In re Walker, Bankruptcy No. 88B-01380
| Decision Date | 30 September 1988 |
| Docket Number | Bankruptcy No. 88B-01380,Adv. No. 88PB-0356. |
| Citation | 91 BR 968 |
| Parties | In re Ralph L. WALKER, Debtor. Ralph L. WALKER, Plaintiff, v. Robert WILDE, Monty Higley and Jonnie Higley, Defendants. |
| Court | U.S. Bankruptcy Court — District of Utah |
Ralph L. Walker, Highlands Ranch, Colo., pro se.
Robert Wilde, John K. Rice, Midvale, Utah, for defendants.
Mary Ellen Sloan, Salt Lake City, Utah, Chapter 7 trustee.
THIS MATTER comes before the court upon several motions filed by the defendants Monty Higley and Jonnie Higley (Higleys), in this adversary proceeding.1 The motions alternatively request an order of annulment of the automatic stay, an order of relief from the injunction provided by 11 U.S.C. § 524, an order of nondischargeability, or an order of extension of time to file objections to dischargeability. This court has jurisdiction as set forth in 28 U.S.C. § 1334 and 28 U.S.C. § 157. The matters before the court are determined to be "core" as defined in 28 U.S.C. § 157(b). The Higleys' motions raise significant issues highlighting the conflict between the fundamental bankruptcy policy of a fresh start for debtors and the due process protection requirement that notice of a bankruptcy filing be given to creditors. Even though the Higleys' motions raise related issues, each motion is considered separately in this opinion. For the reasons set forth below, this court finds the statute and policy weigh in favor of the debtor and therefore denies the Higleys' motions.
The Higleys, through their counsel Robert Wilde, Esq. (Wilde), filed an action against the debtor, Ralph L. Walker (Walker), and others in the district court of the state of Utah in April of 1985. The complaint sought judgment against Walker for $3,950.00, plus interest and attorneys fees, for the alleged deceptive appropriation of funds from the Higleys by Walker. The allegations arose as a result of what the Higleys characterize as a consumer real estate transaction involving a mobile home. Walker was at that time a real estate licensee.
Walker filed a chapter 11 case in this court in February of 1986, temporarily halting the state court proceeding, but upon dismissal of the case, the Higleys pursued the existing state court action. The matter was set for trial on November 20, 1986. On November 19, 1986, Walker, who was not represented by counsel, telephoned Wilde's office, as well as the Clerk of the District Court of Cache County, to inform them that Walker intended to file bankruptcy and would not appear at the trial.
At the hearing before this court on the Higleys' motions, Wilde testified that it is his practice in similar circumstances to proceed to trial unless he has evidence by way of a case number or court notice that a bankruptcy filing has actually occurred. Wilde did, in fact, proceed to trial in this case because Walker only said he was going to file — not that he had filed. Walker contends he was told by the Clerk of the State District Court that there would be no trial. Nonetheless, the next day, the court held trial on the merits of the case in Walker's absence. Wilde proffered to the court testimony to establish Walker's liability. The court accepted the uncontested proffer and orally entered judgment in favor of the Higleys in the amount of $3,950.00 plus fees, costs and interest of $2,975.35.
The following day, November 21, 1986, Walker filed a chapter 7 petition in the United States Bankruptcy Court for the District of Colorado, appearing in that matter pro se. After some difficulty in filing the appropriate documentation with the court, Walker successfully filed all required pleadings. He also provided mailing cards containing the names and addresses of his creditors which the court required under Colorado Local Rule 3(d) for its use in constructing a mailing matrix. At the hearing before this court, Walker testified that he listed in his schedules the debt owed to the Higleys.2 Walker also asserted that he included the Higleys in the mailing cards by notification to the Higleys in care of Robert Wilde, Esq., at 6925 Fort Union Boulevard, Suite 490, Salt Lake City, Utah 84047.3 The certified copy of the court's mailing matrix does not contain an entry for either Wilde or the Higleys. Wilde testified that neither he nor his clients received the bankruptcy court's notice dated January 22, 1987.
The relevant bar dates and hearings were set by the Colorado bankruptcy court and are pivotal to this evaluation. A meeting of creditors was held pursuant to 11 U.S.C. § 341 on February 12, 1987. The court set April 12, 1987, as the last date to file objections to the dischargeability of a debt pursuant to 11 U.S.C. § 523. Walker was issued a Chapter 7 discharge on June 26, 1987.
Meanwhile, back in state court in Utah, Wilde prepared findings of fact, conclusions of law and a judgment. Walker filed an objection to the pleading, claiming he notified the clerk of the court and Wilde's office that he was filing bankruptcy and generally denying his liability. He also denied that the transaction at issue involved real estate or his status as a real estate licensee, but rather pertained to a transaction under the auspices of a motor vehicle dealers license and the underlying bond. The state court judgment was entered notwithstanding Walker's objections on November 26, 1986, five days after the chapter 7 filing. The state court denied as untimely Walker's subsequent motion to vacate the judgment.
Walker, acting pro se, appealed the judgment to the Utah Supreme Court. The court ruled on March 3, 1988, that the judgment was void because of the intervening bankruptcy filing. The court further denied the Higleys' motion for rehearing. On May 23, 1988, the state district court entered an order vacating the judgment pursuant to the Supreme Court's ruling.
Before this court, Wilde testified that at the time of the state court trial, he anticipated collecting any subsequent judgment from the "Real Estate Recovery Fund" (recovery fund) created by Utah Code Ann. § 61-2a-1 to -12, (1986). The recovery fund is established from a fee charged to every person who applies for or renews a real estate sales agent's license. Recovery from the fund up to $10,000.00 is allowed when a final judgment is obtained against a real estate licensee based on fraud, misrepresentation or deceit in any real estate transaction.
Wilde proceeded to gather the necessary information to collect on the judgment from the recovery fund. He contacted Hickman Land Title Company, another creditor of Walker's, and was informed that Walker had, in fact, filed a bankruptcy petition in Colorado. Wilde's notes, entered into evidence, indicate that the title company told him, on February 26, 1987, the name of the bankruptcy court in which Walker filed, the case number, the address of the court in Colorado, and the name and address of Walker's chapter 7 trustee. Wilde unsuccessfully attempted to verify the information by contacting the bankruptcy court in Colorado by telephone. He inquired in writing on March 12, 1987, but did not receive written notice of the bankruptcy filing from the court until May 21, 1987.
Wilde petitioned the state court on July 8, 1987, for an order directing the State of Utah to pay his clients from the recovery fund. He alleged in the petition that Walker had filed bankruptcy in Colorado. On September 21, 1987, the state court granted the petition and the State of Utah paid the Higleys $3,950.00 from the fund. The Utah Code states that:
The license of any real estate licensee for whom payment from the fund is made under this chapter shall be automatically revoked. The licensee may not apply for a new license until the amount paid out on his account, plus interest at a rate determined by the Division of Real Estate with the concurrence of the commission, has been repaid in full. A discharge in bankruptcy does not relieve a licensee from the penalties and obligations of this section.
Utah Code Ann. § 61-2a-9 (1986) (emphasis added). As provided in section 61-2a-9, the State of Utah revoked Walker's real estate license without notice or a hearing.
On November 16, 1987, Walker initiated this adversary proceeding against both Wilde and the Higleys claiming a violation of the automatic stay provided in 11 U.S.C. § 362 and seeking damages under 11 U.S.C. § 362(h).4 On the defendants' motion, the Colorado bankruptcy court transferred venue to Utah.5
The Higleys first ask the court to annul the automatic stay and to retroactively validate the state court judgment entered after the bankruptcy petition was filed. As discussed above, the state court judgment was voided by the Utah Supreme Court. The Higleys set forth a two-pronged argument that 1) this case contains circumstances that should, in equity, constitute grounds for annulment, and 2) the Higleys acted in good faith, therefore, the judgment should be validated and the recovery from the state allowed.
The Higleys cite as authority In re Albany Partners, Ltd., 749 F.2d 670 (11th Cir. 1984), a case in which the court found that a bankruptcy petition was filed in bad faith and therefore granted retroactive relief from the stay and validated a prior foreclosure. In that case, the court interpreted 11 U.S.C. § 362 which, it is conceded, gives the bankruptcy court great latitude in fashioning appropriate relief from the automatic stay if the particular circumstances of the case are so egregious that exceptional relief is warranted. Id. at 675. The Higleys argue that such exceptional circumstances in this case include Walker's actions to "conceal" his chapter 7 filing by failing to properly list the Higleys on the mailing cards and by not providing sufficient verbal notice of the actual filing by failing to provide the case number to Wilde. Further, the Higleys contend that...
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