Matter of Bluford, Bankruptcy No. 83-00456-W-13

• Decision Date: 01 May 1984
• Docket Number: Adv. A. No. 83-1223-W-13.,Bankruptcy No. 83-00456-W-13
• Citation: 40 BR 640
• Parties: In the Matter of Henry BLUFORD, and Johnnie M. Bluford, a/k/a Mildred Bluford, Debtors. Henry BLUFORD, and Johnnie M. Bluford, Plaintiffs, v. FIRST FIDELITY MORTGAGE CO., and Tyrus L. Frerking, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Missouri

40 B.R. 640 (1984)

In the Matter of Henry BLUFORD, and Johnnie M. Bluford, a/k/a Mildred Bluford, Debtors Henry BLUFORD, and Johnnie M. Bluford, Plaintiffs, v. FIRST FIDELITY MORTGAGE CO., and Tyrus L. Frerking, Defendants.

Bankruptcy No. 83-00456-W-13, Adv. A. No. 83-1223-W-13.

United States Bankruptcy Court, W.D. Missouri, W.D.

May 1, 1984.

Kelly P. Finn, Legal Aid of Western Mo., Kansas City, Mo., for plaintiffs.

Alan E. South, Crews, Milliard & South, P.C., Kansas City, Mo., for defendant First Fidelity Mortg. Co.

Bernard B. Levine, Levine & Gamm, P.C., Kansas City, Mo., for defendant Tyrus L. Frerking.

ORDER GRANTING DEFENDANT'S JOINT MOTION FOR SUMMARY JUDGMENT

DENNIS J. STEWART, Bankruptcy Judge.

The within action was filed by the plaintiff debtors as a "complaint to set aside foreclosure sale and cancel deed as a fraudulent transfer" in respect of a foreclosure and sale of debtors' residential property during a period of time after these chapter 13 proceedings were dismissed and before they were reinstated on motion of the chapter 13 trustee.

Although the defendants, in their answer to the complaint of the plaintiff, deny the plaintiff's assertion that the bankruptcy court has jurisdiction of this action "by virtue of 28 U.S.C.A. § 1334," this court construes this only as a denial that this court has jurisdiction under that particular statute.¹ This construction is supported by the fact that the defendants have since sought to present this action on its merits to this court by moving for summary judgment pursuant to Rule 7056 of the Rules of Bankruptcy Procedure. If there is any question concerning jurisdiction, however, this court can only, under the current circumstances, transfer this action to the district court with a report and recommendation for judgment.²

The following facts, otherwise, are established by the pleadings in this action:

1. Plaintiffs filed their petition for relief under chapter 13 on February 23, 1983.

2. They then scheduled lot 85 and the north 80 feet of lot 86, Prospect Vista, commonly known as 5636 Bellefontaine, Kansas City, Missouri, as their residential property, subject to a valid and perfected security interest of the defendant First Fidelity Mortgage Company.

3. A plan of arrangement was confirmed on May 2, 1983.

4. On August 2, 1983, the chapter 13 trustee moved to dismiss the chapter 13 proceedings because plaintiffs were in default in making payment under the confirmed plan. On August 27, 1983, the court granted this motion and dismissed the chapter 13 proceedings.

5. On September 1, 1983, plaintiffs filed a motion to alter or amend the order of dismissal. The court entered an order on September 20, 1983, reinstating the plaintiffs\' plan on condition that they cure all defaults within seven days, which they failed to do.

6. A foreclosure sale of the abovementioned residential property was conducted on October 13, 1983, at which the defendant Frerking was the sole bidder and purchased the property for a price of $8,418.63. The trustee\'s deed was the same date issued to the defendant Frerking.

7. On November 18, 1983, the chapter 13 trustee moved to set aside this court\'s order of dismissal³ and reinstate the chapter 13 proceedings.

8. The proceedings were reinstated by the court on November 22, 1983.

The plaintiffs, contending that they had a considerable equity in the premises,⁴ now seek to have the foreclosure sale nullified and undone on the grounds that it was a fraudulent transfer made within a year of the commencement of their chapter 13 case.⁵ As noted above, the defendants have moved for summary judgment in their favor. This court believes their motion to be meritorious on the issue of whether the transfer is now avoidable as a fraudulent transfer or a preference. The foreclosure, as the uncontested facts established by the pleadings demonstrate, did not take place prior to the commencement of a chapter 13 case, but rather after its dismissal and before its reinstatement under circumstances, as detailed below, which were equivalent to a grant of relief from the automatic stay for the purpose of accomplishing the foreclosure. With the dismissal of the case on September 28, 1983, upon the debtors' failure to cure all defaults,⁶ the automatic stay was terminated. See section 362(c) of the Bankruptcy Code.⁷ It does not, as do certain other stays, continue in effect for ten days following the order of dismissal. See In re De Jesus Saez, 721 F.2d 848 (1st Cir.1983).⁸ Accordingly, at the time the foreclosure sale took place, neither the automatic stay nor any other stay or injunction was in effect. The debtors did not then seek to refile or reinstate their chapter 13 case or seek an injunction or restraining order from the bankruptcy court. In fact, they took no action at any time. Had they done so, the new proceeding would likely have been dismissed as an effort, in effect, to reinstate the former proceeding without obtaining leave of court, a rule which is invoked particularly for the purpose of preventing unwarranted interference with foreclosure proceedings and other creditor actions which can take place after lifting of the automatic stay.⁹ The later reinstatement of the case, granted by the court purely as a matter of grace and not of right, cannot be regarded as the commencement of a proceeding for the purpose of § 548, supra.¹⁰ The fact that reinstatement of a chapter 13 case on motion of the chapter 13 trustee does not equal the commencement of a case for the purpose of recovery of a fraudulent transfer under § 548 or a preference under § 547 of the Bankruptcy Code is made clear by the letter of those respective sections. That letter, in both sections, equates commencement with "the date of the filing of the petition."¹¹ "Petition" clearly has reference to the petition for relief filed by a debtor under title 11 of the United States Code and not to any subsequent application, petition, or motion for relief. And, in this case, in fact, the motion which resulted in the reinstatement of the chapter 13 proceedings was not filed by the debtor, but rather by the chapter 13 trustee. Accordingly, because the transfer which is the subject of this action was not made "before the date of the filing of the petition" (emphasis added) within the meaning of §§ 547 and 548, supra, it cannot be considered as one possibly coming within either section.

The plaintiff protests that such a holding as this can only delay the inevitable; that it is still within his power voluntarily to dismiss these chapter 13 proceedings and refile them by actually filing a new petition in order to be able to challenge the transfer as fraudulent or preferential.¹² It is perhaps to forestall such potential abuse of the chapter 13 proceedings that some courts have held that a chapter 13 debtor does not have the avoiding powers of a trustee.¹³ The rule appears to have some appropriate application in chapter 13 proceedings in which the debtor retains possession of the "property of the estate" and its recovery is therefore not for the purpose of benefitting or protecting creditors.¹⁴ This court previously permitted chapter 13 debtors to exercise the avoiding power of a trustee when the challenged transfer had been involuntary and the circumstances of the case demonstrated that, after attempting to prevent the transfer, the debtors quickly engaged the processes of the bankruptcy court.¹⁵ These circumstances do not appear to exist in this case. Nor need the court conduct a hearing to determine whether these circumstances exist when, for the reasons stated above, the transfer is not recoverable either under §§ 547 or 548. When the law prohibits the repeated filing of dismissed cases for no other reason that to frustrate a foreclosure, the court need not, in this case, postulate the possibility that the debtors could grant themselves standing to challenge those transfers, simply by dismissing these proceedings and refiling them.

This is not to say that the debtors do not have standing under the state law to bring a suit in equity to set aside the foreclosure sale by showing either "gross inadequacy" of price or else simple inadequacy of price together with other "invalidating factors." Jackson v. Klein, 320 S.W.2d 553, 559 (Mo.1959); Blades v. Ossenfort, 481 S.W.2d 531, 536 (Mo.App. 1972); Matter of Fountain, 32 B.R. 965, 968, nn. 8, 9 (Bkrtcy.W.D.Mo.1983). The case at bar, in which the plaintiffs refer only to the inadequacy of price, without mention of any other invalidating factors, cannot be regarded as having any res judicata effect on their right to bring in equity in a state court under state law. And, further, under any theory of bankruptcy court jurisdiction, now that the property in question can no longer be considered property of the chapter 13 estate, the bankruptcy court cannot be considered to have jurisdiction of any action to set aside the foreclosure sale.¹⁶ The debtors, by reason of their current inability to recover under §§ 548 or 547 of the Bankruptcy Code can lay no claim to any right to be heard on this issue in the bankruptcy court. But they may file it in an appropriate state court.

Accordingly, for the foregoing reasons, it is hereby

ORDERED AND ADJUDGED that the defendants' motion for summary judgment be, and it is hereby, granted and the within complaint for relief is accordingly denied.

1 As such, it may be a negative pregnant with an admission that jurisdiction in the bankruptcy court is proper.

2 The current enactment governing bankruptcy court jurisdiction, S. 2507, which extended the transition provisions from March 31, 1984, to April 30, 1984, appears to resurrect the same bankruptcy court jurisdictional statute which was stricken down in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), as being within the jurisdiction of only an Article III court. For the effect of section 404(b) of...