Summary
holding that the award of punitive damages was not appropriate where the stay violation was not the result of intentional misconduct
Summary of this case from Grisard-Van Roey v. Auto Credit Center, Inc. (In re Grisard-Van Roey)Opinion
Case No. 06-10534-DK.
May 6, 2006.
Jason E. Cuomo, Towson, MD, for debtor.
Ellen W. Cosby, Baltimore, MD, for trustee.
Memorandum of Decision
This matter has come before the court on the court's own Order To Show Cause Why Foreclosure Sale Should Not Be Found Void As A Violation Of The Automatic Stay (the "Order to Show Cause"). The specific issue for decisionis the validityof a foreclosure sale that was conducted after the petitiondate and before dismissal, where the debtor was subsequently found to be ineligible for bankruptcy relief pursuant to Section 109(h) of the Bankruptcy Code, as enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), Pub.L. No. 109-8, 11 Stat. 23, which became effective October 17, 2005.
The court held a hearing on the Order to Show Cause on April 4, 2006, and for the reasons set forthon the record, as well as inthis Memorandum of Decision, the court holds that all of the actions of John S. Burson, the substitute trustee under the deed of trust (hereinafter referred to as "Burson") to foreclose on the Debtor's home after the date of the Debtor's petition, were a violation of the automatic stay. Consequently, the sale is void. Further, certain conduct by Burson taken in connection with the foreclosure warrants imposition of sanctions on Burson pursuant to Section 362(k)(1).
The property foreclosed upon is located at 929 Foxcroft Lane, Baltimore, Maryland 21221 (hereinafter referred to as the "Property").
Background
Tracey A. Brown ("Debtor"), by counsel using the court's electronic case filing system ("CM/ECF"), fileda voluntarybankruptcypetitionunder chapter 13 on February 2, 2006. Appended to the Debtor's petition were the statement of financial affairs, schedules and creditor matrix. Approximately thirty minutes later, Debtor, again by counsel, filed an amended voluntary petition to correct a formattingerror. At that time, counsel also submitted Debtor's chapter 13 plan. Finally, two hours later (still on February 2, 2006), counselsubmitted a second amended voluntarypetitionwhich included Debtor's Motion to Waive Budget and Credit Counseling.
The Motion was reviewed by the Court as a certification under Section 109(h)(3), hereinafter referred to as "Certification Requesting Waiver."
On February 9, 2006, the court reviewed the Certification Requesting Waiver, and upon finding that it did not comply with Section 109(h)(3)(A), entered an Order Finding Certification Not Satisfactory and Dismissing Case (the "Dismissal Order"). Debtor thereafter filed a Motion to Reinstate Case and Vacate Order of Dismissal on February 22, 2006, and in support thereof submitted a certificate documenting that she had received credit counseling on February 16, 2006. Burson filed an Opposition to the Debtor's Motion.
Section 109(h)(3)(A) provides:
Subject to subparagraph (B), the requirements of paragraph (1) shall not apply with respect to a debtor who submits to the court a certification that — (I) describes exigent circumstances that merit a waiver of the requirements of paragraph (1);
(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in paragraph (1) during the 5-day period beginning on the date on which the debtor made that request; and
(iii) is satisfactory to the court.
Because Debtor had received the credit counseling post-petition, and in accordance with this court's opinion in In re Childs, 335 B.R. 623 (Bankr. D. Md. 2005), the court denied the Debtor's Motionand found that the case could not be reinstated because Debtor was ineligible under Section 109(h).
The Debtor's Motion did not assert that the court erred in finding that the Certification Requesting Waiver did not satisfy the requirementsof Section109(h)(3). Rather Debtor's Motion argued that the post-petition counseling should be sufficient to enable Debtor to have the case reinstated.
Both the Debtor's Motion and Burson's Oppositionthereto informed this court that after the filing of this bankruptcy case and while the Certification Requesting Waiver was pending before this court, Burson proceeded to auction the Property at foreclosure with full knowledge of the filings described hereinabove.
No motion for relief from stay, or to determine existence of the automatic stay was filed by Burson or any other party at any time.
Discussion
Thereisno dispute that Burson's actioninconducting the foreclosure auctionafter the filing of the petitioninstituting this bankruptcycase would violate a stay imposed by Section 362(a)(1) and (4). Burson instead asserts that because Debtor filed this case without complying with Section 109(h)(1) and because the Certification Requesting Waiver did not appear to meet the requirements of Section 109(h)(3)(A), no automatic stay was created by the filingof the petition instituting this case. Although not set forth in Burson's Response to the Order to Show Cause, at the hearing upon the Order to Show Cause, Bursonargued that the filing of a petition by a debtor who is not eligible under Section 109(h)(1), or alternatively Section 109(h)(3)(A), did not create an automatic stay under Section 362(a), notwithstanding that the question of eligibility pursuant to a Certification Requesting Waiver was pending a determination by the court.
According to Burson's response, after being informed of the bankruptcy filing and after a review of the case docket revealed no certificate of credit counseling, a person in Burson's firm spoke with counsel for Debtor to "advise that the sale would not be stopped without a credit counseling certificate and to confirm that there was no mistake." Burson's Response to Order to Show Cause, filed March 31, 2006, at p. 2., ¶ 4.
Section 362(a) mandates that except as provided in subsection (b) of that Section, "a petition filed under section 301 . . . operates as a stay, applicable to all entities. . . ."
Section 301 of the Bankruptcy Code provides:
(a) Avoluntarycase under a chapter of this title is commenced by the filingwith the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter.
(b) The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter.
11 U.S.C. § 301 (2005) (emphasis added). It is argued by Burson that the automatic stay arises only upon the filing of a petition by a person that meets the eligibility requirements of Section 109.
The questionof the effect of a filingof a petitionby an ineligible debtor has been addressed by courts prior to the changes wrought by BAPCPA. Most often the issue of eligibility arose under either Section 109(e) or Section109(g). Most courts agreed that the automatic stay arose upon the filing of a petition under chapter 13 by a debtor that was later determined to be ineligible pursuant to Section 109(e), as the question of eligibility was not always determinable at the time of filing and required further evidence and court action. E.g., Shaw v. Erlich (In re Shaw), 294 B.R. 260 (W.D. Va. 2003), aff'd sub nom., In re Wiencko, 99 Fed. Appx. 466 (4th Cir. 2004) (unpublished); In re Verdunn, 210 B.R. 621 (Bankr. M.D.Fla. 1997); Franklin Fed. Bancorp v. Lochamy (In re Lochamy), 197 B.R. 384 (Bankr. N.D.Ga. 1995). See also In re Tatsis, 72 B.R. 908 (Bankr. W.D.N.C. 1987) (permitting debtor ineligible for chapter 13 under Section 109(e) to convert case to chapter 7 and rejecting creditor's argument that the filing was a nullity due to ineligibility).
Section 109(e) provides that only an individual with regular income that owes noncontingent, liquidated debts of less than the limits set therein, may be a debtor under chapter 13.
The United States District Court in Shaw v. Ehrlich (In re Shaw), 294 B.R. 260 (W.D.Va. 2003), explained:
If the automatic stay were not in fact "automatic" upon the filing of a petition, but instead relied on a decision of a bankruptcy court as to the merits of the debtor's petition, the race to collect that Congress feared in the absence of the automatic stay could still occur. . . . The burden would be on the debtor to petition the court and prove his eligibilityunder the chapter inwhichhe filed. Until the debtor acted, creditors could claim ignorance as to the debtor's eligibility and act to collect on their claims inhopes that the bankruptcy court would find no merit inthe debtor's petition.
Id. at 267-68. The court continued:
The Fourth Circuit has not made exceptions of the immediate and automatic application of the stay, even in cases of a petitioner seeking to cause creditors hardship or delay by abusing the protections of the bankruptcy system and filing in bad faith. . . . If the Fourth Circuit views bad faith petitioners as eligible for the protections of the automatic stay until their petitions are dismissed, mistakenfilers who are eligible for some form of relief under Title 11 but file under a different chapter should certainly be protected by the automatic stay until a bankruptcy court reaches the merits of their petitions.
Id. at 268 (citing Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989)).
However, courts remained divided over whether an automatic stay arose upon the filing of a petition filed in violation of Section 109(g). Some courts determined that a filingby an ineligible debtor did not "commence" a case as described in Section 301 and therefore the petition was stricken. E.g., Rowe v. Ocwen Federal Bank Trust, 220 B.R. 591 (E.D. Tex. 1997) (discussing a "dismissal" of the case, but otherwise finding the filing a "nullity") ; In re McKay, 268 B.R. 908 (Bankr. W.D. Va. 2001); In re Hollberg, 208 B.R. 755 (Bankr. D.D.C. 1997) ( but see In re Hawkins, 340 B.R. 642, 2006 WL 1071682 (Bankr. D.D.C. 2006)); In re Pelletier, 2000 WL 33673780 (Bankr. M.D.N.C. 2000); In re Miller, 143 B.R. 815 (Bankr. E.D. Pa. 1994); In re Prud'Homme, 161 B.R. 747 (Bankr. E.D.N.Y. 1993). Other courts disagreed and found that a case was commenced and subsequently was terminated by dismissal. E.g., In re Flores, 291 B.R. 44 (Bankr. S.D.N.Y. 2003); In re Stuart, 297 B.R. 665 (Bankr. S.D. Ga. 2003).
Section 109(g) states:
Notwithstanding any other provision ofthis section, no individualor family farmer maybe a debtor under this title who has been a debtor ina case pending under this title at any time in the preceding 180 days if —
(1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or
(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.
11 U.S.C. § 109(g).
Subsequent to the BAPCPA amendments, which include new subsection (h) to Section 109, courts have addressed the issue of the effect of the filing of a petition by a debtor that is ineligible under this new subsection. As with the pre-BAPCPA cases, the courts' decisions have varied. In In re Rios, 336 B.R. 177 (Bankr. S.D.N.Y. 2005) and In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005), the courts found that a petition by an ineligible debtor must be stricken, rather than dismissed, so as to void the filing ab initio. However, other courts have disagreed and held that dismissal was the proper remedy upon determination that the credit counseling requirement had not been satisfied and that the exigency certification was deficient, as opposed to the petitions being stricken, ab initio. E.g., In re Tomco, 339 B.R. 145 (Bankr. W.D. Pa. 2006); In re Ross, 338 B.R. 134 (Bankr. N.D. Ga. 2006).
Interestingly, the Rios court's holding was largely based upon the stated purpose of protectingthe debtor fromthe effect of recent changes to the Bankruptcy Code limiting the duration and availabilityof the automatic stay inaccordance with Sections 362(c)(3) and (c)(4). Rios, 336 B.R. at 180. The court cautioned that parties-in-interest should proceed with caution and cannot be certain that there is no automatic stay until suchtime as the court has stricken the petition. Rios, 336 B.R. at 180 n2. See also Hubbard, 333 B.R. at 388 ("`dismissal' of a case under the new Act may have substantially different implications than the `striking' of a petition, [therefore] the Court must consider the appropriate remedy.").
Since this court's oralruling at hearing, two additionalcourts have issueddecisions directly addressing the effect of the filing of a bankruptcypetitionby a debtor not eligible pursuant to Section 109(h). The two opinions highlight the judicial split that has developed.
In In re Salazar, 339 B.R.622 (Bankr. S.D. Tex. 2006), the debtors filed a petition without havingobtainedpre-petitioncredit counseling. Their home was foreclosed upon after the filing of the petition and without any entry of order that would have terminated or modified an automatic stay. The court decided that no automatic stay had been created by the filing of the petition and hence the foreclosure was not in violation ofsuchstay. Contrary to the interpretation found by the court in In re Tomco, the Salazar court interpreted Section 302 to mean that a bankruptcy case was not commenced ifa petitionis filed by a debtor that is ineligible to be a debtor under the Chapter for which the petition was filed. In reaching this determination, the Salazar court appears to give a narrow reading of Section 302 which reading would be inconsistent with the outcome of numerous cases involving ineligibility under Section 109(e).
The Salazar case was a joint case, the commencement of which was governed by Section302. Section 301, with virtually identical language, governs the commencement of a case by a single individual debtor.
In contrast, the other recent opinion is In re Hawkins, 340 B.R. 642, 2006 WL 1071682 (Bankr. D.D.C. 2006). In Hawkins, the court had before it a case where it did not initially appear that the debtor had fulfilled the prepetitioncredit counseling requirement of Section109(h). The court concluded that the filing of a case by a debtor that maybe ineligible under Section109(h) does confer subject matterjurisdictionon the court to determine the questionof eligibility. Further, Hawkins holds that:
Section 362(b)(21) must be read as implying that the automatic stay is ineffect while the court makes this threshold determinationof jurisdiction. A petition by an ineligible debtor gives rise to a case in this limited sense and to an automatic stay until the case is dismissed. In other words, § 362 must be read as giving rise to an automatic staywhen a petition is asserted to be filed under §§ 301, 302, or 303.
Id. at *3.
The ruling by this court in the case sub judice is consistent withthe decision expressed by the United States Bankruptcy Court for the District of Columbia in Hawkins and this courtrespectfully finds the decision in Salazar unpersuasive. This court holds that Congress has decided with surgical clarity, the questionof whether the filing of a petition by a debtor that is not eligible under Section109 creates an automatic stay. Section 362(b)(21) was added to the Bankruptcy Code by BAPCPA and reads as follows:
The filing of a petition under section 301 . . . does not operate as a stay — under section (a), of any act to enforce any lien against or security interest in real property —
(A) if the debtor is ineligible under section 109(g) to be a debtor under this title; or
(B) if the case under this title was filed inviolationof a bankruptcy court order in a prior case under this title prohibiting the debtor from being a debtor in another case under this title. . . .
This Sectionexplicitly provides that where the debtor is ineligible under Subsection(g), the automatic stay does not stay "any act to enforce any lien against or security interest in realproperty." This provision would be completely superfluous if no automatic stay arose as a result of the filing by a debtor who was ineligible under any part of Section 109 (including subsection (h)), to be a debtor under the chapter selected in the petition. It is a commonrule of statutoryconstructionthat no section should be construed so as to render another sectionsuperfluous. See e.g., Hibbs v. Winn, 542 U.S. 88, 101, 124 S.Ct. 2276, 2286, 159 L.Ed.2d 172 (2004); Kawaauhau v. Geiger, 523 U.S. 57, 616-2, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998); U.S. v. Ryan-Webster, 353 F.3d 353 (4th Cir. 2003).
The result reached by the court in Salazar cannot be reconciled with Section 362(b)(21) as enacted by Congress. The exception from the effect of the automatic stay set forth in this provision is limited to where a debtor is ineligible under Subsection(g) of Section109 and therefore is expressly not applicable to a debtor ineligible under Section 109(h) or (e). The result found in Salazar would, ineffect, eliminate the expressed "(g)" from Section 362(b)(21)(A). This court, to the contrary, finds that if Congress had intended that no stay arise by the filing of a petition by a debtor found to be ineligible under any provision of Section 109, Congress would not have expressly enacted the limitation in Section 362(b)(21). Congress limited the exception to the automatic stay to cases filed by debtors that are ineligible under subsection(g) of Section109 and eveninsuchcases the exception allows only acts to enforce a lien or security interest in real property. The Salazar decision would completely eliminate both restrictions.
Congress has shown that it is both able and willingtorestrict the effect of the automatic stay where it intends to do so, not only under the twenty-eight subparts of Section362(b), but under other provisions including Section 362(c)(4) and Section 362(n). Congress obviously knew of the issue raised by conflicting opinions pre-BAPCPAas to the effect of the filing by an ineligible debtor under Section109. It has legislated a carefully defined exception to the stay thus also clearly indicating what are the limits of such exception.
The distinction between the effect of a filing by an ineligible debtor under Section 109(h) as opposed to Section 109(g) is not illogical, nor does it lead to an absurd result. Where a debtor files a petition under circumstances rendering the debtor ineligible under Section 109(g), all facts necessary for a creditor or other party-in-interest to correctly assess the ineligibility of the debtor are matters of public record and not subject to factualdispute or pending courtdecision. Ineligibility under Section 109(g) is triggered by the dismissal of a prior case within 180 days of the filing of the petition in the subsequent case and the dismissal was for reason of disobedience of a court order, or after a motion for relief from stay had been filed in the prior case. All predicate prior events for the triggering of the ineligibility under Subsection (g) are reflected in the public records of the prior case accessible by any creditor including through the PACER System. Therefore, Section 362(b)(21) creates no confusion or uncertainty in the subsequent case.
See In re Jarboe, 177 B.R. 242 (Bankr. D. Md. 1995) (discussing Section 109(g)).
However, ineligibility under Section 109(e) or Section 109(h) cannot be ascertained by a creditor until a ruling by the court. Whether a debtor is eligible to be a debtor under Chapter 13 under the debt limits set forth in Section 109(e), is often disputed. An issue is frequently litigated as to whether or not certain debts must be included within a calculation of the limitations, or excluded under the provisions requiring such debts to be non-contingent and liquidated.
Ineligibility under Section 109(h)(1) occurs where the debtor has not received a required briefing on credit counseling within 180 days proceeding the filing of the petition and is not granted a waiver under Section 109(h)(3). Evenwhere the debtor has not filed a certificate of credit counseling or certification requesting waiver, there is no indisputable and unambiguous indication of the debtor's ineligibility. Eligibility under Section109(h) is not dependent upon the filing of a certificate of credit counseling. Rather, the debtor is not eligible if the debtor did not receive the credit counseling and is not entitled to a waiver.
Section521(b) requires the debtor to file a certificatefromthe approved non-profit budget and credit counseling agencythat provided the services required by Section 109(h), as well as a copy of any debt repayment plandeveloped through that agency. Rules 1007(b) and (c) of the interim rules adopted by this Court's Administrative Order 05-02, require that the certificate of credit counseling and debt repayment planbe filed withthe petition, or that a certificationrequesting waiver be filed with the petition.
Generally this court will by order dismiss a case for reason of apparent lack of eligibility under Section 109(h) if no certificate of credit counseling, or certification requesting waiver, is filed. However, numerous cases have beenfiled inthis district since the effective date of BAPCPA inwhich the debtor had received the credit counseling within the 180 days preceding the petition filing as required, but for various reasons including attorney error and/or unfamiliarity with CM/ECF, the filing of the certificate evidencing such pre-petition counseling was delayed. In such cases the court may excuse the lateness of the filing of the certificate and vacate any dismissal order because the debtor was eligible. Clearly, where, as in this case, Debtor filed a Certification Requesting Waiver of the pre-petition counseling requirement under Section 109(h)(3), it could not be ascertained by a creditor whether suchcertificationwould be found sufficient under the statutoryrequirements of Section109(h) and satisfactory to the court, until the court enters an order determining this question.
The fact that Burson guessed correctly as to what would subsequently be the court's finding as to the request contained in the Certification Requesting Waiver is immaterial.
Where Congress has spoken withprecision, the court should not conclude that Congress intended a broader, or different result, particularly where there is an obvious rational basis for the delineations set forth in the statute. For the reasons stated above, this court holds that the filing of a petition by a debtor who is ineligible to be a debtor pursuant to Section 109(h)(1), with or without a certificationrequesting waiver under Section109(h)(3), does create an automatic stay under Section 362(a).
As stated above, there is no dispute that the foreclosure actions taken by Burson violated Section362(a) and the foreclosure is accordingly void. This court has not been asked to grant relief from the automatic stay nunc pro tunc by annulling the stay and sees no basis to do so sua sponte. Further, the violationof the stay occurred withfullknowledge by Bursonof the filingof the bankruptcy case. For this reason and for the reasons set forth on the record at the conclusion of the hearing, this court has awarded consequential damages to reimburse Debtor for her consequential expenses. However, because the violation of stay did not result from an intentionalmisconduct although the act itself was willful, this court will not award further damages including punitive damages. An Order in conformity with this holding has been entered.
See e.g., In re Lampkin, 116 B.R. 450 (Bankr.D. Md. 1990) (finding that actions taken in violation of the automatic stay are void ab initio).