In re Brooks, Bankruptcy No. 96-00204

• Decision Date: 02 April 1997
• Docket Number: Adv. No. 96-90043.,Bankruptcy No. 96-00204
• Parties: In re John Curtis BROOKS and Jacqueline Ann Brooks, Debtors. John Curtis BROOKS and Jacqueline Ann Brooks, Plaintiffs, v. WORLD OMNI, Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Florida

207 B.R. 738 (1997)

In re John Curtis BROOKS and Jacqueline Ann Brooks, Debtors.

John Curtis BROOKS and Jacqueline Ann Brooks, Plaintiffs, v. WORLD OMNI, Defendant.

Bankruptcy No. 96-00204, Adv. No. 96-90043.

United States Bankruptcy Court, N.D. Florida, Gainesville Division.

April 2, 1997.

Sharon Sperling, Gainesville, FL, for Plaintiffs.

Lisa Cohen, Gainesville, FL, for Defendant.

Leigh Hart, Trustee, Tallahassee, FL.

MEMORANDUM OF OPINION

LEWIS M. KILLIAN, Jr., Bankruptcy Judge.

This matter is before the Court on plaintiff's Motion For Assessment of Attorneys Fees and Sanctions brought under 11 U.S.C. § 362(h). A hearing was held on February 2, 1997, and upon the evidence presented and argument of counsel, I make the following findings of fact and conclusion of law pursuant to Rule 7052, Fed.R.Bankr.P.

Findings of Fact

World Omni repossessed the Brooks' 1991 Dodge Dynasty on June 20, 1996. On June 25, 1996, the Brooks filed a Chapter 13 bankruptcy proceeding and commenced this adversary proceeding seeking turnover of the repossessed vehicle. The same day, their attorney contacted Brian Carr, the World Omni employee assigned to their account, and advised him of the bankruptcy and the adversary proceeding and requested turnover of the vehicle. Brooks' attorney made a verbal offer of adequate protection payments and offered to provide proof of insurance as additional adequate protection. Carr stated that World Omni would immediately assign the case to their bankruptcy department, which would make arrangements to return the vehicle.

Over the next two days Brooks' attorney initiated several communications with World Omni representatives and its attorneys. On June 28, 1996 at 2:21 p.m., the debtors provided World Omni with a copy of the insurance policy declarations sheet dated January 29, 1996. Although it stated the policy period was from March 19, 1996 through September 19, 1996, it also stated "your policy will expire on 3/19/96, to keep coverage in force please return the attached request."

On that same day at 4:10 p.m., World Omni's attorney contacted the Brooks' attorney and informed her that the vehicle was available for the debtors' retrieval at an impound lot in Ocala, Florida. The lot closed at 4:30 p.m. for the weekend and the debtors were unable to retrieve their vehicle until July 1, 1996. Later that afternoon, World Omni's attorney contacted the debtor's attorney to request current proof of insurance. Debtor's counsel verified that coverage was current by contacting the insurance carrier and then she relayed that information to the creditor's attorney.

The vehicle had been towed to Ocala pre-petition, a distance in excess of 40 miles from where the vehicle was repossessed. The Brooks did not want to drive their vehicle because of a concern that the car had been damaged. They arranged to have the vehicle towed back to Gainesville and paid the towing fees of $130.00. The debtors also rented a car from June 25, 1996 through July 12, 1996, at a per diem rate of $46.62.

The debtors contend that § 542(a) obligated World Omni to return their vehicle upon notice of the bankruptcy petition filing. They allege that World Omni acted in willful violation of the automatic stay by delaying the return of their vehicle and by failing to return the vehicle to the locale of repossession. The debtors seek an award of their actual damages, including costs and attorney's fees, and punitive damages, pursuant to § 362(h) of the bankruptcy code.

Conclusions of Law

The filing of a bankruptcy petition imposes automatically a stay upon most actions by creditors to satisfy their claim against the debtor. 11 U.S.C. § 362(a)(3). Section 542 provides that an entity, including a secured creditor, who possesses property of the debtor at the time the debtor files a bankruptcy petition "shall deliver to the trustee, and account, for such property or the value of such property, unless such property is of inconsequential value or benefit to the estate." 11 U.S.C. § 542(a). The debtors contend that World Omni failed to fulfill its responsibility when it made the car available in Ocala and did not return the car to the locale of repossession in a timely fashion.

Section 542 charges the possessor "shall deliver the property to the trustee." 11 U.S.C. 542(a). Few cases distinguish between making the collateral available and returning it to the place of repossession. This court holds that the collateral must be returned to the locale of repossession.

In In re Knaus, the creditor obtained a judgment and had the sheriff levy on the debtor's grain and equipment. In re Knaus, 889 F.2d 773, 774 (8th Cir.1989). Before the Sheriff's sale occurred, the debtor filed bankruptcy and demanded that the creditor return the property according to 11 U.S.C. § 542. Id. The creditor refused to comply and the debtor filed an action with the bankruptcy court for the return of the property. Id. The court held that § 542 requires turnover of property seized prior to the bankruptcy petition and required that the creditor return the property. Id. at 775. The court noted:

A person holding property of a debtor who files bankruptcy proceedings becomes obligated, upon discovering the existence of the bankruptcy proceedings, to return that property to the debtor (in chapter 11 or 13 proceedings) or his trustee (in chapter 7 proceedings). Otherwise, if persons who could make no substantial adverse claim to a debtor\'s property in their possession could, without cost to themselves, compel the debtor or his trustee to bring suit as a prerequisite to returning the property, the powers of a bankruptcy court and its officers to collect the estate for the benefit of creditors would be vastly reduced.

The general creditors, for whose benefit the return of property is sought, would have needlessly to bear the cost of its return.

Id. Just as the unsecured creditors should not shoulder the cost of an action to compel the return of the collateral, they should likewise not be called to pay the cost of transporting the vehicle back to the debtor.

In re Sharon, noted the above Knaus excerpt and continued:

The courts which adhere to the majority position agree that the duty to cause the postpetition return of property of the estate is not on the debtor, but rather the party who exercises control over the property of the estate. Although a trustee or debtor-in-possession does have the ability to bring a motion to compel turnover under § 542, these courts hold that the case law and legislative history of § 362 indicate that Congress did not intend to place the burden on the bankruptcy estate to absorb the expense of potentially multiple turnover actions.

In re Sharon, 200 B.R. 181, 192 (Bankr. S.D.Ohio 1996).

Finally, in Belcher, the creditors repossessed the vehicle not knowing that the debtor had filed for bankruptcy. In re Belcher, 189 B.R. 16, 17 (Bankr.S.D.Fla.1995). The court held that although the repossession occurred from the debtor's failure to notify the creditor of the bankruptcy filing, the creditor "had a duty to return the vehicle to the place from where it was taken." Id. at 19. World Omni exercised control over the vehicle at the time the bankruptcy petition was filed, and it was their responsibility to return the vehicle to the debtors' possession when the debtors' filed bankruptcy. By making the car available in Ocala, the creditors failed to fulfill their responsibility of returning the car to the debtors' possession.

Section 542 requires the turnover of the vehicle but does not specify appropriate time limitations. This gives rise to the issue of once the debtors have filed for bankruptcy protection and have requested turnover of the vehicle, what is a reasonable period of time for the creditors to effect turnover of the vehicle. As Judge Cristol illustrated in his opinion in Belcher, "Should the creditor have placed the vehicle on its fax machine and faxed it back to the attorney for the debtor?" Id. at 18. Of course not, that is too great a demand to place on the creditor. In Belcher, the creditors retained possession of the vehicle for nine days after initial demand. Id. at 17. Judge Cristol notes that a creditor is entitled to notice and a...