Connecticut Pizza, Inc. v. Bell Atlantic-Washington, D.C., Inc. (In Re Connecticut Pizza, Inc.)Connecticut Pizza, Inc. v. Bell Atlantic-Washington, D.C., Inc. (In Re Connecticut Pizza, Inc.)
In this adversary proceeding, Connecticut Pizza, Incorporated, d/b/a Connecticut Pizza, Inc. (“Plaintiff”) 1 brought an action seeking damages from Bell Atlantic-Washington, D.C., Inc. (“Bell Atlantic” or “Defendant”). The Defendant has filed a Motion for Summary Judgment seeking judgment on all counts. The Plaintiff has filed a Motion for Partial Summary Judgment, seeking a judgment of liability against the Defendant with damages to be determined at an evidentiary trial.
A hearing on the motions for summary judgment was held on December 7,1995. In its complaint the Plaintiff seeks a finding of liability and determination of damages on four separate causes of action: (1) breach of contract, (2) negligence, (8) willful violation of II U.S.C. § 362(a) pursuant to 11 U.S.C. § 362(h), and (4) violation of 11 U.S.C. § 366. At the December 7, 1995 hearing, the plaintiff stipulated that it was withdrawing its cause of action asserted for violation of 11 U.S.C. § 366.
Although each side in its submissions has presented a different characterization of the facts in this case and has argued different conclusions which the court should draw from those facts, there is little dispute as to actual facts and no dispute of material facts relevant to the determination of the causes of action which remain. Accordingly, the court shall determine all remaining disputes in this adversary proceeding upon the cross-motions for summary judgment.
Under Rule 56 of the Federal Rules of Civil Procedure, made applicable to bankruptcy cases by Rule 7056 of the Federal Rules of Bankruptcy Procedure, summary judgment is appropriate only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.
Lujan v. National Wildlife Federation,
At the December 7, 1995 hearing on the motions for summary judgment and in response to questions posed by the court, both parties stipulated to a number of facts that are material to the determination of this dispute. The litigants could not stipulate and agree to various additional non-material facts, either because the parties lacked knowledge of the facts or because one of the parties disputed the characterization contained in an averment made by the other. Accordingly, the court shall consider only the following stipulated material facts in ruling on the cross-motions for summary judgment.
A. Stipulated Material Facts.
Prior to April of 1992, Christopher and Patricia Kefalas, then husband and wife, were the shareholders and officers of three separate corporations: SLC, Inc. (“SLC”), Fairfax Maggies, Inc. and the Plaintiff herein, Connecticut Pizza, Inc. Christopher Ke-falas was president and Patricia Kefalas was vice president of these corporations. At all times relevant to the dispute in this adversary proceeding, Christopher Kefalas remained president of the Plaintiff.
In connection with a domestic dispute between Christopher and Patricia Kefalas, the Circuit Court for Montgomery County, Maryland entered certain orders approving an agreement between the parties with respect to the management and operation of the jointly owned companies. Specifically, a Consent Order dated April 18, 1992 provides in relevant part:
[T]hat until May 8, 1992, the plaintiff [Patricia Kefalas] shall manage and operate the parties’ jointly owned businesses, including the receipt and disbursement of all monies, and shall attempt to make arrangement [sic] with business creditors to solve some of the financial problems; and it is further,
ORDERED, that the defendant [Christopher Kefalas] shall have access to the parties’ jointly owned businesses and assets during normal business hours one time per day, provided he shall not interfere in plaintiff’s operation of the business or withdraw any money....
Memorandum of Points and Authorities in Support of Plaintiff’s Motion for Summary Judgment, Paper No. 49, at Exhibit L. On May 7, 1992, the Circuit Court entered a second order extending the April 18, 1992 order in full force and effect until further order of the court. Id. Shortly after the entry of the orders by the Circuit Court, Patricia Kefalas, acting for the three corporations, engaged Ronald Goldberg, Esquire, as counsel. Goldberg drafted petitions in bankruptcy and initiated Chapter 11 cases for each corporation.
After the petition in bankruptcy was filed by the Plaintiff, this court entered an order granting relief from the automatic stay in favor of G.E. Capital, a secured creditor. G.E. Capital subsequently sold the equipment necessary for the Plaintiff to maintain its pizza operation. In addition, the lease under which the Plaintiff occupied the premises at 4483 Connecticut Avenue, N.W. was terminated.
On or about June 1, 1993, Patricia Kefalas telephoned Bell Atlantic and instructed the company to transfer the location of the telephone number listed for the Plaintiff to the 7237 Wisconsin Avenue, N.W. location of the restaurant owned and operated by SLC. The Plaintiff avers that the purpose of transferring the telephone number was to move its pizza delivery business from the Connecticut Avenue location to the Wisconsin Avenue premises occupied by SLC, where the Plaintiffs business would be maintained as a semi-autonomous operation. The Plaintiff concedes, however, that no formal documentation reflecting these proposed arrangements between SLC and the Plaintiff was prepared. 2
Upon receiving the request of Patricia Ke-falas, the customer service unit of Bell Atlantic prepared a work order for the transfer of the phone number. Within 10 days of that request and before the work order was executed, Bell Atlantic received a telephone call from Christopher Kefalas, who identified himself as the president of the Plaintiff. Christopher Kefalas informed Bell Atlantic that the phone number was not to be transferred without his authorization. Christopher Kefalas was also the person who had originally set up the phone number and account at Bell Atlantic on behalf of the Plaintiff.
As a result of Christopher Kefalas’ phone call, Bell Atlantic canceled the work order, issued a work order code to Christopher Kefalas, and entered a computer instruction that further work orders would only be honored if requested by a person in possession of that code. Bell Atlantic then promptly
At the time of these communications, Bell Atlantic maintained a separate bankruptcy unit to deal with customers that had filed petitions in bankruptcy. This unit maintained special bankruptcy account billing procedures designed to ensure that collection efforts and other actions taken with respect to an account held by a customer who had filed bankruptcy did not violate the provisions of the Bankruptcy Code. At a deposition taken in this adversary proceeding it was revealed that the bankruptcy unit was in possession of a copy of the motion for relief from stay filed by G.E. Capitol. Attached to this motion was a certificate of service upon, inter alia, Patricia Kefalas as debtor’s “designated representative”. Bell Atlantic’s bankruptcy unit had been in contact with Mr. Goldberg in arranging the required deposit for continuing service under section 366 of the Bankruptcy Code. 3 The deposit required for continuing service under 11 U.S.C. § 366 was paid by a check drawn upon an account jointly titled in the name of all three corporations and signed by Patricia Kefalas. Moreover, Bell Atlantic’s bankruptcy unit generated and filed a proof of claim in the Plaintiff’s bankruptcy case, a copy of which was mailed to Mr. Goldberg. Bell Atlantic at no time sought to collect the pre-petition accounts of the Plaintiff. The customer service unit which received the request and protest over the relocation of the phone number did not consult with the bankruptcy unit concerning the conflicting instructions as to the transfer of the number.
After receiving the second round of communications from Patricia Kefalas and Mr. Goldberg instructing Bell Atlantic to transfer the phone number notwithstanding the protest of Christopher Kefalas, Bell Atlantic contacted Christopher Kefalas. Christopher Kefalas’ bankruptcy attorney, Gary Welton, Esquire, advised Bell Atlantic that the Plaintiff’s request to transfer the telephone number was an attempt to transfer an asset out of the Plaintiff’s bankruptcy estate to the separate entity of SLC in violation of the Bankruptcy Code. Bell Atlantic was similarly advised that the telephone number could not be lawfully transferred without a court order approving such transfer. In light of these conflicting instructions by the respective counsel for the parties seeking and opposing the transfer of the phone number, Bell Atlantic informed both parties that it would not transfer the phone number absent a court order ascertaining the rights of the parties or authorizing the transfer.
On June 25,1993, the Plaintiff by its counsel Mr. Goldberg filed a motion
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for an order to show cause why Christopher Kefalas should not be held in contempt for interfering with and preventing the transfer of the telephone number. In the motion the Plaintiff averred that Christopher Kefalas’ actions constituted a wilful violation of the automatic
The telephone number was never transferred in accordance with the request and was eventually discontinued, either at the Plaintiffs instruction or because of non-payment of the post-petition account. Finally, the Plaintiff stipulated that the maximum allowed damages under the published tariff for breach of contract would be $50.00.
B. Conclusions of Law.
1. Count I: Negligence.
As set forth on the record at the hearing on the motion for summary judgment and as further detailed in this Memorandum Opinion, summary judgment shall be granted in favor of Bell Atlantic on the negligence count. It is not entirely clear whether, under Maryland law,
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an independent cause of action
ex delicto
exists for the breach of a duty which arises solely as the result of a contract between the parties. The last clear pronouncement by the Court of Appeals of Maryland on this issue appears in the case of
Heckrotte v. Riddle,
The mere negligent breach of a contract, absent a deed or obligation imposed by law independent of that arising out of the contract itself, is not enough to sustain an action sounding in tort.
In
Jacques, supra,
the Court of Appeals found that the plaintiff could proceed in a cause of action for negligence where a bank had accepted an application for a loan and a fee paid for the processing of that application. The processing was negligently accomplished. As the relationship between the applicant and bank arose solely by virtue of contract, it would appear that the Court of Appeals softened the absolute prohibition against causes of action being asserted
ex delicto
for breaches of duty arising from a contract, as set forth in
Heckrotte, supra.
However, the Court of Appeals gave little guidance as to what special circumstances are required in order for a tort action to be maintainable upon a duty which would not exist but for the contract between the parties.
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The United States District Court for the District of Maryland has opined that in the absence of extraordinary circumstances, such as the those in the
Jacques
case concerning the purchase of a personal residence, Maryland does not recognize a cause of action for negligent breach of contract.
Howard Oaks, Inc.,
It may well be that such special circumstance would exist between parties situated as are the litigants before this court. Bell Atlantic is a regulated public telephone company having a monopoly over local telephone service in this region. Although it may be said that parties obtain a right to performance of services by Bell Atlantic solely by reason of their becoming customers pursuant to a contract with Bell Atlantic, the unique position of Bell Atlantic and similarly situated companies may well impose a broad duty upon Bell Atlantic to act in a prudent manner and with a reasonable duty of care in the operation of the communications network it controls. Nonetheless, to the extent that such a duty exists and could be sued upon in tort if violated, Bell Atlantic would be expected to exercise the degree of care that a person of ordinary judgment would exercise under like circumstances.
State v. Baltimore Contracting Co.,
Bell Atlantic promptly responded to each demand made by Patricia and Christopher Refalas and their attorneys and promptly informed both sides of the conflicting communications it had received. Bell Atlantic was faced with the request for the transfer of the phone number; a demand by Christopher Refalas, the president of the Plaintiff, that the number not be transferred; argument by counsel for the Plaintiff that the debtor-in-possession had the right to the phone number and a right to transfer it; and arguments by counsel for Christopher Refa-
A debtor-in-possession seeking to transfer a telephone number and faced with this series of events could immediately turn to the bankruptcy court for relief under 11 U.S.C. § 362. In fact; this is exactly what Plaintiff did. Plaintiff moved in this court for an order finding Christopher Refalas in contempt. The motion did not seek relief against Bell Atlantic, and, for that matter, did not even name Bell Atlantic as a party to the alleged violation of the automatic stay. Then, for reasons known only to the Plaintiff, the contempt motion was eventually withdrawn with prejudice.
It is simply unreasonable for the Plaintiff to exclude Bell Atlantic in its motion seeking a determination as to its right to transfer the phone number, dismiss its action with prejudice against the only respondent named, and then two years later institute a suit for money damages against Bell Atlantic asserting that the failure to transfer the number had somehow cost the Plaintiff’s failing business significant revenues over the ensuing two year period. At the very least, this pattern of activity rises to contributory negligence, which would bar a recovery by the Plaintiff on its cause of action in tort.
Wegad v. Howard Street Jewelers,
2. Count II: Breach of Contract.
On the cause of action for breach of contract, this court reaches the opposite conclusion and finds that on the facts of this case, Bell Atlantic breached its contract with the debtor. “A breach of contract is a failure without legal excuse to perform any promise which forms the whole or part of a con-tract_”
Weiss v. Sheet Metal Fabricators, Inc.,
Bell Atlantic points to certain tariff provisions as authority for the proposition that it had no contractual duty to transfer the phone number and that the Debtor held no interest in the phone number. One provision in the tariff states that:
At the request of the customer, service may be relocated to a different premises or to a different building at charges based on estimated costs provided that the service is relocated to a new location that is leased or owned by the same customer.
Plaintiffs Memorandum of Points and Authorities in Response to Defendant’s Motion for Summary Judgment, Paper No. 55, at Exhibit A (emphasis supplied). Bell Atlantic’s reliance on the tariff for this proposition is misplaced. A reasonable reading of this tariff is that it empowers Bell Atlantic to charge for relocation of phone numbers and otherwise regulate what charges may be assessed and what rebates shall be given for
Despite Bell Atlantic’s assertions to the contrary, courts have generally found that debtors have an interest in their telephone number and that as such the number may constitute property of the estate.
See In re Fontainebleau Hotel Corp.,
As conceded by the Plaintiff at the hearing on motions for summary judgment, the damages for this breach are limited by the tariff to the sum of $50.00. Accordingly, the court finds that summary judgment on Count II of Plaintiffs complaint asserting a cause of action for breach of contract is appropriate and shall be entered in favor of the Plaintiff in the amount of $50.00.
3. Count III: Violation of the Automatic Stay.
In Count III of the complaint, Plaintiff asserts that Bell Atlantic’s refusal to transfer the telephone number to the Wisconsin Avenue location violated the automatic stay provisions of the Bankruptcy Code. Section 362 of the Code provides that the filing of a petition commencing a bankruptcy case operates as a stay against various actions against property of the estate, including “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate”. 11 U.S.C. § 362(a)(3). Debtor argues that by refusing to honor its request to transfer the telephone number, Bell Atlantic “exercised control over property of the estate” in contravention of the automatic stay. Before deciding whether Bell Atlantic’s refusal to transfer the telephone number constituted “an act to obtain possession” or “exercise control” within the meaning of section 362(a)(3), the court must first determine whether the telephone number is “property of the estate” protected by the automatic stay provisions of the Bankruptcy Code.
The filing of a petition commencing a bankruptcy case creates an estate comprised of all legal or equitable interests of the debtor in property, wherever located and by whomever held, as of the commencement of the case. 11 U.S.C. § 541(a). The scope of section 541(a) is broad, and includes both tangible and intangible property.
United States v. Whiting Pools, Inc.,
The court finds otherwise. It is clear that at the time the request to transfer was made, the Debtor had at the very least a possessory interest in the telephone num
The court denied the motion to dismiss, holding that the telephone numbers were property of the estate within the meaning of section 541 of the Bankruptcy Code and that jurisdiction was appropriate pursuant to 28 U.S.C. § 157(b)(2)(N). Id. at 509. Agreeing with the reasoning of the decisions in the eases of In re Fontainebleau Hotel Corp. and In re Kassuba, supra, the court found that the tariff, a self-serving document drafted by the telephone company itself, could not determine the definition of the term “property” as that term is used in federal bankruptcy law. Id.
This court adopts the reasoning of these decisions and finds that at the time the Debt- or requested the transfer, the telephone number was property of the estate within the meaning of section 362(a)(3) and therefore protected by the automatic stay against any act to obtain possession or exercise control over it. As the Fifth Circuit recognized in
In re Fontainebleau Hotel Corp.,
telephone numbers are valuable business assets, much like buildings, furniture, and equipment.
Having found that the telephone number was property of the estate, the court must next consider whether Bell Atlantic’s refusal to transfer the telephone number to the Wisconsin Avenue location constituted an act to obtain possession or exercise control over the property in violation of the automatic stay. If the answer to this question is in the affirmative, then sanctions under section 362(h) may be warranted. That section provides that
[a]n individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
11 U.S.C. § 362(h).
The purpose of the automatic stay, and particularly section 362(a)(3), is to preserve the assets of the debtor’s estate and allow the debtor-in-possession or trustee to fashion an equitable procedure for the distribution of estate property.
Price & Pierce
Consistent with the explicit purpose of section 362(a)(3), actions that tend to maintain the status quo are less likely to be considered violations of the automatic stay.
See, e.g., In re Warwick,
This is not to say, of course, that a failure to act can never constitute a violation of the automatic stay. But in most instances where courts have found violations of the stay based on an act of omission, the unlawful act arises from a failure to cure a previous violation of the stay or otherwise restore the status quo.
See Ledford v. Fidelity Financial Servs. (In re Hill),
The case of
Sousa v. Bank of Newport, supra,
provides a clear illustration of the principle that actions taken to maintain the status quo rather than for an improper purpose may not be considered violations of the automatic stay. In that case a bank placed an “administrative hold” on the debtors’ checking account pending receipt of “sufficient evidence” that the funds in the account were, as asserted by the debtor, exempt from inclusion in the bankruptcy estate.
The court held that under these circumstances the bank was not “exercising control” over estate property within the meaning of section 362(a)(3).
Id.
at 494. The basis of the court’s decision was the bank’s motivation for freezing the account. If the bank had placed an administrative hold on the account for purposes of preserving its set-off rights, the court decided, the freeze would have violated the automatic stay.
Id.
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But
Similarly, Bell Atlantic’s refusal to transfer the telephone number was not an attempt to gain leverage or otherwise improve its position with respect to the Debtor and the bankruptcy estate. Bell Atlantic did not terminate the telephone number or the Debtor’s right to use it. Such actions would clearly have constituted violations of various stay provisions contained in section 362.
See, e.g., In re Farmers Markets, Inc.,
Bell Atlantic did not act in such a way as to threaten the assets of the Plaintiffs estate, and did not interfere with the status quo as to the relationship between the debt- or, creditors, and other parties-in-interest. In fact, the telephone company did just the opposite. Bell Atlantic acted in good faith and attempted to maintain the status quo in the face of conflicting instructions concerning the transfer of the telephone number. Bell Atlantic’s refusal to transfer the telephone number in the absence of a court order approving the transfer was reasonable under the circumstances. Moreover, Bell Atlantic demonstrated a willingness to transfer the number upon authorization by the court that the proposed transfer was lawful. Under these circumstances, the court cannot find that Bell Atlantic’s refusal to transfer the telephone number constituted a violation of the automatic stay warranting sanctions under section 362 of the Bankruptcy Code. Accordingly, the motion of Bell Atlantic for summary judgment as to Count III of Plaintiffs complaint shall be granted in favor of Bell Atlantic and against the Plaintiff.
Notes
. The Plaintiff and Debtor herein filed a petition in bankruptcy and the complaint instituting this adversary proceeding under the name of Connecticut Avenue, Inc. The Debtor has since filed an amended petition correcting the name listed on the petition to Connecticut Pizza, Inc., and has filed an amended complaint in this adversary proceeding likewise correcting the name of the Plaintiff.
. Defendant does not concede that the pizza delivery business to be moved to the Wisconsin Avenue location was to be operated as an independent business maintained by the Plaintiff. This dispute is not material to the determination of the remaining causes of action.
. Section 366 provides:
(a) Except as provided in subsection (b) of this section, a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due.
(b) Such utility may alter, refuse, or discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order for relief, furnishes adequate assurance of payment, in the form of a deposit or other security, for service after such date. On request of a party in interest and after notice and a hearing, the court may order reasonable modification of the amount of the deposit or other security necessary to provide adequate assurance of payment.
11 U.S.C. § 366.
. This motion is found in the case In re Connecticut Pizza, Inc., No. 92-1-6259-SD, at paper number 111.
. Both parties have assumed that Maryland law governs the issues presented and have cited this court to decisions concerning application of Maryland law. However, it appears that both the Plaintiff and Bell Atlantic were situated in the District of Columbia at the time of the events, that the customer relationship existed in the District of Columbia, and that all of the business of the Plaintiff was conducted in the District of Columbia. The original petition in the main bankruptcy case was filed by Connecticut Avenue, Inc., which purported to be a Maryland corporation. The amended petition discloses the name of the Debtor as Connecticut Pizza, Inc., a corporation formed under the laws of the District of Columbia. As it is now evident that the Debt- or was incorporated under the laws of the District of Columbia, where it operated its sole business location and held all of its assets, it appears that the Debtor’s petition was filed in the wrong venue. 28 U.S.C. § 1408. Nonetheless, this court will not now transfer this case and this adversary proceeding which has been so long pending, as it would work to the inconvenience of all parties and against judicial efficiency.
Because the parties have not argued to the contrary, the court will apply Maryland law. In any event, it appears that the court's determination of the negligence count of Plaintiff’s complaint would be the same under District of Columbia law.
See Prouty v. National R.R. Passenger Corp.,
. One decision has been located which indicates that the District of Columbia would follow the
Jacques
exception to the
Heckrotte
rule.
See High v. McLean Fin. Corp.,
. The Supreme Court of the United States has since determined that the placing of an adminis