In re Abrams

• Decision Date: 31 May 1991
• Docket Number: Bankruptcy No. SA-89-07876-JB.,BAP No. CC-90-1384-VOP
• Citation: 127 BR 239
• Parties: In re Mark Alan ABRAMS and Peggy Rubel Abrams, Debtors. Mark Alan ABRAMS and Peggy Rubel Abrams, Appellants, v. SOUTHWEST LEASING AND RENTAL INC. and Desert Recovery, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

127 B.R. 239 (1991)

In re Mark Alan ABRAMS and Peggy Rubel Abrams, Debtors Mark Alan ABRAMS and Peggy Rubel Abrams, Appellants, v. SOUTHWEST LEASING AND RENTAL INC. and Desert Recovery, Appellees.

BAP No. CC-90-1384-VOP, Bankruptcy No. SA-89-07876-JB.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted February 20, 1991.

Decided May 31, 1991.

Ralph G. Pagter, Santa Ana, Cal., for appellants Mark & Peggy Abrams.

Roland Ginsburg, Los Angeles, Cal., for appellees Southwest Leasing & Rental and Desert Recovery.

Before VOLINN, OLLASON and PERRIS, Bankruptcy Judges.

OPINION

VOLINN, Bankruptcy Judge:

A lessor without knowledge of the debtors' bankruptcy caused the post-petition repossession of the debtors' leased automobile. The lessor received notice of the bankruptcy the day of the repossession but refused to return the vehicle. The trial court concluded that no compensable violation of the automatic stay had occurred and denied damages under § 362(h)¹ of the Bankruptcy Code. However, the court awarded the debtors damages under § 105² for the lessor's unlawful detention of the debtors' property despite the requirements of § 542³. We REVERSE and REMAND for a determination of damages under § 362(h).

FACTUAL AND PROCEDURAL BACKGROUND

The undisputed facts are as follows:

Debtor/appellants Mark and Peggy Abrams entered into a pre-petition lease agreement with appellee Southwest Leasing and Rental, Inc. ("Southwest") under which the Abrams leased two automobiles. On December 11, 1989 the Abrams filed a petition under Chapter 7 of the Bankruptcy Code. Eleven days later, appellee Desert Recovery ("Desert"), acting as an agent for Southwest,⁴ repossessed one of the automobiles. It is undisputed that neither Southwest nor Desert knew of the Abrams' bankruptcy case at that time.

The day the repossession occurred, Abrams' attorney notified Southwest by fax of the Abrams' bankruptcy and demanded that the automobile be returned. Southwest admits receiving notice of the bankruptcy that day. Four days later, the Abrams personally contacted Desert, informed it of their bankruptcy and demanded return of the repossessed automobile. The Abrams' attorney mailed written notice of the bankruptcy to Desert that same day. However, neither Desert nor Southwest ever returned the automobile to the Abrams.

On January 4, 1990 the Abrams brought this action seeking damages and attorney fees under § 362(h), alleging that appellees willfully violated the automatic stay. At a hearing on January 30, 1990 the trial court found that appellees had "willfully and intentionally" failed to return the repossessed vehicle after learning of the bankruptcy, and had thereby "exercised exclusive control thereof." The court concluded, however, that appellees had only "inadvertently" violated the automatic stay by the initial repossession, and that their later refusal to return the vehicle was not willful for purposes of recovery under § 362(h). The court therefore denied the Abrams' request for monetary damages.

At a March 13, 1990 hearing on the Abrams' motion for reconsideration, the court further found that neither Southwest nor Desert took any measures within a reasonable time to return the repossessed vehicle after receiving notice of the Abrams' bankruptcy. The court concluded nevertheless that their actions did not violate the automatic stay for purposes of § 362(h). However, the court held that appellees' actions did constitute a violation of § 542 and, invoking its discretionary powers under § 105, awarded the Abrams $1,500.00 in damages for appellees' refusal to promptly comply with § 542.

The Abrams appeal from the denial of damages under 362(h).

ISSUES

The issues on appeal are (1) whether a creditor, who causes a post-petition seizure of property of the estate without initial knowledge of the debtor's bankruptcy, violates § 362(a)(3) when it refuses to return the seized property after receiving notice of the bankruptcy; and (2) whether a "willful and intentional" refusal to return such property constitutes a "willful" violation of § 362 for purposes of damages under § 362(h).

STANDARD OF REVIEW

We review the bankruptcy court's findings of fact for clear error, In re Torrez, 63 B.R. 751, 753 (9th Cir.BAP 1986), aff'd, 827 F.2d 1299 (9th Cir.1987), and its conclusions of law de novo. Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir.1986).

DISCUSSION

1. Violation of the Automatic Stay.

The automatic stay is a basic protection afforded debtors under the bankruptcy laws, and its scope is intended to be broad. In re Stringer, 847 F.2d 549, 551-52 (9th Cir.1988); see also H.R.REP. No. 95-595, 95th Cong., 1st Sess. 340-41 (1977), reprinted in 1978 U.S.CODE CONG. & ADMIN.NEWS 5787, 5963, 6296.⁵ In particular, § 362(a)(3) protects debtors from:

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate. . . .

§ 362(a)(3) (emphasis added). The second clause of § 362(a)(3), underlined above, was added by the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 355, to clarify that the automatic stay extends to any exercise of control over property of the estate, Norton Bankr. Code Pamphlet 209 (1990-91 ed.), an amendment which effectively widened the scope of the stay. Collier's Bankr. Manual, ¶ 362.03 at 362-19—362-20 (3d ed. 1989).

In contending that the bankruptcy court erred in concluding that appellees' actions did not constitute a willful violation of the automatic stay, the Abrams principally rely on In re Knaus, 889 F.2d 773 (8th Cir.1989). In Knaus, a creditor caused the pre-petition seizure of certain of the debtor's property pursuant to a writ of attachment. While the property was still in possession of the sheriff who had executed the seizure, the debtor filed a Chapter 11 petition and demanded that the creditor cause the return of the seized property. When the creditor refused, the debtor filed an action for turnover. The Eighth Circuit held that the filing of a bankruptcy petition creates a duty in creditors in possession of estate property to turn over such property. Knaus, 889 F.2d at 775. The court concluded that the failure to fulfill this duty constituted a prohibited attempt to "`exercise control over property of the estate' in violation of the automatic stay." Id. at 775.

The trial court in this case considered Knaus but declined to adopt its holding, as discussed in the court's oral ruling:

But you\'re asking me to apply a strict liability standard here. That if you hold any property with knowledge of the stay, which is knowledge of the bankruptcy I should say, which is enough, that that automatically makes you a willful violator of the automatic stay. That\'s the impact of what you\'re asking me to rule.

. . . . .

At this point without knowing where this kind of reasoning could lead us, I\'m having difficulty with the basic proposition that holding onto sic property is a violation of the automatic stay. . . . Merely to say that every time someone holds property, after they have seized it lawfully postpetition without knowledge of the bankruptcy, is liable for whatever damages flow from that, is a step that I would prefer to come from an appellate court, rather than me. And you haven\'t persuaded me with the Knaus theories, though I do see the danger.

ER p. 103, ln. 22 — p. 104, ln. 2; p. 108, ln. 25 — p. 109, ln. 16. As noted above, the court then awarded damages pursuant to § 105 for appellees' § 542 violation.

While Knaus is not controlling in this circuit, we find it persuasive for a number of reasons. Its factual context is not materially distinguishable from that of the present case,⁶ and the court's policy discussions are consistent with the fundamental purposes of the automatic stay. Knaus also appears to be in accord with a substantial body of case law holding that the postpetition retention of property of the estate is a violation of the automatic stay.⁷ See e.g., In re Miller, 22 B.R. 479 (D.Md.1982), (automatic stay would be "emasculated" if duty were on debtor to seek recovery of property seized in violation of stay); In re Holman, 92 B.R. 764 (Bankr.S.D.Ohio 1988) (creditor's continued retention of automobile after receiving notice of bankruptcy constituted willful stay violation); In re Carlsen, 63 B.R. 706, 711 (Bankr.C.D. Cal.1986) (failure of I.R.S. to return funds received pursuant to levy after receiving notice of bankruptcy was "violation of both the automatic stay and of the turnover requirements of the Bankruptcy Code") (emphasis added).

The above cases stand for a number of propositions that are relevant to the present case. First, and primarily, the cases are representative of a general rule that a creditor's knowing retention of property of the estate constitutes a violation of the automatic stay. It is noteworthy that this result is found in cases such as Miller that were decided prior to the 1984 amendment to § 362(a)(3), an amendment which made it clear that post-petition control over estate property is a violation of the stay.

Second, the above decisions appear to be based in part on the proposition that § 542 provides the right to the return of estate property, while § 362(h) provides the remedy for the failure to do so. Carlsen expressly states that the failure to return property of the estate with knowledge of the bankruptcy is a violation of both the automatic stay and of the turnover requirements of the Bankruptcy Code. 63 B.R. at 711. Support for this right/remedy concept is also found in the fact that the Code expresses no remedy for a violation of § 542,⁸ while § 362 contains its own remedial provision. See § 362(h). Moreover, the remedy and sanction provided by § 362(h) are specifically applicable to the issue before us, whereas the general provisions of § 105 leave its application open to question.

A third common theme...