In re Michelle Dougherty-Kelsay
COUNSEL
OPINION
JESSICA E. PRICE SMITH, Bankruptcy Appellate Panel Judge. This appeal arises from a Memorandum Opinion and Order Regarding Debtor‘s Stay Violation, Attorneys’ Fees, Confirmation, and Case Disposition entered April 23, 2019 (the “Stay Violation Order“).
Michelle Dougherty-Kelsay (“Debtor“) and Michael Stephen Kelsay (“Creditor“) were married in 2001 and have three children. Their divorce proceedings began in July 2007 and a decree of dissolution was entered in July 2008. Domestic support and child custody issues have continued to be litigated. In 2017, Creditor obtained primary custody of the children. In May 2017, he filed a Motion for Child Support and Motion for Contempt in the Kenton County Circuit Court (“Family Court“) seeking an order “establishing a sum of child support to be paid by Debtor to Creditor for the parties’ three minor children.” A monthly support amount was determined. At issue in this appeal are expenses for medical care and extra-curricular activities, payment of past due support obligations, and the judgment for payment of the outstanding obligations and related contempt findings. Pre-petition, the Family Court established that the parties would split the cost of medical care and extra-curricular activities for the children, with Creditor paying 68% of those costs, and Debtor paying 32%. Creditor was seeking reimbursement for Debtor‘s share of incurred expenses when the bankruptcy petition was filed. The Family Court held a hearing, post-petition, on Creditor‘s request for payment, made findings on the obligation due and payment of the obligation, and found Debtor in contempt of a prior order. Debtor filed a motion with the Bankruptcy Court requesting sanctions for violation of the automatic stay for the рost-petition hearing and Creditor‘s collection efforts made pursuant to orders issued by the Family Court. In the Stay Violation Order, the Bankruptcy Court found that some actions violated the automatic stay and awarded attorneys’ fees as actual damages and punitive damages. For the reasons set forth below, the Bankruptcy Court‘s Stay Violation Order is AFFIRMED.
ISSUES ON APPEAL
On appeal, Debtor challenges the determination that the Family Court hearing and judgment were actions to establish a domestic support obligation, and therefore excepted from the automatic stay pursuant to
JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit (the “BAP“) has jurisdiction
The Bankruptcy Court‘s determination of whether there was a violation of the automatic stay is subject to de novo review. “De novo review requires the Panel to review questions of law independent of the bankruptcy court‘s determinаtion.” First Union Mortg. Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (1998).
The Bankruptcy Court‘s award of fees and punitive damages for the violations of the automatic stay are reviewed for abuse of discretion. “The abuse of discretion standard is deferential and requires the reviewing court to lend credence to the [lower] court‘s determination.” Proctor v. Northern Lakes Cmty. Mental Health, 560 F. App‘x 453, 456 (6th Cir. 2014) (citing Yeschick v. Mineta, 675 F.3d 622, 628 (6th Cir. 2012)). “A court has abused its discretion if the reviewing court has a definite and firm conviction that the trial court committed a clear error of judgment in the conclusion that it reached based on all of the apрropriate factors.” Belfance v. Black River Petroleum (In re Hess), 209 B.R. 79, 80 (B.A.P. 6th Cir. 1997). “While acknowledging this standard, the Court of Appeals for the Sixth Circuit has recently expressed it in another way: ‘The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court‘s decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion.‘” Barlow v. M.J. Waterman & Assocs., Inc. (In re M.J. Waterman & Assocs., Inc.), 227 F.3d 604, 608 (6th Cir. 2000). See also Cmty. Fin. Servs. Bank v. Edwards (In re Edwards), No. 17-8028, 2018 WL 2717237, at *1 (B.A.P. 6th Cir. June 5, 2018), aff‘d, 748 F. App‘x 695 (6th Cir. 2019).
FACTS
Debtor, Michelle Dougherty-Kelsay, and Creditor, Michael Stephen Kelsay, are parties to a contestеd divorce with related domestic support and child custody issues. On May 16, 2017, Creditor filed a Motion for Child Support and Motion for Contempt, seeking an order establishing child support to be paid by Debtor for the parties’ three minor children, and an order of contempt with an award of $750 in attorneys’ fees. (“Contempt Motion No. 1“). On August 21, 2017, the Family Court issued an order establishing $617.60 as the amount of Debtor‘s monthly domestic support obligation and ordering the funds be withheld from Debtor‘s wages. (The “Pre-Petition Child Support Order“). The contempt request was not resolved in the August 21 order.
The Pre-Petition Child Support Order provided that any medical, dental, pharmaceutical, and extracurricular activity costs incurred on behalf of the children were to be paid 68% by Creditor and 32% by Debtor. Id. A “30/30 rule” for reimbursement of expenses was included in the order. Pursuant to this rule, the parent incurring an expense is required to provide the other parent an invoice for the expense within 30 days of its being incurred. The receiving parent then has 30 days to either pаy or object to the expense. Id.
Debtor filed hеr bankruptcy petition on January 25, 2018 (the “Petition Date“). Even though Creditor‘s Contempt Motion No. 2 was pending in the Family Court on the Petition Date, with a hearing scheduled to take place a few weeks later, Debtor omitted Creditor and his divorce attorney, Holly Daugherty, from the schedules and did not otherwise list them as interested parties to receive notice of the bankruptcy. Consequently, on February 6, 2018, Creditor requested that Debtor pay the Medical Expense.
On February 13, 2018, Debtor amended her schedulеs, adding Creditor and his divorce attorney. The next day, Debtor‘s counsel filed a “Suggestion of Bankruptcy” with the Family Court. He also informed Attorney Daugherty that he believed the automatic stay “stops the continuation of any proceeding to collect pre-petition DSO from Debtor or from the property of the estate, unless the creditor first obtains relief from stay.” Creditor made no effort to stop the proceedings or modify the request for relief set forth in Contempt Motion No. 2, and the hearing оn the motion was held on February 19, 2018. (The “Post-Petition Hearing“). Debtor‘s divorce attorney objected to the hearing going forward on the grounds that Debtor was under the protection of the automatic stay. Creditor‘s position was that the matter could go forward as the matter was for a domestic support obligation. The Family Court overruled Debtor‘s objection and proceeded with the hearing.
The Family Court entered its findings of facts and conclusions of law on February 22, 2018. (The “Post-Petition Judgment“). In the Post-Petition Judgment, the Family Court found that the “Suggestion of Bankruptcy” filed by Debtor did not operate as a stay of the motions, because they related to domestic support obligations pursuant to
Creditor made additional demands for payment on February 16, 23, 26, and March 6 and 12, 2018. In addition, on July 30, 2018, Creditor sent Debtor a payment demand with a spreadsheet, purportedly for post-petition support obligations accrued between January 30, 2018, and August 3, 2018. The spreadsheet includes the Medical Expense. Creditor sent Debtor an
On March 15, 2018, Creditor filed a third motion for contempt (“Contempt Motion No. 3“), seeking an order to show cause why Debtor should not be held in contempt for violating the Family Court‘s orders, including Debtor‘s failure to deliver the $50 Payment. The motion also requested a reduction in Debtor‘s parenting time. Id. Debtor‘s counsel again emailed Creditor‘s counsel, outlining the basis of his opinion that the enforcement actions did not fall within the exceptions set forth in
In March of 2018, the State of Kentucky notified Debtor that her state tax refund of $274.00 had been intercepted (the “KY Intercept“), transferred to the Department for Child Supрort (“DCS“), and applied to $4,417.00 in child support arrears. She also received notice that her federal income tax refund of $4,306.00 had been intercepted and transferred to DCS for the same obligation. (The “Federal Intercept“; the KY Intercept and the Federal Intercept shall be referred to collectively as the “Intercepts“). On April 5, 2018, DCS paid Creditor $1,270.66 and $2,887.60 from the proceeds of the Intercepts. On the same date, Creditor filed a proof of claim in the amount of $1,270.66, which he later withdrew after Debtor filed an objection.
Debtor‘s Stay Violation Motion was set for evidentiary hearing before the Bankruptcy Court on March 12, 2019, along with other contested matters including plan confirmation. On April 23, 2019, the Bankruptcy Court entered the “Stay Violation Order“. The Bankruptcy Court found that the Family Court had jurisdiction to hold the February 19, 2018 hearing and enter judgment on any matter to which the automatic stay did not apply. Specifically, it held that as authorized by
However, the Bankruptcy Court found that actions related to the $50 Payment and certain aspects of the contempt proceedings did violate the automatic stay. Specifically, the order for Debtor to pay Creditor the $50 Payment in an envelope to the visitation supervisor was determined to be a violation of the stay because, although the Family Court intended the payment to apply to a domestic support obligation, that court did not limit collection to non-estate assets.
DISCUSSION
In this appeal, the Panel reviews de novo the Bankruptcy Court‘s legal conclusions that Creditor violated the automatic stay, with Debtor bearing the burden of proof. The Panel reviews the Bankruptcy Court‘s awards of attorneys’ fees as actual damages and punitive damages on account of such violations for an abuse of discretion.
When Debtor filed her bankruptcy petition on January 25, 2018, Creditor‘s Contempt Motion No. 2 was pending with the Family Court, with a hearing scheduled for February 19, 2018. Contempt Motion No. 2 was filed in October, after Debtor failed to respond to or pay invоices forwarded by Creditor as required by the Family Court‘s September 2017 oral ruling. Notwithstanding this known obligation, Debtor‘s bankruptcy petition did not list Creditor or his attorney. Once Debtor amended her schedules, Debtor‘s attorney notified the Family Court the next day. The Family Court decided to move forward with the hearing. Dominic‘s Restaurant of Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir. 2012) (The court “in which the judicial proceeding is pending... has jurisdiction to decide whether the proceeding is subject to the stay.“).
To determine whether Debtor met her burden of proving that Creditor violated the automatic stay, we must determine if Creditor‘s actions would have been stayed under
It is axiomatic that the filing of a bankruptcy petition operates as a stay, applicable to all entities, of the commencement or continuation of a judicial proceeding against a debtor that was commenced before the case; to recover a claim against the debtor that arose before the case; enforcement against the debtor or against property of the estate, of a judgment obtained before the case; or аny act to obtain possession of or exercise control over property of the estate.
The February 19, 2018, hearing addressed the Pre-Petition Child Support Order, Contempt Motion No. 1, Contempt Motion No. 2, and visitation arrangements. The Family Court ruled that the stay was not applicable to the hearing because the motions involved domestic support obligations. Although that ruling is not binding on this panel, rеviewing the pleadings, issues addressed, and the findings of the Family Court, we find that the February 19, 2018 hearing was conducted for the purpose of establishing and modifying a domestic support obligation and was excepted from the automatic stay.
The Family Court ordered the additional domestic support obligation to be paid in $50 installments, and required Debtоr to deliver the first installment, the $50 Payment, directly to the visitation supervisor on her next visit with the children. The remaining installments were to be paid by increasing the child support garnishment order on Debtor by $50 per month. Debtor appeals the Bankruptcy Court‘s finding that only the $50 Payment portion of the Family Court‘s order was a violation of the automatic stay. Pursuant to
The final exception to the stay applicable in this matter is
At the February 19, 2018 hearing, the Family Court denied Contempt Motion No. 1, but granted Contempt Motion No. 2, holding the determination of sanctions in abeyance. Although Contempt Motion No. 2 sought relief for
The initial inquiry regarding the direct $50 Payment for the domestic support obligation and the $112 Medical Expense, is whether they were obligations subject to the stay. Wohleber, 595 B.R. at 567. The parties do not disрute that the expenses included in the $1,270.66 domestic support obligation were incurred pre-petition. There is a dispute, however, about whether the Medical Expense is a prepetition or post-petition obligation. The Medical Expense resulted from a pre-petition hospital visit, but because of the 30/30 rule, Creditor asserts that the Medical Expense did not become a claim until an invoice was submitted to Debtor, which occurred post-petition. This argument is contrary to the plаin meaning of “claim” as found in the Bankruptcy Code. Under the Code, a claim is a right to payment, whether matured, unmatured, or disputed.
Unlike the remaining $50 installment payments that were ordered to be made pursuant to an amended garnishment order, the initial $50 Payment ordered by the Family Court was to be paid by Debtor directly to Creditor. To except collection of the payment from the stay, it would need to be paid from property that is nоt property of the estate. See
When there has been a willful violation of the stay,
Debtor requested actual damages of $1,270.66, attorneys’ fees of $16,743.74 or 40% of actual damages, and punitive damages from Creditor pursuant to
CONCLUSION
For the reasons set for above, we AFFIRM the Bankruptcy Court‘s Stay Violation Order.