In re Ritchey

• Decision Date: 24 June 2014
• Docket Number: No. 10–36149.,10–36149.
• Citation: 512 B.R. 847
• Parties: In re William C. RITCHEY, Donna M. Ritchey, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Texas

512 B.R. 847

In re William C. RITCHEY, Donna M. Ritchey, Debtors.

No. 10–36149.

United States Bankruptcy Court,

S.D. Texas,

Houston Division.

Signed June 24, 2014.

Reese W. Baker, Patrick Joseph Gilpin, Jr., Baker & Associates, Houston, TX, for Debtors.

FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING THE DEBTORS' MOTION FOR CONTEMPT AND SANCTIONS

AGAINST DUCTWORKS, INC.¹ AND PATRICK DOZARK FOR VIOLATION OF THE DISCHARGE INJUNCTION FOR COLLECTION OF DEBT

[Doc. No. 34]

JEFF BOHM, Chief Judge.

I. Introduction

On October 3, 2013, William C. Ritchey and Donna M. Ritchey (the Debtors) filed their Motion for Contempt and Sanctions Against Ductworks, Inc. and Patrick Dozark for Violation of the Discharge Injunction for Collection of Debt (the Sanctions Motion).² [Doc. No. 34]. On October 24, 2013, Ductwork, Inc. (Ductwork) filed a response opposing the Sanctions Motion. [Doc. No. 36]. On November 19, 2013, January 28, 2014, January 30, 2014, and February 4, 2014, the Court held hearings on the Sanctions Motion during which testimony was adduced and exhibits were introduced. At the close of the hearing, the Court took the matter under advisement. On March 16, 2014, Ductwork filed a Bibliography of Legal Authorities. [Doc. No. 54]. On April 15, 2014, the Debtors filed a Response and Brief on Case Issues. [Doc. No. 55].

The Court now makes the following Findings of Fact and Conclusions of Law under Federal Rule of Civil Procedure 52, as incorporated into by Federal Rules of Bankruptcy Procedure 7052 and 9014.³ To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party. For the reasons set forth herein, the Court grants in part and denies in part the Sanctions Motion.

II. Findings of Fact

The relevant facts—as established by the pleadings, admitted exhibits, testimony of the witnesses, and stipulations of the parties—are as follows:

1. On July 10, 2009, William C. Ritchey (Mr. Ritchey)—one of the Debtors in this Chapter 7 case—signed a promissory note wherein he promised to pay $24,947.00 to Ductwork, payable in equal monthly installments until the balance, inclusive of interest and fees, was paid in full (the Note). [Ductwork's Ex. No. 3; Doc. No. 34, p. 2, ¶ 7; Doc. No. 36, p. 4, ¶ 14].

2. Mr. Ritchey defaulted on the Note prior to July 23, 2010. [Doc. No. 34, p. 2, ¶ 8; Doc. No. 36, p. 4, ¶ 15].

3. On July 23, 2010, the Debtors filed a Chapter 7 petition. [Doc. No. 1].

4. The Debtors failed to list Ductwork on their List of Creditors, and they also failed to list Ductwork and the Note on their Schedule F. [Doc. No. 1, pp. 20–28 & 51–58]. Therefore, Ductwork did not receive notice of the Debtors' case at this time.

5. On October 26, 2010, this Court issued an Order granting the Debtors a discharge (the Discharge Order). [Doc. No. 15]. On this same day, the case was closed. [Doc. No. 16].

6. On March 12, 2013—almost two and a half years after the Debtors received their discharge—counsel for Ductwork, Patrick F. Dozark (Dozark), filed an original petition on Ductwork's behalf in the Harris County Civil Court of Law No. 4 against Mr. Ritchey to recover the amount owed under the Note (the State Court Petition). This suit was assigned Cause No. 1028972 (the State Court Lawsuit). [Debtors' Ex. No. 1; Ductwork's Ex. No. 6].

7. In the State Court Petition, Dozark, as counsel for Ductwork, referenced the Debtors' bankruptcy discharge on October 26, 2010, as a possible defense to the State Court Lawsuit. [Debtors' Ex. No. 1, p. 3; Ductwork's Ex. No. 6, p. 3]. Further, Grady Gordon Nixon (Nixon), the owner of Ductwork, knew about the Debtors' bankruptcy case by November of 2010. [January 28, 2014 Tr. 68:4–8]. Indeed, Dozark had provided Nixon with a copy of the Discharge Order. [ Id. at 70:10–11]. Dozark informed Nixon that Ductwork could file the State Court Lawsuit to collect the Note because the Debtors had not scheduled either the Note or Ductwork in their bankruptcy; and Nixon relied upon Dozark's advice.⁴ [ Id. at 69:23–70:3; February 4, 2014 Tr. 14:2–6].

8. Therefore, by its own admission, Ductwork was aware of the Debtors' Chapter 7 case, and the Discharge Order, prior to the filing of the State Court Petition on March 12, 2013. [January 28, 2014 Tr. 71:3–7].

9. Ductwork also alleged in the State Court Petition that the Note was not discharged in the Debtors' Chapter 7 case because it was unscheduled, and that the Debtors' failure to schedule the Note was due to intentional design, fraud, or improper motive, and not inadvertence or negligence. [Debtors' Ex. No. 1, p. 4; Ductwork's Ex. No. 6, p. 4].

10. The Debtors did not file an answer in the State Court Lawsuit. [January 28, 2014 Tr. 42:16–18].

11. On April 5, 2013, the Debtors retained Baker & Associates (the Baker Firm) and paid the Baker Firm a $1,250.00 retainer. [January 28, 2014 Tr. 9:23–10:1; Debtors' Ex. No. 11].

12. On April 17, 2013, the Debtors moved to reopen their Chapter 7 case (the Motion to Reopen) to permit removal of the State Court Lawsuit to this Court, and to allow the Debtors to seek recovery of their reasonable attorneys' fees and costs from Ductwork for its violation of the Discharge Order. [Doc. No. 20].

13. On April 25, 2013, the Debtors filed an Emergency Motion for Hearing Regarding Debtors' Motion to Reopen (the Motion for Hearing). [Doc. No. 22]. On April 29, 2013, this Court granted the Motion for Hearing. [Doc. No. 24].

14. On May 2, 2013, this Court held a hearing on the Motion to Reopen. The Debtors and their attorney, Reese Baker (Mr. Baker), appeared, and both of the Debtors gave testimony in support of the Motion to Reopen. William Weber, an attorney in Houston, made a limited appearance on behalf of Ductwork. Further, Dozark appeared on behalf of Ductwork. Neither Mr. Weber nor Dozark called any witnesses or introduced any exhibits on behalf of Ductwork at this hearing. After both parties rested, this Court continued the hearing to May 28, 2013 so that each counsel could have time to prepare for closing arguments.

15. On May 24, 2013, the Debtors filed a Brief in Support of the Motion to Reopen (the Brief). [Doc. No. 28]. On May 28, 2013, the Debtors filed a Supplement to the Brief (the Supplement). [Doc. No. 29].

16. On May 28, 2013, Mr. Baker and Dozark appeared in court to make closing arguments on the Motion to Reopen.⁵ The Court then took the matter under advisement, and on June 18, 2013, issued a Memorandum Opinion on the Motion to Reopen [Doc. No. 30], and an Order Granting the Motion to Reopen [Doc. No. 31]. The Memorandum Opinion expressly set forth that because the Debtors had met their burden in showing that their failure to list Ductwork on their Schedules was inadvertent, and because Ductwork “presented no evidence to advance its assertion of mal-intent on the part of the Debtors,” the Note was discharged. [Doc. No. 30, p. 14]. Ductwork did not appeal the Order Granting the Motion to Reopen.

17. On June 26, 2013, Dozark filed a Motion for Non–Suit with Prejudice in the Harris County Civil Court [Ductwork's Ex. No. 7, pp. 3–5], and the State Court Lawsuit was dismissed on July 1, 2013. [Id at p. 6; Ductwork's Ex. No. 8; Doc. No. 34, p. 3, ¶ 14; Doc. No. 36, p. 4, ¶ 21].

18. On August 14, 2013, Patrick J. Gilpin, Jr. (Gilpin), one of the attorneys representing the Debtors, sent a letter to Ductwork and Dozark offering a settlement. [Debtors' Ex. No. 10]. Even though Dozark had non-suited the State Court Lawsuit, he did not do so until July 1, 2013, and the Debtors had spent substantial time and attorneys' fees up to that point fending off Dozark's attempts on behalf of Ductwork to collect the balance owed under the Note. In his letter, Gilpin stated that the Debtors had authorized the Baker Firm to file the Sanctions Motion, but that the Debtors were willing to resolve the matter without filing the Sanctions Motion if Ductwork and Dozark accepted the settlement offer. [ Id.]. Gilpin's letter expressly set forth that the offer would expire on Friday,August 16, 2013, at 5:00 p.m. [ Id.]. Counsel for the Debtors never received a response from Ductwork or Dozark either accepting the settlement offer or making a counter-offer. [Doc. No. 34, p. 3, ¶ 15].

19. On October 3, 2013, the Debtors filed the Sanctions Motion. [Doc. No. 34]. In the Sanctions Motion, the Debtors request actual damages, injunctive relief, punitive sanctions, and attorneys' fees and costs for Ductwork's violation of the Discharge Order. [ Id. at pp. 4–5, ¶ 26].

20. On October 24, 2013, Ductwork filed a response opposing the Sanctions Motion. [Doc. No. 36].

21. The Court held a multi-day hearing on the Sanctions Motion on November 19, 2013, January 28, 2014, January 30, 2014, and February 4, 2014.

22. At the hearing on the Sanctions Motion, the Baker Firm submitted an exhibit containing an invoice totaling $21,684.34 (the Baker Firm's Invoice). [Debtors' Ex. No. 6]. The Court admitted this exhibit, and Mr. Baker testified about the services rendered by the Baker Firm on behalf of the Debtors in prosecuting the Motion to Reopen and the Sanctions Motion. Additionally, Mr. Ritchey testified about the damages that his wife and he have incurred as a result of Ductwork's prosecuting the State Court Lawsuit and as a result of the Baker Firm's having to prosecute the Motion to Reopen and the Sanctions Motion.

III. Credibility of Witnesses

Five people testified at the hearings on the Sanctions Motion: (1) William Ritchey; (2) Reese Baker (counsel for the Debtors); (3) Grady Gordon Nixon (the owner of Ductwork); (4) Patrick Dozark (counsel for Ductwork in the State Court Lawsuit and the Motion to Reopen); and Robert L. Negrin (counsel for Ductwork who defended against the Sanctions...