In re McLaughlin
| Decision Date | 22 February 1989 |
| Docket Number | Adv. No. 88-2262S.,Bankruptcy No. 88-13214S |
| Citation | 96 BR 554 |
| Parties | In re Renee McLAUGHLIN Debtor. Renee McLAUGHLIN Plaintiff, v. FIREMAN'S TRUST MORTGAGE CORP. and Firstrust Savings Bank, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Susan L. Dejarnatt, Community Legal Services, Inc., Philadelphia, Pa., for debtor.
Steven E. Ostrow, Mesirov, Gelman, Jaffe, Cramer & Jamieson, Philadelphia, Pa., for defendant.
Edward Sparkman, Philadelphia, Pa., Standing Chapter 13 Trustee.
At present, the instant proceeding fits the classic mode of litigation which exists only due to the persistence of a satellite fee issue which has maintained its orbit even after the merits of the case have been put to rest. The only issue remaining and that has been remaining in the matter for some time is whether counsel for the plaintiff-debtor is entitled to attorney's fees pursuant to 11 U.S.C. § 362(h) and, if so, in what amount. The specific questions raised are as follows: (1) May a party whose violation of the stay is subjectively innocent and relatively justifiable be held liable for attorneys' fees to the debtor's counsel? and (2) May counsel for a debtor who has foregone any claim to damages for the stay violation be classified as "an individual injured" by a stay violation entitled to recover such fees?
We hold that both of these questions must be answered in the affirmative, but that both raise issues which are relevant to consider in fixing the amount of an award pursuant to § 362(h). We therefore award counsel for the debtor here about half of what is sought, i.e., $1000.00.
The underlying Chapter 13 bankruptcy case was filed by RENEE McLAUGHLIN, the Debtor, on September 15, 1988. Virtually nothing has transpired in the main case except the filing of this adversary proceeding by the Debtor on November 29, 1988. Pursuant to a motion for a temporary restraining order (TRO) seeking to enjoin a December 5, 1988, sheriff's sale of the Debtor's residence at 1845 Nolan Street, Philadelphia, PA 19138 (hereinafter "the Home"), filed with the complaint, we conducted a hearing on December 1, 1988. We considered the hearing to be, in effect, on a motion for a preliminary injunction, because we required notice and conducted an evidentiary hearing before acting on the motion. See Bankruptcy Rule 7065; compare Federal Rule of Civil Procedure (F.R. Civ.P.) 65(a)(1) with F.R.Civ.P. 65(b). At its close, we indicated an intention to grant relief to the Debtor, memorializing same in a brief Order and Memorandum of that day. Given the rather extensive testimony adduced at the hearing and the consideration of avoiding three hearings in the event that the December 1, 1988, proceeding would be contended to be TRO hearing, we scheduled the final hearing on December 8, 1988. This hearing was continued by agreement, with the provisional injunction to remain in effect, until January 10, 1989.
On January 10, 1989, we were advised that the parties had agreed that the injunction could be entered as permanent, and that this was the only relief to be accorded to the Debtor in the proceeding. Thus, the merits were totally resolved. The only issue remaining was whether the Debtor's counsel was entitled to attorney's fees. To this end, the parties agreed to submit the matter on (1) a Stipulation of Facts; (2) a motion for fees by the Debtor's counsel in procedural conformity with In re Meade Land & Development Co., 527 F.2d 280 (3d Cir.1975); and (3) Briefs.
The Stipulation of Facts is too lengthy to recite verbatim; thus we shall summarize it. On September 26, 1972, the Debtor's parents, William and the late Willie Mae Hunt, executed a mortgage in favor of the Defendants' assignor in connection with the purchase of the Home. It is not mentioned in the Stipulation, but the Debtor credibly testified at the hearing on December 1, 1988, that she was in fact the equitable "owner" of the Home at all time since September 26, 1972. She had resided there, with her children, exclusively, and she had made all of the payments at all times since the purchase. The deed was placed in her parents' name because of a belief that, otherwise, the Debtor's estranged husband might acquire an interest in the premises. The Debtor ultimately fell into arrears on the mortgage, and Defendant Firstrust Savings Bank, the present mortgagor (referred to hereinafter as "the Defendant"), filed a foreclosure action against the Hunts, obtained a default judgment against the Debtor's father, and ultimately scheduled a sheriff's foreclosure sale on November 7, 1988. The sale was stayed voluntarily by the Defendant, due to a notice problem, until December 5, 1988.
In the mean time, the Debtor's counsel filed the instant bankruptcy case and advised the Defendant's counsel that, under the circumstances, she believed that this filing stayed the sheriff's sale. Throughout October, 1988, as the sale date drew nearer, the parties corresponded, but did not agree, on whether the Debtor's bankruptcy filing impacted on the sheriff's sale.
On November 1, 1988, Mr. Hunt deeded the property to the Debtor, and same was duly recorded. On November 7, 1988, the Debtor's counsel cited the Defendant's counsel to our decisions In re Sudler, 71 B.R. 780 (Bankr.E.D.Pa.1987); and In re Clark, 69 B.R. 885, modified, 71 B.R. 747 (Bankr.E.D.Pa.1987), which she claimed supported the Debtor's position that the sale of the Home was stayed by her filing. It is doubtful whether these decisions do in fact support the Debtor's position. More on point are our dictum in In re Capodanno, 83 B.R. 285, 288-89 (Bankr.E.D.Pa. 1988), and a decision of our honored predecessor, former Chief Judge Emil J. Goldhaber, in In re Black, 58 B.R. 60, 61-62 (Bankr.E.D.Pa.1986). The Defendant now contends that it changed its adversarial stance after reading Black, and that it would have accepted the debtor's position at an earlier point if the Debtor had cited Black to it instead of Sudler and Clark.
This controversy involves strictly an interpretation of 11 U.S.C. § 362(h), which provides as follows:
(h) An individual injured by any willful violation of a stay provided by this section § 362(a) shall recover actual damages, including costs and attorneys\' fees, and, in appropriate circumstances, may recover punitive damages.
The issues vigorously briefed by the parties are whether the Defendant's initial position that the stay arising from the Debtor's case did not apply to the foreclosure of the Home had merit and, if it did, whether the Defendant's "good faith" in taking this position is relevant to the issue of the Debtor's ability to request attorneys' fees from the Defendant pursuant to § 362(h).
Skewing the Defendant's view of the issue is its persistence in the erroneous contention that the recorded deed of the premises from Mr. Hunt to the Debtor did not render the premises "property of the Debtor's estate." Since the underlying bankruptcy is a Chapter 13 case, by effect of 11 U.S.C. § 1306(a)(1), plainly it did, because, pursuant to this Code section, property acquired by a debtor "after the commencement of the case but before the case is closed" is property of a Chapter 13 debtor's estate. However, we must concede that the Defendant's global position in this dispute was not totally implausible, given the lack of consideration for and belated timing of the transfer effected by the November 1, 1988, deed. See e.g., In re Kelly, 67 B.R. 508 (Bankr.S.D.Miss. 1986); and In re Nelson, 66 B.R. 231 (Bankr.D.N.J.1986), aff'd, C.A. No. 86-3724 , aff'd, 838 F.2d 1207 (3d Cir.1988). But see In re Everhart, 87 B.R. 35 (Bankr.N.D.Ohio 1988). It is somewhat disturbing to conclude that a party may file a Chapter 13 bankruptcy and thereby effect a stay on behalf of any nondebtor who decides to convey a property to the debtor. Without the benefit of the rather compelling underlying facts here, we too, might look askance at this last-minute all-too-convenient conveyance.
The most notable authority in favor of the Defendant's general position that its subjective and possibly objective innocence of spirit in contending that the stay did not halt the sale of the Home is relevant to the inquiry of whether it should be liable for the Debtor's attorneys' fees is United States v. Norton, 717 F.2d 767, 774-75 (3d Cir.1983). There, the Court of Appeals of this Circuit states that, since the violation of the stay ultimately found in that case was "a much litigated and controversial question," id. at 774, the violator—IRS did not have such a "fair warning" that its action was violative of the stay, id. at 775, as should saddle it with "contempt and ... a fine," id. at 774, including an award of attorneys' fees to the debtor's counsel.
The Norton language is, however, not conclusive of the issue before us. The decision in Norton preceded enactment of § 362(h) in 1984. The only rationale for awarding any remedies to debtors wronged by stay violations, prior to enactment of § 362(h), was the contention that the violative act constituted contempt of court. The policy that "a party should not be held in contempt unless a court first gives fair warning that certain acts are forbidden; any ambiguities in the law should be resolved in favor of the party charged with contempt," id. at 774, is central to the result in Norton. Other courts utilizing the same reasoning as Norton, similarly concluded that the "good faith" of the creditor was a defense to a claim of contempt arising from a violation of the stay. See, e.g., Ford v. Kammerer, 450 F.2d 279, 280 (3d Cir.1971); In re Promower, Inc., 56 B.R. 619, 623 (Bankr.D.Md.1986), aff'd, 74 B.R. 49 (D.Md.1987); In re Comtek Electronics, 28 B.R. 829, 832 (Bankr.S.D.N.Y. 1983); and In re Wilson, 19 B.R. 45, 46-48 (Bankr.E.D.Pa.1982). This reasoning is, however, not applicable to an analysis...
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In re Abrams
...was decided prior to the amendment to § 362(a)(3) in 1984, and has been effectively overruled by subsequent cases. See In re McLaughlin, 96 B.R. 554 (Bankr.E.D. Pa.1989). 8 The trial court in this case invoked its equitable powers under § 105 in awarding the Abrams damages for appellees' § ......