IN RE HAAS (Bankr.E.D.Va. 2004)

Case No. 04-11534-SSM.United States Bankruptcy Court, E.D. Virginia, Alexandria Division.
December 22, 2004

James M. Towarnicky, Esquire, James M. Towarnicky, PLLC, Fairfax, VA, Counsel for the debtor.

John L. Bauserman, Jr., Esquire, Pikrallidas Associates Fairfax, VA, Co-counsel for the debtor.

Scott A. Surovell, Esquire, Surovell Markle Isaacs Levy, PLC, Fairfax, VA, Respondent and counsel for respondent Cynthia Duncan.

H. Jason Gold, Esquire, Wiley Rein Fielding LLP, McLean, VA, Chapter 7 trustee.

Dennis Early, Esquire, Assistant United States Trustee, Alexandria, VA.

MEMORANDUM OPINION
STEPHEN MITCHELL, Bankruptcy Judge

A hearing was held in open court on December 7, 2004, on the debtor’s motion to reopen his closed case in order (a) to correct the spelling of his last name, which the debtor states is “Hass” rather than “Haas”; and (b) to file a motion for sanctions against his former wife, Cynthia Duncan, and her attorney, Scott A. Surovell, for violation of the automatic stay. The debtor was present in person and was represented by counsel. The respondents were present in person, with Mr. Surovell representing both himself and Ms. Duncan. The court granted the motion to reopen to the extent it sought to correct the spelling of the debtor’s name but took under advisement the issue of whether the proposed motion for sanctions stated a claim for relief.

The issue, in a nutshell, is whether a state court contempt motion seeking the debtor’s incarceration for nonpayment of support is prohibited by the automatic stay or instead falls within the exceptions to the automatic stay for criminal proceedings or for collection of support from property that is not property of the bankruptcy estate. For the reasons stated, the court concludes that the filing of the contempt petition violated the automatic stay, but

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that no actual injury has been shown. Accordingly, the court will deny leave to file the motion for sanctions.

Background
The debtor, James Hillary Hass (or “Haas”), filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code in this court on April 6, 2004. Among the debts listed on his schedules was a support arrearage to his former wife, Cynthia Duncan. Ms. Duncan was aware of the bankruptcy filing and attended the meeting of creditors. The schedules listed $51,146 in general unsecured debts and $54,883 in assets, the largest of which consisted of $51,843 in contributions to a Civil Service Retirement System account. The debtor claimed all of the assets as exempt. The trustee filed a report of no distribution of May 10, 2004, and the debtor received a discharge on July 16, 2004. The case was then closed on August 9, 2004.

Approximately 10 days prior to the granting of the discharge, the Circuit Court of Fairfax County, Virginia, issued a rule to show cause why the debtor should not be held in contempt and why he should not be “fined, imprisoned, or both,” for failing to comply with an order of April 18, 2003, requiring the payment of child support, spousal support, and attorney’s fees. The petition for the rule to show cause, which is dated June 11, 2004,[1] was signed by both Ms. Duncan and Mr. Surovell and asked that the debtor be ordered “to cure

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the arrearages immediately” by paying Ms. Duncan $11,107 plus interest[2] and that he be “incarcerated pending purging his Contempt of Court.” The petition does not disclose the pendency of the debtor’s bankruptcy case. Although the record is not well developed, it appears that neither the petition nor the rule to show cause — which was returnable to August 24, 2004 — were served on the debtor until sometime in late July or early August.[3] The contempt hearing has been several times rescheduled and was most recently continued to January 27, 2005. The debtor’s attorney twice — on September 29 and November 1, 2004 — sent letters to Mr. Surovell asserting that the issuance of the rule to show cause was void as a violation of the automatic stay in the debtor’s bankruptcy case and demanding that the petition be withdrawn. Mr. Surovell concedes that he was at all time aware of the bankruptcy filing but chose to continue with the show cause proceeding “on the assumption that (a) the collection of child support from postpetition assets, (b) criminal contempt was excepted from the automatic stay, and (c) no hearings were to be held until after the conclusion of Debtor’s Bankruptcy case.” Resp. Mem. at 3.

Discussion I.
A closed bankruptcy case may be reopened “to administer assets, to afford relief to the debtor, or for other cause.” § 350(b), Bankruptcy Code. The narrow issue before the

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court is whether the proposed motion to recover damages from Ms. Duncan and Mr. Surovell for willful violation of the automatic stay states a claim for relief. If not, prosecution of the motion would not “afford relief to the debtor” and should not be permitted. Whether the motion states a claim for relief in turn requires the court to determine (a) whether the state court contempt proceeding is a criminal proceeding; or (b) if it is not criminal, whether it nevertheless falls within the statutory exception for collection of support from property that is not property of the estate.

II.
The filing of a bankruptcy petition creates an automatic stay of all court proceedings and other acts to collect a prepetition liability from the debtor. 11 U.S.C. § 362(a)(1) (6). This is true even as to debts that will ultimately be excepted from discharge, since one of the fundamental purposes of the automatic stay is to give the debtor “a breathing spell from his creditors” and “to be relieved of the financial pressures that drove him into bankruptcy.” H.R. Rep. No. 95-595 at 340 (1977). The stay, however, is not permanent. Unless sooner lifted by the court at the request of the affected party,[4] it expires, with respect to acts against the debtor and property of the debtor, on the earlier of the date the debtor is granted or denied a discharge, the case is dismissed, or the case is closed. 11 U.S.C. § 362(c)(2). With respect to dischargeable debts, the automatic stay is replaced by the discharge injunction, which in broad terms prohibits actions to collect such debts as a personal liability of the

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debtor. 11 U.S.C. § 524(a)(2). However, creditors holding nondischargeable debts are free at that point to collect them from the debtor or from property of the debtor.[5]

A violation of the automatic stay may be redressed by the bankruptcy court under its civil contempt powers. Burd v. Walters (In re Walters), 868 F.2d 665, 669 (4th Cir. 1989). Additionally, the Bankruptcy Code gives an individual debtor a right of action for damages, including punitive damages and attorney’s fees, resulting from a willful violation of the stay. 11 U.S.C. § 362(h); Budget Serv. Co. v. Better Homes of Va., Inc., 804 F.2d 289, 292 (4th Cir. 1986). Where a party has actual knowledge of a bankruptcy filing, and despite such knowledge intentionally undertakes actions that in fact violate the stay, the party’s ignorance of the legal effect of the stay is no defense to a resulting motion to find the party in civil contempt, although it may have a mitigating effect on the sanctions adjudged. In re Peterkin, 102 B.R. 50, 53-54 (Bankr. E.D.N.C. 1989).

There are, however, certain exceptions to the automatic stay. Relevant to the present controversy, the automatic stay does not apply to “the commencement or continuation of a criminal action or proceeding against the debtor” nor to “the collection of alimony, maintenance, or support from property that is not property of the [bankruptcy] estate.” 11 U.S.C. § 362(b)(1)
(2)(B) (emphasis added). If, on the pleaded facts, either or both of these exceptions clearly apply, then allowing the motion for sanctions to go forward would be futile and would afford no relief to the debtor.

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III.
A contempt proceeding is properly considered a “criminal action or proceeding” within the meaning of § 362(b)(1) — and thus not subject to the automatic stay — when the purpose of the contempt order is to punish the respondent for flouting a court order or to vindicate the dignity of the court. Rook v. Rook (In re Rook), 102 B.R. 490 (Bankr. E.D. Va. 1989), aff’d 929 F.2d 694
(4th Cir. 1991) (unpublished table decision). As then-Chief Judge Bostetter observed in Rook, the determination of whether a particular contempt proceeding falls outside the automatic stay cannot be based solely on whether the contempt is labeled “criminal” or “civil,” but requires “close scrutiny” of “all aspects surrounding the issuance of a contempt order” to determine if the order is “in fact punitive.” Rook, 102 B.R. at 494. As another court citing Rook has explained:

Courts determine whether a contempt order is civil or criminal not by how the order is denominated (if, indeed, the issuing court even labels the order as civil or criminal), but, rather, by examining the provisions of the order itself and its surrounding circumstances. A contempt order that permits the contemnor to mitigate or avoid punishment by taking action consistent with the vindication of the rights of another party to the litigation is considered a civil contempt order. A contempt order that, on the other hand, incarcerates a party for a definite period of time or imposes another penalty, without any provision for purge of the contempt, does not serve to redress a private right and is considered a criminal contempt order.

In re Maloney, 204 B.R. 671, 674 (Bankr. E.D.N.Y. 1996) (internal citations omitted). Contempt orders that qualify as “civil” under this analysis fall within the scope of the automatic stay, while “criminal” contempt orders do not. Id.

In Rook, there had been an earlier, pre-bankruptcy contempt order sentencing the debtor to five and a half months in jail for failure to comply with a property settlement

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agreement incorporated in a divorce decree, but suspending the sentence “pending [the] making [of] all payments” required by the agreement and giving the debtor 60 days in which to comply. 102 B.R. at 491. The debtor did not make the payment, and the state court, after the debtor had filed for bankruptcy some five years later, held the debtor in contempt for failure to make the payment required by the earlier order. Id. In that context, Judge Bostetter held that the second contempt order was punitive, and therefore not issued in violation of the automatic stay, since the provisions of the earlier order whereby the debtor could purge himself had long since ended, thereby converting a citation that was originally civil and remedial in nature into one that was criminal and punitive in nature. Id. at 495.

Similarly, in Maloney, the debtor — after failing to comply with an earlier order which had held him in contempt for not making equitable distribution payments to his former wife but which had allowed him to purge himself by complying with a restructured payment schedule — was then sentenced to 90 days imprisonment. Maloney, 204 B.R. at 673 675. The judge, in imposing the sentence, told the debtor, “I cannot allow court orders to be disregarded in this manner, otherwise the court has no teeth. People will have complete disrespect for the court. . . . What you have done is a violation of the entire judicial process and the court itself.” Id. at 675. Given that record, the bankruptcy court had no difficulty in concluding that the sentencing order was not barred by the automatic stay, since it was issued “to protect the dignity and the power of the State Court to regulate proceedings before that court.” Id.; see also In re Dunham, 175 B.R. 615 (Bankr. E.D. Va. 1994) (contempt order sentencing debtor to jail for 12 months until he turned over documents and testified

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truthfully was entered to uphold dignity of court since it was based on findings that debtor had perjured himself before a commissioner in chancery).

In the present case, the rule to show cause was not issued by the court on its own motion but rather on the motion of Ms. Duncan. Neither the rule to show cause nor the petition for the rule describe the alleged contempt as either civil or criminal. On the face of the petition, however, it seems clear that Ms. Duncan is seeking to have the debtor held in civil, not criminal, contempt. The primary relief sought is an order requiring the debtor to “immediately” pay the sums due under the earlier support order. Notably, while she seeks to have him jailed, her prayer is that he be “incarcerated pending purging his Contempt
of Court” (emphasis added). The coercive rather than punitive focus of the remedy clearly establishes the contempt proceeding as one to vindicate the private rights of Ms. Duncan. While it is certainly conceivable that the state court could take a different view of the matter and might instead choose to fine or imprison the debtor without giving him an opportunity to purge himself, at this point the court can only go by the petition. Ms. Duncan’s purpose in suing out the rule to show cause was clearly for the purpose of enforcing payment of a debt owed to her and not to vindicate the dignity of the court. See In re Dill, 300 B.R. 658 (Bankr. E.D. Va. 2003) (holding that contempt order committing debtor to jail for incurring additional charges on joint credit card but staying execution of the sentence on the condition that he purge himself of his contempt by paying his former wife the amount of the improper charges plus attorney’s fees was a coercive order intended to vindicate her private rights and therefore violated the automatic stay). Accordingly, the contempt proceeding does not fall within the exception to the automatic stay for criminal proceedings, and the actions of Ms.

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Duncan and Mr. Surovell in filing the petition for the rule to show cause were a violation of the automatic stay unless the petition is independently excluded from the automatic stay as the collection of support from property that is not property of the estate. It is to that issue, accordingly, that the court next turns.

IV.
The heart of the question presented by the present motion is whether the exception to the automatic stay for the collection of support from property that is not property of the estate is to be narrowly or broadly construed. The debtor insists that the exception must be narrowly construed to permit only collection actions, such as wage garnishments, that on their face are targeted against “property.” The debtor readily concedes that it would not have been a violation of the automatic stay for Ms. Duncan to have enforced the support claim by garnishment of his paycheck. The debtor insists, however, that the contempt proceeding brought by her is not specifically directed at “property” but rather at his person (in effect, body execution or body attachment). For their part, Ms. Duncan and Mr. Surovell assert that they neither requested nor sought payment out of property of the estate.[6] In their view, all means of collection are permitted except those specifically directed at property of the bankruptcy estate.[7]

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A.
There is certainly respectable support for the debtor’s argument that the exception in § 362(b)(2)(B) must be construed narrowly as allowing only collection directly targeted at “property.” A leading treatise, for example, takes the following position:

[U]nlike some of the other exceptions to the stay listed in section 362(b), this exception does not extend to the “commencement or continuation of an action or proceeding” to enforce an obligation. Thus, section 362(b)(2)(B) protects an obligee who receives property on a prepetition obligation, for example, through a prior wage attachment, from claims that such receipt is improper, but does not authorize enforcement litigation against the debtor without relief from the automatic stay. A separate provision, section 362(b)(2)(A), grants an exception for the commencement or continuation of an action or proceeding, but only for the establishment or modification of an order for alimony, maintenance or support. Proceedings to enforce such orders are conspicuously omitted from that exception and continue to be stayed, except in cases in which they are criminal in nature and permitted by section 362(b)(1).

3 Collier on Bankruptcy ¶ 362.05[2], at 362-50 (Alan N. Resnick et al. eds., 15th ed. rev. 2004) (emphasis added). However, the decision cited in support of this proposition does not go quite so far. Tipton v. Adkins (In re Tipton), 257 B.R. 865 (Bankr. E.D. Tenn. 2000). Some three months after the debtor in that case filed a chapter 7 petition, his former wife filed a motion in Virginia state court to have him held in contempt for failure to pay credit card debts for which he had agreed to be solely responsible under a written property

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settlement agreement. Id. at 868. On a motion to dismiss the debtor’s subsequent complaint seeking to have the former wife and her attorney held in contempt for violation of the automatic stay for failure to state a claim for relief, the bankruptcy court held,

Regardless of the alleged intent behind the [state court] contempt motion, an objective reading of the motion leads one to the inescapable conclusion that the debtor was being threatened with a fine and imprisonment unless he paid his prepetition marital obligations. As such the motion and the contempt proceeding was a violation of the automatic stay. . . .

Id. at 874. The distinction between Tipton and this case, however, is that there was no existing court order or agreement in Tipton to pay alimony or support. In fact, the former Mrs. Tipton had waived any claim for alimony or support in the property settlement agreement in return for the debtor’s assumption of certain debts. Id. Thus, the contempt proceeding was not a proceeding to collect support and was barred by the automatic stay, even though a determination that the debtor had violated the indemnity agreement might allow the state court to revisit the support issue, and even though the wife belatedly amended the state court contempt motion to also seek an award of support.

Much closer to the present case (and more directly supportive of the debtor’s position) is Lori v. Lori (In re Lori), 241 B.R. 353 (Bankr. M.D. Pa. 1999). After the debtor’s case there was converted from chapter 13 to chapter 7, but before the debtor received a discharge, the debtor’s wife filed a petition for civil contempt against him in state court for failure to pay support as well as certain other payments that the bankruptcy court assumed were in the nature of support. Id. at 354. The state court gave the debtor 30 days to cure or purge the contempt or otherwise be incarcerated for six months. Id. at 356. When the debtor did not do so, he was jailed. Id. The bankruptcy court noted that the debtor’s wife and her

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attorney “made no effort [at the hearing] to limit her collection efforts to post-petition income of the [debtor].” Id. The court held that while § 362(b)(2)(B) would permit collection actions, such as a wage attachment, against non-estate property, the petition for contempt “was not so limited” and therefore violated the automatic stay. Id. at 355. The court awarded the debtor $7.00 per diem (apparently the amount he was assessed by the sheriff under state law) for the period he was incarcerated plus $5,376.00 in attorney’s fees.[8] See also Sermersheim v. Sermersheim (In re Sermersheim), 97 B.R. 885 (Bankr. N.D. Ohio 1989) (debtor’s former wife violated automatic stay by bringing contempt action against debtor in state court to enforce payment of divorce-related obligations even though bankruptcy court ultimately agreed they were in the nature of support).

B.
Ms. Duncan and Mr. Surovell, for their part, have not cited the court to any case in which a contempt action to enforce payment of support through threatened incarceration of the debtor pending payment was held not to violate the automatic stay. Instead, they rely on what they assert is a general policy against bankruptcy courts becoming unnecessarily entangled with domestic relations matters. Carver v. Carver, 954 F.2d 1573 (11th Cir. 1992); see also Caswell v. Lang (In re Caswell), 757 F.2d 608
(4th Cir. 1985).[9] In Carver, the

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debtor had filed a chapter 13 petition. 954 F.2d at 1574. After the petition was filed, his former wife brought a contempt action against him for failing to make the mortgage payments on the former marital residence as required by their divorce decree. Although neither she nor her attorney had any knowledge of the bankruptcy filing at the time the contempt action was filed, they did learn of the filing before the hearing. They nevertheless went forward with the hearing on the belief that the automatic stay “does not apply to matters involving Family Court and child support payments.” The state court found the debtor in contempt, sentenced him to six months in jail, and issued a bench warrant for his immediate arrest. The court ruled, however, that the sentence would be suspended if the debtor brought the mortgage current. After he had served 7 days in jail, his new wife borrowed enough money from her father to bring the mortgage current, and the debtor was released. The debtor then brought an action in the bankruptcy court against his former wife and her attorney for damages caused by the willful violation of the automatic stay. The bankruptcy court found that they had violated the automatic stay and awarded the debtor $18,295.78 in damages. The district court affirmed. Id. at 1575-76. The Court of Appeals rejected the argument that the state court contempt action was permitted by § 362(b)(2)(B) and agreed that the automatic stay had been violated.[10] The Court went on, however, to hold

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that the bankruptcy court should have abstained from adjudicating the stay violation. The Court explained:

[A]limony, maintenance, or support are not standard debtor/creditor situations, but involve important issues of family law. Traditionally, the federal courts have been wary of becoming embroiled in family law matters. . . . The state interest in ensuring that dependents are adequately provided for is certainly strong. Decisions which involve alimony or child support, generally under continuing supervision by the state courts, could require the bankruptcy court to second guess the state court on such matters and could produce conflicting court decrees further aggravating an already delicate situation. . . . “It is appropriate for bankruptcy courts to avoid incursions into family law matters `out of consideration of court economy, judicial restraint, and deference to our state court brethren and their established expertise in such matters.'”

* * *

In our opinion, bankruptcy and district courts should tread very carefully when asked to impose sanctions for violation of the automatic stay where the actions underlying the violation involve alimony, maintenance, or support. In each case, the court should carefully sift through the facts, keeping in mind the purposes of the automatic stay provision as well as concerns of justice, comity, and judicial economy that support abstention in domestic relations cases. Where the purposes of the automatic stay provision would clearly be served by affording a remedy for its violation, and the court would not be required to delve too deeply into family law, the court need not abstain from hearing the claim.

Id. at 1578-79 (internal citations omitted). One of the factors found by the Court to heavily favor abstention was that, in its view, the bankruptcy court “was being used as a weapon in the on-going dispute between Edward and Paulette Carver.” The debtor had not listed his former wife as a creditor, and she was unable, despite several requests to his attorney, to

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obtain a copy of the chapter 13 plan. As a result, she did not know at the time of the contempt hearing whether the mortgage arrearages were covered by the plan. Additionally, at the contempt hearing the debtor did not raise the issue of his bankruptcy filing as a bar to proceeding or inform the state court that his chapter 13 plan covered the mortgage arrearages Id. at 1580.

C.
There is uniform agreement among the courts that the automatic stay must be broadly construed to effect its remedial purpose of maintaining the status quo until the interest of creditors and the debtor can be sorted out. Usually, the need to protect the debtor and the bankruptcy estate will argue for a narrow interpretation of the exceptions to the automatic stay that are set out at § 362(b), Bankruptcy Code. At the same time, many of those exceptions are themselves remedial in nature, and an overly narrow construction would rob them of much of their efficacy. In this connection, there can be little doubt that the public policy favoring payment of support is very strong. It is in that context that the court must resolve the question of whether a contempt action — not otherwise criminal in nature — falls within the statutory exception for “collection . . . from property that is not property of the estate.”

As an initial matter, the court must disagree with the suggestion by Collier that “collection” is limited to passive receipt of money from wage garnishments or allotments already in place prior to the bankruptcy filing. Even the debtor does not argue for so narrow an interpretation and concedes that Ms. Duncan could have instituted a wage garnishment

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without violating the automatic stay.[11] It is presumed that Congress, in enacting legislation, uses words in their ordinary sense unless the word is specifically defined by the statute or the context clearly compels some limited or special meaning. The dictionary definition of “collection” is “the act
or process of collecting.” Webster’s Ninth New Collegiate Dictionary, 259 (1985) (emphasis added). The verb “collect” has, among other definitions, the meaning “to claim as due and receive payment for.” Id.; see also Oxford English Dictionary Online,
“collection” (2d ed. 1989), at http://dictionary.oed.com
(“2.b. The gathering in of money due, as taxes or private debts.”) (emphasis added). Such a definition clearly implies — or at least is consistent with — some level of affirmative activity.

At the same time, the court is persuaded by the analysis i Lori and Sermersheim that the affirmative activity must nevertheless be of the type that directly or necessarily targets property, and that the invocation of a state court’s contempt power — at least where the relief requested extends to the debtor’s incarceration as a means of compelling payment — falls outside the exception for “collection . . . from property that is not property of the estate.” The petition for contempt filed by Ms. Duncan and Mr. Surovell did not identify any specific property from which the debtor could make the “immediate” payment demanded by the

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motion;[12] accordingly, the filing of the petition did not fall within the exception to the automatic stay in § 362(b)(2)(B).

However, even though there may have been a technical violation of the automatic stay, the debtor has not shown that he suffered any damages as a result. The debtor did not learn of the contempt proceedings — and thus could not have suffered even emotional distress, let alone monetary loss — until he was served with the rule on or about July 31, 2004, which was 15 days after the automatic stay had terminated. The initial hearing on the rule to show cause was set for August 24, 2004, which was 39 days after the automatic stay had terminated. The mere issuance of the rule to show cause was not an adjudication of the parties’ rights and did not in any discernable manner prejudice the debtor’s ability to defend himself against the allegations or otherwise alter his rights or freedom of action.[13] Unlike

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those reported cases in which contempt proceedings were mounted over marital obligations which — because they were not in the nature of support — were dischargeable or potentially dischargeable, the obligations here are in the nature of support and therefore nondischargeable.[14] This case also differs from those reported cases involving support in which contempt hearings were actually held, and the debtor jailed, while the automatic stay was in effect. None of those factors are present in this case. While bankruptcy courts are always vigilant to enforce the automatic stay, there nevertheless must be some actual injury before damages can be awarded to a debtor under § 362(h) for willful violation of the stay. In the absence of some demonstrable injury, there is no relief the court can award, and prosecution of the action would therefore be pointless.

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V.
In summary, the court concludes that a willful violation of the automatic stay has been shown, but no resulting injury. The state court contempt proceeding was commenced with actual notice of the bankruptcy filing during the period the automatic stay was in effect. That is all that is required to make a violation of the automatic stay willful. Ms. Duncan’s and Mr. Surovell’s erroneous view, however sincerely held, as to the legal effect the automatic stay does not make the violation any less willful.[15] The contempt action here was not brought to vindicate the dignity of the Fairfax County Circuit Court but rather to enforce payment of the debt owed to Ms. Duncan. Accordingly, it was not excluded from the automatic stay by § 362(b)(1). Additionally, since the contempt petition was not specifically targeted at “property,” it did not fall within the exclusion in § 362(b)(2)(B) for collection of support from property that is not property of the bankruptcy estate. That said, however, there is simply no showing of any actual injury resulting from the violation. The mere issuance of the rule to show cause — which was not served on the debtor until after the automatic stay had expired — did not alter or prejudice the debtor’s legal rights. The debtor has not been forced to defend himself against the contempt petition, nor has he been jailed or threatened with jail, during any period the automatic stay was in effect. In the absence of any actual damages, no useful purpose could be served by prosecution of the motion for sanctions.

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A separate order will be entered denying leave to file the motion for sanctions in the reopened case.