Young v. Young (In re Young)

• Decision Date: 11 September 2013
• Docket Number: Bankruptcy No. 6:08–bk–70230.,Adversary No. 6:10–ap–07215.
• Citation: 497 B.R. 922
• Parties: In re Jonathan Michael YOUNG, Debtor. Jonathan Young, Plaintiff v. Kristalynn Young, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Arkansas

497 B.R. 922

In re Jonathan Michael YOUNG, Debtor.Jonathan Young, Plaintiff

v.Kristalynn Young, Defendant.

Bankruptcy No. 6:08–bk–70230.

Adversary No. 6:10–ap–07215.

United States Bankruptcy Court,

W.D. Arkansas,

Hot Springs Division.

Sept. 11, 2013.

Annabelle Lee Patterson, Annabelle Lee Patterson, PLC, Hot Springs, AR, for Plaintiff.

Marc Honey, Honey Law Firm, P.A., Hot Springs, AR, for Defendant.

ORDER IMPOSING SANCTIONS

RICHARD D. TAYLOR, Bankruptcy Judge.

On December 30, 2010, Jonathan Young, the debtor (“debtor”), commenced an adversary proceeding to determine whether Kristalynn Young, now Stephens (“Stephens”), his ex-wife, violated the automatic stay. The trial (“AP Trial”) concluded on April 22, 2013. The court issued its Memorandum Opinion on June 10, 2013. As a result of its review of the pleadings, exhibits, and testimony, the court also issued an Order to Appear and Show Cause (“OSC”) on the same date. The OSC directed the debtor to demonstrate why his bankruptcy case should not be dismissed pursuant to 11 U.S.C. § 1307(c)(11) and directed his attorney, Kathy A. Cruz (“Cruz”), to show cause why she should not be sanctioned pursuant to Federal Rule of Bankruptcy Procedure 9011.

The court heard the OSC on July 24, 2013 (“OSC Hearing”). Cruz appeared personally and by her counsel, Jeffrey M. Rosenzweig; the debtor appeared pro se as Cruz had withdrawn as his attorney. Following the OSC hearing, the court took the OSC under advisement.

The OSC is hereby withdrawn as to the debtor; the debtor's case is not dismissed and may proceed. Cruz, however, violated Rule 9011 and sanctions are appropriate. This conclusion is compelled by the findings and conclusions set forth in the Memorandum Opinion, the record in this case, the record in the adversary proceeding, and as set forth herein. Further, Cruz made misrepresentations to this court during her testimony at the OSC Hearing. Accordingly, sanctions are also appropriate pursuant to 11 U.S.C. § 105 and this court's inherent powers.

For her violations of Rule 9011, Cruz is hereby suspended from practicing directly or indirectly in the United States Bankruptcy Courts for the Eastern and Western Districts of Arkansas for a period of six months commencing September 23, 2013, and ending March 23, 2014. She is also reprimanded and fined $1000 payable on or before September 27, 2013, to Jean Rolfs, Clerk of the United States Bankruptcy Court. Prior to March 23, 2014, Cruz must also provide this court with proof that she has attended twelve hours of continuing legal education in the area of Chapter 13 Bankruptcy.

For her misrepresentations to this court during the OSC Hearing, Cruz is hereby concurrently suspended from practicing directly or indirectly in the United States Bankruptcy Courts for the Eastern and Western Districts of Arkansas for a period of six months commencing September 23, 2013, and ending March 23, 2014. She is also reprimanded and fined an additional $1000 payable on or before September 27, 2013, to Jean Rolfs, Clerk of the United States Bankruptcy Court. Further, the court will refer and provide a copy of this Order Imposing Sanctions to the Office of the Committee on Professional Conduct.

I. Jurisdiction

This court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157 as well as 11 U.S.C. § 105. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (C), and (O). The following order constitutes findings of fact and conclusions of law in accordance with Federal Rules of Bankruptcy Procedure 7052 and 9014.

II. Background

The expositive findings of fact and conclusions of law set forth in the Memorandum Opinion are incorporated by reference herein and need not be repeated. The analysis below includes references to the Memorandum Opinion, the full record of the debtor's bankruptcy case, the adversary proceeding record, the AP Trial, and the OSC Hearing. Crucial, however, to an understanding of this order is the recognition that Stephens, pro se and through her original counsel, and the debtor, pro se and through Cruz, all acted without deference to the United States Bankruptcy Code's (“Code”) treatment of domestic support obligations. Cruz's pervasive role as debtor's counsel stood out and invited additional scrutiny.

In summary, the debtor and Stephens finalized their divorce on November 1, 2007. The Decree of Divorce (“Divorce Decree”) ordered the debtor to pay Stephens alimony of $1100 a month for one year (subject to adjustment thereafter at the request of either party), attorney's fees of $10,890, and restitution of $2350. (Debtor Ex. 41 at 2.) He promptly failed to pay alimony, and, in January 2008, he was briefly jailed. His parents secured his release by posting a $5000 bond. Immediately after his initial incarceration, the debtor, on January 24, 2008, filed for protection under Chapter 7 of the Code.

The debtor appealed the Divorce Decree, and his appeal was pending when he filed bankruptcy. Before responding to the appeal, Stephens filed a Motion for Relief from Stay (“Stay Motion”). By agreement of the parties, the bankruptcy court entered an order (“Stay Order”) granting the Stay Motion on June 25, 2008. The Stay Order, drafted and approved by the parties, contained language that led Stephens to believe she could pursue the debtor for contempt. This resulted in the debtor's second incarceration and generated the filing of the adversary proceeding alleging a stay violation.¹

Before the Circuit Court contempt hearings, the debtor, on July 1, 2008, converted his case to a Chapter 13. Cruz filed the debtor's initial Chapter 13 plan on July 17, 2008.² The plan failed to provide for Stephens despite the fact that the debtor's Schedule E referenced prepetition attorney's fees of $10,890 and restitution of $2350.³ (Ch. 7 Vol. Pet. 22, Jan. 24, 2008, ECF No. 1.) The debtor's Schedule J referenced alimony as an $1100 monthly expense. (Pet. 28, ECF No. 1.) On August 21, 2008, Stephens objected to the plan on the grounds that it failed to address alimony, attorney's fees, and restitution. She also objected to the listing of alimony as a monthly expense on the debtor's Schedule J given that he had not made any alimony payments.

On September 3, 2008, the Arkansas Court of Appeals affirmed the Divorce Decree. (Debtor Ex. 43.) Relying on the appellate court's ruling and the Stay Order, Stephens sent a letter to the debtor on October 6, 2008 (“October 6 Letter”), that outlined the debtor's arrearages and advised him that, absent assurances that she would receive payment by the end of the month, she would file contempt charges against him. According to Stephens, the debtor owed $14,300 in accrued alimony, which represented thirteen missed payments from October 2007 through October 2008. Applying the $5000 bond posted by the debtor's parents to the $14,300 in arrearages resulted in an alimony balance of $9300. Most, if not all, of this alimony accrued postpetition.⁴

Upon receipt of the October 6 Letter, the debtor conferred with Cruz. Cruz did not react by interposing the automatic stay. Instead, on October 8, 2008, she amended the debtor's Schedule E to include the entire $9300 in accrued alimony as an unsecured priority claim under section 507(a)(1), a section reserved for prepetition domestic support obligations. Cruz also filed a Modification of Chapter 13 Plan (“Modified Plan”). The Modified Plan characterized the $9300 in alimony as “past due” priority debt. The Modified Plan further stated that the debtor would “continue” to make his $1100 monthly alimony payments to Stephens directly. The debtor had not, and did not thereafter, “continue” making those payments, however.

Stephens found the debtor's October 8 response to her October 6 Letter unsatisfactory. As a result, she took two steps. First, she filed an objection to the Modified Plan on October 31, 2008. Stephens's attorney ultimately withdrew this objection at a hearing held on January 21, 2009. Second, Stephens filed a Petition for Order to Show Cause, for Renewed Alimony, for Contempt, Attorney's Fees and Other Relief (“Petition”) on November 12, 2008, in Circuit Court. The Petition recited that the debtor failed to “pay said alimony and currently is in arrears the total sum of $9,300.00.” (Debtor Ex. 45 at 2, ¶ 4.)

The Circuit Court held a hearing on the Petition on December 11, 2008. Michael Crawford represented Stephens. The debtor appeared pro se. At the conclusion of the hearing, the Honorable Marcia R. Hearnsberger (“Judge Hearnsberger”) found the debtor in contempt for failure to pay past due alimony and attorney's fees. Judge Hearnsberger, however, held the contempt order in abeyance for sixty days to give the debtor an opportunity to ascertain the impact of the automatic stay on the contempt proceedings. She entered her formal Order of Support and Contempt (“Contempt Order”) on December 16, 2008, which advised the debtor that if he failed to “secure a stay” from the bankruptcy court, he had to post a bond for past due alimony of $8200 ⁵ plus attorney's fees by March 1, 2009, or surrender to the Garland County Sheriff's Department.

The debtor conferred with Cruz after the December 11 hearing. She advised him that the stay still applied but took no further steps to protect him. The debtor failed to post a bond or surrender to the Garland County Sheriff's Department. As a result, Judge Hearnsberger convened a second hearing on March 9, 2009. The debtor again appeared pro se.

During the March 9 hearing, the debtor argued that he was making his $465 a month disposable income payments to the bankruptcy trustee and that Stephens would receive those funds once she filed a proof of claim. At the conclusion of the hearing, Judge Hearnsberger immediately jailed the debtor for his failure to pay past due alimony and attorney's fees. His incarceration lasted thirty days. The debtor, before and after jail, never made his alimony payments to Stephens...