In re Sehman

632 B.R. 846

IN RE: Christopher Scott SEHMAN, Debtor.

CASE NO.: 21-30141-KKS

United States Bankruptcy Court, N.D. Florida, Pensacola Division.

Signed August 10, 2021

Teresa M. Dorr, Natasha Z. Revell, Zalkin Revell, PLLC, Santa Rosa Beach, FL, Kenneth W. Revell, Zalkin Revell, PLLC, Albany, GA, for Debtor.

John R. Dowd, Jr., Dowd Law Firm, Fort Walton Beach, FL, for Respondent.

Jodi D. Dubose, Stichter Riedel Blain & Postler, P.A., Pensacola, FL, Trustee, Pro Se.

FINDINGS OF FACT AND CONCLUSIONS OF LAW IN SUPPORT OF ORDER GRANTING DEBTOR'S MOTION FOR SANCTIONS FOR VIOLATION OF THE AUTOMATIC STAY (DOC 56) (ECF NO. 85)

KAREN K. SPECIE, Chief U. S. Bankruptcy Judge

THIS MATTER came before the Court for hearing on June 9, 2021 on Debtor's Motion for Sanctions for Violation of the Automatic Stay ("Motion for Sanctions," ECF No. 56). On June 11, 2021, the Court entered an Order Granting Debtor's Motion for Sanctions for Violation of the Automatic Stay (Doc. 56) ("Sanctions Order").¹ The Court now issues these Findings of Fact and Conclusions of Law as set forth in, and in support of, the Sanctions Order pursuant to Fed. R. Civ. P. 52(a)(1) applicable by Fed. R. Bankr. P. 7052.²

On April 29, 2021, Debtor, Christopher Scott Sehman, filed an emergency motion to enforce the automatic stay.³ That same day Debtor filed the Motion for Sanctions.⁴ The Court held an emergency hearing on both motions on May 4, 2021. At the conclusion of that hearing the Court granted Debtor's Emergency Stay Motion and continued the hearing on the Motion for Sanctions.⁵

In his Motion for Sanctions, Debtor requests that this Court: 1) hold William Todd Schweizer ("Schweizer") and 4 Dakota Ventures, LLC, ("4 Dakota") in contempt for willful violation of the automatic stay; 2) hold attorneys Robert O. Beasley and Dewitt D. Clark, and their law firm, Litvak Beasley Wilson & Ball, LLP (collectively "the attorneys"), in contempt for willful violations of the automatic stay; and 3) award Debtor actual damages, costs, attorney fees and punitive damages against Schweizer, 4 Dakota, and the attorneys.⁶ For the reasons stated below, the Court finds that 4 Dakota and the attorneys willfully violated the automatic stay.

FINDINGS OF FACT

The facts material to the instant Motion for Sanctions stem from two (2) lawsuits involving Debtor. In one suit, Debtor is a defendant (the "District Court Action"); in the other suit, Debtor is the plaintiff (the "Schweizer Lawsuit").⁷

The District Court Action began in February of 2015 when Synovus Bank sued Debtor and others in the United States District Court for the Northern District of Florida.⁸ On October 30, 2015, the district court entered a $300,000.00 stipulated final deficiency judgment against Debtor and others in favor of NWE16, LLC ("NWE16"), successor to Synovus Bank ("Final Judgment").⁹

On June 11, 2018, Debtor filed the Schweizer Lawsuit in Florida state court.¹⁰ There, he sued Schweizer for over $1.5 million claiming, among other things, that Schweizer failed to perform under a purchase and sale agreement intended to allow Debtor to restructure his business operations.¹¹ According to Debtor, that agreement provided, in part, for Schweizer to pay $40,000.00 to NWE16 in exchange for a satisfaction and release of the Final Judgment against Debtor.¹² The parties never consummated the purchase and sale agreement.

Schweizer did not obtain a release or satisfaction of the $300,000.00 Final Judgment against Debtor. Instead, on August 23, 2018, 4 Dakota, a company that Schweizer previously owned and controlled, took an assignment of the Final Judgment from NWE16.¹³ Debtor claims that Schweizer orchestrated the assignment, rather than release, of the Final Judgment so that he, under the guise of 4 Dakota, could be a judgment creditor of Debtor.¹⁴

After NWE16's assignment of the Final Judgment to 4 Dakota, the district court substituted 4 Dakota as Plaintiff in the District Court Action.¹⁵ 4 Dakota then began pursuing post-judgment collection remedies against Debtor.¹⁶ Debtor did not respond to 4 Dakota's collection motions in the District Court Action.¹⁷ Debtor claims his lack of response was because he did not have and could not afford counsel; 4 Dakota vehemently disagrees.¹⁸

On January 15, 2021, the district court entered an order "granting execution" in favor of 4 Dakota and assigning to 4 Dakota all of Debtor's "right, title and interest" in and to the Schweizer Lawsuit ("Assignment Order").¹⁹ The Assignment Order, provides, in pertinent part:

Judgment Creditor [4 Dakota], as the owner and holder of that certain Final Judgment of Deficiency dated October 30, 2015 entered by the Court in case No.: 3:15-cv-51-MCR/EMT, is granted execution upon that certain chose in action of Christopher Sehman [Debtor] represented by his claims in Okaloosa County Circuit Court Case No. 2018 CA 2080 F (the "Chose in Action") [Schweizer Lawsuit].

The Chose in Action, and specifically all right, title and interest held or owned by Christopher Sehman therein, is hereby assigned to Judgment Creditor.

This Order shall operate as a full and complete assignment, and immediately confers upon 4 Dakota Ventures, LLC standing to seek substitution as the Plaintiff in said Circuit Court action [Schweizer Lawsuit].²⁰

With the Assignment Order in hand, on January 20, 2021, 4 Dakota filed a motion in the Schweizer Lawsuit to substitute itself as plaintiff in place of Debtor ("Motion to Substitute").²¹ The state court held a hearing on the Motion to Substitute on March 5, 2021. It is undisputed that the state court did not rule on the Motion to Substitute at the hearing; rather, the state court took that motion under advisement.

On March 7, 2021, Debtor filed the Chapter 11 petition commencing this case ("Petition").²² Debtor listed 4 Dakota and Schweizer on the creditor matrix filed with the Petition.²³ The next day, March 8, 2021, Debtor's bankruptcy counsel filed suggestions of bankruptcy in the District Court Action and the Schweizer Lawsuit and served copies on Debtor's state court counsel, the attorneys, and Schweizer's counsel.²⁴

On Sunday evening, April 18, 2021, about a month and a half after Debtor filed his bankruptcy Petition, Trisha Barnes, Judicial Assistant ("JA") to Hon. Jim Ward, the state court judge handling the Schweizer Lawsuit, emailed the attorneys’ legal assistant requesting an order granting the Motion to Substitute heard on March 5.²⁵ The following Friday, April 23, 2021, the attorneys’ legal assistant transmitted a proposed order to Judge Ward's JA.²⁶ Judge Ward signed the proposed order on Tuesday, April 27, 2021; it was entered on the docket that day at 1:08 p.m. ("Substitution Order").²⁷

At 1:30 p.m. the same day, Debtor's state court counsel voiced objection to the Substitution Order by calling and emailing Judge Ward's JA, stating, in pertinent part:

[T]here is an automatic stay in all pending matters involving Mr. Sehman as he has filed for bankruptcy protection. As such, I do not believe this order can be properly entered at this time.

Please advise if the court is agreeable to voluntarily recalling the order in light of the stay or if we should file a formal motion requesting this relief.²⁸

Within one (1) minute, one of the attorneys emailed a reply, stating:

I disagree, this order was purely ministerial as the hearing was held prior to the filing of bankruptcy.²⁹

Debtor filed the instant Motion for Sanctions and his Emergency Stay Motion two (2) days later, on April 29, 2021.³⁰

At a hearing on May 4, 2021, at which counsel for all parties appeared, this Court announced its ruling on Debtor's Emergency Stay Motion: that the Substitution Order was void ab initio , Debtor's bankruptcy estate has an interest in the Schweizer Lawsuit protected by the automatic stay, and the attorneys’ submission of the Substitution Order was an act to obtain or exercise control over the Schweizer Lawsuit, in violation of 11 U.S.C. § 362(a)(3).³¹ The order memorializing the May 4 ruling was entered on May 7, 2021 ("Stay Order").³² In the Stay Order, this Court also held that the state court's entry of the Substitution Order was not merely a "ministerial act."³³

In the District Court Action, which remains pending, Debtor has filed a motion to vacate the Assignment Order.³⁴ In its response in opposition to that motion, filed May 11, 2021, 4 Dakota did not mention this Court's oral ruling on May 4, or the Stay Order entered May 7.³⁵

CONCLUSIONS OF LAW

Debtor's bankruptcy Petition triggered an automatic stay, applicable to all entities, of commencement or continuation of actions against him and attempts to collect prepetition debts.³⁶ The automatic stay prohibits the enforcement of a prepetition judgment against Debtor or his property and any act to obtain possession of or exercise control over any of Debtor's property.³⁷

Bankruptcy Code Section 362(b) sets forth certain exceptions to the automatic stay.³⁸ To avoid being held in violation of the automatic stay, a party's action must either be an exception enumerated in § 362(b) or the party must obtain relief from the stay under § 362(d).³⁹

Bankruptcy Code Section 362(k)(1) provides that ‘‘an individual injured by any willful violation of a stay ... shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.’’⁴⁰ The Court has already found that 4 Dakota and the attorneys violated the automatic stay. The remaining question is whether 4 Dakota's and the attorneys’ stay violations were willful.

4 Dakota and the attorneys willfully violated the automatic stay.

A debtor has the burden to prove that a stay violation was willful.⁴¹ A violation of the stay is willful if the offending party: 1) knew the automatic stay was invoked and 2) intended to commit the actions which violated the stay.⁴² Once a party and its counsel have knowledge that a bankruptcy petition has been filed, they are deemed to have knowledge that the automatic...