United States District Court, N.D. New York
February 11, 2005.
In re SARATOGA SPRINGS PLASTIC SURGERY, PC, Debtor. ROBIN YARINSKY, Appellant,
SARATOGA SPRINGS PLASTIC SURGERY, PC, Appellee.
The opinion of the court was delivered by: DAVID HURD, District Judge
MEMORANDUM-DECISION and ORDER
Robin Yarinsky ("Mrs. Yarinsky"), her attorney Wayne P. Smith, Esq.
("Attorney Smith"), and her former attorney Nancy Bunting, Esq.
("Attorney Bunting") appeal from orders of the United States Bankruptcy
Court for the Northern District of New York finding that they willfully
violated the automatic stay, awarding debtor Saratoga Springs Plastic
Surgery, P.C. ("SSPS" or "debtor") compensatory damages, and setting
forth the amount of compensatory damages. The consolidated appeals were
taken on submission without oral argument.
SSPS moved to strike appellants' brief and record on appeal. The motion
to strike is wholly without merit and is denied.
The background and procedural history of this matter is set forth in a
Memorandum-Decision and Order reversing the denial of permission to file
a late appeal, familiarity with which is assumed. See Yarinsky v.
Saratoga Springs Plastic Surgery, PC, 310 B.R. 493 (N.D.N.Y. 2004). The
facts recited below are only those necessary for determination of this
Honorable Jerry J. Scarano, New York State Supreme Court Justice
("Justice Scarano"), granted judgments against Steven Yarinsky, M.D.
("Dr. Yarinsky"), Mrs. Yarinsky's estranged husband and the sole
principal of debtor, and SSPS in October 2000 and in December 2000. The
judgments were for the amounts Dr. Yarinsky was in arrears for previously
court-ordered child support, spousal maintenance, and counsel fees.
order entered in December 2000, further provided that all money judgments
entered in the matrimonial action were to be filed against Dr. Yarinsky
personally and against SSPS.
SSPS filed for Chapter 11 bankruptcy protection on January 28,
On December 17, 2002, Justice Scarano ordered a judgment in the amount
of $20,000 for counsel fees against Dr. Yarinsky and SSPS. Justice
Scarano further granted a judgment in favor of Mrs. Yarinsky for child
support and maintenance arrearages against Dr. Yarinsky and SSPS in the
amount of $151,691.58.*fn1
Attorney Smith duly recorded the $151,691.58 judgment, caused
restraining orders to be issued against the bank accounts of Dr. Yarinsky
and SSPS, and filed a claim against debtor's bankruptcy estate based upon
the judgment. Attorney Smith immediately moved the bankruptcy court for
nunc pro tunc relief from the § 362 automatic stay, despite his belief
that child support, spousal maintenance, and counsel fees were exempt. He
refrained from any further actions to enforce the judgment against the
debtor, pending a ruling on the motion for relief from the stay. It is
also noteworthy that during the short time the SSPS account was
restrained, it contained only 27 cents.
On February 27, 2003, the Honorable Robert E. Littlefield, Jr., United
States Bankruptcy Court Judge, orally denied the motion for relief from
the stay and directed debtor to submit an order. Debtor submitted a
written order to that effect on March 12, 2003. The order was entered on
March 19, 2003.
On the same day that it submitted the written order denying relief from
the stay, March 12, 2003, SSPS moved for a finding that the automatic
stay was violated and for
resultant compensatory damages. On April 23, 2003, debtor made an
additional motion to extinguish the income execution, for compensatory
damages, and for sanctions.
On May 1, 2003, Bankruptcy Judge Littlefield issued a bench decision on
debtor's motions, finding that the motion to extinguish the income
execution was moot. However, he found that Attorney Smith, Attorney
Bunting, and Mrs. Yarinsky willfully violated the stay. He determined
that the state court judge had no authority to "do what he did" and there
was no basis for enforcement of this state court order against property
of the bankruptcy estate. Accordingly, he ordered Attorney Smith to cause
the judgment to be extinguished, upon which the request for punitive
damages would be denied. He further ordered that debtor was entitled to
compensatory damages (attorneys fees and expenses); that debtor submit an
affirmation of services within one week; and that Attorney Smith,
Attorney Bunting, and Mrs. Yarinsky, who were jointly and severally
liable for such damages, respond within two weeks. Pursuant to this
briefing schedule the matter would be ready for decision on May 22., 2003
Thus, the motion was set down for oral decision on May 29, 2003. This
oral decision was exemplified by written order filed on May 7, 2003.
However, the written order provided that the affirmation of services was
due within one week of that date, to wit: May 14, 2003. On May 16, 2003,
the debtor filed and served the affirmation of services.
As ordered by the bankruptcy court, Attorney Smith withdrew the income
execution. He amended the income execution so it was directed only to
Dr. Yarinsky, then re-issued it for execution on May 19, 2003. Due to
mistake, the second income execution, although directed only to Dr.
Yarinsky, referenced SSPS in the body of the text. Upon notification of
the error, Attorney Smith immediately withdrew the second income
execution (from the sheriff, before any account was restrained) and
corrected it throughout. On May 28, 2003, at
debtor's request, the bankruptcy court issued an order to show cause why
Attorney Smith should not again be sanctioned for willful violation of
The bankruptcy court held a hearing on June 4, 2003, at which debtor's
request for punitive damages was denied. Also on June 4, 2003, the
bankruptcy court denied Mrs. Yarinsky's motion to file a late notice of
appeal, and a written order to that effect was entered on June 10, 2003. A
timely appeal of that June 10, 2003, order was filed (No. 03-CV-896), and
that decision was reversed. See Yarinksy, 310 B.R. at 409. Thereafter,
the appeal of the order finding a willful violation of the stay and
awarding compensatory damages was perfected.
Also on June 10, 2003, the bankruptcy court entered an order denying
the portion of debtor's order to show cause related to the income
execution as moot. The bankruptcy court further ordered that debtor was
entitled to compensatory damages for a second willful violation of the
stay to be paid by Attorney Smith "as a result of his behavior."
Determination of the amount of compensatory damages was adjourned. A
timely appeal of this June 10, 2003, order was filed (No. 03-CV-897).
On July 15, 2003, Judge Littlefield further determined the amount of
compensatory damages awarded to debtor to be the sum of $5,792.50,
comprised of $5,758.75 in counsel fees and $38.75 in expenses. The
bankruptcy court ordered that Attorney Smith, Attorney Bunting, and Mrs.
Yarinsky were jointly and severally liable for $5,042.50, and Attorney
Smith was solely liable for $750.00. A written order to this effect was
entered on July 16, 2003. A timely appeal of this order was filed (No.
These three appeals were consolidated and are now ready for
A. Standard of Review
In reviewing a bankruptcy court's decision, a district court applies
the clearly erroneous standard to conclusions of fact and de novo review
to conclusions of law. In re Manville Forest Prods. Corp., 209 F.3d 125,
128 (2d Cir. 2000); In re Petition of Bd. of Directors of Hopewell Int'l
Ins. Ltd., 275 B.R. 699, 703 (Bankr. S.D.N.Y. 2002); Fed.R.Bankr.P.
8013. A bankruptcy court's decision regarding an award of fees and
sanctions is subject to review for an abuse of discretion. Feldman v.
United Merchants & Mfrs., Inc., No. 97 CIV. 5437(DC), 1999 WL 4929, at
*1 (S.D.N.Y. Jan. 5, 1999).
B. Willful Violation of Stay and Award of Damages
The Bankruptcy Code provides for an automatic stay to protect the
property of the bankruptcy estate from the time a bankruptcy petition is
filed. 11 U.S.C. § 362(a). Property of the estate includes "all legal or
equitable interests of the debtor in property as of the commencement of
the case." Id. § 541. Property interests are determined by state law.
Butner v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918 (1979).
Relief from the automatic stay may be granted by the bankruptcy court in
appropriate circumstances. 11 U.S.C. § 362(d).
The protection of the automatic stay generally applies to actions and
proceedings against the debtor and the debtor's property to recover claims
that arose prior to filing of the petition. See generally
11 U.S.C. § 362(a)(1)-(8). More specifically, for example, the stay
applies to "the commencement or continuation . . . of a judicial,
administrative, or other action or proceeding against the debtor that was
or could have been commenced" prior to the filing of a petition, "or to
recover a claim against the debtor that arose before the" filing of the
petition. Id. § 362(a)(1). However, the statute provides that filing a
bankruptcy petition does not operate as a stay of certain actions, such
as a criminal proceeding against a debtor or actions or proceedings whose
purpose is to collect "alimony, maintenance, or support from property that
is not property of the state." Id. § 362(b)(1), (b)(2)(B).
Individuals are entitled to exempt from property of the bankruptcy
estate certain property. Id. § 522. New York State has opted out of the
federal bankruptcy exemption scheme. See N.Y. Debt. & Cred. L. § 282-84
(McKinney 2001).; In re Maidman, 141 B.R. 571, 572 (Bankr. S.D.N.Y.
1992); In re Kleist, 114 B.R. 366, 367 (Bankr. N.D.N.Y. 1990).
Therefore, New York State debtors may only exclude property permitted by
New York State law. See N.Y. Debt. & Cred. L. § 282-84; In re Maidman,
141 B.R. at 572; In re Kleist, 114 B.R. at 367. In sum, debtor's property
is protected by the automatic stay unless relief from the stay is granted
by the court, 11 U.S.C. § 362(d), the specific action against the
property is statutorily carved out, id. § 362(b), or the property is
exempt (i.e., not property of the estate), id. § 522.
Where the automatic stay is willfully violated, the individual injured
by such violation shall recover actual damages and may recover punitive
damages in the appropriate circumstances. Id. § 362(h). "[A]ny deliberate
act taken in violation of a stay, which the violator knows to be in
existence, justifies an award of actual damages." Crysen/Montenay Energy
Co. v. Esselen Assocs., Inc. (In re Crysen/Montenay Energy Co.),
902 F.2d 1098, 1105 (2d Cir. 1990). Punitive damages may be justified
where there is a showing of maliciousness or bad faith. Id.
The primary issue on these appeals is whether there was a willful
violation of the stay by the first filing of the income execution against
debtor's operating account and/or by
the second execution directed to Dr. Yarinsky individually but including
debtor in the body of the text. If there was a willful violation, it then
must be determined if an award of damages pursuant to 11 U.S.C. § 362(h)
was appropriate. The parties do not dispute the facts underlying these
determinations. Accordingly, the question of law receives de novo
SSPS filed the bankruptcy petition seeking protection under Chapter 11
on January 28, 2002. The automatic stay went into effect at that time.
Judge Scarano issued an order and judgment against debtor representing
over $150,000 in arrearages in alimony, support, and counsel fees.*fn2
This was a judicial proceeding against the debtor that was commenced
before the filing of the petition to recover a claim that arose prior to
the bankruptcy filing, stayed pursuant to the operation of section
362(a). Accordingly, the judgement was entered in violation of the
automatic stay, as noted by Judge Littlefield. Additionally, the income
execution against debtor's operating account was in violation of the
automatic stay. See 11 U.S.C. § 362 (2)-(6).
Attorney Smith acted purposefully in causing the judgment to be
executed against debtor's operating account in the first instance, with
knowledge that the stay was in effect. Accordingly, there was a willful
violation of the automatic stay with regard to the first income
Attorney Smith argues that he acted in good faith with regard to the
first income execution. First, he contends that it was arguable under §
362(b)(2)(B) that the stay was not in effect because the state court
action was to enforce "the collection of alimony, maintenance, or
support." See § 362(b)(2)(B). However, to fall within that subsection,
collection must be "from property that is not property of the estate."
See id. The operating account of SSPS, a corporation, clearly was
property of the estate. Attorney Smith's next argument, that often
checking accounts are exempt from the estate pursuant to N.Y. Debt. &
Cred. L. § 283 is also to no avail. All the bankruptcy exemptions for
which New York law provides apply only to individual (not corporate)
debtors. See N.Y. Debt. & Cred. L. § 282-83. Indeed, the exemptions for
which the federal statute provides also apply only to individuals. See
11 U.S.C. § 522. Thus, as an experienced bankruptcy attorney, Attorney
Smith could not have "in good faith" believed the account was exempt and
therefore the stay did not apply to the collection of the alimony,
maintenance, and child support judgment. Moreover, the "good faith"
standard for determining whether there is a willful violation of the stay
does not apply under § 362(h). Crysen/Montenay Energy Co., 902 F.2d at 1104
(noting that the good faith standard applied when sanctions were imposed
as contempt for violating the automatic stay, before the passage of §
With regard to the second instance, again, Attorney Smith was aware of
the stay and issued the income execution (albeit through mistake).*fn3
Thus, there was a willful violation of the stay. The next determination
must be whether debtor was entitled to an award of attorneys fees and
Attorney Smith filed the first income execution but took no further
action to enforce the judgment pending resolution of the motion for
relief from the stay. Further, the account contained only 27 cents. As
soon as ordered to do so, Attorney Smith withdrew the income execution.
SSPS has not pointed out any manner in which it was harmed, and did not
before the Bankruptcy Court. With regard to the second income execution,
an error was made leaving debtor's name in the text. Again, as soon he
became aware of the error Attorney Smith withdrew the income execution
(before it restrained SSPS's account).
Debtor was not injured by the violation of the stay in either
instance. It suffered no actual damages in either instance.*fn4
Accordingly, it is not entitled to an award of damages. See Salem v.
Paroli, 260 B.R. 246, 257 (S.D.N.Y. 2001) (where no actual damages were
suffered, no award for the violation would be made), affirmed,
79 Fed. Appx. 455 (2d Cir. 2003) (Table, text at 2003 WL 22440245);
Rashid v. United States (In re Rashid), 210 F.3d 201, 209 (3d Cir. 2000)
(holding that where no injury could be alleged from the violation, denial
of damages was proper). Because an award of damages was improper, the
remaining issue of the amount of the award and the joint, several, and/or
individual liability of Attorney Smith, Attorney Bunting, and Mrs.
Yarinsky are moot.
Attorney Smith was aware of the stay and took deliberate action in
causing the income execution to attach to SSPS's operating account (in
both the first and second instances). Thus there was a willful violation
of the automatic stay. However, debtor suffered no actual damages related
to either incident and is not entitled to an award of attorneys fees
under 11 U.S.C. § 362(h).
Accordingly, it is
1. The finding of two willful violations of the automatic stay
2. The award of attorneys fees and expenses in favor of debtor and
against Attorney Smith, Attorney Bunting, and Mrs. Yarinsky is VACATED;
3. This matter is REMANDED to the bankruptcy court to enter appropriate
orders in accordance with the foregoing opinion.
IT IS SO ORDERED.