Bradley et al v. Schlom et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
MICHAEL and KAROLYN BRADLEY, No. 02-11609
Debtor(s).
______________________________________/
MICHAEL and KAROLYN BRADLEY,
Plaintiff(s),
v. A.P. No. 04-1093
BARRY R. SCHLOM,
Defendant(s).
_______________________________________/
Memorandum Regarding Damages
_________________
Prior to their Chapter 7 bankruptcy filing, plaintiffs Michael and Karolyn Bradley were
intervening plaintiffs, along with 13 others, in complex litigation commenced by the Department of
Corporations in Southern California alleging franchise law violations. The defendants in this adversary
proceeding were the defendants in that action and their lawyer, Barry Schlom. The claims of the
Bradleys and the other intervenors were based on written franchise agreements with attorneys’ fee
clauses.
The action went to trial in 2000. At is conclusion, the state court granted defendants’ motion for
a nonsuit. On March 7, 2002, defendants filed a motion for an award of attorneys’ fees. Before the
Entered on Docket
August 19, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-01093 Doc# 40 Filed: 08/19/05 Entered: 08/19/05 14:57:10 Page 1 of 5

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1The complaint in this adversary proceeding alleges that it was a violation of the automatic stay
for this motion to be heard. However, there is no evidence that the Bradleys or their counsel objected
and, in any event, the Bradleys prevailed without any expense. The court accordingly declines to award
any damages for this technical violation of the automatic stay. The court notes that if the Bradleys’
bankruptcy counsel had been pro-active at this point and taken action to have the motion dropped as to
the Bradleys then this entire dispute would never have arisen.
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motion was heard, the Bradleys filed their bankruptcy petition.
On September 24, 2002, the state court denied the motion for attorneys’ fees.1 Nothing further
happened until October, 2003, when Schlom moved for judgment against the Bradleys and the other
intervening plaintiffs. On December 8, 2003, the state court entered judgment against the Bradleys and
the other intervening plaintiffs and Schlom made another motion for attorneys’ fees against them. In
response to this motion, the Bradleys’ attorney filed pleadings in opposition which attached a copy of
the Bradleys’ bankruptcy discharge and squarely put the effect of the discharge before the state court.
On January 7, 2004, the state court entered a $350,000.00 award for attorneys’ fees against all
15 intervenors, without mentioning the Bradleys’ bankruptcy. In this adversary proceeding, the Bradleys
seek a declaration that their debt to defendants has discharged and damages for violation of the automatic
stay and discharge injunction.
In a prior memorandum, the court found that Bradleys’ liability for attorneys fees was in fact
discharged. All defendants have settled with the exception of Barry Schlom, the attorney who obtained
the post-discharge judgment against the Bradleys. The Bradleys seek damages for emotional distress,
lost wages, and over $33,000.00 in attorneys’ fees against Schlom.
The court begins its analysis by noting that there is no private right of action for violation of the
bankruptcy discharge injunction. Walls v. Wells Fargo Bank, 276 F.3d 502, 508 (9th Cir. 2002); In re
Bassett, 255 B.R. 747, 753-54 (9th Cir. BAP 2000), aff’d in relevant part at 285 F.3d 882. Civil
contempt is the normal sanction for violation of the discharge injunction. Walls, at 507. While a debtor
may seek damages and attorneys’ fees in contempt proceedings, the primary purpose of civil contempt is
to discourage the offending conduct. For this reason, the court has broad discretion in fashioning a
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2The Bradleys argue that the court cannot make any findings as to Barta’s lack of diligence
because no evidence was introduced to establish the standard of care. However, no such evidence is
necessary if the standard of care is within the common knowledge of the trier of fact. See In re Belmar,
319 B.R. 748, 754 (Bkrtcy.D.Colo.2004). The court does not need expert testimony to find that Barta’s
representation of the Bradleys was woefully inadequate.
3Barta undermined his own clients’ case by referring to Beard in his letter, belying their argument
that Beard had acted without authorization and no longer represented the Bradleys.
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remedy for violation of the discharge injunction. Bassett, 255 B.R. at 758.
The court declines to award the Bradleys all they might be entitled to if they had a private right of
action for two reasons. First, such and award is not necessary in order to punish Schlom and discourage
future like conduct. Second, and more importantly, this action would not have been necessary if the
Bradley’s original bankruptcy counsel, Brian Barta, had acted in a more diligent and capable manner.2
There is scant evidence as to Barta’s actions when he filed the bankruptcy in 2002, so the court
can only note that with a modest amount of forehandedness the current situation would not have arisen.
However, the evidence makes clear that Barta’s actions in early 2004 left much to be desired.
Barta first learned of the problem some time in late 2003 or very early 2004, either from the
attorney representing the Bradleys in the state court litigation or the Bradleys themselves. He spoke to
Schlom about it for the first time on January 15, 2004, yet did not follow up the conversation with a letter
until February 4, when he sent Schlom a very brief letter containing neither citations nor copies of the
schedules. Worse, he referred to the Bradley’s former counsel in state court, Terence Beard, as the
Bradleys’ current attorney and demanded that a dismissal be obtained and provided to Beard as well as
himself. It is clear that Barta did not have a clue as to the two substantial bankruptcy issues raised by the
judgment entered against the Bradleys: whether the post-discharge judgment was subject to the discharge
and whether the Bradleys had waived their right to have the issue resolved in bankruptcy court because
they had presented the issue to the state court judge and lost.3
The delay between January 15 and February 4 and the incredible brevity of Barta’s February 4
letter are inexplicable, as the situation called for prompt and decisive action. To his credit, Schlom
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4And even extracting an additional $300 from them.
5The record is replete with evidence of offers by Schlom to vacate his judgment on varius modest
terms. For this reason, the court is not sympathetic to the Bradleys’ claims of emotional distress. While
they were not compelled to accept Schlom’s terms, they inflicted the stress of litigation on themselves by
insisting on substantial damages. Given the large amount of the judgment against them and the colorable
arguments Schlom could make, the wisdom of their choice is questionable.
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(who is not a bankruptcy attorney) responded the very next day, February 5, with a long letter offering to
stipulate to set the judgment aside as to the one defendant Barta had mentioned in his letter as being
scheduled. It is clear to the court that if Barta had spent more than 36 minutes responding to Schlom, and
had included a copy of the schedules and creditor list, this entire matter would have gone away.
Incredibly, Barta waited over three months, until May 12, 2004, to respond to Schlom. When he
did respond, he again failed to provide a copy of the schedules. Schlom’s detailed response on May 22
asked for authority as to the effect of the discharge on a “later-created liability.” At this point, being
obviously out of his element despite having accepted the Bradleys’ case with full knowledge of its
complexity and taking a substantial fee from them,4 Barta referred the case to David Chandler.
On July 2, 2004, Chandler wrote Schlom a demand letter citing no authority, stating that Schlom
should know the judgment was a violation of the discharge injunction “following cursory review of the
authorities aptly cited by Mr. Barta.” Of course, Barta had not done anything aptly. It appears to the
court that Chandler did not want Schlom to vacate the judgment, instead preferring to litigate in the
expectation of recovering a substantial fee.
Instead of consulting competent bankruptcy counsel on his own and determining that he either
had no case or the matter was not worth the risk of litigation, Schlom fell into Chandler’s trap. While
offering to vacate the judgment during the course of the case,5 he left the judgment on the books and
fought this adversary proceeding when he should have vacated the judgment and then looked to the court
for an appropriate sanction, which would have been modest. A more substantial sanction is now
required in order to discourage similar conduct in the future. While the court is usually sensitive to the
plight of a non-bankruptcy attorney suddenly faced with complex bankruptcy issues, the court cannot
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6The court believes that $7,500.00 is enough to discourage future improper conduct an also
believes that this sum is the most it would have cost the Bradleys if they had been represented by a single
competent and reasonable bankruptcy attorney instead of the duo they chose.
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permit such an attorney to think that he or she can avoid adverse consequences by remaining ignorant.
For the foregoing reasons, the court finds Schlom in contempt of the bankruptcy discharge
injunction. As a sanction, he shall pay to the Bradleys the sum of $7,500.00.6 It appearing that injunctive
relief is no longer necessary, the Bradleys shall take nothing further on account of their complaint. The
court will enter a separate judgment.
Dated: August 19, 2005
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 04-01093 Doc# 40 Filed: 08/19/05 Entered: 08/19/05 14:57:10 Page 5 of 5