Order Denying Debtor’s Motion for Sanctions for Violation of the Automatic Stay. The chapter 7 debtor filed a motion seeking actual damages, attorney fees, and punitive damages against his former landlord under 11 U.S.C. § 362(k), alleging the landlord willfully violated the automatic stay by filing and pursuing a postpetition eviction in state court.
After the debtor fell behind on rent payments, but before filing a bankruptcy petition, he requested that his property manager file an eviction notice so he could secure financial assistance from a veterans association. The debtor subsequently filed for bankruptcy on September 19, 2025, but failed to include the landlord’s full address in his petition schedules. The landlord filed a summary ejectment action several days later. On a Saturday afternoon, two days before a scheduled Monday morning eviction hearing, the debtor’s attorney contacted the landlord’s property manager by text message, advising her of the bankruptcy filing and potential stay violation regarding the eviction proceeding. At the state court hearing on October 6, following the property manager’s request for eviction and past due rent, the debtor announced his bankruptcy, prompting the judge to issue an administrative stay. Though the landlord ceased its eviction actions, the debtor elected to vacate the property and abandoned his efforts to secure financial assistance from a veterans association.
Although the landlord’s filing of the eviction action was a technical violation of the automatic stay, the Court found it was not willful given the lack of evidence that the landlord received notice of the bankruptcy case prior to pursuing eviction. The text message from the debtor’s attorney to the property manager was sufficient, however, to find the landlord had actual notice of the bankruptcy filing prior to the eviction hearing on October 6. As a result, the landlord’s request for eviction and past due rent at the hearing constituted a willful violation of the automatic stay.
Nevertheless, the Court denied the debtor’s request for sanctions and damages. Punitive damages were unwarranted because the landlord’s conduct was not egregious or vindictive. The debtor also failed to provide any evidence of actual damages proximately caused by the stay violation other than attorney fees and legal expenses in prosecuting the motion. The Court declined to award nominal damages and attorney fees given the manufactured nature of damages and the debtor’s lack of due diligence. The Court observed that (1) the landlord initiated the eviction proceeding at the debtor’s request, which the debtor abandoned after the hearing; (2) the debtor’s own misaddressing errors left the landlord without written notice; and (3) the debtor and his counsel waited five days to contact the landlord after receiving the eviction notice, doing so by text message to the property manager on a Saturday, two days before the scheduled Monday morning hearing. The Court found that, having created the conditions in which the property manager made an appearance at a hearing for an ejectment action filed at the debtor’s request, and despite the administrative stay subsequently imposed, the debtor filed an opportunistic motion for sanctions that misrepresented the landlord's conduct. For those reasons, the Court denied the debtor’s motion for sanctions.
Opinions
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(Judge: Lena M. James)
(Judge: Lena M. James)
Order Granting in Part and Denying in Part Motion to Dismiss. Defendant doctor filed a motion to dismiss the Plaintiff-Trustee’s amended complaint, in which the Trustee sought to avoid and recover a $12.5 million transfer used to purchase the Defendant’s medical practice as an actually fraudulent transfer under N.C. Gen. Stat. § 39-23.4(a)(1) and the Trustee’s strong-arm powers of 11 U.S.C. § 544.
The Court granted the motion to dismiss the Trustee’s second cause of action finding that the Trustee failed to sufficiently allege that insurance policyholders qualified as "triggering creditors" under section 544(b). The Court observed that, given the attenuated and unclear nature of any claim a policyholder might have that would lead to a claim against the Debtor under North Carolina law, and the complexity of the transfers providing the basis for any such claim, the lack of basic factual assertions in the Amended Complaint supporting the existence of a policyholder-creditor left the issue at the speculative level rather than crossing into the plausible.
The Court, however, denied the motion as to the first and third causes of action. Per the Trustee’s allegations, the Debtor in the underlying bankruptcy was an entity created by Greg Lindberg, a convicted felon who allegedly used the purchase of the Defendant’s medical practice as part of a wide-ranging scheme to siphon insurance company money for personal benefit. The Court found the Amended Complaint plausibly alleged that the transfer was made with the actual intent to defraud creditors, noting the presence of several "badges of fraud" under N.C. Gen. Stat. § 39-23.4(b), such as the fact that the $25 million purchase price significantly exceeded the value of the practice's assets and that the Debtor was left overleveraged and unable to meet its debt obligations. The Amended Complaint also contained plausible allegations that the Debtor’s transfer to the Defendant connected to and furthered Lindberg’s fraudulent scheme. As a result, the Court found the first and third causes of action stated a claim for actual fraudulent transfer and met the heightened pleading standard for fraud under Rule 9(b).
(Judge: Lena M. James)
Order denying a debtor’s requests for sanctions based on alleged violation of the automatic stay. An individual chapter 7 debtor moved for damages against the North Carolina Division of Motor Vehicles (the “NCDVM”) under 11 U.S.C. 362(k), alleging it had violated the bankruptcy automatic stay by revoking her vehicle registration to collect a pre-petition civil penalty that was assessed because the debtor’s vehicle insurance had lapsed. The Court denied the motion because the debtor could not demonstrate that the NCDMV had acted to collect a pre-pre-petition debt and because, to the extent revoking the debtor’s vehicle registration was an exercise of control over estate property, the NCDMV’s action fell within the “police and regulatory power” exception to the automatic stay.
About a month prior to the petition date in this case, the debtor experienced a lapse in motor vehicle liability insurance. This lapse was reported to the NCDMV, which initiated a statutorily mandated process to determine whether the debtor had financial responsibility for her vehicle. That process involved issuing a notice to the debtor requiring her to provide evidence of liability insurance by the end of a period that ultimately fell weeks after the petition date. When the debtor failed to respond, the NCDMV was required by statute to assess a civil penalty and revoke her vehicle registration. This led the debtor to allege an automatic stay violation.
The Court laid out several reasons for denying the debtor’s motion. First, the Debtor’s argument that the NCDMV revoked her vehicle registration to collect a pre-petition debt failed because the NCDMV did not assess a civil penalty until after the petition date, making it a post-petition debt. Second, same argument failed because the civil penalty and registration revocation are distinct and independent enforcement requirements of the statute under which the NCDMV acted. There is no relationship between the civil penalty and the revocation whereby the latter can be understood as an enforcement mechanism of the former. Third, and finally, the Court found that to the extent the NCDMV might have exercised control over property of the estate, its actions were excepted from the automatic stay under 11 U.S.C. § 362(b)(4)— the “police and regulatory power” exception to the automatic stay.
Under § 362(b)(4), a bankruptcy petition "does not operate as a stay . . . of the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit’s . . . police or regulatory power, including the enforcement of a judgement other than a money judgement." A governmental unit, defined in 11 U.S.C. § 101(27), exercises its police or regulatory power when the purpose of the law it enforces “is to promote ‘public safety and welfare’” or “effectuate public policy” rather than to “protect the government’s pecuniary interest in the debtor’s property.” Safety-Kleen, Inc. v. Wyche, 274 F.3d 846, 865 (4th Cir. 2001) (citation modified). The Court determined that the provisions of North Carolina’s Vehicle Financial Responsibility Act of 1957 primarily reflected the state’s concern for safety and public welfare, and it therefore concluded that the § 362(b)(4) exception applied to the NCDMV’s revocation of the debtor’s registration in this case. So, the debtor’s motion for sanctions was denied.
(Judge: Benjamin A. Kahn)
Order Granting Defendants’ Motion to Dismiss Adversary Proceedings. Prepetition, one of the Defendants commenced a foreclosure action against Debtor-Plaintiff. In the same state court, also prepetition, Plaintiff filed her own proceeding against Defendants. On the day of the scheduled foreclosure sale, Plaintiff filed a chapter 7 petition and attempted to notify Defendant of the bankruptcy case. Because Defendant did not find out about the bankruptcy in time, the foreclosure sale was held; however, Defendant moved to set aside the report of the foreclosure sale after becoming aware of the bankruptcy case. Subsequently, Plaintiff filed a motion in her main case to enforce the automatic stay and for sanctions. The Court denied that motion, finding that the foreclosure sale was of no effect by operation of North Carolina law, and that the sale was merely a technical violation of the stay, for which Plaintiff did not suffer damages. Plaintiff then commenced this adversary proceeding against Defendants for alleged violations of the automatic stay related to the foreclosure action and based upon actions taken by Defendants in the separate action Plaintiff commenced in state court. Defendants moved to dismiss the complaint for failure to state a claim under 12(b)(6), primarily because Defendants’ actions were merely only intended to seek dismissal of the Debtor’s pre-petition suit. While courts generally limit their 12(b)(6) examination to the complaint itself, the Fourth Circuit also permits consideration of documents submitted by the movant when there is no dispute about their authenticity and the complaint relies heavily upon the other documents. Here, Defendants attached, and the Court considered as part of the complaint, state court proceeding documents illustrating the arguments Defendants advanced in defense to Plaintiff’s state court claims. The Court dismissed the adversary proceeding claims which attempted to re-litigate the issue of whether the foreclosure sale violated the automatic stay and entitled Plaintiff to sanctions. The Court also found that merely defending against a complaint filed by a debtor pre-petition is not a violation of the stay. As Plaintiff had failed to allege a violation of the automatic stay, the Court dismissed the adversary proceeding.
(Judge: Benjamin A. Kahn)
Order Denying in Part and Deferring in Part Plaintiff’s Motion for Summary Judgment, Deferring Defendants’ Cross-Motion for Summary Judgment, and Directing Both Parties to Comply with Local Rule 7056-1. Plaintiff commenced an adversary proceeding seeking declaration that Defendants’ debt, arising out of a confession of judgment, is nondischargeable under 11 U.S.C. § 523(a)(6). Plaintiff filed a motion for summary judgment, and pro se Defendants filed a motion to defer or deny Plaintiff’s motion as well as a cross-motion for summary judgment. In order to show that the debt represented by the confession of judgment is exempt from discharge, Plaintiff must establish that the debt is for willful and malicious injury to Plaintiff by Defendants. In support of its motion, Plaintiff argued that issue preclusion prohibited Defendants from relitigating the issue of willfulness, that Defendants should be bound by statements contained in the confession of judgment, and that quasi-estoppel should apply. First, the Court determined that, under North Carolina law, the confession of judgment is entitled to claim preclusion but not issue preclusion. Second, the Court determined that Defendants are not bound by the statements in the confession of judgment: North Carolina law provides that a confession of judgment is not preclusive as to any fact, except in an action on the judgment confessed. The Court also declined to apply quasi-estoppel because doing so would render the limitation that a confession of judgment is not preclusive as to any fact meaningless and go beyond the obligations imposed by the settlement agreement that required Defendants to execute the confession of judgement. Finally, the Court directed both parties to comply with the Local Rules on formatting, specifically Local Rule 7056-1. The Court deferred ruling on the remaining arguments in Plaintiff’s motion and Defendants’ cross-motion until the conclusion of discovery.
(Judge: Benjamin A. Kahn)
Order Granting Defendants’ Motion to Dismiss Adversary Proceeding and Permissively Abstaining Under 28 U.S.C. § 1334. Debtor-plaintiff commenced this adversary proceeding, alleging that Defendants, Debtor’s insurer and insurer’s agents, violated numerous state laws and the automatic stay under 11 U.S.C. § 362. Defendants filed a Rule 12(b)(6) motion to dismiss the adversary proceeding on the basis that the complaint fails to state a claim on which relief can be granted. The Court first found that Plaintiff’s § 362 claim for violation of the automatic stay could not survive at the motion to dismiss stage. To establish a claim for relief for violation of the automatic stay, Plaintiff was required to allege, among other things, that Defendants took some post-petition action against her, her property, or the bankruptcy estate. Plaintiff did not allege facts supporting this element, and the Court dismissed that claim with prejudice. The remaining claims all alleged violations of state law. The Court noted that, under 28 U.S.C. § 1334(c)(1), a bankruptcy court may permissively abstain from proceedings over which it would otherwise have jurisdiction. Analyzing twelve abstention factors, the Court found that permissive abstention was appropriate. Especially important to the Court’s abstention was its uncertainty as to its subject matter jurisdiction over the remaining claims, the high likelihood that any awards granted on these claims would not be administered by the chapter 7 trustee, and the availability of a state agency and state courts as fora to adjudicate these claims. Having decided to permissively abstain from hearing the state law claims, the Court granted Defendants’ motion to dismiss without prejudice as to those claims.
(Judge: Benjamin A. Kahn)
Order Granting Defendant’s Motion to Dismiss Adversary Proceeding and for Abstention Under 28 U.S.C. § 1334. Debtor-Plaintiff sought damages against Defendant for breach of the implied warranty of habitability and fraudulent or deceptive trade practices. Defendant filed a motion to dismiss, contending that abstention was mandatory under 28 U.S.C. § 1334(c)(2) or alternatively, the Court should permissively abstain under 28 U.S.C. § 1334(c)(1). The Court found that Defendant’s motion was timely; that the adversary proceeding was on upon state law claims; that the case was merely “related to” a bankruptcy case, rather than arising in or under Title 11; that there would be no independent grounds for federal jurisdiction over these claims; that the state court action based on the claims was pending when the bankruptcy case was filed; and that the claims could be timely adjudicated in state court. Therefore, abstention was mandatory. The Court further found that, even if abstention were not necessary, it would permissively abstain in the interests of justice and comity.
(Judge: Benjamin A. Kahn)
Order Determining That Modern Rent to Own Violated the Automatic Stay and Awarding Damages Under 11 U.S.C. § 362(K). The Court ordered sanctions against a Creditor for violating the automatic stay, and granted nominal damages of $1 and punitive damages of $5,000 to Debtor. Pro se Debtor had filed a chapter 7 bankruptcy petition and listed certain lease-purchase agreements between herself and Creditor. The Bankruptcy Noticing Center served a notice on Creditor on September 5, 2025. Shortly thereafter, Debtor began receiving three to five phone calls per day, as well as text messages, from Creditor. These messages attempted to recover on Debtor’s prepetition debt, or repossess the personal property which secured it. Debtor missed opportunities to work as a result of her full voicemail. On October 31, Debtor explained to Creditor’s representative that she had filed bankruptcy, but the representative responded that he was instructed to continuously call anyone whose account was not current, regardless of a bankruptcy filing. As directed by the representative, Debtor emailed and called the Creditor to inform them of her bankruptcy proceeding. The manager of the store likewise indicated that he had received notice of the proceeding, but had been told the stay did not apply. The Court found that this behavior constituted a willful violation of the automatic stay, as Creditor had knowledge of the bankruptcy. Furthermore, the Court found this behavior justified damages under 11 U.S.C. § 362(k)(1). Debtor alleged injuries from the violation of the automatic stay, such as costs to file and serve the motion, missed work opportunities, and mental anguish; however, she failed to introduce evidence sufficient to quantify compensatory damages. As a result, the Court awarded $1 in nominal damages. The Court also awarded punitive damages because Creditor acted in reckless disregard of the stay, about which it had been notified multiple times. Further, Creditor’s constant phone calls and texts harassed Debtor. In determining the amount of punitive damages, the Court did not use the nominal damages as a guidepost because they were not representative of Debtor’s actual damages nor sufficient to deter Creditor and others. Instead, the Court determined a moderate damage award was necessary and reached $5,000 by doubling the amount that Debtor owed on the underlying contractual obligations.
(Judge: Benjamin A. Kahn)
Order on Document Titled “Defendants’ Clarification Regarding Conditional Withdrawal.” Plaintiffs seek a declaration of exception to discharge for a debt owed to Plaintiff by Defendants. Pro se Defendants filed an answer, an amended answer, adding counterclaims and a third-party complaint. Then, Defendants filed a document titled “Defendants Amended Answer to Amended Complaint and Amended Counterclaim” which the Court liberally construed as (1) a motion for leave to amend Defendants’ amended answer, (2) a voluntary dismissal of the third-party complaint, and (3) a motion to reconsider the Court’s prior order denying Defendants’ motion to dismiss as well as the Court’s order denying Defendants’ motion to reconsider.. The Court allowed Defendants seven days to file a statement explaining how the Court had misinterpreted the filing. Thereafter, Defendants filed the document titled “Defendants’ Clarification Regarding Conditional Withdrawal.” Defendants stated that the prior document was intended to withdraw all previously asserted third-party claims and counterclaims, and to add a new counterclaim for a declaratory judgment that Plaintiff does not hold a cognizable debt. Therefore, the Court construed the prior document as (1) a motion for leave to amend the amended answer to withdraw previously asserted counterclaims and to add the declaratory judgment counterclaim, and (2) a notice of voluntary dismissal of third-party complaint. The Court granted Defendants leave to withdraw the previously asserted counterclaims. The Court denied Defendants leave to add the declaratory judgment counterclaim because the proposed amendment failed to state a claim upon which relief can be granted and was therefore futile. Plaintiff’s right to payment constitutes a claim under § 101(5)(A) and Defendants’ liability under that claim constitutes a debt under § 101(12); therefore, Plaintiff holds a cognizable debt.
(Judge: Benjamin A. Kahn)
Order on Motion for Determination that Automatic Stay Does Not Apply or, Alternatively, Relief from the Automatic Stay. The Court held that the Mandatory Victims Restitution Act (MVRA), 18 U.S.C. § 3613, overrides the bankruptcy code to the extent that a restitution debtor holds rights to property otherwise subject to the automatic stay. Debtor filed a voluntary chapter 13 bankruptcy case, listing among her assets real property subject to three liens. One lien arose from a restitution judgment, subject to the MVRA, against Debtor’s ex-spouse, as a result of the ex-spouse having been found guilty of wire fraud. At the time the judgment was entered, Debtor and the ex-spouse owned the subject real property as tenants by the entireties. Upon entry of the judgment, the properly perfected lien attached to all of the ex-spouse’s property, including his undivided one-half ownership interest in the real property at issue. Subsequently, and prior to Debtor’s bankruptcy, the United States ( Creditor) initiated a civil action to enforce the lien against the ex-husband’s undivided one-half ownership interest in the real property in the middle district of North Carolina. Creditor sought a forced judicial sale and named Debtor as one of the defendants. Thereafter, Debtor filed for bankruptcy. Creditor requested a determination that the automatic stay does not apply to the Civil Action because the MVRA overrides the Bankruptcy Code. In the alternative, Creditor requested relief from the automatic stay. The Court determined that the automatic stay does not apply to the Civil Action. First, the Court noted that it had previously held that the MVRA allows for seizure of all property or rights to property notwithstanding any other federal law, also applies to and supersedes the Bankruptcy Code, including the automatic stay provided by 11 U.S.C. § 362(a). A restitution lien is valid against all co-owners, even if owned as tenants by the entireties, as here. While Debtor was not the defendant ordered to pay restitution, and although she had since become the sole owner of the property, the restitution lien nevertheless survived ex-spouse’s transfer of his interest in the property to her. The Court further noted that if such a transfer did permit a criminal defendant to evade the MVRA by simply transferring the affected property to a spouse after the property became subject to the restitution lien such a rule would also would eviscerate the statute’s effect. Therefore, the stay did not apply to the continuation, enforcement, and collection of the restitution against the real property in the civil action.
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