Havelock v. Taxel (In Re Pace)

159 B.R. 890, 93 Daily Journal DAR 13983, 93 Cal. Daily Op. Serv. 8211, 30 Collier Bankr. Cas. 2d 48, 1993 Bankr. LEXIS 1566, 24 Bankr. Ct. Dec. (CRR) 1423
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedOctober 22, 1993
DocketBAP No. SC-92-1761-ROJe, Bankruptcy No. 88-04238-B7, Adv. No. 91-90142-B7
StatusPublished
Cited by43 cases

This text of 159 B.R. 890 (Havelock v. Taxel (In Re Pace)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Havelock v. Taxel (In Re Pace), 159 B.R. 890, 93 Daily Journal DAR 13983, 93 Cal. Daily Op. Serv. 8211, 30 Collier Bankr. Cas. 2d 48, 1993 Bankr. LEXIS 1566, 24 Bankr. Ct. Dec. (CRR) 1423 (bap9 1993).

Opinions

OPINION

RUSSELL, Bankruptcy Judge:

The bankruptcy court awarded the trustee attorneys’ fees and costs against the debtor’s attorneys2 pursuant to 11 U.S.C. § 362(h)3 for violations of the automatic [893]*893stay. The violations involved exercising dominion and control over property of the debtor’s estate, including a state court malpractice lawsuit and the proceeds of the settlement of the lawsuit. The attorneys appeal. We AFFIRM.

I. FACTS

The essential facts of the case are undisputed or uncontested. The debtor, Jeri L. Pace, presently known as Jeri LeMai (“Le-Mai”), and her former husband, H. Russell Pace (“Pace”), were the sole owners of two Alaska corporations known as The Pines Corporation and Pace Corporation (hereinafter collectively referred to as “the corporations”).

In January 1985, the corporations sold their assets, including the Alcohol Beverage Dispensary Licenses (hereinafter collectively referred to as “the liquor licenses”), to The New Pines Corporation. Le-Mai and Pace retained legal counsel to assist them in the sale transaction to The New Pines Corporation.

In September 1986, Pace filed a Chapter 11 petition in the District of Alaska. In December 1986, the Pace bankruptcy case was converted to Chapter 7 and Kenneth Battley was appointed trustee.

In July 1987, LeMai and Pace discovered that their attorneys may have committed malpractice by failing to file a financing statement to perfect their security interest in the liquor licenses. In October 1987, LeMai and Pace filed a complaint in Alaska Superior Court against their former attorneys for malpractice for failing to perfect their security interest in the liquor licenses (hereinafter the “Alaska lawsuit”).

In November 1987, the First Amended Complaint was filed in the Alaska lawsuit, removing LeMai as a plaintiff from lawsuit.

On May 26, 1988, LeMai filed her petition under Chapter 7 in the Southern District of California. LeMai did not list her claim for legal malpractice and her interest in the pending Alaska lawsuit on her Statement Of Financial Affairs and Schedules Of Assets And Liabilities filed with the bankruptcy court as part of her petition for bankruptcy. Consequently, the trustee believed LeMai’s bankruptcy estate had no assets. On September 23, 1988, the order of discharge was entered in LeMai’s bankruptcy and the case was ordered closed on February 21, 1989.

On July 26, 1989, shortly after her discharge, LeMai entered into an agreement with Pace to share any proceeds received from the pending Alaska lawsuit on a 50/50 basis. On July 31, 1989, LeMai hired Appellant, attorney John E. Havelock (“Ha-velock”), to prosecute the Alaska lawsuit. In the summer of 1989, Pace hired Appellant, attorney John R. Strachan (“Stra-chan”), to prosecute the lawsuit and informed Strachan of his bankruptcy. Despite having hired their attorneys, active prosecution of the Alaska lawsuit did not re-commence at this time. Pace had not been discharged and his bankruptcy case had not yet closed. It appears that the decision was made to wait until Pace was discharged before re-commencing prosecution of the Alaska lawsuit and was based upon the mistaken belief that the lawsuit would be deemed abandoned after the discharge.4 Strachan admitted that he “suggested to (Pace) that there was little point in proceeding with a case if the only beneficiaries of the work involved were to be creditors.”

In September 1989, Pace’s bankruptcy case in the Alaska bankruptcy court was closed and Pace was discharged.5 In No[894]*894vember 1989, LeMai rejoined the Alaska lawsuit by filing the Second Amended Complaint which once again named Pace and LeMai as plaintiffs.

On April 2, 1990, LeMai disclosed to Appellants that she had filed a Chapter 7 case and provided a copy of her statements and schedules filed with her bankruptcy petition at her deposition in the Alaska lawsuit. Appellants admit that they were aware of LeMai’s bankruptcy at this time, but that they ignored it because they believed this fact was not legally significant. As Stra-chan stated, “at the LeMai deposition, we first learned of her bankruptcy” but “I did not pursue it further; there was no need.”

Shortly thereafter, the defendants in the Alaska lawsuit discovered that both LeMai and Pace had filed bankruptcy petitions and that both LeMai and Pace did not disclose the Alaska lawsuit to their respective trustees or to the bankruptcy court. The defendants in the Alaska lawsuit urged the Appellants to contact the trustees of the bankruptcy estates and inform them that the lawsuit was property of the respective bankruptcy estates. Despite the warning, Appellants did not contact the trustees. Consequently, in July 1990, the defendants in the Alaska lawsuit filed a motion with the Alaska Superior Court to substitute the trustees as the real parties in interest in the Alaska lawsuit.

Appellants opposed this motion and somehow convinced the Alaska Superior Court that the trustees had abandoned their interests in the Alaska lawsuit and were not the real parties in interest. Consequently, the Alaska Superior Court denied the motion to substitute the trustees as the real parties in interest in the Alaska lawsuit. Appellants continued to conceal the pending Alaska lawsuit from the trustees and the bankruptcy courts.

In December 1990, the defendants in the Alaska lawsuit informed the San Diego Office of the United States Trustee of the existence of the pending Alaska lawsuit. Harold S. Taxel (“trustee”) was informed for the first time about the Alaska lawsuit by the United States Trustee’s office by letter, dated January 16, 1991. On February 7, 1991, the bankruptcy court reopened this bankruptcy case and reappointed the trustee as trustee of the LeMai bankruptcy estate.

On February 8, 1991, the trustee informed Appellants, Strachan and Havelock, that this bankruptcy estate had been reopened and that LeMai’s interests in the legal malpractice claim and the Alaska lawsuit were property of the bankruptcy estate. The trustee requested that Appellants cease prosecution of the Alaska lawsuit and informed them that any further prosecution of the Alaska lawsuit constituted a violation of the automatic stay under the Bankruptcy Code. At this time, Stra-chan and Havelock were clearly on notice that their actions were violative of the stay. In his letter addressed to both Havelock and Strachan, Richard C. Norton, of Estes & Hoyt P.C., (who represented the trustee, Harold S. Taxel), explained that LeMai had removed herself from the Alaska state court malpractice action; that she moved to San Diego, filed bankruptcy, and obtained a discharge; that she moved back to Alaska and amended back in as a plaintiff; and that it appeared that she intentionally left the cause of action off her schedules. In addition, the letter explained: (1) that the bankruptcy estate is comprised of all legal and equitable interests of the debtor, citing § 541; (2) that the lawsuit being asserted by Appellants was clearly included in property of the estate; (3) that any act to exercise control over this lawsuit is in violation of the automatic stay citing § 362(a)(3); and (4) that any further prosecution of the Alaska lawsuit would be a violation of the stay and could subject them to liability for damages.

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159 B.R. 890, 93 Daily Journal DAR 13983, 93 Cal. Daily Op. Serv. 8211, 30 Collier Bankr. Cas. 2d 48, 1993 Bankr. LEXIS 1566, 24 Bankr. Ct. Dec. (CRR) 1423, Counsel Stack Legal Research, https://law.counselstack.com/opinion/havelock-v-taxel-in-re-pace-bap9-1993.