In re Tammy Martin v.
Decided and Filed: March 7, 2012
Before: EMERSON, FULTON, and PRESTON, Bankruptcy Appellate Panel Judges.
COUNSEL
ON BRIEF: Daniel D. Wilt, Willoughby Hills, Ohio, for Appellant. Shorain L. McGhee, Anthony J. Amato, Parma Heights, Ohio, for Appellee.
OPINION
THOMAS H. FULTON, Bankruptcy Appellate Panel Judge. The appellant in this case, John Hayes, appeals a July 18, 2011 bankruptcy court order imposing sanctions against him in the amount $4,045.00 for violating the debtor‘s discharge injunction. The sanctions are based on a March 16, 2011 memorandum opinion and order in which the bankruptcy court concluded that Hayes had
I. ISSUES ON APPEAL
The issues presented by this appeal are whether the bankruptcy court erred in (1) finding John Hayes in contempt of the discharge injunction and (2) awarding the debtor $4,045.00 in damages for said violation. Implicit in both of these issues is the determination of whether the bankruptcy court erred in concluding that (1) the debtor had not reaffirmed the debt and (2) the parties had not entered into a new, post-petition contract for payment of the debt.
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the Panel and no party has timely elected to have this appeal heard by the district court.
Although the bankruptcy court in this case originally found John Hayes in contempt on March 16, 2011, that order was not final until the sanctions were imposed on July 18, 2011. Wicheff v. Baumgart (In re Wicheff), 215 B.R. 839, 843 (B.A.P. 6th Cir.1998) (citing U.S. Abatement Corp. v. Mobil Exploration & Producing U.S., Inc. (In re U.S. Abatement Corp.), 39 F.3d 563, 567 (5th Cir. 1994). Consequently, the July 18, 2011 order imposing sanctions against John Hayes completely resolved the contempt issues between the parties and made the order of contempt, as well as the imposition of sanctions, final and appealable. U.S. Abatement Corp., 39 F.3d at 567; Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 3 F.3d 49, 53 (2nd Cir. 1993). The notice of appeal filed by John Hayes on July 26, 2011 was, therefore, timеly.
A bankruptcy court‘s finding of contempt and imposition of sanctions are reviewed for an abuse of discretion. Liberte Capital Grp., LLC v. Capwill, 462 F.3d 543, 550 (6th Cir. 2006);
A bankruptcy court‘s application and interpretation of
III. FACTS
In December 2006, Tammy Martin (“Debtor“) and John Hayes (“Appellant“) entered into an agreement whereby Debtor agreed to purchase a business called “The Sea Level Lounge” (“Lounge“) in Cleveland, Ohio, from Appellant‘s corporation, Eagle Bar, Inc. The purchase price of $210,000 included the building, real estate, equipment, inventory and liquor license. Debtor paid $30,000 of the purchase price as a down payment and agreed to pay Appellant the remaining balance in monthly installments of $1,700.00. Debtor signed a promissory note and executed a mortgage granting Eаgle Bar, Inc., a lien on the real estate.
In January 2009, Debtor began having financial difficulties and offered to give the Lounge back to Appellant. Appellant did not want the business back and instead offered to lower the monthly payment to $800.00. Debtor agreed.
Debtor filed a chapter 7 petition for bankruptcy relief on April 29, 2009. She listed Appellant among her creditors for the debt on the Lounge. After filing bankruptcy, Debtor again expressed her desire to give the Lounge back to Appellant. Appellant refused to take the property back. The parties did not enter into a reaffirmation agreement for the Lounge. Debtor did, however, continue to make post-petition payments to Appellant. Debtor voluntarily paid Appellant $800 in June, July, August, September, October, November and December 2009 and in January, March and April 2010. Debtor received her chapter 7 discharge on August 10, 2009.
On September 30, 2010, Appellant sued Debtor in the Court of Common Pleas of Cuyahoga County, Ohio, for the outstanding balance of the debt on the Lounge. In his state court complaint, Appellant alleged that Debtor had voluntarily entered into an oral agreement with him in June 2009 to continue paying for the Lounge. Appellant asserted this new agreement was “supported by consideration and is independent and apart from the old agreement” which was discharged in bankruptcy. (“Debtor‘s Mot. To Show Cause” at 3-4, Bankr. Case No. 09-13675, ECF No. 30). Appellant also alleged that Debtor had voluntarily advised Appellant that she did not intend to discharge her liability on the Lounge debt.
On November 3, 2010, Debtor filed a motion to reopen her chapter 7 case for the purpose of enforcing her chapter 7 discharge against Appellant. The court granted her motion and the case was reopened on December 8, 2010. Thereaftеr, Debtor filed a motion seeking an order requiring Appellant to show cause why he should not be held in contempt for filing the state court lawsuit. Debtor denied Appellant‘s allegation that she intended not to discharge the obligation for the Lounge. She also denied that she had entered into a new agreement with him to repay the debt.
Appellant filed a response to Debtor‘s motion to show cause on January 20, 2011, in which he reiterated the arguments from his state court complaint that Debtor had entered into a new agreement post-petition to continue paying for the Lounge and that she had еxpressed an intent not to discharge the debt thereon. In support of his “new agreement” argument, Appellant stated that a discharge entered under
The bankruptcy court granted Debtor‘s motion for an order to show cause on January 27, 2011, and ordered Appellant to appear and show cause on March 11, 2011, why he should not be held in contempt for violating the discharge injunction.
At the show cause hearing, Appellant reiterated his arguments that Debtor told him she did not intend to discharge the debt and that she had orally agreed to enter into a new contract on the Lounge. (March 11, 2011 Tr. of Hr‘g at 32, Bankr. Case No. 09-13675, ECF No. 64). Appellant asserted that the monthly checks satisfied the Statute of Frauds and that these checks were adequate consideration for the new agreement. The Appellant also alleged that these payments indicated an assent on Debtor‘s part to make the new agreement to pay for the Lounge. “It shows that Ms. Martin knew of the oral understanding, agreed to the oral understanding and paid for the oral understanding.” (March 11, 2011 Tr. of Hr‘g at 51, Bankr. Case No. 09-13675, ECF No. 64). Appellant went on to assert that pursuant to
On March 16, 2011, the bankruptcy court issued a memorandum opinion and order in which it concluded that (1) the parties had not entered into a reaffirmation agreement during the pendency of Debtor‘s case; (2) Debtor‘s voluntary post-petition payments did not obligate her to continue making the payments to Appellant; (3) the parties did not enter into a new contract for payment of the debt because mutual assent and consideration independent of the discharged debt were both lacking; (4) Appellant willfully violated the discharge injunction when he filed the state court lawsuit and was, therefore, in contempt; and (5) Debtor was entitled to an award of actual damages for the violation. The bankruptcy court determined that Appellant‘s contempt was “appropriately resolved by an award of damages for the debtor‘s lost wages and attorney fees.” The court ordered Debtor to file a detailed fee statement for her attorney‘s fees and an affidavit regarding her lost wages by March 31, 2011.1
Appellant filed an objection to the bankruptcy court‘s award of damages on April 8, 2011, in which he alleged that (1) the award of attorney‘s fees was not equitable and (2) the fees requested by Debtor‘s attorney were excessive. In making his first argument, Appellant repeated his earlier assertion that he did not blindly ignore the discharge injunction when he filed the state court lawsuit. Instead, he alleged that he had relied on case law that “suggests a debtor can enter into a post filing and post discharge new agreement to pay the debt even though the debt could be discharged.” (“Obj. to Award of Attorney Fees and Damages” at 2, Bankr. Case No. 09-13675, ECF No. 66).
Appellant‘s sole objection to Debtor‘s request for attorney‘s fees as damages was that the charges for March 10, 2011, included a charge for both Shorain McGhee and her associate, Anthony Amato. An examination of the time sheet makes clear that on March 10, 2011, Debtor met with both Shorain McGhee and Anthony Amato in preparation for the March 11, 2011 hearing on her show cause motion. McGhee and Amato each billed Debtor $200 for that hour which resulted in a $400 charge for that one meeting.3
IV. DISCUSSION
Section 524(a)(2) of the Bankruptcy Code provides that a discharge “operates as an injunction against the commencement or continuation of an action, the employmеnt of process, or an act, to collect, recover or offset any . . . debt [discharged under section 727 . . . of this title] as a personal liability of the debtor, whether or not discharge of such debt is waived.”
the discharge injunction [comes] into force by operation of law upon entry of the discharge. A discharge injunction . . . is . . . an equitable remedy precluding the creditor, on pain of contempt, from taking any actions to enforce the discharged debt.
Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193, 1200 (9th Cir. 2008), aff‘d, 130 S. Ct. 1367 (2010) (internal citations omitted). Once a discharge is issued,
Unlike
[s]ection 524(a)(2) not only prohibits but also enjoins [law]suits, as well as other collection actions, . . . the creditor who attempts to collect a discharged debt is violating not only a statute but also an injunction and is therefore in сontempt of the bankruptcy court that issued the order of discharge.
A court may remedy a violation of
In order to sanction a party for violating
Although the discharge injunction is powerful, there are limitations to its reach. First, a debtor may voluntarily decide to reaffirm an otherwise dischargeable debt by executing a reaffirmation agreement pursuant to
The second exception to
Although a debtor is permitted to make voluntary payments pursuant to
The discharge injunction only applies to debts that were discharged by the bankruptcy prоceeding. Section 727(b) provides that “[e]xcept as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief . . . .”
As the bankruptcy court in this appeal recognized, to create an enfоrceable, post-petition agreement, the parties must prove the essential elements of a contract: “offer, acceptance, contractual capacity, consideration . . ., a manifestation of mutual assent and legality of object and of consideration. A meeting of the minds as to the essential terms of the contract is a requirement to enforcing the contract.” Minster Farmers Coop. Exch. Co., Inc. v. Meyer, 884 N.E.2d 1056, 1061 (Ohio 2008) (internal citations omitted). If the contract involves an interest in real estate, Ohio‘s Statute of Frauds provides that “[n]o action shall be brought . . . unless the agreement upon which such action is brought, or sоme memorandum or note thereof, is in writing and signed by the party to be charged therewith . . . .”
[t]he memorandum in writing which is required by the statute of frauds (section 4199, Rev. St.) is a memorandum of the agreement between parties, and it is not sufficient unless it contains the essential terms of the agreement, expressed with such clearness and certainty that they may be understood from the memorandum itself, or some other writing to which it refers, without the necessity of resorting to parol proof.
Kling v. Bordner, 61 N.E. 148 (Ohio 1901). Importantly, the memorandum must make clear that the parties are agreeing to all of the essential terms. Landskroner v. Landskroner, 797 N.E.2d 1002, 1012 (Ohio Ct. App. 2003); Kiser v. Williams, No. 24968, 2010 WL 2837198, *3 (Ohio Ct. App. July 21, 2010) (finding that payments made by check with notations that the payments were for payment on a piece of property or for a loan did not satisfy Ohio‘s statute of frauds because they did not establish the essential terms of the loan). Unless a party is able to prove that contract is enforceable under state law, the post-discharge agreement is nothing more than an unenforceable reaffirmation agreement. Francis, 426 B.R. at 404.
In the bankruptcy arena, an agreement to repay an otherwise dischargeable debt that does not comply with the requirements of
Turning to the case currently on appeal, the Panel must preliminarily determine whether the bankruptcy court abused its discretion in determining that the debtor did not reaffirm the debt or that the parties had not entered into a binding post-discharge agreement to continue making payments for the Lounge. If there was a valid reaffirmation agreement or a valid post-discharge agreement, then the Appellant could not have violated the discharge injunction. If, however, the bankruptcy court was correct in concluding that neither of those conditions existed, then the Panel must analyze whether the bankruptcy court‘s determination that the Appellant was in contempt was correct.
In this case it is clear that the parties did not enter into any type of reaffirmation agreement that would be enforceable under the Bankruptcy Code. The parties did not execute a reaffirmation agreement nor did they file anything with the bankruptcy court. Accordingly, they did not comply with any of the provisions of
The bankruptcy court was also correct in concluding that Debtor‘s voluntary post-petition payments did not obligate her to continue making payments under the note. Although she was free to make those $800 monthly payments voluntarily under
Lastly, the bankruptcy court was correct in determining that the parties did not enter into a new, post-discharge contract. There was no new consideration given in exchange for renewal of the agreement. Although Appellant alleges in his brief that he agreed not to file a motion for relief from stay during the pendency of Debtor‘s cаse and agreed not to file a foreclosure action after Debtor
Additionally, Appellant‘s allegations that the parties made an oral agreement whereby Debtor would continue paying for the Lounge does not satisfy Ohio‘s Statute of Frauds requirements. There was nothing in writing that would qualify as a memorandum sufficient to establish the existence of an agreement as to the real estate. And, as is clear from the Court of Appeals of Ohio‘s holding in Kiser v. Williams, 2010 WL 2837198, *3, Debtor‘s checks alone do not qualify as a memorandum because the checks did not contain the essential elements of the contract nor did they refer to any other document that contained the essential elements of a new agreement.5
Having determined that Appellant‘s actions were not excepted from the reach of the discharge injunction, the Panel must now decide if the bankruptcy court abused its discretion in concluding that Appellant was in contempt and subject to sanctions for his actions. Section 524(a)(2) specifically enjoins a creditor from filing a lawsuit to collect a discharged debt as a personal liability of the debtor. If the debtor establishes by clear and convincing evidence that a creditor knew that the discharge injunction prohibited his actions and intentionally committed the
It is clear in this case that Appellant knew that the discharge injunction prohibited his actions to sue Debtor for $182,851.54. He alleged in his state court complaint that although Debtor had filed bankruptcy, he was entitled to enforce the obligation against her personally because Debtor had voluntarily agreed to enter into a new contract with him, had made voluntary payments under
Having found Appellant in contempt, the bankruptcy court had the discretion to award damages to Debtor for any actual injury she suffered. Debtor submitted bills from her attorney showing she incurred $3,800 in attorneys fees between October 19, 2010, and March 29, 2011, as well as a stipulation that her lost wages for March 10 and 11, 2011, were $245. Debtor‘s attorney‘s fees were incurred in defending the state court proceeding filed by Appellant and in bringing the contempt action in the bankruptcy court. Debtor clearly suffered injuries as a result of Appellant‘s state court lawsuit. She had to not only take action in the state court, but also in the bankruptcy court in order to protect herself. For the number of pleadings and time spent on the matter, 19 hours appears to be a reasonable expenditure of time. Debtor proved her damages by a preponderance of the evidence and supported her claims with adequate proof. This case appears to be a classic situation in which an award of attorney‘s fees was “necessary to effectuate the purposes of the discharge injunction . . . .” Miles, 357 B.R. at 450. The bankruptcy court was well within its discretion to award Debtor her attorney‘s fees and lost wages for Appellant‘s willful violation of the
V. CONCLUSION
For the foregoing reasons, the Panel affirms the bankruptcy court‘s July 18, 2011 order awarding Debtor sаnctions in the amount of $4,045.00 for the Appellant‘s willful violation of the