In re Sehman
| Decision Date | 23 February 2022 |
| Docket Number | 21-30141-KKS |
| Parties | IN RE: CHRISTOPHER SCOTT SEHMAN Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Florida |
CHAPTER 11
SUBCHAPTER V
ORDER DENYING MOTION FOR R ELIEF FROM ORDER GRANTING DEBTOR'S MOTION FOR SAN CTIONS FOR VIOLATION OF THE AUTOMATIC STAY AND RELATED FINDINGS OF FACT AND CONCLUSIONS OF LAW (ECF NO. 123)
Currently before the Court is the second of two motions (“Second Relief Motion”)[1] filed by 4 Dakota Ventures, LLC (“4 Dakota”), seeking relief from orders of this Court. In the Second Relief Motion, 4 Dakota asserts that the Court made a fundamental error of law in ruling that 4 Dakota willfully violated the automatic stay and should be sanctioned under 11 U.S.C. § 362(k)(1).[2] Debtor opposes the Second Relief Motion.[3] The Court held a hearing on November 17, 2021, at which counsel for all parties appeared.
Having carefully reviewed the record, the parties' written and oral arguments, and applicable statutory and case law, for the reasons set forth below the Court has determined that its prior ruling is correct, and the Second Relief Motion is due to be denied.
In prior rulings this Court thoroughly described the disputes between Debtor, [4] Dakota, and William T. Schweizer (“Schweizer”) and the ensuing, ongoing litigation in the District Court Action, the Schweizer Lawsuit, and this Bankruptcy Case.4 The facts most relevant to the instant ruling are:[5]
In January of 2021, the district court entered an order in the District Court Action “granting execution upon” the Schweizer Lawsuit and containing language assigning the Schweizer Lawsuit to 4 Dakota (“Assignment Order”).[6] With the Assignment Order in hand, 4 Dakota filed a motion in the Schweizer Lawsuit to substitute itself as plaintiff in place of Debtor (“Motion to Substitute”).
On Friday, March 5, 2021, in the Schweizer Lawsuit, the state court held a hearing on 4 Dakota's Motion to Substitute and took that matter under advisement. Two (2) days later, on Sunday, March 7, Debtor filed a petition commencing this Bankruptcy Case. Debtor listed 4 Dakota and Schweizer on the creditor matrix filed with the petition. On Monday, March 8 Debtor's bankruptcy counsel filed suggestions of bankruptcy in the District Court Action and the Schweizer Lawsuit and served copies on 4 Dakota's counsel of record in those cases, Robert O. Beasley and DeWitt D. Clark, of Litvak Beasley Wilson & Ball, LLP (collectively the “Litvak Beasley attorneys”), who first appeared in this Bankruptcy Case on April 9, 2021.[7]
More than a month after Debtor filed and 4 Dakota had notice of this Bankruptcy Case, on Sunday, April 18, 2021, the judge presiding over the Schweizer Lawsuit requested the Litvak Beasley attorneys to submit an order granting the Motion to Substitute. Five (5) days later, on Friday, April 23, at 4:57 p.m., the Litvak Beasley attorneys submitted a proposed order granting the Motion to Substitute (“Substitution Order”).
The state court entered the Substitution Order on the docket in the Schweizer Lawsuit on Tuesday, April 27 at 1:08 p.m. At 1:30 p.m. the same day, Debtor's state court counsel called the state court judge's chambers and wrote the judge and the Litvak Beasley attorneys the following:
One of the Litvak Beasley attorneys emailed a reply one (1) minute later, stating: “I disagree, this order was purely ministerial as the hearing was held prior to the filing of bankruptcy.”[9]
Two (2) days later, on April 29, Debtor filed two (2) motions in this Bankruptcy Case: (1) an emergency motion to enforce the automatic stay (“Emergency Stay Motion”), [10] and (2) a motion for sanctions against Schweizer, 4 Dakota, and the Litvak Beasley attorneys for willful violation of the automatic stay (“Motion for Sanctions”).[11] After a hearing, in May of 2021 the Court granted Debtor's Emergency Stay Motion and ruled that (1) Debtor's bankruptcy estate has an interest in the Schweizer Lawsuit; (2) the submission of the Substitution Order was an act to obtain or exercise control over the Schweizer Lawsuit, in violation of 11 U.S.C. § 362(a)(3); and (3) the Substitution Order was void ab initio, having been entered in violation of the automatic stay.[12] In June of 2021, the Court granted Debtor's Motion for Sanctions and ruled that submitting the Substitution Order post-petition was a willful violation of the automatic stay (“Sanctions Order”).[13] The Court issued its findings of fact and conclusions of law in support of the Sanctions Order on August 10, 2021.[14] 4 Dakota, through new counsel, filed two (2) Rule 60(b) motions, including the instant Second Relief Motion.[15]
In the Second Relief Motion, 4 Dakota claims entitlement to relief under Rule 60(b)(1), Fed. R. Civ. P, which provides, in pertinent part:
Rule 60(b)(1) encompasses mistakes of fact as well as mistakes of law, including a federal judge's possible mistake in the application of the law.[17] Motions under Rule 60(b) are directed to the sound discretion of the Court.[18]
By challenging this Court's application of the law, 4 Dakota must show that this Court made an obvious legal error.[19] For the most part, 4 Dakota reiterates here the same argument advanced in its First Relief Motion: that Debtor did not have any interest in the Schweizer Lawsuit as of the petition date, so that “chose in action” was not § 541 property of the estate subject to the automatic stay. Based on that premise, which the Court has already rejected, [20] 4 Dakota argues that it is not subject to sanctions under § 362(k)(1) for willfully violating the automatic stay.
The Court properly determined that 4 Dakota willfully violated the automatic stay.
4 Dakota does not dispute the primary facts underlying the Court's ruling that it willfully violated the automatic stay. Those facts are that: 4 Dakota and the Litvak Beasley attorneys knew Debtor had commenced this Bankruptcy Case; knew the automatic stay went into effect when Debtor filed his Chapter 11 petition; knew that Debtor claimed an ownership intertest in the Schweizer Lawsuit; knew that the state court judge had not ruled on the Substitution Motion before Debtor filed bankruptcy; and submitted the Substitution Order to the state court anyway.
A debtor has the burden to prove that a stay violation was willful.[21] In the Eleventh Circuit, a violation of the automatic stay is willful if the offending party ‘‘(1) knew the automatic stay was invoked and (2) intended the actions which violated the stay.''[22] Once the offending party has actual knowledge of the bankruptcy case, it is deemed to have knowledge that the automatic stay is in place.[23] Specific intent to violate the automatic stay is not required for a showing of willfulness; it is sufficient that a party “intentionally committed the violative act.”[24]
A party violates the stay if it exercises control over property to which the debtor has even an arguable claim of right.[25] That violation rises to the level of willful when the offending party knows about the debtor's bankruptcy case and knows, or should have known, that the bankruptcy court is available to determine whether the stay applies, but nevertheless deliberately takes action that violates the stay.[26]
4 Dakota attempts to excuse the post-petition submission of the Substitution Order in violation of the automatic stay by arguing that the district court's Assignment Order was proof that Debtor had no interest in the Schweizer Lawsuit.[27] This argument is disingenuous at best. Neither 4 Dakota nor the Litvak Beasley attorneys used this excuse when they submitted the Substitution Order to the state court judge. Nor did they insist at that time that the automatic stay did not apply or that Debtor had no interest in the Schweizer Lawsuit. Instead, when Debtor's state court counsel wrote that entry of the Substitution Order was a violation of the stay, 4 Dakota's and the Litvak Beasley attorneys' only response was that submission and issuance of the Substitution Order was “purely ministerial.”[28]
In support of its position that it did not willfully violate the automatic stay, 4 Dakota cites In re Daya Medicals, Inc.[29] 4 Dakota's reliance on Daya Medicals is misplaced; the ruling in Daya Medicals refutes 4 Dakota's position.
In Daya Medicals, the state court entered an order appointing a receiver over all the debtor's and its principals' intellectual property.[30] On notice of the debtor's bankruptcy and that the debtor claimed ownership of all intellectual property covered in the order including that owned by the principals, the receiver continued to demand that the principals assign all of their intellectual property to him.[31] The debtor filed an emergency motion with the bankruptcy court asserting, among other things, that the receiver's demands on the principals violated the automatic stay.[32] The receiver disagreed, arguing that because he was seeking an assignment of the principals' intellectual property, not the debtor's, his actions were not...
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