In re Jean-Francois

• Decision Date: 29 September 2014
• Docket Number: No. 14–CV–434 (DLI).,14–CV–434 (DLI).
• Citation: 516 B.R. 699
• Parties: In re Jean S. JEAN–FRANCOIS, Debtor–Appellant.
• Court: U.S. District Court — Eastern District of New York

516 B.R. 699

In re Jean S. JEAN–FRANCOIS, Debtor–Appellant.

No. 14–CV–434 (DLI).

United States District Court, E.D. New York.

Signed Sept. 29, 2014

Affirmed. John W. Freeman, Attorney at Law, Jamaica, NY, Victor M. Wilson, Victor M. Wilson, P.C., Brooklyn, NY, for Debtor–Appellant.

MEMORANDUM & ORDER

DORA L. IRIZARRY, District Judge.

Debtor–Appellant Jean S. Jean–Francois appeals from an order of the United States Bankruptcy Court for the Eastern District of New York (“Bankruptcy Court”) entered on November 25, 2013, annulling the automatic stay that went into effect with Debtor–Appellant's chapter 13 bankruptcy filing on August 15, 2013, and from an order denying Debtor–Appellant's request for a continuance at the November 5, 2013 hearing on annulling the automatic stay. For the reasons set forth below, the Bankruptcy Court's decisions are affirmed.

On August 13, 2013, Debtor–Appellant attempted to file for chapter 13 bankruptcy in the Bankruptcy Court by filing a credit counseling certificate. He then sent a letter to Appellee indicating that he had filed for bankruptcy. ( Id. at 4.) However, as the filing did not have an actual bankruptcy petition attached to it, the Clerk of the Bankruptcy Court issued a Notice of Defective Filing. ( Id. at 4; Notice of Defective Filing attached to Notice of Appeal as Ex. 2.) Twenty minutes before the foreclosure sale, Debtor–Appellant learned of his mistake and refiled properly for chapter 13 bankruptcy giving effect to the automatic stay that attaches to all bankruptcy filings. (Br. of Debtor–Appellant at 4; Refiled Petition attached to Notice of Appeal as Ex. 3.) Meanwhile, Appellee went forward with the foreclosure sale and sold the property to a third party. (Br. of Debtor–Appellant at 4.) ²

On September 17, 2013, the Chapter 13 Trustee filed a Motion to Dismiss Debtor–Appellant's bankruptcy because Debtor–Appellant had failed to: 1) submit any monthly pre-confirmation payments to the Trustee; 2) file copies of pay statements from employers, written appraisals for properties, and lease agreements or affidavits from tenants; 3) provide the Trustee with his previous year's State and Federal Tax Returns; and 4) appear at the initial § 341 meeting of creditors. (Mot. to Dismiss ³ attached to Notice of Appeal as Ex. 4.)

On September 24, 2013, Appellee filed a Motion for Order Modifying and Annulling the Automatic Stay (“Motion for Relief from Stay”). (Mot. for Relief from Stay attached to Notice of Appeal as Ex. 5.) Debtor–Appellant responded to the Motion on October 29, 2013. (Affirmation in Opposition attached to Notice of Appeal as Ex. 8.) The Bankruptcy Court heard oral argument on the Motion on November 5, 2013, and issued a verbal order at oral argument followed by a written order on November 25, 2013 annulling nunc pro tunc the automatic stay to August 15, 2013, and allowing the foreclosure sale to go through. (Transcript of Mot. For Relief from Stay attached to Br. of Debtor–Appellant as Ex. A at 16–17; Order Annulling the Automatic Stay attached to Notice of Appeal as Ex. 10.) Debtor–Appellant also requested an adjournment at oral argument because he had retained new counsel only several days prior and new counsel wanted more time to familiarize himself with the case. The Bankruptcy Court denied Debtor–Appellant's request for an adjournment. (Transcript of Mot. For Relief from Stay attached to Br. of Debtor–Appellant as Ex. A at 9–10.) Debtor–Appellant timely filed a Notice of Appeal as to both rulings on December 9, 2013. (Notice of Appeal at 1–2.)

Debtor–Appellant asserts that the Bankruptcy Court erred in annulling the automatic stay because: 1) Appellee had constructive notice of the bankruptcy and automatic stay; ⁴ 2) Appellee lacked a clear interest in the property in need of protection that justified exempting it from the automatic stay; 3) Debtor–Appellant did not file the bankruptcy action in bad faith; 4) Debtor–Appellant may have had equity in the property; 5) the property was necessary for Debtor–Appellant's effective reorganization; 6) relief from the automatic stay would not have been granted prior to the stay violation; and 7) Appellee's position did not detrimentally change due to Debtor–Appellant's actions. (Br. of Debtor–Appellant at 10–17.) Debtor–Appellant also asserts that the Bankruptcy Court abused its discretion when it refused to adjourn the case in order to allow Debtor–Appellant, who had hired new counsel one week earlier, to submit a “proper opposition” to Appellee's Motion for Relief from Stay. (Br. of Debtor–Appellant at 17–18.) Debtor–Appellant concedes that failure to grant retroactive relief from the automatic stay would have caused unnecessary expense to the creditor. (Br. of Debtor–Appellant at 16.)

DISCUSSION

I. Standard of Review

Although the Second Circuit has addressed the standard of review for lifting automatic stays, it has not addressed directly the standard of review that should apply to decisions to annul automatic stays. Courts within this Circuit have reviewed these decisions for abuse of discretion. In re Marketxt Holdings, Corp., 428 B.R. 579, 585 (S.D.N.Y.2010) (citing to Sonnax Industries, Inc. v. Tri Component Products Corp. (In re Sonnax Industries, Inc.), 907 F.2d 1280, 1286 (2d Cir.1990) (bankruptcy court decisions to lift automatic stays should be reviewed for abuse of discretion)); Koutsagelos v. PII SAM, LLC, 2013 WL 2898120, at *3 (E.D.N.Y.2013), see also Schwartz v. Aquatic Dev. Grp., Inc. (In re Aquatic Dev. Grp., Inc.), 352 F.3d 671, 677–78 (2d Cir.2003) (bankruptcy court decisions to provide nunc pro tunc relief should be reviewed for abuse of discretion). Abuse of discretion “exists when a bankruptcy court's decision either ‘rest[s] on an error of law (such as application of the wrong legal principle) or a clearly erroneous factual finding’ or ‘cannot be located within the range of permissible decisions.’ ” Koutsagelos, 2013 WL 2898120, at *3 (quoting In re Aquatic Dev. Grp., Inc., 352 F.3d at 678).

Similarly, a bankruptcy court's decision whether or not to adjourn the case is also reviewed for abuse of discretion. Earl Realty, Inc. v. Leonetti (In re Leonetti ), 28 B.R. 1003, 1008 (E.D.Pa.1983) (citing to Lamb v. Globe Seaways, Inc., 516 F.2d 1352 (2d Cir.1975)). “This Court will affirm orders denying continuances unless there is a showing both of arbitrariness and of prejudice to the defendant.” Farias v. Instructional Systems, Inc., 259 F.3d 91, 100.

II. The Bankruptcy Court Did Not Err in Annulling the Automatic Stay

The Bankruptcy Court did not abuse its discretion when it annulled the automatic stay to August 15, 2013, as it applied the appropriate legal standard and made the correct factual findings.

Section 362(a)(1) of the Bankruptcy Code provides that the filing of a bankruptcy petition “triggers [an] automatic stay which protects the debtor from enforcement of pre-petition judgments obtained against the debtor or against property of the estate.” In re Bresler, 119 B.R. 400, 402 (Bankr.E.D.N.Y.1990) (citing to 11 U.S.C. § 362). “The automatic stay is ‘effective immediately upon the filing of the petition, and any proceedings or actions described in section 362(a)(1) are void ... if they occur after the automatic stay takes effect.’ ” Koutsagelos, 2013 WL 2898120, at *3 (quoting Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir.1994)). Therefore, a “foreclosure sale conducted after the commencement of the [b]ankruptcy [c]ase violates the automatic stay. This is true even if the party conducting the sale has no notice or knowledge that a petition in bankruptcy has been filed.” In re Bresler, 119 B.R. at 402.

However, a bankruptcy court may take certain measures, including order an annulment, to grant relief from the automatic stay. 11 U.S.C. § 362(d). “An ‘annulment’ of the automatic stay grants retroactive relief, thereby validating past proceedings or actions that would otherwise be deemed void.” Koutsagelos, 2013 WL 2898120, at *3. The Second Circuit has not set forth a test or specified particular factors that bankruptcy courts should use when evaluating whether to annul an automatic stay. In re Marketxt Holdings, Corp., 428 B.R. at 586; Koutsagelos, 2013 WL 2898120, at *4. “Rather, bankruptcy courts are advised to adopt a holistic approach, where ‘the facts of each [case] will determine whether relief is appropriate under the circumstances.’ ” Koutsagelos, 2013 WL 2898120, at *4 (quoting In re Mazzeo, 167 F.3d 139, 142 (2d Cir.1999)). In In re Stockwell, “the court set forth a list of factors courts should consider in determining whether circumstances are sufficiently compelling to warrant retroactive relief.” In re Marketxt Holdings, Corp., 428 B.R. at 587. The Stockwell factors recommend that courts examine:

(1) if the creditor had actual or constructive knowledge of the bankruptcy filing and, therefore, of the stay; (2) if the debtor has acted in bad faith; (3) if there was equity in the property of the estate; (4) if the property was necessary for an effective reorganization; (5) if grounds for relief from the stay existed and a motion, if filed, would likely have been granted prior to the automatic stay violation; (6) if failure to grant retroactive relief would cause unnecessary expense to the creditor; and (7) if the creditor has detrimentally changed its position on the basis of the action taken.

In re Stockwell, 262 B.R. 275, 281 (Bankr.D.Vt.2001).

Courts within this Circuit have relied on the Stockwell factors to determine whether to annul the automatic stay. See, e.g. In re Marketxt Holdings, Corp., 428 B.R. at 587; In re Cunningham, 506 B.R. 334, 343–44 (Bankr.E.D.N.Y.2014); In re Ebadi, 448 B.R. 308, 319 (Bankr.E.D.N.Y.2011); In re Pomerance, 2011 WL 1403034, at *4 (Bankr.S.D.N.Y.2011). In the instant case, the Bankruptcy Court relied on the first six Stockwell factors to determine that the stay should be annulled. (Transcript of...