Morrison v. Brannan

Filing 28

ORDER affirming the Order of the Bankruptcy Court (ECF No. 90 in Adv. No. 13-ap-5058) as to the Motion to Reconsider (ECF No. 71 in Adv. No. 13-ap-5058); directing Clerk to close case. Signed by Judge Robert C. Jones on 12/20/2016. (Copies have been distributed pursuant to the NEF - KR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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Debtor.
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_____________________________________
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AMANDA D. MORRISON,
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Appellant,
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vs.
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SARAH KAY BRANNAN,
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Appellee.
IN RE SARAH KAY BRANNAN,

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Bankr. No. 13-bk-51247
Adv. No. 13-ap-05058

3:15-cv-00470-RCJ
OPINION AND ORDER

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This is an appeal of an order of the Bankruptcy Court denying reconsideration of an order

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of contempt issued in an adversary proceeding. The Court has jurisdiction under 28 U.S.C.

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§ 158(a).

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I.

PROCEDURAL HISTORY

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A.

Background

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Amanda Morrison sued Sarah Brannan and Brannan’s employer, Wells Fargo Bank, N.A.

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(“Wells Fargo”), in state court for defamation, invasion of privacy, negligence, breach of

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contract, and other torts. Brannan had used her position at Wells Fargo to illegally access

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Morrison’s personal information and had used that information to harass Morrison on the

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Internet and otherwise. Defendants removed, and the case was assigned to the Hon. Edward C.

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Reed, Jr. (Case No. 3:09-cv-552). Wells Fargo moved to dismiss, and Judge Reed granted the

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motion in part. Morrison and Wells Fargo settled the remaining claims at a settlement

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conference. The Clerk entered default against Brannan, and Judge Reed orally granted

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Morrison’s motion for default judgment against Brannan in part, soliciting a proposed form of

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judgment, a motion for attorney’s fees, and a bill of costs. Morrison complied. Judge Reed,

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unfortunately, was in poor health at the time and was unable to take action on those filings. The

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case was reassigned to this Court. The Court granted the motion for attorney’s fees in part, and

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the Clerk taxed costs without objection. On July 7, 2013, Morrison filed a corrected form of

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judgment, as directed by chambers. Brannan filed a notice of bankruptcy the next day, indicating

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that she had filed for Chapter 7 bankruptcy protection in this District on June 21, 2013 (Case No.

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13-bk-51247). The Court entered judgment in the ‘552 Case on November 6, 2014.

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Morrison later asked the Court to vacate the judgment as void under Rule 60(b)(4),

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because the automatic stay under 11 U.S.C. § 362(a) was in effect when the judgment was

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entered. The Court denied the motion because the judgment had been entered after Brannan

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received her Chapter 7 discharge and the stay had evaporated. Morrison had filed the motion to

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vacate in order to help satisfy the bankruptcy judge that she was doing everything she could to

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vacate the judgment, as the bankruptcy court had indicated she may have violated the automatic

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stay by continuing to prosecute the ‘552 Case after Brannan filed her bankruptcy petition. This

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Court noted that it perceived no malfeasance, but that the question was for the Bankruptcy Court

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in the first instance. But it was clear that this Court’s judgment was not void for having been

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entered in violation of any stay under § 362(a). Nor had the judgment been discharged in

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bankruptcy, because the “judgment” listed in Schedule F of Brannan’s petition had not been

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entered until after discharge. Only the claims in the ‘552 Case existed at the time of discharge,

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not any judgment. The Court noted that the Bankruptcy Court could have discharged claims that

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had not yet been reduced to judgment. It did not purport to discharge claims, however, but a yet-

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non-existent “judgment.” It therefore had not discharged either the unlisted claims or the listed

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but yet-non-existent judgment. The Court declined to vacate the judgment under those

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circumstances, noting that the Bankruptcy Court was in a position to proceed appropriately.

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Specifically, the bankruptcy case had been reopened because the present adversary proceeding

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was still open and could affect the discharge.

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In the present adversary proceeding, Morrison seeks a determination of non-

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dischargeability as to the claims in the ‘552 Case under § 523(a)(6) insofar as it was based on

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Brannan’s willful or malicious acts. The Court noted that when the § 523(a)(6) claim was

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determined, the Bankruptcy Court would presumably amend the discharge (or not), accordingly.

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The Bankruptcy Court ruled that the default judgment in the ‘552 case was not entitled to

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preclusive effect in the bankruptcy case under Circuit law and ruled for Brannan on the

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underlying claims after a trial.

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B.

The Present Appeal

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The present interlocutory appeal does not concern the § 523(a)(6) claim—Morrison’s

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separate appeal as to her loss on that claim is pending before Judge Du—but the Bankruptcy

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Court’s denial of a motion to reconsider its order of contempt entered against Morrison’s counsel

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(“Counsel”). At a February 13, 2015 hearing, the Bankruptcy Court found Counsel in contempt

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based on his “failure to affirmatively act and withdraw his submission request in [the ‘552

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Case],” also finding that he was “in violation of the discharge injunction for filing a notice of

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entry of order in [the ‘552 Case] on January 8, 2015.” (See Order 2, Feb. 27, 2015, ECF No. 48

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in Adv. No. 13-ap-5058). The Bankruptcy Court imposed damages of $700 (actual damages for

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attorney’s fees in remedying the automatic stay violation) and punitive damages of $10 per day

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from the day Counsel learned of the bankruptcy filing until the day he filed his motion to void

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the judgment in the ‘552 Case. (See id.). Counsel filed the required motion to vacate in the ‘552

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Case the same day, February 13, 2015. Accordingly, the total sanction, which counsel paid,

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came to $6,590. This Court entered the order denying the motion to vacate in the ‘552 Case on

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February 19, 2015, and the Bankruptcy Court entered the contempt order into its docket on

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February 27, 2015.

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Counsel later filed a motion to reconsider the contempt order under Rule 60(b)(1), (5) or

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(6), arguing that this Court’s ruling in the ‘552 Case that the judgment in that case was not void

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because it had not been entered in violation of the stay under § 362(a) had “reversed” the

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Bankruptcy Court’s finding of such a violation, and there was therefore no basis for the contempt

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order. Counsel also argued that the period of the sanction, which extended until Counsel filed

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the motion to vacate in the ‘552 Case, impermissibly exceeded the stay violation itself, which

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necessarily ended when the automatic stay ended on September 17, 2013, the date of the

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discharge. Counsel also argued that the sanction was disproportionate and excessive and that

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sanctions were not permitted, as there were no actual damages. The Bankruptcy Court denied

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the motion in the same order in which it denied the cross-motions for summary judgment on the

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§ 523(a)(6) claim. Morrison appeals the denial of the Rule 60(b) motion.

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II.

STANDARD OF REVIEW

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A bankruptcy court’s conclusions of law, including its interpretations of the bankruptcy

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code, are reviewed de novo, and its factual findings are reviewed for clear error. See Blausey v.

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U.S. Tr., 552 F.3d 1124, 1132 (9th Cir. 2009). A reviewing court must accept the bankruptcy

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court’s findings of fact unless it is left with the definite and firm conviction that a mistake has

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been committed. See In re Straightline Invs., Inc., 525 F.3d 870, 876 (9th Cir. 2008).

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III.

ANALYSIS

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At the hearing, Appellant agreed on the record to settle the present appeal in exchange for

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Appellee seeking no additional damages, e.g., attorney’s fees for defending the sanctions order in

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this Court or elsewhere. The Court therefore affirms but notes that it would be inclined to

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reverse in part and remand had the parties not agreed to settle. Section 362(k) permits actual

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damages caused by a stay violation. See, e.g., America’s Servicing Co. v. Schwartz-Tallard, 438

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B.R. 313, 321 (D. Nev. 2010) (Navarro, J.). The $700 in attorney fees is therefore

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unobjectionable to the extent it rested on proof of fees actually paid (or billed) as opposed to an

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estimate of reasonable fees. See id. However, the sanctions order could only support the $10

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daily penalty (the type of sanction that is appropriate only for continuing contumacious behavior)

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as “punitive damages” under § 362(k), and there was no evidence in this case of the kind of

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recklessness or callousness required to support that penalty. See In re Snowden, 769 F.3d 651,

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657 (9th Cir. 2014). Counsel’s acts in this case were at worst negligent. Counsel’s only culpable

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act was a failure to ask this Court to vacate a judgment until ordered to do so by the Bankruptcy

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Court, an order with which Counsel promptly complied. As recounted, supra, the Court had

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ordered Counsel to resubmit the proposed judgment in the underlying case when the case was

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reassigned from Judge Reed. Counsel simply complied with the Court’s order at a time when the

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dischargeability of the judgment was still contested. Sixteen months later, this Court entered the

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still-pending proposed judgment as a housekeeping matter, not at Counsel’s further urging, and

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there is no evidence Counsel ever attempted to execute on the judgment. Moreover, there is no

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evidence at all of any damages to Debtor apart from attorney’s fees incurred in compelling

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Counsel to attempt to have this Court’s judgment vacated. Finding Counsel’s actions to have

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been reckless or callous so as to support punitive damages under the circumstances was an abuse

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of discretion.
CONCLUSION

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IT IS HEREBY ORDERED that the Order of the Bankruptcy Court (ECF No. 90 in Adv.

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No. 13-ap-5058) as to the Motion to Reconsider (ECF No. 71 in Adv. No. 13-ap-5058) is

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AFFIRMED.

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IT IS FURTHER ORDERED that the Clerk shall close the case.

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IT IS SO ORDERED.

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Dated: This 20th December, 2016.
Dated this 6th day ofday of December, 2016.
_____________________________________
ROBERT C. JONES
United States District Judge

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