In re Dyer
| Decision Date | 13 March 2003 |
| Docket Number | No. 01-56319.,No. 01-56384.,01-56319.,01-56384. |
| Parties | In re Thomas James DYER, Debtor. Nancy Knupfer, Trustee, Appellant, v. John Lindblade, Appellee. In re Thomas James Dyer, Debtor, John Lindblade, Appellant, v. Nancy Knupfer, Trustee, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Sharon Z. Weiss and Deborah H. Eisen, Weinstein, Eisen & Weiss, Los Angeles, CA, for the Appellant and Cross-Appellee.
Patricia A. Teunisse, Carole M. Pitre, Pitre & Teunisse, San Dimas, CA, for the Appellee and Cross-Appellant.
Appeal from the United States District Court for the Central District of California; A. Howard Matz, District Judge, Presiding. D.C. No. CV-00-05960-AHM.
Before CANBY, JR., GOULD and BERZON, Circuit Judges.
This case presents an important bankruptcy law question of first impression in this circuit: Does the sanction authority granted to bankruptcy courts under 11 U.S.C. § 105(a) permit punitive sanctions? Before reaching that question, we address several other issues arising from the bankruptcy proceedings of Thomas Dyer ("Dyer"), the ex-husband of Jeanie Lindblade ("Jeanie").
Dyer and Jeanie owned a house together when they were married ("the home"). Jeanie's father, John Lindblade ("Mr. Lindblade"), claims to hold a lien on the home. Mr. Lindblade maintains that he lent funds to the couple to enable them to buy the home and secured the debt by a deed of trust executed in 1992. The deed of trust, however, was not recorded until May 11, 1998, several weeks after Dyer filed for bankruptcy, listing the home as one of his assets.
The bankruptcy court determined that the deed of trust was unenforceable because the underlying debt secured was nonexistent. The funds Mr. Lindblade advanced, held the bankruptcy court, were not a loan at all, but instead were a gift to Dyer and his then-wife Jeanie. We conclude that this finding of the bankruptcy court is clearly erroneous, so we reverse on the loan/gift issue.
The bankruptcy court also determined that Mr. Lindblade's post-petition recordation of the deed of trust violated the automatic stay provision of 11 U.S.C. § 362 and was therefore void. As the bankruptcy court recognized, that determination renders Mr. Lindblade's deed of trust unperfected, but does not necessarily make it unenforceable. The bankruptcy court went on to determine that the Trustee could not avoid the unperfected security interest under 11 U.S.C. § 544(a)(3). The Trustee does not challenge that finding before this court, so we do not revisit the issue.
Finally, the bankruptcy court concluded that Mr. Lindblade's violation of the automatic stay provision was willful and in bad faith, and that the Trustee was therefore entitled to compensatory and punitive sanctions and attorneys' fees resulting from the violation. We conclude that significant punitive sanctions are not available under either the civil contempt authority of 11 U.S.C. § 105(a) or the bankruptcy court's inherent sanction authority. We therefore affirm the district court's decision to remand the case to the bankruptcy court for a determination of the Trustee's attorneys' fees and compensatory damages.
This appeal and cross-appeal arise from the bankruptcy proceeding Dyer initiated in 1998, but the story underlying it begins in 1992. In that year, Mr. Lindblade decided to assist his daughter and her husband in buying a house. (Mr. Lindblade's generosity was possible because he was a $22,000,000 jackpot winner in the California lottery.) To implement his parental beneficence, Mr. Lindblade gave approximately $143,000 to Jeanie and her then-husband, Dyer, for a downpayment for the home.
As additional financing for the purchase of the home, Dyer and Jeanie also took out a $100,000 mortgage from First Interstate Mortgage Company, secured by a first deed of trust. On the loan application, both Dyer and Jeanie stated under penalty of perjury that they had not borrowed any portion of the down payment for the home.
In June 1992, approximately two months after obtaining the First Interstate loan and moving into the home, Jeanie and Dyer executed a promissory note and deed of trust in favor of Mr. Lindblade, stating that they owed Mr. Lindblade $143,000. Although the promissory note does not set a repayment date or interest rate, it gives Mr. Lindblade the right to demand payment in the event Dyer and Jeanie divorce or Jeanie dies.
At Mr. Lindblade's insistence, the deed of trust was notarized. For several years, however, the deed remained unrecorded. Mr. Lindblade indicated that he was aware of the recordation requirement but never recorded the deed because he believed that Dyer had done so.
In 1995, Mr. Lindblade paid off the balance of Jeanie and Dyer's First Interstate loan, in the amount of $97,782.33. Mr. Lindblade asserts that he intended for this second payment to be a loan with terms identical to those pertaining to the $143,000 loan and contained in the June 1992 deed of trust. No written agreement to that effect was ever executed.
Dyer and Jeanie, while married, made no payments on either the $143,000 loan or the $97,782.33 loan. Instead, in 1997, Dyer and Jeanie refinanced the home once again. On their loan application, Dyer and Jeanie represented for a second time that there were no outstanding loans on the property. After the divorce, Jeanie did pay a small amount of money as repayment of the loan (approximately $2,000).
In March 1998, Dyer filed for divorce from Jeanie. Soon thereafter he filed for bankruptcy. In his original bankruptcy schedules, Dyer did not record any debt owed to Mr. Lindblade.
Attorney Patricia Teunisse ("Teunisse") represented Jeanie in the divorce proceedings. She also represented Mr. Lindblade regarding his claim to a lien secured by the home. On April 28, 1999, Teunisse handed the deed of trust to an associate in her office and asked that the deed be recorded. The deed was not immediately recorded.
Teunisse asserts that when she initiated the recordation process, she was not yet aware of Dyer's bankruptcy. She became aware of the bankruptcy filing, however, the next day, when Dyer, Jeanie, Teunisse, and Mr. and Mrs. Lindblade all attended a property settlement negotiation regarding the Dyer-Lindblade divorce.
After learning of the bankruptcy proceedings, neither Teunisse nor Mr. Lindblade attempted to halt the recordation of the deed of trust. Instead, on May 1, 1998, Teunisse sent a letter to Dyer's bankruptcy counsel, stating:
The $143,000.00 initial down payment was secured by a promissory note and a deed of trust. A copy of each follows this letter. As I indicated to you over the telephone, the Lindblades were under the impression that Mr. Dyer had done everything necessary to secure their interest against the home. They did not understand that their trust deed had not been recorded. We are ensuring the recordation of the same.
Please notify the trustee of our position... I am not sure what action we will take yet to clear the title to the property but some action will be taken shortly.
The deed was recorded on May 11, 1998. Subsequently, in June 1998, Dyer amended his bankruptcy schedule to indicate that Mr. Lindblade had a second deed of trust on the home.
After Mr. Lindblade recorded the deed of trust, the Trustee of Dyer's estate ("the Trustee") notified Mr. Lindblade that the recordation violated the automatic stay provisions of 11 U.S.C. § 362, designed to give "the debtor a breathing spell from his [or her] creditors." Schwartz v. United States (In re Schwartz), 954 F.2d 569, 571 (9th Cir.1992) (quoting H.R.Rep. No. 95-595 at 340 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6296-97). Section 362,1 "stops all collection efforts, all harassment, and all foreclosure actions." Id. (emphasis removed). The parties agree that the post-petition recordation of the deed of trust violated § 362.
After Mr. Lindblade refused the Trustee's request to reconvey the deed of trust, the Trustee initiated an adversary action against Mr. Lindblade. The complaint sought a declaration that Mr. Lindblade had violated the automatic stay provision and that the post-petition recordation was therefore void. As part of this litigation, the Trustee also asked the bankruptcy court to declare that Mr. Lindblade's deed of trust was unenforceable against Dyer's estate. Two independent reasons were advanced in support of that request: First, the Trustee argued that the deed of trust was unperfected (because the post-petition recordation was void), and that the Trustee could therefore avoid the deed of trust under § 544(a)(3), which allows the Trustee to avoid unperfected liens in certain circumstances.2 Second, the Trustee asserted that the deed of trust was invalid because the debt which it secured was illusory. The Trustee argued that the funds Mr. Lindblade advanced were intended as a gift, rather than a loan, so there was no debt. The Trustee also urged the bankruptcy court to find that Mr. Lindblade's automatic stay violation was willful, entitling the Trustee, under the sanctioning authority of § 105(a), to damages and attorneys' fees incurred as a result of the automatic stay violation.3
Mr. Lindblade admitted that he had violated the automatic stay provisions, but continued to press, for a time, the theory that the post-petition recordation should be validated.4 He contested each of the Trustee's additional claims and arguments.
In its first ruling, the bankruptcy court entered a judgment indicating that Mr. Lindblade had violated the automatic stay provision and that the post-petition recordation was therefore void. The bankruptcy court further held that the Trustee was not entitled under § 544(a)...
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