In re Ludkowski

• Decision Date: 24 July 2018
• Docket Number: Case No. 16bk09485
• Citation: 587 B.R. 330
• Parties: IN RE: George E. LUDKOWSKI, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

587 B.R. 330

IN RE: George E. LUDKOWSKI, Debtor.

Case No. 16bk09485

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed July 24, 2018

Attorneys for Debtor: Kevin P. McJessy, McJessy, Ching & Thompson, LLC, Chicago, IL, Robert N. Honig, Elmhurst, IL

Attorney for The Law Firm of Wendy R. Morgan Ltd.: Wendy R. Morgan, The Law Firm of Wendy R. Morgan, Arlington Heights, IL

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge.

Before the court is Debtor's Motion for Rule to Show Cause [Dkt. No. 97] (the "Motion") brought by George E. Ludkowski (the "Debtor"), the debtor in the above-captioned bankruptcy case (the "Case"). In the Motion, the Debtor seeks damages for an alleged violation of the automatic stay by The Law Firm of Wendy R. Morgan ("Morgan").¹

The determination of the Motion rests, in part, on the concurrent jurisdiction between the bankruptcy court and state courts regarding postpetition obligations of debtors (including, as applicable here, postpetition attorneys' fees in chapter 7 matters) and, in part, on the different scope of a debtor's bankruptcy estate in a chapter 7 case versus a chapter 13 case.

For the reasons set forth more fully below, upon review of the parties' respective filings and after conducting hearings on the matter, the court finds that a violation of the automatic stay occurred, and actual damages resulting therefrom must by statute be recovered. No other or further damages are appropriate. As a result, the Motion will, therefore, be granted in part, denied in part and continued in part for a later hearing on additional actual damages consistent with this Memorandum Decision.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the "Bankruptcy Code"). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte , whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1) & (c). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

Motions to terminate, annul, or modify the automatic stay are core proceedings arising under title 11, in which the bankruptcy court is empowered to enter orders. 28 U.S.C. § 157(b)(2)(G) ; In re Mahurkar Double Lumen Hemodialysis Catheter Patent Litig. , 140 B.R. 969, 976-77 (N.D. Ill. 1992) ; In re Quade , 482 B.R. 217, 221 (Bankr. N.D. Ill. 2012) (Barnes, J.), aff'd , 498 B.R. 852 (N.D. Ill. 2013). A request for sanctions for alleged violations of the automatic stay may only arise in a case under title 11 and, therefore, is a core proceeding. 11 U.S.C. § 363(k) ; 28 U.S.C. § 157(b)(2)(o) ; Gecker v. Gierczyk (In re Glenn ), 359 B.R. 200, 203 (Bankr. N.D. Ill. 2006) (Black, J.) ("[T]he cause of action for violating the automatic stay under section 362(k)(1) does not appear to have had a counterpart in eighteenth century England."). For the same reason, the court has constitutional authority to hear and determine this Motion. The Klarchek Family Trust v. Costello (In re Klarchek ), 508 B.R. 386, 389 (Bankr. N.D. Ill. 2014) (Barnes, J.). Nothing in Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), or its progeny stands as or could reasonably be interpreted as an impediment to the bankruptcy court dispensing with routine motions arising out of the Bankruptcy Code.

Accordingly, determination of the Motion is within the scope of the court's jurisdiction and constitutional authority.

PROCEDURAL HISTORY

In addition to reviewing the Motion, the court has considered the arguments of the parties at the hearings on March 22, 2018, May 10, 2018 and June 14, 2018 (the "Hearings") and has reviewed and considered the following filed documents relating to the Motion:

(1) Motion to Dismiss Debtor's Motion for Rule to Show Cause [Dkt. No. 98];

(2) Motion to Dismiss Debtor's Motion for Rule to Show Cause [Dkt. No. 99] (the "Initial Reply");

(3) Debtor's Supplemental Evidentiary Brief in Support of His Motion Pursuant to 11 U.S.C. § 362(k) [Dkt. No. 107] (the "Supplemental Brief");

(4) Objection to Debtor's Motion for Damages under 11 U.S.C. § 362(k) [Dkt. No. 109]; and

(5) Debtor's Reply in Support of His Motion Pursuant to 11 U.S.C. § 362(k) [Dkt. No. 114] (the "Reply").

The court has taken into consideration any and all exhibits submitted in conjunction with the foregoing. Though these items do not constitute an exhaustive list of the filings in the Case, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi , Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent , 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same).

BACKGROUND

The facts of this matter are essentially undisputed. On March 18, 2016 (the "Petition Date"), the Debtor commenced the Case. The Debtor was represented by Morgan in the filing of the Case, as well as a number of contested matters within the Case. On December 27, 2016, however, Morgan moved to withdraw from her representation of the Debtor, citing a breakdown of communication. See Motion to Withdraw as Attorney [Dkt. No. 42]. On January 10, 2017, that motion was granted.

On May 11, 2017, the Debtor, with the assistance of the counsel now representing him, moved to convert this Case from one under chapter 7 of the Bankruptcy Code to one under chapter 13 of the Bankruptcy Code. See Debtor George Ludkowski's Motion to Convert to Chapter 13 [Dkt. No. 47] (the "Motion to Convert"). The Motion to Convert drew an objection from the chapter 7 trustee and a creditor, and thus was not immediately resolved. The Motion to Convert was granted on November 15, 2017 (the "Conversion Date"). See Order to Convert to Chapter 13 [Dkt. No. 70].

On or about July 25, 2017, before the Motion to Convert was granted, Morgan filed a collection lawsuit against the Debtor in the Circuit Court of Cook County, Third Municipal Division (the "State Court") in Rolling Meadows, IL, Case No. 2017 M3 4535 (the "Collection Suit"), seeking $4,306.25 in allegedly unpaid legal fees. See Supplemental Brief, Exh. A-1-A. The Collection Suit is clearly limited to services provided to the Debtor after the Petition Date. It is based on a postpetition retainer agreement for representation of the Debtor with respect to a motion for turnover in the Case and adversary proceedings, and the dated invoices attached thereto are clearly for postpetition services. Id.

Nothing in the Collection Suit gives any indication that the Collection Suit was anything other than an action in personam . Other than that, what transpired in the Collection Suit is not entirely clear.² What is clear is that on February 23, 2018, the State Court entered an order requiring Morgan to either submit to it authorization from this court allowing the Collection Suit to proceed or face involuntary dismissal. See Supplemental Brief, Exh. B-2 (the "State Court Order"). In response, on or about March 27, 2018, Morgan filed a motion to reconsider the State Court Order. See Supplemental Brief, Exh. B-3 (the "Motion to Reconsider").

In between the entry of the State Court Order and the filing of the Motion to Reconsider, the Debtor brought the Motion here. The Motion is fully briefed and has been argued at the Hearings and is therefore ripe for determination.³

DISCUSSION

At issue in this matter are several questions that are independently straightforward. It is in their interaction in the Case at bar that causes concern. While brought under the guise of a motion for rule to show cause, the matter before the court is, at its essence, an action for stay violation damages under section 362(k).

Section 362(k) states 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." 11 U.S.C. § 362(k)(1).

In order for damages to be compensable, first and foremost, there must be a violation of the stay. If there was, the court must determine whether the violation was willful and whether the Debtor is entitled damages therefrom. Finally, if there is a willful violation of the stay for which the Debtor is entitled to collect damages, the court must determine what damages are appropriate.

A. Did a Stay Violation Occur?

The first question is quite simple: Is it a violation of the automatic stay for a chapter 7 debtor's attorney to sue that debtor in state court, during the pendency of the...