Although holding a hearing on a contempt motion in state court may not violate the automatic stay, the remedy imposed by the state court may nonetheless violate the stay, according to Bankruptcy Judge Robert E. Grossman of Central Islip, N.Y.
Before bankruptcy, the state matrimonial court had entered a judgment directing the debtor to pay $30,000 to his former wife’s counsel. When the debtor failed to pay, counsel for the wife filed a motion to hold the debtor in contempt. The matrimonial court held the debtor in contempt and scheduled a sentencing hearing for a later date.
The debtor filed a chapter 7 petition before the sentencing hearing. His counsel argued to the state court judge that proceeding with the sentencing hearing would violate the automatic stay.
The matrimonial judge ruled at the sentencing hearing that the proceedings were criminal in nature and covered by the exception to the automatic stay under Section 362(b)(1). With regard to compelling payment, the state court judge reasoned there was no automatic stay because the $30,000 judgment was nondischargeable.
At the sentencing hearing, the matrimonial judge directed that the debtor be jailed. To purge contempt and bust out of jail, the matrimonial court told the debtor he could pay $20,000 to his former wife’s counsel. Later the same day, the debtor paid the $20,000 and walked out of jail.
The debtor then filed a motion to hold the former wife’s counsel in contempt for willful violation of the automatic stay.
In his December 19 opinion, Judge Grossman decided that holding the sentencing hearing did not violate the stay. However, he ruled that forcing the debtor to pay $20,000 was a willful stay violation.
Judge Grossman began his analysis with the proposition that the judge in state court had concurrent jurisdiction to decide whether the automatic stay applied. Still, he said the bankruptcy court has the final word about the applicability of the stay.
Judge Grossman also cited authority for the proposition that “the Rooker-Feldman doctrine does not prevent the bankruptcy court from re-visiting the state court’s analysis on this subject.”
Whether proceeding with the sentencing hearing by itself violated the stay turned on Section 362(b)(1), which provides an exception to the stay for “the commencement or continuation of a criminal proceeding . . . .”
Contempt proceedings can be either civil or criminal in nature. Criminal contempt proceedings “are intended to uphold the dignity of the court,” Judge Grossman said. Civil contempt proceedings, he said, are “focused more on compelling behavior” that may benefit a party to the litigation.
Reviewing the record of the contempt proceedings, Judge Grossman agreed with the matrimonial judge that the hearing was designed to address “an affront to the dignity of the state court.” Thus, that the continuation of the previously scheduled hearing was criminal in nature did not by itself violate the automatic stay.
Nevertheless, Judge Grossman said there is “a subtle but important distinction between the sentencing hearing and the sentence.” [Emphasis in original.] Imposing a sentence compelling the debtor to pay the wife’s counsel did violate the stay, he said, because the sentence required the debtor to pay a pre-petition obligation.
If the matrimonial judge had only sent the debtor to jail “for a period of time as punishment,” Judge Grossman said there would have been no stay violation.
Since the direction to pay the wife’s counsel violated the stay, Judge Grossman ruled that the action was “void ab initio.” He therefore directed counsel to pay $20,000 to the debtor.
Judge Grossman found a willful violation of the automatic stay under Section 362(k). Although he did not impose punitive damages, he directed the wife’s firm to pay the debtor’s counsel fees in an amount to be determined later.
Judge Grossman also decided that the matrimonial judge made a mistake in saying the automatic stay did not apply because the $30,000 judgment would be nondischargeable as a domestic support obligation. The exception, he said, only applies to collection of a DSO “from property that is not property of the estate.” From the record, he said it was “not clear that the action was seeking to collect from property that was not property of the estate.”
Although holding a hearing on a contempt motion in state court may not violate the automatic stay, the remedy imposed by the state court may nonetheless violate the stay, according to Bankruptcy Judge Robert E. Grossman of Central Islip, N.Y.
Before bankruptcy, the state matrimonial court had entered a judgment directing the debtor to pay $30,000 to his former wife’s counsel. When the debtor failed to pay, counsel for the wife filed a motion to hold the debtor in contempt. The matrimonial court held the debtor in contempt and scheduled a sentencing hearing for a later date.
The debtor filed a chapter 7 petition before the sentencing hearing. His counsel argued to the state court judge that proceeding with the sentencing hearing would violate the automatic stay.
The matrimonial judge ruled at the sentencing hearing that the proceedings were criminal in nature and covered by the exception to the automatic stay under Section 362(b)(1). With regard to compelling payment, the state court judge reasoned there was no automatic stay because the $30,000 judgment was nondischargeable.
At the sentencing hearing, the matrimonial judge directed that the debtor be jailed. To purge contempt and bust out of jail, the matrimonial court told the debtor he could pay $20,000 to his former wife’s counsel. Later the same day, the debtor paid the $20,000 and walked out of jail.
The debtor then filed a motion to hold the former wife’s counsel in contempt for willful violation of the automatic stay.