Opinion
PROC. NO. 14-1071
06-01-2015
IN RE: CASE NO. 13-12272 RUSSELL D. ROSCO BONNIE R. ROSCO Debtors RUSSELL D. ROSCO BONNIE R. ROSCO Plaintiffs v. ANTHONY LOCKHART Defendants
NOT INTENDED FOR PUBLICATION DECISION
On June 1, 2015.
The bankruptcy discharge is a shield protecting debtors from creditors. It "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any [a] debt as a personal liability of the debtor . . . ." 11 U.S.C. § 524(a)(2). In this adversary proceeding the debtors are using their discharge as a weapon to visit misery upon their former landlord. Their complaint seeks $40,000 in "compensatory and punitive damages for violations of the discharge injunction . . . ." Contempt of Court Motion, filed June 10, 2014, ln 1. The matter is before the court following trial.
$10,000 for emotional distress and $30,000 as punitive damages.
As an action to enforce the discharge injunction, this matter goes to the very heart of the bankruptcy process; it is a core proceeding, which the bankruptcy judge may hear and determine and enter final judgment. 28 U.S.C. § 157(1), (2)(J, O). See also, Cox v. Zale Delaware,Inc., 239 F.3d 910, 916-17 (7th Cir. 2001); Matter of National Gypsum Co., 118 F.3d 1056, 1063 (5th Cir. 1997); In re Bahary, 528 B.R. 763, 769 (Bankr. N.D. Ill. 2015).
Debtors filed a petition for relief under chapter 7 on July 26, 2013, shortly before a hearing in the Allen Superior Court in an eviction proceeding brought by the defendant, Mr. Lockhart, staying that proceeding. They received a discharge on November 12, 2013, having vacated the property on October 3. On April 1, 2014, the debtor, Mr. Rosco sued his now former landlord, in the Allen Superior Court, Small Claims Division, seeking the return of a $1,590 security deposit. Mr. Lockhart responded by filing a counterclaim for unpaid rent, damages to the property and various expenses, totaling $5,486. Because this total includes some pre-petition debt and exceeds the amount sought by the debtors, they claim their former landlord violated the discharge injunction and filed suit in this court.
Mr. Rosco had no right to bring the state court action. He failed to disclose the security deposit on schedule B, line 3, "security deposits with . . . landlords," and instead checked the space labeled "none." See, Exhibit A. "[A] debtor in bankruptcy who denies owning an asset, including a chose in action or other legal claim, cannot realize on that concealed asset after the bankruptcy ends." Cannon-Stokes v Potter, 453 F.3d 446,448 (7th Cir. 2006) (citing cases). Not only that, but the bankruptcy case was still open in May of 2014 and the trustee was administering assets. Since the security deposit had not been abandoned, any claims concerning it belonged to the trustee and not the debtor. Auday v. Wet Seal Retail, Inc., 698 F.3d 902, 904 (6th Cir. 2012); Biesek v. Soo Line Railroad Co., 440 F.3d 410, 413-14 (7th Cir. 2006).
While this action was pending, on September 19, 2014, the state court issued its decision in that matter finding that "the Defendant . . . would be entitled to recover, as a set off, two (2) months rent in the total sum of $1,590." and sent both parties away with nothing. See, Exhibit 28. This would not have been the result if the defendant had not responded to the action or failed to raise the counterclaim. The entire purpose of a security deposit is to give the landlord security for the payment of any damages it might sustain should the tenant fail to honor the lease. Had it not been apprised of the damages the defendant sustained as a result of the debtors' breach of the lease, the state court would undoubtedly have let them recover the security deposit.
While the automatic stay of § 362 is very broad and prohibits a wide array of creditor actions, the discharge injunction is narrower. It only prohibits acts that attempt to recover a debt "as a personal liability of the debtor." 11 U.S.C. § 524(a)(1), (2). After discharge creditors can do many things so long as their actions are not directed to collecting a discharged debt from the debtor personally. The debt may be collected from third parties. 11 U.S.C. § 524(e). It may be enforced in rem by liquidating any property given as security. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 2154 (1991); Long v. Bullard, 117 U.S. 617, 620-21, 6 S.Ct. 917 (1886); In re Stephens, 276 B.R. 610, 614 (8th Cir. BAP 2002). And it may be asserted as a setoff or recoupment in subsequent litigation. See, 11 U.S.C. § 553(a) ("this title does not affect any right of a creditor to offset a mutual debt"); In re Buckmaier, 127 B.R. 233, 237 (9th Cir. BAP 1991). See also, Reiter v. Cooper, 507 U.S. 258, 265 n. 2, 113 S.Ct. 1213, 1218 n. 2, (1993); In re Madigan, 270 B.R. 749, 754 (9th Cir. BAP 2001); Brown v. General Motors Corp., 152 B.R. 935, 938 (W.D. Wis. 1993); In re Fischbach, 464 B.R. 258, 262 (Bankr. D. S.C. 2012); In re Barrett, 410 B.R. 113, 122 (Bankr. S.D. Fla. 2009).
Successfully asserting a right of setoff or recoupment is not a violation of the discharge injunction, and that is all the defendant did here. After being sued by Mr. Rosco for the return of the security deposit, Mr. Lockhart responded and tried to recoup some of his losses by pleading and proving that his damages from the debtors' breach of the lease exceeded the security deposit. The state court found that was so; allowed the setoff and nothing more. The debtors have no basis to complain that defendant's counterclaim violated the discharge injunction.
The next post discharge activity the plaintiffs complain about took place shortly after this litigation began and consists of a series of mailings between the plaintiffs and the defendant. See, Exhibits 1 - 7. Plaintiffs made several attempts to mail something to the defendant. The defendant either refused to accept them; allowed them to be returned, unclaimed; or mailed them back to the plaintiffs, unopened, with an obscenity scrawled across the envelope the plaintiffs had addressed to him. Nothing about this exchange constitutes an attempt to collect a discharged debt. Furthermore, a creditor may properly respond to communication initiated by the debtor without violating either the discharge injunction or the automatic stay. In re Henry, 266 B.R. 457, 473 (Bankr. C.D. Cal. 2001).
The remaining items about which the debtors complain all occurred prior to their discharge; as such they cannot possibly constitute a violation of an injunction that had not yet gone into effect. The court has, however, received evidence concerning them and out of deference to their pro se status, as an alternative theory of recovery, considers whether those actions might constitute violations of the automatic stay, which protected the debtors until the discharge was entered. See, 11 U.S.C. § 362(k).
The automatic stay arises immediately upon filing a petition for relief under title 11 and prohibits creditors from taking any action outside of the Bankruptcy Court to collect a pre-petition debt from the debtors, their property, property of the bankruptcy estate, or to exercise control over such property or to enforce a lien against it. See, 11 U.S.C. § 362(a). It is broader than the discharge injunction; yet it does not prohibit all creditor activity - some things are still permitted. The key to assessing whether a creditor's actions violated the automatic stay is whether they are directed towards enforcing or collecting a pre-petition debt. Actions that have some other purpose, howsoever distasteful, do not violate the automatic stay.
One collection of exhibits relates to communications between the parties before the debtors filed bankruptcy. See, Exhibits 9 - 12. Since they occurred before the date of the petition, they do not constitute a violation of an automatic stay that did not yet exist.
A second collection of exhibits relates to emails Mr. Lockhart sent to Mrs. Rosco after the debtors filed bankruptcy. Exhibits 13, 16, 22, and 23. The first, dated August 3, 2013, reads: "How soon are you going to be out of my house? Are you going to force me to come up and go through the bullshit?" Exhibit 13. The second, dated August 22, appears to have been sent because there was no response to the first inquiry. It complains about the debtors' treatment of Mr. Lockhart, asks what he might have done to deserve it, insults the debtors and reminds them that karma has a way of coming back "and biting one in the ass." Exhibit 16. Then, on October 10, he sent a third email which is simply vulgar and insulting. Exhibit 22. This prompted a letter from the debtors' bankruptcy counsel (Mr. Arnold) to the attorney who represented Mr. Lockhart in the pre-petition eviction proceeding (Mr. Martin). Exhibit 23. It complains about the emails and, although acknowledging they may not violate the automatic stay, asks that Mr. Lockhart cease his correspondence with the debtors. He did.
The defendant lives in Florida.
The stay does not prohibit all communications by a creditor to a debtor. Knowles v. Bayview Loan Servicing, LLC, 442 B.R. 150, 160 (1st Cir. BAP 2011). Actions or comments that do not constitute attempts to collect a pre-petition debt do not violate the stay. Id.; In re Kuehn, 563 F.3d 289, 291. See also, In re the Original Barefoot Floors of America, 412 B.R. 769, 773 (Bankr. E.D. Va. 2008) ("if an act is not designed or intended to collect a debt, it does not fall within the reach of the automatic stay, even though it may be wrongful in other ways."). Furthermore, a creditor may legitimately ask the debtor about its intentions concerning the debt and/or whether it will be reaffirmed. Aiello v. Providian Financial Corp. 239 F.3d 876, 878 (7th Cir. 2001); Cox, 239 F.3d at 912. See also, Buckley v. Bass & Associates, 249 F.3d 678, 681 (7th Cir. 2001); Henry, 266 B.R. at 473. Even nasty, rude, or intemperate remarks will not violate the stay unless they are designed to recover a pre-petition debt. In re Pomeroy, 343 B.R. 279, 280 (Bankr. M.D. Fla.); Gordon v. Dennis Burlin Sales, Inc., 174 B.R. 257, 259 (Bankr. N.D. Ohio 1994). See also, Original Barefoot Floors of America, 412 B.R. at 775-76 (dumping trash on the lawn of debtor's vice president did not violate the automatic stay).
Mr. Lockhart's emails did not violate the automatic stay. The first is a legitimate, albeit intemperate, inquiry as to the debtors' intentions with regard to the leased property in light of their bankruptcy. The other two are crude, but potentially understandable, expressions of anger and frustration over the situation and the debtors failure to respond to his inquiries. None of them express an intent or a threat to collect a pre-petition debt. See, Pomeroy, 343 B.R. at 280 (inappropriate harassing letters sent to debtor's business associates not a stay violation); Gordon, 174 B.R. at 258 ("Mere words, although conceivably disparaging, distasteful or denigrating, without a clearly manifested attempt to recover on a prepetition claim (§ 362(a)(1)), to enforce a prepetition judgment (§ 362(a)(2)), or to accomplish any other act expressly proscribed by the several subsections under § 362(a) is insufficient to satisfy the elements of § 362[k]."). Furthermore, when he was asked to stop, Mr. Lockhart did so.
Because of the difficulties creditors often encountered in learning what debtors intended to do as to certain debts, the 2005 amendments to the Bankruptcy Code require debtors to file a statement of intent advising certain creditors as to whether the debtor wants to reaffirm the debt, or to redeem, exempt or surrender the property securing it. See, 11 U.S.C. §§ 521(a)(2), 362(h). Since those provisions relate only to secured claims and leases of personal property they offer no help for landlords such as the defendant. While 2005 amendments do offer some protections for landlords that had obtained a judgment of possession prior to the bankruptcy, those provisions do not apply to landlords, like the defendant, who had not been able to obtain such an order before their tenants filed. See, 11 U.S.C. § 362(l). --------
Debtors also complain that the defendant posted public comments about them on the internet and that those comments violated the automatic stay. One is Mr. Lockhart's public Facebook page where, although never mentioning the debtors by name, he quite vehemently vents his anger about them and their actions. Exhibit 20. The other is a Craigslist posting in the local apartment listings warning other landlords to be wary of the Roscos. Exhibit 19. Neither of these actions constitute an attempt to collect or enforce a pre-petition debt and neither violates the automatic stay. See, Matter of National Service Corp., 742 F.2d 859 (5th Cir. 1984) (bankruptcy court could not prohibit creditor from publicizing debtor's bankruptcy and that it could not pay its bills); Stonegate Security Services, Ltd. 56 B.R. 1014 (D. N.D. Ill. 1986) (parking a truck bearing the message that debtor did not pay its suppliers outside debtor's place of business did not violate the automatic stay).
As their final attempt to prove a violation of the automatic stay the debtors rely upon what can only be characterized as an effort at entrapment. They engaged someone named Claudia, at referencematters.com, to contact Mr. Lockhart. She posed as a prospective landlord of the Roscos who was seeking a reference concerning them. Not surprisingly, he did not give them a good one and said many negative things. Exhibits 17, 18, 25. Nothing about this violated the automatic stay. Mr. Lockhart did nothing more than respond to an inquiry initiated by the debtor, Henry, 266 B.R. at 473; he was not required to say nice things about them; and nothing he is reported to have said constitutes an attempt to collect a pre-petition debt.
Whether viewed in isolation or as a totality, nothing Mr. Lockhart did violated the automatic stay. Yet, even if all the court's findings concerning Mr. Lockhart's actions and the automatic stay are wrong, debtors' claim must still fail. At trial, they failed to offer any proof that they had been damaged by his actions. While their complaint seeks damages for emotional distress, emotional injuries are not compensable under § 362(k) unless there is also some financial loss. Aiello, 239 F.3d at 880. Absent evidence of injury damages cannot be awarded. In re Morris, 514 B.R. 658, 667 (Bankr. N.D. Ala. 2014) (collecting cases); In re Whitt, 79 B.R. 611, 616 (Bankr. E.D. Pa. 1987) quoting, In re Wagner, 74 B.R. 898, 907 (Bankr. E.D. Pa. 1987 (No damages can be "awarded as a result of a violation of the automatic stay . . . [if] there was no evidence that the debtor suffered any harm."); Gordon, 174 B.R. at 260.
Judgment will be entered in favor of the defendant, dismissing this action.
/s/ Robert E . Grant
Chief Judge, United States Bankruptcy Court