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Sterling v. Southlake Nautilus Health & Racquet Club Inc.

United States District Court, N.D. Indiana, Hammond Division

August 2, 2018

Jacqueline M Sterling, Plaintiff,
Southlake Nautilus Health & Racquet Club Inc., et al., Defendants.



         As it pertains to this appeal, Appellant Jacqueline Sterling claimed in bankruptcy court that Appellees Southlake Nautilus Health & Racquet Club and the law firm of Austgen, Kuiper & Associates willfully violated that court's injunction against collecting her debts, see 11 U.S.C. § 524(a)(2), which resulted in her being arrested pursuant to a state court bench warrant. The bankruptcy court held a trial and found in favor of the Appellees. Sterling has appealed the bankruptcy court's judgment, but as sometimes is the case, the hurt and suffering Sterling experienced cannot be remedied through legal channels: her burden is just too high to prevail under the facts elicited at trial.

         District courts have jurisdiction to hear appeals from the final rulings of bankruptcy courts. Findings of fact “shall not be send aside unless clearly erroneous.” Bankruptcy Rule 8013. On the other hand, a bankruptcy court's legal rulings are reviewed de novo. In re Newman, 903 F.2d 1150 (7th Cir. 1990).

         A. Bankruptcy Court's Findings

         Sterling's injuries arose out of Austgen's aggressive attempts to collect her debt through state court proceedings---even as, unbeknownst to it, Sterling's bankruptcy case was pending---and Sterling's failure to attend state court hearings. The following is a summary of the bankruptcy court's trial findings.

         At the turn of the century, Sterling owed $518 to Southlake. Believing that Sterling would not pay the debt, Southlake referred her account to the Austgen law firm for collection. In 2001, the firm filed a collection action in state court. A year later, a default judgment was entered against Sterling in the amount $957. The firm then started supplemental proceedings to collect on the judgment. During this period, Sterling made sporadic payments on the debt but did not pay it in full.

         In 2008, Sterling told an Austgen representative that she was planning to file for bankruptcy, but that didn't happen until the end of 2009.

         When Sterling filed a Chapter 7 petition in the bankruptcy court, she listed Southlake, but not Austgen, on her Schedule F; nor did she provide notice of the bankruptcy in the state court case. By law, the notice is designed to protect the debtor from the creditors and operates as an injunction against collecting any debts.

         The trial court found that the notice of Sterling's bankruptcy was mailed to and received by Southlake but Southlake did not pass it on to Austgen, even though its customary practice was to pass on such notices to Austgen. The trial court found that, although the notice was received at Southlake's office, Plaintiff was unable to prove that anyone at Southlake handled it.

         Meanwhile, Austgen, unaware of the bankruptcy filing, resumed its supplemental proceedings against Sterling in state court. After Sterling failed to appear at the hearings, Austgen petitioned for a bench warrant which the state court issued at the beginning of 2010, several months after Sterling's Chapter 7 petition had been filed.

         In January 2011, the bankruptcy court discharged Sterling's debts, including the debt owed to Southlake.

         In March 2011, Sterling was driving a car when it got a flat tire. A police officer stopped to assist her, but then to her surprise arrested her due to the outstanding warrant. Sterling spent three days in jail, until she was able to contact her bankruptcy attorney.

         On the basis of these facts, the trial court found that Austgen did not act willfully to violate the bankruptcy court's injunction against collecting Sterling's debt because, since no notice was sent to it either by Sterling or Southlake, it was unaware of the bankruptcy filing. As for Southlake, the trial court found that, although the bankruptcy notice was properly mailed to and received at Southlake's office, no one at Southlake saw it or was aware of it. The trial court also found that Southlake did not have formal procedures for recording receipts of bankruptcy notices in cases which it had referred to Austgen for collection. The trial court found that no one at Southlake directed Austgen to take any specific action in relation to Sterling's debts, especially action related to supplemental proceedings in state court. As a result of these conclusions, the trial court found both Austgen and Southlake not liable because neither of them willfully acted contrary to the bankruptcy court's injunction.

         B. Bankruptcy court's factual findings were not clearly erroneous and its legal ...

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