In re Salov, Case No. 13–37269 (CGM)

• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
• Writing for the Court: CECELIA G. MORRIS
• Citation: 510 B.R. 720
• Parties: In re: Marija Salov, Debtor.
• Decision Date: 06 June 2014
• Docket Number: Case No. 13–37269 (CGM)

510 B.R. 720

In re: Marija Salov, Debtor.

Case No. 13–37269 (CGM)

United States Bankruptcy Court, S.D. New York.

Signed June 6, 2014

[510 B.R. 724]

Law Offices of Rick Cowle, 95 Gleneida Ave., Carmel, NY 10512, Attorneys for the Debtor, By: Rick Cowle, Esq.

Fein Such & Crane, LLP, 28 East Main St., Suite 1800, Rochester, New York 14614, Attorneys for Federal National Mortgage Association, By: David Case, Esq.

Sandelands Eyet LLP, 1545 U.S. Highway 206, Suite 304, Bedminster, NJ 07921, Attorneys for Nationstar Mortgage, LLC, By: Matthew Eyet, Esq.

Chapter 13 MEMORANDUM DECISION FINDING A VIOLATION OF THE AUTOMATIC STAY AND AWARDING DAMAGES
CECELIA G. MORRIS, CHIEF UNITED STATES BANKRUPTCY JUDGE

The Debtor filed a motion for contempt by Order to Show Cause against Federal National Mortgage Association (“FNMA”) and Nationstar Mortgage, LLC (“Nationstar”) alleging a violation of the automatic stay pursuant to 11 U.S.C. § 362(a)(1) and 11 U.S.C. § 362(a)(3). The asserted violation arises from the issuance of a post-petition summons and complaint seeking a writ of assistance where the parties were notified of the bankruptcy filing. For the reasons set forth in this memorandum decision, the Court finds that a violation of the automatic stay did occur and awards damages.

Jurisdiction

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Amended Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(A) (matters concerning the administration of the estate); (G) (motions to terminate, annul, or modify the automatic stay).

Background^1,2

The Debtor resides at 750 Route 292, Holmes, N.Y. 12531 (“Property”). See

[510 B.R. 725]

Joint Stmt. ¶ 1, ECF No. 83. The Debtor's relatives, Sandy and Ante Salvo, mortgaged the Property. Id. The Debtor's relatives defaulted on their mortgage loan held by Nationstar. Id. ¶ 2–3. On January 16, 2013, Dutchess County Supreme Court granted a Judgment of Foreclosure and Sale. Id. ¶ 5, Ex. A. FNMA purchased the Property at a foreclosure sale on June 3, 2013. Id. ¶ 6, Ex. B. The Referee's Deed declared that the transfer of the Property to FNMA had the effect of “foreclosing the mortgage,” thereby terminating Nationstar's interest. Id. ¶ 7. In seeking possession of the Property, notices to vacate were served on July 3, 2013. Id. ¶ 8, Ex. C. A few months later, ten-day notices to quit were prepared and sent for service upon the occupants. Id. ¶ 10, Ex. D. The law firm of Fein, Such & Crane LLP (“Fein Such”) represented Nationstar in the foreclosure action and FNMA in the writ of assistance action (collectively, the “Creditors”). Id. ¶¶ 4, 9, 16.

On October 11, 2013, approximately one week after being served with the ten-day notice, the Debtor filed for chapter 13. Id. ¶ 12. On October 15, 2013, Debtor's counsel called Creditors' counsel advising them of the Debtor's filing. Id. ¶ 14. On October 16, 2013, Debtor's counsel sent an email advising Creditors' counsel of the same. Id. ¶ 15., Ex. E. On October 17, 2013, Nationstar, by its attorneys, filed a motion for a post-foreclosure writ of assistance and sent the same for service upon the Debtor. Id. ¶ 16, Ex. F. The caption of the motion named Nationstar as the plaintiff, even though its interest terminated on June 3, 2013. Id. ¶ 17, Ex. F. The body of the motion named FNMA as the party taking action. Id. Neither party applied to this Court for relief from the automatic stay.

On November 8, 2013, counsel for the Debtor faxed a letter to Creditors' counsel stating that Creditors were in violation of the automatic stay. Id. ¶ 18, Ex. G. On November 11, 2013, Creditors' counsel replied, outlining reasons why it believed the stay did not apply. Id. ¶ 19, Ex. H. Shortly thereafter, Debtor's counsel filed a Motion for Contempt by Order to Show Cause against Nationstar. See Pl.'s Mot. for Contempt, ECF No. 9. The Court signed the Order to Show Cause on November 14, 2013. See Order to Show Cause, ECF No. 10.

On November 18, 2013, Nationstar filed an objection to the Order to Show Cause. Nationstar argues that “nothing related to the subject property passed into the Bankruptcy Estate, and thus, no automatic stay applied.” See Opp'n, ECF No 12. Nationstar also argues that it should not be held in contempt since its interest terminated following the delivery of the Referee's Deed. Id. ¶ 28.

On November 19, 2013, Creditors' counsel withdrew its motion pending before the Dutchess County Supreme Court. See Joint Stmt. ¶ 21, Ex. I. Also on November 19, 2013, the Court held a hearing, found that the automatic stay was violated, and awarded actual damages. On November 25, 2013, the Court entered an order granting Debtor's Motion for Contempt and awarded $2,550.00 against Nationstar. See Order Granting Award for Actual Damages, ECF No. 20. On November 26, 2013, counsel for the Debtor filed an application for punitive damages. See Mot. to Approve Appl. for Award of Punitive Damages, ECF No. 24.

On December 6, 2013, Nationstar filed an objection to the Court order and opposition to the Debtor's application for punitive damages, arguing that FNMA and not Nationstar violated the stay. See Opp'n, ECF No. 26. At the January 15, 2014 hearing, the Court instructed counsel for the Debtor to file a Motion for Contempt by Order to Show Cause against FNMA.

[510 B.R. 726]

On January 31, 2014, Debtor's counsel filed a Motion for Contempt by Order to Show Cause against FNMA. See Mot. for Contempt, ECF No. 64. On February 5, 2014, the Court signed the Order to Show Cause. See Order to Show Cause, ECF No. 66. Debtor's counsel argues that FNMA violated § 362(a)(1) by commencing and continuing a judicial proceeding in state court against the Debtor. See Mot. for Contempt, ECF No. 64. Debtor argues that as result of the violation, Debtor's counsel was forced to file the current motion against FNMA as well as the prior Nationstar motion. Id. ¶ 19–21. Debtor's counsel argues that the Court should grant $5,050.00 for actual damages and additional punitive damages. Id.

On March 5, 2014, FNMA filed an objection and opposition to the Order to Show Cause. See Opp'n, ECF No 68. FNMA argues that actual and punitive damages should be denied since no possessory interest transferred into the estate and consequently no automatic stay applied. Id. ¶ 20–57. Alternatively, FNMA argues that any damages awarded should be offset and reduced between $7,238.70 and $26,427.79 due to Debtor not having paid to remain in the Property and FNMA's good faith belief that no possessory interest transferred. Id. ¶ 58–64.

At the March 11, 2014 hearing, the Court adjourned the contempt motions to May 6, 2014. The Court ordered the parties to submit a statement of undisputed facts and party briefs. See Joint Stmt. Nationstar maintains that under New York Real Property Law their interest terminated upon delivery of the Referee's Deed. See Mem. of Law, ECF 86. FNMA argues that the Property did not transfer into the bankruptcy estate pursuant to § 541. See Mem. of Law, ECF 87. Debtor continues to allege that the parties violated the stay by commencing and continuing a judicial proceeding in contravention of § 362(a)(1). See Mem. of Law, ECF. 85. Debtor also maintains that her “mere possessory” interest in the property passed into the estate pursuant to § 541. Id. Debtor's counsel requests actual damages in the amount of $7,635.00 and additional punitive damages. Id. ¶ 36, Ex. C.

Discussion I. The Automatic Stay

The filing of a bankruptcy petition invokes the powerful protection of the automatic stay under 11 U.S.C. § 362. The automatic stay is “one of the fundamental debtor protections provided by the bankruptcy code.” Eastern Refractories Co. Inc v. Forty Eight Insulations Inc., 157 F.3d 169, 172 (2d Cir.1998). It is effective immediately upon the filing of a bankruptcy petition without further action. Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir.1994). The filing also creates an estate consisting of “all legal or equitable interests of the debtor in property” at the time of filing as well as other property that may be recaptured during the bankruptcy. 11 U.S.C. § 541(a)(1); In re Methyl Tertiary Butyl Ether (MTBE) Prods. Liab. Litig., 522 F.Supp.2d 569, 576 (S.D.N.Y.2007). The scope of the stay is broad, encompassing “almost any type of formal or informal action taken against the debtor or the property of the [bankruptcy] estate.” 3 Collier on Bankruptcy ¶ 362.03 (16th ed. 2014).

a. Stay Violation under § 362(a)(1) of the Bankruptcy Code

Pursuant to § 362(a)(1), a bankruptcy petition operates as an automatic stay to “all entities of ... the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case....”

[510 B.R. 727]

11 U.S.C. § 362(a)(1); In re Best Payphones, Inc., 279 B.R. 92, 97 (Bankr.S.D.N.Y.2002) (stating that the stay is applicable to all entities, including litigants as well as non-bankruptcy courts) (citing and quoting Maritime Elec. Co. Inc. v. United Jersey Bank, 959 F.2d 1194, 1206 (3d Cir.1991)). There can be no question that the filing and serving of a writ of assistance is the commencement and continuation of a legal proceeding and a violation of § 362(a)(1). Butler v. Bellwest Mgmt. Corp. (In re Butler), 14 B.R. 532, 534 (S.D.N.Y 1981) (“Clearly an eviction proceeding is a judicial proceeding against the Debtor within s 362(a)(1)....”).

On June 3, 2013, FNMA purchased the Debtor's residence at a foreclosure sale. Joint Stmt. ¶ 6, Ex. B. On October 13, 2013, the Debtor filed for chapter 13. Creditors were informed of the bankruptcy proceeding on three separate occasions: i) the Bankruptcy Court noticed Nationstar of the commencement of the bankruptcy case by mailing the § 341 notice to its counsel, Fein Such; ii) Debtor's...