Ronald Bradley v. Christopher Fina

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 1:12-cv-00660-GBL-TCB,10-13678-RGM Copies to all parties and the district court/agency. [999272303].. [12-2526]

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 12-2526

In Re:

CHRISTOPHER J. FINA; CARLY ELIZABETH FINA,
Debtors.

---------------------------RONALD BRADLEY;
M. RYAN MADISON,

TERRI

LEE

BRADLEY;

WILLIAM

A.

ERHART;

Plaintiffs – Appellants,
v.
CHRISTOPHER J. FINA,
Defendant – Appellee,
and
CARLY ELIZABETH FINA,
Defendant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge; Theresa C. Buchanan, Magistrate Judge.
(1:12-cv-00660GBL-TCB; 10-13678-RGM)

Argued:

October 31, 2013

Decided:

January 7, 2014

Before GREGORY, SHEDD, and KEENAN, Circuit Judges.

Affirmed by unpublished per curiam opinion.

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Kevin Jerome Funk, DURRETTECRUMP PLC, Richmond, Virginia, for
Appellants.
Richard George Hall, Annandale, Virginia, for
Appellee.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:
This

case

involves

the

appellants’

violation

of

a

bankruptcy court’s discharge injunction.

The bankruptcy court

imposed

appellants,

contempt

district

court

sanctions

upheld

the

against

the

decision.

Finding

no

and

the

error,

we

affirm.

I.
The matter originated with a 2006 agreement between Ronald
and

Terri

Bradley

and

Christopher

Fina.

Fina,

operating

a

construction business under the name Fina Homes and Remodeling,
agreed to perform work on the Bradleys’ home.

Shortly after the

work

defects

began,

a

city

inspector

discovered

in

construction and issued a stop work order on the project.

the
After

attempts to resolve the situation failed, the Bradleys filed a
lawsuit in Minnesota state court against Fina and his father,
James Edward Fina, alleging several state law claims.

Fina’s

father was named as a party because he was identified as an
owner/licensee of Fina Homes and Remodeling.
The Bradleys served James Fina with the complaint but were
unable to locate the younger Fina.

On September 3, 2009, after

James Fina failed to answer the complaint, the Minnesota court
entered a default judgment against him in the amount of $40,865.

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The

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Bradleys

then

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discovered

that

James

Fina

was

not

a

viable source of recovery and began contemplating whether they
were entitled to relief under the Minnesota Contractors Recovery
Fund (“MCRF” or “Fund”).

Created by Minnesota law, the MCRF is

designed

to

to

provide

up

$50,000

to

homeowners

who

have

suffered a loss caused by a licensed contractor’s failure to
adequately

complete

a

§ 326B.89, subd. 4.
Fund,

homeowners

licensed
subd.

member

6.

construction

The

Minn.

Stat.

As a prerequisite to recovering from the

must
of

project.

obtain

the

a

court

contracting

statute

notes

judgment

company.

that

against
Id.

homeowners

each

§ 326B.89,
may

seek

compensation regardless of whether the final judgment against
the

contractor

court.
claim

Id.
and

has

been

discharged

by

order

of

a

bankruptcy

The Fund does not guarantee full payment of any
does

not

cover

attorneys

fees

or

costs.

Id.

Instructions from the Minnesota Department of Commerce, which
administers

the

program,

advise

that

in

cases

where

the

contractor has filed for bankruptcy, the applicant “will need to
petition the Judge of the Bankruptcy Court to lift the automatic
stay and explain that your lawsuit is solely for the purpose of
obtaining

restitution

from

the

Recovery

Fund

and

that

you

understand that you will not be able to collect the judgment
from the contractor directly.”

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The Bradleys hired an attorney, appellant M. Ryan Madison,
to assist them in their efforts to collect under the MCRF.

They

filed an application with the Fund based on the default judgment
they had previously obtained against James Fina.

However, the

state denied the Bradleys’ application because of their failure
to also obtain a judgment against Christopher Fina.

Id.

In the meantime, Christopher Fina filed a petition under
Chapter 7 of the United States Bankruptcy Code in the Eastern
District of Virginia.

As creditors, the Bradleys were notified

of the action, and they ceased efforts to collect against Fina
in

light

of

petition.

the

automatic

stay

provisions

of

the

bankruptcy

On August 19, 2010, the Bradleys received notice that

Fina’s debt to them had been discharged pursuant to an approved
bankruptcy plan.
Aware

of

the

discharge,

Madison

contacted

the

Minnesota

Attorney General’s office for advice on whether he could still
pursue relief under the MCRF.
language

in

an

amended

Madison was advised to include

complaint

indicating

that

the

sole

purpose of the action was to obtain a judgment against Fina in
order to seek recovery under the Fund.
On

October

12,

2010,

the

Id.

Bradleys

filed

an

complaint in Minnesota state court against the Finas.

amended
It sought

monetary damages totaling $58,377.50, as well as attorney’s fees
and

costs.

However,

paragraph
5

six

of

the

amended

complaint

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stated that:
of

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“[t]his lawsuit is being filed solely for purposes

collecting

from

the

[MCRF]

pursuant

to

Minnesota

Statute

§ 326B.89.”
Fina retained new counsel in Minnesota to defend the suit
and

filed

an

answer.

Paragraph

two

of

the

answer

admitted

paragraphs one through eight of the Bradleys’ amended complaint,
including the stipulation that the suit was brought solely for
purposes of collecting under the MCRF.
After the Bradleys hired appellant William Erhart to serve
as additional counsel, the parties engaged in settlement talks.
A tentative agreement was reached wherein Fina would allow the
Bradleys to obtain a default judgment against him in the amount
of $50,000 in order to enable them to pursue relief from the
Fund.
the

In exchange, the Bradleys would drop Fina’s father from
lawsuit.

Erhart

then

received

a

letter

from

Fina’s

Minnesota counsel stating that the viability of the settlement
was in question due to objections from Fina’s bankruptcy counsel
in Virginia.
Upon

Fina’s

petition,

the

bankruptcy

court

reopened

the

case, issued a show cause order against the appellants, and set
the

matter

for

trial.

The

issue

at

trial

was

whether

the

Bradleys and their counsel acted in contempt of the bankruptcy
court’s

discharge

injunction

when

complaint.
6

they

filed

the

amended

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At the close of trial, the bankruptcy court ruled against
the appellants.
the

discharge

limitation

in

The court found that they willfully violated
injunction
paragraph

because,

six

of

despite

the

the

complaint,

self-imposed
the

Minnesota

lawsuit subjected Fina to personal liability and imperiled his
right

to

an

economic

fresh

start.

The

court

ordered

the

appellants to pay Fina $31,192.98, which included his attorney’s
fees and costs, as well as $4,000 for lost wages, lost vacation
pay, and pain and suffering.

The district court affirmed the

decision of the bankruptcy court in all respects except for the
pain and suffering damages.
After the bankruptcy court issued its decision, it granted
a motion allowing the Bradleys to continue pursuing their claim
against

Fina

eventually
motion

in

collect

contained

Minnesota
under
several

state

the

court

MCRF.

so

The

stipulations,

that

order

they

might

granting

including

that

the
the

Bradleys not seek to hold Fina personally liable for any amount.

II.
Section 524(a)(2) of the Bankruptcy Code provides that a
discharge in bankruptcy “operates as an injunction against the
commencement or continuation of an action, the employment of
process, or an act, to collect, recover or offset any such debt
as

a

personal

liability

of

the
7

debtor

. . . .”

11

U.S.C.

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§ 524(a)(2).

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Section 105 authorizes a bankruptcy court to hold

a party in civil contempt for violating an order of the court,
including a discharge order.
532 (Bankr. E.D. N.C. 1987).

See In re Barbour, 77 B.R. 530,
Most courts to have considered the

issue of contempt sanctions in this context have settled on a
two-part

test,

violated

the

willfully.

which

we

injunction,

adopt:
and

(2)

(1)

whether

whether

he

the

or

creditor

she

did

so

See, e.g., In re Bennett, 298 F.3d 1059, 1069 (9th

Cir. 2002); In re Hardy, 97 F.3d 1384, 1390 (11th Cir. 1996); In
re Cherry, 247 B.R. 176, 187-88 (Bankr. E.D. Va. 2000).
As the language of § 524(a)(2) makes clear, a violation
occurs when the debtor is exposed to personal liability.

The

willfulness prong requires only that the acts taken in violation
of the injunction be intentional.

In other words, a good faith

mistake is generally not a valid defense.

See In re Stempf, 37

F.3d 155, 159 (4th Cir. 1994) (evaluating willfulness in context
of an automatic stay violation and stating “[t]o constitute a
willful act, the creditor need not act with specific intent but
must

only

commit

an

intentional

act

with

knowledge

of

the

automatic stay.”); In re Cherry, 247 B.R. at 187 (“In a civil
contempt proceeding, the state of mind with which the contemnor
violated a court order is irrelevant and therefore good faith,
or

the

absence

of

an

intent

to

defense.”).
8

violate

the

order,

is

no

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The appellants argue that the stipulation in paragraph six
of

the

amended

complaint,

which

states

that

the

lawsuit

was

filed solely for purposes of collecting from the MCRF, indicates
that the suit did not expose Fina to personal liability and
therefore did not violate the discharge order.
also

contend

that

Fina’s

answer

admitting

The appellants

paragraph

six

is

dispositive because it shows that both parties understood the
suit not to affect Fina personally.
We disagree, holding that the courts below did not clearly
err in determining that the amended complaint exposed Fina to
the potential for personal liability on his discharged debt.
Mort Ranta v. Gorman, 721 F.3d 241, 250 (4th Cir. 2013) (stating
standard of review).

First, the lawsuit sought a legal ruling

that Fina was responsible for the loss suffered by the Bradleys
–- the very same claim which gave rise to the discharged debt.
On its face, then, the lawsuit was an attempt to hold Fina
accountable for the underlying debt, despite the limitation in
paragraph six.
More importantly, the amended complaint sought damages in
excess of the $50,000 statutory cap available under the MCRF.
The Bradleys requested specific monetary damages of $58,377.50,
as well as attorney’s fees and costs, which are expressly not
available

under

the

MCRF.

Thus,

even

assuming

that

the

appellants’ intent at the time of filing the suit was only to
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collect from the Fund, if the Minnesota state court had entered
judgment

in

the

amount

requested

in

the

amended

complaint,

nothing but the appellants’ good word would prevent them from
later using the judgment to collect the additional sums from
Fina.

At the very least, Fina would have an excess judgment

amount hanging over his head for the indefinite future. *
The

purpose

behind

the

discharge

injunction

is

“to

eliminate any doubt concerning the effect of the discharge as a
total prohibition on debt collection effort, and to ensure that
once a debt is discharged, the debtor will not be pressured in
any way to repay it.”

In re Cherry, 247 B.R. at 182 (internal

quotation marks omitted).

The evidence in this case shows that,

in contrast, Fina was justifiably concerned that his discharged
debt remained a source of potential liability for him, at least
insofar as he might feel obligated to continue to defend himself
from future collection efforts.

We are thus satisfied that the

courts below did not clearly err in ruling that the amended
complaint exposed Fina to personal liability in violation of the
discharge injunction.

*

The district court also correctly noted the legitimate
concern that Fina’s credit rating might suffer from an entry of
judgment against him, further imperiling his right to a fresh
economic start guaranteed by 11 U.S.C. § 524.

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As to the second element of a contempt claim, the courts
below also rightly held that the appellants’ violation of the
discharge injunction was willful.

As stated, the appellants’

intentions and their apparent attempts to comply with the law
are irrelevant.

There is no dispute that the Bradleys and their

counsel were aware of the injunction at the time they filed the
amended complaint.

This is sufficient to establish that the

violation was willful.

See In re Stempf, 37 F.3d at 159; In re

Hardy, 97 F.3d at 1390 (“[T]he focus of the court’s inquiry in
civil contempt proceedings is not on the subjective beliefs or
intent of the alleged contemnors in complying with the order,
but whether in fact their conduct complied with the order at
issue.”) (quoting Howard Johnson Co. v. Khimani, 892 F.2d 1512,
1516 (11th Cir. 1990)).
Our decision does not mean that the Bradleys were without a
means to recover from the Fund once Fina filed his bankruptcy
petition.

The

Bradleys

could

have

requested

leave

from

bankruptcy court prior to filing the amended complaint.
would
outset

have

enabled

whether

the

the

bankruptcy

amended

court

complaint

to

determine

sought

to

the
This

at

hold

the
Fina

personally liable for any of the discharged debt, as well as
given the court the opportunity to impose limiting conditions
designed to protect Fina from post-judgment issues that might
negatively affect his rights.

Indeed, the Bradleys, albeit too
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late to save them here, eventually did this, and the bankruptcy
court allowed them to continue their efforts to recover from the
Fund.

Such a step also accords with guidance from the Minnesota

Department of Commerce advising MCRF applicants to petition the
bankruptcy court before filing suit.
We also note that we are not persuaded by the appellants’
attempts to analogize this case with those that have allowed
suits nominally brought against debtors but only for the purpose
of collecting on a third-party insurer’s contractual obligation
on

an

underlying

debt.

This

rule

derives

from

11

U.S.C.

§ 524(e), which provides that “discharge of a debt of the debtor
does not affect the liability of any other entity on, or the
property of any other entity for, such debt.”

As is the case

with the MCRF, creditors are often required to obtain a judgment
against the debtor before collecting from an insurer.

However,

this case differs in that there is no “liability of any other
entity on . . . [the] debt.”

Unlike an insurer, the MCRF is

under no obligation, contractual or otherwise, to recompense the
Bradleys.

Therefore, § 524(e) simply does not apply in this

case.
Additionally,

the

fact

that

the

MCRF

is

not

an

insurer

relegated the cost of defending the lawsuit entirely to Fina.
Ordinarily,

an

insurance

company

is

obligated

to

defend

an

insured debtor, or at least will have an interest in doing so in
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order to avoid a default judgment.
of

a

third-party

lawsuit himself.
with

his

insurer

meant

Here, however, the absence

that

Fina

had

to

defend

the

This came at a financial cost that interfered

right

to

a

fresh

economic

start.

See

In

re

Gas

Transmission Corp., 219 B.R. 716 (S.D. W. Va. 1998) (holding
that a tort victim could not proceed against a debtor solely for
the purpose of recovering from the debtor’s insurer where the
debtor would be liable for defense of the suit).
In

sum,

argument

that

discharge

are

not

creditors

injunction

permission.
routinely

we

persuaded
may

without

to

bypass
first

accept
the

the

appellants’

bankruptcy

requesting

court’s

that

court’s

As the bankruptcy judge noted in this case, he is

asked

to

consider

such

modifications

injunctions, and he routinely grants them.

to

discharge

The proper course

for the appellants was to first seek leave of the bankruptcy
court before pursuing a judgment against the debtor.

III.
For

the

reasons

stated,

we

affirm

the

district

court’s

judgment upholding the bankruptcy court’s decision.
AFFIRMED

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