In re Meadows
| Decision Date | 12 November 2008 |
| Docket Number | No. 08-8005.,No. 08-8024.,08-8005.,08-8024. |
| Citation | 396 B.R. 485 |
| Parties | In re Janice B. MEADOWS, Debtor. Buckeye Check Cashing, Inc. d/b/a CheckSmart, Appellant, v. Janice B. Meadows, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Sixth Circuit |
ARGUED: Daniel M. Anderson, Schottenstein, Zox & Dunn Co., LPA, Columbus, OH, for Appellant.
Lester R. Thompson, Dayton, OH, for Appellee.
ON BRIEF: Daniel M. Anderson, Tyson A. Crist, Schottenstein, Zox & Dunn Co., LPA, Columbus, OH, for Appellant.
Before: GREGG, McIVOR, and PARSONS, Bankruptcy Appellate Panel Judges.
Buckeye Check Cashing, Inc. d/b/a CheckSmart ("Buckeye") appeals an order of the bankruptcy court holding that Buckeye violated the automatic stay when, after receiving notice of the Debtor's bankruptcy filing, it refused to unconditionally return funds received from the post-petition presentment of the Debtor's check. Because we conclude that the funds held by Buckeye were no longer property of the estate and that no stay violation occurred, we reverse the order of the bankruptcy court.
The issue presented by this appeal is whether a creditor willfully violates the automatic stay when, after it receives notice of a debtor's bankruptcy filing, it retains funds received from the post-petition presentment of a debtor's check and places conditions upon the return of the funds.
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Southern District of Ohio has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). The bankruptcy court's order determining that Buckeye violated the automatic stay is a final order. In re Perrin, 361 B.R. 853, 855 (6th Cir. BAP 2007).
Because there is no dispute regarding the facts, this appeal presents only legal questions. Conclusions of law are reviewed de novo. In re DSC, Ltd., 486 F.3d 940, 944 (6th Cir.2007). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (6th Cir. BAP 2007).
On April 9, 2006, Janice B. Meadows ("Debtor") obtained a $400 "payday" loan from Buckeye. In exchange for the $400 loan, the Debtor gave Buckeye a post-dated check for $460 to pay the principal of the loan plus interest. Buckeye agreed to hold the check until the later date of April 23, 2006.
On April 16, 2006, the Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code.1 Buckeye was listed on Schedule F as a creditor holding an unsecured, non-priority claim for $460. On April 22, 2006, the Bankruptcy Noticing Center served by first class mail a notice of the bankruptcy filing upon the scheduled creditors, including Buckeye at the Dayton, Ohio address listed on Schedule F. On April 23, 2006, Buckeye presented the Debtor's check for payment pursuant to the parties' loan agreement.
On June 5, 2006, counsel for the Debtor sent a letter to Buckeye at the address listed on Schedule F requesting an immediate refund of the funds received by Buckeye as a result of negotiation of the check. Debtor's counsel received no response to his letter and the funds were not returned. Nearly one year later, on June 11, 2007, the Debtor filed a motion seeking an award of compensatory and punitive damages, including attorney fees and costs, against Buckeye for its alleged violation of the automatic stay in presenting the check for payment and failing to return the funds to the Debtor (the "Motion"). Counsel for the Debtor sent the Motion to several addresses for Buckeye, including an address in Texas. Buckeye filed an objection to the Motion, asserting that it had not been aware of the Debtor's bankruptcy filing at the time it presented the Debtor's check for payment, and that it never received counsel's June 5, 2006 letter, except as an exhibit to the Motion. Buckeye further argued that while the post-petition presentment of a check may be avoidable pursuant to 11 U.S.C. § 549, it was not a violation of the automatic stay because of the exception provided by 11 U.S.C. § 362(b)(11).
The bankruptcy court held a hearing on November 29, 2007, at which the Debtor and Pagle Helterbrand ("Helterbrand"), Vice President of Corporate Operations for Buckeye, testified. According to Helterbrand, although Buckeye has an operating office at the address listed on Schedule F to which the Notice of Bankruptcy and the June 5, 2006 letter from Debtor's counsel were mailed, Buckeye did not receive those documents in the mail. Helterbrand testified that Buckeye's first notice of the Debtor's bankruptcy filing was when it was forwarded the Motion by fax from an unrelated check cashing business in Texas to which the Motion had been mailed.
Helterbrand also testified that after receiving the Motion, Buckeye's in-house legal department attempted to reach Debtor's counsel on numerous occasions without response. The in-house paralegal attempting to make contact then sent Debtor's counsel a letter on August 15, 2007, offering to return the funds in exchange for the Debtor's signature on a "General Release," which included withdrawal of the Motion. Because the Debtor refused to sign the release and Debtor's counsel refused to withdraw the Motion, Buckeye retained the funds.
On January 7, 2008, the bankruptcy court rendered its decision that Buckeye's retention of the funds after receiving notice of the Debtor's bankruptcy filing, along with the imposition of conditions upon their return, was a willful violation of the automatic stay entitling the Debtor to recover damages including attorney fees.2 The court entered an order requiring Buckeye to return the $460 and directing the Debtor to file a motion seeking approval of attorney fees within 30 days, which, subject to any objection of Buckeye on the issues of reasonableness and appropriateness, were to be paid by Buckeye as actual damages. Finding, however, that Buckeye did not engage in "egregious, intentional conduct," the court denied the request for punitive damages.
On January 17, 2008, Buckeye filed a notice of appeal and motion for stay pending appeal. The motion for stay was granted. On February 5, 2008, as ordered, the Debtor filed a motion for approval of $1,197.50 in attorney fees. Buckeye filed a limited response to the motion for approval, stating that it did not object to the reasonableness of the amount of fees sought, subject to its right to contest the underlying basis for the award. Based on that representation, the bankruptcy court granted the motion and ordered the fees to be held in escrow pending appeal. Buckeye then timely filed an amended notice of appeal, also appealing the order granting the motion for approval of attorney fees.
Upon the filing of a petition for relief, § 541(a) of the Bankruptcy Code creates an estate comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). Thus, the Debtor's checking account and all monies contained therein became "property of the estate" once her bankruptcy case was commenced. In re Pyatt, 486 F.3d 423, 427 (8th Cir. 2007); In re Davison, No. 07-32621, 2008 WL 471678, *4 (Bankr.E.D.Tenn.2008); In re Todd, 359 B.R. 863, 864 (Bankr. N.D.Ohio 2007). Additionally, the Debtor's bankruptcy filing gave rise to an automatic 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." In re Sharon, 234 B.R. 676, 681 (6th Cir. BAP 1999) (quoting 11 U.S.C. § 362(a)(3)). If the stay was willfully violated and the Debtor was injured by that violation, she "shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." 11 U.S.C. § 362(k)(1). However, to the contrary, § 362(b)(11) excepts from the stay "the presentment of a negotiable instrument and the giving of notice of and protesting dishonor of such an instrument." 11 U.S.C. § 362(b)(11).
Before the bankruptcy court, the Debtor conceded that her check to Buckeye was a negotiable instrument and that pursuant to § 362(b)(11), Buckeye's presentment of the check did not violate the automatic stay. The Debtor asserted, however, and the bankruptcy court agreed, that Buckeye's retention of the funds after it received notice of the bankruptcy filing was a violation of the automatic stay. According to the bankruptcy court, § 3 62(b)(11), by its plain language, only permits a creditor to present a negotiable instrument post-petition without violating the stay. It does not otherwise "effect or authorize a transfer" of property of the estate. (Appellant's App. at 120.) Citing this BAP's decision in Sharon for the proposition that "withholding of possession of property of the bankruptcy estate constitutes the exercise of control over property of the estate and is a violation of the automatic stay," and quoting the Sixth Circuit Court of Appeals' holding in Easley v. Pettibone Mich. Corp., 990 F.2d 905 (6th Cir.1993), that actions in violation of the stay "are invalid and voidable and shall be voided absent limited equitable circumstances," the bankruptcy court concluded that "[Buckeye's] act of retaining the funds received from [the] presentment of the check, despite notice of the bankruptcy, is considered void and Buckeye is obligated to return these funds to [the Debtor], without any condition." (Appellant's App. at 121...
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