cases in which a creditor intentionally violated the automatic stay. The evidence leaves no doubt that RFF did indeed intentionally violate the stay and that an award of punitive damages is warranted in this case.

II. Jurisdiction and Constitutional Authority

The Court has jurisdiction to hear and determine this contested matter under 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A) and (O) ; see also Amedisys, Inc. v. Nat'l Century Fin. Enters., Inc. (In re Nat'l Century Fin. Enters., Inc.) , 423 F.3d 567, 573 (6th Cir. 2005) (holding that a motion to enforce the automatic stay "constitutes a ‘core proceeding’ as defined in 28 U.S.C. § 157(b)(2)").

An order awarding damages under § 362(k)(1) is a final order. See In re Webb , No. 11–8016, 2012 WL 2329051, at *5 (6th Cir. BAP Apr. 9, 2012) ; Wicheff v. Baumgart (In re Wicheff) , 215 B.R. 839, 843 (6th Cir. BAP 1998). And because "[a] claim under § 362(k)(1) for an automatic stay violation ... derives directly from the Bankruptcy Code" and "necessarily stems from the bankruptcy itself," the Court has the constitutional authority to enter a final order in this matter after Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). WD Equip., LLC v. Cowen (In re Cowen) , 849 F.3d 943, 948 (10th Cir. 2017) (internal quotation marks omitted); see also Tow v. Henley (In re Henley) , 480 B.R. 708, 765 (Bankr. S.D. Tex. 2012).

III. Background

A. Events Occurring After the Hearing on RFF's Liability

Following an evidentiary hearing on liability (the "Liability Hearing"), the Court found that RFF willfully violated the automatic stay. Johnson I , 548 B.R. at 798–99. In addition to declaring the Arbitration Award and the State Court Judgment void, Johnson I also provided notice that the Court would hold another evidentiary hearing (the "Damages Hearing") to consider: (1) the reasonableness of the Debtor's requested attorneys' fees and expenses; and (2) whether the Debtor should be awarded punitive damages and, if so, the amount that should be imposed against RFF. Id. at 773–74.

1. The Damages Hearing

The Damages Hearing was held over the course of two days. The transcript of the first day (Doc. 952) will be referred to as "Transcript I" and the transcript of the second day (Doc. 954) as "Transcript II." During the Damages Hearing, the Debtor's Exhibits 39 through 46 and 49 through 52 ("Debtor Ex. ––––"), as well as RFF's Exhibits A through H–2 ("RFF Ex. ––––"), were admitted into evidence without objection.¹ Tr. I at 201; Tr. II at 13. Dayton Parcells (one of RFF's attorneys) made an opening statement, Tr. I at 12–37, and the parties agreed to deem the statement his direct testimony under oath to the extent it was based on his personal knowledge, Tr. II at 3–6, 121–22. The Court heard further testimony of Parcells on cross-examination, as well as the testimony of Jeffrey Levinson (another attorney for RFF),² Daniel DeMarco (one of the attorneys for the Debtor), and Robert F. Freedman (the president of RFF, Inc., which in turn is the general partner of RFF, Debtor Ex. 39 at 8–9; Tr. I at 13). The Debtor also introduced excerpts of the video deposition of Freedman.

2. Events Leading Up to the Damages Hearing

Although the Court entered a scheduling order under which the Damages Hearing would have taken place within a couple of months of the issuance of Johnson I , Doc. 557 at 4, the hearing was delayed for more than a year and a half due in large part to RFF's litigation tactics. Because RFF's conduct is relevant to the reasonableness of the fees and expenses that the Debtor seeks to recover from RFF, the history of the delay will be recounted in some detail.

In accordance with the Court's initial order scheduling the Damages Hearing, the Debtor propounded requests for admissions, interrogatories and documents. Although the requests were reasonable, RFF responded by asserting 27 general objections. Among those objections, RFF opposed the discovery requests "to the extent they call[ed] for information or documents protected by the attorney-client privilege, the work product doctrine, and/or any other applicable privilege or protection." Debtor Ex. 39 at 2. RFF, however, did not provide a privilege log. Nor did RFF produce any documents in response to the Debtor's requests for production. Instead, RFF stated "See General Objections" in response to each of the requests. Id. at 14–16. RFF also asserted objections to the interrogatories by which the Debtor requested financial information about its gross revenue and net worth, as well as other litigation in which RFF was or had been involved. Id. at 11–13. RFF made these objections even though the information requested was relevant to the issue of the amount of any punitive damages that should be awarded. Underlying the objections was RFF's position that the Damages Hearing should be bifurcated so that the Court would first hold a hearing that concerned only the Debtor's entitlement to punitive damages, Doc. 595 at 1, not the amount of such damages—a position that had no merit.

The Sixth Circuit Bankruptcy Appellate Panel (the "BAP") held years ago that an order finding a creditor to be liable for misconduct such as a stay violation while reserving on the issue of damages is not final. Wicheff , 215 B.R. at 843 (holding that the bankruptcy court's contempt order was not final and appealable given that the court had not yet imposed sanctions). Nonetheless, RFF appealed from Johnson I and elected to have the appeal heard by the BAP. Doc. 560 at 1 n.1. A month later—and approximately a week before the date then scheduled for the Damages Hearing—RFF filed a motion to stay the Damages Hearing pending appeal (Doc. 595), relying in part on the discovery dispute relating to the scope of the hearing. Doc. 595 at 1–2. RFF also argued that the Damages Hearing should be stayed pending appeal because "the issue of whether this Court erred in [ Johnson I ] is a threshold question that ought to be resolved before the discovery and other issues as to the Damages Hearing are considered." Id. at 2. The Debtor responded to the motion to stay by correctly noting that there was "no reasonable basis to conclude that the [BAP] will go against prior decisions in this Circuit and the almost entirely one-sided weight of authority on the question of whether RFF's appeal is premature." Doc. 597 at 5. According to the Debtor, "RFF is using this position as grounds to refuse to comply with discovery requests. RFF admits it is not producing complete discovery responses and documents because it claims that ... this Court implicitly intended" to bifurcate the Damages Hearing. Id. at 2. The motion to stay was soon followed by RFF's motion for a protective order (Doc. 598) and the Debtor's motion to compel RFF to produce documents and answer interrogatories (Doc. 601).

In June 2016, the Court issued an oral ruling denying the motion to stay for the reasons stated in the Debtor's response. During the same proceeding, the Court concluded that RFF's sophistication level and its financial wherewithal were relevant to the issue of punitive damages. Tr. of June 20, 2016 Hr'g...