Rockstone Capital, LLC v. Walker-Thomas Furniture Co, Inc. et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
SYLVIA M. SMITH,
Debtor.
____________________________
ROCKSTONE CAPITAL, LLC,
Plaintiff,
v.
WALKER-THOMAS FURNITURE CO.,
INC., et al.,
Defendants.
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Case No. 04-01581
(Chapter 7)
Adversary Proceeding No.
04-10457
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION RE PLAINTIFF’S REQUEST
TO HOLD DEFENDANT SYLVIA M. SMITH IN CONTEMPT
OF COURT AND THAT THE ADVERSARY PROCEEDING BE
REMANDED TO THE SUPERIOR COURT OF THE DISTRICT OF COLUMBIA
Pursuant to an order entered on July 17, 2007 (D.E. No. 97),
Rockstone Capital, LLC (“Rockstone”), the plaintiff in this
adversary proceeding, has filed a report updating the court as to
the status of this litigation (D.E. No. 102, filed August 2,
2007). 	In its report, Rockstone alleges that the defendant,
Sylvia M. Smith, has not paid $500.00 to Rockstone as
The decision below is signed as a decision of
the court.
Signed: August 23, 2007.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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contemplated in the court’s prior order (D.E. No. 89) entered on
March 9, 2007, and asks that the court schedule a hearing at
which Smith would need to show cause why she ought not be held in
contempt of court due to her failure to abide by the court’s
prior order. 	For the following reasons, I will deny that
request, and instead issue a final judgment for the $500.00
together with interest from the date of the order of March 9,
2007, to the date of entry of the judgment. 	That will leave
nothing more to do in this adversary proceeding than to remand
the proceeding to the Superior Court to permit it to proceed with
Rockstone’s claims regarding an alleged fraudulent conveyance to
Andre Smith.
I
Regarding the $500.00 that was awarded to Rockstone, I first
address whether the $500.00 may be collected via contempt
sanctions, and then address the alternative remedy available to
Rockstone to collect the $500.00.
A.
With respect to the failure to pay the $500.00, the court
deems sanctions to be inappropriate as that would constitute the
utilization of contempt sanctions to collect a monetary
obligation. 	A court's contempt powers are not ordinarily used in
the enforcement of a monetary judgment. 	Instead, a judgment-
holder resorts to execution remedies under Fed. R. Civ. P. 69.
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1 	As observed in Baxter State Bank v. Bernhard, 186 F.R.D.
621, 623 (D. Kan. 1999):
The court notes that, as a general rule, courts
addressing the execution of judgments hold that “the
proper means ... to secure compliance with a money
judgment is to seek a writ of execution.” 	Hilao v.
Estate of Marcos, 95 F.3d 848, 854 (9th Cir. 1996)
(quoting Shuffler v. Heritage Bank, 720 F.2d 1141, 1148
(9th Cir. 1983)). 	According to MOORE'S FEDERAL
PRACTICE,
Rule 69(a) provides that the “process to
enforce a judgment for the payment of money
shall be a writ of execution, unless the
court directs otherwise.” 	This language
appears to contemplate a means to enforce
money judgments other than by writ of
execution. 	However, such other means are
3
“[W]hen a party fails to satisfy a court-imposed money judgment
the appropriate remedy is a writ of execution, not a finding of
contempt.” 	Combs v. Ryan's Coal Co., 785 F.2d 970, 980 (11th
Cir.), cert. denied sub nom. Simmons v. Combs, 479 U.S. 853
(1986). 	Accord In re Estate of Bonham, 817 A.2d 192, 195-96
(D.C. 2003) (use of contempt to collect counsel fee award); Aetna
Cas. & Sur. Co. v. Markarian, 114 F.3d 346, 349 (1st Cir. 1997);
Shuffler v. Heritage Bank, 720 F.2d 1141, 1147-48 (9th Cir.
1983); Granfinanciera, S.A. v. Nordberg (In re Chase & Sanborn
Corp.), 872 F.2d 397 (11th Cir. 1989); In re Property of Adam,
100 P.3d 77, 88 (Haw. Ct. App. 2004); Ardex Labs., Inc. v.
Cooperider, 319 F. Supp. 2d 507, 509 (E.D. Pa. 2004) (writ of
execution, not contempt, proper course for enforcing award of
attorney's fees). 1
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confined only to cases in which established
principles warrant equitable relief, such as
when execution would be an inadequate remedy.
For example, enforcement through the
imposition of a contempt sanction would not
be authorized absent exceptional
circumstances.
13 MOORE'S FEDERAL PRACTICE 3D § 69.02 (1997). 	See
also Combs v. Ryan's Coal Co., . . .; 	Gabovitch v.
Lundy, 584 F.2d 559, 560-61 (1st Cir. 1978) (“[T]he
legislative history and judicial application of Rule
69(a) make clear that the first sentence of the Rule
expresses a limitation on the means of enforcement of
money judgments and does not create a general power to
issue writs of execution in disregard of the state law
incorporated by the rest of the Rule”).
4
The order to pay $500 was a compensatory fine based on the
debtor’s failure to comply with interrogatories and requests to
produce documents. 	It constituted a judgment (albeit not yet
cast as a final one under Fed. R. Civ. P. 54(b) for which
execution could commence), is enforceable like any other fine,
civil or criminal, imposed by the courts to compensate for or to
deter misconduct, and is treated like other civil monetary
judgment awards. 	This is explicitly so in the case of criminal
fines (see 18 U.S.C. § 3613 (judgment imposing a criminal fine is
collectible using procedures for collection of civil judgment))
and is implicitly so in the case of civil fines.
Contempt is available to assist in the collection of such a
monetary judgment only in rare circumstances, none of which exist
here. 	For example, if a judgment-debtor has failed to turn over
assets required to be turned over pursuant to an inquiry into
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2 	In this adversary proceeding, no inquiry has been held to
identify assets to be turned over to satisfy the monetary
sanction award (and the court has not determined whether such an
approach is appropriate under Fed. R. Civ. P. 69 and the law of
the District of Columbia which it incorporates).
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assets available to satisfy the judgment (cf. 28 U.S.C. § 3204
(remedy of an installment payment order)), contempt may be an
appropriate means of enforcing the judgment. 	See Freeman v.
Heiman, 426 F.2d 1050 (10th Cir. 1970)(order to pay judgment in
installments, based on hearing on assets, was enforceable by
contempt); 	Atlas Corp. v. DeVilliers, 447 F.2d 799, 803 (10th
Cir. 1971). 	See also Adam, 100 P.3d at 87-89 (contempt is
utilized only when execution has proven to be an inadequate
remedy, and there is a demonstrated ability to comply). 2
Similarly, if the debtor avoids a writ of execution by misleading
the marshal and liquidating assets, thus engaging in a contempt
of the court’s writ, contempt sanctions may be available to
coerce payment of the judgment. 	Laborers' Pension Fund v. Dirty
Work Unlimited, Inc., 919 F.2d 491, 494 (7th Cir. 1990).
Finally, courts have used the contempt power to assure
compliance with a federal statute requiring payments to a class
of beneficiaries. 	See Combs, 785 F.2d at 980 n.4; Pierce v.
Vision Invs., Inc., 779 F.2d 302 (5th Cir. 1986) (prohibition of
28 U.S.C. § 2007(a) against imprisonment for debt in Texas did
not apply to judgment obtained by Secretary of Housing and Urban
Development requiring developer to escrow monies to pay to
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purchasers who had been harmed by violations of Interstate Land
Sales Full Disclosure Act). 	Similarly, this court has concluded
in other cases that orders directing disgorgement of fees by an
attorney or petition preparer are enforceable by contempt because
they constitute a restitutionary remedy intended to protect
debtors with respect to fees that conferred upon them no benefit.
The compensatory fine here was a damage award, not an order
partaking a restitutionary character.
The order here did direct that the $500.00 be paid.
However, that command did not specify that payment partook the
character of turnover or specify that failure to pay would be on
pain of contempt. 	The command should be viewed as merely setting
forth the debtor’s obligation to pay the award.
The $500.00 award was based on Fed. R. Civ. P. 37
(authorizing awards of fees in discovery matters). 	While Bonham,
896 A.2d at 196 n.7, left open the question whether monetary
sanctions imposed under the analogs of Fed. R. Civ. P. 11, Fed.
R. Bankr. P. 9011 and Fed. R. Civ. P. 37 ought to be treated
differently than other monetary awards, the court can discern no
rational basis, in the circumstances of this proceeding, for
according the award here different treatment than other monetary
awards. 	Once a compensatory award is made under one of those
rules, it fixes the damages and leaves collection of the award a
separate matter. 	I need not decide whether a court can treat
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3 	A failure to comply with a discovery order can lead to a
judgment by default. 	Fed. R. Civ. P. 37(b)(2)(C). 	That remedy
arguably ought not be employed if a defendant is not able to pay
the award, and has not deliberately attempted to run up the other
side’s attorney’s fees. 	By contrast, if a defendant’s persistent
failure to comply with discovery obligations is subjecting the
plaintiff to the expense of attorney’s fees as an apparent means
of discouraging the plaintiff from pursuing its claims, it would
arguably be appropriate for the court to take such circumstances
into account when deciding whether to award a judgment by
default.
4 	The court does not address whether fees incurred in
collecting a compensatory contempt award can be treated as
damages traceable to the contempt (recoverable as a compensatory
contempt sanction) and hence an exception to that rule. 	The
court did not premise its $500 award based on contempt but
instead based it on a failure to comply with discovery
obligations.
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payment of such an award as a condition to a defendant's
continued defense against a plaintiff's claims: 3 the claims
against the debtor as the defendant in this adversary proceeding
have already been dismissed as a matter of law.
Because coercive contempt sanctions may not be employed to
collect a monetary judgment, it follows that compensatory
contempt sanctions are equally unavailable. 	Ordinarily, the so-
called American rule is that attorney’s fees are not recoverable
in litigation or in the collection of a judgment. 4 	To the extent
that Rockstone seeks to recover damages for the delay in payment,
Rockstone is entitled to such relief as explained below.
B.
Because Rockstone must treat the $500.00 award as a monetary
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judgment, Rockstone is entitled to recover interest on the
judgment. 	The $500.00 judgment was not made a final judgment,
and thus there has been delay in payment from the date of entry
of the award (as a non-final judgment) to the date of entry of a
final judgment that can be collected via execution. 	Pre-judgment
interest will be awarded from March 9, 2007, at the monthly prime
rate for March 2007 of 6.25% per annum to the date of entry of
the final judgment on today’s date. 	Accordingly, pre-judgment
interest of $14.38 will be awarded, for a final judgment amount
of $514.38. 	The final judgment of $514.38 will bear interest
after entry of the judgment as provided by 28 U.S.C. § 1961.
A final judgment follows respecting the discharged
prepetition claims against Sylvia M. Smith, and the award of
sanctions. 	Pursuant to Fed. R. Civ. P. 54(b), the court
expressly determines that there is no just reason for delay and
expressly directs the entry of that judgment as a final judgment.
The defendant will be entitled to file a bill of costs for what
should be the relatively small amount of taxable costs she
incurred in successfully defending the prepetition claims
asserted against her in this proceeding. 	Any award of costs can
be set off against the portion of the judgment awarding $500.00
plus interest to Rockstone.
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II
The only remaining claims relate to the alleged fraudulent
conveyance to Andre Smith. 	The court declined to hear those
claims because the court believed that while the bankruptcy case
was pending, only the bankruptcy trustee should be allowed to
pursue the claims. 	However, the trustee has filed a so-called
no-asset report stating that there are no assets to administer
for the benefit of creditors. 	The court apprised him of the
fraudulent conveyance claims, but he has not sought to withdraw
his no-asset report or to intervene in this proceeding. 	The
court infers that he has no intention of pursuing such claims.
Accordingly, the bankruptcy case is ready to be closed except for
disposing of this adversary proceeding.
Accordingly, I will remand this proceeding to the Superior
Court where Rockstone commenced its pursuit of the claims
regarding the alleged fraudulent conveyance. 	I will also enter
an order in the bankruptcy case lifting the automatic stay so
that pursuit of the claims regarding the alleged fraudulent
conveyance to Andre Smith may be pursued, and directing the clerk
to proceed to close the bankruptcy case in due course.
Clearly, Andre Smith will be a proper party to such
litigation in the Superior Court, but what about the other
parties? 	It appears that Walker-Thomas Funiture Company, Inc.
and William Smith are only nominally parties but that no relief
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5 	The Second Amended Complaint seeks relief with respect to
a conveyance of real property from the debtor, Sylvia M. Smith,
to Andre Smith that was allegedly in fraud of Rockstone’s rights
(or the rights of Rockstone’s predecessor-in-interest) as a
creditor with respect to a debt owed by the debtor. 	The debt
that the debtor owed was on a guarantee of an obligation owed by
Walker-Thomas Furniture Company, Inc., a debt guaranteed by
William Smith as a co-guarantor with the debtor, Sylvia M. Smith.
6 	Rockstone alleges that the debtor conveyed the subject
real property to Andre Smith in a fraudulent conveyance and that
Andre Smith, in turn, conveyed the real property to the defendant
Mohamed O. Afrah, taking a deed of trust to secure Afrah’s
obligation to pay the unpaid part of the purchase price.
However, Rockstone conceded in its motion for leave to file a
second amended complaint that it can not avoid the transfer of
the property to Afrah (who was a bona fide purchaser in good
faith), and in its pretrial statement filed February 21, 2006,
Rockstone conceded that Afrah had fully paid the deed of trust
obligation. 	Even if the conveyance to Smith is set aside, there
is no longer a deed of trust obligation against Afrah that
Rockstone could recover incident to avoiding the initial transfer
from the debtor to Andre Smith. 	There is thus no reason to keep
Afrah as a defendant in this proceeding. 	Presumably Rockstone
will move to dismiss Afrah as a defendant once the fraudulent
conveyance litigation resumes in the Superior Court.
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is sought against them regarding the fraudulent conveyance. 5
Similarly, it appears that no relief is sought against Mohamed O.
Afrah. 6 	Presumably Rockstone will file a motion to dismiss
Walker-Thomas Furniture Company, Inc., William Smith, and Mohamed
O. Afrah as parties once the litigation resumes in the Superior
Court.
Whether the debtor, Sylvia Smith, should remain a party is a
slightly different story. 	Rockstone sought to recover from her
to the extent she enjoyed the fruits of the alleged fraudulent
conveyance. 	In prior rulings, this court has held that Sylvia
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Smith has been discharged of any debt based on conduct arising
before the commencement of this bankruptcy case on October 21,
2004, including based on having made the alleged fraudulent
conveyance. 	However, she remains liable for any claim based on
acts occurring postpetition. 	If the Superior Court sets aside
the transfer to Andre Smith, then Rockstone will attempt to show
that it is entitled to enforce its judgment against Smith or
against any traceable proceeds of the transfer. 	If some of those
proceeds were transferred to Sylvia Smith postpetition (that is,
after she filed her bankruptcy petition on October 21, 2004), her
liability for receiving those proceeds postpetition (assuming
that such a liability would exist under nonbankruptcy law) would
be unaffected by her bankruptcy discharge.
True, her discharge bars any claim against her based solely
on having made the alleged prepetition fraudulent conveyance, but
with respect to postpetition receipt of proceeds of an avoided
fraudulent conveyance to Andre Smith, her discharge is of no help
even though the basis for avoiding the transfer to Andre Smith
was her prepetition conduct. 	Her discharge only applies to
prepetition claims, and a claim (if one exists under
nonbankruptcy law) based on receiving proceeds postpetition of
the fruits of any avoided fraudulent conveyance to Andre Smith
would not be barred by her discharge. 	Rockstone, however, will
need to address in the resumed fraudulent conveyance litigation
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12	O:\Judge Temp Docs\Rockstone Capital vs Walker-Thomas Furniture(In re Smith) Decsn re Contempt & Concluding AP.wpd
whether it has any basis for asserting that Sylvia Smith has any
liability based on postpetition conduct. 	Rockstone must show
both postpetition events and a liability based on such
postpetition events: if no such postpetition events exist or no
liability exists based on postpetition events (such as receiving
proceeds postpetition), then Rockstone cannot sue Sylvia Smith
based on her discharged prepetition obligations, and it should
dismiss her as a party.
III
A judgment and an order follow in accordance with this
decision.
[Signed and dated above.]
Copies to: All counsel and parties of record; the Office of the
U.S. Trustee; and:
Wendell W. Webster
Chapter 7 Trustee
Webster, Fredrickson & Brackshaw
1775 K Street, NW
Suite 600
Washington, DC 20006
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