Vivian W. Bowers

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
VIVIAN W. BOWERS,
Debtor.
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Case No. 09-00584
(Chapter 11)
For Publication in West’s
Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE MOTION FOR CONTEMPT
The debtor Bowers seeks to hold Consumers United Capital
Corporation in contempt for allegedly violating the automatic
stay of 11 U.S.C. § 362(a) by proceeding in the Superior Court to
attempt to recover a judgment against the debtor’s employer under
D.C. Code § 16-579. 	The motion will be denied for the reasons
developed at a hearing of January 13, 2010, and elaborated upon
below.
I
Section 16-579 addresses, among other things, the following
circumstance: a creditor serves a writ of attachment on a
debtor’s employer to seize wages owed the debtor, but after
service of the writ, the employer accepts the debtor’s services
for free. 	When, for example, the corporation is owned by a
The document below is hereby signed.
Signed: February 25, 2010.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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relative of the debtor, the statute permits the creditor to
recover from the employer an amount “based upon a reasonable
value of the services rendered by the judgment debtor under his
employment or upon the debtor’s then earning ability.”
This court addressed D.C. Code § 16-579 at length in In re
Schneiderman, 251 B.R. 757 (Bankr. D.D.C. 2000) (Schneiderman I),
and In re Schneiderman, 254 B.R. 296 (Bankr. D.D.C. 2000)
(Schneiderman II). 	For reasons discussed in Schneiderman II, 254
B.R. at 299-301, the automatic stay of 11 U.S.C. § 362(a) bars
Consumers United from pursuing its § 16-579 remedy with respect
to those services of the debtor that were rendered after the
debtor filed the petition commencing this bankruptcy case on July
7, 2009.
II
Whether the automatic stay bars Consumers United from
pursuing its § 16-579 remedy with respect to services rendered by
the debtor before the commencement of the bankruptcy case is a
more difficult question.
The § 16-579 proceeding is not a proceeding to enforce a
lien against property of the debtor or of the estate: the premise
of § 16-579 is that the debtor worked for free, and the creditor,
in effect, is proceeding against the employer’s enriched
corporate treasury. 	Accordingly, § 362(a)(5) (barring
enforcement of a lien against property of the debtor or of the
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estate) is inapplicable. 	Nevertheless, conflicting arguments
exist whether the automatic stay applies by reason of other
pertinent parts of § 362(a).
Section 362(a)(1) bars the continuation of a proceeding to
recover a prepetition claim against the debtor, and § 362(a)(6)
bars any act to collect or recover a prepetition claim against
the debtor. 	The argument can be made that the Superior Court
action is against the employer, not the debtor, and is an act to
collect on the employer’s liability, not the debtor’s. 	The
automatic stay does not stay actions against a guarantor or other
non-debtor party liable on a debtor’s debt. 	See, e.g., Chugach
Forest Prods., Inc. v. Northern Stevedoring & Handling Corp., 23
F.3d 241, 243 (9th Cir. 1994); In re Lockard, 884 F.2d 1171,
1178-79 (9th Cir. 1989).
Nevertheless, an argument exists that because the employer’s
liability stems from the efforts of the creditor to collect the
debtor’s liability, not from some pre-existing obligation on the
part of the employer to the creditor, the action against the
employer is a continuation of an act to recover the prepetition
claim against the debtor. 	Consider a garnishee who does owe
wages to a debtor (or is deemed to owe wages to the debtor based
on the garnishee’s failure to answer a writ of garnishment).
Some decisions hold that the garnishing creditor violates the
automatic stay when it pursues, pursuant to the garnishment, an
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action against the garnishee-employer to recover from the
employer wages that are owed (or deemed owed) to the debtor. 	See
In re Feldman, 303 B.R. 137 (Bankr. E.D. Mich. 2003); O'Connor v.
Methodist Hosp. of Jonesboro, Inc. (In re O'Connor), 42 B.R. 390,
392 (Bankr. E.D. Ark. 1984). 	But see In re Sowers, 164 B.R. 256
(Bankr. E.D. Va. 1994); In re Waltjen, 150 B.R. 419 (Bankr. N.D.
Ill. 1993); In re Gray, 97 B.R. 930 (Bankr. N.D. Ill. 1989);
United Guar. Residential Ins. Co. v. Dimmick, 916 P.2d 638 (Colo.
Ct. App. 1996); cf. Kanipe v. First Tenn. Bank (In re Kanipe),
293 B.R. 750, 755 (Bankr. E.D. Tenn. 2002).
This case is distinguishable from the foregoing cited cases.
Those decisions addressed a creditor’s right to recover against
the debtor’s employer premised on the existence (or deemed
existence) of unpaid wages owed the debtor, with any judgment
effectively being a collection of the debt from the debtor’s
wages. 	Proceeding to recover from the garnishee in that
circumstance effectively collects the debt from the debtor’s
wages. 	Here, in contrast, the collection is effectively from the
employer’s corporate treasury that was enriched by way of the
debtor having worked for free.
Under § 16-579, the employer, in effect, is statutorily made
a guarantor of the debtor’s debt to the extent of the value of
the services that the employer accepted for free after service of
the writ (but a guarantor with no right of indemnification from
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1 	Illustratively, consider a debtor who owns real property
securing a claim of a creditor. 	The debtor makes a prepetition
transfer of the property subject to the lien. 	Postpetition, the
creditor enforces the lien against the property that was
transferred. 	The transferee of such property has an in rem, non-
recourse liability for the debt, and is the equivalent of a
guarantor of the debtor’s debt (albeit a guarantor who may have
waived a right of indemnification from the debtor). 	Enforcement
of the lien is thus equivalent to the enforcement of a guarantee,
and the automatic stay does not apply even though (as in the case
of enforcement of a guarantee) collection pursuant to enforcement
of the lien reduces the debt owed by the debtor to the creditor.
Moreover, § 362(a)(4) and § 362(a)(5) bar enforcement,
respectively, of a lien against property of the estate and a lien
against property of the debtor securing a prepetition claim.
Congress did not see fit to bar enforcement of a lien against
non-estate and non-debtor property securing a prepetition claim
against the debtor. 	It is implicit that enforcement of a lien on
transferred property in which the debtor has an ownership
interest is not barred by other provisions of § 362(a), and
specifically is not “an act to collect . . . or recover a claim
against the debtor that arose before the commencement of the
case” stayed by § 362(a)(6). 	Instead, the act is to collect an
in rem claim against the new owner.
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the debtor). 	That the collection reduces the amount owed by the
debtor is no different than when recovery from a guarantor
reduces the amount that can be claimed against the debtor.
Neither collecting from a guarantor nor collecting from an
employer under § 16-579 violates the automatic stay.
A § 16-579 collection is somewhat like enforcement of a lien
for the debtor’s debt on non-debtor property, an act that would
not violate the automatic stay. 1 	Similarly, § 362(a)(2) bars
“the enforcement, against the debtor or against property of the
estate, of a judgment obtained before the commencement of the
case under this title.” 	It does not bar enforcement of the
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judgment against an employer’s property that has no impact on the
debtor’s (or the estate’s) own property. 	As in the case of lien
enforcement against a prepetition transferee of the debtor’s
property, the automatic stay implicitly does not apply to
collecting the employer’s independent liability under § 16-579.
District of Columbia law treats the employer as having a
liability for the wages forgone by the debtor, an enrichment of
the corporate treasury, and the enforcement is not against
property of the estate. 	As in the case of enforcement of a lien
on property that is not property of the estate or property of the
debtor, and as in the case of enforcement of a guarantee,
enforcement of this independent liability under § 16-579 is not
“an act to collect . . . or recover a claim against the debtor
that arose before the commencement of the case” stayed by
§ 362(a)(6).
An issue remains whether the automatic stay applies because
the pursuit of the § 16-579 remedy is, in effect, a fraudulent
conveyance action. 	When an unsecured creditor has a right to
pursue a recovery of a debtor’s property fraudulently transferred
to a third person, the Bankruptcy Code vests the bankruptcy
trustee with the power to avoid the transfer. 	See 11 U.S.C.
§§ 544(a)(2) and 544(b)(1) (requiring, as relevant here, that
there have been, respectively, a “transfer of property of the
debtor” or a “transfer of an interest of the debtor in property”
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2 	Section 544(a) also confers on a trustee the rights and
powers of a creditor who, on the date of commencement of the
case, attains judicial lien creditor or execution creditor
status, but that power is irrelevant to whether the automatic
stay applies to Consumers United’s pursuit of § 16-579 with
respect to prepetition services. 	Such a hypothetical creditor’s
rights under § 16-579 would not reach backwards in time as the
writ such a creditor would hypothetically serve on the employer
on the date of filing of the petition commencing the case would
only apply to services rendered after service of the writ.
Schneiderman I, 251 B.R. 763-67.
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in order for the provision to apply). 2 	In the debtor’s favor, I
will assume, without deciding, that a creditor’s pursuit of a
fraudulent conveyance action is displaced by the vesting in the
trustee of the power to pursue the fraudulent conveyance, or that
a creditor’s pursuit of such an action is an act to collect its
prepetition debt that violates § 362(a)(6) as it would interfere
with the trustee’s right to pursue that action.
Schneiderman I left undecided whether 11 U.S.C. § 544 would
apply to permit a trustee to exercise the § 16-579 rights of a
creditor who had served a writ of attachment on a debtor’s
employer prepetition. 	251 B.R. at 761. 	Schneiderman I viewed Ҥ
544(b) as likely applicable because § 16-579 treats the corporate
treasury as consisting of property transferred by the debtor to
the extent he took inadequate compensation,” id., but left the
question open. 	For the following reasons, I conclude that §
544(b) would be inapplicable.
Because the debtor agreed to work for free, there were no
wages earned, and, accordingly, no transfer of an interest of the
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debtor in property occurred. 	Services were transferred for free,
but services are not a form of property. 	Thus, there could be no
fraudulent conveyance action. 	That the statute effectively
engages in a fiction that the debtor is treated as having worked
for wages and as then having left them in the corporate treasury
does not change the actuality that the debtor worked for free and
agreed not to take wages. 	The remedy is also viewed as allowing
a creditor to engage in a form of piercing the corporate veil in
reverse (meaning, treating the employer’s property as the
debtor’s). 	See IBF Corp. v. Alpern, 487 A.2d 593, 596-97 (D.C.
1985). 	Although that may be an apt analogy, the statute does not
undo the fact that the debtor has no right to wages when he works
for free. 	That is why Schneiderman I found inapplicable to the
amount recoverable under § 16-579 the statutory cap applicable to
wage garnishments. 	251 B.R. at 762. 	Instead of § 16-579 being a
recovery of property of the debtor, § 16-579 imposes a direct
liability on the garnishee-employer for having accepted services
for free after service of the writ.
Accordingly, a § 16-579 action is neither an action to
recover a fraudulent conveyance of property of the debtor nor an
action against property of the debtor. 	Such an action, as an
action on the corporation’s direct liability arising from
accepting services for free after service of the writ, does not
violate the automatic stay on the theory that it is a fraudulent
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3 	Nevertheless, the debtor did not address this issue, and
this decision will be made without prejudice to any powers of a
trustee under chapter 5 of the Bankruptcy Code. 	If a trustee (or
the debtor as a debtor in possession exercising the powers of a
trustee) can demonstrate that one of the avoidance powers
available to a trustee ought to apply, this decision (when the
issue has not been thoroughly briefed) ought not stand in the way
of pursuit of that power.
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conveyance action that can be pursued only by a trustee (or by a
debtor in possession exercising the powers of a trustee). 3
For the foregoing reasons, I conclude that the automatic
stay was not violated by pursuit of the § 16-579 action with
respect to work the debtor performed prepetition. 	In any event,
contempt does not lie for violation of an ambiguous order, and
the automatic stay was at best ambiguous as to whether it applies
to a proceeding to enforce the § 16-579 remedy against a debtor’s
employer with respect to prepetition work. 	The motion to hold
Consumers United in contempt must be denied.
III
In accordance with the foregoing, it is
ORDERED that the debtor’s motion for contempt is DENIED. 	It
is further
ORDERED that the automatic stay did not and does not apply
to Consumers United’s pursuit of the § 16-579 remedy with respect
to work performed by the debtor prepetition. 	It is further
ORDERED that the automatic stay remains in place as to any
pursuit by Consumers United of a § 16-579 remedy with respect to
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10	O:\TEEL\Judge Temp Docs\Bowers (Vivian) - Memorandum Decision re Mtn for Contermpt re Writ of Attachment_v5.wpd
services rendered by the debtor to her employer postpetition, and
any such pursuit that occurred postpetition remains void. 	It is
further
ORDERED that this order is without prejudice to any powers
that a trustee can bring to bear under chapter 5 of the
Bankruptcy Code with respect to Consumers United’s § 16-579
rights.
[Signed and dated above.]
Copies to: Debtor; Debtor’s attorney; Chapter 13 Trustee;
William Michael Cusmano
2000 N. 14 th Street
#210
Arlington, VA 22201
(Counsel for Consumers United)
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