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Employment Development Department, et al v. Frank Bertuccio

March 28, 2011


The opinion of the court was delivered by: Lucy H. Koh United States District Judge


United States District Court For the Northern District of California


Presently before the Court are appeals in three related bankruptcy proceedings. All three appeals stem from Frank Bertuccio's 2004 Chapter 13 bankruptcy petition. Prior to filing for 3 bankruptcy, Bertuccio's contractor's license was suspended due to an unpaid employment tax 4 liability. After extensive litigation, trial, and post-trial briefing, the Bankruptcy Court ruled that the Employment Development Department (EDD) and the California Contractors State License Board (CSLB) violated the automatic stay provision of the Bankruptcy Code by refusing to reinstate Bertuccio's contractor's license for twenty-four days despite notice of Bertuccio's filing for 9 bankruptcy. The Bankruptcy Court, however, also ruled that Bertuccio failed to show any damages 10 in connection with the relatively brief refusal to reinstate his contractor's license. Finally, the Bankruptcy Court denied attorney's fees under recent Ninth Circuit precedent and the equitable doctrine of unclean hands.

In these appeals, the EDD and the CSLB (collectively "Defendants") appeal the ruling in connection with the finding of a violation of the automatic stay provision, while Bertuccio appeals 16 the ruling in connection with damages and attorney's fees. The Court affirms the Bankruptcy 17

Court's decision on all three issues.


A.Factual Background

license, as the sole owner of business named "European Hardwood Floors Design & Interiors," to

The underlying facts are not in dispute. In 1995, the CSLB issued Bertuccio a contractor's install flooring.*fn1 On June 25, 2003, the EDD informed the CSLB that Bertuccio was in violation of 24 California state law for failing to pay $34,517.46 in employment taxes. On June 26, 2003, the CSLB sent Bertuccio a letter advising him of the unpaid employment taxes and the potential suspension of his contractor's license if the tax default was not corrected by August 26, 2003. On August 26, 2003, after Bertuccio failed to respond to the notice of tax default, the CSLB suspended Bertuccio's contractor's license solely for failing to resolve the outstanding tax liability owed to the EDD in accordance with California Business & Professions Code §7145.5 ("Failure to resolve 5 6 outstanding liabilities as grounds for refusal to renew license").

Bertuccio initially insisted that he only continued selling flooring materials, which does not require 9 a license, as opposed to installing flooring materials, which does require a license. However, the

While his license was suspended, Bertuccio continued to operate his business. At trial, Bankruptcy Court found, based on evidence submitted by Bertuccio, that Bertuccio entered into contract for floor installation in October 2004.*fn2 Bertuccio eventually acknowledged that he entered into these contracts on the belief that his contractor's license would be reinstated in light of his 13 14

On October 7, 2004, some thirteen months after his license suspension, Bertuccio filed for Chapter 13 bankruptcy. Counsel for Bertuccio sent notice of the bankruptcy petition to the CSLB 17 on October 8, 2004, and requested that the CSLB reinstate Bertuccio's license. Six days later, on 18

October 14, 2004, the CSLB relayed Bertuccio's request to the EDD. The EDD, however, declined 19 the request to reinstate Bertuccio's license. On October 18, 2004, counsel for Bertuccio called the 20

EDD directly, and again requested a reinstatement of Bertuccio's license. In response, the EDD 21 22 asked whether Bertuccio's Chapter 13 bankruptcy plan required use of the contractor's license, as it was not clear to the EDD that Bertuccio needed the license to fund the plan. On November 1, 24 Chapter 13 bankruptcy filing.

2004, counsel for Bertuccio called to advise the CSLB that she would be filing a motion for an 25 injunction requiring reinstatement of Bertuccio's license. After receiving this information from counsel, an EDD representative sent CSLB an e-mail authorizing the release of the license to Bertuccio. The CSLB reinstated Bertuccio's contractor's license on November 1, 2004.

Also on November 1, 2004, Bertuccio commenced an adversary proceeding in Bankruptcy Court, asserting damages under the automatic stay provision of the Bankruptcy Code on the ground 5 6 that his license was not restored immediately after notification of his bankruptcy petition. While his bankruptcy action was pending, Bertuccio filed an application for a corporate license under the name "European Floor Coverings, Inc." At trial, Bertuccio testified that this application was 9 denied because his contractor's license had been suspended.

The Bankruptcy Court held a trial on February 13 and 15, 2008. During the course of the 2008 trial, the CSLB learned that Bertuccio had lied on his original application for a contractor's license, as well as on his subsequent applications for corporate contractor's licenses. Specifically, April 11, 2008, the CSLB held a hearing regarding revocation of Bertuccio's contractor's license in 16 light of Bertuccio's failure to disclose his extensive criminal record. On June 2, 2008, the CSLB 17 issued a final decision revoking Bertuccio's license, with a one-year ban on reapplying for a 18 reissuance or reinstatement.

refusing to reinstate Bertuccio's contractor's license, violated the automatic stay provision. See In 21 22 re Bertuccio, 414 B.R. 604 (Bankr. N.D. Cal. 2008) ("Bertuccio I"). In that same decision, however, the Bankruptcy Court also ruled that Bertuccio had failed to establish any damages. On Bertuccio failed to disclose several criminal convictions extending between 1984 and 1999. On

On December 31, 2008, the Bankruptcy Court issued a decision ruling that Defendants, by October 20, 2009, after the parties were given an opportunity to fully brief the remaining issues of 25 attorney's fees and costs, the Bankruptcy Court denied Bertuccio's request for attorney's fees and 26 costs. See In re Bertuccio, 2009 Bankr. LEXIS 3302 (Bankr. N.D. Cal. Oct. 15, 2009) ("Bertuccio II"). The Bankruptcy Court entered final judgment on October 28, 2009. See October 28, 2009 Judgment, Case No. 04-56255, Adversary No. 04-5524. 3

stipulation, opening briefs would be due by September 28, 2010, responsive briefs would be due by

B.Procedural History in District Court

For each of these related cases, the notice of appeal from Bankruptcy Court was filed in November 2009. On June 11, 2010, the Honorable James Ware granted the parties' stipulation to consolidate briefing and extend deadlines for the briefing schedule. Pursuant to the parties' own October 29, 2010, and reply briefs would be due by December 3, 2010. Without an Order 10 approving the parties' stipulation, opening briefs would have been due in mid-July, respondent briefs would have been due 21 days later, and reply briefs would have been due 14 days after service of respondent briefs. See Local Bankruptcy Rule 8010-1. same day as the deadline for filing opening briefs, the parties filed yet another stipulation agreeing 16 to further extension of briefing deadlines. In violation of Civil Local Rule 6-2, however, the 17 parties did not set forth with particularity the reasons for the requested extension of time. In fact, 18 the parties provided no reason at all. Accordingly, the Court denied the parties' request at that 19 time. See September 29, 2010 Order Denying Request [dkt. #16]. After the parties provided 20 additional reasons for seeking an extension, the Court granted an extension, in which briefing 21 22 would be complete by December 2010. See October 1, 2010 Order Granting Extension as Modified [dkt. #18]. The parties complied with that latter schedule, and briefing is now complete.*fn3

These cases were reassigned to this Court on August 2, 2010. On September 28, 2010, the conclusions de novo. See In re Tucson Estates, 912 F.2d 1162, 1166 (9th Cir. 1990). Thus, the matter is deemed submitted for decision upon completion of the briefing. See B.L.R. 8010-1(b).


The Court reviews the Bankruptcy Court's factual findings for clear error and its legal Court reviews the Bankruptcy Court's legal decisions regarding the automatic stay de novo. Berg v. Good Samaritan Hosp., 198 B.R. 557, 560 (9th Cir. BAP 1996), aff'd sub. nom In re Berg, 230 F.3d 1165 (9th Cir. 2000).

The Bankruptcy Court's assessment of damages under § 362(h) is reviewed for an abuse of 6 discretion. See In re Miller, 262 B.R. 499, 503 (9th Cir. BAP 2001). The Bankruptcy Court's decision with respect to attorney's fees and costs is also reviewed for abuse of discretion or erroneous application of the law. See In re Dawson, 390 F.3d 1139, 1145 (9th Cir. 2004). 9


There are three issues on appeal. First, whether Defendants violated the automatic stay provision by refusing to reinstate Bertuccio's contractor's licen se despite notice of the Chapter bankruptcy petition? Second, whether Bertuccio was entitled to damages as a result of the 13 14 violation of the automatic stay? Third, whether Bertuccio's counsel was entitled to attorneys' fees and costs as a result of the violation of the automatic stay? 16

As explained below, the Court affirms the well-reasoned opinion of the Bankruptcy Court with ...

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