In re Lyle

662 B.R. 229

IN RE: George E. LYLE Jr., Sabrina Chambers Lyle, Debtors.

Case No. 22-00505-5-JNC

United States Bankruptcy Court, E.D. North Carolina

Signed June 21, 2024

Joshua Hillin, Erik A. Martin, Law Office of John T. Orcutt P.C., Raleigh, NC, for Debtors.

ORDER ON MOTION FOR SANCTIONS

Joseph N. Callaway, United States Bankruptcy Judge.

The matter before the court is the Motion for Sanctions for Violation of the Automatic Stay (Dkt. 39; the "Motion") filed March 21, 2024, by George Lyle and Sabrina Lyle (together, the "Debtors"), who are married and filed a joint petition in this chapter 13 case. The Motion seeks the imposition of sanctions against creditor Corey Heating, Air Conditioning, & Plumbing Inc. ("Corey Inc.") for alleged violations of the automatic stay under 11 U.S.C. § 362. The record reflects that the Motion was served on Corey Inc. at its last known mailing address, but no response thereto was made. A Notice of Hearing was issued on April 9, 2024, affording Corey Inc. a further opportunity to appear before the court and be heard on any defenses it may have. The hearing was held on May 1, 2024, in Greenville, North Carolina. Attorney Erik A. Martin appeared for the Debtors. No appearance was made by an attorney or anyone else on behalf of Corey Inc.

JURISDICTION

The court has jurisdiction over the Motion pursuant to 28 U.S.C. §§ 151 and 1334. Further, it is authorized to hear this matter under the General Order of Reference entered August 3, 1984, by the United States District Court for the Eastern District of North Carolina. In addition, this discrete matter, being a motion filed within the bankruptcy case pursuant to the contested motion procedures of Federal Rule of Bankruptcy Procedure 9014 and pertaining to the automatic stay provisions of 11 U.S.C. § 362, is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(G), which this bankruptcy court may fully hear and determine.

FINDINGS OF FACT

The Debtors filed a joint petition for relief under chapter 13 of the Bankruptcy Code on March 9, 2022. Corey Inc. is listed as an unsecured creditor in the case schedules (Dkt. 1 at 38) in Schedule E/F, section 4.16. The address of the creditor is listed as "406 Washington St. A, Williamston, NC 27892" (the "Washington Street address"). The case mailing matrix at page 71 of 74 of the schedules also lists the same mailing address. That same day the court issued the Notice of Chapter 13 Case and Meeting of Creditors (Dkt. 9; "Meeting of Creditors Notice"); it was served on all interested parties, including Corey Inc. (Dkt. 12; BNC Certificate of Mailing). The next day, March 10, 2022, a notice of the Debtors' chapter 13 plan was mailed by the Debtors' counsel to all creditors, including Corey Inc. (Dkt. 10).

Significantly, the Meeting of Creditors Notice contains the following language in the body of its first section:

The filing of the case imposed an automatic stay against most collection activities. This means that creditors generally may not take action to collect debts from the debtors, the debtors' property, and certain codebtors. For example, while the stay is in effect, creditors cannot sue, garnish wages, assert a deficiency, repossess property, or otherwise try to collect from the debtors. Creditors cannot demand repayment from debtors by mail, phone, or otherwise. Creditors who violate the stay can be required to pay actual and punitive damages and attorney's fees. Under certain circumstances, the stay may be limited to 30 days or not exist at all, although debtors can ask the court to extend or impose a stay.

Meeting of Creditors Notice, Dkt. 9 at 1.

In both instances, the mailing address used for Corey Inc. is reflected in the certificates of service as the Washington Street address. No indication of returned, undelivered mail appears in the case docket. The proposed chapter 13 plan was confirmed by an order entered November 17, 2022 (Dkt. 16; "Order Confirming Plan"). The Order Confirming Plan was served (Dkt. 17) by the chapter 13 trustee on all parties, again including Corey Inc. During this time, Corey Inc. did not appear at any hearing, respond to any motion or notice, file a proof of claim, or file a motion to modify or lift the automatic stay. In short, it has not participated in this chapter 13 case in any manner that can be discerned from the record. What Corey Inc. did do during the postpetition timeframe was continue to send monthly payment invoices to the Debtors' home address in contravention of the bankruptcy case notices.

At the hearing, Sean Orcutt, an attorney for the Debtors, testified. He indicated that in response to the invoices, three letters were sent by his law firm via first class mail to Corey Inc. during the pendency of the bankruptcy case—specifically on May 3, 2022; July 14, 2022; and February 15, 2023. He testified that the letters, which were admitted as Exhibit 1, (i) notified Corey Inc. of the pending bankruptcy case, (ii) reiterated instructions in the Meeting of Creditors Notice on filing a proof of claim, (iii) explained the application of the automatic stay imposed in a bankruptcy case, and (iv) warned that continued attempts to collect a debt would violate that automatic stay. None of the letters provide reference or any specifics to the invoices being mailed by Corey Inc.; they are apparently form letters used by the firm and signed by a paralegal. The letters spoke in general terms regarding the automatic stay rather than demanding Corey Inc. cease and desist from sending identified monthly invoices. They were not even sent to the same address; the May 3 letter was addressed to the Washington Street address, while the other two letters were sent to P.O. Box 787 Williamston, NC 27892.

Mrs. Lyle next testified at the hearing. She stated that Corey Inc. mailed invoices to the Debtors' residence each month during the pendency of their joint bankruptcy case, asserting that twenty such invoices had been received. Only ten such invoice statements were introduced into evidence, collectively as Exhibit 2. All are addressed to Mr. Lyle, not Mrs. Lyle, and not to them jointly. Her name does not appear on any of the invoices placed into evidence. The statements reference a principal charge of $278.40 for air conditioner repairs performed prepetition in August 2016. The first two invoices (April and May 2022) reflect $542.68 as they contained finance charges; the remaining eight invoices (for various months) show the $278.40 principal charge only.

Mrs. Lyle further testified that the receipt of these statements caused her great anxiety and that she felt betrayed by Corey Inc. She said it was a difficult decision to file bankruptcy, but the purpose was to stop collection efforts. She discussed how her anxiety increased each time a statement arrived. However, when asked about Mr. Lyle's reaction, she indicated he was not upset or bothered by receiving the statements.¹ She testified in detail regarding her medical issues that existed prior to the filing of this case, generally acknowledging that these conditions existed before receiving the invoices while maintaining that the conditions worsened afterwards.

THE AUTOMATIC STAY

Pursuant to 11 U.S.C. § 362(a), the filing of a petition in bankruptcy "operates as a stay, applicable to all entities" for eight specific scenarios (listed in the statute as (1) through (8) respectively), some of which apply to the bankruptcy estate only, some to the bankruptcy debtor(s) only, and some to both. See In re Gunter, 410 B.R. 178, 181 (Bankr. E.D.N.C. 2008). Of particular interest here are subsections (3) and (6), which provide:

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title....

11 U.S.C. § 362(a)(3) and (6) (emphasis added).

The postpetition sending of an invoice to collect a prepetition debt is a violation of the automatic stay. In re Robinson, No. 06-10618-SSM, 2008 WL 4526183, at *3 (Bankr. E.D. Va. Sept. 29, 2008) (holding there was "no question" the creditor repeatedly violated the automatic stay by intentionally sending the debtor invoices that included charges for prepetition services). "[N]umerous courts have found that sending bills for prepetition debts, even without threats to sue, is a violation of the automatic stay." Id. (citing In re Wills, 226 B.R. 369, 378 (Bankr. E.D. Va. 1998); In re Dayley, 349 B.R. 825 (Bankr. D. Idaho 2006); In re Draper, 237 B.R. 502 (Bankr. M.D. Fla. 1999); In re Meis-Nachtrab, 190 B.R. 302 (Bankr. N.D. Ohio 1995)).

"[A]n individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." 11 U.S.C. § 362(k)(1) (emphasis added). "The automatic stay serves a crucial function in any bankruptcy case and willful violations under § 362(h) are serious matters warranting the mandatory imposition of sanctions that Congress has proscribed." In re Brock Utilities & Grading, Inc., 185 B.R. 719, 720 (Bankr. E.D.N.C. 1995).

Automatic stay violations also subject a creditor to civil contempt. "[A]utomatic stay provisions are treated as specific and definite orders of the Court" and "a wilful violation of the automatic stay is contemptuous." In re Miller, 22 B.R. 479, 481 (Bankr. D. Md. 1982) (citations omitted). "The Supreme Court has clarified the parameters by which courts may impose contempt sanctions for violations of its orders." In re Carnegie, 621 B.R. 392, 409 (Bankr. M.D.N.C. 2020) (citing Taggart v. Lorenzen, 587 U.S. 554, 139 S. Ct. 1795, 204 L.Ed.2d 129 (2019)). Because civil contempt is a "severe remedy," a bankruptcy court should not resort to civil contempt sanctions where there is a "fair ground of doubt as to...