Smith v. Oak Grove Utility Company, LLC

IN THE UNITED STATES BANKRUPTCY COURT
DISTRICT OF MARYLAND
at GREENBELT
In Re: 	*
Myisha O. Smith 	* 	Case No. 	07-14381-TJC
* 	Chapter 	13
Debtor 	*
************************************* 	*
Myisha O. Smith 	*
*
* 	Adversary
C	Plaintiff 	* 	Case No. 	08-00137-TJC
vs. 	*
Oak Grove Utility Company, LLC 	*
*
*
Defendant 	*
MEMORANDUM OF DECISION
Before the Court is the motion for sanctions (the “Motion”), Docket No. 39, filed by
defendant Oak Grove Utility Company, LLC (the “Defendant”). The Motion is opposed by
plaintiff Myisha O. Smith (the “Plaintiff”). The Plaintiff’s complaint against the Defendant in
the adversary proceeding has been dismissed and the Motion is the last remaining matter to be
Date signed January 15, 2009
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resolved. For the reasons set forth herein, the Court will award sanctions in favor of the
Defendant in the amount of $800.
I. 	STATEMENT OF FACTS
A. Facts Pertinent to the Complaint
The Plaintiff filed a Chapter 13 petition for relief on May 14, 2007 (case no. 07-14381).
The Plaintiff filed a motion to dismiss the case on September 6, 2007, and the case was
dismissed by an order entered on September 7, 2007. Docket Nos. 24, 25. The Plaintiff then
filed a motion to reinstate the bankruptcy case, which the Court granted by an order entered on
December 10, 2007. Docket No. 28. The order reinstating the case also reimposed the automatic
stay. Id. Plaintiff’s motion to reinstate the case did not request that the automatic stay be
imposed retroactively, and the order reinstating the case did not do so.
At all times pertinent to this adversary proceeding, the Plaintiff was the record owner of
improved real estate located at 911 Andean Goose Way, Upper Marlboro, MD (the “Property”).
Further, at all pertinent times, the Property was subject to a Declaration of Deferred Water and
Sewer Charges (the “Declaration”) made on December 4, 2000 for the benefit of the Defendant.
The Declaration acknowledged that the Defendant was to construct water and sewer
systems to serve certain real property within which the Property is located. The Declaration
established a procedure by which the record owners of any lots within the real estate area would
pay the construction and installation costs of the water and sewer systems to be provided by the
Defendant.
Specifically, the Declaration provides at paragraph 2:
2. 	Establishment of Lien and Personal Obligation. Each Owner of any Lot,
other than the Declarant or any Builder, by acceptance of a deed therefor,
whether or not it shall be so expressed in such deed, (a) covenants and
agrees to pay to the [Defendant] all Water and Sewer Charges assessed
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against that Lot hereby which are due and unpaid as of the date such Owner
accepts title to such Lot, (b) covenants and agrees to pay to the [Defendant]
all future Water and Sewer Charges assessed against that Lot hereby for as
long as such Owner shall be a record owner of a fee simple interest in such
Lot, (c) grants to the [Defendant] a lien to secure payment of the aforesaid
Water and Sewer Charges upon the Lot against which the aforesaid Water
and Sewer Charges are assessed, and (d) grants to the [Defendat] a power of
sale, and assents to the entry of a decree and order for the sale of that Lot
upon a default by the Owner under this Declaration. Each such Water and
Sewer Charge shall also be the personal obligation of the Owner of the Lot
as of the time when the Water and Sewer Charge is assessed. In the event
that any Owner shall fail to pay the Water and Sewer Charges applicable to
that Owner’s Lot in accordance with this Declaration, the [Defendant] shall
be entitled to all legal and/or equitable relief as may be available under
applicable law, including, without limitation, the right (i) to accelerate and
declare to be immediately due and payable the full amount of all future
installments of the Water and Sewer Charges assessed against that Owner’s
Lot hereby (discounted to present value in accordance with Paragraph 7
hereof), (ii) to bring an action at law against any Owner personally obligated
to pay the Water and Sewer Charges, (iii) to foreclose on the lien against the
Lot or Lots then belonging to said Owner in the manner now or hereafter
provided for the foreclosure of mortgages, deeds of trust or other liens on
real property in the State of Maryland pursuant to the power of sale or assent
to a decree set forth herein, or otherwise, (iv) to foreclose on the lien against
the Lot or Lots then belonging to said Owner in the manner now or hereafter
provided for pursuant to the Maryland Contract Lien Act, and/or (v) to
institute such other legal and/or equitable proceedings as may otherwise
from time to time be provided by applicable law.
Declaration at p. 2-3 (emphasis added). There is no dispute that the Plaintiff is an “Owner” as
that term is used in the Declaration. The Plaintiff states that her obligation under the Declaration
was to make 22 annual payments of $825 due on January 1 of each year. The Plaintiff admits
that she failed to make any such payments under the Declaration since November 2005.
The Plaintiff alleges, and the Claims Register establishes, that on July 3, 2007, the
Defendant filed a proof of claim in the bankruptcy case in the amount of $17,315. The Plaintiff
further alleges that the proof of claim included accelerated amounts due under the remaining
15½ years of the term of the Declaration. The Plaintiff also alleges that on November 8, 2007,
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the Defendant recorded a statement of lien against the Property for 2007 assessments due under
the Declaration.
The Defendant does not dispute the foregoing but contends (1) it was entitled to file a
proof of claim for the accelerated amount; and (2) when it recorded the lien in November 2007,
the bankruptcy case had been dismissed and not reinstated, and therefore the automatic stay did
not apply.
The Plaintiff filed this adversary proceeding against the Defendant on February 21, 2008.
In count one, the Plaintiff alleged that the Defendant’s acceleration of the Plaintiff’s post-petition
obligations for the remaining term of the Declaration constitutes a “gross violation” of the
automatic stay of §362(a) of the Bankruptcy Code. Complaint, ¶22. In count two, the Plaintiff
alleged that the Defendant’s proof of claim is “false, fraudulent and . . . not a valid debt” of the
Plaintiff because it includes the accelerated amounts. Id. at ¶23. Plaintiff contends she is
entitled to damages under §105 and §501 of the Bankruptcy Code.
B. Facts Pertinent to the Sanctions Motion
The Defendant filed a motion to compel discovery and for discovery sanctions on May 1,
2008. Defendant contended that it served discovery on the Plaintiff on March 18, 2008, and
Plaintiff failed to respond. 	Plaintiff opposed the motion, contending that (1) she never received
the discovery requests and (2) in any event, she had no obligation to respond because the parties
had not engaged in a discovery conference under Fed. R. Civ. P. 26(f), made applicable to this
adversary proceeding by Fed. R. Bankr. P. 7026. Defendant responded by stating (1) it not only
served the discovery on the Plaintiff by mail, it also filed the discovery with the Court1 , so that
the Plaintiff’s counsel would have received the discovery both by mail and by electronic service
through the ECF system; and (2) the Defendant’s counsel’s calls to Plaintiff’s counsel to discuss
1 See Docket Nos. 6, 7.
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discovery were referred to a legal assistant and others in counsel’s office, with whom the
Defendant’s counsel negotiated a scheduling order.
The Court held a hearing on May 28, 2008. The Court did not accept Plaintiff’s claim
that she had not received the discovery, since plainly Plaintiff’s counsel received the requests
through ECF. Further, the Court was skeptical of the Plaintiff’s argument that it was not
required to respond to discovery because no discovery conference had been held considering (1)
the Plaintiff, through Plaintiff’s counsel’s legal assistant, had agreed to a Scheduling Order with
a ninety day discovery period, which period was close to half over and the Plaintiff was still
refusing to respond to discovery; and (2) the Defendant’s allegation that when he called
Plaintiff’s counsel, he was referred to the legal assistant and was thus unable to hold a scheduling
conference with counsel. Nevertheless, it was true that the Defendant served the discovery
before the parties had engaged in a discovery conference, and so the Court did not award any
sanctions but ordered the Plaintiff to respond to the discovery by June 11, 2008. The order
provided that the Court would entertain a motion for sanctions if the Plaintiff failed to properly
respond to the discovery.
Plaintiff served her interrogatory answers on the Defendant on June 11, 2008. On June
12, 2008, the Defendant’s counsel wrote to Plaintiff’s counsel identifying a number of
deficiencies in the interrogatory responses and specifically stated that the letter was sent “in
accordance with the Federal Rules of Evidence prior to filing a motion to compel or for
Sanctions, including attorney’s fees.” Docket No. 40-2. Defendant’s counsel sent at least one
follow-up letter as well. Plaintiff sent a letter to Defendant on July 9, 2008 stating that Plaintiff
was “not seeking any damages or injuries of any nature in regards to the filing of [Defendant’s]
proof of claim.” Docket No. 39-6. Defendant then renewed the motion for sanctions, arguing
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that the Plaintiff’s responses served on June 11, 2008, in accordance with the Court’s order, were
deficient.
The Court finds that the Plaintiff’s interrogatory answers were deficient in at
least the following respects:
Interrogatory 1: This interrogatory asked to state in detail any action that violated the
automatic stay, including the date of the activity and manner of violation, and the period during
which the stay was in force at the time of the alleged violation.
Plaintiff’s response:
Defendant recorded a lien after Plaintiff filed Chapter 13 and, upon
learning that Plaintiff’s bankruptcy was reinstated, failed to release the
lien. The lien continues to be of record today. This constitutes the
continuation to attempt to collect a debt. Prior liens still on record today
on their face contain errors and do not correspond with the actual
ownership and possession.
Deficiency: Among other deficiencies, this response fails to provide any basis
for asserting a violation of the automatic stay based on recording a lien after the case
was dismissed, or any basis for the claim that the Defendant had any duty to release the
lien after the case was reinstated.
Interrogatory 9: This interrogatory asked the Plaintiff to state in detail her
damages and to attach any evidence of damages the Plaintiff intends to introduce at
trial.
Plaintiff’s Response: “Objection. We understand our obligations and will
furnish the information.”
Deficiency: The Plaintiff had no valid basis to object to this request and did not
furnish the information.
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Interrogatory 18: This interrogatory asked to state in detail all facts upon which
the Plaintiff relied in alleging that Defendant had actual knowledge of the bankruptcy
case.
Plaintiff’s Response: “This question was asked and answered in interrogatory
no. 15 above.”
Deficiency: Interrogatory 15 asked for the basis for the allegation that
Defendant was not entitled to accelerate the obligation under the Declaration, and had
nothing to do with Defendant’s knowledge of the bankruptcy case.
Interrogatory 22: This interrogatory asked to state in detail the factual basis for
the allegation in ¶22 of the Complaint that the Defendant’s acceleration of the
obligation constitutes a violation of the automatic stay.
Plaintiff’s Response: “Objection asked and answered in question 1 above.”
Deficiency: Neither Interrogatory 1 nor the Plaintiff’s response thereto had
anything to do with acceleration under the Declaration.
Interrogatory 23: This interrogatory asked to state in detail the factual basis for
the allegation in ¶25 of the Complaint that the Defendant’s proof of claim was “false,
fraudulent and . . . not a valid debt” of the Plaintiff’s.
Plaintiff’s Response: “Objection asked and answered in question 1 above.”
Deficiency: Plaintiff’s response to Interrogatory 1 purported to state Plaintiff’s
basis for her allegation that Defendant violated the automatic stay. It said nothing
about why the proof of claim was allegedly “false and fraudulent.”
Interrogatory 27: This interrogatory asked the Plaintiff to indentify the
compensatory damages which she sought and the facts that support the claim.
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Plaintiff’s Response: “We are in the process of accumulating our damages for
mileage and other documentation and will supplement this answer.”
Deficiency: This response is incomplete at best and nonresponsive to the
question asked at worst.
II. CONCLUSIONS OF LAW
A. The Complaint Lacked Merit
The complaint has been dismissed on the Plaintiff’s motion. Nevertheless, the Court has
reviewed the allegations in the complaint and the parties’ admissions and affidavits in this case.
The complaint lacked merit, failed to state a claim, and appears to have been filed solely for
potential nuisance value.
With respect to count one—violation of the automatic stay of §362(a)—the complaint
failed to allege a single operative fact from which the Court could find that the Defendant
violated the automatic stay. The complaint alleged only that the Defendant accelerated the
amount due under the Declaration when it filed the proof of claim.2 But it is well established
that the filing of a proof of claim cannot serve as the basis for asserting a violation of the
automatic stay. See, e.g., Campbell v. Countrywide Home Loans, Inc., 2008 U.S. App. LEXIS
21405 (5th Cir. Oct. 13, 2008).
With respect to the second count, it failed to state a claim for relief. Plaintiff contends
that pursuant to §§105 and 501 of the Bankruptcy Code she is entitled to damages because the
Defendant filed a “false and fraudulent” proof of claim. Nothing in those statutory provisions
supports such a claim. The proper procedure for a debtor to follow upon the filing of a proof of
2 The allegations of the complaint state that “[o]n November 8, 2007, post petition, Defendant recorded a statement
of lien against Plaintiff’s real property . . . in violation of the automatic stay.” Complaint,¶13. As set forth in the
Statement of Facts, above, however, the Plaintiff’s bankruptcy case was dismissed between September 6, 2007 and
December 10, 2007. Therefore, any action taken by Defendant on November 8, 2007 could not have violated the
automatic stay.
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claim that the debtor believes to be “false and fraudulent” is to send the 21-day notice under Fed.
R. Bankr. P. 9011(c)(1)(A), and then seek sanctions if it is not withdrawn. Alternatively, a
debtor could seek disallowance of the claim by following the claims objection procedure
outlined in Local Rule 3007-1 and the Federal Rules of Bankruptcy Procedure. These procedural
devices are more than sufficient to protect debtors from the filing of allegedly “false and
fraudulent” proofs of claim and obviate the need to file a separate adversary proceeding.
Assuming, however, that count two did state a claim for relief, no reasonable fact finder
could find that the Defendant’s proof of claim is “false and fraudulent.” See, e.g., Mercantile
Peninsula Bank v. French (In re French), 499 F.3d 345, 352 (4th Cir. 2007)(when considering a
motion for summary judgment, a Court “must consider whether a reasonable jury could find in
favor of the nonmoving party, taking all inferences to be drawn from the underlying facts in the
light most favorable to the nonmovant.”) The Plaintiff admits that at the time the Defendant
filed the proof of claim, she was two years in arrears under the Declaration. The Declaration
expressly provides that “[i]n the event that any Owner shall fail to pay the Water and Sewer
Charges applicable to that Owner’s Lot in accordance with this Declaration,” the Defendant shall
be entitled to, among other rights, the right to “accelerate and declare to be immediately due and
payable the full amount of all future installments of the Water and Sewer Charges assessed
against that Owner’s Lot hereby . . . .” Declaration at p. 3. The Defendant filed a proof of claim
for the accelerated amounts in accordance with the Declaration. Whether or not the Plaintiff had
any valid defenses to the proof of claim, under no circumstances can it be said to be “false and
fraudulent.”
B. The Sanctions Motion
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Fed. R. Civ. P. 37(a)(5)(A), made applicable to this case by Fed. R. Bankr. P. 7037,
provides that if a motion for order compelling discovery is granted—or if the disclosure is made
after the motion is filed
the court must, after giving an opportunity to be heard, require the party . . .
whose conduct necessitated the motion, the party or attorney advising that
conduct, or both to pay the movant’s reasonable expenses incurred in
making the motion, including attorney’s fees. 	But the Court must not order
this payment if: (i) the movant filed the motion before attempting in good
faith to obtain the disclosure or discovery without court action.
Fed. R. Civ. P. 37(a)(5)(A). In this case, the June 12 letter establishes that the Defendant made a
good faith effort to obtain proper responses to the interrogatories. Defendant sent it before it
filed the Motion. The June 12 letter meets the requirements of Rule 37(a)(5)(A)(i).
The Court finds that the Defendant incurred fees and costs in sending the letters seeking
the Plaintiff to cure the deficient interrogatory responses served on June 11. The Defendant also
incurred fees and costs in filing the Motion. The Court finds and concludes that a sanction of
$800 is warranted to compensate the Defendant for its efforts in pursuing the Plaintiff’s deficient
discovery responses.
Finally, the Court notes that it is awarding sanction pursuant to Rule 37 of the Federal
Rules of Civil Procedure and not Rule 11, made applicable to this case by Fed. R. Bankr. P.
9011. Nevertheless, the Court has considered the Plaintiff’s actions in the context of the overall
case proceeding. As stated above, the complaint lacked any merit. Further, as stated above, the
Plaintiff failed to set forth in any interrogatory response any damages whatsoever that resulted
from Defendant’s filing of the proof of claim, and ultimately admitted in the July 9, 2008 letter
that she would not be seeking any damages “of any nature” as a result of the proof of claim.
Thus, not only did the complaint lack merit, but the Plaintiff could articulate no damages as a
result of the Defendant’s action. Stated otherwise, this adversary proceeding has been nothing
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short of a complete waste of time and effort. The Defendant at the least should be compensated
for those items for which compensation is available under Fed. R. Civ. P. 37.
III. CONCLUSION
For the foregoing reasons the Court will grant the Motion and award sanctions against the
Plaintiff and/or her counsel in the amount of $800.
cc: 	Plaintiff
Myisha O. Smith
911 Andean Goose Way
Upper Marlboro, MD 20774-7127
Plaintiff’s counsel
Andrew Wilson
275 West Street
Suite 216
Annapolis, MD 21401
Defendant
Oak Grove Utility Company, LLC
2200 Defense Highway, No. 101
Crofton, MD 21114
Defendant’s counsel
Henri DeLozier, Jr.
4000 Michellville Road
Suite 416
Bowie, MD 20716
END OF MEMORANDUM
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