Rushmore Loan Mgmt. Servs. v. Moon
| Decision Date | 06 February 2023 |
| Docket Number | 2:22-cv-01126-APG |
| Parties | IN RE MOON RUSHMORE LOAN MANAGEMENT SERVICES, LLC, Appellant v. WILLIE N. MOON and ADNETTE M. GUNNELS-MOON, Appellants AND RELATED CROSS APPEAL |
| Court | U.S. District Court — District of Nevada |
This case is a prime example of how small errors can multiply into expensive and timeconsuming litigation. This dispute could have been avoided entirely if either the debtors (through their counsel) had sent bankruptcy notices to the lender's correct address or the lender had, upon receiving actual notice of the bankruptcy, responded appropriately. Instead, this dispute has generated a two-day evidentiary hearing, multiple rulings by the bankruptcy court, several appeals and cross-appeals to the Bankruptcy Appellate Panel (BAP), a remand to the bankruptcy court for another ruling, and now an appeal and cross-appeal before me. And I am likely just a speed bump on the parties' way to the Ninth Circuit.
The parties are familiar with this case's factual background and complicated procedural history, so I give only a summary here.[1] Adnette Gunnels-Moon was the borrower on a second mortgage on her home, but her husband, Willie Moon was not. Rushmore Loan Management Services LLC serviced the loan from January 1, 2012 through October 15, 2018. In March 2013, the Moons filed a joint Chapter 13 bankruptcy petition. Although they identified Rushmore as a creditor, they listed the wrong address, and Rushmore did not receive notice of the bankruptcy case when it was filed.
Having no notice of the bankruptcy, Rushmore continued to attempt to collect on the loan, including by calling the Moons' residence numerous times while the automatic bankruptcy stay was in place. During one such call in December 2014, Willie told the Rushmore representative that they had filed bankruptcy. The Rushmore representative made a note about the comment, but Rushmore thereafter did nothing to investigate whether the Moons were in bankruptcy and instead continued to contact the Moons, including after the bankruptcy discharge was entered in the fall of 2016. Rushmore's inaction was based on its unwritten and undisclosed policy not to accept a bankruptcy notification from a third party that the borrower had not authorized to discuss the loan.
In January 2019, the Moons moved to reopen their bankruptcy case to seek contempt sanctions against Rushmore for violating the automatic stay[2] and the discharge injunction.[3]Following a two-day evidentiary hearing the bankruptcy court found in favor of the Moons on the automatic stay violation and awarded damages in the amount of $742.10 for fees Adnette incurred in reopening the proceeding, $100,000 in emotional distress damages to Willie, and $200,000 in punitive damages. The bankruptcy court also found that Rushmore engaged in conduct that would violate the discharge injunction but there was insufficient evidence as to what date Rushmore learned of the discharge, so it awarded no damages for a discharge injunction violation. By separate order, the bankruptcy court awarded $56,150 in attorney's fees and $10,857.94 in costs but denied the Moons' request for a fee enhancement. The bankruptcy court subsequently awarded an additional $3,500 in supplemental fees that the Moons incurred in filing a reply to the first fee motion. Finally, the bankruptcy court denied the Moons' request for attorney's fees and costs incurred in responding to an adversary proceeding brought by Rushmore.
Both parties filed a series of appeals and cross-appeals to the BAP of the original contempt ruling as well as the subsequent rulings on the Moons' attorney's fee requests. No one appealed the bankruptcy court's ruling that Rushmore willfully violated the automatic stay and that Adnette was entitled to damages of $742.10 as a result. Rushmore appealed the emotional distress and punitive damage awards, as well as the orders granting fees and supplemental fees.[4]The Moons appealed the decision not to award damages for Rushmore's violation of the discharge injunction and the decision not to award fees and costs for defending against the adversary proceeding.
The BAP entered a series of decisions resolving the various appeals. In its decision addressing the bankruptcy court's contempt rulings, the BAP reversed the $100,000 award in Willie's favor because it concluded that Rushmore's conduct did not violate Willie's automatic stay. The BAP affirmed the bankruptcy court's finding that Rushmore's conduct warranted a punitive damage award. But it vacated and remanded the $200,000 punitive damage award because it had reversed Willie's $100,000 damage award. In doing so, the BAP stated that on remand, the bankruptcy court could consider attorney's fees and costs in determining an appropriate punitive damage award for Adnette. Finally, it affirmed the bankruptcy court's denial of damages for the Moons' claim for a discharge injunction violation, and it rejected the Moons' related argument that the discharge injunction violation could be considered a continuing automatic stay violation.
The BAP addressed the attorney's fees in separate decisions. With respect to the fees and costs related to the contempt motion, the BAP affirmed the bankruptcy court's decision to award fees and to not apply an enhancement.[5] But it reversed and remanded for the bankruptcy court to explain why it awarded fees for time spent on the discharge injunction violation. Additionally, the BAP concluded that because it had reversed and remanded Willie's damages award, the bankruptcy court should reconsider the fee award and whether a fee enhancement was appropriate. The BAP also vacated and remanded the supplemental fee award for reconsideration by the bankruptcy court because it was closely related to the first fee order. And the BAP remanded for the bankruptcy court to award reasonable attorney's fees and costs to the extent that Rushmore's adversary complaint sought to challenge Adnette's contempt proceeding for Rushmore's automatic stay violation. Finally, the BAP ordered the bankruptcy court to determine appellate fees for the various appeals.[6]
On remand, the bankruptcy court identified its tasks as:
1. To determine the amount of punitive damages for Rushmore's willful violation of the automatic stay given the reduction in compensatory damages and given the BAP's direction that the bankruptcy court could consider attorney's fees and costs in determining the amount of the punitive damage award.
2. To explain the attorney's fee award to the extent it contains time spent on the discharge injunction violation and to reconsider a fee enhancement.
3. To award reasonable fees and costs incurred in responding to Rushmore's adversary complaint to the extent those are part of Adnette's automatic stay violation damages.
4. To determine the amount of appellate fees Adnette Moon is entitled to as part of her automatic stay violation damages.
The bankruptcy court began with the attorney's fees on the first and supplemental fee awards because its decisions on those would impact the punitive damage award. The bankruptcy court declined to reconsider its decision to not apply a fee enhancement,[7] and it again awarded the full amount of the first and supplemental fee requests, explaining that the automatic stay and discharge injunction violations were inextricably linked and litigated together before the bankruptcy court. The bankruptcy court thus awarded $67,007.94 for the first fee award and supplemental fees in the amount of $3,500, for a total fee award to Adnette Moon of $70,507.94.
Based on this fee award and the $742.10 compensatory damage award to Adnette that no one appealed, the bankruptcy court then determined a punitive damage award. The bankruptcy court awarded $500,000 in punitive damages.
The bankruptcy court then determined the amount of fees to award for Adnette having to respond to Rushmore's adversary complaint. The bankruptcy court awarded the entirety of the fees incurred in defending against the adversary complaint for a total of $14,827.
Finally, the bankruptcy court awarded Adnette $70,415.95 in appellate fees because she prevailed on her appeals related to the first fee decision, the supplemental fee decision, and the second fee decision related to the adversary proceeding. The bankruptcy court also awarded fees related to the appeal of the contempt decision but reduced them by twenty percent because at least some of those fees were incurred in addressing the discharge injunction violation. It thus awarded $45,235.82 in appellate fees for the contempt decision appeal, for a total appellate fee award of $115,651.77.[8]
Rushmore and the Moons appealed the bankruptcy court's order, and the Moons elected to have the appeals decided by this court rather than the BAP. Rushmore appeals the fee awards and the punitive damages award on a variety of grounds and requests that I withdraw the reference if I reverse the bankruptcy court. In their cross-appeal, the Moons argue that Willie has standing to recover for the automatic stay violation, that Rushmore's discharge violation should be considered a continuing stay violation, and that Rushmore should be charged with knowledge of the discharge order either through willful blindness or constructive notice, and thus there was a basis for awarding damages for a discharge injunction violation.
For the reasons discussed below, I decline to consider issues that are raised for the first time on appeal or that were already decided by the BAP. I affirm in part and reverse in part the bankruptcy court's award of attorney's fees, costs, and punitive damages. In the interest of efficient resolution of this matter, I withdraw...
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