In Re: Scott E. Nulik

• Decision Date: 08 December 2010
• Docket Number: No. 08-10673,No. 08-5257,08-10673,08-5257
• Parties: In re: SCOTT E. NULIK, STEPHANIE G. NULIK, Debtors. STEVEN L. SPETH, TRUSTEE, Plaintiff, v. 21st MORTGAGE CORPORATION, Defendant.
• Court: U.S. Bankruptcy Court — District of Kansas

IN RE: SCOTT E. NULIK, STEPHANIE G. NULIK, Debtors.STEVEN L. SPETH, TRUSTEE, Plaintiff,

v.21st MORTGAGE CORPORATION, Defendant.

No. 08-10673

No. 08-5257

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS

SIGNED December 08, 2010.

MEMORANDUM OPINION

The chapter 7 trustee Steven Speth asserts that defendant 21st Mortgage Corporation violated the automatic stay when it removed and sold a mobile home without first obtaining a court order lifting the automatic stay. He claims the estate was damaged because the Trustee was unable to rent the mobile home for four months. 21st Mortgage defends by asserting that 11 U.S.C. § 362(h)(1) operated to remove the property from the bankruptcy estate and therefore from the protection of the stay. It also contends that the Trustee has not satisfied his burden of proof on the damages caused by the alleged stay violation. The Court conducted a trial on this adversary proceeding on August 17, 2010, hearing testimony of the Trustee and a representative of 21st Mortgage, as well as receiving pre-trial briefs from the parties.¹ The Court is now ready to rule.²

Jurisdiction

This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O) over which this Court has subject matter jurisdiction.³

Preliminary Matters

The parties filed two motions prior to trial of this matter: (1) the Trustee filed a motion to strike;⁴ and (2) 21st Mortgage filed a motion in limine to exclude expert and opinion testimony regarding rental value.⁵ The Court disposed of 21st Mortgage's motion at the start of trial and tookthe Trustee's motion under advisement with the merits of the case.⁶ The Court therefore now addresses the Trustee's motion.

The Trustee moved to strike 21st Mortgage's defense under § 362(h)(1), specifically its defense that the mobile home was not property of the estate at the time 21st Mortgage took possession. The Trustee contends that the defendant first raised this defense in its trial brief and did not expressly plead that defense in its answer or the final pretrial order.⁷ The Trustee further submits that this defense is an affirmative defense that was required to have been previously pled. Both of these assertions may or may not be technically correct, but given the tortured procedural history of this adversary proceeding, the Court fails to see that any prejudice accrues to the Trustee if this "defense" is allowed.⁸

The Trustee's cause of action has morphed from a post-petition conversion of estate property to a stay violation. The parties will recall that the Trustee initially pled a cause of action in conversion and sought damages of $12,000 (the value of the mobile home), ⁹ but submitted a proposed journal entry of default judgment allowing the avoidance of a preference under § 547.¹⁰The Court inadvertently entered that journal entry, but granted 21st Mortgage relief from the judgment when it asserted that its registered agent had failed to forward the complaint to it.¹¹ In the final pretrial order, the Trustee changed his theory from conversion to a stay violation: the "defendant wrongfully took possession of the subj ect mobile home, post-petition, without obtaining stay relief and that the estate sustained damages.¹² As the Court determined on summary judgment, those damages amounted to the rent that the Trustee contends he could have charged for the mobile home during the period before 21st Mortgage removed it.¹³ 21st Mortgage now seeks to defend its actions by asserting that, under § 362(h)(1), the mobile home was no longer property of the estate and that 21st Mortgage was entitled to employ state law self-help to take possession of it without first obtaining a stay relief order.

The Court need not decide whether 21st Mortgage's § 362(h)(1) defense is an avoidance or affirmative defense that should have been pled in its answer under Fed. R. Civ. P. 8 and 12. As observed in Sender v. Mann: ¹⁴

An affirmative defense is different from a denial. An affirmative defense is a basis for denying liability even if the facts of a complaint are true, while a denial simply denies the facts of a complaint. Bobbitt v. Victorian House, Inc., 532 F.Supp. 734, 736 (N.D.Ill.1982). A defendant's denial of an element of an offense is not properly an affirmative defense but a denial. In re Kmart Corp, 318 B.R. 409, 413 (Bkrtcy.N.D.Ill. 2004). Sender contends that these affirmative defenses all rebut one or more elements of the prima facie case of a specific claim, and so are denials and not affirmative defenses. Sender argues that since the Freeborn defendants and the Leone defendants have already denied these claims, the affirmative defenses are redundant with the denials and should be stricken.

A defense should not be stricken "if there is any real doubt" about its validity, and "[T]he benefit of any doubt should be given to the pleader." Bobbitt, 532 F.Supp. at 736. Since it is often unclear whether a defendant should properly plead a argument as a denial or a defense, and because a defense not plead is waived, a "cautious pleader" will often err on the side of labeling an argument as a defense. Id. There is no reason to penalize such a mistaken pleading by granting a motion to strike. Id.

In addition, there is some authority for the proposition that the federal rules allow a defendant to plead an affirmative defense that is also a denial. See Best Foods v. General Mills, 59 F.Supp. 201, 203 (D.C.Del.1945), Chasan v. Mutual Factors, 3 F.R.D. 477, 478 (S.D.N.Y.1943), Allegheny County Sanitary Authorityv. U.S. E.P.A., 557 F.Supp. 419, 426 (W.D.Pa.1983). Most important, "[R]edundant allegations need not be stricken if their presence in the pleading cannot prejudice the adverse party." Id.¹⁵

Where, as here, the Trustee makes no showing that he is prejudiced by injection of the denial or "defense" that the mobile home is not property of the estate, ¹⁶ justice requires the lenient use of the Court's discretion in allowing the § 362(h)(1) "defense" to be tried.¹⁷ The Trustee's motion to strike is therefore denied. The Court now turns to the merits and trial of the Trustee's alleged stay violation.

Factual Background

Most of the facts that matter in this case, with the exception of evidence that might support a damage award, were deemed established on summary judgment. Because the Court ruled on that motion from the bench, we revisit those facts here, as supplemented with the evidence presented at trial.

Prior to her marriage to Scott Nulik, Stephanie Schwonkiller purchased a mobile home from a dealer who assigned her purchase money loan and security agreement to 21st Mortgage. 21st Mortgage properly perfected its security interest by evidencing its lien on the title of the mobile home on May 14, 2007. On March 31, 2008, the Nuliks filed this chapter 7 case. In the initial bankruptcy filings, Ms. Nulik stated her intention to surrender the mobile home as is required by § 521(a)(2)(A). She did not claim the mobile home as exempt. On April 21, 2008, 21st Mortgage wrote to the Trustee advising that the mobile home had been voluntarily surrendered and that it would take possession to protect its interests.¹⁸ The Trustee did not respond to the April 21 letter. On May 6, 2008, the Trustee conducted the first meeting of creditors. In late July of 2008, 21st Mortgage took possession of the mobile home, changed the locks, and moved the home off the mobile home park lot, all without filing a stay relief motion.¹⁹ On or about August 18, 2008, the Trustee sent his property manager to prepare the mobile home for rental or sale and the property manager discovered that the mobile home was missing. This is when the Trustee learned that 21st Mortgage had established possession and control over the mobile home.²⁰

When the Trustee discovered that the home had been taken by defendant without stay relief, he filed a motion for contempt on September 9, 2009.²¹ 21st Mortgage did not respond to the motion or appear, and Judge Somers granted it in open court on October 9, 2008.²² Thereafter, the Trustee sought to withdraw the motion and this Court entered an order doing so on October 17, 2008.²³ He then filed this adversary proceeding on October 22, 2008. The Trustee was granted default judgment in the amount of $12,750 on January 8, 2009. Thereafter, in May of 2009, 21st Mortgage sold themobile home for $15,000. It is unclear whether 21st Mortgage knew about the adversary proceeding at that time. On July 15, it sought relief from the default judgment and this Court set it aside at a hearing held on August 13, 2009. Counsel never submitted an order setting it aside, but 21st Mortgage filed an answer shortly thereafter.

The Trustee testified that he received prior to the § 341 meeting of creditors, the April 21 letter describing Nulik's "voluntary surrender" of the mobile home. He understood that 21st Mortgage claimed a lien in the mobile home and that 21st Mortgage was going to protect or secure its collateral. At the May 6 meeting of creditors, the Trustee obtained the keys from Ms. Nulik. He intended to rent the home as is his custom in administering estates.²⁴ Speth testified that, in his experience, trustees often rent mobile homes for short periods of time, four to six months, at a rate of $600-$800 per month. Sometimes the tenant actually buys the home. Speth says that after the April letter, he never heard further from 21st Mortgage. The Trustee testified that he could have rented this home for at least four months, from September to December of 2008 at a monthly rate of at least $600.

21st Mortgage's Chris Caldwell testified that he is the coordinator of the legal department for 21st Mortgage and oversees foreclosure and bankruptcy proceedings of its borrowers. He is informed as to the customary process for dealing with surrendered mobile homes. He stated that 21st Mortgage reviews statements of intention when debtors file bankruptcy and if the debtor states an intention to surrender, the company...