Court Opinion

ID: 149204
Source: CourtListenerOpinion
Date Created: 2010-06-23 14:50:34+00
Date Added: 2024-06-11T12:22:06.188540
License: Public Domain

[DO NOT PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT
                      ________________________                  FILED
                                                       U.S. COURT OF APPEALS
                             No. 09-15360                ELEVENTH CIRCUIT
                                                             JUNE 23, 2010
                         Non-Argument Calendar
                                                              JOHN LEY
                       ________________________
                                                               CLERK

                 D. C. Docket No. 08-00450-CV-1-CG-B,
                       BKCY No. 07-12132-MAH

IN RE:

JASON A. CAFFEY,

                                                   Debtor,
__________________________________________________________________
KAREN RUSSELL,

                                                           Plaintiff-Appellant,

                                  versus

JASON CAFFEY,

                                                          Defendant-Appellee.

                       ________________________

                Appeal from the United States District Court
                   for the Southern District of Alabama
                      _________________________
                              (June 23, 2010)
Before DUBINA, Chief Judge, CARNES and MARCUS, Circuit Judges.

PER CURIAM:

       Appellant Karen Russell appeals the bankruptcy court order awarding

damages to debtor Jason Caffey under 11 U.S.C. § 362(k) (2006) due to Russell’s

violation of the automatic stay. The district court affirmed the bankruptcy court’s

award. We affirm the district court order because we conclude that Russell’s

conduct, including her failure to move to stay the outstanding state arrest warrant

that she had procured for Caffey in her domestic support case, willfully

contravened the automatic stay within the meaning of the statute.

                                 I. BACKGROUND

       Russell sued Caffey in Alabama state court to recover unpaid child support.

Caffey failed to appear at the July 2007 hearing, so the state court orally

determined his liability and ordered that he be held in contempt. Shortly thereafter,

on August 3, 2007, Caffey filed for bankruptcy protection in the Southern District

of Alabama. On August 8, 2007, the state court judge signed the written order

concerning Caffey’s child support obligations and, on August 17, 2007, executed a

writ of arrest.

       Mobile County Sheriff’s Deputies arrested Caffey on September 24, 2007,

and held him until October 4, 2007, when his counsel could arrange for his release

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by agreeing to pay Russell and her attorneys certain negotiated sums. Caffey later

instituted an adversarial proceeding against Russell in his bankruptcy case because

he contended that her conduct violated the automatic stay imposed by the

bankruptcy code. See 11 U.S.C. § 362(a). The bankruptcy court awarded Caffey

damages based on his arrest, and that order is now at issue in this appeal.

                           II. STANDARD OF REVIEW

      As the second court reviewing the bankruptcy court order, we review the

legal conclusions made by the bankruptcy and district courts de novo and review

the bankruptcy court’s factual findings for clear error. In re Int’l Admin. Serv.,

Inc., 408 F.3d 689, 698 (11th Cir. 2005).

                                 III. DISCUSSION

A. Notice and Service of the Adversarial Bankruptcy Proceeding

      Russell first contends that the judgment against her is void because Caffey

never properly advised her of the adversarial proceeding regarding the stay

violation. The bankruptcy court found that Russell had waived her objection to the

absent service because her attorneys of record participated in the adversarial

proceedings. See Fed. R. Civ. P. 12(h) (objections to insufficient service of

process are deemed waived if not first made in a Rule 12 motion or responsive

pleading). Russell further disputes the finding that her attorneys had the authority

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to waive the defense on her behalf. We note, however, that a presumption of

authority arises when a licensed attorney makes an appearance on behalf of a

client. See Dorey v. Dorey, 609 F.2d 1128, 1131 n.5 (5th Cir. 1980).

      Russell argues that her attorney’s lack of admission to the bankruptcy court

established an implicit limitation on the attorney’s authority to represent her in the

adversarial dispute. Russell cites no authority for the proposition that an attorney’s

authority is bounded by his bar and court admissions, and we find nothing in the

record that reflects such an understanding between the attorney and Russell or the

bankruptcy court. Nothing in the record suggests that the bankruptcy court’s

findings regarding waiver and agency were clearly erroneous.

B. Violation of the Bankruptcy Stay

      1. Notice of the Bankruptcy Proceeding

      Russell next contends that she could not have willfully violated the stay

because she never received notice of Caffey’s bankruptcy petition. The bankruptcy

court found that, despite the lack of personal notice delivered to Russell, Caffey

did sufficiently deliver notice to Russell’s attorneys. In her brief, Russell does not

dispute this finding so much as she disputes its legal consequence—she contends

that personal service was required, and that such service must have been made

before the state court entered its final judgment.

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      The bankruptcy court correctly determined that the notice given to Russell’s

attorneys sufficiently gave her knowledge of Caffey’s bankruptcy petition. See

Cooper v. Lewis, 644 F.2d 1077, 1082 (5th Cir. Unit A May 1981) (noting that a

party is considered to have notice of all facts conveyed to his attorney). Moreover,

Russell’s complaint that the notice did not come before the state court entered its

final judgment is inapposite because she never acted on that notice in the

approximately 47 days between the execution of the arrest warrant and Caffey’s

arrest. She continued to violate the stay by extracting money and promises of

future payments from Caffey long after her attorneys received notice of his

bankruptcy petition. Given these facts, there is no clear error in the bankruptcy

court’s finding that Russell knew about Caffey’s bankruptcy filing.

      2. Carver abstention

      In Carver v. Carver, 954 F.2d 1573, 1579-80 (11th Cir. 1992), we held that

in some narrow circumstances, bankruptcy courts ought to abstain from imposing

sanctions for violations of the automatic stay where the underlying actions

involved domestic support obligations. Russell contends that the bankruptcy court

should have abstained from imposing sanctions in this case because, as in Carver,

the offending conduct involved an attempt to obtain past due support obligations.

      There are several factual differences between the case here and those in

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Carver that led us to mandate abstention. First, in Carver, we found that the

debtor’s other creditors were not harmed by the post-petition collection action and

the debtor’s arrest. 954 F.2d at 1580. Here, the bankruptcy court specifically

found that the arrest and imprisonment of Caffey harmed his other creditors

because it limited his income opportunities and therefore reduced the assets

available to pay his debts. Second, there is no indication that Caffey intended to

use his bankruptcy petition as a “weapon” to avoid his support obligations, unlike

the debtor in Carver who filed for bankruptcy without notifying the creditor he

later sued for violating the automatic stay. See id.

      Third, the record shows that Caffey was forthright about the pending

bankruptcy proceedings at his release hearing, unlike the debtor in Carver who

stayed silent about his bankruptcy at his contempt hearing in order to, we surmised,

preserve his future adversarial claim against the creditor. See id. Finally, we note

that, on the whole, the concern about bankruptcy courts interfering with essential

state court functions like domestic support obligations is not triggered in a case like

this where the imposition of sanctions has no effect on the validity of the state

court judgment.

      3. Civil or Criminal Contempt

      Russell argues that the contempt action she pursued against Caffey was for

                                           6
criminal contempt, not civil contempt, and was therefore not subject to the

automatic stay under 11 U.S.C. § 362(b)(1). Russell’s legal assertion depends on a

factual question—whether the state court contempt order contained a purge

amount. Russell asserts that the order contained no purge amount and was thus a

criminal sanction. The record in this case contradicts Russell’s contention. The

state court clearly set a purge amount in its August 8, 2007, final judgment order.

(Bankr. R. 2, Exh. A., ¶ 6.) Given the record, we conclude that the bankruptcy

court did not clearly err in finding that the state court contempt action was civil in

nature and thus subject to the automatic stay.

      4. Judicial Estoppel

      Russell contends that Caffey ought to be judicially estopped from claiming a

violation of the bankruptcy stay because he failed to raise the stay in negotiating

his release following arrest. One of the factors we evaluate in applying judicial

estoppel is “whether a party succeeded in persuading a court to accept an earlier

position, so that judicial acceptance of an inconsistent position in a later

proceeding would create the perception that either the first or the second court was

misled.” Stephens v. Tolbert, 471 F.3d 1173, 1177 (11th Cir. 2006) (internal

quotation marks omitted). Russell has failed to point out anything in the record

that shows Caffey succeeded in persuading the state court to do anything in the

                                            7
absence of the stay—he obtained his release from prison only after agreeing to pay

Russell and her attorneys tens of thousands of dollars. Nothing in the record

indicates that Caffey argued that the bankruptcy stay did not apply in negotiating

his release and, even if he had done so, nothing indicates that he would have

gained anything from such a position. Judicial estoppel does not apply on these

facts.

         F. Conduct Violating the Stay

         Russell finally disputes the sanctions imposed on her because she asserts that

they penalize her inaction. She claims that once the state court orally rendered its

judgment of contempt before Caffey’s bankruptcy petition, she had no affirmative

duty to delay the contempt order and arrest warrant because they materialized after

her involvement in the proceedings ceased.

         We are doubtful of Russell’s legal assertion about her responsibilities. See

11 U.S.C. § 362(a)(1) (prohibiting “the commencement or continuation” of judicial

process to recover a debt); In re Scroggin, 364 B.R. 772, 781 (B.A.P. 10th Cir.

2007) (holding that a “refusal to take affirmative action to get the garnishment

stopped” is a willful violation of the automatic stay); In re Johnston, 321 B.R. 262,

282–86 (D. Ariz. 2005) (holding that creditor had affirmative duty to move to

vacate state court contempt and arrest orders that were not themselves issued in

                                            8
violation of the automatic stay); 2 Alan N. Resnick & Henry J. Sommer, Collier

Bankruptcy Manual ¶ 362.03[4] (3d ed. 2009) (“[L]evy of execution, restraining

orders, civil arrest orders and exercise of any other postjudgment remedies are

stayed.”). Even assuming that Russell had no affirmative duty to vacate the

outstanding orders, the record demonstrates that Russell actively violated the stay

after the arrest warrant was executed. She opposed Caffey’s release from prison

after being informed of his pending bankruptcy and negotiated $80,000 in

payments from Caffey as a condition of his release. This is precisely the type of

conduct that the automatic stay seeks to prevent, and the bankruptcy court did not

clearly err in finding this to be a willful violation of the stay.

                                  IV. CONCLUSION

       The bankruptcy court did not clearly err in finding that Russell willfully

violated the automatic stay. Through her attorneys, Russell had notice of both

Caffey’s bankruptcy proceeding and the adversarial suit against her. She violated

the stay by failing to vacate the state court orders and by extracting payments from

Caffey in exchange for his release. Accordingly, we affirm the district court’s

order affirming the bankruptcy court’s order awarding damages to Caffey.

       AFFIRMED.

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