In re Payne
| Decision Date | 22 March 2021 |
| Docket Number | 20-30524-KLP |
| Parties | In re: Cheryl Cibula Payne, Debtor. |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
Debtor Cheryl Cibula Payne (the "Debtor") requested that the Court enter a Rule to Show Cause (the "Application") against respondents Thomas Clifford Payne, James M. Goff, II, ("Goff") and James M. Goff, II, P.C. ("Goff, P.C.) (collectively, the "Respondents") for their alleged violations of the automatic stay of § 362 of the Bankruptcy Code, 11 U.S.C. § 362 (). In particular, the Debtor complained of the Respondents' continuation of a divorce proceeding in the Circuit Court of Chesterfield County, Virginia (the "State Court"), styled Thomas Clifford Payne v. Cheryl Cibula Payne, Case No: CL16-2435 (the "Divorce Case"). Respondent Thomas Payne filed his response to the Application, to which the Debtor replied. A hearing on the Application was held on April 15, 2020.
At the hearing on the Application, the parties presented argument. The Respondents did not contest, either at the hearing or in pleadings submitted to the Court, the Debtor's assertion that the Respondents had proceeded in the State Court with knowledge of the pendency of the Debtor's bankruptcy case, but rather set forth what they argued were the reasons why their actions did not fall within the prohibitions of § 362. At the conclusion of the hearing, the Court announced that it would conduct an evidentiary hearing on the matter at a later date. On April 21, 2020, the Court issued its Order to Show Cause, directing the Respondents to appear on June 25, 2020, and "show cause why they should not be found to have violated the automatic stay of the Bankruptcy Code, 11 U.S.C. § 362, and why the Court should not impose sanctions therefor." ECF 33.
The scheduled June 25 evidentiary hearing (the "Show Cause Hearing") was continued to August 18, 2020. At the Show Cause Hearing, the Court heard the testimony of the Debtor and Respondent James M. Goff, II. After hearing testimony and admitting a number of exhibits into evidence, the Court took the matter under advisement. The Court directed the Debtor to submit documentation supporting her claim for attorney's fees.
Thereafter, on August 18, 2020, the Debtor filed her "Motion for Attorney's Fees" (the "Fee Motion"), seeking an award of $2,460 for fees "directly incurred in connection with the show cause proceeding," and an additional $840 for fees incurred in connection with the defense of a separate adversary proceeding (the "Adversary Proceeding"), for a total of $3300."1 Respondents James M. Goff, II, and James M. Goff, II, P.C., filed their response to the Fee Motion2 on August 26, 2020. The Court has carefullyreviewed the pleadings, evidence and arguments of counsel submitted in this matter and makes the following Findings of Fact and Conclusions of Law.3
The Court has jurisdiction in this matter pursuant to 28 U.S.C §§ 157(b)(1) and 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A,O).
The Debtor filed a petition under chapter 13 (the "Petition") in this Court on January 31, 2020. At the time the Petition was filed and prior thereto, the Debtor's ex-husband Thomas Clifford Payne was represented by James M. Goff, II, and James M. Goff, II, P.C., in the Divorce Case. On January 15, 2020, prior to the January 31, 2020, filing of the Petition, the State Court entered a final decree in the Divorce Case.
In response to the Debtor's bankruptcy filing, on February 5, 2020, Thomas Clifford Payne, by James M. Goff, II, and James M. Goff, II, P.C., filed several documents in the Divorce Case, including a Motion to Stay (the "Stay Motion"), a Motion to Rehear and Reconsider (the "Motion to Rehear"), and an Amended Motion to Rehear and Reconsider ("the Amended Motion") (collectively, the "State Court Motions"). Respondents maintain that the purpose of the Stay Motion was to prevent the expiration of the State Court's jurisdiction due to the Debtor's bankruptcy and to address her alleged failureto disclose the existence of a bank account during the divorce litigation. The stated purpose of the Motion to Rehear and the Amended Motion was to have the State Court rehear and reconsider issues of equitable distribution in light of the Debtor's bankruptcy filing. Respondents neither sought nor obtained stay relief from this Court prior to filing the State Court Motions.
At the Show Cause Hearing, the Debtor testified that the Respondents' post-bankruptcy actions in State Court caused her to suffer significant emotional distress. The Debtor had been under a great deal of stress for various reasons at the time the State Court Motions were filed. It is unclear from the record exactly how much the State Court Filings contributed to the distress that the Debtor was suffering. The Debtor's mother had died, her father had undergone surgery after a suffering a heart attack, she had two special needs children she was home-schooling, she had been going through a divorce, and she had just initiated bankruptcy proceedings. She had been prescribed medication and had received counseling. However, records submitted show that her medication regimen was commenced prior to the filing of the State Court Motions. She did not offer documentary evidence that supported any claim for expenses incurred for medical or psychological care directly as a result of the State Court Motions.
The Debtor incurred attorney's fees in the amount of $2460 in connection with these show cause proceedings. She incurred $840 in attorney's fees for services rendered in the Adversary Proceeding. The Debtorwas represented in the Divorce Case by attorney Jay Paul, and she paid him $90 for services rendered in connection with the State Court Motions.
Liability: § 362(a)(1) of the Bankruptcy Code prohibits:
the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the [bankruptcy] case . . . .
11 U.S.C. § 362(a)(1). The law in the Fourth Circuit interpreting § 362 and a debtor's entitlement to damages from a creditor pursuant to that section is discussed fully in In re Seaton, 462 B.R. 582 (Bankr. E.D. Va. 2011). The test, as set forth in Seaton, is that to recover damages for the violation of the automatic stay, a debtor must prove that (1) the creditor committed an act that violated the stay, (2) the act was willful, and (3) the debtor suffered damages as a result. Id. at 591.
A willful violation occurs when the creditor knows or is charged with knowledge of the stay and commits an intentional act in violation of the stay. Id. at 592-93. A willful violation does not require a specific intent to violate the stay but only to deliberately undertake the act that violates the stay. Scott v. Wells Fargo Home Mortg., Inc., 326 F. Supp. 2d 709, 718 (E.D. Va.), aff'd sub nom. Scott v. Wells Fargo & Co., 67 F. App'x 238 (4th Cir. 2003). Willfulness in the context of § 362(k) must be demonstrated by clear and convincing evidence. Skillforce, Inc., v. Hafer, 509 B.R. 523, 529 (E.D. Va.2014); In re Sheets, No. 12-31723-KLP, 2014 WL 4831339, at *3 (Bankr. E.D. Va. Sept. 29, 2014).
In light of the explicit language of § 362(a)(1) that specifically prohibits the "continuation . . . of a judicial . . . proceeding against the debtor that was or could have been commenced before the commencement of a case," it is difficult, if not impossible, to see how the Respondents could have legitimately believed that filing the Motion to Rehear in State Court for the purpose of enhancing a potential recovery against the debtor was not a violation of the automatic stay. A prudent party would feel compelled to respond to the State Court Motions, the exact concern that the automatic stay is designed to alleviate.4
By their own admission, Respondents continued to pursue the Divorce Case in the State Court despite their actual, direct knowledge of the Debtor's bankruptcy filing. The actions taken by Respondents were intentional and willful. Despite Respondents' contention that the actions were intended to preserve the status quo in State Court, the Court finds that Respondents' actions in filing the State Court Motions, particularly the Motion to Rehear and the Amended Motion, went beyond the preservation of the status quo andamounted to a prohibited continuation of a judicial action against the debtor that had been commenced against the Debtor before the Petition was filed or to recover a claim against the debtor that arose before the commencement of the case, thus violating § 362(a)(1).5
The Court notes that no evidence was offered by the Respondents to distinguish between the acts of Thomas Payne as opposed to those of Goff andGoff, PC. Nevertheless, it is clear that Goff, PC, and its principal, Goff, proceeded in State Court in direct violation of § 362(a)(1). That they were purportedly acting on behalf of Thomas Payne does not insulate them from liability for their own violations.6 See, e.g., Wohleber v. Skurko (In re Wohleber), 596 B.R. 554 (B.A.P. 6th Cir. 2019), appeal dismissed 833 F. App'x 634 (6th Cir. 2020) (); Valentine v. Valentine (In re Valentine), 611 B.R. 622 (Bankr. E.D. Mo. 2020).
Damages: Section 362(k)(1) provides 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." Actual damages include those actually incurred by the debtor, Skillforce, 509 B.R. at 534. The injured debtor has the burden of proof to establish actual damages. Seaton, 462...
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