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Jeffrey A. Johnson, Jane E. Johnson v. Rjm Acquisitions

March 19, 2012


The opinion of the court was delivered by: Stiehl, District Judge:


Before the Court is appellants' brief (Doc. 5), to which appellee filed a response (Doc. 13), and appellants a reply (Doc. 14). Appellants request that this Court reverse the bankruptcy court's order dated June 7, 2011, which awarded only partial damages to appellants as a result of their request for sanctions against appellee RJM Acquisitions, LLC ("RJM") based on RJM's violation of the automatic stay. Alternatively, appellants ask this Court to remand this issue for further findings as to the amount of damages incurred by the appellants in this case. RJM, in its response, asks the Court to find the bankruptcy court's order void because RJM was not properly served with notice of appellants' motion for sanctions or notice of the hearing in violation of its due process rights, and because appellants lack standing to assert this claim. Alternatively, RJM asks the Court to find that RJM did not willfully violate the stay and that no damages should have been entered, or to deny appellants' request to increase or otherwise alter the bankruptcy court's damages award.


On January 6, 2011, appellants filed a petition seeking relief pursuant to Chapter 7 of the Bankruptcy Code. Appellants assert that RJM received notice of the filing via automatic email notification, and that RJM also received notice of appellants' bankruptcy filing as a result of being listed on the credit matrix. RJM denies receiving any notice of the bankruptcy filing. On February 2, 2011, RJM sent appellants a letter offering four "opportunities," or options for repayment, including three settlement options and one option to make monthly payments until the account was paid in full. Appellants make no indication that they paid any amount to RJM as a result of receiving this letter.

Based upon appellants receipt of this single communication from RJM, appellants filed a motion pursuant to 11 U.S.C. § 362(a) seeking sanctions including attorney's fees, compensatory damages, and punitive damages for RJM's alleged willful violation of the automatic stay. RJM denies receiving service of this motion and denies receiving the bankruptcy court's notification of the hearing.

The bankruptcy court held a hearing on May 24, 2011, but no evidence was taken, and instead, the facts were presented by offer of proof. RJM claims it did not attend the hearing because it was unaware that it was taking place. At the hearing, appellants' attorney stated the following:

(1) his clients were under stress as a result of their financial condition; (2) that one of his clients recently started taking medication to control hypertension; (3) the letter demanding payment was sent a month after the bankruptcy petition had been filed, and the letter aggravated the clients' stress level; (4) RJM is a frequent participant in the bankruptcy court; and (5) his clients should be awarded fees including the fee affidavit presented amounting to $540, plus time for his attendance at the hearing, lost wages for the time his clients spent at the hearing, and emotional distress damages. The appellants' attorney also expressed frustration at routinely having to send out cease and desist letters to creditors who have notice of bankruptcy filings but attempt to collect anyway, and his belief that the creditor should be held responsible for ensuring the automatic stay is not violated, instead of the responsibility and costs falling onto the debtors.

The bankruptcy court awarded damages in the amount of $540.00 for attorney's fees incurred as a result of RJM's violation of the stay. The court did not award damages for counsel's or the appellants' attendance at the hearing, for appellants' lost wages for time spent at the hearing, or for emotional distress damages related to appellants' health. At the hearing, the bankruptcy court reasoned that "sometimes creditors will send out notices that technically violate the stay," but that in our increasingly electronic world, mistakes can happen. The court stated that if such a mistake occurs only once, the amount awarded is sufficient, but it would reconsider its decision if the same creditor continued to violate the stay.

Appellants frame the issues before the Court as follows: (1) did the bankruptcy court apply the correct legal standard in awarding damages for violation of the automatic stay; (2) was the bankruptcy court's determination regarding the amount of damages clearly erroneous; and (3) did the bankruptcy court commit clear error by failing to hear evidence of the debtors' emotional distress resulting from violation of the automatic stay?

RJM, frames the issues on appeal differently: (1) did the bankruptcy court have the authority to issue sanctions against RJM; and (2) if so, did the bankruptcy court abuse its discretion in awarding sanctions of $540?


I. Jurisdiction Over the Appeal

Under 28 U.S.C. § 158(a)(1), district courts have jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy courts. "In the bankruptcy context, however, finality does not require a final order concluding the entire bankruptcy proceeding; certain orders entered prior to the conclusion of the bankruptcy proceeding will be deemed final." In re Rimsat, Ltd., 212 F.3d 1039, 1044 (7th Cir. 2000). Specifically, if the bankruptcy order "terminates a discrete dispute that, but for the bankruptcy, would be a stand-alone suit . . . the order will be considered final and appealable." Id. "Generally, orders finding violations of the automatic stay and imposing sanctions are final appealable orders." In re Heghmann, 316 B.R. 395, 400 (B.A.P. 1st Cir. 2004); see also Matter of Wade, 991 F.2d 402, 406 (7th Cir. 1993).

The Court is satisfied that the bankruptcy order awarding appellants' damages as a result of RJM's violation of the stay finally resolves a discrete issue, and therefore, this Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a)(1).

II. Consideration of Particular Issues

The Court must consider another preliminary issue before considering the merits of the appeal. Namely, RJM raises issues in its response that it wishes the Court to consider, but were not raised in a notice of appeal*fn1 or cross appeal, (let alone a statement of issues on appeal and designation of the items to be included in the record on appeal),*fn2 nor were they raised before the bankruptcy court.

"Failure to timely file a notice . . . divests the district court of jurisdiction over the appeal and mandates dismissal of the appeal." Martin v. Bay State Mill. Co., 151 B.R. 154, 155 (N.D. Ill. 1993). Where, as here, appellants filed a timely notice of appeal and appellee did not, but appellee raises separate issues, the court may consider issues that are "inferable" from the issues listed on appellants' notice, and those issues are not necessarily deemed waived. In re Bracewell, 322 B.R. 698, 701 (M.D. Ga. 2005). In other words, "as long as an issue is inferable, then Rule 8006 is not intended to bind either party to the appeal as to the issues that are to be presented." Id. at 701-02 (internal quotation omitted).*fn3 Similarly, issues that were not properly raised in the court below cannot be raised for the first time on appeal, and are deemed waived. See Broaddus v. Shields, 665 F.3d 846, 853 (7th Cir. 2011), citing LaBella Winnetka, Inc. v. Vill. of Winnetka, 628 F.3d 937, 943 (7th Cir. 2010), Econ. Folding Box Corp. v. Anchor Frozen Foods Corp., 515 F.3d 718, 720 (7th Cir. 2008). Accordingly, the only issues properly before this Court are those raised in appellants' notice of appeal, any additional issues that may be inferred therefrom, and any issues which are not subject to waiver in accordance with the aforementioned rules.

In its response brief, RJM raises issues concerning (1) whether appellants had standing to assert a motion for sanctions; (2) the bankruptcy court's authority to issue sanctions in that RJM alleges that the appellants failed to properly serve their motion for sanctions on RJM by failing to name an agent and sending the notice to the wrong address, violating RJM's due process rights; and (3) whether appellants' claim for damages is barred by res judicata because the appellants waited until after the Court issued a no asset discharge order before they sought actual damages for violation of the stay.*fn4


Appellee claims that appellants lacked standing to file a motion for sanctions. While certain issues cannot be raised for the first time on appeal, "[s]tanding represents a jurisdictional requirement which remains open to review at all stages of the litigation." Nat'l Org. for Women, Inc. v. Sheidler, 510 U.S. 249, 255 (1994). "[I]t is well settled that standing is not subject to waiver or forfeiture." Freedom From Religion Found., Inc. v. Nicholson, 536 F.3d 730, 737 (7th Cir. 2008). Federal courts have a duty to examine their own jurisdiction, and any party seeking relief in the federal courts must have standing. Id. Accordingly, although this issue was not raised below, the issue of standing is a jurisdictional requirement not subject to waiver, and therefore appellee is not precluded from raising it now, and this Court must consider this issue before proceeding to the merits of the appeal. Specifically, appellee asserts that appellants lacked standing to assert an action for damages because they did not ...

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