Matter of Brown, Bankruptcy No. 97-40160
| Decision Date | 03 July 1997 |
| Docket Number | Bankruptcy No. 97-40160,Adversary No. 97-4034. |
| Parties | In the matter of Wilson Herman Lee BROWN, Debtor. Wilson Herman Lee BROWN, Plaintiff, v. JOE ADDISON, INC., Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Georgia |
Charles W. Bell, Savannah, GA, for Plaintiff.
William F. Hinesley, III, Savannah, GA, for Defendants.
Debtor's Chapter 13 case was filed on January 17, 1997. Prior to the filing of his Chapter 13 bankruptcy, on January 3, 1997, Debtor's vehicle was repossessed by agents of the Defendant, Joe Addison, Inc. The repossession resulted from Debtor's default in his making payments on a note payable to Defendant executed on September 19, 1996, for the purchase of a 1989 Jeep Cherokee. Debtor had traded in a 1987 Oldsmobile valued at $1,000.00, paid $650.00 cash down for the purchase of the vehicle and financed $8,000.00 on a note that required payments of $350.00 per month.
After the filing of the Debtor's Chapter 13, his attorney contacted an agent of the Defendant explaining that a bankruptcy case had been filed, and requested that the vehicle be returned to the Debtor. This request was refused and in response Debtor, through counsel, filed this adversary proceeding on February 14, 1997, seeking turnover of the vehicle, damages for its loss of use, and other relief. A timely answer was filed by Defendant's counsel on Defendant's behalf on April 15, 1997. On April 16 and again on May 29 status and pre-trial conferences were held and the matter was assigned for trial on June 20.
The evidence at trial revealed that following the filing of the adversary proceeding, because of concerns about possible vandalism, Defendant had one of its agents drive the vehicle from a lot where it was then located to one where additional security was available. In the course of the trip from one location to the next, the employee, who, unbeknownst to the Defendant, suffered from seizure disorders, was involved in an automobile collision and the car was totaled. It is therefore impossible for the Court to order return of the vehicle and as a result the Debtor seeks recovery of actual and punitive damages and attorney's fees.
The Debtor established actual damages of $3,087.00 which include his cost of obtaining alternate transportation, his cash down payment and the value of his trade-in, insurance premiums which he paid to maintain the insurance on the vehicle prior to its repossession, and the down payment which he gave his wife for the purchase of a substitute vehicle.
Debtor contends that immediately upon the filing of his Chapter 13 case and upon providing notice of the same to the Defendant, Defendant was obligated to return the vehicle to Debtor's possession without further delay and without the intervention of the Court.
The Defendant contends that since the repossession occurred pre-petition, and possession was already lawfully vested in the Defendant as a matter of state law, it had the right to notice and a hearing before being under any affirmative obligation to return the vehicle to the Debtor.
After considering the evidence and applicable authorities I find that relief should be denied the Plaintiff and judgment entered in favor of the Defendant.
The automatic stay is the fundamental debtor protection provision embodied in the Code and halts virtually all actions by creditors against debtors immediately upon the filing of a petition under Title 11. Any acts taken, subsequent to the filing of a petition, with or without notice of the filing of a petition, are void ab initio. See Borg Warner Accept. Corp. v. Hall, 685 F.2d 1306 (11th Cir.1982). Furthermore, acts taken following the filing of a petition after actual knowledge of the pendency of the case constitute a willful violation of the automatic stay and subject the perpetrator to actual damages, including attorney's fees, and potentially to an award of punitive damages for the willful violation. See 11 U.S.C. § 362(h); Matter of Flynn, 169 B.R. 1007, 1013 (Bankr.S.D.Ga.1994); Matter of Newton, Ch. 13 Case No. 96-41369, Adv. Pro. No. 96-4131, slip op. (Bankr.S.D.Ga., Dec. 19, 1996) (Davis, J.).
Section 362 stay violation repossession cases ordinarily follow recurring fact patterns and not all post-petition repossessions result in damage awards. The first common pattern arises where the repossession occurred post-petition but at a time prior to the creditor being informed of the filing, either by receipt of notice from the Court or by notice given by the debtor or debtor's counsel. A repossession in these circumstances is void ab initio, but the creditor is not liable in damages for the act of repossession since there was no actual notice of the pendency of the case. See In re Miller, 10 B.R. 778 (Bankr.D.Md.1981), aff'd., 22 B.R. 479 (D.Md.1982). Although the automatic stay was violated, the violation was without notice of the pendency of the case and thus is not considered "willful." Some courts described these violations as "technical or inadvertent." See Commercial Credit Corp. v. Reed, 154 B.R. 471 (E.D.Tex.1993) ().
Nevertheless, the creditor has an affirmative duty to undo any post-petition repossession immediately upon being notified of the pendency of the bankruptcy case even in the absence of any court order, and failure to do so will subject the creditor to damages. See Matter of Newton, slip op. at 8 (). See In re Miller, 10 B.R. at 780; In re Belcher, 189 B.R. 16, 18 (Bankr.S.D.Fla. 1995); Matter of Kern, Ch. 13 Case No. 96-21363, Adv.Pro.No. 96-2078, slip op. at 7 (Bankr.S.D.Ga., June 24, 1997) (Davis, J.).
A second common pattern arises where a creditor has repossessed property post-petition, and prior to the time that the Court's notice of the pendency of the case has been received, but after the debtor or someone on the debtor's behalf has informed the creditor that a case was filed. In these cases it is clear that the creditor, having been given notice in this manner, is under an obligation to make inquiry of the Clerk's Office whether a case is in fact pending. If a creditor falls to make inquiry after being put on notice and repossesses, that act is taken at the creditor's risk and subjects the creditor to damages.1 See In re Marine Pollution Service, Inc., 99 B.R. 210 (Bankr. S.D.N.Y.1989) ().
Finally, some repossessions, such as in the present case, occur pre-petition and the question is whether retention of collateral post-petition, which was lawfully repossessed pre-petition, without more, constitutes a willful stay violation. Certainly it is undisputed that property repossessed pre-petition, but not disposed of, remains estate property and thus cannot be sold or otherwise disposed of post-petition without a court order lifting the stay. See United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). The narrow focus of this order is whether a creditor holding collateral repossessed pre-petition has an affirmative duty to turn its collateral over to the debtor or risk damages for a willful stay violation, or whether the creditor has the right to hold the collateral pending a hearing?
I have held previously in unpublished decisions that the creditor in this situation is free to maintain property repossessed pre-petition and hold it pending a hearing to be held either on the creditor's motion for relief, or alternatively, on the debtor's adversary proceeding to recover the vehicle. There is a split of authority, however, as to whether this is the proper rule as evidenced by decisions rendered on both sides of this issue. Compare In re Knaus, 889 F.2d 773 (8th Cir. 1989); In re Del Mission Limited 98 F.3d 1147 (9th Cir.1996); In re Sharon, 200 B.R. 181, 190 (Bankr.S.D.Ohio 1996); In re Ryan (General Motors Acceptance Corp. v. Ryan), 183 B.R. 288 (M.D.Fla 1995) with In re Young 193 B.R. at 629; In re Deiss, 166 B.R. 92 (Bankr.S.D.Tex.1994). In re Richardson, 135 B.R. 256 (Bankr.E.D.Tex.1992).
Because of the split among courts and the fact that the Eleventh Circuit has not ruled in this matter, it remains open to question which of the two lines of authority should prevail in this Court. That uncertainty is manifested in the diverging approaches taken by the judges of the Bankruptcy Court of this District who view the matter differently. See In re Gunn, Ch. 7 Case No. 93-10735, Adv., Pro. No. 93-01078, slip op. (Bankr. S.D.Ga., March, 30, 1994) (Dalis, J.).
The purpose of this Order is to articulate the basis on which I have previously ruled on similar facts, and to provide a vehicle for the parties to seek appellate review of this decision in light of the uncertainty in the law, in order to obtain controlling precedent that can be applied district-wide to this fundamental issue.
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