United States District Court, C.D. Illinois, Springfield Division
from: Adversary No. 16-7040 Bankruptcy No. 14-71512 Honorable
Mary P. Gorman, presiding
MYERSCOUGH, U.S. DISTRICT JUDGE:
Kent Eugene Delay, appeals the award of compensatory and
punitive damages to Appellee Ryan Bandy. Because the
Bankruptcy Court did not abuse its discretion in awarding
compensatory and punitive damages to Bandy, the decision of
the Bankruptcy Court is AFFIRMED.
October 11, 2013, Bandy filed a lawsuit against Delay and
Randall Stieren in Sangamon County, Illinois. R.
Mr. Bandy’s lawsuit was based on a Purchase Agreement
through which Bandy purchased the interests that Delay and
Stieren held in RKR Clubs, LLC (RKR Clubs). See
Complaint (d/e 13-1), at 1. The Purchase Agreement provided
that Delay and Stieren retained an option to reacquire their
membership interests under certain conditions. See
id. at 1, 6.
and Stieren filed an answer to Bandy’s complaint and a
counterclaim against Bandy on November 7, 2013. Id.
On July 17, 2014, Delay and Stieren filed a motion for
summary judgment in the state court case. R. 14. Bandy
responded by filing a cross-motion for summary judgment on
December 19, 2014. R. 15. On March 23, 2015, the state court
judge granted Delay and Stieren’s motion for summary
judgment and denied Bandy’s cross-motion for summary
judgment. R. 16. Bandy appealed, but the Illinois Appellate
Court for the Fourth District affirmed the trial
court’s judgment and remanded the case for further
proceedings. See Order (d/e 13-30), at 12.
and Stieren subsequently filed a Motion to Compel Judgment on
August 19, 2016, asking the state trial court to compel the
transfer of the interests in RKR Clubs to which Delay and
Stieren were entitled pursuant to the repurchase option in
the Purchase Agreement. R. 21-22. Delay and Stieren also
sought authorization for a breach of contract claim against
Bandy and for an accounting by a third-party accountant to
determine damages. R. 22. Bandy filed an objection to the
motion. B.R. 68-75.
on August 20, 2014, months before the state court judge
granted Delay and Stieren’s motion for summary
judgment, Delay filed for bankruptcy. B.R. 1. In listing
creditors holding unsecured nonpriority claims, Delay
included Bandy. R. 47. However, Bandy’s mailing address
was listed as that of David Reid, Delay and Stieren’s
attorney in the state court case. Id.; R. 13. As a
result, Bandy did not learn that Delay had filed bankruptcy
until after the state court judge had granted summary
judgment in favor of Delay and Stieren. Transcript (d/e 4),
at 67. Delay received a discharge in bankruptcy in December
2014. B.R. 2.
August 4, 2016, after Bandy had learned of Delay’s
bankruptcy, Bandy’s attorney sent an e-mail to the
Trustee, Mariann Pogge (Trustee), offering $10, 000 for
Delay’s interest in RKR Clubs and Delay’s rights
as set forth in the state court counterclaim. See
Transcript (d/e 4), at 217-18; Complaint, R. 258, 268. The
trustee informed Reid of Bandy’s offer; Reid responded
by stating that the offer was too low and tendering a $15,
000 offer on behalf of Delay. See Transcript (d/e
4), at 218. On August 16, 2016, the Trustee filed a Motion to
Compromise. B.R. 60-62. In the motion, the Trustee seeks
authorization to compromise the bankruptcy estate’s
interest in Delay’s state court counterclaim and any
rights flowing to Delay pursuant to the counterclaim with
Delay for $15, 000. Id. at 60-61. The Bankruptcy
Court has not yet ruled on that motion.
September 13, 2016, Bandy initiated an adversary case by
filing a complaint against Delay. B.R. 7-10. On May 9, 2017,
Bandy filed a five-count Second Amended Complaint for
Sanctions for Violation of Automatic Stay. Sec. Am.
Complaint, R. 161-176. In Count I, Bandy sought sanctions
against Delay for Delay’s violation of the automatic
stay resulting from Delay’s filing of a bankruptcy
petition. Id. at 162-66. Count II sought a
declaratory judgment finding that the state court judgment
was void due to the judgment being obtained in violation of
the automatic stay. Id. at 166-67. Count III sought
a declaratory judgment that the Trustee’s Motion to
Compromise was also void and providing guidance to the
Trustee on how to sell Delay’s interest in RKR Clubs.
R. 167-68. Count IV sought sanctions against Reid for
Reid’s violations of the automatic stay and the
Illinois Rules of Professional Conduct. R. 169-74. Count V
sought punitive damages from Reid due to Reid’s willful
and deliberate violation of the automatic stay. R. 174-75.
5, 2017, the Trustee filed a Motion for Leave to Intervene as
to Count II of Second Amended Compliant. R. 187-91. On that
same date, the Trustee filed a Motion to Dismiss Count III of
Second Amended Complaint. R. 192-96. On June 27, 2017, the
Bankruptcy Court entered Orders granting the Trustee’s
motions. R. 205-06. Bandy’s remaining claims were tried
to the Bankruptcy Court on December 19 and December 20 of
Bankruptcy Court issued its Opinion on March 29, 2018.
Opinion, R. 245-304. For the reasons set forth in the
Opinion, the Bankruptcy Court entered judgment in favor of
Bandy and against Delay on Count I. Order, R. 306. On Count
II, the Bankruptcy Court entered judgment in favor of Bandy
and against Delay and the Trustee, but also entered judgment
in favor of Stieren and against Bandy. Id. On Counts
IV and V, the Bankruptcy Court entered judgment in favor of
Reid and against Bandy. Id. at 307.
Count I of Bandy’s Second Amended Complaint, the
Bankruptcy Court found that Delay had willfully violated the
automatic stay under both § 362(a)(1) and §
362(a)(3). Opinion, R. 287. The Bankruptcy Court determined
that Bandy’s compensatory damages should include
“an opportunity to purchase, for $15, 000, Mr.
Delay’s interest in RKR Clubs, rights under the
Purchase Agreement, and all claims that were raised or that
could have been raised in the counterclaim filed in state
court.” Id. at 291. Bandy’s option to
make this purchase was subject to several conditions, one of
which was that Bandy had to agree to subordinate his claim in
the bankruptcy case to all other timely filed claims.
Bankruptcy Court also determined that Bandy was entitled to
$5, 000 in attorney’s fees as compensatory damages.
Id. at 293. Although Bandy sought a substantial
amount of attorney’s fees paid to his attorney in the
state court case, the Bankruptcy Court decided that it could
not award Bandy damages for those fees, in part because Bandy
did not itemize the fees. Id. at 292-93. At trial,
Bandy testified that he had paid the attorney representing
him in the bankruptcy case approximately $27, 000. Transcript
(d/e 4), at 68-69. But because Bandy failed to itemize the
fees paid to his attorney in the bankruptcy case, the
Bankruptcy Court could not find the $27, 000 amount
reasonable given the missteps and time wasted by