Johnson v. Smith

FILED
United States Court of Appeals
Tenth Circuit

August 5, 2009
PUBLISH
Elisabeth A. Shumaker
Clerk of Court
U N ITED STA TES C O UR T O F A PPEA LS

TEN TH CIR CU IT

In re:

TOM M Y DEAN JOHNSON;
CANDICE ANN JOHNSON,
No. 08-8052
Debtors.

TOM M Y DEAN JOHNSON;
CANDICE ANN JOHNSON,

Plaintiffs-Appellees,

v.

KEITH SM ITH, individually and as
Vice President of M & M Auto
Outlet – W yoming, Inc.; M & M
AUTO OUTLET – W YOM ING, INC.,
a W yoming corporation,

Defendants-Appellants.

A PPEA L FR O M TH E TENTH C IR C U IT
BA NK R U PTC Y A PPELLA TE PA N EL
( BA P N o. W Y -08-21 )

Submitted on the briefs: *

*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
(continued...)
Stephen R. W inship, W inship & W inship, P.C., Casper, W yoming for Appellants.

Before TA CH A , M U R PH Y , and H A R TZ , Circuit Judges.

H A R TZ , Circuit Judge.

After Keith Smith and M & M Auto Outlet-W yoming (collectively,

“M & M ”) willfully violated the automatic stay in Tommy 1 and Candice

Johnson’s Chapter 13 case, the Johnsons successfully sought damages under

11 U.S.C. § 362(k)(1) 2 in a bankruptcy-court adversary proceeding. M & M

appealed to the Tenth Circuit Bankruptcy Appellate Panel (BAP) and this court.

W hile those appeals were pending, the bankruptcy court dismissed the Chapter 13

case. W hen the adversary proceeding ultimately was remanded by this court to

the bankruptcy court for reconsideration of the amount of damages, M & M

argued that the dismissal of the underlying Chapter 13 case divested the

bankruptcy court of jurisdiction over the § 362(k)(1) proceeding. Both the

*
(...continued)
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
1
M r. Johnson is now deceased.
2
In 2005, 11 U.S.C. § 362(h), the former sanctions provision, was
renumbered as § 362(k)(1). Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, Pub. L. No. 109-8, §§ 305(1)(B), 441, 119 Stat. 23, 79,
114. W e use the current codification and refer to § 362(k)(1) rather than
§ 362(h).

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bankruptcy court and the BAP rejected M & M ’s position. Exercising our

jurisdiction under 28 U.S.C. §§ 158(d)(1) and 1291, we affirm. W e hold that the

dismissal of the Chapter 13 case did not divest the bankruptcy court of

jurisdiction over the § 362(k)(1) adversary proceeding. W e also reject M & M ’s

contention that the bankruptcy court abused its discretion by making an award

without conducting an evidentiary hearing.

I.

The facts have been set forth in other decisions, see Johnson v. Smith (In re

Johnson), 501 F.3d 1163, 1166–68 (10th Cir. 2007) (“Johnson I”); Johnson v.

Smith (In re Johnson), 390 B.R. 414, 415–16 (B.A.P. 10th Cir. 2008) (“Johnson

II”); so we need not go into detail here. Suffice it to say that in an adversary

proceeding brought by the Johnsons under § 362(k)(1), the bankruptcy court

determined that M & M had violated the automatic stay by repossessing the

Johnsons’ pickup truck while their bankruptcy case was pending. See Johnson I,

501 F.3d at 1166-68. The bankruptcy court awarded the Johnsons $937.50 for

loss of use of the vehicle, $5,028.50 in attorney fees, and $232.23 for costs, a

total of $6,198.23. Id. at 1168. The BAP affirmed the finding of a willful

violation, but reversed the loss-of-use award, vacated the attorney-fee and cost

determinations for lack of adequate foundation, and remanded for further

proceedings. Johnson v. Smith (In re Johnson), No. W Y-04-087, 04-20861,

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04-2036, 2005 W L 2300370, at *9-*11 (B.A.P. 10th Cir. Sept. 7, 2005). W e

affirmed the finding of a willful violation. Johnson I, 501 F.3d at 1175.

W hile Johnson I was pending in this court, the bankruptcy court dismissed

the Chapter 13 case because the Johnsons had not been making the required

payments. Johnson II, 390 B.R. at 416. Thus, by the time the § 362(k)(1)

adversary proceeding returned to the bankruptcy court on remand, there no longer

existed an underlying bankruptcy case. The Johnsons filed a pleading requesting

the bankruptcy court to set a hearing regarding attorney fees. 3 See id. In

response, M & M moved for dismissal, arguing that the dismissal of the Chapter

13 case divested the bankruptcy court of jurisdiction to proceed with the

§ 362(k)(1) adversary proceeding. See id. The bankruptcy court denied M & M ’s

motion and ordered the Johnsons to file a statement of their fees and costs. The

Johnsons’ attorney filed a supplement updating the fees and costs incurred since

the bankruptcy court’s original decision; attached was the attorney’s verification

under penalty of perjury of both the original fee request and the supplement.

W hen M & M objected to the requested fees, the court held a nonevidentiary

telephone hearing. See id. After rejecting M & M ’s objections, the court

3
For an unknown reason, the Johnsons filed their motion in the Chapter 13
case, not the adversary proceeding. The BAP noted that “all matters relating to
the remand should have taken place within the adversary proceeding,” but it
“consider[ed] any error in the procedural handling of the matter on remand to be
harmless.” Johnson II, 390 B.R. at 417. M & M does not take issue with this
conclusion, so we do not address it.

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awarded attorney fees and costs to the Johnsons in the amount of $11,816.02.

The BAP affirmed all but an award of $17.34 in overnight delivery expenses. See

id. at 420. M & M appeals.

II.

Although this appeal is taken from the BAP’s opinion, it is the decision of

the bankruptcy court that we review. Johnson I, 501 F.3d at 1169. On appeal, as

it did before the BAP, M & M argues that the bankruptcy court (1) lacked

jurisdiction to award sanctions under § 362(k)(1) once it had dismissed the

underlying bankruptcy case, and (2) erred in awarding sanctions without holding

an evidentiary hearing, instead basing the award solely on the attorney’s

verification. W e reject both arguments.

A. Authority Under § 362(k)(1) after Dism issal of Underlying Bankruptcy
Proceeding.

W hether the dismissal of the underlying case divests the bankruptcy court

of jurisdiction to proceed with a § 362(k)(1) adversary proceeding is a question of

law. Our review is therefore de novo. See Johnson I, 501 F.3d at 1169.

District courts have jurisdiction to hear “all civil proceedings arising under

title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). In

turn, 28 U.S.C. § 157(a) allows the district courts to refer such matters to the

bankruptcy courts. “Bankruptcy judges may hear and determine all cases under

title 11 and all core proceedings arising under title 11, or arising in a case under

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title 11 . . . and may enter appropriate orders and judgments, subject to review”

by the district court or the bankruptcy appellate panel. Id. § 157(b)(1). In

addition, “[a] bankruptcy judge may hear a proceeding that is not a core

proceeding but that is otherwise related to a case under title 11,” in which

situations the bankruptcy court submits proposed findings of fact and conclusions

of law to assist the district court to make a final decision. Id. § 157(c)(1). Some

types of core proceedings are listed in 28 U.S.C. § 157(b)(2), but the list is not

exclusive. In general, “[c]ore proceedings are proceedings which have no

existence outside of bankruptcy. Actions which do not depend on the bankruptcy

laws for their existence and which could proceed in another court are not core

proceedings.” Gardner v. United States (In re Gardner), 913 F.2d 1515, 1518

(10th Cir. 1990) (per curiam) (citation omitted).

Categorizing a § 362(k)(1) proceeding is not difficult. Section 362, which

establishes the automatic stay,

is the central provision of the Bankruptcy Code. W hen a debtor files
for bankruptcy, section 362 prevents creditors from taking further
action against him except through the bankruptcy court. The stay
protects debtors from harassment and also ensures that the debtor’s
assets can be distributed in an orderly fashion, thus preserving the
interests of the creditors as a group.

Price v. Rochford, 947 F.2d 829, 831 (7th Cir. 1991). Section 362(k)(1) protects

against violations of the stay by providing that “an individual injured by any

willful violation of a stay provided by this section shall recover actual damages,

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including costs and attorneys’ fees, and, in appropriate circumstances, may

recover punitive damages.” A § 362(k)(1) proceeding therefore is a core

proceeding because it “derive[s] directly from the Bankruptcy Code and can be

brought only in the context of a bankruptcy case.” M BNA Am. Bank, N.A. v. Hill,

436 F.3d 104, 109 (2d Cir. 2006) (holding that action under § 362(k)(1) is a core

proceeding). Accord Budget Serv. Co. v. Better Homes of Va., Inc., 804 F.2d 289,

292 (4th Cir. 1986); Price, 947 F.2d at 832 n.1.

Thus, the bankruptcy court had jurisdiction over the § 362(k)(1) proceeding

unless, as M & M argues, the matter was mooted by dismissal of the bankruptcy

case.

M & M correctly points to several decisions holding that when the

underlying bankruptcy case is dismissed, a noncore, related proceeding ordinarily

should also be dismissed (although leaving the matter to the bankruptcy court’s

sound discretion). See, e.g., Porges v. Gruntal & Co. (In re Porges), 44 F.3d 159,

162–63 (2d Cir. 1995); Querner v. Querner (In re Querner), 7 F.3d 1199, 1201

(5th Cir. 1993); Smith v. Commercial Banking Corp. (In re Smith), 866 F.2d 576,

580 (3d Cir. 1989). But these decisions do not address what happens to core

proceedings, such as the Johnsons’ claim. See Honigman, M iller, Schwartz and

Cohn, L.L.P. v. Adell (In re John Richards Homes Bldg. Co.), 405 B.R. 192, 210

(E.D. M ich. 2009) (stating “there is much support for the proposition that

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bankruptcy courts retain jurisdiction over core proceedings beyond the dismissal

or closure of the underlying bankruptcy case,” and collecting cases).

It is particularly appropriate for bankruptcy courts to maintain jurisdiction

over § 362(k)(1) proceedings because their purpose is not negated by dismissal of

the underlying bankruptcy case. They still serve (a) to compensate for losses that

are not extinguished by the termination of the bankruptcy case and (b) to

vindicate the authority of the statutory stay. Cf. In re Statistical Tabulating

Corp., 60 F.3d 1286, 1289–90 (7th Cir. 1995) (after dismissal of bankruptcy case,

bankruptcy court still had jurisdiction to resolve dispute between two creditors

because dispute was not “entirely dependent on the existence of the bankruptcy,”

unlike cases in which “the dismissal of the [underlying] case brought about a full

resolution of all disputes between the parties, mooting the controversy”).

Requiring the dismissal of a § 362(k)(1) proceeding simply because the

underlying bankruptcy case has been dismissed would not make sense. A court

must have the power to compensate victims of violations of the automatic stay

and punish the violators, even after the conclusion of the underlying bankruptcy

case. See Davis v. Courington (In re Davis), 177 B.R. 907, 911–12 (B.A.P. 9th

Cir. 1995). “[I]t is clear that dismissal of a case does not validate actions which

constituted violations of the automatic stay during the pendency of that case.”

D’Alfonso v. A.R.E.I. Inv. Corp. (In re D’Alfonso), 211 B.R. 508, 513 (Bankr.

E.D. Pa. 1997). In analogous circumstances, other sanctions proceedings can

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continue despite the termination of the underlying case. See Cooter & Gell v.

Hartmarx Corp., 496 U.S. 384, 395–98 (1990) (voluntary dismissal of a lawsuit

does not deprive the district court of jurisdiction over a motion for sanctions

under Federal Rule of Civil Procedure 11); Steinert v. W inn Group, Inc., 440 F.3d

1214, 1220–21, 1223–24 (10th Cir. 2006) (affirming in part a 28 U.S.C. § 1927

sanctions award that was ordered well after the underlying case was dismissed

with prejudice at the plaintiff’s request); Olcott v. Del. Flood Co., 76 F.3d 1538,

1552–57 (10th Cir. 1996) (analogizing sanctions under Federal Rules of Civil

Procedure 16 and 37 to Rule 11 sanctions and concluding that the district court

had jurisdiction to enforce the award even after the dismissal of the underlying

case).

Nothing in the Bankruptcy Code mandates dismissal of the § 362(k)(1)

proceeding when the bankruptcy case is closed. “[T]here is no explicit

requirement that a ‘case’ be open under [28 U.S.C.] § 1334(a) for a court to act in

a ‘civil proceeding’ under § 1334(b).” M enk v. Lapaglia (In re M enk), 241 B.R.

896, 904 (B.A.P. 9th Cir. 1999). No part of § 362(k)(1) suggests that a claim

exists only while the bankruptcy case remains pending. See Price, 947 F.2d at

831–32. And when Congress listed the effects of dismissing a bankruptcy case, it

included nothing about automatically terminating the court’s jurisdiction over all

adversary proceedings or mooting questions regarding § 362(k)(1) sanctions. See

11 U.S.C. § 349; see also Burgner v. Ga. Fed. Credit Union (In re Burgner),

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218 B.R. 413, 414 (Bankr. E.D. Tenn. 1998) (noting that several paragraphs of

§ 349(b) “deal[] indirectly with some adversary proceedings by attempting to

undo what has already been done,” but that “[n]one of these provisions is relevant

to Debtor’s complaint for violation of the automatic stay”); In re Davis, 177 B.R.

at 911 (“Section 349(b) does not . . . retroactively vacate the automatic stay,

vacate orders remedying violation of the stay, or vitiate any cause of action based

upon violation of the stay”).

The great weight of case authority supports our conclusion that a

§ 362(k)(1) proceeding remains viable after termination of the underlying

bankruptcy case. See, e.g., Price, 947 F.2d at 831–32; Javens v. City of Hazel

Park (In re Javens), 107 F.3d 359, 364 n.2 (6th Cir. 1997) (“An action under

§ 362[(k)(1)] for damages for willful violation of an automatic stay survives

dismissal of the case in bankruptcy.”); Jones v. Boston Gas Co. d/b/a Keyspan

Energy Delivery New England (In re Jones), 369 B.R. 745, 748 (B.A.P. 1st Cir.

2007) (collecting cases); In re D’Alfonso, 211 B.R. at 513; In re Davis, 177 B.R.

at 911–12; Skaggs v. Fifth Third Bank of N. Ky. (In re Skaggs), 183 B.R. 129, 131

(Bankr. E.D. Ky. 1995). But see Brown v. GM AC M ortgage Corp. (In re Brown),

300 B.R. 871, 876–77 (D. M d. 2003).

Finally, contrary to M & M ’s assertions, we see no basis for requiring a

bankruptcy court to state explicitly that it is retaining jurisdiction over a

§ 362(k)(1) adversary proceeding when it dismisses an underlying Chapter 13

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case, or for requiring the Johnsons to move to reopen the Chapter 13 case to

pursue the § 362(k)(1) adversary proceeding. M & M has cited no authority

supporting such requirements.

B. Failure to H old Evidentiary H earing.

In the alternative, M & M contests the bankruptcy court’s procedure for

determining the amount of sanctions. W e review the award for abuse of

discretion. Cf. Chambers v. NASCO, Inc., 501 U.S. 32, 55 (1991) (attorney-fee

sanction under court’s inherent power is reviewed for abuse of discretion); Cooter

& Gell, 496 U.S. at 405 (same for attorney-fee sanction under Rule 11); Roth v.

Green, 466 F.3d 1179, 1187 (10th Cir. 2006) (same for attorney-fee sanction

under Rule 11 and § 1927); Udall v. FDIC (In re Nursery Land Dev., Inc.),

91 F.3d 1414, 1415 (10th Cir. 1996) (same for attorney-fee sanction for bad-faith

filing of a Chapter 11 petition); Olcott, 76 F.3d at 1557 (same for sanctions under

Rules 16(f) and 37(b)(2)).

M & M objects that the bankruptcy court made its award after a

nonevidentiary hearing, based solely on counsel’s verification. But M & M did

not preserve any objection to this procedure. The court’s notice of setting stated

that it would be conducting a nonevidentiary hearing. See Aplt. App. at 118.

M & M did not object and never requested an evidentiary hearing. Further, at the

hearing M & M ’s counsel explicitly declined to object to the verification filed by

the Johnsons’ counsel. See id. at 146 (“I have not seen that affidavit, but I

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generally know what those affidavits say and presuming that [the Johnsons’

counsel] did, in fact, put an affidavit together, I won’t object to that.”). Although

M & M now questions the lack of live testimony, the lack of an opportunity to

call or cross-examine the Johnsons’ counsel or any other potential witness, and

the lack of opportunity to submit any evidence contradicting the Johnsons’

submissions, it raised none of these issues before the bankruptcy court. M & M ’s

complaints come too late.

M & M suggests that the BAP’s first decision required the bankruptcy court

to hold an evidentiary hearing. This is a misreading of the BAP’s opinion. In the

first appeal the BAP vacated the initial fee award for lack of adequate foundation

and remanded for further proceedings, but never specified that those proceedings

must include an evidentiary hearing. See Johnson, 2005 W L 2300370, at *10-

*11. Once counsel’s written verification had redressed the problem that the BAP

identified, no evidentiary hearing was required— especially when the parties did

not seek one.

W e conclude that the bankruptcy court’s award of fees was not an abuse of

its discretion.

III.

The BAP’s judgment is AFFIRM ED.

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