In re Joseph

• Decision Date: 07 February 2018
• Docket Number: CASE NO. 09–30812
• Citation: 584 B.R. 696
• Parties: IN RE June JOSEPH, Debtor
• Court: U.S. Bankruptcy Court — Eastern District of Kentucky

584 B.R. 696

IN RE June JOSEPH, Debtor

CASE NO. 09–30812

United States Bankruptcy Court, E.D. Kentucky, Frankfort Division.

Signed February 07, 2018

Ryan R. Atkinson, Michael J. Gartland, DelCotto Law Group PLLC, Lexington, KY, for Debtor.

Ryan R. Atkinson, Michael J. Gartland, DelCotto Law Group PLLC, Lexington, KY, for Debtor.

MEMORANDUM OPINION AND ORDER

Gregory R. Schaaf, Bankruptcy Judge

This matter is before the Court on the Debtor's Emergency Motion to Enforce Discharge Injunction Against Kentucky Tax Bill Servicing, Inc. and Bilz & Associates, P.S.C., and for an Award of Damages, Including Attorney's Fees, Mild Non–Compensatory Monetary Damages, and Costs ("Sanctions Motion"). [ECF No. 126.] The Debtor alleges that Kentucky Tax Bill Servicing, Inc. ("KTBS") and its counsel, Bilz & Associates, P.S.C. ("Bilz"), are seeking to recover a personal debt discharged in the Debtor's chapter 7 bankruptcy. KTBS and Bilz filed a Response to Debtor's Emergency Motion to Enforce Discharge Injunction and Motion for an Award of Damages in which they deny the Debtor's allegations. [ECF No. 132.]

A hearing was held on January 18, 2018. The Court provided an opportunity for the parties to supplement their papers. KTBS and Bilz chose to stand on their Response and the Debtor submitted her reply brief. [ECF No. 143.] Thereafter the matter was submitted.

The Sanctions Motion is granted. KTBS and Bilz have taken actions to collect a debt that was discharged in the Debtor's bankruptcy case, so they are in contempt of the discharge injunction. As a sanction for their contemptible conduct, attorney's fees and costs are assessed jointly and severally against KTBS and Bilz. Non-compensatory damages are not imposed, subject to the admonitions herein.

I. Facts and Procedural History.

A. The Debtor's Bankruptcy Case.

The Debtor filed for chapter 13 relief on October 22, 2009 [ECF No. 1], and converted to chapter 7 on November 4, 2010 [ECF No. 92]. At the time of filing, the Debtor owned numerous parcels of real property, including:

The "Franklin County Properties":

• a house and lot located at 128 Allnutt Drive, Frankfort, Franklin County, Kentucky, and

• a house and lot located at 109 Phillips Street, Frankfort, Franklin County, Kentucky.

The "Johnson County Properties":

• 721 Washington Ave., Paintsville, Johnson County, Kentucky, and• a house and lot located at KY Lane, Paintsville, Johnson County, Kentucky.

[ECF No. 26, Sch. A.]

The Debtor also scheduled a significant amount of property tax debt. The City of Frankfort was listed as one of several secured creditors based on some of the Debtor's property tax obligations. [Id. ] As a property owner, the Debtor is obligated to pay a tax on the assessed value of her real property unless an exception applies. Ky. Const. §§ 3, 171 –74; see also KY. REV. STAT. § 132.020(1)(a) (the owner of real property is obligated to pay the annual assessment). Due to the Debtor's failure to pay taxes assessed on the Franklin County Properties, the City of Frankfort had a lien on those properties for eleven years following the date the taxes became delinquent. KY. REV. STAT. § 134.420(1).

Unpaid taxes are evidenced by a certificate of delinquency that the taxing authority may sell to a third party in lieu of pursuing collection on its own. See KY. REV. STAT. §§ 134.119 –129. The third-party purchaser may collect the tax and other specified amounts from the taxpayer through a collection action and foreclosure on the tax lien. KY. REV. STAT. §§ 134.452, 134.490, 134.546. The record shows KTBS is a third-party purchaser and holder of certificates of delinquency associated with the past due taxes assessed on the Franklin County Properties. See infra . But the Debtor did not list KTBS as a creditor on her Schedules.

The Debtor received her discharge on December 6, 2011. [ECF No. 121.]

B. The Franklin County Actions.

Two lawsuits were filed in Franklin Circuit Court related to property tax liens on the Franklin County Properties in 2010. Case No. 10–CI–01198 addressed tax liens on the Allnutt Drive property ("Case 1198") and Case No. 10–CI–01199 involved tax liens on the Phillips Street property ("Case 1199"). Case 1198 and Case 1199 are referred to collectively herein as the "Franklin County Actions". Bilz represented KTBS in the Franklin County Actions.

The papers filed indicate KTBS was a named defendant in the Franklin County Actions because it acquired certificates of delinquency related to the Franklin County Properties. In late 2016, KTBS moved for in rem default and summary judgment in the Franklin County Actions. The Affidavit of Status of Account filed in Case 1198 shows KTBS is the owner of a certificate of delinquency for 2002 Franklin County property taxes on the Allnutt Drive property. [ECF No. 126–2, p. 11 of 25.] The Affidavit of Status of Account filed in Case 1199 shows KTBS is the owner of a certificate of delinquency for 2005 Franklin County property taxes on the Phillips Street property. [ECF No. 126–3, p. 10 of 21.]

On December 6, 2016, the Franklin Circuit Court entered its Order Granting in Rem Default and Summary Judgment in Case 1198. The Order grants "an in rem judgment against the subject property in the amount of Six Thousand Three Hundred Eighty–Four Dollars and Fifty Cents ($6,384.50) plus continuing interest in the amount of 12% per annum from date of entry of judgment until paid." [ECF No. 144, p. 3 of 7.] On March 7, 2017, the Franklin Circuit Court entered its Order Granting in Rem Default and Summary Judgment in Case 1199. The Order grants "an in rem judgment against the subject property in the amount of Five Thousand Six Hundred Seventy–Two Dollars and Thirty Cents ($5,672.30) plus continuing interest in the amount of 12% per annum from date of entry of judgment until paid." [Id. , p. 6 of 7.] These in rem judgments are referred to collectively herein as the "Franklin County Judgments".

Counsel for KTBS and Bilz explained at the January 18 hearing that foreclosure sales followed entry of the Franklin County Judgments. Counsel said one sale did not generate sufficient funds to satisfy the debt and the other did not sell at all.¹

C. The Johnson County Judgment Liens and Litigation.

Subsequent to, or possibly before, the foreclosure sales of the Franklin County Properties, KTBS, through Bilz, filed judgment liens naming the Debtor as the "Judgment Debtor" in Johnson County, Kentucky. The Notice of Judgment Lien regarding Case 1198 was filed March 24, 2017, and is of record in State Lis Pendens Book 71, Page 57, in the Johnson County Clerk's Office (the "Case 1198 Lien"). [ECF No. 126–4, p. 9 of 10.] The Case 1198 Lien indicates the judgment amount is $6,384.50 and provides that the filing shall "act as a lien upon all real estate in your County in which the above Judgment Debtor has any ownership." [Id. ] The Case 1198 Lien specifically states it is an attempt to collect a debt. [Id. , p. 10 of 10.]

The Notice of Judgment Lien related to Case 1199 was also filed March 24, 2017, and is of record in State Lis Pendens Book 71, Page 55, in the Johnson County Clerk's Office (the "Case 1199 Lien"). [ECF No. 126–4, p. 7 of 10.] The Case 1199 Lien indicates the judgment amount is $5,672.30 and provides that the filing shall "act as a lien upon all real estate in your County in which the above Judgment Debtor has any ownership." [Id. ] The Case 1199 Lien specifically states it is an attempt to collect a debt. [Id. , p. 8 of 10.] The Case 1198 Lien and the Case 1199 Lien are referred to collectively herein as the "Judgment Liens".

On November 13, 2017, Bilz, acting for KTBS, filed a Complaint for Foreclosure with Notice under the Fair Debt Collection Practices Act in Johnson Circuit Court, being Case No. 17–CI–00386 (the "Johnson County Action"). In the Complaint, KTBS represented that it had "obtained an in personam judgment against Defendant June Joseph in Franklin Circuit Civil Case No. 10–CI–1198 ... and in Franklin Circuit Civil Case No. 10–CI–1199 ... by virtue of unpaid certificates of delinquency." [ECF No. 126–4, ¶ 3.] KTBS further alleged that it is the holder of the Judgment Liens that are due and payable. [Id. , ¶¶ 4–5.] In its prayer for relief, KTBS asked for entry of a "supplemental judgment against June M. Joseph ... in an amount to be determined by the trier of fact," foreclosure on the Johnson County Properties, and payment of the Judgment Liens from the proceeds of the sale. [Id. , ¶¶ 30–35.]

On January 2, 2018, the Debtor filed an answer and counter-claim asserting the relief requested is barred by her chapter 7 discharge and violates the discharge injunction. 11 U.S.C. §§ 727(b) and 524(a). Shortly thereafter, Bilz asked counsel for the Debtor to agree to an amendment that would fix the erroneous allegation that KTBS had obtained in personam judgments against the Debtor in the Franklin County Actions. Debtor's counsel refused and demanded dismissal of the complaint. KTBS then filed a motion in the Johnson Circuit Court asking for leave to file an amended complaint. [ECF No. 126–9.]

Following numerous attempts to resolve the dispute without court intervention, the Debtor was forced to file the underlying Sanctions Motion before the hearing on the motion for leave to file an amended complaint. Counsel for KTBS agreed at the January 18 hearing that it would not pursue the pending motion in the Johnson County Action scheduled for hearing the next day, so immediate relief was not required. Therefore, any discussion regarding the emergency nature of the hearing is unnecessary.

II. DISCUSSION .

The alleged violation of the discharge injunction arises because KTBS and Bilz filed Judgment Liens based on the Franklin County Judgments and then pursued foreclosure in the Johnson County Action in an attempt to satisfy the 2002 and 2005 tax liens assessed on the Franklin County Properties. These actions violated the discharge injunction and the Debtor is entitled to relief.

A. The Debtor's Personal...