Barney et al v. Mattheis et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
In re 	)
)
UNDERGROlThTD, LLC, 	) 	Case No. 	09-20040
) 	Chapter 7
Debtor. 	)
)
GARY A. BARNEY, Trustee of the 	)
Bankruptcy Estate of Underground, LLC, 	)
)
Plaintiff, 	)
v. 	) 	Adv. No. 09-2017
)
GERNOT MATTHEIS and GARY 	)
MATTHEIS, Individually and as Partners 	)
of the Jourdan Family Limited 	)
Partnership, 	)
)
Defendants. 	)
OPINION ON VIOLATIONS OF THE AUTOMATIC STAY
AND AWARD OF DAMAGES
On July 13,2010, this matter came before the Court for an evidentiary hearing on the
Amended Complaint for Delivery or Turnover of Property and Violation of the Automatic
Stay ("Amended Complaint"), filed by Gary Barney, Trustee of the Bankruptcy Estate of
Underground LLC ("Trustee") and the Defendants' Answer. The parties were represented
as stated on the record. The Court, having reviewed the record, testimony and evidence, and
for the reasons set forth below, finds that the Defendants violated the automatic stay.
Jurisdiction
The Court has jurisdiction of this matter under 29 U.S.C. §§157(b)(2)(E) and 1334.
This is a core proceeding.
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The Trustee filed this adversary proceeding on July 1, 2009 and served the Complaint
for Delivery or Turnover of Property alleging that the Debtor was entitled to commission
from the real estate transaction.' 	Upon the Debtor filing for bankruptcy protection, the
commission became property of the estate. 	In response, Gernot Mattheis, a.k.a. Gary
Mattheis, 	Individually 	and 	as 	Partners 	of the 	Jourdan 	Family 	Limited 	Partnership
("Defendants") filed Defendants' Answer to Complaint and Counterclaims on July 30, 2010.
On August 18, 2010, the Trustee filed a Motion to Amend the Complaint, alleging that: (1)
the Defendants had possession and were exercising control of property ofthe estate; and (2)
Defendants' counterclaims were violations of the automatic stay under 11 U.S.C. §362.
After hearing, the Court granted the motion and the Trustee filed the Amended Complaint.
Thereafter, Defendants filed their Answer to Amended Complaint for Delivery or Turnover
of Property and Violation of the Automatic Stay. 	On the evening before the evidentiary
hearing on this matter, co-counsell for the Defendants filed an "Authority in Support of
Opposition to Motion to Hold Creditor in Contempt." Due to the last minute submission of
the pleading, the Court allowed the Trustee time to respond after the hearing. The remaining
issues before the Court are whether the Defendants violated the automatic stay and if the
Trustee should be awarded attorney fees.
I This issue was detennined by the Court by the entry of the Order Granting in Part and Denying in Part, the
Trustee's Motion for Summary Judgment on May 11, 2010.
2 Although Mr. Willoughby refers to Andrea ruchards as "fonner counsel," the Court's review of the docket
shows that Ms. ruchards is an attorney of record representing the Defendants.
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Discussion
Defendants' possession and control of bankruptcy estate assets as a violation of the
automatic stay.
The Trustee alleges that the Defendants' actions of obtaining possession and control
ofthe real estate commission, after notification ofthe bankruptcy proceedings, are a violation
of the automatic stay.
The Bankruptcy Code states, as relevant:
"An individual injured by any willful violation of a stay ... shall recover actual
damages, including costs and attorneys' fees, and in appropriate circumstances, may recover
punitive damages.,,3
Courts have determined that a turnover action is not an action to recover damages for
the taking of estate property but an action to recover possession of property belonging to the
estate at the time of filing. 	A turnover action invokes the court's most basic equitable
powers, that is to gather and manage property ofthe estate. However, a refusal to tum over
property is a violation of the automatic stay. 	While Section 542 provides the right to the
return of estate property, 	§362(k) provides the remedy for failure to do SO.4
The Tenth Circuit holds that the willful violation of an automatic stay must be proven
by a preponderance of the evidence. 	In order to demonstrate a violation of the automatic
stay, a debtor bears the burden of establishing that the creditor knew of the automatic stay
3 11 U.s.c. §362(k)(l) (2009).
4 In re Domenico, No. 7-06-12430, Adv. No. 07-1147,2010 Bankr. LEXIS 1124 (Bankr. D. N.M. April 14,
2010)
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and intended the action that constituted the violation. No specific intent is required.5 Any
deliberate act taken in violation of the stay, which is known to be in existence, justifies an
award of actual damages. This standard encourages would-be violators to obtain declaratory
judgments before seeking to vindicate their interests in violations of an automatic stay and
protects debtors' estates from incurring potentially unnecessary legal expenses in prosecuting
stay violations.6
In the present case, it is the Trustee requesting turnover of the estate property. The
Court determined that the commission from the sale of the real property was an asset of the
bankruptcy estate by the Order entered on May 11,2010. Mr. Mattheis testified that he knew
that the Debtor had filed for bankruptcy protection as early as January 2009. Mr. Mattheis
also testified that at the time of the closing on the real estate transaction, he and the buyers7
decided that a commission was not owed to the Debtor. 	Thereafter, in response to any
Trustee's demand for tum over of bankruptcy property, the Defendants refused. 	The
Defendants, instead of filing a motion for declaratory judgment with the Court to determine
if the funds were an asset of the estate, ignored all requests from the Trustee and flatly
refused to tum over the funds. The Defendants knew that the Debtor's bankruptcy had been
filed and intentionally did not tum over the funds. 	The Court finds that the Defendants
violated the automatic stay.
5 In re Johnson, 501 F.3d 1163 (10th Cir. 2007).
6 In re CryseniMontenay Energy Co., 902 F.2d 1098 (2nd Cir. 1990).
7 Christopher Johnston was president ofthe Debtor. Mr. Johnston's parents, Richard P. Johnston and
Jayne A. Johnston were the buyers.
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Defendants' counterclaims as a violation of the automatic stay.
The Trustee asserts that the Defendants' filing of counterclaims in response to the
Trustee's Complaint was a violation of the automatic stay. 	This is an issue of first
impression in this Court. There does not appear to be controlling case law within the Tenth
Circuit. Therefore the Court has reviewed the law in other circuits. 	The provisions of 11
U.S.C.§ 362 only stay the commencement of proceedings which could have been brought
prior to the filing of the petition for relief. In the present case, it appears that the Defendants'
counterclaims were the result ofthe Trustee's adversary action. In this respect, it appears that
such counterclaims could not have been asserted until the Trustee brought the adversary
action. Since the Trustee's adversary action must necessarily have been filed subsequent to
the initiation ofliquidation proceedings, the filing ofthese particular counterclaims was not
a violation ofthe automatic stay. Defendants' counterclaims directly related to the adversary
brought by the Trustee. 	The counterclaims cannot be considered to be in violation of the
stay.
Attorneys fees.
The Trustee testified at the hearing as to the cost oflitigation in pursuing the violation
of the automatic stay. 	The evidence is in the form of an affidavit from Frank B. Watkins
("Affidavit"). The Court finds that the Trustee testified with certainty regarding the damages
incurred by the estate and will award attorney's fees accordingly.
The Court, having reviewed the Affidavit, and in light ofthis Court's ruling regarding
the Defendants' counterclaims, reduces the request for attorney's fee for all entries relating
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to the counterclaims or amended complaint by the amount of $4,440.00 Additionally, the
Court fmds that the services on "7-2-2009" were partially performed as secretarial duties.
The docket shows the summons was executed by the secretarial staff. Therefore, the request
for services is reduced by one-half. 	Finally, the services detailed as: "4/29/2010
Conference with Gary Barney concerning research on untimely filed priority creditors" is
"lumped" with the entry, "and settlement offer and possible counterclaim." The conference
with the Trustee regarding the untimely filed priority creditors does not appear to relate to
the matter before the Court. Services provided for the counterclaim are deducted, and the
Court is unable to determine the time that the applicant spent on the "settlement" portion of
the entry. 	Therefore, the entire amount is deducted. 	The Court fmds that the remaining
attorney's fees are reasonable and calculates the actual damages to be the total amount of
$13,695.50.
This opinion constitutes the Court's findings of fact and conclusions of law. 	A
separate order shall be entered pursuant to Fed. R. Bankr. P. 9021.
DATED this 	';;;>;B day of October, 2010.
By the Court
United States Bankruptcy Judge
Service to:
Frank Watkins
Phillip Willoughby
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