A lawyer who sought to keep a divorce case from going dormant after the opposing party filed for bankruptcy has been hit with $6,050 in sanctions by a Richmond bankruptcy judge who concluded the actions of the lawyer and his client were in “flagrant disregard” of the automatic stay.
The sanctions ordered by U.S. Bankruptcy Judge Keith L. Phillips included $2,500 in punitive damages.
The opposing lawyer said Phillips’s opinion underscores the pitfalls in the now commonplace use of bankruptcy to discharge domestic debts.
The March 22 opinion is In re Cheryl Cibula Payne (VLW 020-4-028).
Eye on the clock
Cheryl Payne’s bankruptcy came at the end of a “lengthy and contentious divorce,” according to the lawyer for husband Thomas C. Payne. Chesterfield County Judge Harold Burgess had entered a final decree on Jan. 15, 2020, which included an award of $57,000 in attorneys’ fees to Thomas Payne’s lawyer, James M. Goff II of Chesterfield.
Cheryl Payne, represented by James H. Wilson Jr. of Glen Allen, filed for bankruptcy on Jan. 31.
Goff says he received the bankruptcy papers Feb. 5 and noticed the wife had listed a bank account which had not been divulged in the divorce trial. Concerned that the 21-day rule might quickly close the door on any chance of getting a ruling on possible concealment of funds, Goff filed several documents in the divorce case, including a motion to stay and motions to rehear and reconsider equitable distribution issues.
Emotional distress damages
Phillips said the new state court filings were a clear violation of the law that calls for a halt of any action against the debtor. He cited the statute and authorities that prohibit continuation of a judicial proceeding against a debtor once she files for bankruptcy. He rejected the purported need to preserve the status quo of the divorce action.
“By their own admission, Respondents continued to pursue the Divorce Case in the State Court despite their actual, direct knowledge of the Debtor’s bankruptcy filing,” Phillips wrote. “The actions taken by Respondents were intentional and willful.”
At a hearing on a rule to show cause in bankruptcy court, Cheryl Payne testified she suffered “significant emotional distress” from those post-bankruptcy filings. Phillips said the evidence did not justify an award of damages for counseling and medical expenses, but he said Cheryl Payne’s distress was readily apparent. He awarded $1,000 for emotional distress.
“The Debtor had understood that upon filing her bankruptcy case, litigation in the Divorce Case, for which she had already expended $100,000 in attorney’s fees, would be at an end. The actions of the Respondents shattered that expectation, and she was distraught to discover that the Divorce Case was continuing,” Phillips wrote.
The facts favored an award of $2,500 in punitive damages, as well, Phillips concluded.
“The Respondents’ conduct was egregious and was motivated by the desire to enhance Mr. Payne’s position in the Divorce Case, in defiance of the automatic stay,” Phillips said.
Phillips awarded attorneys’ fees in the amount of $2,550 for a total damages award of $6,050 against Goff and his client.
Goff said he believed the clock was about to expire on any reconsideration of the couple’s finances.
“From my and my firm’s perspective, I was zealously advocating for my client and desired to preserve Mr. Payne’s ability to bring the matter back before the court given the newly revealed assets of Ms. Payne,” Goff said April 6.
Wilson said it’s a “tricky area” because Chapter 13 allows the discharge of a great deal of family law debt, as long as the debt is not a support obligation. When a party files for bankruptcy, it’s clear the state court action must halt.
“You can’t ignore the bankruptcy. You’ve to deal with the bankruptcy before you go ahead in state court,” Wilson said.