Leverette v. Cmty. Bank (In re Leverette)

• Decision Date: 25 September 2013
• Docket Number: ADV. NO. 12-05005-KMS,CASE NO. 11-51548-KMS
• Parties: IN RE: CLARENCE O'NEAL LEVERETTE, SR. DEBTOR CLARENCE O'NEAL LEVERETTE, SR. PLAINTIFF v. COMMUNITY BANK DEFENDANT
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Mississippi

IN RE: CLARENCE O'NEAL LEVERETTE, SR. DEBTORCLARENCE O'NEAL LEVERETTE, SR. PLAINTIFF v. COMMUNITY BANK DEFENDANT

CASE NO. 11-51548-KMS

ADV. NO. 12-05005-KMS

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF MISSISSIPPI

Dated: September 25, 2013

CHAPTER 13

MEMORANDUM OPINION

This matter came before the Court for trial on April 30, 2013, (the "Trial")¹ on the Adversary Proceeding Against Community Bank for an Order Requiring Turnover of Property or Alternatively for Contempt (Adv. Dkt. No. 1)² (the "Complaint")³ filed by Clarence O'Neal Leverette, Sr. ("Leverette" or "Debtor") and Answer and Affirmative Defenses (Adv. Dkt. No. 15). At Trial, John H. Anderson represented Leverette and Stephen E. Gardner represented Community Bank. At the conclusion of the Trial, the Court allowed the parties to submit supplemental briefs.⁴ After briefs were filed, the Court took the matter under advisement.

In sum, Leverette asserts that Community Bank willfully violated the stay imposed by 11 U.S.C. § 362⁵ when the bank repossessed his tractor after he filed bankruptcy and, despite having knowledge of the filing, the bank refused to return the same. Having considered the evidence and testimony at Trial,⁶ including the post-trial briefs submitted by the parties, the Court finds that Community Bank should be held in contempt for willfully violating the automatic stay and the Debtor should be awarded part, but not all, of the requested damages for the reasons set forth below.⁷

JURISDICTION

The Court has jurisdiction of the parties to and the subject matter of this adversary proceeding pursuant to 28 U.S.C. § 1334, notwithstanding that the Debtor's underlying bankruptcy case has been dismissed.⁸ This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). In re Martin, No. 08-50871-KMS, slip op. at 2 (Bankr. S.D. Miss. Sept. 30, 2011) (citing Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987)).

FINDINGS OF FACT

On July 8, 2011, Leverette, a former poultry farmer,⁹ filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code.¹⁰ Community Bank is a secured creditor with a lien on a 1999 C80 Case tractor (the "Tractor"), among other things.¹¹ Although disagreeing on the specific date, the parties do not dispute that Community Bank repossessed the Tractor.¹² Jay Swindle, Senior Vice President of Community Bank Ellisville, testified that on July 12, 2011, the same day that foreclosure was scheduled on Debtor's real property and the same day that the bank alleges the Tractor was repossessed, the bank's attorney received a call notifying him that Leverette had filed bankruptcy.¹³ According to Swindle, after receiving notice of the bankruptcy, the bank did not proceed with the scheduled foreclosure. Swindle maintained that the repossession agent hired by the bank had already picked up the Tractor at the time the bank learned of the bankruptcy. Despite knowledge of the bankruptcy filing and Leverette's plans topursue crop farming,¹⁴ the bank did not return Debtor's tractor.¹⁵ On November 7, 2011, almost four months after the repossession, the bank filed a motion for relief from the stay to enforce its rights against its collateral including the Tractor. (Dkt. No. 59). After several hearings, the Court entered an order lifting the automatic stay on January 25, 2012. (Dkt. No. 94). On February 3, 2012, Leverette filed his Complaint asserting that Community Bank violated the automatic stay when it failed to return the Tractor and that it should be held in contempt and sanctioned accordingly. (Compl., at 1). Community Bank raised numerous affirmative defenses in its answer; however, the only defenses pursued at Trial and in the post-trial briefs were the defenses of estoppel and failure to mitigate damages which will be discussed below.

CONCLUSIONS OF LAW

A. Standards Governing Violation of Section 362 and Civil Contempt

Once a bankruptcy petition is filed, an automatic stay arises prohibiting creditors from taking certain actions against the debtor or against property of the bankruptcy estate. 11 U.S.C. § 362; Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348, 354-55 (5th Cir. 2008). The automatic stay of § 362(a) operates as a stay of acts including "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" as well as "any act to create, perfect, or enforce any lien against property of the estate." 11 U.S.C. § 362(a)(3), (4) (emphasis added).¹⁶ The automatic stay is "one of the fundamental debtor protections provided by the bankruptcy laws." Midlantic Nat'l Bank v. New Jersey Dep't.of Envtl. Prot., 474 U.S. 494, 503 (1986) (citation omitted). It allows a debtor a breathing spell from its creditors and a chance for a fresh start. Templeton Mortg. Corp. v. Chestnut (In re Chestnut), 422 F.3d 298, 301 (5th Cir. 2005).

Only a party injured by a willful violation of the stay can recover damages. 11 U.S.C. § 362(k)(1). A willful violation

does not require a specific intent to violate the automatic stay. Rather, the statute provides for damages upon a finding that the defendant knew of the automatic stay and that the defendant's actions which violated the stay were intentional. Whether the party believes in good faith that it had a right to the property is not relevant to whether the act was "willful" or whether compensation must be awarded.

Brown v. Chesnut (In re Chesnut), 422 F.3d 298, 302 (5th Cir. 2005); see also Henkel v. Lickman (In re Lickman), 297 B.R. 162, 191 (Bankr. M.D. Fla. 2003) ("willfulness is established by the intentional commission of the violative act, regardless of whether the violator specifically intended to violate the stay") (internal quotations and citation omitted). The Fifth Circuit has established three elements of a willful violation: (1) the offending party must have known of the existence of the stay;¹⁷ (2) the offending party's acts must have been intentional; and (3) the offending party's acts must have violated the stay imposed by Section 362(a). See Young v. Repine (In re Repine), 536 F.3d 512, 519 (5th Cir. 2008).

A court may address violations of the automatic stay by exercising its civil contempt powers under 11 U.S.C. § 105(a).¹⁸ Milbank v. McGee (In re LATCL&F, Inc.), Nos. 3:99-CV-2953-R, 398-35100-HCA, 2001 WL 984912, at *5 (N.D. Tex. Aug. 14, 2001) (aff'g finding of civil contempt for violation of automatic stay); see In re Galloway, Adv. No. 09-01124-NPO, 2010 WL 364336, at *4 (Bankr. N.D. Miss. Jan. 29, 2010) (citing In re San Angelo Pro Hockey Club, Inc. 292 B.R. 118, 124 (Bankr. N.D. Tex. 2003)); see also Sanchez v. Ameriquest Mortg. Co. (In re Sanchez), 372 B.R. 289, 311 (Bankr. S.D. Tex. 2007) (automatic stay is self-executing injunction that constitutes order of bankruptcy court for contempt purposes); Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1189-1190 (9th Cir. 2003); Standard Indus., Inc. v. Aquila, Inc. (In re C. W. Mining Co.), 625 F.3d 1240, 1246 (10th Cir. 2010); In re Crum, 55 B.R. 455, 458-59 (Bankr. M.D. Fla. 1985); 3 Collier on Bankruptcy ¶ 362.12[2] (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2011). "The movant in a civil contempt proceeding must show by clear and convincing evidence that: 1) a court order was in effect; 2) the order required certain conduct by the respondent; and 3) that the respondent failed to comply with the order." In re LATCL&F, Inc., 2001 WL 984912, at *3 (citing Petroleos Mexicanos v. Crawford Enters., Inc., 826 F.2d 392, 400 (5th Cir.1987)). The Fifth Circuit has observed that "[j]udicial sanctions in civil contempt proceedings may, in a proper case, be employed for either or both of two purposes: to coerce the defendant into compliance with the court's order, and to compensate the complainant for losses sustained." Am. Airlines Inc. v. Allied Pilots Ass'n, 228 F.3d 574, 585 (5th Cir. 2000).

B. Analysis of Creditor Conduct

Community Bank attempts to justify its retention of the Tractor by arguing that neither Leverette nor his counsel specifically requested the return of the Tractor.¹⁹ However, "[w]hen a creditor receives actual notice of the filing of a case, the burden is on the creditor to ensure that the automatic stay is not violated." Roche v. Pep Boys, Inc., 361 B.R. 615, 623 (Bankr. N.D. Ga. 2008). "[I]f [the stay] has been violated prior to receipt of actual notice, the burden is on the creditor to reverse any such action taken in violation of the stay." Mitchell Constr. Co. v. Smith (In re Smith), 180 B.R. 311, 319 (Bankr. N.D. Ga. 1995). "The responsibility is placed on the creditor because 'to place the onus on the debtor . . . to take affirmative legal steps to recover property seized in violation of the automatic stay would subject the debtor to the financial pressures the automatic stay was designed to temporarily abate, and render the breathing spell from his creditors illusory."' Roche, 361 B.R. at 621 (citations omitted); see In re Lile, 103 B.R. 830, 837 (Bankr. S.D. Tex. 1989) aff'd, 161 B.R. 788 (S.D. Tex. 1993) aff'd in part sub nom. Matter of Lile, 43 F.3d 668 (5th Cir. 1994) ("Once a party is put on notice of a bankruptcy filing, he is under a duty to seek further information which should reveal the applicability and scope of the automatic stay.").

Numerous courts have held that a creditor's continued retention of property of the estate after notice of the bankruptcy filing is a violation of the automatic stay. Johns v. Nat'l Motor Credit, Adv. No. 10-05026-KMS, slip opn. at *6 (Bankr. S.D. Miss. Jan. 7, 2013) (citing Nissan Motor Acceptance Corp. v. Baker, 239 B.R. 484, 488 (N.D. Tex. 1999)); see Foust v. Seal (In re Foust), No. 98-50774 SEG, 98-5032 SEG, M198-00185, 2000 WL 33769159, at *4-6 (July 18, 2000) (post-petition retention of estate property without court authority following prepetitionseizure is violation of stay); Bankers Healthcare Grp., Inc. v. Bilfield (In re Bilfield), 494 B.R. 292, 301 (Bankr. N.D....