Percy Squire v. Stringer, No. 19-3987
| Decision Date | 10 August 2020 |
| Docket Number | No. 19-3987,No. 19-3990 |
| Parties | PERCY SQUIRE, Plaintiff-Appellant, v. VICKIE STRINGER, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
CHAD A. READLER, Circuit Judge. In a bankruptcy proceeding, the automatic stay of collection activity plays a vital role in preserving the rights of debtors and creditors alike. See 11 U.S.C. § 362. For debtors, they gain a concentrated means for organizing their financial affairs. And for creditors, they gain a concentrated means for maximizing collection efforts. Here, the bankruptcy court found that Sterling Williams and his counsel Percy Squire (together, "Creditors") violated the automatic stay by unilaterally moving in state court to collect assets held by the debtor. Because Creditors offer no valid justification for their collection efforts, and because no other reversible error occurred below, we AFFIRM the judgment of the bankruptcy court.
Vickie Stringer authored an urban fiction novel based upon her life experiences in the late 1990s. Simon & Schuster later agreed to publish the novel. As part of the agreement, Simon & Schuster and Stringer agreed on a means for calculating royalty payments owed to Stringer based upon book sales. Experiencing sales success with her initial novel, Stringer continued to write, and Simon & Schuster continued to publish her writings. Over seventeen years, Stringer authored twelve novels under various pen names, all with Simon & Schuster. During that time, book royalties were Stringer's primary income.
Despite her publishing success, debt was a constant problem for Stringer. At one point, she engaged an accountant, Sterling Williams, to help her navigate an IRS audit. Williams eventually agreed to loan Stringer a considerable sum to settle her tax liability, a sum Stringer was to pay back with interest. When Stringer failed to do so, Williams filed suit against her in Ohio state court. Williams obtained a judgment against Stringer for $71,960.80, with eight percent annual interest, an amount equivalent to roughly $130,000 today. By that time, however, Stringer's collective debt to her creditors (including Williams) had ballooned to nearly $5,000,000.
Lacking the means to pay back her debt, Stringer filed for Chapter 7 bankruptcy protection. In her filing, Stringer disclosed her home, valuable personal property, and other assets. She also identified each of her publishing agreements as well as her entitlement to royalties for the books she wrote under aliases. Stringer correctly recorded that she was owed just over $3,200 in royalties from Simon & Schuster, including for the alias novels. Stringer, however, failed to identify those aliases in the proper place on the bankruptcy schedule.
Following Stringer's filing, the automatic stay was instituted under 11 U.S.C. § 362, and a Trustee was appointed to administer the bankruptcy estate. Stringer notified the Trustee of the royalties owed to her by Simon & Schuster. After concluding that the royalty agreements held little equity and were burdensome to the estate, the Trustee abandoned them to Stringer.
As Stringer's bankruptcy proceeding began to unfold, Williams engaged Percy Squire to represent him in the proceeding. On Williams's behalf, Squire filed in state court an affidavit andorder of garnishment, which sought to garnish the unpaid royalties from the "Simon & Schuster account belonging to Vickie Stringer." Due to that filing, along with subsequent communications from Squire threatening litigation, Simon & Schuster refused to release the royalties to Stringer. Stringer responded by filing in state court an emergency motion to release the garnishment. Upon learning of the pending bankruptcy proceeding, the state court promptly granted the release. The next day, Squire removed the state court garnishment action to the bankruptcy court.
Creditors' collection efforts prompted Stringer to file a motion in the bankruptcy court for Creditors to show cause why they should not be held in contempt for violating the automatic stay. At a hearing on the motion, Squire participated both as a party to the contempt motion and as counsel for his co-party, Williams. During direct examination by Stringer's counsel, Squire testified that he believed he was entitled to seek garnishment in state court because Stringer had not been entirely forthright during the bankruptcy process, most notably by excluding her pen names from her bankruptcy filings. Squire testified that these omissions coupled with Stringer's "hustler" background and two-decade-old criminal convictions gave him license to take action to protect Williams's interests. He also suggested that Stringer's pen names constituted separate entities from Stringer herself, but eventually conceded that was not the case.
Following the direct examination of Squire, the bankruptcy court allowed Squire to "cross-examine himself," affording him the opportunity to testify freely about the events leading up to the show-cause motion. At one point during his self-cross-examination, Squire attempted to introduce evidence of Stringer's decades-old convictions under Federal Rule of Evidence 609. The district court sustained an objection from Stringer's counsel to exclude that evidence as irrelevant.
Finding that Creditors had willfully violated the automatic stay, the bankruptcy court entered judgment in favor of Stringer, awarding her the attorney's fees she incurred in pursuing the contempt motion as well as punitive damages equal to three times that amount—a sum totaling over $100,000. On appeal to the district court, Creditors asserted that the bankruptcy court erred by: (1) finding that Creditors willfully violated the stay; (2) refusing to allow Squire to introduce evidence of Stringer's past convictions; (3) failing to ratify or annul Creditors' violation of the stay; and (4) failing to recuse for judicial bias. The district court declined to reach the latter two arguments on the ground that Creditors did not raise them below. It then rejected Creditors' remaining arguments and affirmed the judgment of the bankruptcy court.
Creditors' appellate arguments are identical to those asserted in the district court, with one addition: That the bankruptcy court should have taken judicial notice of public records showing that Stringer had an interest in certain Ohio corporate entities, which she failed to disclose on her bankruptcy schedules. Creditors' failure to properly preserve their arguments, however, has dramatic ramifications for their success on appeal. Like the district court, we will not consider Creditors' argument regarding recusal, as it was not raised in the bankruptcy court. Grider Drugs, LLC v. Express Scripts, Inc., 500 F. App'x 402, 406-07 (6th Cir. 2012) (). Likewise, because Creditors failed to raise their ratification/annulment argument in timely fashion in the bankruptcy court, we review it for plain error only. Bowman v. Corr. Corp. of Am., 350 F.3d 537, 548 (6th Cir. 2003). Finally, we will not consider Creditors' judicial notice argument, which was not raised below. See Ealy v. Comm'r of Soc. Sec., 594 F.3d 504, 513 (6th Cir. 2010). As to their remaining arguments, we independentlyreview the bankruptcy court's decision, examining its findings of fact for clear error and its conclusions of law de novo. In Re Am. HomePatient, Inc., 420 F.3d 559, 563 (6th Cir. 2005).
The Contempt Finding. The protocol surrounding the Bankruptcy Code's automatic stay is well defined. When a debtor files for bankruptcy, an automatic stay is immediately instituted, preventing nearly all collection activities by creditors. Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582, 589 (2020) (citing 11 U.S.C. § 362(a)). A creditor who violates the stay may be found in contempt. In re Nicole Gas Prod., Ltd., 916 F.3d 566, 578 (6th Cir. 2019). And in the case of a willful violation, the creditor may be required to pay the harmed parties actual and punitive damages as well as attorney's fees. 11 U.S.C. § 362(k)(1).
Upon finding that Creditors willfully violated the automatic stay in this proceeding, the bankruptcy court entered a monetary judgment against them. Creditors concede that, despite their knowledge of the stay, they undertook collection actions, as broadly defined under 11 U.S.C. § 362(a). They initially justified those efforts by arguing that a person's trade name is separate from that person for purposes of collections. This meant, to their mind, that pursuing the royalties due from the books Stringer published under aliases did not violate the stay prohibiting collection efforts against Stringer herself. But Squire later conceded this argument is wrong. And on that point of Ohio law, he is correct. In re Nicole Gas, 916 F.3d at 573 (). "Doing business under another name does not create an entity distinct from the person operating the business." LexisNexis v. Moreau-Davila, 95 N.E.3d 674, 686 (Ohio Ct. App. 2017).
That leaves Creditors' argument that the alias royalties were not entitled to the protection of the bankruptcy stay even as Stringer's own assets. That is so, Creditors say, because Stringer did not disclose her aliases in her bankruptcy filing. As a general matter, Creditors are correct thatthe bankruptcy process is designed for the "honest but unfortunate debtor." See, e.g., Grogan v. Garner, 498 U.S. 279, 287 (1991) (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)). But that venerable principle did not serve as a gateway for Creditors to circumvent the automatic...
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