In re Phillips

• Decision Date: 27 March 2007
• Docket Number: Bankruptcy No. 05-34260 HCD.,Adversary No. 06-3061.
• Citation: 368 B.R. 733
• Parties: In the Matter of Ginger Kay PHILLIPS, Debtor. Ginger Kay Phillips, Plaintiff, v. City of South Bend, defendant.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

368 B.R. 733

In the Matter of Ginger Kay PHILLIPS, Debtor Ginger Kay Phillips, Plaintiff, v. City of South Bend, defendant.

Bankruptcy No. 05-34260 HCD.

Adversary No. 06-3061.

United States Bankruptcy Court, N.D. Indiana, South Bend Division.

March 27, 2007.

Loraine P. Troyer, Esq., Goshen, IN, attorney for plaintiff.

Ann-Carol Nash, Esq., Assistant City Attorney, South Bend, IN.

MEMORANDUM OF DECISION

HARRY C. DEES, JR., Bankruptcy Judge.

Before the court is the Motion for Summary Judgment filed by the City of South Bend ("City"), defendant in this adversary proceeding. It moves for summary judgment in its favor on the Complaint filed by Ginger Kay Phillips ("Phillips" or "debtor"), chapter 7 debtor and the plaintiff in this case. The debtor filed a brief on the Complaint and a Response Brief and Answer to the Motion for Summary Judgment. The court then took the motion under advisement. For the reasons that follow, the court grants the City's Motion for Summary Judgment.

Jurisdiction

Pursuant to 28 U.S.C. § 157(a) and Northern District of Indiana Local Rule 200. 1, the United States District Court for the Northern District of Indiana has referred this case to this court for hearing and determination. After reviewing the record, the court determines that the matter before it is a core proceeding within the meaning of § 157(b)(2)(0) over which the court has jurisdiction pursuant to 28 U.S.C. §§ 157(b)(1) and 1334. This entry shall serve as findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52, made applicable in this proceeding by Federal Rules of Bankruptcy Procedure 7052 and 9014. Any conclusion of law more properly classified as a factual finding shall be deemed a fact, and any finding of fact more properly classified as a legal conclusion shall be deemed a conclusion of law.

Background

On July 27, 2006, in their Stipulation of Facts, the parties presented uncontested facts that provide the background to this adversary proceeding. See R. 15.

Phillips filed a voluntary chapter 7 petition on August 3, 2005. At that time, she was the owner of record of three real properties in South Bend, Indiana. The property at issue here is real estate at 703 North Johnson, South Bend, Indiana ("the property").

The Department of Code Enforcement for the City issued numerous citations to Phillips for violations of Section 16-53 of the South Bend Municipal Code on that property.¹ The Ordinance Violation Citations set fines for public nuisance violations on her property.² See Ex. 1. The City then filed small claims suits against Phillips on February 15, March 24, and April 26, 2006, alleging that she committed the ordinance violations. See Ex. 2. On February 28, March 31, and April 27, 2006, the City issued Orders to Comply, directing Phillips to make the listed repairs to the property, and Notices of a potential $5,000 civil penalty pursuant to the Unsafe Building Act, Indiana Code 36-7-9-1 et seq., for the property. See Ex. 3.

Phillips recorded a quit-claim deed with the St. Joseph Recorder's Office on May 11, 2006, in an effort to transfer the property to Citifinancial Mortgage, the creditor holding the mortgage lien. See Ex. 4. Phillips then filed this adversary proceeding against the City on May 12, 2006, seeking a determination that the City cease any actions against Phillips to enforce property maintenance standards.

In the Stipulation of Facts, the parties report that Citifinancial Mortgage has not acknowledged transfer of the property by quit-claim deed or taken responsibility for maintaining the property. Counsel for both parties, the plaintiff Phillips and the defendant City, seek a determination that Citifinancial should take responsibility for maintenance of the property if it seeks to enjoy the benefits of ownership of the property. If, on the other hand, Citifinancial does not acknowledge the transfer of the deed or take responsibility for the property, counsel seek a determination that Citifinancial should release any lien it has on the property and allow Phillips to enjoy the benefits of ownership or transfer title to a person or entity that will repair and maintain the property. The parties further agree that, in order for justice to be served, Citifinancial should be made a party to this adversary proceeding.³

The plaintiff's Complaint asserts that Phillips surrendered her interest in the property to the secured creditor Citifinancial and has not had any control or possession of the property since the day she filed her voluntary petition on August 3, 2005.⁴ Counsel for the debtor sent a letter to the City, indicating that Phillips' interest in the property had been surrendered and that any liabilities related to the property had been discharged. When the City continued to pursue the claim against the debtor, counsel wrote another letter demanding that the City cease violating the bankruptcy discharge. The debtor's attorney then sent notice to the City of her intention to file an adversary proceeding. On April 27, 2006, the City obtained an Order to Comply and Notice of $5,000 Civil Penalty. That Order was set for hearing on May 16, 2006. The Complaint alleged that the City's actions to enforce property maintenance code standards violated 11 U.S.C. §§ 362 and 524(a)(2). The City filed its answer, denying all essential allegations of the Complaint. After a telephonic pre-trial conference was held on June 28, 2006, the parties were directed to file a Stipulation of Facts and briefs on the matter.

On September 1, 2006, the City filed its Motion for Summary Judgment. It argued that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. See R. 21.

The Memorandum in support of the motion relied on the Affidavit of Catherine M. Toppel, Director of the Department of Code Enforcement for the City. See R. 24. She stated that Department of Code Enforcement records indicated that Phillips was the owner of record of the property from September 24, 2004 until May 11, 2006. The property was the subject of many property maintenance code violations. The Code Enforcement Inspector "documented finding extremely unsanitary conditions in the yard at the Property, including discarded diapers, garbage and trash in a house that was occupied without utility service." R. 24 at 3 ¶ 8. The Affidavit continued:

9. Ms. Phillips and the occupant did not improve the conditions at 703 Johnson even after the City sent notices to abate the violations or be subject to further legal action. The same items documented in January were still present in March 2006.

10. The City has had to monitor, clean and maintain 703 Johnson since August 2005, and has not been paid for the work it has performed to do so.

11. In May 2006 I received a copy of a facsimile from Ms. Phillips' counsel forwarding a copy of a quit-claim deed purporting to transfer 703 Johnson to Citifinancial Mortgage.

12. Since the quit-claim deed was recorded, the City has had to continue to monitor and maintain 703 Johnson as before. The City has sent Citifinancial Mortgage notices, invoices for securing the property and other correspondence and has received no response.

. . .

15. The ongoing public nuisance at 703 Johnson creates a blight which affects the surrounding neighborhood and the City as a whole. If this blight is allowed in all cases where a property owner seeks debt relief, the City will be without recourse to protect the public health, safety and welfare.

R. 24 at 3-4.

The City, in its summary judgment memorandum, presented several arguments about which, it claimed, there is no genuine issue of material fact. First, it asserted that the automatic stay does not prohibit governmental action by a municipal corporation charged with executing laws to protect the health, safety, welfare and morals of the citizens. The City was carrying out that responsibility by enforcing its property maintenance codes with respect to a public nuisance. The Notices and Orders were issued pursuant to the City's police power, it contended. The City pointed to 11 U.S.C. § 362(b)(4), which expressly excepts from the automatic stay any governmental action to enforce the government's police and regulatory power. It insisted that the City's enforcement of its property maintenance standards is just such a governmental action and is a classic use of the city's police power. Its enforcement actions thus are excepted from the automatic stay under § 362(b)(4).

The City distinguished governmental actions to collect a debt (such as actions to collect ambulance bills), which are subject to the automatic stay, from actions to enforce orders to repair or to clean property, which are excepted from the stay. It argued that the test of police power is objective: If the purpose of the law being enforced is for public safety and welfare and is not pecuniary, then the governmental action is not stayed. In this action, the City's enforcement of property maintenance codes to protect public health, safety and welfare should not be stayed, it insisted.

The City also contended that the debtor's actions, in executing and recording the quit-claim deed, did not effectively transfer the property to Citifinancial, the mortgage company. Because Citifinancial did not accept the transfer, the ownership rights and responsibilities remained with Phillips, said the City.

The debtor responded that the City, by issuing ordinance violations against her personally, violated the automatic stay. She filed her chapter 7 bankruptcy on August 2, 2005, and received her discharge on November 7, 2005. On May 11, 2006, she transferred the property to Citifinancial by quit-claim deed, recorded it at the St. Joseph County Recorder's Office, and sent it to Citifinancial. Through her attorney, Phillips notified the City numerous times of its continued violations of the automatic stay, before and after the discharge of this case. Phillips...