In re Meadows

• Decision Date: 07 January 2008
• Docket Number: No. 06-30887.,06-30887.
• Citation: 379 B.R. 737
• Parties: In re Janice B. MEADOWS, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

379 B.R. 737

In re Janice B. MEADOWS, Debtor.

No. 06-30887.

United States Bankruptcy Court, S.D. Ohio, Western Division at Dayton.

January 7, 2008.

COPYRIGHT MATERIAL OMITTED

Lester R. Thompson, Dayton, OH, for Debtor.

Decision on Order Granting Motion for Sanctions Under 11 U.S.C. § 362(k)(1) and Ordering Other Matters

GUY R. HUMPHREY, Bankruptcy Judge.

The issues in this contested matter are whether Buckeye Check Cashing, Inc., dba CheckSmart ("Buckeye") willfully violated the automatic stay provided by 11 U.S.C. § 362(a) and, if so, what is the appropriate remedy for such a violation. Specifically, the stay violation issue is whether Buckeye's retention of funds received from the postpetition presentment of a Chapter 13 debtor's check constitutes a willful violation of the automatic stay once Buckeye received notice of the bankruptcy. This court has jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334 and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (E) and (0).

Findings of Fact

Buckeye's business provides short-term loans to individuals at high effective interest rates. Cf. Brewer v. QC Fin. Svcs. Inc. (In re Brewer), 313 B.R. 795, 796 (Bankr.E.D.Wis.2004). The loan is paid by a post-dated check provided by the borrower for the principal and the fees the entity charges for the loan. Id. In this contested matter, the Debtor, Janice B. Meadows ("Meadows"), entered into a loan transaction on April 9, 2006 and agreed to pay $460 by April 23, 2006. Joint Exhibit A. The interest rate was calculated and disclosed on the contract to be at an annual percentage rate of 391.07%. Id. The parties agree the post-dated check provided by Meadows (the "check") constituted a negotiable instrument (Doc. 47, ¶ 3).

On April 16, 2006, one week before the loan was due to be re-paid, Meadows filed her petition for relief under Chapter 13 of the Bankruptcy Code (Doc. 1). The Notice of the Bankruptcy was issued by the Clerk on April 20, 2006 (Doe. 8) and filed on April 22, 2006 (Doc. 9; Doc. 47, ¶ 6). The Bankruptcy Noticing Center served the notice by regular mail on April 22, 2006 (Doc. 9; Doc. 47, ¶ 7). On April 23, 2006, Buckeye negotiated the check consistent with the April 9, 2006 loan documentation (Doc. 47, ¶ 8).

It is undisputed that Buckeye was scheduled on Schedule F as having an unsecured non-priority claim for $460 (Doc. 1). Buckeye was scheduled and noticed at an address of 4212 Linden Avenue, Dayton, Ohio 45432-3020 (Doc. 1), an address at which Pagle Helterbrand, Vice President of Corporate Operations for Buckeye ("Helterbrand"), testified that Buckeye has transacted business at all relevant times (Doc. 54, p. 35). However, Helterbrand testified that Buckeye did not receive notice of the bankruptcy at that time (Doc. 54, p. 24). On June 5, 2006, Meadows' counsel sent a letter to Buckeye at that address noting the Chapter 13 filing and seeking a return of the $460 received by Buckeye from the negotiation of the check (Joint Exhibit B) (the "funds"). The June 5, 2006 letter erroneously listed the amount of the check as being $510, instead of $460 (Joint Exhibit C).

On June 11, 2007, about one year after Meadows' counsel sent the demand letter to Buckeye, Meadows filed a motion requesting the court find that Buckeye violated the automatic stay and seeking unspecified damages (the "Stay Violation Motion") (Doc. 29). The Stay Violation Motion, unlike the bankruptcy notice and June 5, 2006 letter, was sent to four different addresses, which Meadows' counsel apparently thought were addresses of Buckeye, including a Texas address. Helterbrand testified that Buckeye received the motion on June 26, 2007 as a result of it having been faxed to it by an unrelated entity in Texas (Doe. 54, p. 24; Buckeye Exhibit D).

Upon receiving the Stay Violation Motion, Buckeye made multiple attempts through a paralegal in Buckeye's in-house legal department, Ms. Serena McCoy, to contact Meadows' bankruptcy counsel to offer payment of $510 to Meadows as a refund of the funds obtained through the negotiation of the check (Buckeye Exhibit E; Doc. 54, p. 25-27). After attempts to contact Meadows' counsel flied, Ms. McCoy, on August 15, 2007, sent a letter to Meadows' counsel offering payment of $510¹ with the condition that Meadows sign a general release, releasing Buckeye from all liability and agreeing to withdraw the Stay Violation Motion (Joint Exhibit C). Helterbrand testified that Buckeye's offers to return the funds obtained through negotiation of Meadows' check were always conditioned on Meadows signing the general release (Doc. 54, p. 31). Meadows has not agreed to this condition and the funds continue to be held by Buckeye.

Buckeye filed an objection to the Stay Violation Motion (Doc. 34), noting that it had no prior notice of the bankruptcy or the June 5, 2006 letter (except as an attachment to the Stay Violation Motion), the actions of Buckeye of retaining the funds were excepted from the automatic stay by virtue of 11 U.S.C. § 362(b)(11)², and, even if not, no willful or intentional actions were taken by Buckeye that could give rise to damages under 11 U.S.C. § 362(k)(1)³.

Legal Issues Presented

The legal issue presented to the court for resolution is whether Buckeye has willfully violated the automatic stay of the Bankruptcy Code, 11 U.S.C. § 362(a), by retaining the funds received from the presentment of Meadows' check after it received notice of Meadows' bankruptcy case.

Meadows concedes that the check was a negotiable instrument and that by virtue of § 362(b)(11), Buckeye did not violate the automatic stay by presentment of the check. However, Meadows argues that Buckeye willfully violated the stay once it received notice of her bankruptcy and did not return the funds to her bankruptcy estate and continues to violate the stay by retaining the funds. Meadows argues that Buckeye's offer to return the funds conditioned upon her signing and returning a general release in favor of Buckeye does not absolve Buckeye from responsibility for violating the stay.

Buckeye argues that its actions were protected by § 362(b)(11), added to the Bankruptcy Code as part of the Bankruptcy Reform Act of 1984⁴, which is a stay exception for presentment of a check, and that Meadows' sole remedy would be an adversary proceeding pursuant to § 549⁵ for the return of the funds as a postpetition transfer. Nevertheless, Buckeye has established that it has repeatedly offered to return the funds to Meadows, on the condition that Meadows sign and return the general release prepared by Buckeye. Buckeye argues that by virtue of § 362(b)(11) it was authorized to present the check for payment and that since that section authorized that conduct, the funds received from the negotiation of Meadows' check were not property of Meadows' bankruptcy estate. Buckeye argues that it offered the payment of the $510 on the condition of Meadows signing a general release simply to avoid Meadows need to file such an adversary proceeding.

Analysis

The Funds are Property of the Debtor's Bankruptcy Estate

Upon the filing of Meadows' Chapter 13 bankruptcy case on April 16, 2006, § 362(a) imposed a stay as to certain actions. In addition, § 541(a) created a bankruptcy estate consisting of the property interests described by § 541(a), subject to the exceptions and limitations provided by §§ 541(b) and (d).⁶ United States v. Whiting Pools, Inc., 462 U.S. 198, 205, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). Section 362(a)(3) operates as a stay of "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." However, § 362(b)(11) provides that the filing of a bankruptcy case does not operate as a stay of "the presentment of a negotiable instrument and the giving of notice of and protesting dishonor of such an instrument." As noted, Meadows has conceded that her check was a negotiable instrument and that Buckeye's presentment of her check for payment did not violate the stay by virtue of § 362(b)(11). However, Meadows argues that Buckeye is violating the automatic stay, particularly § 362(a)(3), by continuing to retain the funds after Buckeye received notice of her bankruptcy.

The scope of § 541(a)(1) is intended to be broad. Id. at 204-05, 103 S.Ct. 2309. In this case, the funds in Meadows' bank account on the date of the filing of her case were property of her bankruptcy estate pursuant to § 541(a)(1). Franklin v. Kwik Cash of Martin (In re Franklin), 254 B.R. 718, 721 (Bankr.W.D.Tenn.2000).

Buckeye has argued that the funds are not property of Meadows' estate because of the § 362(b)(11) stay exception. However, the transfer occasioned by the presentment of, the check did not occur until after the petition was filed. Guinn v. Oakwood Properties, Inc. (In re Oakwood Markets, Inc.), 203 F.3d 406, 407-08 (6th Cir.2000); and Franklin, 254 B.R. at 721. In Guinn, the Sixth Circuit adopted the date of honor as the date of transfer for checks presented on a post-petition basis, following Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992), which adopted that standard for prepetition preference causes of action. While § 362(b)(11) provides an exception to the automatic stay for presentment of checks, it does not provide an exception to the broad definition of property of the estate. Nor does § 541(b) or any other section of the Bankruptcy Code provide an exception to property of the estate for the funds held by Buckeye. Accordingly, the court finds that the funds in Meadows' bank account on the date of the filing of her bankruptcy ease, including the funds at issue in this contested matter, are property of the estate.

Buckeye's Retention of the Funds is a Violation of the Automatic Stay

Having found that the funds were property of Meadows' bankruptcy estate pursuant to § 541(a), once the check was presented and honored, can Buckeye, absent the...