Opinion
Case No. 98-18260-SSM
January 5, 1999
Ann M. Callaway, Esquire, Ann M. Callaway, P.C., Warrenton, VA, of Counsel for Montgomery Auto Parts, Inc.
MEMORANDUM OPINION
This matter is before the court on a "Petition for Show Cause Order; Motion for Injunction; [and] Motion for Emergency Relief" filed by the debtors pro se on November 30, 1998, against Montgomery Auto Parts, Inc. ("Montgomery Auto Parts") and the clerk of the Fauquier County General District Court for willful violation of the automatic stay in connection with the issuance, post-petition, of a capias (arrest warrant) for debtor Donald Scott King ("Mr. King"), after he failed to appear in response to a summons to answer interrogatories in aid of judgment. On December 1, 1998, this court issued a show cause order against Montgomery Auto Parts but declined at that time to issue a show cause against the clerk. After hearing evidence on December 14, 1998, the court dismissed the petition against Montgomery Auto Parts on equitable grounds, since it appeared that the creditor — which was represented in the state court action by its president, a non-lawyer with no prior experience in bankruptcy matters — had been affirmatively misadvised by the state court judge concerning the scope of the automatic stay. Dismissal of the show cause was conditioned upon the creditor promptly moving the state court for dismissal of the capias. The creditor did so, and the state court dismissed the capias that same date. There is therefore no ongoing or threatened violation of the automatic stay. Upon further review of the debtors' petition, the court concludes that, to the extent the petition seeks monetary sanctions against the clerk of the state court, the clerk would be entitled to immunity, and that since there is no ongoing or threatened violation of the automatic stay, injunctive relief — which in any event would require a separate adversary proceeding brought for that purpose — would not be appropriate. Therefore, the court will dismiss the show cause petition in its entirety.
Facts
On November 13, 1998, Mr. King and his wife, Leah Anne King (collectively, "the debtors") filed a voluntary petition in this court for relief under chapter 7 of the Bankruptcy Code. Among the creditors listed on their schedules was Montgomery Auto Parts, which was shown as having an unsecured claim in the amount of $1,525.00 as a result of a judgment obtained against Mr. King in the General District Court of Fauquier County, Virginia, on February 4, 1998. Mr. King and Montgomery Auto Parts then entered into a payment plan, but Mr. King subsequently defaulted, and on October 14, 1998, Brian Montgomery ("Mr. Montgomery"), Montgomery's president, obtained issuance of a summons to answer interrogatories. The original summons was apparently not served, and an alias summons was issued returnable to November 18, 1998.
Mr. King did not notify Montgomery that he had filed bankruptcy. He did, however, telephone Jill Hartman, a deputy clerk of the Fauquier County General District Court, on or about November 16, 1998, to advise her of the filing. He testified that he gave her the case number. She apparently told him that telephone notification was not sufficient, and that she needed written verification. His wife testified that he made two attempts to fax Ms. Hartman a copy of the receipt for the filing fee. He did not, however, place a follow-up call to Ms. Hartman to determine that it had been received, nor did he show up in court on the return date, but apparently decided to simply go to work.
Although Montgomery Auto Parts was listed on the mailing matrix submitted by the debtors with their petition, the matrix was not in machine-scannable form as required by Local Bankruptcy Rule 5005(D)(1) (d). Presumably because of the failure to supply a usable mailing matrix, the formal notice of commencement of case was not mailed to creditors by the Bankruptcy Noticing Center until November 26, 1998.
The Honorable Charles B. Foley, judge of the Fauquier County General District Court, wrote a letter to the clerk of this court on December 9, 1998, enclosing an unsigned statement of his deputy clerk, Ms. Jill Hartman, concerning her discussions with Mr. and Mrs. King and the November 18, 1998 hearing. For the purpose of this opinion, the court treats the letter as a proffer of expected testimony.
Her statement relates: "He said he was in Bankruptcy. I told him that was not a problem; however, this Court would need proof of such on or before November 18, 1998 @ 9:30 a.m. I can't take verbal notice of such matters. We need proof that Bankruptcy has been filed."
Apparently, he scanned the receipt into his computer, then sent the scanned image using a fax modem. His wife testified that the software always indicates a successful transmission whether or not the fax actually goes through.
Mr. Montgomery appeared in court on November 18, 1998, when the case was called. When Mr. King did not appear, the judge, the Honorable Charles B. Foley, told Mr. Montgomery he would issue a capias. At that point, an attorney, Robert Miller, who was in court on another matter and was not representing Mr. King, stood up and told the judge something to the effect, "I think Mr. King may be filing for bankruptcy." At some point during the hearing, there was a discussion between Ms. Hartman and Judge Foley. According to Mr. Montgomery, Ms. Hartman told Judge Foley that she had nothing in writing concerning a bankruptcy filing. In any event, a capias was issued for Mr. King's arrest and a further hearing set for December 16, 1998. Mr. Montgomery — who has no legal training and who was appearing in court without legal counsel — testified that he did not totally understand what was going on and did not specifically request issuance of the capias, although after the hearing he did pay the $12.00 fee required for its issuance. He testified that he did not receive a notice of the commencement of Mr. King's bankruptcy case until November 30, 1998. He took no affirmative steps at that time to request dismissal of the capias because he assumed that the state court proceedings would be automatically "null and void."
Although Montgomery Auto Parts is a corporation, it was not represented at the hearing by counsel.
As discussed above, the notice was not mailed until November 26, 1998.
After Mr. King learned that the capias had been issued, he telephoned Ms. Hartman in an effort to have the capias recalled. According to Mr. King, she told him that she had the power to recall the capias but declined to do so. Mr. King then filed his petition in this court for a show cause order and an injunction. After the court entered the show cause against Montgomery Auto Parts, Mrs. King hand-carried a copy to Ms. Hartman. According to Mrs. King, Ms. Hartman responded, "Oh, he's in bankruptcy?" and also told her, "As far as I am concerned, your husband can rot in jail." When it became clear that the capias would not be recalled, Mr. King surrendered to the sheriff of Fairfax County around noon on December 2, 1998. He was released that same day after his parents posted a $500 cash bond. At no point did he communicate with Mr. Montgomery. As noted above, immediately following the December 14, 1998, hearing in this court, Montgomery Auto Parts — now represented by counsel — moved in the Fauquier County General District Court for dismissal of the capias. The capias was dismissed that same date and the cash bond was refunded.
Ms. Hartman's description of the discussion is as follows: "Mr. King then called me on November 24, 1998 asking that the capias be recalled based on his calling me and saying he was in bankruptcy. Once again I told Mr. King that he was suppose [ sic] to send something in writing prior to November 18, 1998 which he failed to do. I told him he would have to be served with the capias and come to court on December 16, 1998 and explain to the Judge what had happened."
Discussion I.
As has been many times observed, the automatic stay is one of the fundamental protections provided by the Bankruptcy Code. In re Terry, 7 B.R. 880, 882 (Bankr. E.D. Va. 1980). The filing of a bankruptcy petition, without more,
operates as a stay, applicable to all entities, of —
(1) the commencement or continuation, including the issuance or employment of process, of a judicial . . . action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
11 U.S.C. § 362(a)(1) and (2) (emphasis added). So central is the automatic stay to the orderly administration of bankruptcy cases that it is effective even as to parties who had no notice of the filing. In re James, 120 B.R. 802, 814 (E.D. Pa. 1990), aff'd 940 F.2d 46 (3rd Cir. 1991). No special action or request by the debtor is required to make the stay effective: as noted by the United States District Court for this district,
The automatic stay is a self-executing provision of the Bankruptcy Code and begins to operate nationwide, without notice, once the debtor files its petition for relief.
In re A. H. Robins Co., Inc., 63 B.R. 986, 988 (E.D. Va. 1986) (Mehrige, J.) (emphasis added), aff'd Grady v. A. H. Robins Co., Inc., 839 F.2d 198 (4th Cir. 1988). Accord, NLT Computer Services Corp. v. Capital Computer Systems, Inc., 755 F.2d 1253, 1258 (6th Cir. 1985) (stay is "automatic and self-operating").
Where a stayed party takes an action prohibited by the stay, such conduct, if willful, may be treated as civil contempt under 11 U.S.C. § 105(a). Burd v. Walters (In re Walters), 868 F.2d 665, 669 (4th Cir. 1989). Such conduct may also provide the basis for an award of compensatory and punitive damages under 11 U.S.C. § 362(h). Budget Service Co. v. Better Homes of Va., Inc., 804 F.2d 289 (4th Cir. 1986). Where parties are ignorant of the bankruptcy filing, actions taken in unwitting violation of the stay, although voidable, do not constitute contempt. But where a party has actual knowledge of the bankruptcy, and despite such knowledge intentionally undertakes actions that in fact violate the stay, the party's ignorance of the legal effect of the stay is no defense to a resulting motion to find the party in civil contempt, although it may have a mitigating effect on the sanctions imposed. See, e.g., In re Peterkin, 102 B.R. 50, 53-54 (Bankr. E.D.N.C. 1989) (creditor who knows of the debtor's bankruptcy "has the burden `to correctly ascertain the scope of the automatic stay'" and "takes the risk of being assessed for damages if he fails to obtain clarification from the bankruptcy court"). Furthermore, once a creditor learns of a bankruptcy filing, the creditor has an affirmative duty to stop any ongoing enforcement efforts, such as a garnishment. In re Manuel, 212 B.R. 517 (Bankr. E.D. Va. 1997) (Tice).
II.
As the foregoing summary reflects, the issuance of the capias against Mr. King to enforce the prepetition judgment obtained by Montgomery Auto Parts was clearly prohibited by the automatic stay. As discussed above, no formal notice was needed to make the stay effective. Additionally, a party who obtains actual notice, even if informal, that a bankruptcy has been filed, may be found guilty of a willful stay violation for taking actions that in fact violate the stay. Where notice, as here, was equivocal (Mr. Miller's statement that Mr. King "may" have filed for bankruptcy), a creditor has an affirmative duty to investigate. Furthermore, a party who acts in ignorance of the bankruptcy has an affirmative duty, after learning of the bankruptcy filing, to abate any on-going action that violates the stay. Mr. Montgomery, as noted above, had no legal training and was proceeding without counsel. While ignorance of the legal effect of the automatic stay is no excuse where a creditor willfully takes actions that in fact violate the stay, it does appear from Mr. Montgomery's testimony that he was misled by Judge Foley into thinking that the stay was dependent upon written verification of the bankruptcy filing. No notice of the bankruptcy filing was given to Mr. Montgomery prior to the state court hearing on November 18, 1998, and Mr. Montgomery's testimony that he did not entirely understand what was going on was credible. His inaction after receiving the formal notice of the commencement of the case was deplorable, but his explanation that he assumed the capias would be automatically dismissed in light of the bankruptcy filing was not incredible, particularly in light of Mr. King's failure to communicate with Mr. Montgomery that there was a problem. As noted, Mr. Montgomery, following the hearing before this court on December 14, 1998, took prompt action to request dismissal of the capias. After considering all of the circumstances, the court concluded that monetary sanctions were not appropriate, and the court dismissed the show cause against Montgomery Auto Parts. See Kilburn v. Filby (In re Filby), 225 B.R. 532, 535-36 (Bankr. D. N.H. 1998) (creditor's appearance at hearing which state court. rightly or wrongly, refused to cancel because debtor had not provided written notification of bankruptcy filing did not violate automatic stay).
III.
The remaining issue is whether any relief could properly be decreed against the clerk of the Fauquier County General District Court. As an initial matter, it is far from clear whether the clerk is named in her individual or her official capacity, although the court assumes the latter. Nor does it appear that relief is sought against the clerk for damages, as opposed to declaratory or injunctive relief. The only express prayer for an award of money damages is against Montgomery Auto Parts. No monetary relief is specifically requested against the clerk, but the petition does request that this court vacate or enjoin the enforcement of the capias, that it void any action taken by the "Fauquier Court" in violation of the stay, and that it find that the "Fauquier Court" willfully violated 11 U.S.C. § 362(a).
The clerk is designated as a respondent only by title and not by name. The clerk of the Fauquier County General District Court is Sandra K. Ramey. As discussed in the body of this opinion, Mr. King appears to have dealt solely with deputy clerk Jill Hartman.
There is no question that the automatic stay, which applies to "all entities," is binding on state courts and their officers. As a policy matter, however, bankruptcy courts have typically not enjoined state courts, as such, when the same relief could be obtained by enjoining the parties to the state court litigation. Additionally, there is a split of authority as to whether a bankruptcy judge may enjoin a state court, or whether such an injunction, if appropriate, must be entered by a United States district judge after withdrawal of the reference. Compare Manville Corp, v. Equity Sec, Holders Comm, (In re Johns-Manville Corp), 801 F.2d 60 (2d Cir. 1986) (bankruptcy court has power to enjoin a state court action which threatens to interfere with the administration of the bankruptcy estate) with Browning v. Navarro, 887 F.2d 553 (5th Cir. 1989) (only district courts, not bankruptcy courts, have power to enjoin proceedings in other courts). In any event, a proceeding for an injunction is an adversary proceeding and must be commenced by complaint, not by motion, application or petition. F.R.Bankr.P. 7001. Furthermore, an injunction, being an extraordinary remedy, ordinarily will not be issued where there is no ongoing or threatened conduct that would violate the rights of a party. Buie v. Jones, 717 F.2d 925, 928 (4th Cir. 1983), citing City of Los Angeles v. Lyons, 461 U.S. 95, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983) (dismissing complaint for injunctive relief where there was no "real and immediate threat" that plaintiff would suffer additional injury); see also Blackwelder Furniture Co. v. Seilig Mfg. Co., Inc., 550 F.2d 189, 193 (4th Cir. 1977) (to justify injunction, it is sufficient "if the court is satisfied that there is a probable right and a probable danger, and that the right may be defeated, unless the injunction is issued[.]") (emphasis added). The capias having now been dismissed, there is no "real and immediate" threat of state court proceedings to enforce the judgment. Accordingly, even if the motion for injunction were re-filed as an adversary proceeding, injunctive relief would not be appropriate.
As noted above, the show cause petition does not expressly request monetary relief against the clerk. It would appear, moreover, that even if such relief had been requested, the clerk would be entitled to quasi-judicial immunity or to derivative judicial immunity. McCray v. State of Maryland, 456 F.2d 1, 4 (4th Cir. 1972) (clerk is protected by absolute quasi-judicial immunity when performing acts that require judicial discretion similar to that exercised by a judge, but has no immunity for failure to perform a ministerial duty, such as filing a paper); Battle v. Whitehurst, 831 F. Supp. 522 (E.D. Va. 1993) (clerk who acts in obedience to an order from a judge who is performing judicial or adjudicative function enjoys absolute immunity in a suit for damages).
However, by asking for a declaration that the state court "willfully violated" the automatic stay, the petition could be read as implicitly seeking an award of damages under 11 U.S.C. § 362 (h).
It is certainly regrettable that the state court in this case ignored the automatic stay based on the apparent belief that written verification of the bankruptcy filing was needed to make the stay effective. And it is even more regrettable that the state court misled a litigant before it into believing that issuance of the capias to enforce the judgment would not violate the stay simply because there had been no "written proof" that the judgment debtor had filed bankruptcy. Since, however, both the issuance of the capias in the first instance, and the subsequent refusal to "recall" it — even assuming that a deputy clerk could do so on her own authority — were unquestionably judicial acts, any award of money damages against the clerk would be barred by quasi-judicial or derivative immunity. Accordingly, the court declines to issue a show cause against the clerk of the Fauquier County General District Court.
This is not to say that Mr. King was himself without fault. His failure to communicate with Montgomery Auto Parts prior to the November 18, 1998, hearing — if only to spare its representative an unnecessary trip to court — was, at the very least, highly discourteous. Indeed, prompt notice to the judgment creditor of the bankruptcy filing might well have averted all that followed. Furthermore, even if the state court misconstrued the automatic stay, Mr. King was nevertheless still subject to its jurisdiction and procedural requirements and was not free to ignore a validly-issued summons that required his personal attendance. The automatic stay does not bar post-petition contempt proceedings which are primarily intended to vindicate the dignity of a state court whose orders a debtor has flouted as opposed to contempt proceedings the primary purpose of which is to enforce the private rights of the parties. See, e.g., In re Dunham, 175 B.R. 615 (Bankr. E.D. Va. 1994); Rook v. Rook (In re Rook), 102 B.R. 490 (Bankr. E.D. Va. 1989); Kilburn v. Filby (In re Filby), 225 B.R. 532, 535-36 (Bankr. D. N.H. 1998).
IV.
A separate order will be entered dismissing the petition for show cause order in its entirety.