IN RE: STEPHEN J. BOROWSKI, Debtor.
Case No. 93-53927-R, Chapter 7
UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF MICHIGAN, SOUTHERN
DIVISION
216 B.R. 922;
1998 Bankr. LEXIS 243;
39 Collier Bankr. Cas. 2d (MB) 819
February 27, 1998, Decided
February 27, 1998, Filed
DISPOSITION:
[**1] Borowski's motion for contempt against Walter Sochacki and his attorney,
Robert Greenstein, for violation of the permanent injunction of
11 U.S.C. § 524(a) granted.
COUNSEL: For Debtor: Jay Kalish, Esq., Farmington Hills, Michigan.
For Sochacki
& Greenstein, Defendant or Respondent: Robert Greenstein, Esq., Plymouth,
Michigan.
JUDGES: Steven W. Rhodes, U.S. Bankruptcy Judge.
OPINIONBY: Steven W.
Rhodes
OPINION:
[*923]
MEMORANDUM OPINION
The debtor, Stephen Borowski, filed this motion for
contempt against Walter Sochacki and his attorney, Robert Greenstein, for violation of
the
permanent injunction of
11 U.S.C. § 524(a). Borowski also requests an order enjoining Sochacki and Greenstein from
utilizing the attorney
discipline process to collect a previously
discharged debt. For the reasons set forth below, Borowski's motion is granted. The Court
will reserve the determination of damages until submission of
documentation.
Statement of Facts
In 1991, Walter Sochacki retained Borowski to represent him in a personal
injury
lawsuit. Borowski failed to file the complaint and, in 1993, Sochacki filed a
lawsuit against Borowski in Wayne County Circuit Court alleging legal malpractice. The
parties
[**2] accepted a mediation award of $ 27,500.
On December 23, 1993, Borowski filed his
chapter 7 petition, and listed the $ 27,500 debt to Walter Sochacki. Sochacki
did not object to the discharge of the debt. Borowski's discharge was granted
April 11, 1994.
In February 1994, Sochacki, through his attorney, Robert Greenstein, filed a
request for investigation with the Attorney
Grievance Commission ("the Commission"). The basis for the request was the malpractice alleged in the Wayne County
case. On May 26, 1995, the Commission filed a formal complaint against Borowski
with the Attorney
Discipline Board ("the Board"). Borowski answered the complaint and later submitted a Request for Entry of
Stipulated Order of
Discipline to the Commission for the Board's approval. The
offer to stipulate provided for an order of
reprimand, a period of supervised probation, and payment of costs. The Board sought the
approval of Sochacki. Sochacki objected because the
offer to stipulate did not provide for payment to Sochacki of the $
27,500
discharged debt. The Board therefore did not approve the
offer to stipulate.
On August 18, 1995, Borowski resubmitted the
offer to stipulate. The Board accepted the
[**3] offer and entered a
stipulated order on December 20, 1995. On December 21, Sochacki sent a letter to the Board
objecting to the
stipulated order. Sochacki asserted that he had been out of the country when the stipulation was
accepted and had not had an opportunity to object. Sochacki requested that the
Board require Borowski to pay Sochacki the $ 27,500 judgment as a condition of
Borowski's continued practice of law. The Board treated Sochacki's objection as
a petition for review. On May 1, 1996, the Commission issued a brief in reply
to Sochacki's petition for review. The Commission noted that Sochacki's debt
had been
discharged in bankruptcy. Further, the Commission stated that the
discipline set forth in the stipulation was appropriate in light of the charges contained
in the formal complaint, Borowski's
bankruptcy proceeding, and Borowski's prior disciplinary history. (Mot. for
Contempt, Ex. 5 at 3.) Nevertheless, on June 19, 1996, the Board issued an order
remanding the matter to a hearing panel for reconsideration of its decision to
accept the stipulation. On October 15, 1996, the panel conducted a hearing. On
June 3, 1997, the panel issued its order vacating the prior order
[**4] of
reprimand and rejecting the stipulation. The panel further ordered that the matter be
reassigned to a new hearing panel for adjudication.
On November 11, 1997, Borowski filed the present motion asserting that Sochacki
and Greenstein's ongoing attempts to encourage the Board to order Borowski to
repay the
discharged debt violate the
permanent injunction. In response, Sochacki and Greenstein contend that if the Board has the
authority
[*924] to order
repayment, they have the right to request the Board to do so.
Discussion
I.
The discharge of
a debt
"operates as an
injunction against the commencement or continuation of an action, . . . or an act, to
collect, recover or offset any such debt as a personal liability of the debtor."
11 U.S.C. § 524(a)(2).
"The purpose of the
permanent injunction . . . is to effectuate one of the primary purposes of the Bankruptcy Code: to
afford the debtor a financial 'fresh start.'"
In re Latanowich, 207 B.R. 326, 334 (Bankr. D. Mass. 1997)(citing
Green v. Welsh, 956 F.2d 30, 33 (2d Cir. 1992)).
"Congress designed and intended the
permanent injunction 'to give complete effect to the discharge, . . . to eliminate any doubt
concerning the effect
[**5] of the discharge as a total prohibition on debt
collection efforts, . . . and . . . to insure that once a debt is
discharged, the debtor will not be pressured in any way to
repay it.'"
Latanowich, 207 B.R. at 334 (citing S. Rep.
No. 989, 95th Cong., 2nd Sess. 80-81 (1978), reprinted in 1978 U.S.C.C.A.N.
5787, 5866).
Sochacki and Greenstein's persistent and unrelenting attempts to secure payment
of the
discharged debt are in clear violation of
§ 524(a)(2). Although they are not directly enforcing the judgment, the
practical result is the same. The Court is convinced that, if permitted,
Sochacki will continue to object to any disciplinary action that does not
include payment of the
discharged debt. This is specifically the type of action that is prohibited by the
permanent injunction. As stated by the court in
In re Atkins, 176 B.R. 998 (Bankr. D. Minn. 1994):
Any civil court action that is intended to further the
collection of a pre-petition debt, or whose legal or practical result will be to
accomplish such
collection, is enjoined. This is so regardless of how the action is styled in terms of
substance, and regardless of its posture as to
procedure; regardless of
[**6] the nominal alignment of the initiating and the responding parties; and
regardless of the specificity or vagueness of the relief requested in the
pleadings or papers that commence the proceeding.
Id. at 1006.
Sochacki contends that he is attempting to protect others from Borowski.
However, he appears to be only interested in recovering his loss. Sochacki did
not initiate proceedings with the Commission until after Borowski had filed his
bankruptcy petition, although he knew of his right to file a
grievance. (Br. in Supp. Of Objections to Mot. for
Contempt at 14.) It is clear that Sochacki and Greenstein are attempting to use the
attorney
grievance process to coerce Borowski into
repayment of the
discharged debt. This violates
§ 524(a)(2).
II.
Relying on
Kesler v. Dep't of Pub. Safety, Fin. Responsibility Div., State of Utah, 369 U.S. 153, 82 S. Ct. 807, 7 L. Ed. 2d 641 (1962), Sochacki and
Greenstein assert that the Board has the authority to require Borowski to pay
Sochacki as a condition of Borowski's retention of his
license to practice law. However, Kesler was overruled by
Perez v. Campbell, 402 U.S. 637, 91 S. Ct. 1704, 29 L. Ed. 2d 233 (1971),
[**7] and the holding in Perez was later codified in
§ 525(a). Section 525(a) provides in pertinent part:
[A]
governmental unit may not deny, revoke, suspend, or refuse to renew a
license . . . to . . . a person that is or has been a debtor under this title . . .
solely because such . . . debtor . . . has not paid a debt that is
dischargeable in the case under this title . . . .
11 U.S.C. § 525(a).
The Board is a
"governmental unit" as that term is used in the statute. See
11 U.S.C. § 101(27);
In re Williams, 158 B.R. 488, 490 (Bankr. D. Idaho 1993). Further, there is no dispute that the underlying debt was
discharged in Borowski's
bankruptcy proceeding. Accordingly, the Board would likely be in violation of
§ 525(a) if it ordered Borowski to
repay a
discharged debt as a condition of continuing to practice law. See
Bradley v. Barnes (In re Bradley), 989 F.2d 802, 804 (5th Cir. 1993)("Section 525 does not prohibit a state from denying or revoking a
[*925]
license based upon a determination that the public safety would be jeopardized by
granting or allowing continued possession of a
license, but it does prohibit a state from exacting a
discharged debt as the
[**8] price of receiving or retaining a
license.");
Keene v. Bd. of Accountancy, 77 Wash. App. 849, 894 P.2d 582 (Wash. Ct. App. 1995)(Board cannot require CPA to pay
discharged debt as condition of reinstating
license); but cf.
Brookman v. State Bar of Cal., 46 Cal. 3d 1004, 760 P.2d 1023, 251 Cal. Rptr. 495 (Cal. 1988)(ordering debtor to pay into client recovery fund does not violate
§ 525).
III.
Borowski requests $ 2,500 in
compensatory damages, $ 1,000 in court costs and attorney fees, and $ 10,000 in
punitive damages for Sochacki and Greenstein's violation of the discharge
injunction. Section 524 does not expressly authorize any relief other than injunctive
relief.
In re Walker, 180 B.R. 834, 847 (Bankr. W.D. La. 1995). However,
"the modern trend is for courts to award
actual damages for violations of
§
524 based on the inherent
contempt power of the court."
In re Hardy, 97 F.3d 1384, 1388 (11th Cir. 1996); see also
Walker, 180 B.R. at 847;
In re Arnold, 206 B.R. 560 (Bankr. N.D. Ala. 1997); cf.
In re Bowling, 116 B.R. 659, 664-65 (Bankr. S.D. Ind. 1990)(relying solely on statutory
contempt powers of
§ 105 to award damages). Borowski has not provided
[**9] any
documentation to support his request for $ 2,500 in
compensatory damages and $ 1,000 for court costs and attorney fees. Borowski therefore shall be
permitted ten days from the date of this opinion to submit an affidavit
detailing his request. Sochacki and Greenstein will have ten days in which to
respond.
Borowski also requests $ 10,000 in
punitive damages. There is support for the allowance of
punitive damages
for a violation of the
permanent injunction. See
In re Owen, 169 B.R. 261, 263 (Bankr. D. Me. 1994)(malevolent intent warrants
punitive damages);
Walker, 180 B.R. at 850 (malevolent behavior and clear violation of
injunction warrant award of
punitive damages);
Arnold, 206 B.R. at 568 (punitive damages warranted where creditor acted willfully and maliciously in clear disregard
and
disrespect of the bankruptcy laws);
Latanowich, 207 B.R. at 338 (punitive damages give creditor incentive to discontinue unlawful practice). The Court however
finds that
punitive damages are not warranted in this case. Sochacki and Greenstein appear to have been
acting more out of ignorance than a
"clear disregard and
disrespect of the bankruptcy laws."
Arnold, 206 B.R. at 568.
[**10] Moreover, the Court does not find the requisite
malevolent intent.
IV.
Accordingly, the Court concludes that Sochacki and
Greenstein have violated the
permanent injunction. The Court will determine the amount of
actual damages after submission of
documentation. The Court further concludes that it is appropriate to enjoin Sochacki and
Greenstein from further
utilizing the attorney
discipline process to collect the
discharged debt.
Steven W. Rhodes
U.S. Bankruptcy Judge
Entered: FEB 27 1998
