Summary
In Weltman the debtor filed a Chapter 13 bankruptcy petition in the Eastern District of New York, the location of his residence.
Summary of this case from In re SteeleyOpinion
No. 90 Civ. 0212
July 3, 1990
Sol Weltman, Brooklyn, New York, pro se.
John Curran, Bleakley, Platt, Remsen, Millham Curran, New York, New York, attorney for the creditor-appellee.
Relief from Stay — Annulment — Grounds — Previous Order Impacting. — It was proper for a bankruptcy judge to annul what remained of the automatic stay in a bankruptcy case that had been preceded by another in which that bankruptcy judge ordered that henceforth the stay would not apply to this debtor. Sufficient grounds existed to annul the stay, thus ratifying creditors' actions that had already occurred, because both bases for lifting the stay were present. There was lack of adequate protection. Moreover, the debtor had no equity in the property in question and that property was not necessary for an effective reorganization. "[The debtor] has cited no authority holding that a bad faith filing or lack of knowledge on the part of the creditor are the exclusive circumstances warranting annulment. The language of the statute indicates no such restriction." (Emphasis in case.) Thus, the stay could be retroactively lifted as opposed to only being prospectively vacated.
See Sec. 362(d) at ¶ 8605.
Appellant, Sol Weltman ("Weltman"), appeals from an order of the United States Bankruptcy Court for the Southern District of New York, Howard C. Buschman III, Bankruptcy Judge, dated October 20, 1989, which provides that no automatic stay affecting a State court mortgage foreclosure proceeding brought by Appellee, Independence Savings Bank (the "Bank"), ever arose as a result of Weltman's bankruptcy filing and, alternatively, annuls, as of the date of Weltman's filing in the Southern District, any stay which may have arisen. For the following reasons, the order appealed from is affirmed.
By a separate order also dated October 20, 1989, Judge Buschman denied Weltman's motions in an adversary proceeding commenced by him against the Bank (1) to enjoin the Bank's foreclosure proceeding and (2) for summary judgment, and granted the Bank's motion for summary judgment dismissing the complaint in the adversary proceeding. Weltman noticed an appeal from this order, but by consent order dated February 20, 1990, withdrew that appeal.
On September 29, 1987, Weltman filed a bankruptcy petition under Chapter 13 in the United States Bankruptcy Court for the Eastern District of New York, the District of his residence and the location of the residential property the mortgage on which the Bank seeks to foreclose. By order dated December 13, 1987, the Chapter 13 case was converted to one under Chapter 7. On February 9, 1988, an order was entered in the Bankruptcy Court for the Eastern District of New York (the "Eastern District Order") vacating the automatic stay and further ordering that the vacation of the stay remain effective against all subsequent bankruptcy filings by Weltman. On February 10, 1988, Weltman's Eastern District case was dismissed pursuant to 11 U.S.C. § 707(a)(3) (failure to file schedules).
Weltman appealed from the Eastern District Order, and sought a stay pending appeal which was denied by Judge McLaughlin of the United States District Court for the Eastern District of New York. Weltman has not prosecuted this appeal, nor does it appear that he ever sought in the Bankruptcy Court for the Eastern District of New York to have the Eastern District Order vacated or modified by reason of any alleged change of circumstances, or for any other reason.
On April 17, 1989, Weltman filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York, as his principal place of business. By order to show cause dated May 12, 1989, Weltman sought an injunction against the foreclosure proceeding. Judge Buschman denied the injunction, without prejudice, after a hearing. On October 20, 1989, after a hearing, Judge Buschman signed the order on appeal providing that no automatic stay affecting the Bank's foreclosure proceeding arose due to the unvacated Eastern District Order and that, if an automatic stay had come into being despite the Eastern District Order, such automatic stay was annulled.
Weltman argues that the Bankruptcy Court for the Eastern District lacked the power to prevent the stay from automatically arising upon a subsequent bankruptcy filing, and urges that the order on appeal to this Court is vitiated by Judge Buschman's reliance on the Eastern District Order. However, the correctness of the Eastern District Order, as such, in not under review by this Court. Rather, The question before this Court is whether Judge Buschman was justified, on the entire record made before him — which included not only the fact of the Eastern District Order, correct or not, but other pertinent factors — in annulling any stay which might have arisen from Weltman's Southern District filing.
Section 362(d) of the Bankruptcy Code provides that a bankruptcy court may terminate, annul, modify or condition the automatic stay. 11 U.S.C. § 362(d). The bases for granting such relief are 1) for cause, including a lack of adequate protection of the interest in property of a party in interest and 2) with respect to a stay of an act against property, that the debtor has no equity in the property and the property is not necessary to an effective reorganization. Id. Judge Buschman expressly found the existence of both bases for annulling the stay. The order on appeal includes the following findings:
(a) that the Bank is not adequately protected by virtue of its advances of post-default real estate taxes, (b) that the debtor has no equity in the Premises, as admitted by the debtor, and (c), that the Premises are not necessary for reorganization since it appears to this Court, (i), that the Premises are not uniquely required by the debtor for his business activities, and (ii), that it is not feasible for the debtor effectively to reorganize within a reasonable period of time.
None of these findings is clearly erroneous. The Bank's allegations that it had been advancing post-default taxes were undisputed. Weltman conceded that he lacked any equity in the property. Furthermore, the residential property upon which the Bank seeks to foreclose could not be said to be necessary to any contemplated business reorganization. On this evidence, entirely apart from the Eastern District Order, it cannot be seriously disputed that Judge Buschman was authorized, at the least, to vacate the stay.
Welman, however, argues that a stay cannot be retroactively lifted (as opposed to prospectively vacated) in the absence of a finding either of a bad faith bankruptcy filing or lack of knowlege of the bankruptcy filing on the part of the creditor. But, although courts have found these two circumstances to justify annullment of a stay, Weltman has cited no authority holding that a bad faith filing or lack of knowledge on the part of a creditor are the exclusive circumstances warranting annullment. The language of the statute indicates no such restriction. 11 U.S.C. § 362(d).
In In re Albany Partners, Ltd., 749 F.2d 670 (11th Cir. 1984), the Eleventh Circuit affirmed a bankruptcy court's annulment of an automatic stay. "[W]e hold that § 362(d) permits bankruptcy courts, in appropriately limited circumstances, to grant retroactive relief from the automatic stay." 749 F.2d at 675 (emphasis in original). The Court of Appeals noted the finding below that the bankruptcy petition was not filed in good faith, but also added that the bankruptcy court could reasonably hold that the creditors had been entitled to rely upon a previous judicial determination in State court and to proceed with the foreclosure sale. Albany Partners, 749 F.2d at 676.
The creditors in Albany Partners filed a petition for writ of possession and for appointment of a receiver in the Superior Court of Dougherty County, Georgia. The owner of the property subject to the action claimed to have conveyed the property by warranty deed to the debtor, Albany Partners, Ltd. The Superior Court rejected this allegation and granted a writ of possession and appointed a receiver. On the eve of the creditors' foreclosure, Albany Partners, Ltd. filed a bankruptcy petition, claiming ownership of the property. Despite the petition and the claim of ownership, the creditors proceeded with the foreclosure.
Here, Judge Buschman did not make an express finding of bad faith. He did, however, have before him the history of Weltman's bankruptcy proceedings, including the Eastern District Order and his own refusal to issue an injunction against the foreclosure proceeding. Thus, he was able to consider the Bank's reasonable reliance on the unvacated Eastern District Order, and Weltman's failure to perfect an appeal from that order, and the denial of Weltman's request for an injunction against the foreclosure proceeding, all in the context of his own findings, set forth above, under 11 U.S.C. § 362(d). Bankruptcy courts have broad equitable powers to protect creditors from unwarranted liability arising from application of the automatic stay. Matthews v. Rosene, 739 F.2d 249 (7th Cir. 1984). While there is no question that bankruptcy courts ought to use this power sparingly, so as not to encourage disregard of the stay by creditors, there is no basis for rigidly limiting the discretion of the court best able to evaluate the need for such relief on the basis of the facts before it. In light of the bankruptcy court's equitable powers and of the particular facts before Judge Buschman — including the fact that Weltman had chosen to leave the Eastern District Order undisturbed — the order appealed from was within Judge Buschman's power and not an abuse of his discretion.
Since both bases for "terminating, annulling, modifying, or conditioning" the automatic stay under 11 U.S.C. § 362(d) were found to exist here and such findings were not clearly erroneous, and since Judge Buschman had the power and did not abuse his discretion to annul (as opposed merely to terminate) the stay, the order of the bankruptcy court is AFFIRMED.