Cross v. City of Chi. (In re Cross)

• Decision Date: 25 May 2018
• Docket Number: Bankruptcy No. 18 BK 00986,Adversary No. 18 AP 00154
• Parties: IN RE: Monica CROSS, Debtor. Monica Cross, Plaintiff v. City of Chicago and CarMax Business Solutions, Defendants.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

584 B.R. 833

IN RE: Monica CROSS, Debtor.

Monica Cross, Plaintiff

v.City of Chicago and CarMax Business Solutions, Defendants.

Bankruptcy No. 18 BK 00986

Adversary No. 18 AP 00154

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed May 25, 2018

Amended May 31, 2018

James A. Brady, Legal Assistance Foundation, Chicago, IL, for Plaintiff.

CarMax Business Services LLC, pro se.

David Paul Holtkamp, City of Chicago Department of Law, Chicago, IL, for Defendant.

AMENDED OPINION ON (A) DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S COMPLAINT [DKT. NO. 6] AND (B) PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION [DKT NO. 4]

Jack B. Schmetterer, United States Bankruptcy Judge

Defendant the City of Chicago ("the City") has moved to dismiss the adversary complaint brought against it by Debtor Monica Cross ("Debtor") pursuant to Fed. R. Civ. P. 12(b)(6) (made applicable here by Fed. R. Bankr. P. 7012 ). The City challenges the legal sufficiency of Plaintiffs' allegations, arguing that because it has a valid possessory lien pursuant to Illinois law, its actions are excepted from the automatic stay pursuant to 11 U.S.C.§ 362(b)(3) and (b)(4). Debtor disputes the validity of the City's possessory lien and asserts that it is not properly exercising its police powers by retaining possession of the vehicle.

In addition, Debtor has filed a Motion for Preliminary Injunction, seeking to mandatorily enjoin the City into turning over the vehicle because she faces irreparable harm by not being able to work if she is not allowed to use the car. The City contends that Debtor has not met any of the standards set forth by the Seventh Circuit for the imposition of a preliminary injunction.

These matters, based upon the same set of facts and similar legal arguments, will be considered together. For the reasons discussed below, the City's Motion to Dismiss is denied by separate order entered this date. Additionally, Debtor's Motion for Preliminary Injunction is granted by separate order entered this date.

INTRODUCTION

The Seventh Circuit opinion in Thompson v. Gen. Motors Acceptance Corp., LLC , 566 F.3d 699 (7th Cir. 2009) placed the burden squarely upon creditors to initiate a showing as to why they should be allowed to retain vehicles of bankruptcy debtors that were seized prepetition. Unless such showing is initiated, creditors must surrender the vehicle because of the automatic stay.

The City of Chicago has completely disregarded this obligation, choosing instead to continue holding vehicles of debtors postpetition and waiting many months until proceedings are brought by debtors against them in bankruptcy and then asserting a response that its purported possessory lien grants it an exception to the automatic stay. The City has taken this tactical delay position to coerce debtors to pay traffic fines quickly and fully in their bankruptcy plan and also to avoid paying filing fees required for the filing of motions for relief from the automatic stay. In this way, the City is circumventing entirely the procedural burden imposed on it by Thompson and the protections provided to debtors by the automatic stay. The City must comply with the requirements of Thompson so that debtors may, unless some cause is shown, recover their vehicles in bankruptcy, allowing them to continue working and making payments under their Chapter 13 plans.

BACKGROUND FACTS ALLEGED

The Debtor filed her underlying petition for Chapter 13 bankruptcy relief on January 12, 2018. Debtor's vehicle, a 2009 Cadillac SRX, was purchased from CarMax, and CarMax has a purchase money secured interest in the vehicle for $27,340.88. CarMax has valued the vehicle at $9,425.00. Debtor asserts that the vehicle is worth only $6,000.00 and that she has claimed a $2,400.00 exemption in the vehicle. Prior to the Debtor's filing of this bankruptcy case on January 12, 2018, the City seized the Debtor's vehicle in December 2017 or January 2018. The Debtor has incurred 38 total tickets, 7 of which she has paid, and one of which was dismissed. The 30 other tickets remain outstanding. The City initially filed a secured claim, Claim No. 3, in the amount of $5,099.90, but that claim has since been amended to $4,459.90. Debtor has requested that the City turnover her vehicle, but on April 17, 2018, the City informed Debtor that it would not do so unless the Debtor paid the entire secured claim in full, in regular monthly payments over the course of her Chapter 13 plan. The City would only agree to those terms and stated that upon confirmation of such a plan, the vehicle would be released to Debtor.

Debtor filed her instant adversary complaint against the City and CarMax on May 1, 2018. Debtor pleads two Counts against the City. In Count I, Debtor alleges that the City's lien is inferior to CarMax's purchase money interest, and thus, the City has no secured interest in the vehicle. Under Count I, Debtor seeks relief in the form of an order finding that CarMax is the superior lienholder, requiring the City to turnover the vehicle pursuant to 11 U.S.C. § 542, and finding that the City has violated its duty to turn over property of the estate pursuant to that same statute. In Count II, Debtor alleges that the City has violated the automatic stay by continuing to hold her vehicle, and that her plan provides for monthly payments based on the value of the vehicle to the superior lienholder, CarMax. Under Count II, Debtor seeks relief in form of damages from the City for any duration of time during which it has impermissibly held her vehicle, as well as attorney's fees and costs.

The City filed its Motion to Dismiss on May 4, 2018. City argues that pursuant to Illinois law, it has a statutory, superpriority possessory lien for towing and storage fees that supersedes CarMax's purchase money interest in the vehicle. As a matter of law, the City argues, that possessory lien entitles it to retain Debtor's vehicle. The City also asserts that Debtor cannot seek turnover pursuant to 11 U.S.C. § 542 because it cannot be used to alter or avoid substantive lien rights and it is merely an enabling statute. Moreover, the City argues that turnover pursuant to § 542 requires that the Debtor have a substantive right to possession on the petition date, which the City argues Debtor did not have as the car was seized pursuant to an exercise of the City's police powers. Additionally, the City argues that 11 U.S.C. § 362(a) does not require turnover because the City's actions are excepted from the automatic stay pursuant to 11 U.S.C. 362(b)(3) and 362(b)(4).

Debtor filed her Response on May 15, 2018. She argues that she has adequately plead facts to sustain her complaint and that each of the facts plead by her supports her allegations against the City. Debtor also argues that as a matter of law it is the City who does not have any right to her vehicle as it does not have a valid lien pursuant to Judge Cox's opinion In re Howard , 584 B.R. 252, 255 (Bankr. N.D. Ill. 2018). Debtor also asserts that whether the City has a superpriority lien or not is irrelevant, as a Seventh Circuit panel held in Thompson v. Gen. Motors Acceptance Corp., LLC , 566 F.3d 699, 708 (7th Cir. 2009) that creditors are unequivocally required to turnover vehicles to debtors pursuant to 11 U.S.C. § 542. Moreover, the Debtor states that she had an interest in the vehicle that required turnover upon her request. Finally, Debtor asserts that the City is not excepted from the automatic stay pursuant to either 11 U.S.C. § 362(b)(3) or § 362(b)(4) because it neither has a valid possessory lien on the vehicle, nor has it demonstrated that its purpose for immobilizing Debtor's vehicle is non-pecuniary in nature and that Debtor is the type of driver that should be kept off the roads for the sake of public safety.

Additionally, Debtor filed a Motion for Preliminary Injunction on May 3, 2018, seeking to mandatorily enjoin the City into returning her vehicle. Debtor states that she requires the vehicle as she is a substitute teacher who must travel to different schools in order to perform her duties. She argues that pursuant to Thompson v. Gen. Motors Acceptance Corp., LLC , 566 F.3d 699, 707–08 (7th Cir. 2009), the City is required to turnover the automobile under 11 U.S.C. § 542. She also states that she is likely to succeed in the adversary proceeding.

The City filed its Response to Debtor's Motion for Preliminary Injunction on May 15, 2018. It argues that pursuant to Illinois law, the Debtor has not met the standards as to any element required for a preliminary injunction. Those elements are, (1) whether the movant will suffer irreparable harm prior to a final resolution, (2) whether there is an adequate remedy at law, (3) whether the movant has a reasonable likelihood of success on the merits. Turnell v. CentiMark Corp. , 796 F.3d 656, 661 (7th Cir. 2015). The court is then asked to (4) weigh the irreparable harm facing movant against the irreparable harm that may be inflicted upon the non-moving party, and (5) the effects, if any, the grant or denial of such a preliminary injunction would have against third parties. Id. The City argues that no irreparable harm will occur to Debtor if she does not have her vehicle, and that Debtor has an adequate remedy at law should any harm occur at all, in the form of monetary damages. The City also asserts that, based upon its possessory lien and the stay exception of 11 U.S.C. § 362(b)(3) that allows a creditor to take any action to maintain perfection of its liens, the Debtor is unlikely to prevail in the underlying adversary proceeding. The City also asserts that it faces great harm if it is forced to give up the vehicle, specifically if Debtor chooses to dismiss the adversary proceeding and simply walk away with the vehicle without providing a replacement lien. The City does not articulate what type of replacement lien could be given, though it asserts that no such replacement lien will adequately protect its interest in the...