649 B.R. 603
Bankr. M.D. Fla.2023Background
- Debtor William J. Namen II (a podiatric surgery practice) filed Subchapter V Chapter 11 on November 10, 2022.
- Pre-petition, Duval County issued a judgment later assigned to Cadlerock; on October 4, 2022 the State Court issued a writ of garnishment served on Blue Cross Blue Shield (BCBS).
- BCBS withheld $11,838.49 pre-petition and informed parties it would continue to withhold future payments until the writ was dissolved.
- Debtor notified Cadlerock of the bankruptcy and requested dissolution of the writ; Cadlerock refused to dissolve it and blamed BCBS for continuing garnishments.
- The Bankruptcy Court ordered Cadlerock on December 20, 2022 to immediately dissolve the writ; Cadlerock failed to act until after a January 5, 2023 continued hearing.
- The court found approximately $70,000 garnished post-petition, causing payroll disruption; court held Cadlerock willfully violated the automatic stay and will hold a separate damages trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether continued post-petition garnishment violated § 362(a)(1) and (a)(2) | Namen: continued garnishments were continuation/enforcement of a pre-petition judgment and thus stayed | Cadlerock: not required to dissolve a pre-petition writ on bankruptcy filing; BCBS chose to continue withholding | Court: Cadlerock had an affirmative duty to dissolve or stay the writ and its failure was a willful violation under § 362(a)(1)/(a)(2) |
| Whether mere retention violates § 362(a)(3) after Fulton | Namen: post-petition funds are estate property (earnings) and garnishment altered status quo | Cadlerock: Fulton means mere retention is not an act; no duty to affirmatively dissolve writ | Court: Fulton distinguishable—this case involved active alteration of the status quo (continued garnishments) so Fulton does not shield Cadlerock |
| Who bears responsibility when garnishee withholds funds | Namen: creditor must take affirmative steps to stop garnishment; garnishee immunity limited to good-faith actions | Cadlerock: BCBS, not Cadlerock, chose to withhold post-petition funds | Court: Cadlerock cannot shift blame; Florida law protects good-faith garnishees but creditor must act to stop continuation and Cadlerock knew BCBS would keep withholding |
| Standard for willfulness and sanctions under § 362(k)(1) following Taggart | Namen: willful violation—creditor knew of petition and intended actions that continued garnishment | Cadlerock: asserted reasonable/legal basis to not dissolve writ | Court: Whether under traditional willfulness or Taggart's fair-ground-of-doubt, Cadlerock's conduct was objectively unreasonable and willful; sanctions appropriate; damages to be determined at separate trial |
Key Cases Cited
- City of Chicago v. Fulton, 141 S. Ct. 585 (2021) (mere retention of estate property does not by itself violate § 362(a)(3); stay bars affirmative acts that change the status quo)
- Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210 (9th Cir. 2002) (creditor must dismiss or stay collection actions post-petition; automatic stay requires immediate freeze)
- Jove Eng'g v. IRS (In re Jove Eng'g, Inc.), 92 F.3d 1539 (11th Cir. 1996) (willfulness requires knowledge of stay and intent to perform the violative act)
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (sanctions for violating injunctions require lack of a fair ground of doubt; objective standard)
- In re Briskey, 258 B.R. 473 (Bankr. M.D. Ala. 2001) (garnishing creditors must take affirmative action to release post-petition garnishments to implement the automatic stay)
- Arnold, Matheny & Eagan, P.A. v. First Am. Holdings, Inc., 982 So. 2d 628 (Fla. 2008) (garnishee liability for failing to retain defendant property; Florida statute shields garnishees acting in good faith)