In re: Jacqueline M. Sterling, Debtor-Appellant.
April 15, 2019
from the United States District Court for the Northern
District of Indiana, Hammond Division. No. 2:16-cv-00384 -
Joseph S. Van Bokkelen, Judge.
Wood, Chief Judge, and Bauer and St. Eve, Circuit Judges.
Eve, Circuit Judge.
prisons are viewed as relics of the past, long out of use and
out of favor. Yet here we face a case of a jailed debtor that
calls to mind the days when people were imprisoned for
failing to pay their debts.
Sterling owed outstanding fees to Southlake Nautilus Health
& Racquet Club, Inc., and Southlake had its counsel,
Austgen, Kuiper & Associates, P.C. ("Austgen"),
institute a state-court collection action in Lake County,
Indiana. A federal bankruptcy court later discharged
Sterling's debt to Southlake. Although Sterling notified
Southlake of the discharge, it appears that no one notified
Austgen or the state court in which the collection action was
pending. Sterling failed to appear in the state-court
proceedings, and the court issued a warrant for her arrest. A
year later, Sterling was arrested and jailed. She was
ultimately released, and Southlake and Austgen dropped
pursuit of the debt.
instituted adversary proceedings in bankruptcy court against
Southlake, Austgen, and David Austgen (the head of the
Austgen firm). She sought to have the defendants held in
contempt for continuing to collect a debt that the bankruptcy
court had ordered discharged. Both the bankruptcy court and
the district court ruled against Sterling. She now appeals to
us, and we affirm in part and reverse in part. We conclude
that Austgen's lack of knowledge of the discharge order
prevents it from being held in contempt. But as to Southlake,
we conclude that it must be held liable for the actions taken
by counsel on its behalf.
involving a small sum, the procedural history of this case
spans nearly two decades. In July 2001, Austgen filed a claim
in Lake County Superior Court on behalf of its client,
Southlake, alleging that Sterling owed Southlake
approximately $520 in unpaid membership fees. In February
2002, the Lake County court entered a default judgment
against Sterling and in favor of Southlake.
several years after, Austgen filed "proceedings
supplemental" to collect on the judgment, and Sterling
repeatedly failed to show up for hearings set by the Lake
County court. Austgen sought multiple orders to show cause
demanding that Sterling explain why she was not complying
with the state court's orders. Ultimately, in April 2010,
the Lake County court issued a "body attachment"
(i.e., a bench warrant) for Sterling.
a year later, in March 2011, as Sterling was driving, her car
got a flat tire. A police officer stopped to assist her, and
to both of their surprise, he discovered the outstanding
warrant. The officer arrested Sterling, and she spent
approximately two days in jail.
problem here was that Sterling had filed for bankruptcy in
the United States Bankruptcy Court for the Northern District
of Indiana in 2009. Sterling listed Southlake as a creditor,
and the bankruptcy court discharged her debt to Southlake in
January 2010. The discharge order effectively enjoined
Austgen from pursuing Sterling's outstanding debt to
Southlake. See 11 U.S.C. § 524(a). Austgen,
therefore, should not have continued to prosecute the case in
Lake County court, and by extension, Sterling should not have
been arrested and jailed.
of communication caused this misunderstanding. Southlake was
a listed creditor in Sterling's bankruptcy proceedings
and, as a result, it was sent notice of the discharge. Yet
Southlake failed to notify Austgen of the discharge.
Sterling, for her part, failed to notify either the Lake
County court or Austgen that the debt at issue had been
discharged, despite a local bankruptcy rule requiring her to
do so. See N.D. Ind. L.B.R. B-4002-l(a).
an unsuccessful state-court lawsuit regarding her arrest,
Sterling filed a complaint in the bankruptcy court against
Southlake, Austgen, and David Austgen. She alleged that the
defendants violated 11 U.S.C. § 524 by seeking to
collect on a discharged debt, and she petitioned for the
defendants to be held in civil contempt for violating the
court's discharge order. In November 2014, the bankruptcy
court held a two-day bench trial. At the close of
Sterling's case, the defendants moved for judgment on
partial findings. Fed.R.Civ.P. 52(c); Fed.R.Bankr.P. 7052.
The bankruptcy court granted the motion as to David Austgen
and dismissed him from the case. That ruling is not at issue
here. But the court deferred ruling on Southlake's and