576 B.R. 731
Bankr. D. Mass.2017Background
- Whiz Kids Development filed Chapter 11 on August 11, 2015; it held a statutory right of redemption in 2 Ionic Ave., Worcester, while Lamento held a tax purchaser’s interest (Collector’s Deed) subject to that redemption right.
- Debtor moved to sell the redemption/right in the bankruptcy case; after hearing and a sealed-bid auction the court entered a sale order (Oct. 29, 2015) approving sale to Heaney free and clear under 11 U.S.C. § 363; the 14-day Rule 6004(h) period expired and the sale closed Nov. 12, 2015.
- Lamento filed a Land Court foreclosure petition on Nov. 23, 2015 (seeking to foreclose the redemption right) without seeking stay relief; Land Court dismissed that action as barred by the bankruptcy sale order.
- Heaney sued Lamento (adversary complaint) asserting: (Count I) willful violation of the automatic stay; (Count II) violation/contempt of the Sale Order (injunctive relief and damages); and state-law defamation/slander counts (Counts III–IV).
- The bankruptcy court held a trial on Counts I and II, concluded it had jurisdiction over those counts (but not Counts III–IV), found Lamento willfully violated the Sale Order (contempt) and awarded compensatory damages and injunctive relief under Count II, but ruled Lamento did not violate the automatic stay (Count I).
Issues
| Issue | Plaintiff's Argument (Heaney) | Defendant's Argument (Lamento) | Held |
|---|---|---|---|
| Whether filing Land Court action violated automatic stay (§ 362) | Lamento prosecuted foreclosure and appeals while stay in effect; Heaney seeks damages under § 362(k) | Redemption period expired under state law so stay did not bar his filing; § 108(b) and state timelines control | Court: No stay violation. Land Court filing sought foreclosure of redemption right but sale order had become final and the debtor’s estate interest ceased; relief belongs to contempt claim, not § 362. Judgment for Lamento on Count I. |
| Whether Lamento violated and is in contempt of the Sale Order (injunction) | Lamento continued asserting interest, litigated in Land Court, posted online allegations and contacted third parties, delaying Heaney’s sale and harming him | Argues state-law foreclosure rights and that Sale Order didn’t bar his actions; claims fraud/collusion justify conduct | Court: Clear, unambiguous Sale Order; Lamento had notice; his conduct was willful and in contempt. Judgment for Heaney on Count II; compensatory damages, attorney fees (to be quantified), and permanent injunction entered against Lamento. |
| Subject-matter jurisdiction over related state claims (Counts III–IV) | Heaney included slander/defamation claims in same complaint | Lamento insisted broader adjudication and jury demand | Court: Counts III–IV are state-law claims that do not "arise under" or "arise in" bankruptcy and are not sufficiently "related to" the estate; dismissed for lack of jurisdiction without prejudice. |
| Appropriate remedies and damages for contempt of Sale Order | Heaney sought compensatory, emotional, punitive damages, and attorneys’ fees | Lamento opposed damages and sought fees himself | Court awarded compensatory damages for attorney fees already incurred ($14,000 + $2,600), carrying costs ($26,000), emotional distress ($7,500), allowed recovery of reasonable fees for prosecuting this adversary (to be submitted), denied punitive/criminal contempt relief; permanent injunction entered. |
Key Cases Cited
- United States v. Whiting Pools, 462 U.S. 198 (sale of debtors’ property under § 363 may include equitable interests)
- Butner v. United States, 440 U.S. 48 (federal courts look to state law to define property interests in bankruptcy)
- Travelers Indemnity Co. v. Bailey, 557 U.S. 137 (bankruptcy court has jurisdiction to interpret and enforce its own orders)
- Gupta v. Quincy Med. Ctr., 858 F.3d 657 (1st Cir. 2017) (limits scope of "arising in" jurisdiction; not every dispute touching a sale order falls within bankruptcy jurisdiction)
- Bessette v. Avco Fin. Serv., 230 F.3d 439 (1st Cir. 2000) (§ 105(a) supplies contempt power in bankruptcy context)
- Middlesex Power Equip. & Marine, Inc. v. New England Power & Marine, Inc. (In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61 (1st Cir. 2002) (bankruptcy court may have "arising in" jurisdiction to interpret sale-order provisions)
- Fleet Mortgage Group, Inc. v. Kaneb, 196 F.3d 265 (emotional distress may be compensable in certain contempt/damages contexts)