Civil Contempt Against Debtor Not Stayed by Bankruptcy Petition

Posted: 1 year 49 weeks ago

By: Colleen E. Spain

St. John’s Law Student

American Bankruptcy Institute Law Review Staff
Weighing in on a three-way circuit court split, the Sixth Circuit recognized a non-statutory exception to the automatic stay, in Dominic’s Restaurant of Dayton, Inc. v. Mantia, and allowed a civil contempt proceeding to continue against a debtor.[1] In 2007, the Mantia family closed their family-run restaurant, Dominic’s, but continued to market certain food products under the name “Dominic’s Foods of Dayton.”[2] Soon after the restaurant closed, Christie Mantia sold her interest in the original Dominic’s Restaurant and planned with Reece Powers and Harry Lee to open a restaurant, name it Dominic’s Restaurant, Inc., and use the old Dominic’s recipes.[3] The owners of the original Dominic’s Restaurant (“Plaintiffs”) brought trademark infringement and trademark dilution claims against Mantia, Powers, and Lee (“Defendants”).[4] The district court issued a TRO and then a preliminary injunction (the “Injunctions”) directing Defendants to cease using the Dominic’s name and graphics.[5] After Plaintiffs filed a series of contempt motions against Defendants based on Defendants’ violation of the Injunctions, the district court granted a default judgment and the contempt motion against Defendants.[6] Although Powers filed for personal bankruptcy in the midst of this, the district court declined to stay the judgments against him.[7]
When a debtor files bankruptcy, the automatic stay protects the debtor from most litigation.[8] There are a number of statutory exceptions to the automatic stay, including criminal contempt actions,[9] but not civil contempt actions.[10] However, the statutorily enumerated exceptions are not exhaustive and courts have recognized other exceptions.[11] Some exceptions have arisen out of a court’s inherent power to take action to ensure that parties comply with its orders.[12] Here, the Sixth Circuit recognized that the civil contempt, and the injunctions on which the contempt was based, ought to be allowed to proceed, despite the automatic stay.[13] Since the automatic stay would serve to protect not only Powers’ interest in his property, but also his ability to tortiously use that property and disobey court orders, the Sixth Circuit determined that the contempt action against Powers must not be stayed.[14]
Courts have used three different approaches in determining whether or not a civil contempt action ought to be stayed.[15] Courts in the Third and Eleventh Circuits have determined that only criminal proceedings may continue despite the automatic stay and have refused to create an exception for civil contempt actions.[16] The Fifth Circuit and courts in the Second Circuit have determined that if a contempt order is issued to enforce an order of the court and not to enforce a money judgment, collect money, or harass a defendant, its continuance does not violate the automatic stay.[17] Lastly, in the Fourth and Tenth Circuits and, post-Dominic’s, the Sixth Circuit,[18] courts have invoked their equitable powers to allow civil contempt actions to proceed if such actions relate to compliance with a court order.[19]  Only time will tell whether other courts will use this equitable exception to the automatic stay in order to ensure that court orders are followed without interruption.

[1] Dominic’s Restaurant of Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir. 2012) (noting that filing bankruptcy petition operates to stay any and all actions against a debtor, but there are statutory and non-statutory exemptions).
[2] Id. at 758.
[3] Id.
[4] Id.
[5] Id.
[6] Id. at 759–60.
[7] Id. at 760.
[8] See 11 U.S.C. § 362(b).
[9]   Id.
[10] 11 U.S.C. § 362(b) (2006).
[11] Dominic’s, 683 F.3d at 761 (quoting In re Rook, 102 B.R. 490, 493 (Bankr. E.D. Va. 1989)).
[12] Id.
[13] Id.
[14] Id.
[15] Rook, 102 B.R. at 493.
[16] Id.; see also, In re Dervaes, 81 B.R. 127, 129 (Bankr. S.D.Fla. 1987), and, In re Cherry, 78 B.R. 65, 70 (Bankr. E.D.Pa. 1987).
[17] Id.; see also, Int’l Distrib. Ctrs., Inc. v. Walsh Trucking Co., Inc., 62 B.R. 723, 729 (Bankr. S.D.N.Y. 1986), and, In re Stewart, 571 F.2d 958, 963 (5th Cir. 1978).
[18] 683 F.3d at 761.
[19] US Sprint Commc’ns Co. v. Buscher, 89 B.R. 154, 156 (D.Kan. 1988); see also, Smith-St. John Mfg. Co. v. Lenard Price, Civ. Action No. 88–2018, slip op., 1989 WL 7922, at *2 (D. Kan. Jan. 9, 1989), and, In re Clowser, 39 B.R. 883, 886 (Bankr. E.D. Va. 1984).