Type: Amicus
Date: March 11, 2020
Description: Whether Creditor’s retention of impounded vehicle violates the automatic stay.
Result: Judgment vacated and remanded, January 14, 2021.
Fulton SCt NACBA Amicus March 2020
SCOTUS Finds Retention of Property Is Not Exercise of Control
In an unhappy start to the new year, the Supreme Court resolved a long-festering issue in favor of creditors when it found that “mere retention of property does not violate §362(a)(3).” City of Chicago v. Fulton, 592 U.S. ___, No. 19-357 (S.Ct. Jan. 14, 2021).
Here, a number of chapter 13 debtors entered bankruptcy after the City of Chicago impounded their vehicles for failure to pay traffic fines. In their separate cases, the debtors sought return of the vehicles arguing that once they filed for bankruptcy, the City’s retention of the vehicles violated the automatic stay. The bankruptcy courts in each case agreed with the debtors. In a consolidated opinion, the Seventh Circuit found that retention of the vehicles constituted an exercise of control over property of the estate within the meaning of section 362(a)(3). It affirmed. In re Fulton, 926 F. 3d 916 (7th Cir. 2019). [Read more…] about SCOTUS Finds Retention of Property Is Not Exercise of Control
No Stay Violation When Creditor Retains Vehicle Repossessed Pre-Petition
The Third Circuit joined the Tenth and D.C Circuits to hold that, “upon notice of the debtor’s bankruptcy, a secured creditor’s failure to return collateral that was repossessed pre-bankruptcy petition is [not] a violation of the automatic stay,” because it is not an act “to exercise control over property of the estate.” In re Denby-Peterson, No. 18-3562 (3rd Cir. Oct. 28, 2019).
After Joy Denby-Peterson paid $9,200 over approximately eighteen months toward her used Chevy Corvette, the holder of the loan repossessed the vehicle due to her failure to pay the $2,491 down payment that the purchase agreement required. Ms. Denby-Peterson filed for Chapter 13 bankruptcy. She notified the creditor of the petition and demanded the return of the vehicle. When the creditor failed to return the vehicle, the bankruptcy court granted Ms. Denby-Peterson’s motion for turnover under section 542(a), but, finding that the creditor’s retention of the vehicle did not violate the automatic stay, denied her demand for sanctions. The district court affirmed. [Read more…] about No Stay Violation When Creditor Retains Vehicle Repossessed Pre-Petition
Ritzen Group, Inc. v. Jackson Masonry LLC, No. 18-938 (S. Ct.)
Type: Amicus
Date: October 11, 2019
Description: Whether denial of a motion for relief from stay is immediately appealable.
Result: Affirmed. January 14, 2020
Scotus Offered Another Opportunity to Address Passive Conduct and the Automatic Stay
After recently declining cert in a case involving the issue of whether a creditor’s passive conduct can ever violate the automatic stay (Davis v. Tyson Prepared Foods, No. 18-941 (10th Cir. cert. denied, May 20, 2019) (blogged here)), the Supreme Court has been presented with another opportunity to take on the issue. In In re Fulton, Nos. 18-2527, 18-2793, 18-2835, 18-3023, 2019 U.S. App. LEXIS 18393 (7th Cir. June 19, 2019), (blogged here), the City of Chicago impounded the debtors’ vehicles prior to their filing for chapter 13 bankruptcy. Upon filing for bankruptcy, the debtors sought to have the vehicles returned. The City refused, and the bankruptcy court found its refusal constituted a violation of the automatic stay. The City appealed.
Citing its decision in Thompson v. General Motors Acceptance Corp., 566 F.3d 699 (7th Cir. 2009), the Seventh Circuit affirmed, holding that passively retaining, and refusing to return, estate property is an exercise of control within the meaning of section 362(a)(3). The court found that section 542(a) also mandates that an entity in possession of estate property turn it over to the trustee. The court rejected the City’s call to overturn Thompson, recognizing that one of the fundamental purposes of bankruptcy is to allow a debtor to improve her financial situation, and that a vehicle is frequently necessary to achieve that goal.
The City’s petition for certiorari, points out that five courts of appeals (the second, seventh, eighth, ninth and eleventh), have likewise found that passive conduct can be the basis for an automatic stay violation, while two courts of appeals (the tenth and the District of Columbia) have adopted the position that a creditor’s conduct must be affirmative.
Cert. Denied in Stay Case Involving Passive Conduct
The Supreme Court declined cert. in Davis v. Tyson Prepared Foods, No. 18-941 (May 20, 2019), a case out of the Tenth Circuit presenting the issue of whether section 362(a) applies when a creditor passively holds or obtains an interest in property of the debtor or the estate. The case involved a lien that arose automatically out of post-petition Worker’s Compensation payments made to the debtor. The trustee sought to avoid the lien as violating the automatic stay. The Tenth Circuit found that based on WD Equip., LLC v. Cowen (In re: Cowen), 849 F.3d 943 (10th Cir. 2017), section 362(a)(4), which prohibits “any act to create, perfect, or enforce any lien,” requires affirmative conduct on the part of the creditor. Here, because the lien was created by operation of law, there was no such affirmative conduct and the Tenth Circuit found no stay violation.
Withholding Graduation Date from Transcript Violates Stay
Excluding the graduation date from the debtor’s transcript was tantamount to withholding the transcript altogether and constituted a violation of the automatic stay for which the debtor was entitled to damages, even though those damages consisted only of the costs associated with vindicating her rights. California Coast Univ. v. Aleckna, No. 16-158 (M.D. Pa. Aug. 28, 2019).
At the time the Chapter 13 debtor completed her coursework at California Coast University, she owed $6,300 in overdue tuition. When she and her husband filed for bankruptcy she listed the tuition debt as unsecured and disputed. She later sought an official copy of her transcript. CCU provided a transcript that omitted the graduation date, explaining that, because of the outstanding debt, she had not officially graduated. CCU filed an action in the bankruptcy case seeking a finding that the tuition debt was non-dischargeable. Ms. Aleckna counterclaimed that CCU’s refusal to provide her complete transcript violated the automatic stay. The bankruptcy court found in favor of Ms. Aleckna and awarded damages for lost $230.16 wages, and unspecified attorney’s fees and costs.
[Read more…] about Withholding Graduation Date from Transcript Violates Stay7th Circuit Rules Creditor Should be Held in Contempt for Jailing Discharged Debtor but No Contempt for Creditor’s Counsel
On August 13, 2019, the Seventh Circuit Court of Appeals reversed in part and affirmed in part the lower courts. On appeal, NACBA board member Tara Twomey submitted an amicus brief on behalf of the National Consumer Bankruptcy Rights Center (NCBRC) supporting the Debtor.
The facts underlying the case started in 2001. Jacqueline M. Sterling (“Debtor”) was sued in state court for approximately $520.00 in membership fees owed to Southlake Nautilus Health & Racquet Club (“Creditor”). The Creditor was represented by the law firm Austgen, Kuiper & Associates (“Creditor’s Counsel”). After obtaining a judgment in 2002, the Creditor’s Counsel filed a “proceeding supplemental” in state court to collect on the judgment. The Debtor did not appear at the collection hearings and ultimately the state court issued a “body attachment” (bench warrant) against Debtor to show cause for violating the court’s orders.
In 2010, the Debtor filed for bankruptcy protection and listed the Creditor but not the Creditor’s Counsel. The Debtor obtained a discharge. The Creditor was notified of the discharge but did not forward the discharge to the Creditor’s Counsel. Creditor’s Counsel did not know the discharge order.
In 2011, the Debtor had a flat tire and was assisted by the local police. The police discovered the bench warrant and the Debtor was arrested and held in jail for two days.
Subsequently, the Debtor sued the Creditor and Creditor’s Counsel in Bankruptcy Court for violation of the discharge injunction found in Section 524 of the Bankruptcy Code.
The Bankruptcy Court ruled in favor of the Creditor and Creditor’s Counsel. The Bankruptcy Court found the Debtor had failed to prove that the Creditor’s Counsel knew of the discharge when it continued collection proceedings. Further, the Creditor didn’t violate the discharge injunction because it was unaware of the status of the case against the Debtor, and that it didn’t direct Creditor’s Counsel to take any particular actions. The ruling was affirmed by the District Court.
To read more click here.
City Did Not Violate Stay by Failing to Rescind Warrant
The city had no obligation under the automatic stay to take affirmative action to rescind a warrant for the debtor’s arrest or to issue a letter of compliance to the state, where the City had taken no post-petition action to enforce the warrant, and the debtor was not in compliance with the court order to pay a traffic fine. Edwards v. City of
Ferguson, No. 18-6032 (B.A.P. 8th Cir. July 3, 2019).
7th Circuit Rules Chicago Can Not Ignore the Automatic Stay and Hold Vehicles Until Tickets are Paid
On June 19, 2019 the 7th Circuit Court of Appeals affirmed the decisions of the lower bankruptcy courts.
In four Chapter 13 bankruptcies, the City of Chicago impounded vehicles owned by the Debtors for failure to pay multiple traffic fines. After the Debtors filed chapter 13, the City refused to return the vehicles claiming they needed to maintain possession to continue their perfection on them and wouldn’t return the vehicles until the fines were paid.
The bankruptcy courts held that the City violated the automatic stay by exercising control over the vehicles, that no exceptions applied, and ordered the return of the vehicles and sanctions. The City appealed and the 7th Circuit consolidated the appeals in this case.
The Debtors were represented in part by NACBA members John Wonais of the Semrad Law Firm, and Eugene Wedoff. NACBA member Tara Twomey supported the Debtors by filing an amici curiae brief for NACBA and the National Consumer Bankruptcy Rights Center. NACBA member David Yen filed an amicus curiae brief for the Legal Assistance Foundation.
To read more click here.