In re Panos, Case No. 13-21338-GMH
| Decision Date | 10 April 2013 |
| Docket Number | Case No. 13-21338-GMH |
| Parties | In the matter: George C. Panos, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
The debtor, George Panos, moves for sanctions against Commerce State Bank. Commerce refused to cancel a state-court hearing on whether a default judgment should be entered against Panos's attorneys based on their failure to answer a pre-bankruptcy garnishment action Commerce had filed against them. Although the state court cancelled the hearing and dismissed Commerce's action without prejudice, Panos contends that Commerce's refusal violated the automatic stay. Panos's motion will be denied.**
A Wisconsin state court awarded Commerce a $30,635 deficiency judgment against Panos. Commerce sought to collect by garnishing DeWitt Ross & Stevens S.C., the law firm Panos retained to file his bankruptcy, alleging that DeWitt held Panos's non-exempt property. All proceedings against Panos came to a halt when Panos commenced a Chapter 13 case in August 2012, automatically staying acts, including the continuation of judicial proceedings, to collect pre-petition debts from Panos or from the property of his bankruptcy estate. 11 U.S.C. §362(a)(1), (2), (3), & (6).
Panos's Chapter 13 case was short lived. His 60-month plan proposed to pay about $63,000 to his attorneys, the IRS, and the Wisconsin Department of Revenue, leaving nothing for those holding unsecured claims of almost $120,000, which, according to Panos's bankruptcy petition, included Commerce. On January 10, 2013, twelve days before a scheduled hearing on Commerce's objection to the plan, Panos dismissed the case.
Four days later, Commerce moved the state court, pursuant to Wis. Stat. §806.02, for a $31,843.98 default judgment against DeWitt for purportedly failing to answer the garnishment complaint within the 20 days afforded by Wis. Stat. §812.11. DeWitt objected to the motion on January 15, contending that 11 U.S.C. §108(c), which generally extends the time to commence or continue non-bankruptcy proceedings on a claim against the debtor until 30 days after the bankruptcy stay is terminated, afforded it additional time to answer. On the same day, the state court scheduled a hearing on Commerce's default motion for January 28.
Three days before the scheduled hearing, DeWitt, on its own behalf, filed an answer to the garnishment complaint, pleading that it neither possessed nor controlled Panos's property and that it was not indebted to Panos. DeWitt specifically averred:
(CM-ECF No. 17, 17-1, 40.) On the same day, Commerce filed a reply in support of its default judgment motion. Commerce argued that (1) §362(a) did not stay DeWitt'sobligation to answer Commerce's garnishment complaint, and (2) §108(c) did not apply to Commerce's garnishment claim against DeWitt. Commerce restated its request that "[t]he motion for default should be granted and the requested judgment entered against garnishee", i.e., DeWitt. (Id. at 35.)
The state court rescheduled the hearing on Commerce's default motion for February 22. And, on February 1, Commerce filed a motion to strike DeWitt's answer as untimely. In a supporting affidavit, Commerce's counsel contended, "according to Wisconsin law, by fil[]ing an untimely answer, Garnishee is liable to plaintiff for plaintiff's entire judgment entered against the debtor, plus the costs of this action." (Id. at 31.)
On February 6, Panos, represented by DeWitt, commenced this Chapter 7 case. The following day, DeWitt told both the state court and Commerce about Panos's new bankruptcy proceeding. DeWitt also asked Commerce to cancel the default judgment hearing scheduled for February 22. Commerce refused.
Panos then moved this Court for sanctions against Commerce, alleging that Commerce's refusal to cancel the February 22 hearing violated the automatic stay. On the same day, February 19, DeWitt filed a further response in state court opposing Commerce's default judgment motion on grounds that duplicated the arguments made in this Court. On February 21, the state court dismissed Commerce's action without prejudice and directed that the (Id. at 1.)
On March 8, the bankruptcy stay terminated by operation of 11 U.S.C. §362(c)(3)(A). Panos, who, as explained above, had a prior Chapter 13 case dismissed within one year of commencing this case under Chapter 7, failed to make a timely request to extend the stay upon proof that he filed in good faith. See 11 U.S.C. §362(c)(3)(B).
While Commerce is now unrestrained by §362(a), Panos presses on with his request that this Court sanction Commerce for violating the automatic stay during its 30-day existence. Panos argues that once he filed for bankruptcy, §362(a) required Commerce to take affirmative steps to ensure that its garnishment action against DeWitt proceeded no further.
Panos's sanctions motion raises two preliminary questions. First, Panos moves for "an award of all costs and fees incurred by Panos defending the Case subsequent to the filing of the bankruptcy petition in this Case." (CM-ECF No. 7, 3.) Given that the only post-bankruptcy state-court filings DeWitt made were on its own behalf, one wonders what costs and fees Panos incurred defending that case. See 11 U.S.C. §362(k) (). Panos also seeks punitive damages. But §362(k) may be understood to authorize an award of punitive damages only to individuals actually injured by a stay violation, see McHenry v. Key Bank (In re McHenry), 179 B.R. 165, 168-69 (B.A.P. 9th Cir. 1995), and, in all events, Commerce's do-nothing response to Panos's bankruptcy would not warrant punitive damages.
Second, Panos's claim that Commerce violated the automatic stay depends on §362(a) creating an affirmative duty to act: Again, after Panos filed for bankruptcy on February 6, Commerce did nothing other than refuse a demand that it cancel an upcoming motion hearing. As a matter of first principles, one might wonder where in §362(a) Panos finds this duty. By its terms §362(a) stays—that is, prohibits—the performance of a variety of acts to collect pre-petition debts. Even §362(a)'s prohibitions on the continuation of proceedings and enforcement of judgments seem most naturally limited to stopping acts that seek relief against the debtor or are undertaken to control property of the debtor or his bankruptcy estate. Compare Bank of Am. v. Johnson (In re Johnson), 479 B.R. 159, 170 (Bankr. N.D. Ga. 2012) (). Idly awaiting a hearing that was scheduled before the bankruptcy case began is less than a perfect fit with §362(a)'s text. Even if no one had attempted to cancel the hearing, the state court simply could have decided for itself whether §362(a) enjoined the adjudication of Commerce's motion. See NLRB v. Edward Cooper Painting, Inc., 804 F.2d 934, 939 (6th Cir. 1986); Wisconsin v. Weller (In re Weller), 189 B.R. 467, 471 (Bankr. E.D. Wis. 1995); GMAC Mortg. Corp. of Pa. v. Gisvold, 572 N.W.2d 466, 473 (Wis. 1998).
But Commerce makes nothing of these issues. It does not oppose the motion based on a lack of injury to Panos. And it concedes that if its state-court motion had sought relief against Panos or estate property, §362(a) would have required it to take steps to halt the motion hearing. (CM-ECF No. 18, Audio Attach, at 1:05:06-1:07:35, 1:14:11-1:15:36.) The preliminary questions, therefore, can be left unanswered.
Commerce argues that its motion for default judgment did not violate §362(a) because the motion sought relief from DeWitt, rather than from Panos or his bankruptcy estate. While Panos is a defendant in the action in which Commerce moved for a default judgment (Commerce filed its garnishment complaint against DeWitt in an action it had previously commenced against Panos), that fact is insufficient to make the stay applicable to proceedings seeking relief against DeWitt. See Pitts v. Unarco Indus., Inc., 698 F.2d 313, 314-15 (7th Cir. 1983).
Panos, however, contends that Commerce cannot press on against DeWitt because its alleged liability is premised solely on an allegation that it is either indebted to Panos or holds his non-exempt property. Panos relies on several cases holding that §362(a) stays garnishment actions seeking to collect pre-petition debts from non-debtors who are indebted to the debtor or hold the debtor's property. But most of these casesare ones in which creditors sought to use post-petition garnishment proceedings to recover pre-petition debts from debtors or their estates. See, e.g., In re Russell, 441 B.R. 859, 861 (Bankr. N.D. Ohio 2010); Myers v. Miracle Fin., Inc. (In re Myers), 402 B.R. 370, 371 (Bankr. M.D. Ala. 2009); Chase Lumber & Fuel Co. v. Koch (In re Koch), 197 B.R. 654, 656 (Bankr. W.D. Wis. 1996); Franchise Tax Bd. v. Roberts (In re Roberts), 175 B.R. 339, 341-42 (B.A.P. 9th Cir. 1994); O'Connor v. Methodist Hosp. of Jonesboro, Inc. (In re O'Connor), 42 B.R. 390, 391 (Bankr. E.D. Ark. 1984).
That's not this case. The relief sought by Commerce's default judgment motion, the hearing on which Panos insists §362(a) required...
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