Opinion
NOT FOR PUBLICATION
Argued by Video Conference and Submitted: June 20, 2008
Appeal from the United States Bankruptcy Court for the District of Arizona. Adv. No. 07-ap-00276-EWH. Honorable Eileen W. Hollowell, Bankruptcy Judge, Presiding.
Before: CARROLL, [ MONTALI and DUNN, Bankruptcy Judges.
Honorable Peter H. Carroll, Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
The State of Arizona, on behalf of the Peoria Police Department (" State"), appeals an order granting summary judgment in an adversary proceeding in favor of Alfonso Pation Rodriquez and Irma R. Rodriguez (" Debtors") which declared an Order of Forfeiture and Remission dated October 18, 1995 (" Forfeiture Order"), obtained by the State without seeking relief from the stay in the Debtors' prior chapter 13 case, void as a matter of law. We AFFIRM.
I. FACTS
On June 21, 1994, the State commenced an in rem action pursuant to A.R.S. § § 13-2314(L) and 13-4311 to effect the forfeiture of certain real and personal property seized by the State during the investigation and prosecution of alleged criminal activity by the Debtors. The Forfeiture Action included the Debtors' principal residence located in Peoria, Arizona (" Residence").
Case No. CV 94-09493, styled In the Matter of the Real Property Located at 7458 West Brown, Peoria, Arizona, as More Particularly Described in Appendix One, et al., in the Superior Court of the State of Arizona in and for the County of Maricopa (" Forfeiture Action").
A.R.S. § 13-2314(L) states:
A.R.S. § 13-4311 provides, in pertinent part:
On May 15, 1995, Debtors filed a voluntary petition under chapter 13 of the Bankruptcy Code in Case No. 2:95-bk-04066-CGC, styled In re Alfonso Pation Rodriguez and Irma R. Rodriguez, Debtors, in the United States Bankruptcy Court, District of Arizona (" 1995 Case"). Although the bankruptcy case was pending on the petition date, the State did not seek relief from the automatic stay to continue prosecution of the Forfeiture Action against the Residence and other seized property. The State, however, was not given notice of the filing of the Debtors' bankruptcy petition nor did it learn of the Debtors' bankruptcy prior to dismissal of the case six months later.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532 as enacted and promulgated prior to the effective date (October 17, 2005) of the relevant provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (" BAPCPA"), Pub. L. 109-8, 119 Stat. 23 (2005), and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
The record indicates that the Debtors are serial filers. This petition was the third of twelve chapter 13 petitions filed by the Debtors, either individually or jointly, between January 4, 1994 and June 4, 2004.
On October 18, 1995, the Forfeiture Order was entered in the Forfeiture Action which, in pertinent part, found probable cause for seizure of the Residence and ordered that the Residence " be forfeited to the State of Arizona on behalf of the Peoria Police Department, subject to any outstanding liens." Debtors did not appeal the Forfeiture Order.
Forfeiture Order, p.3, l.9-11.
On November 22, 1995, the Debtors' chapter 13 case was dismissed. On December 5, 1995, the State recorded the Forfeiture Order in the Maricopa County Recorder's Office but took no further action to enforce the order for a period in excess of 10 years.
On July 15, 2003, the Debtors filed their eleventh chapter 13 petition in Case No. 2:03-bk-12360-EWH, styled In re Alfonso Pation Rodriguez and Irma R. Rodriguez, Debtors (" 2003 Case"). While the case was pending, the State undertook to enforce the Forfeiture Order by again recording the Forfeiture Order in the Maricopa County Recorder's Office on December 26, 2006, and serving a written notice dated April 5, 2007, demanding that the Debtors vacate the Residence not later than May 7, 2007.
Debtors confirmed a plan in the case on July 26, 2004, and received a discharge on January 8, 2008.
On May 3, 2007, Debtors filed a complaint in Adversary No. 07-ap-00276-EWH, styled Alfonso Pation Rodriguez and Irma R. Rodriguez v. State of Arizona, on behalf of the Peoria Police Department, alleging that the Forfeiture Order was unenforceable as having expired pursuant to A.R.S. § 12-1611 and that the State violated the automatic stay in the 2003 Case by recording the Forfeiture Order on December 26, 2006, and issuing the eviction notice. On August 8, 2007, the State moved for summary judgment arguing that the Forfeiture Order was valid because A.R.S. § 12-1611 is inapplicable to criminal proceedings resulting in forfeiture of property. The State further asserted that enforcement of the Forfeiture Order did not violate the automatic stay in the 2003 Case because the Residence did not constitute property of the estate, reasoning that the Debtors had lost their interest in the Residence at the time the Forfeiture Order was entered on October 18, 1995.
A.R.S. § 12-1611 states:
Without conceding the inapplicability of A.R.S. § 12-1611 to the Forfeiture Order, Debtors filed a cross-motion for summary judgment on September 8, 2007, arguing for the first time that the Forfeiture Order was obtained in violation of the automatic stay in the 1995 Case and was void as a matter of law. The State responded to the Debtors' cross-motion, asserting that the Forfeiture Action supplemented the criminal proceedings against the Debtors and therefore, was excepted from the automatic stay under § 362(b)(4) as an exercise of the government's police or regulatory power.
After a hearing on April 2, 2007, the bankruptcy court issued a memorandum decision granting Debtors' cross-motion for summary judgment and finding that " [b]ecause the State did not obtain relief from the automatic stay, the Forfeiture Order violated the § 362(a) stay and was void."
2008 WL 192963, at *6 (Bankr. D. Ariz. Jan. 18, 2008). Rodriguez v . Arizona (In re Rodriguez),
On January 18, 2008, an Order was entered in the adversary proceeding granting Debtors' cross motion for summary judgment and denying all other relief. The State timely filed a notice of appeal on January 28, 2008.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and 28 U.S.C. § 157(b)(1) and (b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUE
The sole issue before the court is whether it was error to grant the Debtors' cross-motion for summary judgment based upon a finding that the Forfeiture Order was obtained in violation of the automatic stay and was void as a matter of law.
IV. STANDARDS OF REVIEW
We review a grant of summary judgment de novo. Patterson v. Int'l Bhd. Of Teamsters, Local 959, 121 F.3d 1345, 1348 (9th Cir. 1997). In viewing the evidence in the light most favorable to the nonmoving party, we must determine whether there are any genuine issues of material fact and whether the applicable substantive law was applied correctly by the bankruptcy court. City of Vernon v. S. Cal. Edison Co., 955 F.2d 1361, 1365 (9th Cir. 1992). If the record before the bankruptcy court, including all " pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits" establish that there are no triable issues and that " the moving party is entitled to judgment as a matter of law, summary judgment will be upheld." Gertsch v. Johnson & Johnson Corp. (In re Gertsch), 237 B.R. 160, 165 (9th Cir. BAP 1999).
V. DISCUSSION
A. The Automatic Stay.
Section 362(a)states, in pertinent part:
Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, . . . operates as a stay, applicable to all entities, of -
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title; [and]
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; . . . .
11 U.S.C. § 362(a)(1)-(3)(emphasis added). " The automatic stay is self-executing, effective upon the filing of the bankruptcy petition." Gruntz v. Los Angeles (In re Gruntz), 202 F.3d 1074, 1081 (9th Cir. 2000). It is " effective against the world, regardless of notice." Morris v. Peralta (In re Peralta), 317 B.R. 381, 389 (9th Cir. BAP 2004); see 3 Collier on Bankruptcy ¶ 362.02, at 362-12.11 (15th ed. rev. 2008)(" Formal service of process is not required, and no particular notice need be given in order to subject a party to the stay."). One of its primary functions " is to preserve property for use in the reorganization of the debtor and to prevent the dismemberment of the estate." Hillis Motors, Inc. v. Haw. Auto Dealers' Ass'n, 997 F.2d 581, 586 (9th Cir. 1993).
B. Exceptions to The Automatic Stay.
Section 362(b) currently provides, in pertinent part, that the filing of a bankruptcy petition does not operate as a stay
(4) under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit's . . . police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's . . . police or regulatory power; . . .
11 U.S.C. § 362(b)(4). Section 362(b)(4) was amended in 1998 " by combining § § 362(b)(4)and (5) and expanding the scope of the exception to cover proceedings 'to obtain possession of property of the estate . . . or to exercise control over property of the estate.'" United States v. Klein (In re Chapman), 264 B.R. 565, 570 (9th Cir. BAP 2001) (quoting SEC v. Brennan, 230 F.3d 65, 74 (2d Cir. 2000)). Section 362(b)(5) was deleted effective October 21, 1998. Because the automatic stay is one of the fundamental debtor protections under bankruptcy law, the exceptions to the automatic stay set forth in § 362(b) are narrowly construed to bolster its effectiveness. See, e.g., Hillis Motors, 997 F.2d at 590 (" Exceptions to the automatic stay should be read narrowly."); Stringer v. Huet (In re Stringer), 847 F.2d 549, 552 (9th Cir. 1988)(" Exemptions to the stay . . . should be read narrowly to secure the broad grant of relief to the debtor.").
C. Civil and Criminal Forfeiture.
Forfeiture statutes are either criminal or civil. Criminal forfeiture involves an in personam action directed against the person connected with the property and charged with a violation of the law. United States v. Lazarenko, 476 F.3d 642, 647 (9th Cir. 2007) (" Criminal forfeiture operates in personam against a defendant to divest him of his title to proceeds from his unlawful activity as a consequence of his criminal conviction."). Civil forfeiture is an in rem proceeding targeting only the property sought to be forfeited, and is separate and distinct from any related criminal proceeding. See United States v. One 1985 Mercedes, 917 F.2d 415, 419 (9th Cir. 1990)(" [C]ivil forfeitures are in rem proceedings in which the 'guilt' at issue is the 'guilt' of the property seized."). Because the two proceedings are not mutually exclusive, the government may pursue a civil forfeiture even if the criminal forfeiture was unsuccessful either because the owner was not charged with a crime or was acquitted. See United States v. Dunn, 802 F.2d 646, 647-48 (2d Cir. 1986) (holding that the remedies of criminal and civil forfeiture under 21 U.S.C. § 853 and 21 U.S.C. § 881, respectively, are not mutually exclusive).
Criminal forfeiture actions are excepted from the automatic stay under the plain language of § 362(b)(1) which specifically excepts criminal proceedings " against the debtor." 11 U.S.C. § 362(b)(1). This conclusion is bolstered by the legislative history of § 362(b)(1) which states that " bankruptcy laws are not a haven for criminal offenders, but are designed to give relief from financial over-extension." H.R. Rep. No. 95-595, at 342 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6299.
The State's Forfeiture Order was obtained pursuant to Arizona's civil forfeiture statute. Prior to § 362(b)'s amendment in 1998, courts were divided as to whether civil forfeiture proceedings were excepted from the stay under § 362(b)(4) or (5). Compare James v. Draper (In re James), 940 F.2d 46, 51 (3d Cir. 1991); Boricua Motors Leasing Corp. v. Puerto Rico, 154 B.R. 834, 835-36 (D. Puerto Rico 1993); and Brewer v. United States (In re Brewer), 209 B.R. 575, 577 (Bankr. S.D. Fla. 1996)(holding that civil forfeiture actions were excepted from the stay under § 362(b)(4)), with United States v. One Parcel of Real Property Commonly Known As Star Route Box 1328, Glenwood, Washington County, Or., 137 B.R. 802, 804 (D. Or. 1992); Ga. v. Bell (In re Bell), 215 B.R. 266, 274 (Bankr. N.D.Ga. 1997); and Weaver v. City of Knoxville (In re Thomas), 179 B.R. 523, 528 (Bankr.E.D.Tenn. 1995)(determining that civil forfeiture actions violate § 362(a)(3) and are not excepted under § 362(b)(4)).
See supra notes 4 & 5. In Arizona, a judicial in personam forfeiture proceeding is governed by A.R.S. § 13-4312. The State did not proceed against the Debtors under A.R.S. § 13-4312.
While conceding that the Forfeiture Action " was in the nature of a civil proceeding, " the State points to James and its progeny, arguing that the Forfeiture Order is valid because the continuation of its Forfeiture Action against the Debtors' Residence in the 1995 Case was ancillary to a criminal proceeding against the Debtors and permitted by § 362(b)(4). In James, the Third Circuit Court of Appeals concluded that a civil forfeiture action fit within § 362(b)(4)'s police power exception, reasoning that " [a] civil forfeiture action is an action by a governmental unit to enforce its police or regulatory power to combat the problem of illicit drugs" and that § 362(b)(4)excepts " the commencement or continuation" of such actions. 940 F.2d at 51. In so holding, James did not harmonize the plain language of § § 362(a)(1) and 362(b)(4) and apply narrowly § 362(b)(4)'s exception only to actions directed against the debtor stayed by § 362(a)(1). We decline to follow James because it is contrary to established Ninth Circuit precedent and is not binding on this court. Hillis Motors, 997 F.2d at 591 (" There is no governmental powers exception to section 362(a)(3) . . . .").
Reply Brief, p.1.
The State also cites Goff v. Oklahoma (In re Goff), 159 B.R. 33 (Bankr. N.D. Okla. 1993) which, in fact, supports the position articulated by the Debtors. In Goff, the court concluded that the civil forfeiture action before it was " not an exercise of 'police or regulatory power[]'" nor " excepted from the automatic stay. . . ." Id . at 41.
Indeed, the Ninth Circuit in Hillis Motors adopted the Eighth Circuit's narrow construction of the " police power" exceptions afforded by § 362(b)(4) and (5), stating:
In Chapman, we considered the question of whether a civil forfeiture action by the United States against property of the debtor, seized in connection with the debtor's arrest and criminal prosecution on charges stemming from the manufacture and distribution of marijuana prior to the filing of his chapter 7 petition on July 14, 1999, was excepted from the automatic stay. 264 B.R. at 567. We held that the United States was not stayed from proceeding to judgment in the forfeiture action under the current version of § 362(b)(4). Id . at 572. In so holding, we concluded that § 362(b)(4) allows a governmental unit to " obtain a money judgment or a judgment for possession, " including a judgment in a civil forfeiture action without violating § 362(a)(3), but prohibits a governmental unit from " enforc[ing] a money judgment without obtaining relief from the automatic stay in the bankruptcy court." Id . at 571.
As we pointed out in Chapman, a governmental unit would not have been permitted to commence or continue an in rem civil forfeiture action prior to § 362(b)(4)'s amendment in 1998. Id . (" With the addition of (a)(3) to § 362(b)(4) . .., an in rem action is excepted from the stay."). When the 1995 Case was commenced, § 362(b)(4) permitted a governmental unit to commence or continue an action against the debtor under its police or regulatory power notwithstanding § 362(a)(1), and § 362(b)(5) authorized a governmental unit to enforce a non-money judgment against the debtor or property of the estate under its police or regulatory power notwithstanding § 362(a)(2). Because neither § 362(b)(4) or (5) exempted a governmental unit, in the proper enforcement of its police or regulatory power, from obtaining possession of or exercising control over property of the estate prior to the 1998 amendment, the State's act of continuing the Forfeiture Action and obtaining the Forfeiture Order while the 1995 Case was pending violated the automatic stay under § 362(a)(3). See Hillis, 997 F.2d at 591; Chapman, 264 B.R. at 571.
Section 362(b) was amended by the Chemical Weapons Convention Implementation Act of 1998, part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999 [hereinafter Chemical Weapons Convention], Pub. L. No. 105-277, § 603, 112 Stat. 2681-886 (1998).
" Paragraphs (4) and (5) formerly read:
D. Impact of the Relation-Back Doctrine.
The State points to the relation-back doctrine, arguing that the actual forfeiture of the Residence preceded the filing of the 1995 Case because it related back to the commission of the crime. Under the relation-back doctrine, a " [f]orfeiture relates back to the time of the criminal acts giving rise to the forfeiture." Lazarenko, 476 F.3d at 647. However, forfeiture does not automatically vest title to property in the government. The relation back doctrine is inapplicable until a judgment of forfeiture is entered. United States v. Buena Vista Ave., 507 U.S. 111, 123-29, 113 S.Ct. 1126, 122 L.Ed.2d 469 (1993); United States v. Real Property at 2659 Roundhill Dr., Alamo, CA, 194 F.3d 1020, 1027 (9th Cir. 1999). Until a judgment of forfeiture is entered, " someone else owns the property" and a third party may acquire an interest in the property and " invoke any defense available to the owner of the property before the forfeiture is decreed." Buena Vista, 507 U.S. at 127.
Because the filing of the 1995 case preceded entry of the Forfeiture Order, the relation back doctrine does not affect the result in this case. The filing of the bankruptcy petition in the 1995 Case created an estate comprised of all legal and equitable interests of the Debtors in property as of the commencement of the case. 11 U.S.C. § 541; see United States v. Whiting Pools, 462 U.S. 198, 205, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). The Debtors' interest in the Residence, not adjudicated as forfeited prior to bankruptcy, was property of the estate subject to the jurisdiction of the bankruptcy court. The State's action in proceeding with the Forfeiture Action to judgment without authorization from the bankruptcy court was not permitted by § 362(b)(4)'s police power exception and violated the stay under § 362(a)(3).
" [S]ection 362(d) 'gives the bankruptcy court wide latitude in crafting relief from the automatic stay, including the power to grant retroactive relief from the stay.'" Nat'l Envtl. Waste Corp. v. City of Riverside (In re Nat'l Envtl. Waste Corp.), 129 F.3d 1052, 1054 (9th Cir. 1997) (quoting Schwartz v. United States (In re Schwartz), 954 F.2d 569, 572 (9th Cir. 1992)). In determining whether to annul the stay retroactively, bankruptcy courts apply a " balancing of the equities" test and weigh certain nondispositive factors, including " (1) whether the creditor was aware of the bankruptcy petition; and (2) whether the debtor engaged in unreasonable or inequitable conduct, or prejudice would result to the creditor." Nat'l Envtl. Waste, 129 F.3d at 1055; see Fjeldsted v. Lien (In re Fjeldsted), 293 B.R. 12, 24-25 (9th Cir. BAP 2003) (identifying other factors to be considered by the court in divining " the debtor's and creditor's good faith, the prejudice to the parties, and the judicial or practical efficacy of annulling the stay"). The State, however, did not seek retroactive relief from the automatic stay.
E. The Forfeiture Order was Entered in Violation of the Automatic Stay and is Void.
In the Ninth Circuit, actions taken in violation of the automatic stay, including judicial proceedings, are void ab initio. Gruntz, 202 F.3d at 1082 n.6; Schwartz v. United States (In re Schwartz), 954 F.2d 569, 571 (9th Cir. 1992) (" [V]iolations of the automatic stay are void, not voidable."); Phoenix Bond & Indem. Co. v. Shamlin (In re Shamlin), 890 F.2d 123, 125 (9th Cir. 1989) (" Judicial proceedings in violation of th[e] automatic stay are void."). Actions in violation of the stay are void for all purposes and are not validated by dismissal of the bankruptcy case. See 40235 Washington Street Corp. v. Lusardi, 177 F.Supp.2d 1090, 1104 (S.D. Cal. 2001), aff'd on other grounds, 329 F.3d 1076 (9th Cir. 2003), cert. denied, 540 U.S. 983, 124 S.Ct. 469, 157 L.Ed.2d 374 (2003)(" The violations remain ineffective even if the underlying bankruptcy case is dismissed."); Richard v. City of Chicago, 80 B.R. 451, 454 (N.D.Ill. 1987) (holding that a debtor's voluntary dismissal of his chapter 13 petition did not " resurrect a sale that [was] legally void" as having been conducted in violation of the automatic stay). Because the State did not obtain relief from the stay in the 1995 Case to continue the Forfeiture Action, we conclude that the bankruptcy court did not err in holding that the Forfeiture Order violated the automatic stay and was void.
The fact that the State did not receive specific notice of the Debtors' 1995 Case does not alter this result. See Peralta, 317 B.R. at 389 (" Since the automatic stay is effective against the world, regardless of notice, acts in violation of the stay are automatically void ab initio.").
CONCLUSION
We hold that the bankruptcy court correctly resolved the issue by summary judgment. Because there are no triable issues of fact and the bankruptcy court correctly applied the applicable substantive law, we AFFIRM.
" A civil action authorized by this section, including proceedings pursuant to chapter 39 of this title, is remedial and not punitive and does not limit and is not limited by any other previous or subsequent civil or criminal action under this title or any other provision of law. Civil remedies provided under this title are supplemental and not mutually exclusive." A.R.S. § 13-2314(L)(emphasis added). The Forfeiture Order recites that forfeiture is authorized " [p]ursuant to City of Tempe v. Dimitriou, 175 Ariz. 237, 854 P.2d 1223 (App. 1993), and A.R.S. 13-2314(L), " and that " the forfeiture of the property in this matter is remedial in nature and not punitive." Forfeiture Order, p.2, l.3-6.
" A. If a forfeiture is authorized by law, it shall be ordered by a court on an action in rem brought by the state pursuant to a notice of pending forfeiture or a verified complaint for forfeiture. The state may serve the complaint in the manner provided by § 13-4307 or by the Arizona rules of civil procedure. B. A civil in rem action may be brought by the state in addition to or in lieu of the civil and criminal in personam forfeiture procedures set forth in § § 13-4312 and 13-4313 or the uncontested civil forfeiture procedures set forth in § 13-4309. Judicial in rem forfeiture proceedings are in the nature of an action in rem and are governed by the Arizona rules of civil procedure unless a different procedure is provided by law.
A.R.S. § 13-4311(A)& (B)(emphasis added).
A judgment may be renewed by action thereon at any time within five years after the date of the judgment.
Even if the precise wording of the various provisions of the stay and their exceptions were not controlling, we would still hold that the governmental powers exceptions do not apply here. We agree with the Eighth Circuit that the terms 'police or regulatory power' as used in those exceptions refer to the enforcement of state laws affecting health, morals, and safety but not regulatory laws that directly conflict with the control of the res or property by the bankruptcy court.
Hillis Motors, 997 F.2d at 591 (quoting In re Missouri v. U.S. Bankruptcy Court for the E.D. of Ark., 647 F.2d 768, 776 (8th Cir. 1981), cert. denied, 454 U.S. 1162, 102 S.Ct. 1035, 71 L.Ed.2d 318 (1982)) (footnote omitted).
(b) The filing of a petition . . . does not operate as a stay
(4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power;
(5) under subsection (a)(2) of this section, of the enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power[.]"
11 U.S.C. § 362(b)(4)& (5), amended by Chemical Weapons Convention, supra note 16, at § 603, 112 Stat. 2681-886.