In re Webb

• Decision Date: 09 April 2012
• Docket Number: No. BAP 11–8016.,BAP 11–8016.
• Citation: 472 B.R. 665
• Parties: In re Jonathan M. WEBB, Debtor.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

472 B.R. 665

In re Jonathan M. WEBB, Debtor.

No. BAP 11–8016.

United States Bankruptcy Appellate Panel for the Sixth Circuit.

Argued: Feb. 7, 2012.

Decided: April 9, 2012.

Argued: Harvey S. Morrison, Cleveland, OH, for Appellants. Kenneth J. Freeman, Cleveland, OH, for Appellee.

On Brief: Harvey S. Morrison, Cleveland, OH, for Appellants. Kenneth J. Freeman, Cleveland, OH, for Appellee.

Before: EMERSON, FULTON, and PRESTON, Bankruptcy Appellate Panel Judges.

OPINION

C. KATHRYN PRESTON, Bankruptcy Judge.

The appellants in this matter, Marilyn Polster and Richard D. Eisenberg (collectively “the Appellants”), appeal an order of the bankruptcy court entered February 4, 2011 (the “Sanctions Order”), imposing sanctions against them in the amount of $4405.23 for their willful violation of the automatic stay. The sanctions are based on an earlier order in which the bankruptcy court found the Appellants in contempt for continuing to prosecute a state-court foreclosure action against the Debtor's residence post-petition.

For the reasons that follow, we affirm the order of the bankruptcy court.

I. ISSUES ON APPEAL

The issues presented in this appeal are (1) whether the doctrine of lis pendens precluded the subject property from becoming part of the Debtor's bankruptcy estate such that the bankruptcy court should not have found the Appellants in contempt or imposed sanctions, and (2) whether the bankruptcy court's failure to conduct an evidentiary hearing on the issue of damages prior to awarding sanctions resulted in a denial of due process to the Appellants.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit (the “Panel”) has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the Panel and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted).

Although the bankruptcy court in this case originally found the Appellants in contempt on July 20, 2007, that order was not final until the sanctions were imposed on February 4, 2011. Wicheff v. Baumgart ( In re Wicheff ), 215 B.R. 839, 843 (6th Cir.BAP1998) (citing U.S. Abatement Corp. v. Mobil Exploration & Producing U.S., Inc. ( In re U.S. Abatement Corp.), 39 F.3d 563, 567 (5th Cir.1994) (“A civil contempt order is final when ‘(1) a finding of contempt is issued, and (2) a sanction is imposed.’ ”)). Consequently, the Sanctions Order completely resolved the contempt issues between the parties and made the order of contempt, as well as the imposition of sanctions, final and appealable. U.S. Abatement Corp., 39 F.3d at 567;see also Mueller v. Hall ( In re Parker ), 2007 WL 1376081, at *1 (6th Cir.BAP2007). The notice of appeal filed by the Appellants on February 14, 2011, was, therefore, timely.

“The sanction or remedy imposed by the bankruptcy court for violation of the automatic stay is reviewed for an abuse of discretion.” TranSouth Fin'l Corp. v. Sharon (In re Sharon ), 234 B.R. 676, 679 (6th Cir.BAP1999) (citing United States v. Mathews ( In re Mathews ), 209 B.R. 218 (6th Cir.BAP1997)). “An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard.” Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288 (6th Cir.BAP2008). Under this standard, the bankruptcy court's decision will only be disturbed if it “relied upon clearly erroneous findings of fact, improperly applied the governing law, or used an erroneous legal standard.” Elec. Workers Pension Trust Fund of Local Union # 58, IBEW v. Gary's Elec. Serv. Co., 340 F.3d 373, 378 (6th Cir.2003) (citing Blue Cross & Blue Shield Mut. v. Blue Cross & Blue Shield Ass'n, 110 F.3d 318, 322 (6th Cir.1997)); see also Mayor and City Council of Baltimore, Md. v. W. Va. (In re Eagle–Picher Indus., Inc.), 285 F.3d 522, 529 (6th Cir.2002) (“An abuse of discretion is defined as a ‘definite and firm conviction that the [court below] committed a clear error of judgment.” ’) “The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion.” Barlow v. M.J. Waterman & Assocs. Inc. ( In re M.J. Waterman & Assocs., Inc.), 227 F.3d 604, 608 (6th Cir.2000).

III. FACTS

Although the procedural history of this case is long and somewhat confusing, the facts are essentially undisputed. On June 13, 2003, Marilyn Polster and Edward Polster (collectively “Polsters”), obtained a state court judgment against the debtor, Jonathan M. Webb (“Debtor”), and his mother, Beverly J. Webb, jointly and severally, in the amount of $10,000. On June 20, 2003, the Polsters filed a certificate of judgment in the county records, thereby obtaining a judgment lien against real estate located at 902 Barkston Drive, Highland Heights, Ohio (“Barkston Property”) for the judgment amount. At the time the lien attached, the Barkston Property was titled solely in Beverly Webb's name.

The Polsters commenced an action to foreclose the judgment lien on the Barkston Property on September 12, 2003, and Beverly Webb was served with process on September 24, 2003. On August 9, 2006, Beverly Webb transferred the Barkston Property to the Debtor by Quitclaim deed. A Sheriff's sale was set for May 21, 2007; however, the Debtor filed his chapter 13 petition for bankruptcy relief that same day and the sale was cancelled.

The Debtor listed the Polsters' judgment lien on Schedule D and listed the Polsters on his mailing matrix. The Polsters were served with notice of the Debtor's § 341 meeting of creditors by first class mail on June 10, 2007. On July 5, 2007, they were served with a copy of the Debtor's proposed chapter 13 plan which provided for payment of the Polsters' lien in full. The Polsters do not deny having notice of the Debtor's bankruptcy filing.

At some point after the Debtor filed his bankruptcy petition, Marilyn Polster's (“Polster”) attorney, Richard D. Eisenberg (“Eisenberg”),¹ filed a motion with the state court to reset the Sheriff's sale of the Barkston Property. Eisenberg filed the motion without seeking or obtaining relief from automatic stay. The Debtor's attorney sent a letter to Eisenberg on June 22, 2007, notifying him that moving to have the sale reset violated the automatic stay. On July 13, 2007, the Debtor received notice that the Sheriff's sale had been reset for July 23, 2007.

On July 17, 2007, the Debtor filed an emergency motion requesting the bankruptcy court to hold Polster and Eisenberg in contempt for violating the automatic stay and for an order enjoining the Sheriff's sale (“Contempt Motion”).² The Debtor asked the bankruptcy court to impose $2500 in compensatory damages, $1925 in attorneys fees and $12,500 in punitive damages as sanctions against the Appellants for their violation of the automatic stay. In support of his request for $1925 in attorneys fees, the Debtor attached an itemized billing statement from his attorney for all services rendered as of July 17, 2007.

Webb filed a notice of hearing on July 17, 2007, which stated that a hearing on his Contempt Motion would be held on July 19, 2007 (the “Contempt Hearing”). According to the certificate of service, this notice was served on the Appellants. The Appellants filed a response to the Debtor's Contempt Motion, in which they alleged the automatic stay did not apply to the Barkston Property because the Barkston Property was not property of the estate by virtue of the Ohio lis pendens statute.

The Appellants seemed to vacillate between two main theories to support their position that the Barkston Property was not property of the estate. First, the Appellants argued that because the Polsters had already recorded their lien against the property and commenced the foreclosure action, Beverly Webb had no interest in the Barkston Property at the time she conveyed it to the Debtor. Consequently, according to the Appellants, the Debtor had no interest in the property when he filed his bankruptcy petition:

[Beverly Webb] could only convey that which she had. As of the date of transfer, under the rule of lis pendens the Polster lien was absolute and a third party could not acquire a superior interest and took subject to it. § 2703.26 Ohio Revised Code. By analogy, if Mrs. Webb had conveyed the Terminal Tower ³ to the Debtor, it would be as much a part of the bankruptcy estate as the interest presently being foreclosed in the Cuyahoga Common Pleas Court.

“Mem. Contra to the Emergency Mot. of Jonathan M. Webb for Order of Contempt and Further Orders” at 3, Bankr.Case No. 07–13703, ECF No. 24; see also July 19, 2007 Tr. of Contempt Hr'g at 14, Bankr.Case No. 07–13703, ECF No. 115. The Appellants then seemed to abandon this argument and instead asserted that, regardless of whether the debtor had any legal or equitable interest in the property, the doctrine of lis pendens prohibited the property from becoming part of the bankruptcy estate:

Your Honor, on October 4th, 2000, Judge Speer ruled in the case of [In re Ochmanek, 266 B.R. 114 (Bankr.N.D.Ohio 2000) ] that lis pendens precluded an asset from coming into the bankruptcy case.

July 19, 2007 Tr. of Contempt Hr'g at 17, Bankr.Case No. 07–13703, ECF No. 115.

The Appellants closed their response with the bare statement: “AN EVIDENTIARY HEARING IS REQUESTED.” Despite this request, the Appellants failed to make any allegation as to how...