Mansker v. Diversified Adjustment Serv., Inc.

Decision Date07 July 2017
Docket NumberCase No. 17 C 2064
CourtU.S. District Court — Northern District of Illinois

Judge Harry D. Leinenweber


For the reasons stated herein, the Defendant Diversified Adjustment Service, Inc., Partial Motion to Dismiss [ECF No. 21] is granted. Count IV of the Complaint is hereby dismissed without prejudice.


Plaintiff Roy Bernard Mansker ("Mansker") brings this lawsuit against Defendant Diversified Adjustment Service, Inc. ("Diversified"), alleging that the company violated the Fair Debt Collection Practices Act ("FDCPA"), the Telephone Consumer Protection Act ("TCPA"), and the automatic stay provision of the Bankruptcy Code when it attempted to collect a $927.23 debt from him. Mansker initially sued another party alongside Diversified but has since settled with that defendant. As a result of this settlement and a voluntary dismissal of a state-law claim, Mansker's suit is now a three-count, one-Defendant action. Only Count IV - that for violation of the automatic stay - is the subject of the current Motion to Dismiss.

The automatic stay is a provision of the Bankruptcy Code that, as its name suggests, operates automatically upon a debtor filing for bankruptcy to stay (among other things) the collection of debts incurred before the filing. See, 11 U.S.C. § 362(a)(6) (specifying that a bankruptcy petition "operates as a stay, applicable to all entities, of - any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title"). Another section of the Bankruptcy Code, 11 U.S.C. § 362(k)(1), punishes violations of § 362(a)(6) by providing 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." Mansker brings a claim under 11 U.S.C. § 362(k)(1), seeking all damages permitted under the section.

The claim is made possible by Mansker's bankruptcy, filed in February 2016, or more than a year before he brought suit in this court. See, In re Mansker, No. 16-BR-06972, Dkt. No. 1 (N.D. Ill. Feb. 29, 2016). As of the date of this writing, the bankruptcy is still ongoing, meaning that Mansker has yet toreceive a discharge from bankruptcy and the case has yet to close. Not incidentally, Mansker is represented by the same law firm in both the pending bankruptcy matter and the case before the Court.

The parties do not dispute these facts. What they contest is whether the Court has subject matter jurisdiction to hear the claim. Diversified argues that the Court does not, as the bankruptcy court exercises exclusive jurisdiction in the matter, and so moves to dismiss under FED. R. CIV. P. 12(b)(1).


The Court concludes that it should grant Diversified the relief the company seeks and dismiss Count IV of the Complaint. This is because the claim has been referred to the bankruptcy court by operation of the local rules, and the Court declines to withdraw that reference to keep the cause of action before it. For the Court to make this ruling, however, it first needs to assure itself that, contrary to what Diversified has argued, it has subject matter jurisdiction over the claim.

A. Sujbect Matter Jurisdiction

Although its argument ultimately fails, Diversified has plausible grounds for asserting that Mansker's claim "must be brought in the bankruptcy court." E. Equip. & Servs. Corp. v. Factory Point Nat'l Bank, 236 F.3d 117, 121 (2d Cir. 2001)(emphasis in original). The Second Circuit has said as much, holding that "a federal claim under 11 U.S.C. § 362(h) . . . must be brought in the bankruptcy court, rather than in the district court, which only has appellate jurisdiction over bankruptcy cases." Id. (The Court notes that some older cases referred to 11 U.S.C. § 362(h) when they discussed the cause of action now found at 11 U.S.C. § 362(k)(1). The subsections were renumbered in 2005, but the statutory text did not otherwise change. Compare, U.S.C. § 362 (2004), with id. (2005).) In addition, at least one bankruptcy court in this district has echoed Eastern Equipment. See, In re Benalcazar, 283 B.R. 514, 522 (Bankr. N.D. Ill. 2002) ("Although there are not many decisions dealing with the subject, it is generally accepted that only the bankruptcy court has authority to punish parties for violating the automatic stay.").

The issue, however, is one that has divided the circuits. In particular, both the Fourth and Eleventh Circuits have expressly disagreed with the Second Circuit's Eastern Equipment decision, while the Sixth Circuit, in an unpublished opinion, cited the case with approval. See, Massey v. Bank of Edmondson Cty., 49 F. App'x 604, 606 (6th Cir. 2002) (relying on Eastern Equipment to affirm the district court's finding of lack of jurisdiction); see also, Lynch v. Bulman, No. 06-1018, 2007 U.S.App. LEXIS 24210, at *7 n.5 (10th Cir. Oct. 15, 2007) (choosing "to affirm on a different basis" to avoid wading in on the circuit split).

The Eleventh Circuit issued the earlier of the two appellate decisions disagreeing with Eastern Equipment. In Justice Cometh, Ltd. v. Lambert, 426 F.3d 1342, 1343 n.2 (11th Cir. 2005), the Eleventh Circuit noted that Eastern Equipment "provides no explanation as to why [28 U.S.C.] § 1334 would not apply" to allow the district court to exercise jurisdiction. After all, 28 U.S.C. § 1334 gives the district court original jurisdiction over all cases "under Title 11," "arising under Title 11," or "arising in or related to cases under Title 11," see, 28 U.S.C. § 1334(a)-(b), and a claim alleging violation of the automatic stay arises in Title 11. See, 11 U.S.C. § 362.

The Eleventh Circuit ultimately held that the district court has jurisdiction over such claims. As the court stated, "the explicit § 1334 grant of original jurisdiction over Title 11 cases clearly forecloses a conclusion that the district court lacked subject matter jurisdiction." Justice Cometh, 426 F.3d at 1343. Significantly, the court cited Price v. Rochford, 947 F.2d 829, 832 n.1 (7th Cir. 1991), in support of its holding.

This is for good reason. The footnote from Price is the clearest indication from the Seventh Circuit that a districtcourt has subject matter jurisdiction over a claimed violation of an automatic stay. While the court had touched on the issue in an earlier opinion, it did not provide a definitive answer prior to Price. See, Martin-Trigona v. Champion Fed. Sav. & Loan Asso., 892 F.2d 575, 577 (7th Cir. 1989) ("Here no more than in Pettitt need we decide whether the case should have been referred to a bankruptcy judge."); see also, Pettitt v. Baker, 876 F.2d 456, 458 (5th Cir. 1989) ("In reaching the conclusion that 11 U.S.C. § 362(h) creates a private right of action, we express no opinion regarding whether the present action was brought in the proper forum [when it was filed in the district court.]"). In Price, the court was still reticent, confining all it had to say on the matter to a footnote. Nonetheless, the footnote is dispositive for the issue of jurisdiction in this case, and the Court quotes it in full:

A claim for damages under section 362(h) should probably have been referred to the bankruptcy court under Rule 35 of the United States District Court for the Central District of Illinois. Moreover, as a "core" proceeding, such a claim could be finally determined by a bankruptcy judge. 28 U.S.C. § 57(b)(2)(A) (1988); Barnett v. Stern, 909 F.2d 973, 981 (7th Cir. 1990) (proceeding is "core" if it invokes a substantive right provided by title 11) (citation omitted).
None of the parties have questioned the propriety of bringing the case in the district court, however, and the defect is not jurisdictional. 28 U.S.C. § 1334(a) (1988) (district courts have original jurisdiction ofall civil proceedings under the Bankruptcy Code). Moreover, after a bankruptcy is over, it may well be more appropriate to bring suit in district court, especially when other claims are attached.

Price, 947 F.2d at 832 n.1 (emphasis added).

The Seventh Circuit thus taught two things in this footnote: (1) a damages claim for a violation of the automatic stay should be referred to the bankruptcy court under the operation of the local rules; and (2) if, in error, it was not so referred, then still the failure is "not jurisdictional." Id. The first point is important for the discussion in the next section, and the Court puts it aside for now. But the second point is determinative for the question of subject matter jurisdiction here being examined. Succinctly put, the district court has jurisdiction - it may keep, hear, and adjudicate the claim to a final, appealable judgment even though the claim "should probably have been referred." Id. More fully, the district court has jurisdiction conferred by 28 U.S.C. § 1334(a) to hear a § 362(h) claim, and its jurisdiction is not divested merely because, by the operation of the local rules, the court should have referred the matter to a bankruptcy judge.

The Seventh Circuit's (admittedly submerged) holding from Price received full treatment in Houck v. Substitute Tr. Servs., 791 F.3d 473 (4th Cir. 2015). In Houck, the Fourth Circuit laidout the rationale for why an 11 U.S.C. § 362(k) claim can be heard in the district court. Like the Seventh Circuit in Price and the Eleventh Circuit in Justice Cometh, the court in Houck began with 28 U.S.C. § 1334, noting that the statute confers upon the district court the power to hear bankruptcy matters. Id. at 481. The court then took account of the fact that 28 U.S.C. § 157(a) permits district court judges to refer any such cases to bankruptcy judges of the same district. Id.; 28 U.S.C. § 157(a) ("Each district court may provide that any or all cases under title 11 and any or all...

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