Opinion
Bankruptcy No. 04-30556DWS.
October 21, 2004
MEMORANDUM OPINION
Before the Court is the Motion of Citizens Bank of Pennsylvania ("Lender") to Dismiss Bankruptcy Case Pursuant to §§ 105 and 1307(c) and for 180 Day Bar Against Filing Subsequent Bankruptcy Case, or in the Alternative, for Relief from the Automatic Stay Pursuant to 11 U.S.C. § 362(d) (the "Motion") and the Debtor's objection thereto. For the reasons set forth below, the Motion shall be granted.
BACKGROUND
Lender, formerly the holder of a mortgage on Debtor's residential real estate located at 8540 Forrest Avenue, Philadelphia, Pennsylvania (the "Property"), was the successful bidder at a sheriff's sale of the Property held on October 5, 1999. On May 4, 2000 the sheriff's deed it obtained was recorded. These events were the culmination of a complaint in mortgage foreclosure filed by Lender's predecessor Mellon Bank, N.A. in 1995. Debtor has not made a payment under his mortgage since 1994, and Lender has been trying to eject Debtor since November 1999. Exhibit C-3. The saga of the Debtor's resistance to the exercise of state law remedies by Lender is evidenced by numerous state court orders and opinions of which I take judicial note. They demonstrate that Debtor has availed himself of innumerable opportunities to challenge the adverse actions taken against the Property and has been repeatedly rebuffed by the state courts.
Debtor claims he was not served with the ejectment action, an argument made similarly with respect to the foreclosure action. His many appeals were unsuccessful, a fact he attributes to his lawyer's refusal to file a brief and his inability to represent himself. His suit against Lender for fraud was dismissed as was his appeal of the dismissal. His request to open the ejectment judgment was similarly denied. Ultimately and after years of litigation and attempts at relitigation, the Commonwealth Court enjoined him from initiating or attempting to relitigate any cause of action based on the 1995 foreclosure action and the resulting ejectment action. Exhibit S to Motion,Maximo Justo Guevara v. Mellon Bank, N.A., No. 2154 C.D. (Comm. Ct. Jan. 16, 2004).
During this time the Debtor has utilized six Chapter 13 cases to obstruct Lender from the exercise of its state law remedies. His forays into bankruptcy have been brief and for the sole purpose of obstructing Lender. On May 6, 1999 Lender obtained relief from stay in case number 3, and notably an order barring debtor for 180 days from filing a further case without leave of court was entered. Notwithstanding that Order, on October 4, 1999 Debtor filed case number 4 under Chapter 13, with the view again to stay the sheriff sale. According to Debtor, notice of the new case was provided to the sheriff, and he believed that the October 5, 1999 sale was postponed. It was not. Since no notice of the filing was provided to Lender (who would have had no reason to suspect same since there was an extant bar order), Lender proceeded to acquire the Property. See Exhibits C-1 (sheriff's deed to AP Realty) and C-2 (deed from AP Realty to Citizen's Bank).
I shall also take judicial notice of the docket entries in Debtor's cases. Fed.R.Evid. 201, incorporated in these proceedings by Fed.R.Bankr.P. 9017. See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1200 n. 3 (3d Cir. 1991). Moreover, while a court may not take judicial notice sua sponte of facts contained in the debtor's file that are disputed, In re Augenbaugh, 125 F.2d 887 (3d Cir. 1942), it may take judicial notice of adjudicative facts "not subject to reasonable dispute . . . [and] so long as it is not unfair to a party to do so and does not undermine the trial court's factfinding authority." In re Indian Palms Assoc., 61 F.3d 197, 205 (3d Cir. 1995) ( citing Fed.R.Evid. 201(f) advisory committee note (1972 proposed rules).
Debtor's first case, 96-19528, was filed under Chapter 13 on October 4, 1996 to stay the imminent foreclosure sale. The second case, 96-19585, was filed three days later under Chapter 7 during the pendency of the prior case. That case was promptly dismissed and case no. 1 followed suit on May 30, 1997. On the eve of the next sheriff sale, case no. 3, 97-33375, was filed under Chapter 13 but was dismissed on June 12, 1997. Case no. 4, 98-34460, was filed under Chapter 13 on November 9, 1998, again to stop an imminent sheriff's sale. Case no. 5, 99-32562, was filed on October 4, 1999 and dismissed on January 13, 2000. This case was filed on August 2, 2004 after the state court enjoined Debtor from pursuing further actions there. See note 1 supra.
Debtor blames, inter alia, his prior attorney Michael Kutzer, Esquire for the failures of his previous cases. In case no. 1, he contends Kutzer told him not to pay the Chapter 13 trustee (presumably after Lender got relief from stay). Case number 2, he notes, was incorrectly filed as a Chapter 7 and was allowed to be dismissed. In case 3, he made no payments to either the Chapter 13 trustee or Lender but avers that the latter deficiency was a result of Mellon's refusal to talk to him. He had no explanation for the failure of case number 4 or 5, the latter of which was dismissed for failure to appear at the § 341 hearing or pay the filing fee.
To validate his position that no sale occurred, Debtor introduces Exhibit D-1, the sheriff's real estate docket that notes next to the sale date "S" for "stayed." However, notwithstanding the notation, it is clear that the sale did occur.
The present bankruptcy case seeks to prevent Lender's action in ejectment based on the theory that no foreclosure occurred as Debtor was, albeit without notice to Lender, enjoying the safe harbor of a bankruptcy case at the time of the sheriff's sale. Debtor contends that he is capable of confirming a Chapter 13 plan that will pay Lender the mortgage arrears to which he is entitled. However, since he no longer holds title to the Property, this case can only offer the vehicle for that outcome if the sheriff sale can be undone.
In response, Lender argues that the bankruptcy in question was filed in violation of a court order prohibiting further bankruptcy relief and therefore the automatic stay was never triggered. Alternatively, it contends that if the sheriff sale did violate the automatic stay, the stay should be annulled under the facts of this case to validate the foreclosure and transfer of the Property.
DISCUSSION
A.
In its Reply Memorandum, Lender correctly observes that I have considered whether a petition filed in violation of a bar order triggered the operation of the automatic stay of § 362 in In re Lami, 2003 WL 262484 (Bankr. E.D.Pa. Jan. 2, 2003). I reasoned there that a petition must be filed under § 301 to operate as stay of any action to enforce a lien, and the question is thus whether the barred petition is filed under § 301 which allows a filing only by an entity that may be a debtor. Section 109 informs who may be a debtor, stating:
Notwithstanding any other provision of this section, no individual may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if —
(1) the case is dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in a proper prosecution of the case;
11 U.S.C. § 109(g)(1). In Lami I held that to the extent the dismissal is supported by the findings required by § 109(g)(1), the debtor is not an eligible debtor under § 301, and the stay does not apply to him or his property. Id. at *2. As I concluded that Lami's failure to file the documents required by court order was a willful act implicating § 109(g)(1), I found that the stay was not operative.
The circumstances of the dismissal of Debtor's fourth case that gave rise to the bar order are reflected in my Order of May 27, 1999 denying reconsideration of the Order granting relief to Lender and reinstatement of the subsequently dismissed bankruptcy case. Doc. No. 39 in Bankr. No. 98-34460. I explained my conclusion as follows:
Debtors failed to appear at the hearing on May 6, 1999 and offer a defense to the Mellon Motion. The Order for which reconsideration is sought was entered by default. However, it appeared today that their appearance would have been fruitless as they had not made payments to Mellon since 1994, and Mellon secured a judgment against them in 1995 to which I must accord full faith and credit. Moreover, they had deliberately not made plan payments to the Chapter 13 trustee because they were earmarked for Mellon. Not surprisingly, the Chapter 13 trustee sought and obtained dismissal of their case. The Order granting Mellon relief bars the Debtors from refiling bankruptcy without leave of Court. Based on the facts as recited today, it does not appear that such relief would be forthcoming if the appropriate motion were filed. Should there be a change of circumstances that would enable Debtors to reorganize, a motion for leave to file will be entertained. However, a filing for the mere purpose of staying foreclosure without any change of circumstances will not be approved.
All cases prior to the present case were filed jointly by Debtor and his spouse, Beverly Dorsey-Guevara.
Id. The foregoing quoted language reflects my finding that Debtor's failure to make his required plan payments was deliberate and driven by his animus toward Lender who would be the beneficiary of payments which would be applied by the Trustee to the mortgage arrears. Moreover, although Debtor sought to delay the effect of the dismissal by filing a motion for reconsideration of the adverse decision, he had not appeared to contest the Mellon motion or the Trustee's motion to dismiss.
While Debtor's record is no less egregious than that of the debtor Lami, the language of § 109(g)(1) does not fit as neatly in this case. Clearly there was no order that the Debtor wilfully failed to obey. Lender's Memorandum examines Debtor's bankruptcy history but fails to shed light on what the drafters had in mind when they included failure "to appear before the court in a proper prosecution of the case" as giving rise to ineligibility. Nor are any of the cases Lender cited to the point. Fortunately I do not have to write on a blank slate since Lender has advanced an alternative theory that secures the same result in requesting annulment of the stay, and I will leave to another day the force and scope of Lami.
Moreover, since my decision in Lami, there have been several cases that opine that the automatic stay does attach even though the bankruptcy case was filed by an ineligible debtor.Shaw v. Ehrlich, 294 B.R. 260 (W.D. Va. 2003); In re Flores, 291 B.R. 44 (Bankr. S.D.N.Y. 2003) They reason that a contrary holding would undermine the integrity of § 362. As it is for the court, not a creditor, to determine the eligibility of the debtor, until the petition is determined to be subject to dismissal, they conclude that the automatic stay will apply.
B.
The discretion afforded a bankruptcy judge to grant relief from the automatic stay includes the authority to grant an annulment of the stay, thereby validating an act done in violation of the stay which would otherwise be deemed to be void ab initio. In re Siciliano, 13 F.3d 748, 751 (3d Cir. 1994) (annulment of the stay may validate a post-petition sheriff's sale as an exception to the void ab initio rule). Clearly this action is only taken in exceptional circumstances. Kissinger v. Kissinger, 72 F.3d 107, 108 (9th Cir. 1995) (failure to obey stay caused by judge, not creditor and retrial would impose either a nonsensical result or impose a hardship due to cost). See also In re Blaylock, 301 B.R. 443 (Bankr. E.D. Pa. 2004).
The factors which, if present, will warrant annulling the stay were reviewed with their decisional authority in the bankruptcy court's decision in Siciliano on remand, 167 B.R. 999, 1007-09 (Bankr. E.D. Pa. 1994). They include whether the creditor had knowledge of the debtor's bankruptcy filing, whether the debtor is guilty of some inequitable conduct, such as abusive and/or repetitive bankruptcy filings, whether the debtor has encouraged the creditor to proceed notwithstanding the stay or only asserts the stay when it is unsuccessful in the outcome of an action it allowed to proceed, and whether the expenses of beginning anew with its enforcement remedy outweigh the benefit to anyone. Id. at 1007-09. None of these factors are dispositive alone, but require a weighing of the equities since the remedy is equitable in nature.
Under the facts of this case, the equitable remedy of annulment is clearly warranted. Lender's violation of the stay in 1999 was unintentional. It was not given any notice of the bankruptcy filing and had no reason to believe a petition could be filed since the Debtor was prohibited from any further bankruptcy relief. Rather than timely challenge the stay violation after it occurred and seek to propose a confirmable plan, Debtor simply refused to pay Lender, rather electing to litigate and relitigate in state court to avoid payment. Only when adverse decisions became final after exhaustion of many appeals, did the Debtor challenge the foreclosure as violating the stay and only on the eve of Lender's implementation of its long delayed ejectment action.
As noted by the Superior Court of the Commonwealth of Pennsylvania in rejecting one of Debtor's appeals as an "attempt to relitigate for the umpteenth time" adverse rulings from the trial court:
Parenthetically, we must observe that at its core, this case is a simple mortgage foreclosure necessitated by Appellant's failure to make his mortgage payments. Yet, Appellant has turned this matter into an endless litigation war of attrition, filing countless motions, petition, etc., and then filing endless appeals from the denial of these motions. To date, Appellant has filed more than 20 (twenty) appeals to this Court, and numerous bankruptcy petitions in connection with the foreclosure case. The simple conclusion to be drawn from Appellant's numerous unsuccessful filings and endless litigation is that he is using our justice system as a harassment tool.
Exhibit A to Motion, Mellon Bank v. Maximo Justo Guevara, No. 3011 EDA 2001, at 9 (Super Ct. April 17, 2003).
Having been enjoined by the state court from challenging the foreclosure and ejectment any further, Debtor would have me believe that he is now prepared to cure the mortgage arrears in a Chapter 13 plan, a duty he eschewed in four bankruptcy cases. That intention is simply not credible. Moreover, as the Debtor was prohibited from another opportunity to secure bankruptcy relief, to allow him to cure his mortgage in a case now simply because he was able to impermissibly file a new case on the eve of foreclosure would undermine the integrity of the Court's order.
Finally, Debtor has not established that there has been any change of circumstances since his earlier unsuccessful cases. He does not appear to have any new financial resources to confirm a Chapter 13 plan. His sole source of income which is unchanged since April 2000 is from social security and presently amounts to $1,100 per month; as of the petition date he had cash and cash equivalents of $250 and total personal property valued at $2,150, including his 1990 Volvo, notwithstanding that he has not had any housing expense since 1994. While there appears to be substantial equity in the Property, he does not suggest refinancing if allowed to proceed in bankruptcy. Indeed his first payment in this case made with knowledge of the pending Motion was not even for the full amount provided for under his Chapter 13 plan.
Indeed in the last bankruptcy case, his appeal of the denial of his motion to reconsider the dismissal order was accompanied by an in forma pauperis petition to waive the filing fee. Doc. No. 45.
His sole affirmative step in this case has been to commence an adversary proceeding against Lender and the Sheriff of Philadelphia County seeking to overturn the sheriff's sale held in 1999 for allegedly violating state law in depriving him of the opportunity to bid at the sale. As the state court has enjoined Debtor from pursuing any further theories regarding the foreclosure action, this latest suit evidences the Debtor's intention to move his litigation activities to this Court.
Setting aside the foreclosure to allow Debtor to proceed in this Chapter 13 case is not warranted for all the foregoing reasons. Moreover, requiring Lender to repeat its foreclosure given Debtor's exhaustion of all remedies in the state court would be an unnecessary burden and expense. For all these reasons, I will annul the stay so as to validate the sheriff sale.
C.
Section 1307 (c) provides that a case may be dismissed for "cause" and provides a nonexclusive listing of what constitutes such "cause." 11 U.S.C. § 1307(c). I easily find that there has been unreasonable delay that is prejudicial to creditors by reason of this latest of multiple petitions. 11 U.S.C. § 1307(c)(1). This case is but a continuation of a campaign conducted in this and the state trial and appellate courts to obstruct Lender from the exercise of its contractual rights. Lender has been prosecuting its claim since 1995. The time has come to close off this avenue of avoidance as the state court has done.
A lack of good faith in filing also provides cause for dismissal of a Chapter 13 case. In re Lilley, 91 F.3d 491, 496 (3d Cir. 1996). Because the term "good faith" is "incapable of precise definition," the good faith inquiry is a fact intensive determination that is left to the discretion of the bankruptcy court and "assessed on a case-by-case basis in light of the totality of the circumstances." Id. To ascertain the existence of bad faith I must review the "totality of the circumstances," asking whether the Debtor "misrepresented facts in his [petition or] plan, unfairly manipulated the Bankruptcy Code or otherwise [filed] his Chapter 13 [petition or] plan in an inequitable manner." Eisen v. Curry (In re Eisen), 14 F.3d 469, 470 (9th Cir. 1994) ( quoting In re Goeb), 675 F.2d 1386, 1391 (9th Cir. 1982)). A debtor's history of filings and dismissals is probative of bad faith. In re Oglesby, 158 B.R. 602 (E.D. Pa.), on remand, 161 B.R. 917 (Bankr. E.D. Pa. 1993). Significantly, where the purpose of the bankruptcy filing is to defeat state court litigation without a reorganization purpose, bad faith exists. In re Dami, 172 B.R. 6, 11 (Bankr. E.D. Pa. 1994).
There is no per se rule against serial filings. See Johnson v. Home State Bank, 501 U.S. 78, 87-88 (1991). A genuine change of circumstances may warrant further bankruptcy relief. See In re Oglesby, 158 B.R. at 606 ( citing In re Metz, 820 F.2d 1495, 1498 (9th Cir. 1987)).
Recognizing that there is no one established set of good faith factors, the Oglesby Court provides a non-exhaustive list of considerations to be utilized in measuring the good faith of multiple filings:
(1) the length of time between the prior cases and the present one;
(2) whether the successive cases were filed to obtain favorable treatment afforded by the automatic stay;
(3) the effort made to comply with prior case plans;
(4) the fact that Congress intended the debtor to achieve its goals in a single case;
(5) any other facts the court finds relevant relating to the debtor's purpose in making successive filings.
158 B.R. at 607.
Applying those criteria to the Debtor's filing, I find this case to have been commenced in bad faith. The Debtor has testified that this latest case is intended to pay Lender's secured claim under a Chapter 13 plan that would cure arrears over 60 months. Aside from finding that expressed intention incredible in light of his election to litigate, not reorganize in the past nine years, I conclude that Debtor simply does not have the legal ability to accomplish that end. As Debtor has no legal or equitable interest in the Property as a result of Lender's valid exercise of its state law remedies, Lender is not the holder of a secured claim which can be treated in this manner. Rather Lender is the owner of the Property, and Debtor's interest is merely one of possession. The petition was filed to prevent eviction after the Debtor had exhausted all his state law remedies and then some. As there is no valid purpose for this bankruptcy case and as the petition was filed in the face of a court order prohibiting the filing, it shall be dismissed as a bad faith filing.
In appropriate circumstances where the facts evidence an abuse of the provisions, purposes and spirit of Chapter 13, this Court has joined other bankruptcy courts that find that more than dismissal is warranted. Dami, 172 B.R. at 11. In such a case, Bankruptcy Rule 9011, incorporating Fed.R.Civ.P. 11, provides the authority for the sanctions that Movant seeks. As the Court inIn re Jones, 117 B.R. 415, 420 (Bankr. N.D. Ind. 1990) stated:
[W]here a debtor files a petition in bankruptcy with no intention of obtaining the benefits or the goals for which the proceeding was designed or with no intention of pursuing those proceeding[s] to their natural conclusion, the bankruptcy code is being abused and bankruptcy rule 9011 is being violated.
See also In re Narod, 138 B.R. 478, 482 (E.D. Pa. 1992) (sanctions imposed under Rule 9011 are not limited to expenses or fees). Other courts have relied on their discretionary power under Section 349, see, e.g., In re McKissie, 103 B.R. 189, 193 (Bankr. N.D. Ill. 1989); or Section 105, see, e.g., In re Earl, 140 B.R. 728, 741 (Bankr. N.D. Ind. 1992), to enjoin future filings to prevent abuse of the bankruptcy process. The Court's ability to impose this sanction is necessary to maintain the integrity of the bankruptcy process and avoid burdening the court's docket with frivolous cases, thereby depleting valuable and limited court resources which could be channeled to meritorious cases. Debtor's serial filings in this Court and his even more abusive filings in the state court evidence Debtor's lack of respect for the judicial system. Like the state courts that ultimately closed their doors to him, we shall do likewise.
An Order consistent with this Memorandum Opinion shall be entered.
ORDER
AND NOW, this 21st day of October 2004, upon consideration of the Motion of Citizens Bank of Pennsylvania to Dismiss Bankruptcy Case Pursuant to §§ 105 and 1307(c) and for 180 Day Bar Against Filing Subsequent Bankruptcy Case, or in the Alternative, for Relief from the Automatic Stay Pursuant to 11 U.S.C. § 362(d) and the Debtor's objection thereto, after notice and evidentiary hearing, and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED and DECREED that:
1. The automatic stay that arose upon the filing of case number 99-32562 is annulled to the date of the petition, i.e., October 4, 1999.
2. The Motion to Dismiss is GRANTED.
3. The Debtor is barred from filing a further bankruptcy case without prior leave of court. 11 U.S.C. § 109(g)(1).