In re Nocek

IN RE: ROBERT CHESTER NOCEK, DEBTOR

CASE NO. 19-01364-5-SWH

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NORTH CAROLINA RALEIGH DIVISION

April 7, 2020

ORDER ALLOWING, IN PART, DEBTOR'S MOTION FOR SANCTIONS FOR VIOLATION OF AUTOMATIC STAY AND DISCHARGE INJUNCTION

This matter came before the court on the motion for sanctions filed by the debtor Robert Chester Nocek ("debtor" or "Mr. Nocek"), seeking sanctions against Gino Sesto d/b/a Dash Two for violations of the automatic stay and discharge injunction. A hearing was held on January 21, 2020, after which the court took the matter under advisement. On March 30, 2020, the court entered an order allowing the motion in part on grounds that Mr. Sesto, dba Dash Two, violated the automatic stay in connection with an email communication sent by Mr. Sesto to the debtor on April 24, 2019. (Dkt. 31) The order awarded attorney's fees as damages for that violation, and further provided that the bases for the court's determination would be more fully set forth in an opinion to follow. Those bases are set forth below.

FACTUAL AND PROCEDURAL BACKGROUND

Mr. Nocek filed a voluntary petition for relief pursuant to chapter 7 of the Bankruptcy Code on March 26, 2019. Dash Two and CMI, which is the collection agency for Dash Two, were listed on the debtor's schedules as the holders of unsecured claims. Mr. Sesto is the founder of Dash Two, Inc., which is a California corporation, and is its registered agent for service of process, but Mr. Sesto was not listed on the debtor's schedules or on the creditors' matrix. A notice of the bankruptcy filing was mailed to both Dash Two and CMI by the Bankruptcy Noticing Center on March 28, 2019.

On April 2, 2019, Mr. Sesto, dba Dash Two, initiated a small claims lawsuit against the debtor in the Superior Court of California, County of Los Angeles, seeking recovery of approximately $5,617.29 from the debtor for advertising services provided to the debtor by Dash Two. Mr. Sesto filed the action as "Gino Joseph Sesto dba Dash Two." A trial date in the small claims action was set for July 11, 2019.

From April 24, 2019 and continuing until October 3, 2019, Mr. Sesto sent various emails and social media messages to the debtor. In particular, on April 24, 2019, Mr. Sesto sent an email to the debtor in which he stated that his "goal" was to obtain a lien on the debtor's house. Also on April 24th, he responded to a social media post by the debtor wherein the debtor announced that he had taken a bike ride; replying, Mr. Sesto inquired whether the debtor had "found any money on that trail" with which to pay debts.

The debtor received his discharge pursuant 11 U.S.C. § 727 on June 27, 2019. Dash Two and CMI were notified of the discharge by the Bankruptcy Noticing Center on June 29, 2019. OnJuly 2, 2019, counsel for the debtor attempted to personally contact Mr. Sesto via telephone.¹ That same day, counsel also sent a cease and desist letter to Mr. Sesto by both email and regular mail² advising him that the California state court action had been initiated in violation of the automatic stay, and requesting that Mr. Sesto "immediately cease attempting to collect from my client by continued prosecution of this action." Mr. Sesto did not appear for the trial date on July 11, 2019, and the case was dismissed without prejudice as there were no appearances from either party. In early October, Mr. Sesto sent an email to and tweeted at the debtor, with each of those communications consisting of a single derogatory term.

On October 16, 2019, the debtor filed the instant motion requesting that this court order "Mr. Sesto dba Dash Two" to cease all collection activity against the debtor and to pay all reasonable and necessary attorneys' fees incurred in the prosecution of the motion, and further that the court impose sanctions against Mr. Sesto for his willful violation of both the automatic stay and the discharge injunction. In Mr. Sesto's pro se response to the motion, he stated that he initiated the small claims lawsuit without any knowledge of the debtor's bankruptcy case. Mr. Sesto maintains that he received actual notice of the bankruptcy filing on July 2, 2019, when he received the email sent to him by counsel for the debtor. Upon receipt of the letter, Mr. Sesto testified, he abandoned all attempts to collect any payment from the debtor, and did not further pursue the state court action. Mr. Sesto takes the position that his continued communications, including post-discharge emails and tweets in which he referred to the debtor in a derogatory way,did not constitute collection activity and instead were his method of venting his frustration. Mr. Sesto subsequently apologized and acknowledged that his communications with the debtor were both immature and inappropriate. He denies that any of his actions constitute violations of the automatic stay or discharge injunction.

DISCUSSION

The issue presented here is whether the automatic stay and/or discharge injunction were willfully violated by Mr. Sesto and, if so, what damages may be recoverable. The automatic stay as set forth in 11 U.S.C. § 362(a) prevents creditors from attempting to collect pre-petition debts owed to them by the debtor. The stay goes into effect once the debtor files a petition for bankruptcy and continues until the time the case is closed or dismissed, or the time a discharge is granted or denied. 11 U.S.C. § 362(c)(2)(C). Sanctions may be imposed on a creditor for willful violations of an automatic stay, and § 362(k) provides that "an 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." The burden of proof is on the debtor to show a violation of the stay by the preponderance of evidence. See, e.g., In re Franklin, No. 19-80661, 2020 WL 570092, at *6 (Bankr. M.D.N.C. Jan. 24, 2020); Clayton v. King (In re Clayton), 235 B.R. 801, 806 (Bankr. M.D.N.C. 1998).

The discharge injunction set forth in § 524(a)(2) "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, [or] recover," debts discharged by the order. 11 U.S.C. § 524(a)(2). As with violations of the automatic stay, suit can be brought by the debtor to hold the creditor in civil contempt if a creditor willfully violates the discharge. "While a violation of the discharge injunction does not providean express remedy akin to § 362(k) for violations of the automatic stay, § 105 allows a bankruptcy court to hold a creditor in civil contempt, and impose contempt sanctions, for violating the discharge injunction." In re Williams, --- B.R. --, 2020 WL 411291 *4 (Bankr. M.D.N.C. 2020), citing Taggart v. Lorenzen, 139 S. Ct. 1795, 1801 (2019); see also Bradley v. Fina, 550 F. App'x 150, 154 (4th Cir. 2014). The standard of proof in a contempt proceeding is by "clear and convincing evidence." E.g., Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000); In re Bock, 297 B.R. 22, 29 (Bankr. W.D.N.C. 2002). The court turns now to its discussion of the conduct at issue in this matter, and begins with the asserted violations of the automatic stay.

To establish a violation of the automatic stay, the debtor must show that (1) the bankruptcy petition was filed; (2) the debtor is an "individual," for the purpose of an automatic stay; (3) notice of the debtor's bankruptcy petition was received by the creditor; and (4) the creditor willfully violated the automatic stay. Weatherford v. Timmark Carey Holdings, Inc. (In re Weatherford), 413 B.R. 273, 284 (Bankr. D.S.C. 2009). The burden of proof to show damages, actual and punitive, also is on the debtor. In re Warren, 532 B.R. 655, 660 (Bankr. D.S.C. 2015). The first two criteria are not in dispute here: Mr. Nocek filed a petition for bankruptcy on March 26, 2019, and Mr. Nocek is an individual for the purposes of the automatic stay.

With respect to notice, it is generally presumed that notice by mail is complete on mailing. See Fed. R. Bankr. P. 9006(e); Warren, 532 B.R. at 661-62; Franklin, 2020 WL 570092 at *8. A presumption of receipt applies when the mailing is properly addressed, has proper postage affixed, and was in fact mailed. See, e.g., In re Cunningham, 506 B.R. 334, 340 (Bankr. E.D.N.Y. 2014); In re Robinson, 228 B.R. 75, 81 (Bankr. E.D.N.Y. 1998). Additionally, the court's certificate of mailing creates the presumption of receipt. See Garcia v. Direct Financial Servs., LLC, No.7:10CV00359, 2010 WL 4065498, at *2-4 (W.D. Va. Oct. 15, 2010) (discussing basis for and extent of presumption); In re Rodriguez, Adv. P. No. 14-00268, 2016 WL 2849594 (Bankr. D.P.R. May 10, 2016).

This presumption of receipt may be rebutted, although simply arguing non-receipt, without more, is inadequate. E.g., Cunningham, 506 B.R. at 341. Proof of a violation of the automatic stay does not require actual notice, and constructive notice may suffice. Weatherford, 413 B.R. at 283. In addition, it is generally the law of agency that a principal is chargeable with notice given to the agent while the agent is acting within the scope of his authority, even when the agent does not inform the principal of notice. In re Withrow, 93 B.R. 436, 438 (Bankr. W.D.N.C. 1988).

Here, Mr. Sesto contends that at the time he filed the state court lawsuit on behalf of Dash Two, he did not have notice of the debtor's bankruptcy. The record in this case indicates that notice of the debtor's bankruptcy filing was sent via first class mail by the Bankruptcy Noticing Center on March 28, 2019, addressed to Dash Two at its business address, to the attention of its "Managing Agent." Mr. Sesto confirmed at the hearing that the address listed on the certificate of notice is in fact the company's address, but he denies ever receiving it. While denial of receipt standing alone would be insufficient to persuade the...