In re Lempesis

557 B.R. 659

In re: Spiro Lempesis, Debtor.

Case No: 13 B 38994

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed September 28, 2016

Attorney for Debtor: Michael W. Huseman, Dreyer, Foote, Streit, Furgason & Slocum, P.A.

Attorney for Respondents: George P. Apostolides, Arnstein & Lehr LLP

MEMORANDUM OPINION REGARDING MOTION FOR CIVIL CONTEMPT AND SANCTIONS FOR VIOLATION OF THE DISCHARGE INJUNCTION

Bruce W. Black, Bankruptcy Judge

This matter is before the court on the Debtor's motion for civil contempt and sanctions for violation of the discharge injunction by Anthony Collaro (“Collaro”), a creditor, and his counsel, Romanucci & Blandin (“R & B,” collectively with Collaro, “Respondents”). After trial and post-trial briefing, and for the reasons stated below, the motion is granted, and the Respondents are found to be in civil contempt for violation of the discharge injunction provided by section 524 of the Bankruptcy Code.¹

Background

The Debtor is not an admirable person. He admits to conduct that is reprehensible and unjustifiable: sexual contact with one of his players, Collaro, when he was a college baseball coach. Nevertheless, he is a debtor, and no one has suggested that he filed his bankruptcy case in bad faith. Therefore, he is entitled to the protections afforded debtors by the Code. Moreover, the time has expired for anyone to contest the dischargeability of any debt he may owe Collaro.² Consequently, for purposes of the present motion, the nature of the Debtor's conduct is irrelevant.

Most of the facts are not in dispute. The Debtor filed for relief under chapter 7 of the Code on October 3, 2013. On Schedule F he listed Collaro as a creditor with an unliquidated and disputed claim in the form of a lawsuit filed in May of 2013 and pending in state court against the Debtor (“the first lawsuit”). On October 6, 2013, notice of the bankruptcy containing relevant information for creditors was mailed by the Bankruptcy Notification Center to creditors, including Collaro in care of his counsel in the state court case, R & B, at an address on N. LaSalle in Chicago. (Bankr. Dkt. No. 9). On November 4, 2013, upon discovering that R & B had recently moved their offices (Debtor's Ex. 3), the Debtor's attorney mailed a copy of the bankruptcy notice to R & B at their new address, 321 N. Clark Street, Suite 900, Chicago, IL 60654 and sent it via facsimile to R & B with attention to attorney Rebekah Williams (“Williams”), the lead associate at R & B assigned to the pending state court case. (Debtor's Ex. 5).

The notice included, in bold print, a warning about the automatic stay. It also included, in bold print, a statement that the deadline to object to the Debtor's discharge or to challenge the dischargeability of certain debts was January 17, 2014. No adversary proceeding regarding the Debtor's discharge or the dischargeability of any debts was ever filed in the case. The Debtor's discharge order (Bankr. Dkt. No. 20) was entered on January 21, 2014 and noticed to all creditors on the same day. (Bankr. Dkt. No. 22). The certificate of service for this notice indicates it was sent to R & B's old address on N. LaSalle in Chicago, IL. The case was closed on February 25, 2014. (Bankr. Dkt. No. 29).

Also on January 21, 2014, the Debtor appeared pro se in the first lawsuit and filed his answer (Debtor's Ex. 6 and Respondents' Ex. 8). The answer referred to his bankruptcy case and included the case number. Nearly three months later, on April 3, 2014, the Respondents voluntarily dismissed the first lawsuit. More than eight months after that, on December 30, 2014, Collaro, through R & B, filed a second action in state court against the Debtor (“the second lawsuit”) containing the allegations and claims from the first lawsuit and some additional allegations.

On February 20, 2015, the Debtor moved to reopen the bankruptcy case and brought this motion for an order of civil contempt against the Respondents. The Debtor contends that the Respondents violated the discharge injunction by failing to dismiss the first lawsuit timely and by filing the second lawsuit. The Debtor's request to reopen the case was granted, and the motion for sanctions was fully briefed and set for trial.

Jurisdiction

The Debtor seeks to recover damages for violation of the discharge injunction. Enforcement of the discharge injunction is a core proceeding. 28 U.S.C. §§ 157(b)(2)(O).³ Therefore, this court may conduct appropriate proceedings and enter a final order in this matter. 28 U.S.C. § 157(b)(1).

Motion for Sanctions(Bankr. Dkt. No. 32)

The Debtor seeks to have this court invoke its equitable powers under section 105(a) to remedy the Respondents' violation of the discharge injunction set forth in section 524(a). In addition to a finding of contempt against Respondents, the Debtor's requested remedies include sanctions in the form of actual damages for emotional distress and humiliation, punitive damages, out-of-pocket expenses, as well as attorneys' fees and court costs. The request includes those fees and costs incurred for defending the second lawsuit, reopening this case, and prosecuting this motion for sanctions.

The motion does not seek damages for violation of the automatic stay even though there appears to have been such a violation from when the Respondents received notice of the bankruptcy until the discharge was entered.

Motion in Limine(Bankr. Dkt. No. 52)

Prior to the trial, the Respondents filed a motion in limine seeking to bar evidence relating to punitive damages and damages for emotional distress and humiliation. The Respondents assert that (1) punitive damages are not available in an action for civil contempt; and (2) permissable remedies for violation of the discharge injunction do not include damages for emotional distress and humiliation. The court reserved ruling on the motion.

Trial

The trial was held on November 2, 2015. Two witnesses were presented at trial: the Debtor on behalf of himself, and attorney Antonio Romanucci (“Romanucci”) on behalf of the Respondents.

The Debtor testified about two relevant issues: (1) notice of the bankruptcy filing and the discharge order, and (2) his claimed damages. Romanucci's relevant testimony included the structure of his law firm and its effect on his firm's receipt of notice of the Debtor's bankruptcy, as well as his firm's actions in the two state court cases.

The Debtor's Testimony

The Debtor testified about filing his bankruptcy case. He also testified that on January 21, 2014—the day the Discharge Order was entered in this case—he filed his answer pro se in the first lawsuit. He further stated that when he filed the answer with the clerk of the circuit court of Cook County, he was told that he should mail a copy to R & B, and he promptly did so. (Tr. p. 15). His testimony in this regard was credible.

Regarding damages, the Debtor testified that he suffered emotional distress and humiliation as a result of the filing of the second lawsuit, which was filed more than eight months after the first lawsuit was voluntarily dismissed. Again, the Debtor's testimony was credible. The Debtor contends that the filing of the second suit was leaked to the press and revived interest in Collaro's claims against the Debtor. In support of his request for damages for emotional distress and humiliation, the Debtor described relentless pursuit and threats by the media that resulted in his loss of work hours and embarrassment at his place of employment. (Tr. pp. 20-27).

In support of out-of-pocket damages, the Debtor described the numerous times he appeared in state court after his bankruptcy filing, paid state court filing fees, and several instances requiring travel to meet with his attorney regarding this motion and trial. However, the Debtor offered no specific testimony for mileage or fuel, nor any calculation for any other expenses.

Romanucci's Testimony

Romanucci testified that the structure of his law firm is such that there are three litigation teams, each supervised and led by one of three partners. Each group includes at least three associate attorneys and support staff including paralegals, legal assistants, and clerical staff. The partner assigned to the team has overall responsibility for a case, with the day-to-day responsibilities handled by the team's associate attorneys. Romanucci stated that he acted as the managing partner of the firm and that any mail addressed to the firm would initially be given to him.

Romanucci stated that he was the partner on the first lawsuit and Williams was the lead associate. This meant that he would review all pleadings and documents prior to their filing or issuance, as well as all answers. He professed not to have seen the answer filed by the debtor because the state court electronic filing system does not permit electronic access to documents that have been filed but merely allows review of the court's docket. Romanucci stated that he also attended status hearings on several occasions after Williams left the firm in December of 2013. At the time of her employment with the firm, Williams was responsible, along with Romanucci, for approximately 40 files or cases.

Romanucci described his firm's typical response to a notice of bankruptcy filing, stating that the response is to be urgent and “[w]e treat that as a statute in our office.” (Tr. p. 77). He stated that although he was not a bankruptcy attorney, his understanding of the impact of a bankruptcy filing on his practice was such that the firm would need to lift the automatic stay in order to proceed with claims against the subject debtor.

Romanucci's description of the circumstances surrounding his voluntary withdrawal of the first lawsuit in April of 2014 included his statement that the withdrawal was not in response to the bankruptcy filing because he was not aware of the filing at that time. The withdrawal was a tactical maneuver on his part to afford the firm more time in pursuing Collaro's claims...