TOY QUEST LTD. et al v. ASI, INC. et al

Filing 33

OPINION. Signed by Judge Renee Marie Bumb on 7/17/2019. (rtm, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE

IN RE: MANLEY TOYS LIMITED,
Debtor in a Foreign
Proceeding.
---------------------------TOY QUEST LTD.,
Appellant / CrossAppellee,

Civ. Nos. 18-2923, 18-11465 (RMB)

v.

OPINION

ASI, INC.,
Appellee / CrossAppellant.

APPEARANCES:
WASSERMAN, JURISTA & STOLZ
By: Donald W. Clarke, Esq.
110 Allen Road, Suite 304
Basking Ridge, New Jersey 07920
and
NOVACK AND MACEY LLP
By: Monte L. Mann, Esq.
100 North Riverside Plaza
Chicago, Illinois 60606
Counsel for Appellant / Cross-Appellee
HELLRING LINDEMAN GOLDSTEIN & SIEGAL LLP
By: Richard B. Honig, Esq.
Matthew E. Moloshok, Esq.
One Gateway Center
Newark, New Jersey 07102
and
1

WEISBROD MATTEIS & COPLEY PLLC
By: Stephen A. Weisbrod, Esq.
1200 New Hampshire Avenue NW
Suite 600
Washington, DC 20036
Counsel for Appellee / Cross-Appellant
BUMB, UNITED STATES DISTRICT JUDGE:
Presently before the Court are the cross-appeals of ASI,
Inc. (“Aviva”), a pre-petition judgment creditor of the Debtor,
Manley Toys Limited (“Manley Toys”) 1, and Toy Quest Ltd. (“Toy
Quest”), which Aviva contends-- over Toy Quest’s vigorous
objections-- is an alter ego and / or a trade name of the Debtor.
On February 14, 2018 the Bankruptcy Court granted Aviva’s Motion
for Sanctions upon a finding that Toy Quest had violated the stay
imposed by the Bankruptcy Court shortly after the filing of the
Debtor’s Chapter 15 petition in March 2016 2, and granted Aviva
leave to file an additional submission seeking reasonable
attorney’s fees (hereafter “the Sanctions Order”).

On June 21,

1

As stated by this Court in a previous opinion, in 2013, an
$8.58 million judgment was entered against Manley Toys in favor
of Aviva in Minnesota Federal District Court. In re Manley Toys
Ltd., 597 B.R. 578, 581 (D.N.J. 2019).
2

As explained by this Court in a previous opinion, “[i]n
contrast to a Chapter 11 proceeding for example, a stay upon the
filing of a Chapter 15 petition is not automatic. If a
provisional stay is warranted, the Bankruptcy Court must enter an
order imposing a stay during the time between the Chapter 15
petition and a decision whether to recognize the foreign
proceeding.” In re Manley Toys Ltd., 2019 WL 1987052 at *1
(D.N.J. May 6, 2019). The Bankruptcy Court entered such an order
(hereafter “the Stay Order”) in this case.
2

2018, the Bankruptcy Court granted in part, and denied in part,
the fee petition, awarding Aviva $25,651.00 of its $282,966.49
fee request (hereafter “the Fee Order”).
For the reasons stated herein, the Court affirms both the
Sanctions Order and the Fee Order.
I.

BACKGROUND
A. The Garnishment Action
In 2015, before Manley Toys filed its Chapter 15 petition,

Aviva registered its judgment against Manley Toys in the United
States District Court for the Middle District of Tennessee.
Then, seeking to collect on the judgment, Aviva filed an
application for writ of execution asserting that “Manley does
business in the United States under the trade name Toy Quest
Ltd.” and, additionally, “[t]here is also an entity in Hong Kong
called Toy Quest Ltd., with the same address as Manley, the same
owners as Manley, the same directors as Manley, and that acts
through the same employees with ‘manley.com’ email addresses, and
uses the same website as Manley.”
235-2]

[Bankr. Docket 16-15374, Doc.

Based on these allegations, Aviva sought to recover,

through garnishment, $97,654.31 which Dollar General stated it
owed to Toy Quest.

To that end, Aviva filed a formal Motion for

Judgment and Execution.

Dollar General deposited the funds with

the Court, and those funds remained in the Tennessee District
Court’s registry awaiting a ruling as to the funds’ rightful

3

recipient at the time Manley Toys filed its Chapter 15 petition
in March 2016.

Toy Quest had filed a Motion to Intervene in the

garnishment action, but the Court had not ruled on the motion by
the petition date.
In late December 2016, after the petition date, the
Tennessee District Court granted Toy Quest’s Motion to Intervene.
Shortly thereafter, Toy Quest filed a lengthy opposition to
Aviva’s Motion for Judgment and Execution.

The opposition

asserted that Toy Quest is neither a trade name of Manley Toys,
nor an alter ego of Manley Toys, and therefore Aviva-- which
holds a judgment against Manley Toys only-- was not entitled to
the Dollar General funds. [M.D. Tenn. Docket 3:15-mc-00015, Doc.
54]

Rather, Toy Quest asserted that the funds belonged to it

(not the Debtor, Manely Toys, nor Aviva) as Dollar General’s
documents reflected. [Id.]

It is the filing of this opposition

by Toy Quest, in which Toy Quest asserted the right to the funds,
which the Bankruptcy Court held violated the Stay Order.
B. Proceedings in New Jersey Bankruptcy Court
As stated above, Manley Toys filed its Chapter 15 case and
motion on March 22, 2016.

On April 1, 2016 the Bankruptcy Court

entered the Stay Order which incorporated the automatic stay
provisions of 11 U.S.C. § 326.
On September 13, 2016-- before the Tennessee District Court
ruled on Toy Quest’s Motion to Intervene-- Aviva sought relief

4

from the Stay Order, so as to pursue, among other things, “alter
ego, fraudulent transfer, or other claims against Toy Quest Ltd.
or other nondebtor affiliates or agents of Manley and Toy Quest
Ltd.” [Bankr. Docket 16-15374, Doc. 144-1]

On October 25, 2016--

also before the Tennessee District Court ruled on the Motion to
Intervene-- the Bankruptcy Court, addressing Aviva’s Motion for
Stay Relief, modified the Stay Order to state, in relevant part,
2. The provisional stay entered by this Court on March
24, 2016 and set forth in the Court’s April 1, 2016 Order
Granting Provisional Relief and Setting Date for Further
Hearing (the “Provisional Stay”) does not apply to any
actions taken with respect to persons or entities other
than Debtor Manley Toys Limited (“Manley”), except that,
as set forth below, the Court reserves judgment on
whether the assertion of non-independent claims such as
alter ego or fraudulent transfer claims against such
persons or entities is subject to the Provisional Stay,
and, if so, whether cause exists to lift the Provisional
Stay as to such claims.
* * *
10. The Court reserves judgment on all relief requested
in Aviva’s Motion for Relief from Provisional Stay not
specifically addressed herein, including: . . .
f. Whether Aviva . . . may assert non-independent
claims, including but not limited to fraudulent
transfer, unjust enrichment, conversion, and money had
and received claims, in any appropriate forum against
Toy Quest Ltd., and/or other affiliates or agents of
Manley, Manley Toy Direct, or Toy Quest Ltd.

[Bankr. Docket 16-15374, Doc. 159] (emphasis added).
After Toy Quest filed its opposition in the garnishment
action, Aviva filed the Motion for Sanctions asserting that Toy
Quest had willfully violated the Stay Order as modified.
5

The

Bankruptcy Court granted the motion.

Importantly, in the Opinion

granting Aviva’s Sanctions Motion, the Bankruptcy Court
specifically stated, “[t]he Court cautions that only those fees
reasonably necessary to establishing the elements of this Motion
will be awarded.”

In re Manley Toys Ltd., 2018 WL 1033426, at *8

(Bankr. D.N.J. Feb. 14, 2018).

Aviva, however, apparently did

not heed the Court’s warning; it subsequently filed a fee
application seeking an extraordinary amount-- $282,966.49-- in
fees and costs incurred in connection with the sanctions motion.
The Bankruptcy Court found Aviva’s Fee Application “wholly
unreasonable, and shock[ing to] the Court,” explaining,
[t]he Fee Application requests $282,966.49 for 518 hours
of work on the Sanctions Motion. The Court finds this
beyond all reason. Not only is the Fee Application far
beyond any comparable amount of fees granted in cases of
similar
complexity,
but
considering
only
proportionality, there is nothing reasonable about this.
Aviva has requested attorney fees that are nearly threetimes the amount in controversy; and the Court notes
that these fees relate exclusively to the Sanctions
Motion, they do not include the fees Aviva is claiming
it expended on actually litigating the merits of the
Garnishment Action as a whole. The Court shudders at
the amount of money Aviva’s Counsel claims to have
expended in an effort to retrieve $97,654.31 for its
client.
In re Manley Toys Ltd., 2018 WL 3213710 at *6-7 (Bankr. D.N.J.
June 21, 2018).
II.

LEGAL STANDARD
This Court has jurisdiction to hear appeals from the

Bankruptcy Court’s final orders pursuant to 28 U.S.C. § 158(a).

6

The Bankruptcy Court’s legal determinations are reviewed de novo;
its factual findings are reviewed for clear error.
916 F.3d 293, 299-300 (3d Cir. 2019).

In re Titus,

The Bankruptcy Court’s fee

award is reviewed for abuse of discretion.

Krueger Assocs., Inc.

v. Am. Dist. Telegraph Co. of Penn., 247 F.3d 61, 69 (3d Cir.
2001).
III. ANALYSIS
The Court first addresses Toy Quest’s appeal of the
Sanctions Order and then addresses Aviva’s appeal of the Fee
Order.
A.
Section 362(k)(1) of the Bankruptcy Code provides, in
relevant part, “an individual injured by any willful violation of
a stay provided by this section shall recover actual damages,
including costs and attorneys’ fees.”

The Bankruptcy Court held

that (1) Toy Quest violated the Stay Order; (2) the violation was
willful; and (3) the violation caused Aviva actual damages.

Toy

Quest asserts each holding was in error.
(1)

Violation of the Order

The automatic stay, § 362(a)(3), which the Bankruptcy Court
incorporated into the Stay Order, stays “any act to obtain
possession of property of the estate or of property from the
estate or to exercise control over property of the estate.”
Section 541(a)(1) of the Code, in turn, defines “property of the

7

estate” as “all legal or equitable interests of the debtor in
property as of the commencement of the case.”

Toy Quest asserts

that the Bankruptcy Court erred in applying In re Chestnut, 422
F.3d 298 (5th Cir. 2005), to hold that the Dollar General funds
were “arguable property” of the Debtor.

In re Manley Toys, Ltd.,

2018 WL 1033246 at *4 (Bankr. D.N.J. Feb. 14, 2018).

Toy Quest

argues before this Court, as it did before the Bankruptcy Court,
that In re Jahr, 2012 WL 3205417 (B.A.P. 9th Cir. Aug. 1, 2012),
which expressly rejected Chestnut’s arguable property standard 3,
provides the better approach.
Contrary to the parties’ arguments, however, this Court need
not choose between Chestnut and Jahr.

The Bankruptcy Court

properly held that Toy Quest violated the Stay Order by filing
opposition in the garnishment action because under In re Fruehauf
Trailer Corp., 444 F.3d 203, 211 (3d Cir. 2006)-- which, unlike
either Chestnut or Jahr, is binding precedent on this Court-Manley Toys had a contingent interest in the Dollar General
funds.
The Third Circuit explained in Fruehauf,
[t]he Bankruptcy Code defines property interests
broadly, encompassing ‘all legal or equitable interests
of the debtor in property.’ 11 U.S.C. § 541(a)(1). The
Supreme Court has noted that ‘[t]he main thrust of [the
Bankruptcy Code] is to secure for creditors everything
3

See In re Jahr, 2012 WL 3205417 at *7 (“We decline to
follow Chestnut because we are convinced that its expansive
reading of the term ‘property of the estate’ is inconsistent with
the plain language of that term’s statutory definition.”).
8

of value the bankrupt may possess in alienable or
leviable form when he files his petition. To this end
the term ‘property’ has been construed most generously
and an interest is not outside its reach because it is
novel or contingent or because enjoyment must be
postponed.’ Segal v. Rochelle, 382 U.S. 375, 379, 86
S.Ct. 511, 15 L.Ed.2d 428 (1966). Property of the estate
“‘includes all interests, such as ... contingent
interests
and
future
interests,
whether
or
not
transferable by the debtor.’” In re Prudential Lines,
Inc., 928 F.2d 565, 572 (2d Cir. 1991) (quoting H.R.
Rep. No. 95–595, 175–76 (1978)).
It is also well
established that ‘the mere opportunity to receive an
economic benefit in the future’ is property with value
under the Bankruptcy Code. In re R.M.L., 92 F.3d 139,
148 (3d Cir. 1996).
444 F.3d at 211. 4

In Fruehauf, the Third Circuit held that an

employer’s “potential future recoupment of the surplus from its
pension plan” was a property interest within the meaning of §
541(a)(1). Id.

4

See also In re Kane, 628 F.3d 631, 637 (3d Cir. 2010) (“we
have emphasized that Section 541(a) ‘was intended to sweep
broadly to include all kinds of property, including tangible or
intangible property, and causes of action.’”) (quoting
Westmoreland Human Opportunities, Inc. v. Walsh, 246 F.3d 233,
241 (3d Cir. 2001)); In re Atlantic Business and Community
Corp., 901 F.2d 325, 327 (3d Cir. 1990) (observing that “the
legislative history [of § 541] relates that the intended scope of
this section is broad,” and holding that “a possessory interest
in real property is within the ambit of the estate in bankruptcy
under Section 541, and thus the protection of the automatic stay
of Section 362.”); In re Longview Power, LLC, 516 B.R. 282, 293
(Bankr. D. Del. 2014) (“Property of the estate includes
contingent claims. . . . [I]f [insurance] coverage is found, the
assets of the Debtor’s estate could potentially increase,
affecting a plan of reorganization.”); see generally 4 Norton
Bankr. L. & Prac. 3d § 61:4 (“Code § 541(a)(1) includes every
conceivable interest of the debtor in the estate; all forms of
property whether tangible or intangible, personal or real,
contingent or fixed, causes of action, leasehold interests, or
possessory interests are encompassed.”).
9

Guided by Fruehauf, this Court holds that Manley Toys’
interest in the Dollar General funds is a property interest
within the broad scope of § 541.

It was a property interest

contingent upon the Tennessee District Court ruling either that
Toy Quest is a trade name of Manley Toys or an alter ego of
Manley Toys.

Accordingly, the Court also holds that the

Bankruptcy Court did not err in concluding that “the Stay Order
applied to the Funds, and Toy Quest violated the stay by
attempting to obtain possession [of those Funds] without first
seeking relief from the Stay Order from this Court.”

In re

Manley Toys Ltd., 2018 WL 1033426 at *4.
Toy Quest further argues that even if, as this Court has now
ruled, the Stay Order originally applied to the garnishment
action by incorporating the automatic stay of § 362, paragraph 2
of the Stay Order, as modified on October 25, 2016, lifted the
stay as to all actions not involving the Debtor.

According to

Toy Quest, the stay did not apply to its own actions to intervene
in the garnishment action to assert its claim to the Dollar
General funds.

The Court disagrees for two reasons.

First, Toy Quest’s argument relies solely on the first
portion of paragraph 2 while ignoring the important “except that”
portion.

The entire paragraph provides,

2. The provisional stay entered by this Court on March
24, 2016 and set forth in the Court’s April 1, 2016 Order
Granting Provisional Relief and Setting Date for Further
Hearing (the “Provisional Stay”) does not apply to any
10

actions taken with respect to persons or entities other
than Debtor Manley Toys Limited (“Manley”), except that,
as set forth below, the Court reserves judgment on
whether the assertion of non-independent claims such as
alter ego or fraudulent transfer claims against such
persons or entities is subject to the Provisional Stay,
and, if so, whether cause exists to lift the Provisional
Stay as to such claims.
The second part of paragraph 2 states that the stay is not lifted
as to “persons or entities other than Debtor Manley Toys
Limited”-- in this case Toy Quest-- with respect to “claims such
as alter ego or fraudulent transfer claims.”

The garnishment

action involved Aviva’s claims that Toy Quest is the alter ego of
Manley Toys and that Toy Quest was the recipient of a fraudulent
transfer, and Toy Quest’s opposition directly disputed those
assertions and sought possession of funds that may belong to the
Debtor.

Therefore, the modified Stay Order, by its plain

language, applied. 5

5

Toy Quest spends many pages of its briefs arguing that
“the Bankruptcy Court’s ‘trade name’ distinction was wrong.”
[Opening Brief, p. 18-22; Reply Brief, p. 13] The Court need not
address this argument because even if the stay violation inquiry
is limited to the alter ego and fraudulent transfer claims, the
Bankruptcy Court properly concluded that Toy Quest violated the
stay. Alternatively, to the extent that Bankruptcy Court found
as fact that Aviva asserted two different legal theories in the
garnishment action, that finding was not clearly erroneous. The
record evidence supported this finding. First, Aviva’s
application for a writ of execution in the garnishment action
asserted that “Manley does business in the United States under
the trade name Toy Quest Ltd.” [Bankr. Docket 16-15374, Doc. 2352] Second, Aviva’s Motion for Judgment in the garnishment action
contained two distinct argument headings-- one asserting the
trade name theory of recovery, and another alternatively
asserting an alter ego / fraudulent transfer theory. [Bankr.
Docket 16-15374, Doc. 196 Ex. A] That overlapping facts may be
11

Second, to accept Toy Quest’s argument would be to ignore
the context in which the Bankruptcy Court issued the modified
Stay Order.

The modified Stay Order was issued in response to

Aviva’s application for relief from the Stay Order, so as to
pursue, among other things, “alter ego, fraudulent transfer, or
other claims against Toy Quest Ltd. or other nondebtor affiliates
or agents of Manley and Toy Quest Ltd.” [Bankr. Docket 16-15374,
Doc. 144-1]

To interpret the Stay Order as allowing Toy Quest to

defend against “alter ego, fraudulent transfer, or other claims,”
when Aviva’s application to prosecute such claims had not been
granted, would be illogical and unfair, as the Bankruptcy Court
noted.

See In re Manley Toys Ltd., 2018 WL 1033426 at *7 (“the

Court notes that to adopt Toy Quest’s argument would result in an
inequity in which Toy Quest would be permitted to present its
argument in the garnishment action in an attempt to recover the
Funds, but Aviva would be stayed from presenting its argument (in
the same case) that the Funds belong to the Debtor.”).
(2)

Willfulness

Toy Quest argues that the Bankruptcy Court erred in finding
that the stay violation was willful because, Toy Quest asserts,
its “interpretation [of the Stay Order] was objectively
reasonable.” [Opening Brief, p. 23-25; Reply Brief, p. 14-15]

relevant to both theories does not, as Toy Quest asserts, render
the two theories one in the same.
12

This argument misstates the legal standard.

Willfulness, in the

context of a § 362(k)(1) claim, is not tantamount to a specific
intent to disobey a court order.

As the Bankruptcy Court

correctly stated, “[a] violation of the stay is ‘willful’ under
section 362(k) ‘upon a finding that the defendant knew of the
automatic stay and that the defendants’ actions which violated
the stay were intentional.’” In re Manley Toys Ltd., 2018 WL
1033426 at *3 (quoting In re Atl. Bus. & Cmty. Dev. Corp., 901
F.2d 325, 329 (3d Cir. 1990)). 6

It is undisputed that Toy Quest

knew of the automatic stay-- indeed, Toy Quest repeatedly
emphasizes that it volunteered such information to the Tennessee
District Court 7-- and that Toy Quest intentionally filed
opposition in the garnishment action.

Therefore, the Bankruptcy

6

See also In re Lansdale Family Restaurants, Inc., 977 F.2d
826, 829 (3d Cir. 1992) (“Willfulness does not require that the
creditor intend to violate the automatic stay provision, rather
it requires that the acts which violate the stay be
intentional.”)(citing In re University Medical Center, 973 F.2d
1065, 1087–88 (3d Cir. 1992)).
7

In this Court’s view, the fact that Toy Quest advised the
Tennessee District Court that the Stay Orders may apply
undermines, rather than supports, Toy Quest’s argument. If Toy
Quest made a reasoned decision that the issue should be raised
with the Tennessee District Court, this Court questions why that
same line of reasoning did not lead Toy Quest to ask the
Bankruptcy Court for clarification of the Stay Order. Even if,
as Toy Quest asserts, the Tennessee Court “has concurrent
jurisdiction to interpret the stay” [Reply Brief, p. 10] (an
issue this Court does not decide) this Court questions why-- if
there was, indeed, a bona fide question as to the scope of the
stay-- Toy Quest elected not to ask the Bankruptcy Court what the
Court meant in its own order.
13

Court did not err in holding that Toy Quest willfully violated
the stay.
(3)

Actual Damages

The Bankruptcy Court held that the attorneys fees Aviva
incurred in prosecuting the sanctions motion-- in effect
enforcing the stay that the Bankruptcy Court imposed-- is
sufficient to establish the actual damages element of a stay
violation.

Specifically, the Bankruptcy Court explained,

“actual damages in the form of attorneys’ fees are
appropriate, despite the fact that there may not have
been other compensable harm ....” In re Rodriguez, 2012
WL 589553, at *4 (Bankr. D.N.J. Feb. 22, 2012). The
rationale for this is that the complaining party has
been forced to take action to protect the property before
it is removed by the offending party. Further, as noted
in In re Thompson, 426 B.R. 759, 765 (Bankr. N.D. Ill.
2010), Ҥ 362(k) is not a typical fee-shifting statute,
but rather provides for recovery of damages including
attorneys’ fees, not damages and attorneys’ fees.”
Rodriguez, 2012 WL 589553, at *5 (citing Thompson, 426
B.R. at 765) (emphasis original). “Thus, attorneys’ fees
under § 362(k) are an element of damages when a party
seeks to remedy an automatic stay violation.” Id.
(citing In re Butts, 350 B.R. 12, 24 n, 12 (Bankr. E.D.
Pa. 2006)).
In re Manley Toys Ltd., 2018 WL 1033426 at *8.
On appeal, Toy Quest unsuccessfully attempts to distinguish
Rodriguez, arguing that, whereas Rodriguez involved “a creditor’s
collection efforts or other ongoing conduct that violated the
stay” [Reply Brief, p. 21], in this case Aviva “was the only one
with a pending motion in the Tennessee District Court seeking to
collect the Funds.

All [Aviva] had to do to stop any perceived

14

or potential stay violation was withdraw its own motion.”
p. 21-22]

The Court is unpersuaded.

before the petition date.

[Id.,

Aviva filed its motion

After the petition date, and after the

stay had been imposed, Toy Quest violated the stay by seeking to
obtain money in which the Debtor had a contingent interest.

To

allow Toy Quest to escape sanctions simply because its attempt to
obtain the disputed funds was unsuccessful would be to completely
undermine the purpose of the automatic stay, which exists for the
benefit of debtors and creditors alike.

See In re Atlantic

Business and Community Corp., 901 F.2d at 327 (quoting the
legislative history of § 362). 8
Further, Toy Quest’s argument that Aviva “did not make any
serious attempt to mitigate” its damages [Reply Brief, p. 21,
emphasis added] is not supported by the record.

As the

Bankruptcy Court found, “Aviva attempted to mitigate its damages

8

In a related argument, Toy Quest asserts that Aviva lacks
standing to seek sanctions for violation of the stay. The
Bankruptcy Court properly rejected this argument. To the extent
creditors are beneficiaries of the automatic stay, they have
standing to assert violations of that stay. In re Manley Toys
Ltd., 2018 WL 1033426, at *7 (quoting St. Paul Fire & Marine Ins.
Co. v. Labuzan, 579 F.3d 533, 543 (5th Cir. 2009) (“Accordingly,
we hold debtors and creditors are entities whose grievances fall
‘within the zone of interests’ protected by § 362(k).”)); see
also In re Peeples, 880 F.3d 1207, 1216 (10th Cir. 2018) (Ҥ
362(k) creates a cause of action for debtors and creditors. As
the Fifth Circuit explained, the automatic stay’s specific
purposes are to protect the debtor from collection efforts and to
protect creditors from inequitable treatment. So § 362(k)’s zone
of interests extends to debtors and creditors when they allege
those types of harms.”) (citing St. Paul Marine & Fire Ins., 579
F.3d at 540).
15

by demanding that Toy Quest cease its conduct and withdraw its
Limited Opposition.

Toy Quest refused to do so, instead moving

forward with efforts to collect the Funds.”
Ltd., 2018 WL 1033426 at *8.

In re Manley Toys

Perhaps most troubling to this

Court, Toy Quest-- which does not dispute these facts-- argues
that Aviva was required to do more.

Specifically, Toy Quest

suggests that Aviva should have attempted to further “discuss”
and “negotiate” with Toy Quest.
disingenuous position.

[Reply Brief, p. 21]

It is a

The Bankruptcy Court found that Toy Quest

refused to withdraw its opposition, effectively rejecting Aviva’s
demand to do so.

After that time, Aviva was not required to

further pursue a “discussion” with Toy Quest, and failing to do
so did not forfeit Aviva’s entitlement to reasonable attorneys
fees under § 362(k)(1).
Accordingly, the Court will affirm the Bankruptcy Court’s
Sanctions Order.
B.
Aviva appeals only the portion of the Bankruptcy Court’s
decision denying fees and costs incurred for discovery-related
tasks.

As to this issue, the Bankruptcy Court explained,

[t]he Fee Application states that Aviva spent $153,357
in legal fees, and $19,713.01 in costs related to
discovery in the Sanctions Motion.
Aviva’s discovery was not reasonably necessary to
establish its claim. To begin, Toy Quest stipulated to
all relevant facts, indeed, Aviva established that the
stay was violated simply by submitting the Limited
16

Response filed by Toy Quest. Further, Toy Quest’s belief
or motivations in filing the Limited Response were
irrelevant. See generally, Atl. Bus., 901 F.2d at 329.
Thus, no additional facts regarding Toy Quest’s actions
or intent were needed for Aviva to establish its case
and prevail on the Sanctions Motion.
While the Court did find that Aviva was entitled to this
discovery, because Aviva established that it could lead
to relevant evidence, the fact that Aviva was entitled
to discovery does not make that discovery reasonably
necessary for the successful prosecution of the
Sanctions Motion. Indeed, Aviva’s Counsel acknowledged
this at the Discovery Hearing stating “We can win this
... contested matter without any discovery, so it’s not
necessary.” Discovery Hrg. at 2:39:00. Aviva’s Counsel
repeated this a moment later, explaining further that
“What we meant was, this isn’t necessary... But it would
not be fair to force us to go forward in a contested
matter where we don’t get to take discovery to their
defenses.” Id. at 2:40:00. Moreover, none of the
discovery requested by Aviva was relevant to the
determination of the Sanctions Motion. Instead, the
determination was based on the fact that Toy Quest was
aware of the stay, and filed the Limited Response in an
attempt to obtain property that may have belonged to the
Debtor. As such, Aviva’s arguments regarding Toy Quest’s
inconsistent or non-responsive discovery responses need
not be addressed, as the Court has found that the
underlying Discovery requests were not reasonably
necessary, any time or fees attributable to the
Discovery is also unnecessary.
Because the Court finds that the extensive discovery and
related litigation were not reasonably necessary, the
related fees and costs are not part of the actual damages
suffered by Aviva in its attempt to enforce the stay.
Therefore, the related fees and costs are not damages
that could be awarded to Aviva.

In re Manley Toys Ltd., 2018 WL 3213710, at *3–4 (Bankr. D.N.J.
June 21, 2018).
The Court easily concludes that the Bankruptcy Court did not
abuse its discretion in denying the discovery fees and costs.
17

As

the Bankruptcy Court properly held, as a matter of law, the
discovery as to Toy Quest’s intent was irrelevant, as
“willfulness” in the context of a stay violation only requires
intent to do the act which violates the stay.

Aviva argues that

it “did not know when it took discovery that the bankruptcy court
eventually was going to agree with Aviva on the legal standards
applicable to stay-violation motions.”
This is a specious argument.

[Appeal Brief, p. 59]

Controlling Third Circuit

precedent-- In re Atl. Bus. & Cmty. Dev. Corp., 901 F.2d 325, 329
(3d Cir. 1990) 9-- clearly stated the applicable legal standard.
In the Bankruptcy Court, Toy Quest did not directly challenge
that standard; rather, it simply relied on persuasive authority
that pre-dated Atlantic Business. 10

Aviva points to no record

evidence-- and this Court has found none-- which might somehow

9

See also In re Lansdale Family Restaurants, Inc., 977 F.2d
826, 829 (3d Cir. 1992) (“Willfulness does not require that the
creditor intend to violate the automatic stay provision, rather
it requires that the acts which violate the stay be
intentional.”)(citing In re University Medical Center, 973 F.2d
1065, 1087–88 (3d Cir. 1992)).
10

See Bankr. Docket No. 16-15374, Doc. 235, p. 10, quoting
In re Adams, 106 B.R. 811, 831 (Bankr. D.N.J. 1989), for the
willfulness standard. In contrast, Aviva cited In re Lansdale
Family Restaurants, Inc., 977 F.2d 826 (3d Cir. 1992) and In re
Atl. Bus. & Cmty. Dev. Corp., 901 F.2d 325, 329 (3d Cir. 1990).
[Bankr. Docket No. 16-15374, Doc. 196-1, p. 13-14] Quite
notably, Aviva quoted Atlantic Business for the proposition that
“whether the party believes in good faith that it had a right to
the property is not relevant to whether the act was ‘wilfull’ or
whether compensation must be awarded.” [Id.; emphasis added by
this Court]

18

suggest that the Bankruptcy Court would have had any reason to
depart from controlling precedent.

Thus, the fees and costs

incurred by a party because that party believes-- incredibly-that a court will refuse to follow controlling precedent are not
only unreasonable, but an affront to any judicial officer sworn
to uphold the judicial hierarchy established by our Constitution.
Moreover, on appeal Aviva almost completely ignores its
concession on the record during the Bankruptcy Court’s discovery
hearing that the discovery it sought was not necessary to the
stay violation issue. 11

Relegated to a single footnote in its

opening brief, Aviva attempts to explain its statements to the
Bankruptcy Court by stating that “Aviva’s counsel did not mean
that Aviva did not need to investigate Toy Quest Ltd.’s factual
assertions about its alleged ownership of the Dollar General
Funds and its supposed innocent intent in seeking turnover of
those funds.” [D.N.J. Dkt. 18-2923, Doc. 24, p. 30 n.5)

Assuming

arguendo that the Bankruptcy Court misunderstood what counsel
intended to convey during the hearing, Aviva’s explanation does
not advance Aviva’s appeal.

As to the intent portion, the Court

has already explained why discovery was unnecessary and

11

Such discovery may have been relevant to the merits of
the garnishment action, but that was not the issue before the
Bankruptcy Court, nor is it the issue before this Court on
appeal. The discrete issue before the Bankruptcy Court, and this
Court, was / is the actual damages Aviva suffered as a result of
the stay violation.

19

unreasonable.

Similarly, as to the merits of the garnishment

action, those issues were not directly implicated by the stay
violation motion 12, and therefore fees incurred in litigating
those issues were not actual damages resulting from the stay
violation.
Accordingly, the Court holds that the Bankruptcy Court did
not abuse its discretion in denying attorneys fees and costs
associated with discovery.
IV.

CONCLUSION
For the foregoing reasons, the Court will affirm both orders

of the Bankruptcy Court.

An appropriate Order shall issue on

this date.

Dated: July 17, 2019

__ s/ Renée Marie Bumb _____
RENÉE MARIE BUMB
UNITED STATES DISTRICT JUDGE

12

Aviva repeatedly states that the merits of the
garnishment action were at issue in the sanctions motion. They
were not. As set forth above in Section III., A., three elements
of the stay violation were before the Bankruptcy Court: (1) a
violation; (2) willfulness and (3) actual damages. The Court’s
discussion of these elements demonstrates their conceptual
independence from the merits of the garnishment action.
20