In re Eisenberg, Bankruptcy No. 880-00875.

• Decision Date: 10 December 1980
• Docket Number: Bankruptcy No. 880-00875.
• Citation: 7 BR 683
• Parties: In re Sidney L. EISENBERG and Patricia A. Eisenberg, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of New York

7 B.R. 683 (1980)

In re Sidney L. EISENBERG and Patricia A. Eisenberg, Debtors.

Bankruptcy No. 880-00875.

United States Bankruptcy Court, E.D. New York at Westbury.

December 10, 1980.

Edward Murphy, New York City, for Westside Federal Savings and Loan Association.

Morton Gottlieb, Long Beach, N.Y., for the City of Long Beach, David N. Hilgendorff and Robert C. Harrington.

ROBERT JOHN HALL, Bankruptcy Judge.

This is the Court's motion¹ to hold the City of Long Beach ("Long Beach"), David N. Hilgendorff, Corporation Counsel of the City of Long Beach and Robert C. Harrington, Treasurer of the City of Long Beach, (hereinafter collectively referred to as "Respondents") in contempt for having knowingly and willfully violated the automatic stay provisions of 11 U.S.C. section 362(a).² For the reasons set forth below, the Court finds Long Beach and David N. Hilgendorff in contempt and will certify the facts to the District Judge so that Long Beach and Hilgendorff may be prosecuted for criminal contempt.

II.

The facts are not in dispute. On February 22, 1980, Sidney and Patricia Eisenberg (the "debtors") filed a Chapter 13 petition under the Bankruptcy Code. Thereafter, Respondents caused to be published a legal notice of sale of tax liens on the debtors' property. Respondents also mailed a copy of this notice to counsel for the first mortgagee, Westside Federal Savings and Loan Association of New York City ("Westside Federal"). The scheduled date for the sale of the tax liens was June 2, 1980.

On or about May 2, 1980, counsel for Westside Federal sent the following letter to Mr. Robert L. Harrington, Treasurer of the City of Long Beach:

Edward F. Murphy Attorney at Law 1790 Broadway New York, New York 10019 May 2, 1980

Mr. Robert L. Harrington, Treasurer

The City of Long Beach

City Hall

Long Beach, New York 11561

Re: Block 115, Lot 172 on the TAX MAP OF THE CITY OF NEW YORK 1979/1980 2nd HALF CITY TAX AMOUNT OF LIEN-$757.70 OWNERS: SIDNEY L. EISENBERG AND PATRICIA EISENBERG, his wife RESIDING AT THE TAX LOT PREMISES 118 EAST PENN STREET LONG BEACH, NEW YORK 11561 MORTGAGEE: WESTSIDE FEDERAL SAVINGS AND LOAN ASSOCIATION OF NEW YORK CITY MORTGAGE NO. 412,536.

Dear Mr. Harrington:

I am counsel to the above Association. This is in reference to your published legal notice of sale of Tax Liens scheduled for sale on June 2, 1980, a copy of which you mailed to the Association on April 30, 1980. The notice includes the above tax item.

This is to advise you that the above Mr. & Mrs. Eisenberg filed a petition in bankruptcy on February 22nd, 1980 in the U.S. DISTRICT COURT, EASTERN DISTRICT of NEW YORK (Westbury division) under File No. 88000875. The Association is automatically stayed from foreclosing or paying any real estate taxes and you and the City of Long Beach, as well as the other taxing authorities, are stayed from proceeding to compel payment or enforce tax liens. Accordingly you must forthwith withdraw the above tax lien from the sale. The fact that neither the Association or (sic) you have received written notice as to the bankruptcy petition is immaterial.

I will appreciate your prompt advice in the matter since the first hearing on the debtors\' plan is scheduled for May 7th, 1980.

Very truly yours Edward F. Murphy

Exhibit 1 (Emphasis added).

Respondents, by their then Corporation Counsel, responded to the May 2nd, 1980 letter with a letter of their own, dated May 22, 1980:

City of Long Beach Office of the Corporation Counsel Kennedy Plaza Long Beach, New York 11561 (516) 431-1000 May 22, 1980 Edward F. Murphy, Esq 1790 Broadway New York, N.Y. 10019 Re: Block 115, Lot 172 1979/80 2nd Half City Tax Amount of Lien: $757.70 Owners: Sidney L. Eisenberg and Patricia Eisenberg, his wife Residing at Tax Lot Premises 118 East Penn Street Long Beach, New York 11561 Mortgagee: West Federal Savings and Loan Assoc. of New York City Mortgage No.: 412536

Dear Mr. Murphy:

Your letter of May 2, 1980 addressed to the City Treasurer concerning the above captioned matter has been referred to me for attention.

I regret to inform you that the Treasurer of the City of Long Beach is mandated by the City Charter to sell the tax lien on the captioned premises on June 2, 1980, and does not have any discretionary power to withdraw that tax lien from said sale. The treasurer has not been stayed by an order of any court of competent jurisdiction, nor has he received any official notice of the pendency of any proceeding which would automatically stay the municipality from selling the tax lien in contravention of the requirements of the City Charter.

By reason of the foregoing, the Treasurer must decline to comply with your demand to withdraw the City\'s tax lien on the above property from the tax lien sale of June 2, 1980.

Very truly yours DAVID N. HILGENDORFF Corporation Counsel

Exhibit 2 (Emphasis added).

Subsequently, on May 30, 1980, the last business day prior to the scheduled sale of the tax lien, Westside Federal paid Respondents $757.90, representing the taxes owed by the debtors, to prevent the public sale of the tax lien scheduled for June 2, 1980.

III.

Respondents contend that this Court cannot and should not hold them in contempt because: (a) they did not receive "official notice" from the Court and (b) they did not commit an act in violation of the automatic stay provisions of 11 U.S.C. section 362(a). The Court finds that Respondents' contentions are wholly without merit.

IV.

A tax sale is defined as "the method by which a tax district enforces payment of any delinquent tax lien by sale." N.Y. Real Prop. Tax Law sections 1040(2) and 1102(2) (McKinney 1979). Accordingly, any act committed by Respondents in furtherance of effecting the sale of the tax lien is an act in violation of section 362(a)(4) and (5).³ To enforce its tax lien a governmental unit must first "cause a notice of sale to be published" in the newspapers. N.Y. Real Prop. Tax Law section 1002(1) (McKinney Supp.1980). It is clear that by causing the notice of the sale of the tax lien to be published and sending a copy thereof to Westside Federal, Respondents performed an act to enforce its tax lien subsequent to the filing of the debtors' Chapter 13 petitions in violation of 11 U.S.C. section 362(a)(4) and (5).⁴

Nevertheless, prior to receiving the May 2nd letter from counsel for Westside Federal, Respondents did not know nor had reason to know that the debtors had filed a Chapter 13 petition. Accordingly, prior to receiving notice that the debtors had filed a Chapter 13 petition, Respondents did not knowingly and willfully commit an act in violation of the automatic stay provisions of section 362(a). Respondents' conduct after receiving the May 2nd letter from Westside Federal, however, constituted a knowing and willful violation of the automatic stay provisions.

In Respondents' May 22nd letter, they advised Westside Federal that Long Beach "is mandated by the City Charter to sell the tax lien on the debtors' premises on June 2, 1980, and does not have any discretionary power to withdraw that tax lien from said sale." (Exhibit 2) By sending this letter to Westside Federal after Respondents had been notified that the debtors had filed a Chapter 13 petition, Respondents ratified and reaffirmed their prior conduct. Moreover, the writing and mailing of the May 22nd letter itself was an act to enforce a lien in violation of section 362(a).

The letter was written to the first mortgagee who, as Respondents were aware, had an interest in seeing that the property would not be further encumbered by the sale of the tax lien. By notifying Westside Federal that it did not consider itself stayed by the automatic stay provisions of the Bankruptcy Code, Respondents were advising Westside Federal that the latter could protect its position by paying the tax arrearage. Respondents' letter served its intended purpose. During the afternoon of May 30, 1980, the last business day prior to the scheduled sale of the tax lien, Westside Federal paid the tax arrearage. (Tr. 30) Thus, by extracting payment from Westwide Federal, Respondents, for all intents and purposes, enforced Long Beach's lien.

V.

The filing of a bankruptcy petition stays all creditors from performing any act to create, perfect or enforce any lien against property of the estate and property of the debtor. 11 U.S.C. section 362(a)(4) and (5) (1978). cf. Mueller v. Nugent, 184 U.S. 1, 15, 22 S.Ct. 269, 275, 46 L.Ed. 405 (1902) (filing of a bankruptcy petition is a caveat to all the world, and in effect an attachment and judgment). The stay is effective upon the date of the filing of the petition, and formal service is not required. See 2 Collier on Bankruptcy, ¶ 362.03, 362-26 (15th ed. 1979). Actions taken in violation of the stay are void even when there is no actual notice of the existence of the stay. Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940); Zestee Foods, Inc. v. Phillips Foods Corp., 536 F.2d 334 (10th Cir. 1976); Meyer v. Rowen, 181 F.2d 715, 716 (10th Cir. 1950); In re Potts, 142 F.2d 883 (6th Cir. 1944) cert. denied 324 U.S. 868, 65 S.Ct. 910, 89 L.Ed. 1423 (1945); See generally 2 Collier on Bankruptcy, ¶ 362.11 (15th ed. 1979).

This circuit has held that when an entity takes an action in violation of the automatic stay provisions of the bankruptcy laws with knowledge of the filing of a bankruptcy petition and the consequent automatic stay, the creditor is in contempt. It is no defense that the creditor did not receive formal notice of the stay from the court. Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47, 51-52 (2d Cir. 1976) cert. denied 429 U.S. 1093, 97 S.Ct. 1107, 51 L.Ed.2d 540 (1977). Nor is it a defense that the creditor relied on the advice of counsel. Fidelity Mortgage Investors, supra, at 58; See generally 2 Collier on Bankruptcy, ¶ 362.11 (15th ed. 1979).

The fact that the City of Long...