In re Johnson

• Citation: 575 F.3d 1079
• Decision Date: 05 August 2009
• Docket Number: No. 08-8052.,08-8052.
• Parties: In re Tommy Dean JOHNSON; Candice Ann Johnson, Debtors. Tommy Dean Johnson; Candice Ann Johnson, Plaintiffs-Appellees, v. Keith Smith, individually and as Vice President of M & M Auto Outlet — Wyoming, Inc.; M & M Auto Outlet — Wyoming, Inc., a Wyoming corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

575 F.3d 1079

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

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

No. 08-8052.

United States Court of Appeals, Tenth Circuit.

August 5, 2009.

Submitted on the briefs:^* Stephen R. Winship, Winship & Winship, P.C., Casper, Wyoming for Appellants.

Before TACHA, MURPHY, and HARTZ, Circuit Judges.

HARTZ, Circuit Judge.

After Keith Smith and M & M Auto Outlet-Wyoming (collectively, "M & M") willfully violated the automatic stay in Tommy¹ and Candice Johnson's Chapter 13 case, the Johnsons successfully sought damages under 11 U.S.C. § 362(k)(1)² in a bankruptcy-court adversary proceeding. M & M appealed to the Tenth Circuit Bankruptcy Appellate Panel (BAP) and this court. While those appeals were pending, the bankruptcy court dismissed the Chapter 13 case. When the adversary proceeding ultimately was remanded by this court to the bankruptcy court for reconsideration of the amount of damages, M & M argued that the dismissal of the underlying Chapter 13 case divested the bankruptcy court of jurisdiction over the § 362(k)(1) proceeding. Both the bankruptcy court and the BAP rejected M & M's position. Exercising our jurisdiction under 28 U.S.C. §§ 158(d)(1) and 1291, we affirm. We hold that the dismissal of the Chapter 13 case did not divest the bankruptcy court of jurisdiction over the § 362(k)(1) adversary proceeding. We also reject M & M's contention that the bankruptcy court abused its discretion by making an award without conducting an evidentiary hearing.

I.

The facts have been set forth in other decisions, see Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1166-68 (10th Cir.2007) ("Johnson I"); Johnson v. Smith (In re Johnson), 390 B.R. 414, 415-16 (10th Cir. B.A.P. 2008) ("Johnson II"); so we need not go into detail here. Suffice it to say that in an adversary proceeding brought by the Johnsons under § 362(k)(1), the bankruptcy court determined that M & M had violated the automatic stay by repossessing the Johnsons' pickup truck while their bankruptcy case was pending. See Johnson I, 501 F.3d at 1166-68. The bankruptcy court awarded the Johnsons $937.50 for loss of use of the vehicle, $5,028.50 in attorney fees, and $232.23 for costs, a total of $6,198.23. Id. at 1168. The BAP affirmed the finding of a willful violation, but reversed the loss-of-use award, vacated the attorney-fee and cost determinations for lack of adequate foundation, and remanded for further proceedings. Johnson v. Smith (In re Johnson), No. WY-04-087, 04-20861, 04-2036, 2005 WL 2300370, at *9-*11 (10th Cir. B.A.P. Sept. 7, 2005). We affirmed the finding of a willful violation. Johnson I, 501 F.3d at 1175.

While Johnson I was pending in this court, the bankruptcy court dismissed the Chapter 13 case because the Johnsons had not been making the required payments. Johnson II, 390 B.R. at 416. Thus, by the time the § 362(k)(1) adversary proceeding returned to the bankruptcy court on remand, there no longer existed an underlying bankruptcy case. The Johnsons filed a pleading requesting the bankruptcy court to set a hearing regarding attorney fees.³ See id. In response, M & M moved for dismissal, arguing that the dismissal of the Chapter 13 case divested the bankruptcy court of jurisdiction to proceed with the § 362(k)(1) adversary proceeding. See id. The bankruptcy court denied M & M's motion and ordered the Johnsons to file a statement of their fees and costs. The Johnsons' attorney filed a supplement updating the fees and costs incurred since the bankruptcy court's original decision; attached was the attorney's verification under penalty of perjury of both the original fee request and the supplement. When M & M objected to the requested fees, the court held a nonevidentiary telephone hearing. See id. After rejecting M & M's objections, the court awarded attorney fees and costs to the Johnsons in the amount of $11,816.02. The BAP affirmed all but an award of $17.34 in overnight delivery expenses. See id. at 420. M & M appeals.

II.

Although this appeal is taken from the BAP's opinion, it is the decision of the bankruptcy court that we review. Johnson I, 501 F.3d at 1169. On appeal, as it did before the BAP, M & M argues that the bankruptcy court (1) lacked jurisdiction to award sanctions under § 362(k)(1) once it had dismissed the underlying bankruptcy case, and (2) erred in awarding sanctions without holding an evidentiary hearing, instead basing the award solely on the attorney's verification. We reject both arguments.

A. Authority Under § 362(k)(1) after Dismissal of Underlying Bankruptcy Proceeding.

Whether the dismissal of the underlying case divests the bankruptcy court of jurisdiction to proceed with a § 362(k)(1) adversary proceeding is a question of law. Our review is therefore de novo. See Johnson I, 501 F.3d at 1169.

District courts have jurisdiction to hear "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). In turn, 28 U.S.C. § 157(a) allows the district courts to refer such matters to the bankruptcy courts. "Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 ... and may enter appropriate orders and judgments, subject to review" by the district court or the bankruptcy appellate panel. Id. § 157(b)(1). In addition, "[a] bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11," in which situations the bankruptcy court submits proposed findings of fact and conclusions of law to assist the district court to make a final decision. Id. § 157(c)(1). Some types of core proceedings are listed in 28 U.S.C. § 157(b)(2), but the list is not exclusive. In general, "[c]ore proceedings are proceedings which have no existence outside of bankruptcy. Actions which do not depend on the bankruptcy laws for their existence and which could proceed in another court are not core proceedings." Gardner v. United States (In re Gardner), 913 F.2d 1515, 1518 (10th Cir.1990) (per curiam) (citation omitted).

Categorizing a § 362(k)(1) proceeding is not difficult. Section 362, which establishes the automatic stay,

is the central provision of the Bankruptcy Code. When a debtor files for bankruptcy, section 362 prevents creditors from taking further action against him except through the bankruptcy court. The stay protects debtors from harassment and also ensures that the debtor's assets can be distributed in an orderly fashion, thus preserving the interests of the creditors as a group.

Price v. Rochford, 947 F.2d 829, 831 (7th Cir.1991). Section 362(k)(1) protects against violations of the stay by providing 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." A § 362(k)(1) proceeding therefore is a core proceeding because it "derive[s] directly from the Bankruptcy Code and can be brought only in the context of a bankruptcy case." MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 109 (2d Cir.2006) (holding that action under § 362(k)(1) is a core proceeding). Accord Budget Serv. Co. v. Better Homes of Va., Inc., 804 F.2d 289, 292 (4th Cir.1986); Price, 947 F.2d at 832 n. 1.

Thus, the bankruptcy court had jurisdiction over the § 362(k)(1) proceeding unless, as M & M argues, the matter was mooted by dismissal of the bankruptcy case.

M & M correctly points to several decisions holding that when the underlying bankruptcy case is dismissed, a noncore, related proceeding ordinarily should also be dismissed (although leaving the matter to the bankruptcy court's sound discretion). See, e.g., Porges v. Gruntal & Co. (In re Porges), 44 F.3d 159, 162-63 (2d Cir.1995); Querner v. Querner (In re Querner), 7 F.3d 1199, 1201 (5th Cir.1993); Smith v. Commercial Banking Corp. (In re Smith), 866 F.2d 576, 580 (3d Cir.1989). But these decisions do not address what happens to core proceedings, such as the Johnsons' claim. See Honigman, Miller, Schwartz and Cohn, L.L.P. v. Adell (In re John Richards Homes Bldg. Co.), 405 B.R. 192, 210 (E.D.Mich.2009) (stating "there is much support for the proposition that bankruptcy courts retain jurisdiction over core proceedings beyond the dismissal or closure of the underlying bankruptcy case," and collecting cases).

It is particularly appropriate for bankruptcy courts to maintain jurisdiction over § 362(k)(1) proceedings because their purpose is not negated by dismissal of the underlying bankruptcy case. They still serve (a) to compensate for losses that are not extinguished by the termination of the bankruptcy case and (b) to vindicate the authority of the statutory stay. Cf. In re Statistical Tabulating Corp., 60 F.3d 1286, 1289-90 (7th Cir.1995) (after dismissal of bankruptcy case, bankruptcy court still had jurisdiction to resolve dispute between two creditors because dispute was not "entirely dependent on the existence of the bankruptcy," unlike cases in which "the dismissal of the [underlying] case brought about a full resolution of all disputes between the parties, mooting the controversy"). Requiring the dismissal of a § 362(k)(1) proceeding simply because the underlying bankruptcy case has been dismissed would not make sense. A court must have the power to compensate victims of violations of the automatic stay and punish the violators, even after the conclusion of the underlying bankruptcy case. See Davis v. Courington (In re Davis), 177 B.R. 907, 911-12 (9th Cir. B.A.P. 1995). "[I]t is clear that dismissal of a case does not validate actions which constituted violations of the automatic stay...