Summary
concluding that "§§ 362 and 549 are held to apply to mutually exclusive circumstances"
Summary of this case from In re PaigeOpinion
Civil Action No. 5:02-CV-0168-C
December 22, 2003
MEMORANDUM OPINION AND ORDER
COMES NOW BEFORE THIS COURT Plaintiff United States of America's ("United States") Motion for Summary Judgment and the cross Motions for Summary Judgment of Defendant Annette Haney ("Haney") and Defendant Taxing Districts of Hale County, City of Abernathy, Abernathy Independent School District, Farm to Market, and High Plains Water District ("Taxing Districts"). For the reasons set forth herein, the Court, after considering the pleadings, memoranda and exhibits filed, does hereby GRANT the United States' Motion for Summary Judgment and DENIES the cross Motions for Summary Judgment of Haney and the Taxing Districts of Hale County, City of Abernathy, Abernathy Independent School District, Farm to Market, and High Plains Water District.
I. FACTUAL BACKGROUND
The United States, through the U.S. Department of Agriculture ("USDA") and the Farmers Home Administration ("FmHA"), loaned $14,500 to Daniel W. and Coleen M. Miller ("the Millers") to enable them to purchase from the United States a house and lot in Hale County, Texas, described as
All of the South 10 feet of Lot No. 8 and all of Lot No. 9 in Block 154 of the Original Town of Abernathy, Hale County, Texas,
("the Property"). The loan was secured by a vendor's lien retained in the deed from the United States dated February 3, 1976, recorded in Volume 593, page 215, Deed Records, Hale County, Texas, and additionally secured by a deed of trust dated March 1, 1976, from the Millers to the United States, as beneficiary, that was recorded in Volume 216, page 557, Deed of Trust Records, Hale County, Texas.
On January 7, 1980, the United States, through USDA and FmHA, loaned the Millers an additional $6,550 to make repairs to the Property. This loan was secured by a deed of trust dated January 7, 1980, from the Millers to the United States, as beneficiary, that was recorded in Volume 246, page 365, Deed of Trust Records, Hale County, Texas. Between February 16, 1982, and July 10, 1995, the United States paid $9,779.55 in delinquent ad valorem property taxes on the Property and charged this amount to the Millers' account. The last tax assessment paid by the United States, through USDA and FmHA, was in response to a tax suit, Cause No. A3558-9306, filed on February 13, 1995, in the 64th District Court in and for Hale County, Texas, seeking payment of ad valorem taxes on the Property for the years 1991, 1992, and 1993. The suit, filed by Perdue Brandon Fielder Collins and Mott, L.L.P. ("Perdue") on behalf of the City of Abernathy, Abernathy Independent School District, Hale County, Farm to Market, and High Plains Water District ("the Taxing Districts"), named as defendants the Millers and the United States, by virtue of the two deeds of trust given by the Millers to the FmHA.
On July 17, 1995, in response to the tax suit, the United States, through USDA and FmHA, paid the 1991 through 1994 taxes as well as court costs, by means of Treasury checks in the amount of $3,989.94 made payable to the Taxing Districts and the state court clerk. On July 25, 1995, the United States, through Mark Latham, Hale County Supervisor for USDA and FmHA, sought dismissal of the suit by virtue of its payment of the taxes due. Perdue sent a copy of the district court's Order of Dismissal to Mark Latham, FmHA, on September 1, 1995. The Millers' 1995 ad valorem taxes on the Property, assessed against the Property on January 1, 1995, became due and payable on October 1, 1995. On October 2, 1995, the Millers filed for bankruptcy protection under Chapter 13 in the U.S. Bankruptcy Court for the Northern District of Texas, Lubbock Division, in Case No. 95-50856. In response, the United States ceased all contact with the Millers as debtors. The United States then, through the Rural Housing Authority ("RHA") (successor agency to the FmHA), filed a proof of claim with the Bankruptcy Court in the amount of $36,665.11 on February 2, 1996. An Order confirming the Chapter 13 bankruptcy plan was entered on March 26, 1997, providing for the payment of the RHA delinquency.
On February 24, 1997, Perdue, on behalf of the Taxing Districts, filed a tax suit, Cause No. B3929-9702, in the 242nd District Court in and for Hale County, Texas, seeking payment of 1995 and 1996 ad valorem taxes on the Property in the amount of $1,863.54 and naming the Millers as defendants. On July 25, 1997, the Taxing Districts, through Perdue, filed their First Amended Petition adding the United States by virtue of the two deeds of trust on the Property given by the Millers to the FmHA. Service in this suit was made upon the United States through the United States Attorney's Office at Lubbock, Texas, but was not separately made on the USDA, FmHA, or FSA, even though these agencies had historically paid the taxes on the Property and their addresses were known to the Taxing Districts from their records. The United States Attorney's Office filed a Disclaimer of Interest with the state court on behalf of the Internal Revenue Service ("IRS") on October 2, 1997, and an Order of Dismissal as to the United States on behalf of the IRS was entered on October 7, 1997. The state court then entered judgment in the tax suit for the 1995 through 1997 ad valorem taxes against the Millers and in favor of the Taxing Districts on May 12, 1998.
The Property was sold on September 1, 1998, by the Hale County Sheriff at a tax sale to Annette Haney ("Haney") for the amount of $6,150. The excess of the tax sale in the amount of $2,472.76 was deposited into the registry of the state court on September 10, 1998. At no time from the Millers' filing for bankruptcy on October 2, 1995, until the sale of the Property to Haney on September 1, 1998, were the Taxing Districts or Haney aware of the Millers' bankruptcy filing or the existence of the stay. At no time did the Taxing Districts or Perdue seek a lift of the stay, and no lift of the stay was granted, by the Bankruptcy Court. The bankruptcy proceedings were closed on June 27, 2001. The United States, through USDA, learned of the bankruptcy closing on July 26, 2001, and, subsequent to determining that the Property had been sold to Haney, filed this cause of action on July 23, 2002. On June 18, 2003, the United States deposited into the registry of this Court the amount of $3,677.24 in payment of the delinquent taxes, penalties, interest, and costs of the tax sale.
II. PROCEDURAL BACKGROUND
Plaintiff filed its Complaint with this Court on July 23, 2002. Defendant Haney filed her Original Answer on November 18, 2002, and Defendant Taxing District filed its Original Answer on November 22, 2002. This Court entered a default judgment in favor of Plaintiff against Defendant Miller in the amount of $32,096.35, together with future interest and advances, on April 22, 2003. Plaintiff filed its Motion for Summary Judgment and Memorandum in Support against the remaining defendants on June 6, 2003, together with its Appendix in Support on June 18, 2003. Defendants Haney and Taxing District each filed a respective Response to plaintiff's Motion for Summary Judgment and Memorandum in Support on July 8, 2003. Defendant Haney filed her Motion for Summary Judgment together with her Memorandum and Appendix in Support on July 15, 2003. Defendant Taxing District filed its Motion for Summary Judgment on July 15, 2003. Plaintiff filed its Reply Brief to Defendant Taxing District's Response to plaintiff's Motion for Summary Judgment on July 18, 2003. On August 6, 2003, Plaintiff filed its Responses to the Motions for Summary Judgment of Defendant Taxing District and Defendant Haney, respectively. Defendant Haney filed her Reply Brief to plaintiff's Response to her Motion for Summary Judgment on August 21, 2003, and her Supplemental Reply Brief to plaintiff's Response to her Motion for Summary Judgment on September 2, 2003.
III. STANDARD
Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," when viewed in the light most favorable to the non-moving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986) (internal quotations omitted). A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. at 248. In making its determination, the court must draw all justifiable inferences in favor of the non-moving party. Id. at 255.
Once the moving party has initially shown "that there is an absence of evidence to support the nonmoving party's case," Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986), the non-movant must come forward, after adequate time for discovery, with significant probative evidence showing a triable issue of fact. FED. R. CIV. P. 56(e); State Farm Life Ins. Co. v. Gutterman, 896 F.2d 116, 118 (5th Cir. 1990).
Conclusory allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation are not adequate substitutes for specific facts showing that there is a genuine issue for trial. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428 (5th Cir. 1996) (en banc); SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993). To defeat a properly supported motion for summary judgment, the non-movant must present more than a mere scintilla of evidence. See Anderson, 477 U.S. at 251. Rather, the non-movant must present sufficient evidence upon which a jury could reasonably find in the non-movant's favor. Id.
Interpretations of statutory provisions that are dispositive and which raise only questions of law, there being no contest as to the operative facts, are appropriate for summary judgment. Dobbs v. Costle, 559 F.2d 946, 947 (5th Cir. 1977). Standing is a question of law that is likewise appropriate for summary judgment. Group Dealer Services, Inc. v. Southwestern Bell Mobile Systems, Inc., 2001 WL 1910565, *13 (W.D. Tex. 2001).
IV. ANALYSIS
Jurisdiction
This Court must first address the jurisdiction issue that Haney has raised in her Motion for Summary Judgement; i.e., whether jurisdiction of this cause of action is proper in federal district court, or whether it may only be pursued in bankruptcy court. Haney's argument is based on her presumption that the United States is bringing this action pursuant to 11 U.S.C. § 362(h). Haney claims that actions under § 362(h) may only be maintained in a bankruptcy court citing Eastern Equipment Service Corporation v. Factory Point National Bank, 236 F.3d 117, 120-21 (2nd Cir. 2000). In Eastern the plaintiff had brought an action in federal district court for state law causes of action based on a violation of the automatic stay, as well as for damages provided by § 362(h). The Eastern court held that "district courts simply lack jurisdiction to hear claims asserting violations of the automatic stay that sound in state law" and that a claim under § 362(h) "must be brought in the bankruptcy court rather than in the district court." Id. at 121. Apart from the fact that Eastern is not controlling on this Court, it may be distinguished from the instant case in that here the United States specifically denies that it seeks any damages pursuant to § 362(h).
The United States claims that it does not require or seek standing under § 362(h). [U.S. Resp. to Def. Haney's MSJ, p. 4, n. 3]. Section 362(h) is the exclusive avenue for claims for damages for violation of the stay, and then only for a "willful violation." See In re Pointer, 952 F.2d 82, 86 (5th Cir. 1992), cert. denied, 505 U.S. 1222 (1992). The United States never argues that either the Taxing Districts or Haney willfully violated the stay, although it did seek, in the alternative, actual and exemplary damages in its Original Complaint. Because the United States has asserted that it does not seek standing under § 362(h), this Court will construe that as a waiver of its claims in the alternative for damages for violation of the automatic stay.
This distinction aside, this Court must nonetheless determine whether it has jurisdiction of this case in view of the fact that the Northern District of Texas has adopted a local rule that refers to bankruptcy judges "[a] 11 cases under Title 11 and all civil proceedings arising under Title 11 or arising in or related to cases under Title 11." LOCAL RULE OF THE NORTHERN DISTRICT OF TEXAS CONCERNING BANKRUPTCY CASES AND PROCEEDINGS, MISCELLANEOUS ORDER No. 33. Significantly, such a blanket order of reference does not preclude a district court from exercising its jurisdiction pursuant to 28 U.S.C. § 1334. See Carlton v. BAWW, Inc., 751 F.2d 781, 788 (5th Cir. 1985). This is true because § 1334 grants to a federal district court "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b); see also Holland Am. Ins. Co. v. Succession of Roy, 111 F.2d 992, 994 (5th Cir. 1985). Further, a district court "may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion . . . for cause shown." 28 U.S.C. § 157(d). As the Fifth Circuit has stated, "The cumulative effect of the grant of original jurisdiction to the district court and its right to withdraw the reference in a bankruptcy case . . . leaves little doubt that the district court may exercise jurisdiction broadly." Holland Am., 777 F.2d at 998. This withdrawal can be effected even where the district court allows a case to proceed under its jurisdiction that it otherwise would have referred to the bankruptcy court under a blanket order of reference. See Carlton v. BAWW, Inc., 751 F.2d 781, 788 (5th Cir. 1985).
Even so, as § 157(d) makes clear, a district court may not withdraw its reference to the bankruptcy court without a showing of cause. The Fifth Circuit, in Holland America, was one of the first to articulate a set of principles to guide a district court in its determination of whether it had cause to withdraw the reference. See Andrew S. Atkin, Note and Comment, Permissive Withdrawal of Bankruptcy Proceedings Under 28 U.S.C. § 157(D) , 11 BANKR. DEV. J. 447, 457 (1995). The principles developed by the Holland America court were intended to insure that a district court's decision to withdraw its reference was based on a "sound, articulated foundation." Holland Am., 777 F.2d at 998. The principles to be considered were (1) whether or not the proceedings were "core" proceedings; (2) the effect of the withdrawal on judicial efficiency; (3) uniformity in bankruptcy administration; (4) reduction in forum shopping; (5) fostering the economical use of the debtors' and creditors' resources; (6) expediting of the bankruptcy process; and (7) whether or not there is a jury demand. Id. at 998-99.
More recently, the Fifth Circuit has held that "where bankruptcy issues predominate and the Code's objectives will potentially be impaired, bankruptcy courts should generally exercise jurisdiction." In re Luongo, 259 F.3d 323, 332 (5th Cir. 2001). In determining whether adequate cause exists to justify the withdrawal of reference, the Luongo court found it helpful to address the main objectives of the Bankruptcy Code, which "include, but are not limited to, ensuring the efficient administration and equitable distribution of the estate for the benefit of the creditors and protecting the debtor's right to a fresh start." Id. at 332, n. 7. Bearing in mind the Luongo court's general rule that bankruptcy issues belong in bankruptcy court, this Court is persuaded nonetheless that a decision to exercise jurisdiction over this case will not have negative implications under any of the objectives of the Bankruptcy Code or the principles outlined in Holland America. Even though this case may rightly be labeled a "core" proceeding and arises under title 11, it was filed nearly a full year after the bankruptcy proceedings were closed. The opportunity to negatively affect the efficient or expeditious administration of an ongoing bankruptcy proceeding has passed. Therefore, this Court finds that it has adequate cause to exercise jurisdiction over this case and effectively withdraws this particular cause of action from the Northern District's blanket reference to the Bankruptcy Court.
"[A] proceeding is core . . . if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case." In re Wood, 825 F.2d 90, 97 (5th Cir. 1987).
Standing
Haney and the Taxing Districts argue that the United States' suit is in reality an action to avoid a transfer of property from the bankruptcy estate. As such, they argue that the United States' action is governed by the provisions of 11 U.S.C. § 549, and, as the United States is a creditor and not a trustee, it does not have standing to bring such an action. Leaving aside for the moment the issue of whether § 549 is applicable to this case, the Defendants are correct that only a trustee (or the debtor-in-possession) has standing to utilize the avoidance powers provided in § 549. See Pointer, 952 F.2d at 88. Creditors lack standing under § 549 to avoid postpetition transfers absent specific authorization from the bankruptcy court to act on behalf of the trustee and a showing that appropriate circumstances exist to permit such action. See In re Natchez Corp. of West Virginia, 953 F.2d 184, 187 (5th Cir. 1992); Pointer, 952 F.2d at 87-88.
11 U.S.C. § 549, Post-petition transaction, provides in pertinent part:
(a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate-
(1) that occurs after the commencement of the case; and
(2)(A) that is authorized only under section 303(f) or 542(c) of this title; or
(B) that is not authorized under this title or by the court. * * *
(c) The trustee may not avoid under subsection (a) of this section a transfer of real property to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value unless a copy or notice of the petition was filed, where a transfer of such real property may be recorded to perfect such transfer, before such transfer is so perfected that a bona fide purchaser of such property, against whom applicable law permits such transfer to be perfected, could not acquire an interest that is superior to the interest of such good faith purchaser. A good faith purchaser without knowledge of the commencement of the case and for less than present fair equivalent value has a lien on the property transferred to the extent of any present value given, unless a copy or notice of the petition was so filed before such transfer was so perfected.
(d) An action or proceeding under this section may not be commenced after the earlier of—
(1) two years after the date of the transfer sought to be avoided; or
(2) the time the case is closed or dismissed.
Haney argues that Pointer is controlling and fatal to the United States' standing to bring this suit. In Pointer, a mortgagee of a Chapter 11 debtor sought to have the bankruptcy court invalidate various post-petition tax liens filed against the mortgaged property in violation of the automatic stay. The Pointer court phrased the issue as whether the mortgagee, as a creditor, had standing to seek avoidance of the liens as violative of the automatic stay, id. at 85, and determined that the answer was that it did not. Id. at 89. The United States is neither a trustee nor the debtor-in-possession, nor has it at any time sought authorization from either the Bankruptcy Court or this Court to act on behalf of the trustee. Consequently, the United States does not have standing to avoid the post-petition transfer of the Property under § 549.
Nor is it possible for the United States to seek such authorization now, as the limitation period provided by § 549(d) has already run.
However, this determination does not deal a fatal blow to the United States' standing to bring this cause of action. The United States argues that Pointer is not controlling because the United States is not pursuing an adversary action in bankruptcy court, but in federal district court, and it is not seeking a § 549 avoidance of the transfer, but is seeking to have the transfer declared void as violative of § 362. As a result, the United States argues that neither the fact that it is not the trustee nor that it has not sought authorization to act on behalf of the trustee is dispositive of the issue of standing. The United States argues that it only needs constitutional standing to bring this cause of action pursuant to § 362.
Constitutional standing, often referred to as Article III standing, involves asking "whether the plaintiff has alleged such a personal stake in the outcome of the controversy as to warrant his invocation of federal court jurisdiction and to justify exercise of the court's remedial powers on his behalf." Pointer, 952 F.2d at 85 (quoting Warth v. Seldin, 422 U.S. 490, 498-99 (1975)). Constitutional standing may be asserted where a plaintiff alleges "(1) a personal injury (2) fairly traceable to the defendant's allegedly unlawful conduct, which is (3) likely to be redressed by the requested relief." Id. (citing Allen v. Wright, 468 U.S. 737, 751 (1984)). A taxing unit's violation of an automatic stay by creating and perfecting a tax lien or by seizing property pursuant to such a lien clearly causes a palpable injury to a secured creditor. See id. A fortiori, the Taxing Districts' tax sale of the Property is clearly a palpable injury to the United States that can be traced to the Taxing Districts' allegedly unlawful conduct, and it can be redressed by this Court. The United States, consequently, does have constitutional standing to bring this action under § 362.
The United States is incorrect, however, in assuming that it only needs constitutional standing to bring an action pursuant to § 362. "Prudential standing requirements exist in addition to the immutable requirements of Article III . . . as an integral part of judicial self-government." Procter Gamble Co. v. Amway Corp. 242 F.3d 539, 560 (5th Cir. 2001) (citations and quotations omitted). Prudential principles of judicial self-governance require a court to determine whether the plaintiff "is a proper party to invoke judicial resolution of the dispute and the exercise of the court's remedial powers." Id. (citations omitted). Such a determination involves consideration of (1) whether the complaint raises abstract questions or a generalized grievance more properly addressed by the legislative branch; (2) whether the plaintiff is asserting his or her own legal rights and interests rather than the legal rights and interests of third parties; and (3) whether a plaintiff's grievance arguably falls within the zone of interests protected by the statutory provision invoked in the suit. See id.
The United States adequately meets the prudential concerns presented by the first two considerations above. The third prudential consideration, which raises the issue of statutory standing, requires a more careful analysis by this Court. The Supreme Court has phrased the issue thus: "Essentially, the standing question in such cases [where Article Ill's minimum requirements are met] is whether the constitutional or statutory provision on which the claim rests properly can be understood as granting a person in the plaintiff's position a right to judicial relief." Wirth v, Seldin, 422 U.S. 490, 500 (1975). The automatic stay provisions of § 362 grant statutory standing to bring an action to void a transfer in violation of the stay only to a party or parties that Congress has designated a beneficiary of the stay. Id. at 86; see also In re Int'I Forex of California, Inc. 247 B.R. 284, 291 (Bankr. S.D. Cal. 2000) (requiring a party be "within the zone of interests sought to be protected by the statutory scheme"); In re Ring, 178 B.R. 570, 579 (Bankr. S.D. Ga. 1995) (holding that "any party . . . within the zone of interests protected by the statute . . . has the requisite standing to obtain a declaratory judgment"); In re Bequette, 184 B.R. 327, 332 (Bankr. S.D. Ill. 1995) ("[S]tanding requires that the plaintiff come within that class of persons intended to benefit from the statute"). Under this consideration, a party seeking relief under the automatic stay provision of § 362 must have statutory standing as a proper person to bring a claim under the Bankruptcy Code. See Pointer, 952 F.2d at 85. Therefore, the question before this Court is whether § 362 of the Bankruptcy Code grants the United States, as a creditor, a right to seek judicial relief before this Court for an automatic stay violation. See Ring, 178 B.R. at 575.
The automatic stay provided by § 362 is intended to serve two separate interests. The first and most obvious interest served is that of the debtor, by providing him with a "breathing spell." In re Pierce, 272 B.R. 198, 203 (Bankr. S.D. Tex. 2001). This breathing spell permits the debtor to "attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy." H.R. Rep. No. 595, 95th Cong., 1st Session 340-42 (1977), reprinted in 1978 U.S. CODE CONG. ADMIN. NEWS (U.S.C.C.A.N.) 5787, 6296-97.
Less obvious but no less important interests protected by § 362 are those of creditors, who are "clearly intended to benefit from § 362." Pointer, 952 F.2d at 86 ; see also Pierce, 272 B.R. at 204 ("The stay is intended to benefit both debtors and creditors"); Glendenning v. Third Fed. Savs. Bank (In re Glendenning), 243 B.R. 629, 634 (Bankr. E.D. Pa. 2000) (noting that protection of creditors' interests is confirmed by fact that automatic stay arises even in face of debtor's dereliction in raising it). Congress intended to confer rights on creditors as parties for whose benefit the automatic stay was promulgated. See In re Brooks, 871 F.2d 89, 90 (9th Cir. 1989), aff'g Brooks, 79 B.R. 479 (9th Cir. B.A.P. 1987). Creditors "are clearly parties in interest under the meaning of the Bankruptcy Code [where] they have a pecuniary interest that was adversely affected" by a postpetition transfer of property. In re Reserves Dev. Corp., 78 B.R. 951, 957 (W.D. Mo. 1986) rev'd on other grounds, 821 F.2d 520 (8th Cir. 1987). The legislative history of § 362 clearly recognizes that creditors are beneficiaries when it states:
Despite the Pointer court's recognition that a creditor is clearly a beneficiary under § 362, this Court is aware that the creditor in Pointer was ultimately determined to lack standing. Pointer, 952 F.2d at 88. However, the basis on which the court in Pointer refused standing was because the creditor sought standing, as a creditor, to have the transaction avoided under § 549. which statutorily reserves the avoidance power to the trustee. While the Pointer court's recognition that a creditor is a beneficiary under § 362 is valid for the instant case, its holding regarding standing is clearly distinguishable, since here the United States is seeking standing as a creditor to have the transaction declared void under § 362.
The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against debtor's property. Those who acted first would obtain payment of their claim in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally.
1978 U.S.C.C.A.N. at 6297. In short, the automatic stay provides fair and equal protection to creditors' interests in order to realize the goals of the Bankruptcy Code. See Pierce, 272 B.R. at 204 ("The stay is intended to benefit both debtors and creditors by assuring an equitable distribution of the debtor's assets and by preventing a race to the courthouse"); Hunt v. Bankers Trust Co., 799 F.2d 1060, 1069 (5th Cir. 1986) (preventing a "chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts"); Homer Nat'I Bank v. Namie, 96 B.R. 652, 655 (W.D. La. 1989) ("The purpose of the automatic stay is to protect creditors in a manner consistent with the bankruptcy goal of equal treatment").
Even though the United States is not seeking damages under § 362(h), this Court finds instructive the Fifth Circuit's recognition in dicta that creditor standing might be warranted under § 362(h). See Pointer, 952 F.2d at 86. In its discussion of what statutory standing a creditor might have to assert a violation of the automatic stay, the court in Pointer looked to the legislative history of § 362 that clearly indicates that creditors are intended to benefit from an automatic stay. Id. The court went on to note, without criticizing, a decision of the district court for Western Louisiana recognizing that § 362(h), on its face, allows creditors to assert stay violations, although the Pointer court was not faced with deciding whether § 362(h) extended a private right of action to creditors. Id. (citing Homer Nat'l Bank v. Namie, 96 B.R. 652 (W.D. La. 1989)). Id. Other courts have similarly surmised in dicta that creditor standing under § 362(h) would not be prohibited by anything in the legislative history or by prudential considerations rooted in the Bankruptcy Code itself. See In re DuPont Feed Mill Corp., 121 B.R. 555, 561 n. 15 (S.D. Ind. 1990) (noting that in bankruptcy, "one creditor may be forced to pay other creditors for violation of the automatic stay [under § 362(h)]"); In re Goodman, 991 F.2d 613, 618 (9th Cir. 1993) ("Normally pre-petition creditors . . . shall recover damages under 11 U.S.C. § 362(h) . . . for willful violations of the automatic stay"). One court went so far as to say that the weight of persuasive case authority is that a creditor may attack any acts in violation of the automatic stay. See In re Prairie Trunk Ry., 112 B.R. 924, 929 (Bankr. N.D. Ill. 1990).
See supra notel, at 7.
The creditor/plaintiff in Pointer had brought an action to avoid the transfer in violation of the automatic stay; thus the court applied § 549, which grants standing for avoidance actions only to the trustee or debtor-in-possession, rather than § 362(h), which provides for damages to individuals injured by violations of the stay.
Many courts, faced directly with the issue of whether or not creditors have standing under § 362(h), have held for creditor standing. The court in International Forex held that because the parties were "indisputably creditors of th[e] estate" and because there were no facts to suggest that the creditors "manufactured their claims against th[e] estate solely to gain standing to pursue the Defendants' stay violation," therefore the creditors had "standing to pursue the alleged stay violation under § 362(h)." Int'l Forex of California, Inc., 247 B.R. 284, 289-91 (Bankr. S.D. Cal. 2000). Decisions favoring creditor standing are often strongly rooted in an analysis of the legislative history of § 362 and the goals of the Bankruptcy Code. See Reserves, 64 B.R. at 699-700 (supporting its holding that a creditor has standing to enforce the automatic stay, partly on its analysis of the purposes of § 362 of the Bankruptcy Code); Homer Nat'l Bank, 96 B.R. at 655. The court in Homer based its holding that a creditor had standing to enforce the automatic stay on the purposes of the Bankruptcy Code, stating:
The court in Reserves partly based its holding on the provisions of § 1109(b) of the Bankruptcy Code. This section applies to Chapter 11 bankruptcies and, though instructive, is not applicable to this case filed as a Chapter 13 bankruptcy.
If Congress intended to limit the remedies in § 362(h) to debtors it could have done so by the simple expedient of replacing the term "individual" with "debtor." Congress chose not to do so, and this court is unwilling to impose limitations not supported by the statutory language, jurisprudence, or legislative history. Moreover, it seems illogical to conclude that Congress intended to limit § 362(h) to debtors when one of the principal purposes behind the automatic stay is to protect creditors from unequal treatment.Id.
This Court, however, is faced with the question of whether this line of reasoning connecting the legislative history and the goals of the Bankruptcy Code to standing under § 362(h) can be extended to justify a more expansive creditor standing under § 362 generally. This issue is still an open question in many circuits. However, the Court finds it significant that this lack of resolution often results from situations where the plaintiff's particular posture in the case at hand, and not his status as a creditor, provides the basis for the court's refusal to grant standing. See, e.g., Pointer, 952 F.2d at 86-87 (declining to resolve whether creditor/plaintiff had standing under § 362, although "[c]reditors were clearly intended to benefit from § 362," because plaintiff sought avoidance relief pursuant to section 549, under which only the trustee has standing); Natchez Corp., 953 F.2d at 184 (same); In re Globe Inv. Loan Co., Inc., 867 F.2d 556, 559-60 (9th Cir. 1989) (refusing to resolve the question of whether creditors may invoke the protections of § 362 because the creditors pursued their action, not as creditors, but as co-owners of the property and "outside parties" who were attempting to use § 362 as a weapon against the estate in a manner antagonistic to its express purpose); In re Pecan Groves of Arizona, 951 F.2d 242, 245-46 (9th Cir. 1991) (citing the Globe court's "rationale that the stay does not protect the rights of outside parties" in determining that lienholder/creditors were "in reality attacking the violation of the stay as property owners with interests adverse to the estate").
In resolving this question, the Court finds most instructive the reasoning of the bankruptcy court in Ring, which had before it, as in the instant case, a creditor/plaintiff seeking declaratory relief in the form of a finding that another defendant's actions had violated the § 362 stay and were therefore void. Ring, 178 B.R. at 581. In discussing its reasons for granting standing to the secured creditor/plaintiff, the court cogently expressed why it would not deny standing to a creditor when Congress had not expressly done so:
The court in Ring also granted the creditor/plaintiff standing to initiate civil contempt proceedings for damages from the defendant, although the plaintiff, which was a corporation, was not granted standing to sue for damages under § 362(h), because the law of that circuit did not recognize corporations as "individuals" under § 362(h). The issue of eligibility to sue for damages by creditors such as the United States, that may or may not be "individuals" in the language of § 362(h), is still an open question in this Circuit. See In re United States Abatement Corp., 39 F.3d 563, 568 (5th Cir. 1994). However, the resolution of that issue is not determinative of any question before this Court in the instant case and need not be resolved here.
Denying a . . . creditor standing . . . would have at least two unfortunate consequences. First, it would suggest that, where . . . neither the debtor nor the trustee has any economic interest in the subject property (because the debtor had no equity in the property), a creditor could proceed against the property in violation of the stay with impunity because the one party that has an incentive to complain of the violation ([another] creditor whose interest in the property has been harmed) is without standing to call the violation to the court's attention. Second, it creates a facially anomalous result in that, even though a violation of the automatic stay has occurred, and even though the actions taken in the violation stay [sic] are void ab initio, a creditor who is adversely affected by that action nevertheless is without standing to seek redress in the very forum established to enforce the statute that created the automatic stay. Because the automatic stay is perhaps the central protection afforded under the Bankruptcy Code, a result which leaves parties with rights arising out of its interposition without affording a remedy in this court is a hollow promise indeed.Id. at 577 (first parenthetical not in original). This Court is faced with just such an "anomalous result" in the instant case should the United States, whose interest in the property was harmed, not be granted standing to complain of another creditor's violation of the automatic stay.
Although the Ring court's reasoning quoted here occurred in its discussion of why it was granting the creditor/plaintiff standing to initiate a contempt proceeding to seek damages against the defendant, the court also concluded that, although alternative relief had not been requested, plaintiff did have standing to seek a declaration of the validity of its own lien based upon the effect that the defendant's void foreclosure action would have upon its own foreclosure.
Finally, prudential considerations compel the Court to address several decisions in this circuit whose language might appear to preclude creditor standing altogether. In In re Fuel Oil Supply and Terminaling, Inc. the court stated, "The automatic stay is for the benefit of the debtor and if it chooses to ignore stay violations other parties cannot use such violations to their advantage." In re Fuel Oil Supply Terminaling, Inc., 30 B.R. 360, 362 (Bankr. N.D. Tex. 1983). However, in Fuel Oil the "other parties" seeking to use the violation of the stay to their advantage were not creditors but were actually third parties to the bankruptcy. As no creditors were party to the action, this Court interprets the holding of Fuel Oil to be that third-parties, or truly outside parties, do not have standing to bring an action for violation of a stay. Holding that debtors are particular beneficiaries of the automatic stay does not operate to exclude creditors as beneficiaries, especially where creditors were not before the court in the first place. This is certainly true in light of the plain language of the later Pointer and Pierce decisions that creditors are clearly intended to benefit from § 362.
Such limiting language also appears in cases from other circuits. See, e.g., Brooks, 79 B.R. at 481 (9th Cir. B.A.P. 1987); In re Stivers, 31 B.R. 735 (Bankr. N.D. Cal. 1983); In re Silverman, 42 B.R. 509, 516 (Bankr. S.D.N.Y. 1984).
They were actually the family of the deceased, a man who owned a bankrupt company that owned insurance policies on his life. The life insurance company had filed a interpleader action, and the family argued that the insurance company's action violated the stay and was void, and that therefore the decedent's company was never actually a party to the action and had no right to resist removal of the action.
The Court is aware that this is not the position in all circuits. See, e.g., Stivers, 31 B.R. 735 (Bankr. N.D. Cal. 1983) ("the automatic stay operates in favor of debtors and estates . . . it gives junior lienholders and other parties interested in the property no substantive or procedural rights").
See citations to Pointer and Pierce, supra at 14.
Similarly preclusive language occurs in several other Fifth Circuit cases, in one of which the court stated, "If a cause of action belongs to the estate, then the trustee has exclusive standing to assert the claim." In re Educators Group Health Trust, 25 F.3d 1281, 1284 (5th Cir. 1994). The court in Educators determined that state court causes of action that the debtor could have asserted at the time it filed for bankruptcy were within the description of "property of the estate" as defined in the Bankruptcy Code at § 541(a)(1) as "all legal and equitable interests of the debtor." Id. The trustee's exclusive standing to assert such claims was inferred from the Fifth Circuit's observation in a prior decision that the "general bankruptcy policy of ensuring that all similarly-situated creditors are treated fairly requires that the trustee have the first opportunity to pursue estate actions without interference from individual creditors." Id. (citing In re S.I. Acquisition, Inc., 817 F.2d 1142, 1153-54 (5th Cir. 1987) (internal quotations omitted). The court in Acquisition was faced with the question of whether creditors of a bankrupt debtor could bring an alter ego cause of action against the debtor's non-bankrupt corporation. The court concluded that the cause of action could have been asserted by the debtor, and that since in most instances a bankrupt debtor would not sue its own non-bankrupt alter ego entity, the purposes of the Bankruptcy Code were best served by allowing the trustee to bring such actions. Acquisition, 817 F.2d at 1153-54.
Granting standing to the United States in the instant case raises no negative implications for the reasoning or holding of either Educators or Acquisition. This cause of action did not exist at the time the debtor filed for bankruptcy. This is not a state cause of action, nor is it based on an alter ego theory. Furthermore, the facts of this case do not disturb the general rule that the purposes of the Bankruptcy Code are best served by giving the debtor and its control persons the opportunity to reorganize its finances, because here the bankruptcy has been closed, and the United States is bringing its action to carry out the very purposes of the automatic stay, one of the central protections of the Code itself.
The Court therefore finds that the United States has established that it has a personal stake in the outcome of this cause of action and has suffered a palpable injury from the Taxing Districts' violation of the stay sufficient to meet the constitutional requirements for standing. Furthermore, the Court finds clear support in the legislative history and in the case law of this circuit for the proposition that § 362's provision for the automatic stay is intended to benefit creditors. The United States' interests are within the zone of interests protected by § 362. The United States has properly brought this action in the posture of a creditor. There are no prudential considerations, or limitations inherent in the language of the statute itself, that prevent the conclusion that a creditor, in a proper posture before the Court, and after the bankruptcy has been closed, may be granted standing to bring an action for violation of the automatic stay pursuant to § 362. Neither is this Court persuaded that it should impose such a limitation that is not supported by the legislative history or statutory language of § 362 or the jurisprudence of this circuit. Therefore, the Court finds that the United States has standing to seek relief under § 362 for violation of the automatic stay.
Void or Voidable and the Applicability of Section 549(c) as an Exception to the Automatic Stay
Under 11 U.S.C. § 362(a), a petition in bankruptcy effects against all entities an automatic stay of, among other actions, "any act to . . . enforce any lien against the property of the estate." 11 U.S.C.A. § 362(a)(4); Pierce, 212 B.R. at 203. "Property of the estate" is statutorily defined as "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C.A. § 541(a)(1). The stay is effective automatically by operation of law upon the filing of the case and regardless of whether or not an affected party has notice of the bankruptcy filing. Pierce, 272 B.R. at 203; Jones v. Garcia (In re Jones), 63 F.3d 411, 412 n. 3 (5th Cir. 1995); see also 3 COLLIER ON BANKRUPTCY ¶ 362.02 (Alan N. Resnick Henry J. Sommer eds., 15th ed. rev. 2003). A party in interest may request that the court grant relief from the stay. 11 U.S.C. § 362(d).
Although both Defendants claim they were without notice of the filing of the bankruptcy until after the tax sale, they have not argued that this operates in any way to make the stay ineffective as to them. Lack of notice may serve to mitigate willfulness in a contempt proceeding, but it is not a defense to a violation of an automatic stay. See In re Calder, 907 F.2d 953, 956 (10th Cir. 1990); In re Henry, 266 B.R. 457, 468 (Bankr. C.D. Cal. 2001).
No question has been raised that the property at issue herein was property of the estate at the time of the bankruptcy filing, or that the tax sale of the property was an act to enforce a lien against the property that took place during the time the stay was in effect. Neither is there any evidence, nor is any claim made by either the Taxing Districts or Haney, that they requested a lift of the stay or otherwise sought the bankruptcy court's approval for the sale. Consequently, there is no question that the post-petition tax sale of the property violated the automatic stay in effect pursuant to § 362(a).
The main issue this Court must determine is the effect of the transfer of the property in violation of the automatic stay. Plaintiff argues that the effect is to render the transfer void, and therefore a nullity, under § 362, while Defendants argue that the transfer is merely voidable, the significance of the distinction apparently lying in the fact that a void transaction is invalid ab initio, while a voidable transaction requires some action be taken to invalidate it. As Haney claims to be a good faith purchaser, she claims the action that was required in order to invalidate the tax sale was an action by the trustee to avoid the sale pursuant to § 549(c). Because no such action was taken to avoid the transfer within the limitations period established by § 549(d), Haney claims that what was a voidable transfer has now become a valid transfer. Around this single question of law revolve most of the arguments expounded by the parties on both sides of this case.
See text of § 549 supra, note 3 at 10.
The source of the confusion in analyzing whether a transfer is void or voidable stems from the similarity between those words, and also the additional word, "avoidable," that occurs in § 549 of the Bankruptcy Code. Pierce, 212 B.R. at 206. The court in Pierce defined the difference between void and voidable as follows:
Although both "void" and "voidable" both [sic] deal with transactions or occurrences that were not valid when they occurred, the distinction between them is that if the transaction is absolutely "void," it can never become valid. If it is "voidable" it can be made valid by subsequent judicial decision. Until that decision is rendered, however, it is not valid. . . . The important point is that both words deal with events that were invalid when they occurred."Id. at 207 n. 27. The Pierce court went on to note that earlier decisions in the Fifth Circuit resolved the semantic issue in favor of the term "voidable." The reason in favor of this semantic choice, the court noted, was that void implies that which cannot be cured, while voidable implies that which may be cured. Id. at 206 (citing Sikes v. Global Marine, Inc., 881 F.2d 176, 178 (5th Cir. 1987)). The Pierce court interpreted the holding of Sikes and a later decision in Picco. v. Global Marine Drilling Company to be that the cure by which a violation of the stay may be validated is by means of a retroactive annulment of the stay pursuant to § 362(d). Id. at 206-07 (citing Sikes and Picco v. Global Marine Drilling Co., 900 F.2d 846, 850 (5th Cir. 1990)). The argument over void or voidable is largely academic as a substantive matter, however, because "both federal and state law hold that an action taken in violation of the automatic stay is without effect . . . unless the bankruptcy court grants retroactive relief from the stay." See Pierce, 212 B.R. at 211.
The court cites the holding of two Fifth Circuit cases for the proposition that actions taken in violation of an automatic stay are not void, but rather voidable. Pierce, 212 B.R. at 206-07 (citing Sikes v. Global Marine, Inc., 881 F.2d 176, 178 (5th Cir. 1987) and Picco. v. Global Marine Drilling Co., 900 F.2d 846, 850 (5th Cir. 1990)).
The Fifth Circuit has also recently confirmed the view of the Pierce court when it stated, "We adhere to the view that violations [of the stay] are merely voidable and a subject to discretionary cure. This position rests on the bankruptcy court's statutory power to annul the automatic stay, i.e., to lift the automatic stay retroactively and thereby validate actions which otherwise would be void." In re Coho Resources, Inc., 345 F.3d 338, 344 (5th Cir. 2003) (citations and internal quotation marks omitted).
Defendants argue, however, that § 549(c) provides an exception to the principle that involuntary actions taken in violation of the stay are invalid, an exception that in effect provides a further means, besides resort to an annulment under § 362(d), by which an involuntary, unauthorized post-petition transfer may be validated. They argue that § 549(c) validates a post-petition transfer to a good-faith purchaser where the trustee does not seek to avoid the transfer within two years or before the closing of the bankruptcy. Defendants' argument is premised, unfortunately, on a misapplication of § 549 to the automatic stay under § 362. When a petition for bankruptcy is filed, the automatic stay provided by § 362(a), prohibiting all involuntary transfers of the bankrupt's assets, takes effect absent the application of any of the authorized exceptions to the stay specifically provided for by the Code under § 362(b). 11 U.S.C.A. § 362(b) (listing circumstances where the filing of a petition in bankruptcy does not automatically operate as a stay). The language of § 362 thus leads to a strong presumption that these exceptions are the only ones that operate to prevent the application of the automatic stay to involuntary transactions. See 40235 Washington Street Corp. v. Lusardi, 329 F.3d 1076, 1080 (9th Cir. 2003). Other sections of the Code provide for voluntary disposition of assets if authorized by the court. See, e.g., 11 U.S.C.A. § 363(c)(1) (authorizing transfers by the trustee in the ordinary course of business) and § 554 (authorizing trustee to abandon burdensome or inconsequential property of the estate).
Section 549, on the other hand, provides for avoidance of a transfer "that is not authorized under this title or by the court." U.S.C.A. § 549(a). By implication, since the avoidance provided for by § 549 is not one of the authorized exceptions to the automatic stay enumerated by § 362(b) for involuntary transfers, and is not one of the voluntary actions that otherwise may be authorized by a court under other specific provisions of the Code, it must therefore apply to voluntary transfers that are, in its words, "not authorized." See, e.g., New Orleans Airport Motel Assocs. v. Lee (In re Servicio, Inc.), 144 B.R. 933, 936 (Bankr. S.D. Fla. 1992) ("[T]his Court interprets § 549(a) to apply to postpetition transfers of property of the estate which are neither authorized, nor expressly prohibited. . . . Under this interpretation, § 549(a) does not apply to transfers in violation of the automatic stay since this is a transfer which is expressly prohibited."); Value T Sales, Inc. v. Mitchell (In re Mitchell), 279 B.R. 839, 844 (9th Cir. BAP 2002) ("It is obvious that Congress knows how to create an exception to § 362, as it has provided eighteen of them. Transfer of estate property to a BFP is not among them. Section 549(c) is a defense to an avoidance action by the trustee, no more, no less. . . . We find no convincing authority for interpreting § 549(c) as an additional exception to the automatic stay.")
The court in Garcia v. Phoenix Bond Indemnity Company (In re Garcia) helpfully analyzed this distinction between "actions specially prohibited by the automatic stay and actions not otherwise authorized by the Bankruptcy Code" by taking notice of "the debtor's role in the transaction in question." Garcia, 109 B.R. 335, 338-39 (N.D. Ill. 1989). The Garcia court stated, "All actions which are not authorized by the Bankruptcy Code are not in violation of the automatic stay defined in § 362(a)." Id. at 339. Noting that § 362(a) is "targeted at the activities of creditors" and "does not specifically prohibit the debtor from willingly transferring an interest in property of the estate post-petition," the Garcia court went on to observe that this left "an entire realm of post-petition transfers subject to . . . § 549. . . . These are post-petition transfers in which the debtor is a willing participant, but which, though not prohibited by the automatic stay, are not otherwise authorized by the Bankruptcy Code." Id. Similarly, the court in Smith v. London (In re Smith) analyzed § 549's relationship to § 362 and concluded that
[A] straightforward analysis of section 549 reveals that it is not intended to cover the same type of actions prohibited by the automatic stay nor rendered moot by section 362's voiding of all automatic stay violations. Section 549 applies to unauthorized transfers of estate property which are not otherwise prohibited by the Code. In most circumstances, section 549 applies to transfers in which the debtor is a willing participant. . . . Section 549 exists as a protection against unauthorized debtor transfers of estate property.Smith v. London (In re Smith), 224 B.R. 44, 47-48 (Bankr. E.D. Mich. 1998) (internal citations omitted); see also Glendenning, 243 B.R. at 633 (finding that § 549 applies to transfers where debtor is willing participant) (citing Smith).
This analysis, whereby §§ 362 and 549 are held to apply to mutually exclusive circumstances, is by no means universal. Many courts have held or presumed that § 549(c)'s "protection of good faith purchasers carves out an extremely specific and narrow exception to the automatic stay" provided by section 362(a). In re Schwartz, 954 F.2d 569, 574 (9th Cir. 1992); see also, e.g., In re King, 35 B.R. 530, 531 (Bankr. N.D. Ga. 1983); In re Ward, 837 F.2d 124, 126 (3d Cir. 1988); In re Shaw, 157 B.R. 151, 152-53 (9th Cir. B.A.P. 1993); In re Siciliano, 13 F.3d 748, 751 n. 2 (3d Cir. 1994); In re Shah, 2001 WL 423024 *7 (Bankr. E.D. Pa. 2001); see also 3 COLLIER ON BANKRUPTCY ¶ 362.11[1] (Alan N. Resnick Henry J. Sommer eds., 15th ed. rev. 2003). This opinion may in fact be held by a majority of the courts to consider this issue. See Lusardi, 329 F.3d at 1083 ("numbers are on the side of finding section 549(c) to create an exception"); Does § 549(c) Protect a Good Faith Purchaser in a Post-Petition Foreclosure Sale Conducted in Violation of the Automatic Stay?, 23 No. 8 BANKR. L. LETTER 1, 2 (August 2003) ("a growing minority of lower courts holding that § 549(c) has no applicability whatsoever to a transfer of real property in violation of the automatic stay"). Yet, many of these decisions have merely assumed the applicability of § 549 to § 362, often without any analysis at all of the textual, structural, and policy arguments underlying the two sections. See Lusardi, 329 F.3d at 1083. One of the earliest cases treating § 549(c) as an exception to the stay did so "without considering its context and without citing any authority beyond the statute." Mitchell, 279 B.R. at 844 (stating its reasons for refusing to follow Ward, 837 F.2d 124 (3d Cir. 1988)).
Indeed, it may be "the instinctive reaction of nearly all courts" to find a procedure within the Bankruptcy Code to allow them to validate even involuntary transfers in violation of the automatic stay where a good-faith purchaser is involved. 23 No. 8 BANKR. L. LETTER at 5. This instinct may even find support in § 21 g of the former 1938 Bankruptcy Code that expressly validated post-petition foreclosure sales to good-faith purchasers that otherwise would have been in violation of the common law automatic stay at that time. See id. at 4-5 (noting that the 1973 Report of the Commission on the Bankruptcy Laws of the United States stated that § 549 was to replace § 21g and 70d of the 1938 Act). Although no court has cited this prior Code provision in its reasoning, it nevertheless represents a normal bias the system has toward good faith purchasers. However, it is a principle of statutory construction that "while pre-Code practice informs our understanding of the language of the Code, it cannot overcome that language. It is a tool of construction, not an extratextual supplement . . . [that may be] applied to the construction of provisions [that are] subject to interpretation, or contain ambiguity in the text . . . [but] where the meaning of the Bankruptcy Code's text is itself clear its operation is unimpeded by contrary prior practice." Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 10-12, 120 S.Ct. 1942, 1949-50 (2000) (internal citations and ellipses omitted). Good-faith purchasers are not among the exceptions to the automatic stay that are clearly enumerated in the language of § 362(b), and neither the fact that they were expressly exempt from the effect of the stay under an older version of the Code, nor even a court's "instinctive reaction" that they should continue to be so, should over-ride the clear language of the current Code so as to include them as an additional un-enumerated exception to transactions invalidated by the automatic stay. As the court in Mitchell noted
Congress saw fit to protect BFPs in § 549 but not in § 362, presumably expressing its intent to afford greater protection to BFPs who purchase from debtors than to those purchasing at sales violating the automatic stay. . . . Congress knows how to create an exception to § 362, as it has provided eighteen of them. Transfer of estate property to a BFP is not among them. . . . We find no convincing authority for interpreting § 549(c) as an additional exception to the automatic stay.Mitchell, 279 B.R. at 843; accord Lusardi, 329 F.3d at 1081-82. The language of the current Code in § 362 is not an "unelaborated concept" but is rather "a specifically narrowed one" with its clearly enumerated exceptions to the automatic stay that are precisely of the type the Supreme Court has said are "in no need of clarification by pre-Code practice." See Hartford, 530 U.S. at 10-12, 120 S.Ct. at 1949-50.
The courts that advance the minority position, however, have carefully analyzed the "textual, structural, and policy" considerations behind § 362 and § 549 in concluding "that section 549(c) does not create an exception to the automatic stay." Lusardi, 329 F.3d at 1083 (citing to the analysis in Mitchell, 279 B.R. at 841-44; Glendenning, 243 B.R. at 633-34; Smith, 224 B.R. at 46-48; and Servicio, 144 B.R. at 934-37); see also Pierce, 272 B.R. at 206-10; In re Ford, 296 B.R. 537, 544-50 (Bankr. N.D. Ga. 2003). The court in Lusardi offered a straightforward textual and structural analysis of the statute that this Court finds compelling:
Not only is this the growing minority opinion, but the Court also observes that it is the opinion held in most recent cases in courts not bound by a contrary controlling opinion. The Court also notes that although the Ninth Circuit is the only circuit to date to establish the minority opinion as controlling authority, that court, in Lusardi, clarified confusing language in its earlier opinion in Schwartz, 954 F.2d 569 (9th Cir. 1992) that had provided the basis for many of the earlier district court and bankruptcy court decisions establishing the relation of § 549(c) as an exception to § 362(a). See Lusardi, 329 F.3d at 1082-83.
Eighteen exceptions to section 362(a) are listed in section 362(b). 11 U.S.C. § 362(b) (listing circumstances in which "the filing of a petition . . . does not operate as a stay"). The text of section 362(a) makes reference to the exceptions listed in section 362(b), 11 U.S.C. § 362(a) (providing that the stay applies "[e]xcept as provided in subsection (b) of this section"), but not to any other exceptions. The language of section 362, thus, suggests that the 18 listed exceptions are the only exceptions to the automatic stay.
* * *
As subsection (a) and (d) make clear, section 549 concerns avoidance actions by the trustee, not transfers that are already void under the automatic stay. Subsection (c) . . . prevents such avoidance actions from succeeding against certain bona fide purchasers. By its terms, subsection (c) creates an exception only to subsection (a). 11 U.S.C. § 549(c) (describing transfers that "trustee may not avoid under subsection (a) of this section"). Thus . . . the language and the structure of both section 362 and section 549 support the view that section 549(c) does not create an exception to the automatic stay provision.Lusardi, 329 F.3d at 1080-81.
As for policy considerations, one of the most recent and well-reasoned opinions to address the issue pointed out why the protections afforded by § 549(c) to good-faith purchasers in unauthorized, voluntary transfers subject to avoidance under § 549(a) should not be expanded to cover unauthorized, involuntary transfers that are otherwise invalid under § 362. See Ford, 296 B.R. at 548-49. The Ford court noted "[t]he conclusion that § 549(c) is not applicable to foreclosure sales in violation of the automatic stay is imperative for the proper and efficient administration of bankruptcy cases," and went on to state "that the policies and purposes of the automatic stay and the exclusive jurisdiction of the bankruptcy court over property of the debtor and the estate require that foreclosure actions be stayed." Id. The court pointed to the distinct purposes of the two sections, stating
The purpose of § 549 is to protect the estate in the . . . situation when an unauthorized transfer occurs, often because the debtor initiates an unauthorized postpetition transfer," while "[s]ection 362(a), in contrast, protects both the debtor and creditors from loss of an asset . . . by the collection activities of creditors attempting to exercise rights before the bankruptcy process even has a chance to work.
* * *
The two sections thus have quite different purposes, and Congress made a policy choice to provide protections for good faith purchasers only in § 549.Id. at 549.
In addition to consideration of the distinct purpose of the two sections, other courts have outlined at least five additional policy reasons, rooted in the purposes of the stay itself, that indicate why § 549(c) should not operate as an exception to the automatic stay. These policy reasons might best be described as (1) the automatic operation purpose; (2) the deterrent-effect purpose; (3) the conflict avoidance concern; (4) the equal treatment purpose; and (5) the bright-line rule concern.
The automatic operation of the stay led the court in Servicio to note that "[i]f some acts in violation of the automatic stay were not void, debtors would have to affirmatively challenge such acts if they wished to avoid them." Id. at 935. A more thorough analysis of this automatic operation policy concern cited the "important and fundamental purpose of the automatic stay" in concluding that
The use of the terms "void" and "voidable" in this quotation and the following quotation, reflects the courts' position in both cases that allowing a § 549(c) exception to the automatic stay would mean that transactions in violation of the stay would be voidable rather than void. See the discussion of void and voidable supra.
Either the debtor must affirmatively challenge creditor violations of the stay, or the violations are void without the need for direct challenge. If violations of the stay are merely voidable, debtors must spend a considerable amount of time and money policing and litigating creditor actions. If violations are void, however, debtors are afforded better protection and can focus their attention on reorganization.
Nothing in the Code or the legislative history suggests that Congress intended to burden a bankruptcy debtor with an obligation to fight off unlawful claims. Th[is] position . . . would impose severe hardships on debtors trying to regain their financial footing.
* * *
[W]e will not reward those who violate the automatic stay. The Bankruptcy Code does not burden the debtor with a duty to take additional steps to secure the benefit of the automatic stay. Those taking post-petition collection actions have the burden of obtaining relief from the automatic stay.Schwartz, 954 F.2d at 571-572. Furthermore, placing the burden on the debtor or trustee to police the actions of creditors in order to avoid being subject to a good-faith purchaser defense under § 549(c) is inconsistent with "the principle that, because [the automatic stay] protects all creditors as well as the debtor, the automatic stay arises even in the face of the debtor's own dereliction in raising it." Glendenning, 243 B.R. at 634.
Many courts, like the court in Schwartz, have noted that good-faith purchasers are in fact afforded a means of avoiding the effect of the automatic stay by bringing an action to have it lifted or annulled under the provisions of § 362(d). As one court noted, "[T]his is not a distinction without a difference. By holding all acts in violation of the automatic stay to be void, but considering § 362(d) annulment of the stay as to certain purchasers, the burden of bringing an action to characterize the transfer has shifted to the purchaser and the purposes of the automatic stay . . . are implemented. Service, 144 B.R. at 936-937. Defendants in the instant case have not sought an annulment of the stay before this Court by invoking the provisions of § 362(d), however.
The deterrent-effect purpose was elaborated by the court in Ford, which warned that "[i]f § 549(c) operated as an exception to the automatic stay, last minute foreclosures that the stay prevents could proceed apace unless the debtor was able to provide actual notice to the creditor or to record the petition in the real estate records prior to the sale," leading to "a possible encouragement to foreclosing creditors to avoid receipt of actual notice or to take their chances on foreclosing and argue about notice and § 549(c) later." Ford, 296 B.R. at 549-50; see also Servicio, 144 B.R. at 935 ("Moreover, by declaring void all violations of the automatic stay, creditors will be deterred from acting in violation of the automatic stay").
The conflict-avoidance concern relates to the fact that § 549(d) sets time limits for actions brought under § 549, while § 362 does not contain any such limits, see Servicio, 144 B.R. at 935-36. Making the automatic stay subject to the time limitations of § 549 would lead to a two year limitation on actions to enforce the stay against violations even though the bankruptcy case was still open. "There is no reason to distinguish between violations of the stay based upon their ages." Garcia, 109 B.R. at 340. The equal treatment purpose is rooted in the Code's concern for equal treatment of all creditors. See Servicio, 144 B.R. at 935. Lastly, the minority position "provides a bright-line test because sales in violation of the automatic stay will then, in almost every case, be invalidated, without weighing the difficult factual issues often arising from consideration of § 549(c)." Glendenning, 243 B.R. at 633.
See discussion of the Bankruptcy Code's equal treatment concerns for creditors supra, at 15.
Despite the weight of the textual and policy analysis behind the minority view, Defendants nevertheless argue that several Fifth Circuit cases, Sikes and Picco, support the majority opinion that sees in § 549(c) a good-faith purchaser exception to the automatic stay. Both cases involved questions about whether an action in violation of the stay is void or merely voidable, and both held for the voidable position. However, the court in Sikes discussed in dicta that § 549 offers an example of why everything done post-petition could not be considered void in the strictest sense of the word. See Sikes, 881 F.2d at 179. The court in Picco reiterated the voidable position, but did not comment on the applicability of § 549. Nevertheless, the Fifth Circuit felt compelled in a subsequent case, Jones v. Garcia, to clear up any confusion about whether the fact that violations of the automatic stay are voidable rather than void implicates the provision of § 549(c). Jones v. Garcia, 63 F.3d 411, 412 n. 3 (5th Cir. 1995). The Jones court stated, "Our statement in Picco that actions taken in violation of the stay are voidable must be understood in context. It is the effect of the stay itself which is voidable." Id. That this does not implicate the provisions of § 549 is made evident in the decision by the fact that the court rejected the bankruptcy court's holding that creditors who were good-faith purchasers were not subject to the stay because of § 549(c), while upholding the district court's discretion in allowing for retroactive relief for the good-faith purchaser/creditors under § 362(d). Id. at 413. In fact, the Jones court specifically stated that "the section 549(c) exception is therefore not implicated in this case; the transfer of the title at issue is not one of the class of transactions which section 549(a) allows the bankruptcy trustee to avoid." Id. at 413 n. 6. There is no basis in these earlier decisions, based on the subsequent holding in Jones, for this Court to apply § 549(c) in this case. Based on the soundness of the textual and policy arguments advanced for the minority view, this Court is of the opinion that § 549(c) is limited to providing a defense for good-faith purchasers within the context of an avoidance action by the trustee under § 549(a) seeking to set aside a voluntary transfer by a debtor. It does not apply to good-faith purchasers in creditor actions taken in violation of the automatic stay. It does not operate as an additional, un-enumerated exception to the principle that involuntary actions taken in violation of the stay are invalid. Consequently, the tax sale was invalid when it occurred.
See also the recent decision in Coho, referenced supra, note 18 at 24, indicating that the provisions of § 362(d) are the reason violations of the stay are considered voidable, without making any reference to § 549(c).
Waiver or Estoppel
The evidence before this Court indicates that the United States did not intentionally waive its interest in the property. The disclaimer filed by the United States Attorney's Office was filed on behalf of the Internal Revenue Service and not on behalf of the USDA or any of the subsequent governmental agencies having a lien on the property. Consequently, there was no intentional waiver by these parties. Furthermore, courts have applied estoppel to the federal government only in the narrowest of circumstances. In order to establish estoppel against the government, a party must prove affirmative misconduct by the government in addition to the four traditional elements of the doctrine. See Linkous v. United States, 142 F.3d 271, 277-78 (5th Cir. 1998). There is no evidence before this Court showing affirmative misconduct on the part of the government in this case.
V. CONCLUSION
After considering all the relevant arguments and evidence, the Court finds that § 549(c) of the Bankruptcy Code is inapplicable to creditor actions in violation of the automatic stay under § 362(a). Therefore, the unauthorized tax suit, judgment, tax sale and sheriff's deed were invalid as being in violation of the automatic stay and conveyed no legally enforceable interest in the property to Haney.The Court therefore orders that Plaintiff United States of America's Motion for Summary Judgment is hereby GRANTED and the cross Motions for Summary Judgment of Defendant Haney and the Taxing Districts of Hale County, City of Abernathy, Abernathy Independent School District, Farm to Market, and High Plains Water District are hereby DENIED.
SO ORDERED.