A hearing was held on February 9, 1993 on the cross-motions for partial summary judgment filed by Richard Wagner against Van Arnem Financial Services (VAFS) (Docket No. 9) and by VAFS against the debtor and the estate (Docket No. 23). The court made rulings as set forth in the following seven sections. A non-final partial summary judgment will be entered based upon this memorandum.

1. VIOLATION OF THE AUTOMATIC STAY - The parties stipulated that VAFS violated the automatic stay (§ 362(a) of the Bankruptcy Code) when it sold the computer equipment and software on Monday, March 14, 1988, and subsequently rented and/or sold the equipment and software. VAFS characterizes the breach of the automatic stay as innocent and noninjurious to the debtor, and the debtor claims he should have substantial damages. Therefore, summary judgment is entered on plaintiff's Count I that VAFS violated the automatic stay, but a trial will be necessary to determine damages.

2. 11 USC § 362(h) IS THE BASIS OF THE REMEDY FOR VIOLATION OF THE AUTOMATIC STAY - Any damages awarded against VAFS for violation of the automatic should be determined under § 362(h) of the Bankruptcy Code. Factual issues, of course, exist as to what, if any, damages are appropriate. In re Pinkstaff, 974 F2d 113 (9th Cir 1992) and In re Taylor, 884 F2d 478 (9th Cir 1989).

3. TURNOVER - Debtor requested summary judgment that the computer equipment and software be turned over to the estate pursuant to § 542 of the Bankruptcy Code. This part of debtor's motion will be denied.

The computer equipment and software has been sold to third parties who are not parties to this lawsuit. Therefore, we do not have the necessary parties in front of the court to make a ruling on turnover, and the court denies summary judgment on this issue.

It is possible, given the passage of time, that the present value of the equipment and software does not justify pursuit of this remedy by Wagner. Since VAFS has a judgment against Wagner of about $2,000,000, finding an appropriate value for the software and equipment may be all that is necessary to determine what appropriate offset, if any, should be granted to the estate against VAFS's proof of claim based upon this judgment.

4. DAMAGES FROM BREACH OF CONTRACT BASED ON FRAUD OR MISREPRESENTATION - Summary judgment is granted to VAFS to the extent Wagner is asking for damages for VAFS's alleged breach of contract or based on fraud or misrepresentation. Judgment on this issue has been entered against Wagner and in favor of VAFS in the U.S. District Court for the Eastern District of Michigan, Southern Division, in File No. 86-CV-71128-DT, Van Arnem Financial Service, Inc., a Michigan Corporation, v. Richard E. Wagner which collaterally estops Wagner from raising these issues again. See, In re Gottheiner, 703 F2d 1136, 1139 (9th Cir 1983) (bankruptcy court based decision on prior U.S. District Court litigation; "[c]ollateral estoppel will preclude relitigation of issues that have already been litigated in and were necessary to a prior judgment. [citations omitted]    [c]ollateral estoppel is not generally applicable unless there exists an identity or privity between the parties to the relevant litigation" [Id at 1139]; the disputed issues must have actually been litigated [id at 1140]).

5. VAFS'S CLAIM FOR ATTORNEY FEES AND COSTS OF COLLECTION ARE MERGED IN THE MICHIGAN JUDGMENT - VAFS claims it is entitled to over $300,000 costs and attorney fees incurred after the entry of the Michigan judgment in 1987 for both (a) pre-petition and post-petition collection efforts to recover the judgment from Wagner, and (b) for other lawsuits it had to defend as a consequence of the financial difficulty caused to it by Wagner's nonpayment.

The promissory note which was the subject of the Michigan action         3 ABR 91  contained a provision that permitted VAFS to collect costs and attorney fees for collection of the note. The security agreement given by Wagner to VAFS contained no separate costs and attorney fees clause. Therefore, the costs and attorney fees allowable under the note are those granted in the Michigan judgment, and contractual right to attorney fees and costs are merged in that judgment. No independent right for costs and attorney fees exists in the contractual sense at this time. See, In re Schlect, 36 BR 236 (Bankr D AK 1983) and In re Clark, Grind & Polish, Inc., 137 BR 172, 175 (Bankr WD Pa 1992).

6. CONSEQUENTIAL DAMAGES FOR FAILING TO PAY PROMISSORY NOTE - Summary judgment is denied to VAFS on its cross-claim for consequential damages alleged as a result of nonpayment of the promissory note which was the subject of the Michigan lawsuit. VAFS's motion for summary judgment included claims for $1.1 million (over $300,000 of which are the attorney fees and costs mentioned in section 5 of this memorandum) in addition to the approximate $2 million 1987 judgment by the U.S. District Court in Michigan. Although not well itemized, the damages were allegedly incurred in VAFS's having to deal with its lender in restructuring its own financial portfolio as the result of nonpayment by Wagner. VAFS's claim was principally on recovery of its promissory note executed by Wagner. Such recovery generally includes the unpaid principal and interest accrued since the breach. Hicks v Capitol American Life Ins. Co., 943 F2d 891, 894-95 (8th Cir 1991). Consequential damages, other than those described in section 7 of this memorandum, will be disallowed.

7. COSTS AND ATTORNEY FEES MAY BE ALLOWED AS AN EQUITABLE MATTER IF THE ESTATE IS SOLVENT - In ruling in section 6 of this memorandum that no contractual right to costs and attorney fees remains after merger with the judgment, the court does not foreclose VAFS to claim, on equitable grounds, entitlement to costs and attorney fees incurred due to improper behavior by Wagner in avoiding collection of the Michigan judgment. Such recovery may be awarded under § 105 of the Bankruptcy Code on an equitable basis due to alleged improper behavior of Mr. Wagner. In re Doty, 93 BR 712, 717 (Bankr ED Cal, 1988).

The court will award this only if this is an otherwise solvent estate and other creditors are otherwise paid in full with interest.

This is not intended to prevent VAFS from arguing in the main         3 ABR 92  case that it is entitled to compensation for professional services on the grounds it has made a substantial contribution to this chapter 11 case. See, 11 USC § 503(b)(3)(D). VAFS claims to have uncovered substantial assets (oil and gas interests in the newly active Cook Inlet area) which may provide substantial dividends to unsecured creditors.

DATED: February 10, 1993

HERBERT A. ROSS
U.S. Bankruptcy Judge