Wiseman v. Milwaukee Radiologists Ltd. (In re Wiseman)

617 B.R. 906

IN RE: Dawn M. WISEMAN, Debtor.

Dawn M. Wiseman, Plaintiff,

v.Milwaukee Radiologists Ltd., S.C. Defendant.

Case No. 19-23983-bhl

Adversary No. 19-02153-bhl

United States Bankruptcy Court, E.D. Wisconsin.

Signed March 31, 2020

Carrie Sue Werle, Steinhilber Swanson LLP, Oshkosh, WI, for Plaintiff.

DECISION AND ORDER

Brett H. Ludwig, United States Bankruptcy Judge

INTRODUCTION

This case involves a default judgment motion relating to a medical-service provider's alleged violations of the automatic stay and the Wisconsin Consumer Act. The underlying adversary complaint alleges that a radiology group improperly mailed a small number of invoices to a chapter 7 debtor's deceased husband, requesting payment of a small, $12.61 balance due for medical services provided to him. The medical-service provider did not answer the complaint, and the debtor then asked the court to enter a default judgment for more than $10,000, including nearly $2,500 in attorneys' fees and $8,000 for "emotional injury and punitive damages." (Pl.'s Proposed Order, ECF No. 6.)

Because the record shows that the defendant's collection efforts were directed against the debtor's deceased husband – not the debtor or her bankruptcy estate – there was no violation of the automatic stay or the Wisconsin Consumer Act. Simply put, the debtor's bankruptcy filing automatically stayed actions to collect against the debtor and her bankruptcy estate ; it did not prevent the radiology group from acting to collect against the debtor's deceased spouse or his estate. Accordingly, the default judgment motion is denied, and the adversary complaint is dismissed.

BACKGROUND

Dawn Wiseman filed a chapter 7 bankruptcy petition and schedules on April 26, 2019. The bankruptcy filing came shortly after the death of her husband, James Wiseman, Jr.

Prior to his death, the debtor's husband received medical services from Milwaukee Radiologists Ltd., S.C. At the time he passed away, he owed Milwaukee Radiologists a small $12.61 balance, net of applicable insurance payments and adjustments. The debtor did not identify Milwaukee Radiologists on her list of creditors or bankruptcy schedules. As a result, Milwaukee Radiologists received no notice of the debtor's bankruptcy. The debtor has made no effort to amend her schedules to list Milwaukee Radiologists as a creditor.

On May 11, 2019, about two weeks after the debtor's bankruptcy petition, Milwaukee Radiologists sent an invoice for the debtor's husband's outstanding medical charges. The invoice was addressed to the debtor's deceased husband, not the debtor. Milwaukee Radiologists mailed the invoice to him at the address he had shared with the debtor.

About two weeks later, on May 29, 2019, counsel for the debtor responded to Milwaukee Radiologists with a letter advising that the debtor's husband had passed away. The letter also confusingly stated that "[a]ny debts of James Wiseman that would be considered marital property and are [sic] included in the bankruptcy estate. Any collection action directed toward Dawn Wiseman is a violation of the Automatic Stay." (Pl.'s Mot. Default J. Exh. B-1, ECF No. 4.)¹ Counsel enclosed a notice of the debtor's case filing with the letter.

On August 12, 2019, Milwaukee Radiologists sent a second invoice to the debtor's deceased spouse. The second invoice was materially the same as the first invoice. It was again directed to the debtor's husband at the address he had shared with the debtor and requested payment of the same $12.61 balance.

The court entered a discharge order in the debtor's bankruptcy case on August 14, 2019. Several days later, debtor's counsel called Milwaukee Radiologists to complain about its efforts to collect on the deceased husband's debt. According to debtor's counsel, a representative for Milwaukee Radiologists explained that it had not received her May 29 letter and asked that the letter be resent to a fax number. The representative also told counsel that a note would be added to the file, confirming that the husband had passed away and that his widow had filed for bankruptcy.

On August 19, 2019, debtor's counsel faxed and mailed a copy of her earlier letter to Milwaukee Radiologists' Patient Services Department. The fax cover sheet stated, "Continued collection efforts against James Wiseman are a violation of the automatic stay."² (Pl.'s Mot. Default J. Exh. B-2, ECF No. 4.)

Milwaukee Radiologists' invoicing efforts stopped, but not immediately. Over the next few weeks, on August 26 and October 10, 2019, the medical-services provider sent two more invoices. These final two invoices were materially identical to the first two invoices. They were again directed to James Wiseman (not the debtor), were sent to the address he had shared with the debtor, and requested payment of the same $12.61 balance.

On September 13, 2019, after the third, but before the fourth invoice, the debtor filed an adversary complaint against Milwaukee Radiologists, alleging violations of the automatic stay and the Wisconsin Consumer Act. Milwaukee Radiologists has not answered and has not appeared for any proceedings in this adversary matter. On October 30, 2019, the debtor moved for default judgment and requested an award of $8,000 in non-economic (emotional distress and punitive) damages plus attorneys' fees and costs.

ANALYSIS

The debtor seeks entry of a default judgment against Milwaukee Radiologists based on its failure to answer the complaint. A defendant's failure to answer, however, does not necessarily "entitle the plaintiff to a default judgment." In re Stangel , 593 B.R. 607, 612 (Bankr. E.D. Wis. 2018). A plaintiff must still "establish that the well-pleaded facts found in the complaint, if taken as true, amount to a legally cognizable claim for relief upon which a judgment may be entered." In re Wolf , 595 B.R. 735, 754 (Bankr. N.D. Ill. 2018) (citing Nishimatsu Const. Co. v. Houston Nat'l Bank , 515 F.2d 1200, 1206 (5th Cir. 1975) ); see, e.g., VLM Food Trading Int'l, Inc. v. Illinois Trading Co. , 811 F.3d 247, 255 (7th Cir. 2016).

The debtor's adversary complaint alleges claims for violations of: (1) the automatic stay and (2) the Wisconsin Consumer Act. To warrant a default judgment, the debtor must establish that the well-pleaded facts entitle her to relief on these claims. In re Wolf , 595 B.R. at 754.

A. Milwaukee Radiologists' Requests for Payment from James A. Wiseman, Jr. Did Not Violate the Automatic Stay.

In Count I of the adversary complaint, the debtor alleges that Milwaukee Radiologists willfully violated section 362(a)(1). (Complaint ¶¶ 18-19, ECF No. 1.) In support of this claim, the debtor alleges that Milwaukee Radiologists "has continued to send bills to Plaintiff to collect on a pre-petition medical bill of Plaintiff's deceased husband, James Wiseman." (Complaint ¶ 8, ECF No. 1.) This claim and the supporting allegations suffer from two problems. First, debtor's counsel has invoked the wrong subsection of 362(a). Second, even if the debtor's claim were based on the correct subsection, the allegations do not support a claim for relief.

The debtor's invocation of section 362(a)(1) is misplaced because that subsection imposes a stay on "the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor." The debtor does not allege that Milwaukee Radiologists ever "commenced or continued" legal "proceedings" against anyone, let alone the debtor. The debtor alleges that Milwaukee Radiologists sent collection letters to her deceased husband after her bankruptcy filing. Sending a collection letter is not the commencement or continuation of a legal proceeding. Thus, based on the facts of the complaint, Milwaukee Radiologists has not violated section 326(a)(1) and the debtor has not met her burden to establish a legally cognizable claim for relief under that subsection.

Presumably, counsel intended to allege a violation of section 362(a)(6) , which imposes a stay of "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title." This subsection is more applicable to the factual allegations in the complaint. But even if the court were to rewrite the complaint for the debtor, she is still not entitled to relief. Section 362(a)(6) applies only to actions to collect on claims against the debtor. The record shows that Milwaukee Radiologists' collection actions were directed to the debtor's deceased husband, not against the debtor. The automatic stay generally does not extend to non-debtors. Brown v. Jevic , 575 F.3d 322, 328 (3d Cir. 2009) (citing Pitts v. Unarco Indus. , 698 F.2d 313, 314 (7th Cir. 1983) ; Williford v. Armstrong World Indus., Inc. , 715 F.2d 124 (4th Cir. 1983) ; Austin v. Unarco Indus., Inc. , 705 F.2d 1, 4 (1st Cir. 1983) ). Milwaukee Radiologists' conduct in sending invoices to the debtor's deceased, non-debtor husband did not run afoul of the automatic stay. See In re Thongta , No. 07-21837-SVK, 2009 WL 1587308, at *2 (Bankr. E.D. Wis. June 5, 2009) ("the automatic stay does not protect the non-filing spouse from a creditor's collection activities").

The debtor's primary argument for a stay violation is that "Wisconsin is a marital property state and James had no separate individual property that creditors could collect from – all of his interests in property passed to [the debtor] at his death." (Pl.'s Brief in Supp. 2, ECF No. 11.) But Milwaukee Radiologists possesses valid claims against the deceased spouse. As his creditor, Milwaukee Radiologists has the right to collect against his individual property, notwithstanding his wife's bankruptcy. See In re Thongta , No. 07-21837-SVK, 2009 WL 1587308, at *3 (Bankr. E.D. Wis. June 5, 2009) ("the stay does not protect the non-filing spouse from collection activities against her individual property"). If he has no separate property, Milwaukee Radiologists' collection efforts would be futile (as ...