In re Graves
| Decision Date | 13 July 1993 |
| Docket Number | Civ. A. No. 92-4488,Bankruptcy No. 92-12437S. |
| Citation | 156 BR 949 |
| Parties | In re Shirley GRAVES, Debtor, FLEET CONSUMER DISCOUNT COMPANY, Appellant, v. Shirley GRAVES, Appellee. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
F. Lee Jones, Philadelphia, PA, for debtor.
David B. Comroe, Philadelphia, PA, for appellant.
Howard Sparkman, pro se.
This is a bankruptcy appeal. Appellant Fleet Consumer Discount Company ("Fleet") seeks review of the Order of the bankruptcy court granting judgment in favor of appellee Shirley Graves ("the Debtor"). The U.S. Bankruptcy Court for the Eastern District of Pennsylvania found that Graves was deprived of her constitutional right to due process when she failed to receive personal notice of the sheriff's sale at which Fleet purchased her home.
This Court has jurisdiction pursuant to 28 U.S.C. § 158(a). For the reasons set forth below, I shall affirm the Order of the bankruptcy court.
On October 18, 1982, Thomas Bacon ("Thomas"), the Debtor's father, purchased a home located at 6133 Nassau Road, Philadelphia, Pennsylvania, 19151 ("the Home"). Thomas mortgaged the Home to Liberty Bank ("Liberty"). The title of the Home listed Thomas and Duane Bacon ("Duane"), the Debtor's nephew, as joint owners. On January 7, 1986, Thomas died intestate and was survived by his wife Mamie Bacon ("Mamie") and his children, who included the Debtor, her disabled brother Andrew Bacon ("Andrew"), her other brother Norman Bacon ("Norman"), and her sister, Duane's mother. At that time, Mamie, Duane, the Debtor, and Andrew all lived in the Home.
In September 1988, Duane mortgaged his one-half interest in the Home to Fleet without his family's knowledge. Two years later, on September 5, 1990, Mamie died intestate. Duane married and moved out of the Home that same month, leaving the Debtor and Andrew as its sole occupants.
In November 1990, Liberty instituted a foreclosure action against Thomas and Duane1 in state court because Duane, who had always been in charge of making the mortgage payments to Liberty, had not made a payment since August 1990. The state-court records of Liberty's foreclosure action show that service was affected on March 11, 1991 on both Thomas and Duane by certified mail and by posting notice of the action of the Home, even though Thomas had since passed away and Duane no longer lived in the Home. These alternative methods of service were permitted pursuant to an Order from the state court. Liberty provided notice of the subsequent sheriff's sale of the Home by posting the notice at the Home and by first-class mail addressed to Thomas and Duane at the Home. Because Liberty was the foreclosing party, it arranged and conducted the sheriff's sale of the Home, which took place on October 7, 1991. Fleet, a junior creditor to whom Duane still owed $12,000, purchased the Home at the sheriff's sale for $41,000 plus $1,000 costs. Fleet contacted the Debtor on October 8, 1991, the day after the sale, to inform her of its purchase of the Home.
Fleet's records suggest that Fleet had contacted the Debtor the first time on June 25, 1991, to find out details about the sheriff's sale. According to Fleet's records, this contact made Fleet aware that Thomas was deceased and that the Debtor claimed to be one of his heirs at law. Fleet believed that this contact also provided the Debtor with actual knowledge and, therefore, notice of the sheriff's sale Liberty had scheduled for October 7, 1991. The Debtor, however, denied any knowledge of the sheriff's sale or any contact with Fleet prior to October 8, 1991, the day after the sheriff's sale. Furthermore, the Debtor claimed that Liberty had never posted notice of the foreclosure action at the Home nor had she received any notice of the impending sheriff's sale.
On November 8, 1991, one month after Fleet purchased the Home at the sheriff's sale, it commenced a state-court ejectment action against the Debtor and her brother Andrew, who were the current and only occupants of the Home. A default judgment was entered in favor of Fleet on January 15, 1992.
The Debtor contested the validity of the sheriff's sale and the underlying judgment in Liberty's foreclosure action as well as the default judgment entered against her and Andrew in Fleet's ejectment action. On April 14, 1992, the state court entered an Order denying the Debtor's motion for a stay of execution in the ejectment action, and on May 18, 1992, the state court entered an Order denying relief on the Debtor's motions challenging the validity of the sheriff's sale and the underlying judgment in Liberty's foreclosure action. However, since the Debtor filed an individual Chapter 13 bankruptcy petition on April 22, 1992, the bankruptcy court held that the state-court Order pertaining to Liberty's foreclosure action was void as to her because it violated the statutory automatic stay provisions of the Bankruptcy Code.
On May 12, 1992, Fleet filed a motion with the bankruptcy court asking for relief from the automatic stay. In its motion, Fleet relied solely upon its allegation that the Debtor's ownership interest in the Home was cut off when Fleet purchased it at the sheriff's sale. The bankruptcy judge conducted a hearing on the motion on June 9, 1992, during which he listened to the testimony of the Debtor and Heather Thompson ("Thompson"), the Assistant Branch President of Fleet's Upper Darby office. Thompson presented and interpreted Fleet's file on the Home. At the close of the hearing, the bankruptcy court entered an Order allowing Fleet to reopen the record to add certified copies of the affidavits of service of the complaint, notice of service of the sheriff's sale, and certain other documents from the state-court records in issue on or before June 10, 1992. The Order also allowed both parties to submit any briefs in support of their respective positions by June 17, 1992 and scheduled a subsequent hearing for June 18, 1992 on any motion to reopen the record filed by Fleet.
Fleet timely filed a motion to admit certified copies of certain state-court pleadings into the record, which was granted on June 18, 1992. Fleet also filed a brief in support of its position. The Debtor did not file a brief. On June 25, 1992, the bankruptcy court denied Fleet's motion for relief from the automatic stay and entered judgment against Fleet and in favor of the Debtor. In re Graves, 142 B.R. 115, 117 (Bankr. E.D.Pa.1992). The bankruptcy court found that the absence of personal notice to the Debtor violated her state-law and due process rights on three alternative grounds: (1) the Debtor's part ownership interest in the Home, which she inherited after Thomas' death, entitled her to personal notice; (2) the Debtor's extended continuous possession of the Home gave constructive notice to Liberty of the Debtor's interest, which, if investigated, would have revealed the Debtor's partial ownership of the Home; or (3) Fleet's actual knowledge of the Debtor's interest in the Home prior to the sheriff's sale precluded its buying the home as a bona fide purchaser at the sale. Fleet now appeals that Order.
The district court cannot overturn the bankruptcy court's findings of fact unless it finds that they were "clearly erroneous." 11 U.S.C.A. Rule 8013; Brown v. Pennsylvania State Employees Credit Union, 851 F.2d 81, 84 (3d Cir.1988). In this case, the bankruptcy court heard testimony from witnesses from both sides. And, as the trier of fact, the bankruptcy court has the best vantage point to determine which party is the most credible because the judge can see and hear from the witnesses himself. Landon v. Hunt, 977 F.2d 829, 830 (3d Cir.1992). Legal conclusions of a bankruptcy court, however, are subject to a plenary review on appeal. Brown, 851 F.2d at 84.
In its brief to this court, Fleet presents several alternative arguments as bases for this Court to reverse the bankruptcy court's decision and grant Fleet's request for relief from the automatic stay.
Fleet argues that the default judgments in the state-court foreclosure and ejectment actions operate either as res judicata or collateral estoppel, thereby precluding the bankruptcy court from relitigating the validity of the notice given, the foreclosure judgment, the sheriff's sale, and the ejectment action. In considering the parties' arguments concerning the preclusive effect of the state-court judgments, I will apply a de novo standard of review, making my own legal conclusions without deferential regard to those made by the bankruptcy court.
Although Fleet correctly notes that default judgments, absent a showing of fraud, may be given res judicata effect, the doctrine will only apply if the second suit presents the same cause of action as the initial suit. McCarter v. Mitcham, 883 F.2d 196, 199 (3d.Cir 1989); Dunham v. Temple University, 288 Pa.Super. 522, 432 A.2d 993, 999 (1981). The instant action entails a motion for relief from an automatic stay, which is substantively different from an ejectment action. In addition, the doctrine of res judicata requires that the party to the second action was a party, or in privity with the parties, to the first action. McCarter, 883 F.2d at 199; Dunham, 432 A.2d at 999. In this case, the Debtor was not a party to the initial foreclosure action which Liberty brought against Thomas and Duane, nor did any party representing her interests participate therein. Furthermore, since the state-court Order denying the Debtor relief from the foreclosure judgment and execution was entered after the Debtor filed her bankruptcy petition, it violated the automatic stay which accompanied her bankruptcy filing and, therefore, is void. 11 U.S.C. § 362(a)(3) (...
To continue reading
Request your trial