In re Zaber

• Decision Date: 11 May 1998
• Docket Number: Bankruptcy No. 98-33318 RCM-13.
• Citation: 223 BR 102
• Parties: In re Frank R. ZABER, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Texas

223 B.R. 102 (1998)

In re Frank R. ZABER, Debtor.

Bankruptcy No. 98-33318 RCM-13.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

May 11, 1998.

Alicia M. Dewey, Dallas, TX, for Debtor.

Edward D. Biggers, Dallas, TX, for GMAC.

MEMORANDUM OPINION

ROBERT C. McGUIRE, Chief Judge.

On April 28, 1998, came on to be heard the emergency motion of debtor Frank R. Zaber ("Debtor" or "Zaber") to hold General Motors Acceptance Corporation ("GMAC") in violation of the automatic stay, and for turnover of property of the estate.¹

The Court has jurisdiction over this proceeding,² which is a core proceeding.³ Following are the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rules 9014 and 7052. These findings of fact and conclusions of law memorialize, supplement, and amend those pronounced in open court on April 28, 1998.

Zaber leased a 1994 Chevrolet Lumina (the "Automobile") in 1994. In 1996, he purchased the Automobile and financed the purchase through GMAC. His monthly payment totaled approximately $352.24. Zaber kept his payments on the note to GMAC current for approximately four years. Debtor was current on his retail installment contract through January 1, 1998.

In January 1998, Zaber lost his job and informed GMAC of that fact on January 21, 1998. He fell behind in his car payments for the months of February and March. Zaber became employed again on March 23, 1998.

GMAC repossessed the Automobile on April 9, 1998, the date that the April payment was due.

On April 12, 1998, Debtor rented a replacement vehicle at $180 per week, which he was still renting on April 28, 1998. He needed the vehicle to get back and forth to work.

On April 15, 1998, Zaber filed a Chapter 13 proceeding and promptly notified GMAC and furnished proof of insurance to GMAC, with an effective date of March 1, 1998 and expiration date of September 1, 1998. There was no competent evidence in the record that GMAC had any legitimate concerns regarding Debtor's potential flight, concealment of the Automobile, or insurance coverage.

GMAC indicated it would not return the Automobile without payment of its prepetition claim for repossession and storage fees totaling $346.40. While protesting, Debtor, through his attorneys, agreed to pay same off at $100 per month, and GMAC agreed to this payment. Debtor's plan was not due until April 30, 1998.

The breakdown in negotiations occurred thereafter on approximately April 21, 1998, over the proposed agreed order GMAC furnished to Debtor' attorneys, wherein, among other things, GMAC required the debt to be scheduled at $7,528, the value of the Automobile to be found at $8,425, a payout term of twenty-four months at 10.25% interest,⁴ with adequate protection disbursements of 1.50%. Such order was a "drop dead order," which further provided that, if Debtor failed to make the monthly repossession/storage payment, or Trustee, or adequate protection disbursements or failed to maintain insurance, then, on ten-days warning and opportunity to cure, the stay would lift, if there was no cure. There were to be three such opportunities to cure and the stay thereafter would automatically lift upon GMAC filing a certificate of default.

Debtor's attorneys regarded the proposed order as an overreaching attempt by GMAC⁵ to hold the Automobile hostage to allegedly unfairly negotiate a full plan when the case was in its infancy. In its last correspondence, GMAC indicated a willingness "to work out an agreed order."

Debtor's attorneys seek approximately $4,400 in attorney fees and costs, under § 362(h), for prosecution of this matter, plus rental expense of Debtor's rental of a replacement vehicle. Approximately $2,500 of such fee was attributable to research. An original and supplemental brief was furnished by Debtor's counsel.

A relatively routine fact scenario has become a "cause celebre."

At the hearing on April 28, 1998, GMAC was ordered to turnover the Automobile within twenty-four hours, Debtor was ordered to pay off the repossession and storage charges of $364.40 at $100 per month beginning May 6, 1998, and monthly thereafter until paid in full, and Debtor was ordered to keep current insurance in effect, and it was further ruled that the balance of the matter would be addressed by further findings and conclusions, which are those contained herein.

Discussion

There are numerous cases addressing this specific issue. The case of GMAC v. Ryan, 183 B.R. 288 (M.D.Fla.1995), focuses the issue: "There is no argument, however, of the right of the creditor to protection. The question here is who has the duty to seek that protection." Id. at 289. See § 363(e).

There is a split of authority on this issue. Both sides of the dispute have relied upon United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983).

In In re Sharon, 200 B.R. 181 (Bankr. S.D.Ohio 1996), a Chapter 13 case, the court discusses the interplay between §§ 362, 363 and 542(a).

The critical language under scrutiny for purposes of the present analysis is found in § 362(a)(3). Once a bankruptcy petition has been filed, § 362(a)(3) prohibits a creditor from taking "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." 11 U.S.C. § 362(a)(3) (emphasis supplied). This clause was added as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984 (the "1984 Amendments") to the then existing language of § 362(a)(3) which stayed "any act to obtain possession of property of the estate or of property from the estate." The amendment was designed to broaden the scope of the stay. Collier\'s Bankr.Manual, ¶ 362.03 at 361-19, 362-20 (3rd Ed.1989). The 1984 Amendments expanded the proscription of § 362(a)(3) to encompass acts which "exercise control" over property of the estate in addition to affirmative acts to "obtain possession" of such property.

This court holds that the phrase "exercise control" encompasses acts of a creditor in denying a chapter 13 debtor possession and use of a debtor\'s vehicle when the return of the property has been requested. As the phrase implies, actual possession consists of the exercise of dominion or control over property. See In re Knaus, 889 F.2d 773 (8th Cir.1989); Carr v. Security Savings & Loan Association, 130 B.R. 434 (D.N.J.1991); In re Dungey, 99 B.R. 814 (Bankr.S.D.Ohio 1989). It is uncontroverted that in this case TranSouth exercised control over the Vehicle and denied the Debtor possession and use of estate property when it repeatedly refused to return the Vehicle.

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To demonstrate how Congress could have provided a specific requirement compelling a debtor, rather than a creditor, to take affirmative action and file the first pleading, see § 363(c)(2)7 which governs the use of cash collateral and requires the debtor, rather than the creditor, to initiate a proceeding to obtain an order from the bankruptcy court.

Pursuant to § 363(e), an entity with an interest in the property used by the trustee or the debtor may request the court to prohibit or condition such use as is necessary to provide adequate protection of such interest. But in the absence of such a request, the debtor is free to use property of the estate (except cash collateral) without obtaining a court order and, certainly, without obtaining a creditor\'s permission. In enacting the Code, Congress chose to place the burden on the entity with an interest in the property to take affirmative action to restrict a debtor\'s use of property of the estate. This placement of an affirmative duty on the creditor, rather than the debtor, is consistent with the interpretation of § 362(a)(3) adopted by this court.

Like § 363, § 542(a)8 titled "Turnover of property to the estate" requires no preliminary action on the part of the debtor. The statute contains no provision requiring adequate protection as a prerequisite to turnover. Under § 542(a), an entity in possession, custody or control of property that the debtor or the trustee may use, sell or lease under § 363 "shall" deliver such property to the trustee unless such property is of inconsequential value or benefit to the estate. 11 U.S.C. § 542(a).

7 11 U.S.C. § 363(c)(2) provides:

The trustee may not use, sell, or lease cash collateral under paragraph (1) of this subsection unless —

(A) each entity that has an interest in such cash collateral consents; or

(B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section.

8 11 U.S.C. § 542(a) provides:

Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.

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This court suggests that the analysis of Whiting Pools employed by the majority line of cases is appropriate in connection with automatic stay and adequate protection issues and consistent with this court\'s interpretation of § 362(a)(3). It should be noted that Whiting Pools involved a § 542 turnover analysis, and not a § 362 automatic stay analysis and the Court did not hold that a secured creditor\'s determination of adequate protection is a prerequisite to turnover.

A critical fact in Whiting Pools is that the IRS moved for relief from stay before the debtor moved for turnover pursuant to § 542. Any prerequisite to turnover was determined by the bankruptcy court, not the creditor, and only after the court made a determination that the seized property was property of the estate and refused to lift the stay. . . .

The determinative distinction between the factual

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