In Re Freemyer Industrial Pressure, Inc.
MEMORANDUM OPINION
Before the Court is its Order Directing KGM Express, Inc. to Appear and Show Cause for Sanctions not to Issue for Violation of the Automatic Stay (the “Cause Order”) entered on June 6, 2002, upon Debtor’s Verified Motion for Order Directing KGM Express, Inc. to Show Cause for Sanctions not to Issue for Violation of the Automatic Stay (the “Motion”). Pursuant to the Cause Order, KGM Express, Inc. (“KGM”), its chief financial officer, its president and Casey Jon Lambright (“Lambright”) 1 were directed to appear at a hearing on June 13, 2002, so the Court might determine whether they had “willfully violated the automatic stay of Section 362(a) of title 11 of the United States Code.”
At the June 13, 2002, hearing Lambright and representatives of KGM appeared, and Lambright asserted notice to him of the hearing was inadequate under the Federal Rules of Civil Procedure. 2 The Court therefore adjourned until June 17, 2002, at which time it conducted an eviden-tiary hearing on the Cause Order. The Debtor presented testimony from Jeanette High (“High”) (an accounting employee of Debtor), Craig Freeman (“Freeman”) (accounting manager for Debtor) and Joseph Postnikoff (“Postnikoff’) (Debtor’s lead bankruptcy counsel). Lambright offered testimony from Geraldine Yorek (“Yorek”) (owner of KGM), Jerry J. Lester (“Lester”) (a driver for KGM) and himself. Each party introduced a number of exhibits into evidence.
Lambright, an attorney licensed in Texas and admitted in the U.S. District Court for the Southern District of Texas, was acting on his own behalf and purported not to represent KGM. As KGM is a corporation and was not represented by counsel, the Court did not permit it to participate in the hearings, though KGM’s interests were generally the same as Lambright’s and (as noted below) the Court believes Lambright fully articulated KGM’s position.
The Court has core jurisdiction over this contested matter pursuant to
I. Background
KGM is in the delivery business and had a prepetition relationship with Debtor.
On or about January 7, 2002, Debtor sold to Super Industrial Services (“SIS”)of Trinidad, West Indies, equipment for a price of $99,750.00 (Debtor’s Exhibit 3). 3 Debtor was paid in cash approximately contemporaneously with the sale.
On or about January 11, 2002, Debtor contacted KGM to arrange pick-up of a water blaster system, the largest component of the sale to SIS, and its delivery to the Port of Houston. The water blaster system was picked up on the 11th by Lester but could not be delivered to the Port for shipment that day because the Port closed before Lester could have reached it (testimony of Lester, Yorek).
In the meantime, High had a conversation with a KGM accounting employee who advised her delivery of the water blaster system would not occur unless and until Debtor paid the prepetition debt owed to KGM together with interest. 4 When High stated that Debtor was in chapter 11, she was instructed to send proof of the bankruptcy filing to KGM by facsimile. Though High testified she did this and received a confirmation of receipt, the confirmation is not in the record, and Yorek testified that, to her knowledge, KGM did not receive the facsimile.
It is undisputed, however, that KGM received repeated oral notice of Debtor’s filing, from Freeman, High, Mr. Freemyer (Debtor’s principal owner), and, finally, Postnikoff (testimony of Freeman, Yorek, Postnikoff and High). Postnikoff also attempted on the 11th to telecopy and then mailed to KGM by first class and certified mail a letter notification of Debtor’s filing. The copy sent by certified mail was received by KGM on February 1, 2002 (Debtor’s Exhibit 6 and Postnikoffs testimony). According to Freeman (whose testimony was not contradicted by Yorek), Debtor was also directed to contact Lam-bright as KGM’s attorney, and Postnikoff sent a letter by facsimile on January 14th to Lambright informing him of Debtor’s chapter 11 case.
Postnikoff had mailed notice of the bankruptcy to all creditors, including KGM at its post office box, on January 9.
5
While
On January 14 Lambright received Postnikoffs letter. In a subsequent telephone conversation, Lambright both demanded written proof of the chapter 11 filing and advised Postnikoff that he was not representing KGM in its relations with Debtor. On January 15, Lambright sent a letter to Postnikoff (Debtor’s Exhibit 10). The letter again states that Lambright was not representing KGM, but it asserts KGM’s position and makes various demands on KGM’s behalf. The Court finds that, at the very least, KGM was relying on Lambright to interpret the Bankruptcy Code in connection with its dealings with the Debtor and that Lambright was aware of this.
Despite the fact that Postnikoff was obviously located in Fort Worth (see Debt- or’s Exhibits 6 and 8) and despite the fact that Debtor’s home office telephone was surely known by KGM to bear an 817 area code, KGM and Lambright only checked the Houston bankruptcy court for a filing by Debtor. During their telephone conversation Lambright did not even ask Postnikoff in what court Debtor’s case was pending.
Instead, KGM continued to refuse to deliver (or return to Debtor) the water blaster system until funds were wire transferred to it in the amount of $5,697.19 in payment of prepetition debt and interest and the cost of the postpetition delivery. On January 15, desperate to avoid a problem with a large customer, Debtor complied. See Debtor’s Exhibit 11, Lam-bright’s Exhibit 5, testimony of Freeman. The system was then delivered by KGM. Thereafter KGM (and Lambright) received ample additional notice of Debtor’s bankruptcy, including Postnikoffs certified letter, the Motion and the Cause Order. Yet, as of this writing, KGM remains in possession of the amount paid, having made no effort to reestablish the status quo ante. Indeed, Lambright demands payment for his costs and time expended in responding to the Cause Order.
II. Discussion
Lambright and KGM apparently view the automatic stay of
The automatic stay of
In the instant case KGM and Lam-bright had notice of Debtor’s chapter 11 case. Oral notice of a filing is sufficient to require a party to observe the stay.
See
3 CollieR on Bankruptcy ¶ 362.02 (15th ed. rev.2002);
Carter v. Van Buskirk,
Even if the oral notice given to KGM and Lambright had not been definitive, as the Court concludes it was, it was unquestionably enough that KGM and any attorney acting for it were placed on inquiry as to whether the automatic stay applied.
See Stucka v. United States,
Postnikoff, a licensed attorney and officer of the Court, provided written notice to Lambright. Lambright’s failure to act, after receiving the letter and speaking with Postnikoff, to prevent KGM’s violation of the automatic stay is a breach of his attorney’s duty to the law and his responsibilities as, himself, an officer of the Court.
Even assuming,
arguendo,
that Lambright and KGM were entitled to more notice of Debtor’s chapter 11 case than repeated oral advice and Postnikoff s letter to Lambright, and assuming neither High’s facsimile nor Debtor’s Exhibit 4 was received before KGM collected its debt, KGM was bound upon learning the stay had been in place to return to Debtor the prepetition sums collected.
See Patton v. Shade,
The Court finds that KGM, with the approval and encouragement of Lam-bright, willfully violated the stay. Lam-bright argued KGM’s conduct was justifiable because, just as the boy who cried wolf was not believed by villagers, the Debtor’s representations about bankruptcy, based on prior prevarications, were assumed to be lies. Even if that argument had weight, Lambright apparently forgot it was the villagers who lost their sheep through failure to heed the boy’s cries. Lambright also imputed Debtor’s unreliability to Postnikoff, a colleague whose veracity should have been manifest.
Even when cited before this Court, Lambright did not research the stark, black letter doctrine the Court has been at pains to set out above. KGM and Lam-bright must now suffer the consequences.
Debtor has asked the Court to assess damages against KGM pursuant to
While
III. Conclusion
The money collected by KGM, $5,677.19 must be returned by KGM to Debtor, with interest at the federal judgment interest rate
(See
Debtor’s counsel will prepare and submit for entry an order consistent with this opinion.
Signed this the 24th day of June, 2002.
Notes
. Debtor only sought to cite KGM by the Motion. After reviewing the Motion the Court determined Lambright and KGM's officers should be named as well. KGM’s chief financial officer did not respond to the Cause Order, but Lambright and KGM’s owner did.
. Lambright suggested at various times that the short notice provided to him was through Debtor’s (or Postnikoff’s) design. While the notice period is irrelevant, since the Court continued the June 13 hearing, the Court finds, based on Postnikoff’s testimony, that there was no such design. The Court further finds that KGM and Lambright, whom Postni-koff served with the Motion, had adequate notice of the June 17 hearing (if not the June 13 hearing).
. Lambright challenged Debtor’s authority to make the sale to SIS. The Court concurs with Postnikoff s opinion (testimony of Postnikoff) that the sale was in Debtor’s ordinary course of business and so authorized pursuant to
. Though Lambright suggested that KGM required only payment for delivery of the water blaster system, High and Freeman both were clear that demand was made for the prepetition debt. This testimony is supported by the amount ultimately wire-transferred to KGM and various exhibits presented by Debtor. Yorek’s testimony, vague at best, did not counter that of Debtor’s witnesses. As to Lambright's contention that his position is evidenced by a reference in an e-mail from Freeman to “post petition” debt (Debtor’s Exhibit 9), the Court accepts Freeman's explanation that this was an error. See Debtor's Exhibit 11.
.It is unfortunate that counsel delayed so long in mailing notice. While the delay is immaterial to resolution of the instant matter, it ill-served creditor interests, since the notice set deadlines for creditors which were truncated by the delay. See Debtor’s Exhibits 4 and 5. Postnikoff explained that he waited to mail notice until Debtor’s schedules were filed. This, however, is not a good reason to shorten the time for, e.g., filing claims.
. The Court is especially troubled that Lam-bright apparently did not look up the law. Applicability of tire automatic stay is not a difficult concept, nor is the law unclear. A five-minute check of any treatise would have corrected Lambright's misperception. Yet up to the close of the June 17 hearing he obviously had not researched the issue before the Court.
. Though a transfer arguably should be avoided under section 549(a) by adversary proceeding (
.Section 1927 reads:
"Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct."
By persisting in assertion of an untenable position KGM and Lambright forced Debtor to bring the Motion and try the Cause Order. To the extent section 1927 does not apply to KGM, the Court finds authority to award fees and costs in