Hambrick v. Perceptual Development Corp. (In re Hambrick)
Hambrick v. Perceptual Development Corp. (In re Hambrick)
Opinion of the Court
OPINION
On June 25, 2012, this matter came on for trial on the Plaintiffs Amended Complaint seeking damages for violations of the discharge injunction set forth in 11 U.S.C. § 524(a). At the request and by agreement of the parties, trial of this case was combined with trial of Case No. 11-8002, which was brought by Plaintiff Selby against the same Defendants. Appearances were entered by Daryl Roberts for Plaintiffs, and Jerome Sepkowitz and Pete Serrata for Defendants. The Court denied Defendants’ Motion for a Directed Verdict. A ruling on Defendants’ Motion for Sanctions was reserved until after trial. Upon the submission of proposed findings of fact and conclusions of law, the Court took all pending matters in both cases under advisement. Based upon the facts of this case and applicable law, the Court finds in favor of Plaintiffs against Defendants. The following constitutes the Court’s findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
INTRODUCTION
Plaintiff Nita Sue Hambrick, and Plaintiff in related Case No. 11-8002, Barbara Selby (collectively “Plaintiffs”), were sued by Defendant Perceptual Development Corporation dba Irlen Institute (“PDC”) in California state court in 2008 to collect damages regarding a contract between the
FINDINGS OF FACT
These parties have a long and tortuous relationship. Plaintiffs Hambrick and Sel-by operated a business in Ardmore, Oklahoma, and entered into a contractual relationship in 1998 or 1999 with Defendant PDC.
Shortly after the California Case was filed, Hambrick and Selby filed declaratory judgment actions against Defendants in the District Court of Carter County, Oklahoma. Those lawsuits were stayed pending resolution of the California Case. Ham-brick filed her Chapter 13 bankruptcy and Selby filed her Chapter 7 bankruptcy on August 17, 2009. A Suggestion of Bankruptcy was filed in the California Case on August 20, 2009. PDC and the California Court were aware that both Hambrick and Selby had filed bankruptcy in Oklahoma.
PDC filed a Proof of Claim in Ham-brick’s bankruptcy for $1,937,993.84. This amount consisted of $129,524.25 for underpayment of royalties from 2002-2005, $226,528.78 for lost revenues from 2006-2008, $200,000 for damage to reputation,
The primary participants in the California Case are Defendants Fine and Robert Irlen, and they each testified before this Court regarding those proceedings. Irlen testified that he is Chief Financial Officer and corporate counsel of PDC. He was admitted to the California Bar in 1976, but has never really practiced law. He was aware that Plaintiffs filed bankruptcy in Oklahoma and was involved in the bankruptcies and earlier adversary cases. Upon advice of counsel, he decided to dismiss those adversary cases, and proceed against Plaintiffs in California after the bankruptcies were completed. He appeared at the Status Conferences held in the California Case on behalf of PDC. He also calculated the amount of damages sought by PDC against Hambrick and Sel-by and their co-defendants. He stated that it was always his intent and the intent of PDC to take judgment against Ham-brick and Selby in the California Case.
Defendant Fine is PDC’s attorney in California. She testified that during and after the bankruptcy proceedings, various status conferences were held in the California Case.
After discharges were entered in the bankruptcy cases, the California Court set another Status Conference for December 22, 2010.
On December 22, 2010, a Case Management Conference was held in the California Case.
The Request for Default and Judgment sought money damages on the prepetition Complaint filed by PDC in the California Case on February 11, 2008. The Request was a court form that included a list of different categories of money damages. Fine testified that the process for taking default was to file the default form, then “prove up” the amount of damages by form or by declaration and enter a judgment based upon the “prove up.” Once default is entered, parties may not file an answer without first vacating the default. This Request identified the following damages: special damages of $127,176, general damages of $200,000, attorney fees of $50,000, and costs, interest and “Demand of complaint” as “to be determined” or “TBD.” In the “Credits Acknowledged” column, as to special and general damages only, Fine inserted “Post Bankruptcy.”
Another Case Management Conference was held in the California Case on February 3, 2011. According to Ms. Fine’s Notice of Ruling from that Conference, the California Court entered defaults as to Hambrick, Selby, and TLC Assessment Center, Inc.
On March 28, 2011, PDC filed an Amended Complaint
The Amended Complaint served on Hambrick and Selby
Several additions to the Amended Complaint seek not to limit the damages, fees, and costs sought, but to enlarge them. A paragraph was added to the breach of contract cause of action stating that its damages are set forth in the prayer and Statement of Damages, but the Statement of Damages referred to has not been provided to this Court. The additional paragraph also cites to the prepetition contract and states that all remedies available to PDC shall be cumulative as to Hambrick, Selby and TLC, and that should there be any legal action, the prevailing party shall be entitled to reasonable attorney fees and costs from the losing party. An additional demand was also added under the cause of action for fraud, seeking restitution and lost royalties, loss of revenues, damage to reputation, general damages and punitive damages.
The only change to the Amended Complaint that seeks to limit PDC’s recovery against Plaintiffs to damages stemming from postpetition conduct is the concluding prayer for relief. The modified prayer purports to limit recovery for loss of revenues as to Hambrick and Selby for “post bankruptcy filing,” and was revised to include a specific dollar amount of damages for restitution, loss of royalties, and damages to reputation as to Hambrick, Selby, Wyrick, and TLC. However, it also seeks loss of profits, loss of prospective business and general damages, exemplary and compensatory damages in an unspecified amount to be determined or proven.
Since filing of the Amended Complaint, PDC has modified the damages sought from Plaintiffs. In May of 2011, Irlen filed a Declaration regarding computation of damages,
Damage requests against Plaintiffs were changed again when PDC filed another
Fine testified that Mr. Irlen calculated the amount of damages requested by PDC, and that she assisted him in preparing the Declarations regarding the computation of damages. Damages awarded by default judgment, she explained, are based upon a court formula, and have nothing to do with actual damages incurred by the party seeking default judgment.
As for damages for loss of reputation, and general damages that were requested by PDC in the forms submitted to the California Court, Fine stated that the amounts listed were presumed by her and were not based upon any hard numbers. She testified that in California, business entities are allowed to recover general damages, or pain and suffering. However, she stated that she deleted the request for general damages, or pain and suffering, from the Amended Complaint.
CONCLUSIONS OF LAW
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1834(b) and 28 U.S.C. § 157(b)(1).
Violation of the Discharge Injunction
Plaintiffs originally brought these adversaries for violations of the automatic stay in § 362(a) and the discharge injunction in § 524. At trial, however, Plaintiffs withdrew their request for relief under § 362(a) and proceeded only under § 524.
The discharge order releases a debtor from personal liability with respect to any discharged debt by voiding any past or future judgments on the debt and by operating as an injunction to prohibit creditors from attempting to collect or to recover the debt.
In this case, the first two necessary elements of the Plaintiffs’ actions for violation of the discharge — notice of the discharge and subsequent intentional conduct — were essentially admitted by Defendants: they received notice of the bankruptcies, participated in them, and intended to continue with the entry of judgments against Hambrick and Selby in the state court actions filed prior to the bankruptcies. It is irrelevant that Defendants believed their activity was done in good faith.
The Court begins by reviewing the Requests for Entry of Default and Court Judgment and Statement of Damages submitted by Defendants to the California Court at least four different times in less than eight months — January, March, May, and August of 2011-in an effort to have it enter a judgment against Hambrick and Selby. The first Request for Entry of Default and Court Judgment was mailed to Hambrick and Selby on January 5, 2011, and filed of record in California on January 11, 2011.
Apparently, the California Court was concerned that the Request for Entry of Default and Court Judgment may have included claims for debts that had been discharged. Fine testified that the California Court ordered PDC to file an amended complaint because the court rejected a declaration that was submitted to the court on behalf of PDC. The Case Summary reflects that on March 10, 2011, a Declaration of Bonnie Fine and Jerry Sepkowitz in support of Default Judgment, and a Declaration of Helen Irlen for Default Prove were filed by Fine. These documents were not presented to this Court, and Hambrick and Selby’s counsel represented that he had been unable to obtain some of the documents listed in the Case Summary. Fine explained that if a Declaration was rejected by the court, it could not be viewed. Therefore, this Court has no way of knowing what damages were sought.
After these adversaries were filed alleging violation of the discharge injunction, PDC continued to pursue the entry of judgments against Hambrick and Selby. The Statement of Damages and Request for Entry of Default and Judgment filed in May of 2011, which cited the Amended Complaint of March 2011, included more damages than were sought in January of 2011.
The Court next looks to the Amended Complaint to determine whether Defendants were seeking prepetition, discharged debts from Hambrick and Selby. The Amended Complaint, filed in March of 2011, is virtually identical to the original Complaint filed in February of 2008. The Court’s findings of fact recite the numerous similarities and few differences between the two complaints. The damages sought in the Amended Complaint, though limited in some manner, are based upon the same underlying conduct that formed the basis for PDC’s prepetition damage claims, proof of claim filed in bankruptcy, and § 523(a) adversary complaints. The damages sought are virtually unlimited in time. Although the testimony indicated that an amended complaint was requested by the California Court to reflect that some debts had been discharged, the Amended Complaint fails to limit the requested relief as to all monetary damages to postpetition activity. The Amended Complaint could have been drafted so as to make it absolutely clear that damages as to Plaintiffs were limited to postpetition actions and debts. Instead, it appears to have been drafted to allow Defendants as much flexibility as possible with which to structure any type of damage claim and remedy for any time period they wish to pursue. The Amended Complaint gives this Court little assurance that Defendants
The Court next reviews Defendants’ actions both during and after the bankruptcies. Most of the documents filed in the case regarding hearings, orders to show cause, and continuances were prepared by Defendant Fine. She testified that she prepared them at the direction of the California Court. Although testifying that they were required to hold status conferences throughout the bankruptcies, the California Court Rule cited by Defendants gives much leeway to a court to determine whether such conferences are held. And, the notices of the conferences, prepared by Fine, included orders to attend the conferences. These notices could easily have been drafted to exclude attendance for Hambrick and Selby, or to otherwise make clear that the bankruptcy stay was in place and the California Court was not proceeding against them. Instead, such notices contributed to a feeling of harassment and intimidation of Hambrick and Selby.
The same is true of the continual requests for entry of default and judgment with varying types of damages and amounts. The amounts requested were similar to the debts listed in PDC’s Proof of Claim. In some cases, the amounts Defendants requested for allegedly postpe-tition conduct were larger than the original amounts requested in the Proof of Claim that covered a longer period of time. Ir-len testified that he only computed postpe-tition damages for a sixteen month period of time. The Proof of Claim form included damages for a three year period and a two year period. Damage amounts for strictly postpetition damages should have been less than that sought for prepetition debt, not more. Punitive damages requested postpetition were more than in the Proof of Claim. Underpayment of royalties sought for a three year period prepetition was only slightly more than the figure computed and requested for the sixteen month postpetition period. Defendant Ir-len’s Affidavit filed on May 24, 2011, states that the damages requested were based upon prepetition conduct and calculations. He explained that he did this because Hambrick and Selby failed to appear and defend themselves in the California case. He also stated that he sought to recover attorney’s fees and costs incurred in the Oklahoma state court action, the California case, and in the bankruptcy case to protect its breach of contract claims. These damages were for prepetition, discharged debt.
Fine testified that Defendants are seeking money damages against Hambrick and Selby on the theory that they are partners and possible beneficiaries as officers of TLC Corp., and may be receiving remuneration from use of proprietary information of PDC. Irlen testified that PDC seeks an order prohibiting Hambrick and Selby from using the license for lens filters and protecting PDC’s business model and proprietary information. Defendants state that the only claims they are attempting to assert are based upon postpetition conduct. Hambrick and Selby testified, however, that they have not worked in their business since their bankruptcies were filed in 2009. The Court was presented with conflicting evidence regarding postpe-tition operations of TLC Assessment Center. It is uncertain what, if any, interest Hambrick and Selby may have in TLC and what, if any, liability or responsibility they might have under the prepetition agreement for postpetition actions.
Finally, this Court observed Defendants and assessed their demeanor and credibility while they explained the actions taken
The Court also observed Hambrick and Selby and assessed their demeanor and credibility. The Court believes their testimony that they were greatly distressed and intimidated by the frequent notices of activities that occurred in the California Case during and after their bankruptcy cases. They appeared fearful of and confused by Defendants’ actions, and believed that Defendants were attempting to collect discharged debts and would not rest in their attempts to collect those debts.
Based on the evidence presented, this Court concludes it is reasonable to believe that Defendants’ actions during the bankruptcies and these adversaries were designed to harass, intimidate, and coerce Hambrick and Selby, and that at least some if not all of the damages they seek are based upon prepetition conduct and debts that have been discharged. The shifting dollar amounts and requests for punitive damages, the virtually identical and open-ended allegations in the pre- and postpetition complaints, and the unwillingness to divulge information regarding current amounts PDC requested that were approved by the California Court provide a sufficient basis for this Court to conclude that the judgment PDC is seeking to have entered is at least in part for discharged debts. Further, PDC’s actions against Hambrick, Selby and their co-defendants in the California Case is based upon a long-expired contract and patent. Finally, there is evidence to support the conclusion that Defendants’ continued and repeated post discharge actions caused significant distress to Hambrick and Selby.
The Court makes no findings or conclusions regarding the legitimacy of the claims made in the California lawsuit. This Court is not in the position nor does it wish to oversee the conduct of the California Case.
This Court may issue any order necessary or appropriate to carry out the provisions of the Bankruptcy Code.
Defendants’ Motions for Sanctions
Defendants urged the Court to sanction Plaintiffs for filing inaccurate and misleading pleadings, specifically the reference in the Amended Adversary Complaints to the first Request for Entry of Default and Court Judgment.
Defendants also filed a Motion for Sanctions based upon their allegations that Plaintiffs failed to participate in good faith in a settlement conference.
CONCLUSION
For the reasons set forth above, the Court finds that Defendants willfully vio
A separate Order and Judgment consistent with this Opinion shall be entered simultaneously herewith.
.The individual Defendants in these adversaries are principals of PDC. Defendant Helen Irlen is President of PDC. Defendant Robert Irlen is the Chief Financial Officer of PDC and one of its attorneys, licensed in the State of California. Defendant Bonnie N. Fine is also an attorney for PDC, licensed in the State of California. Both Ms. Fine and Mr. Irlen appeared at trial. Ms. Irlen waived her right to appear.
. The causes of action were misappropriation of trade secrets, misappropriation of trade secrets under the Uniform Trade Secrets Act, breach of contract, breach of confidence, civil conspiracy, breach of fiduciary duty, fraud, interference with prospective business advantage, common counts (accounting), trade libel, unjust enrichment, and exemplary damages. Ms. Wyriek was charged with all but breach of fiduciary duty.
. Plaintiffs’ Trial Exhibit 38.
. When added together, the amounts listed on the Proof of Claim do not equal the total amount of the claim.
. PDC v. Selby, Case No. 09-8045; PDC v. Hambrick, Case No. 09-8043.
. Docket Entry 69, PDC v. Hambrick, 09-8043; Docket Entry 69, PDC v. Selby, 09-8045.
. Docket Entry 124, Case No. 09-81378 Ham-brick. Hambrick and Selby filed separate appeals of this Court's Order of Abstention and Dismissal and Order Lifting Stay with the District Court. The District Court affirmed the orders of this Court on January 10, 2011. Docket Entry 102, PDC v. Hambrick, Case No. 09-8043; Docket Entry 101, PDC v. Selby, Case No. 09-8045.
. Plaintiffs’ Trial Exhibit 38; Defendants' Trial Exhibit A.
. See e.g., Plaintiffs’ Trial Exhibits 3, 4, 5, 8, 9, 10, 14. Exhibit 10 also includes a directive that Defendants in the California Case file an answer to the Complaint within twenty days after November 15, 2010.
. Plaintiffs’ Trial Exhibit 3.
. See e.g., Plaintiffs' Trial Exhibit 8.
. Defendants’ Trial Exhibit P. The Rule states: The court on its own motion may order, or a party or parties may request, that an additional case management conference be held at any time. A party should be required to appear at an additional conference only if an appearance is necessary for the effective management of the case. In determining whether to hold an additional conference, the court must consider each case individually on its own merits.
. See Plaintiffs'Trial Exhibit 10.
. Plaintiffs’ Trial Exhibit 11, Hambrick's Special Entry of Appearance; Plaintiffs' Trial Exhibit 12, Selby’s Special Entry of Appearance (attached as Exhibit 2 to Declaration of Robert Irlen.) Hambrick's Special Entry of Appearance is file-stamped December 1, 2010, by the California Court. Selby’s Special Entry of Appearance does not contain a file-stamp but presumably it was filed on or about December 1, 2010, since it was mailed the same day as Hambrick’s.
. Plaintiffs’ Trial Exhibit 12.
. Defendants’ Trial Exhibit E. This exhibit reflects a filing date of January 11, 2011, and a service date of January 5, 2011.
. Defendants' Proposed Findings of Fact and Conclusions of Law (Docket Entry 124) states that Ms. Fine was directed by the Superior Court to initiate default proceedings or dismiss the action against all defendants, not just Hambrick and Selby. The Court has reviewed the trial testimony and is unable to locate support for this statement in the record.
. Defendants’ Trial Exhibit G. Later, at the bottom of the form, in the "For Court Use Only” box, the Deputy Clerk checked the box that stated "Default entered as requested on” and entered the date of "2-4-09.”
. Plaintiffs’ Trial Exhibit 13, and Defendants’ Trial Exhibit G.
. Defendants' Trial Exhibit Q. This Exhibit includes copies of Notices prepared by Ms. Fine regarding numerous Case Management Conferences that have been held in the California Case. None bear file-stamps. However, Plaintiffs’ Trial Exhibit 38, a Case Summary of documents filed, reflects that the Notice from the February 2011 hearing was filed February 14, 2011.
. Plaintiffs' Trial Exhibit 42.
. Plaintiffs' Trial Exhibit 18.
. Plaintiffs' Trial Exhibit 38.
. Plaintiffs’ Trial Exhibits 28 and 30.
. Plaintiffs' Trial Exhibit 26.
.Plaintiffs' Trial Exhibit 27.
. Plaintiffs’ Trial Exhibits 35 and 36.
. The Court is unclear as to whether Fine misspoke on this point, but presumes that she meant to say that attorney fees were based upon a formula, rather than other damages.
. See Plaintiffs’ Trial Exhibit 42. The Amended Complaint does include requests for general damages throughout the Complaint, but does not contain a specific dollar amount.
. Plaintiffs’ Trial Exhibits 27A and 27B. These Statements of Damages were prepared and served by Fine on April 6, 2011, and were filed with the California Court on May 24, 2011.
. There is a specific line item for General Damages on the Request for Entry of Default and Judgment Form, but not on the Statement of Damages (Personal Injury or Wrongful Death) form.
. See Plaintiffs’ Trial Exhibts 27A and 27B, attached as an appendix to this Opinion.
. See Plaintiffs' Trial Exhibit 42. Contrary to Fine’s testimony, the Amended Complaint does include requests for punitive damages and exemplary damages for at least nine of the identified causes of action, but does not state a specific dollar amount.
. 11 U.S.C. § 524(a)(1), (2); Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 447, 124 S.Ct. 1905, 1910, 158 L.Ed.2d 764 (2004), citing 3 W. Norton, Bankruptcy Law and Practice 2d § 48:1, p. 48-3 (1998).
. Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193, 1200 (9th Cir. 2008), aff'd 559 U.S. -, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010).
. In re Martin, 2012 WL 907090, *5 (6th Cir. BAP) (quoting Paglia v. Sky Bank (In re Paglia), 302 B.R. 162, 166 (Bankr.W.D.Pa. 2003)).
. Ammons v. Eddy Fed. Credit Union (In re Ammons), 2012 WL 1252621 (Bankr.D.N.M.) (citations omitted). See also In re Collins, 474 B.R. 317 (Bankr.D.Me. 2012).
. In re Schott, 282 B.R. 1 (10th Cir. BAP 2002).
. Ammons, 2012 WL 1252621, at *7.
. See Distad v. United States (In re Distad), 2009 WL 1324037, *6 (Bankr.D.Utah 2009). See also Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1172 (10th Cir. 2007) (cited by Defendants, wherein the 10th Circuit held that the standard of proof for willful violations of the automatic stay is a preponderance of the evidence, and that no specific intent is required.)
.Plaintiffs’ Trial Exhibit 13 and Defendants’ Trial Exhibit G.
. Plaintiffs' Trial Exhibits 21, 22, and 27.
. Plaintiffs' Trial Exhibits 35 and 36.
. See Paul v. Iglehart (In re Paul), 534 F.3d 1303 (10th Cir. 2008).
. 11 U.S.C. §§ 105(1), 524(a).
. In re Torres, 367 B.R. 478 (Bankr.S.D.N.Y. 2007) (citations omitted).
.Docket Entry 5, 11-8001 Hambrick v. PDC et al., Docket Entry 5, Selby v. PDC et al.
. Docket Entry 62, 11-8001 Hambrick v. PDC et al.; Docket Entry 43, 11-8002 Selby v. PDC et al.
Reference
- Full Case Name
- In re Nita Sue HAMBRICK, Debtor. Nita Sue Hambrick v. Perceptual Development Corporation, Robert Irlen, Helen Irlen, and Bonnie N. Fine
- Cited By
- 3 cases
- Status
- Published