Richard v. City of Chicago
| Decision Date | 23 November 1987 |
| Docket Number | No. 86 C 8986.,86 C 8986. |
| Citation | 80 BR 451 |
| Parties | Walter P. RICHARD, Plaintiff-Appellee, v. CITY OF CHICAGO, a Municipal Corporation, Midwest Real Estate Investment Co., a Corporation, Defendants-Appellants. |
| Court | U.S. District Court — Northern District of Illinois |
Clay Mosberg, David R. Gray, Chicago, Ill., for Midwest Real Estate Inv. Co.
Bennie W. Fernandez, Oak Park, Ill., for appellee Richard.
Linda Jenkins, Pierce & Associates, Chicago, Ill., for First Family Mortg. Corp.
Midwest Real Estate Investment Co. ("Midwest") appeals the Bankruptcy Court's order declaring null and void the sale of property owned by debtors Walter and Gwendolyn Richard that Midwest purchased at a tax sale. We deny Midwest's appeal because the tax sale violated the automatic stay that attached to the debtors' estate pursuant to 11 U.S.C. § 362(a), when the Richards filed for bankruptcy under Chapter 13. We therefore order the City of Chicago, the party primarily responsible for the violation of the stay, to refund to Midwest the money Midwest paid at the tax sale, and we order Midwest to accept this refund. We further hold invalid the tax deed that Cook County issued based on the voided tax sale.
The material facts are not in dispute. Walter Richard and Gwendolyn Richard filed a joint Chapter 13 petition and plan in November 1980 which effected an automatic stay barring disbursement of their estate. Bankruptcy Judge McCormick found that Midwest, the City of Chicago ("the City")—defendant in the adversary proceeding then before him—and appellee First Family Mortgage Company ("First Family") were scheduled as the Richards' creditors, and that these parties were notified of the stay.1
The Richards owned residential property at 9938 South Yale, Chicago on which First Family held a first mortgage lien. In 1980, before the Richards filed for bankruptcy, the City of Chicago levied a special tax assessment on that property. This tax was to be paid in installments over a five-year period beginning in 1980. When the debtors did not make payments in 1980 and 1981 the City assigned the overdue assessment to Cook County ("the County"). Neither the City nor the County filed an assignment of claim with the Bankruptcy Court.
On May 11, 1982, the County sold the overdue special assessment to Midwest at a tax sale. On June 20, 1983, Walter Richard dismissed himself from the joint Chapter 13 petition and on June 24, 1983 refiled a Chapter 13 petition in his name only. The Richards subsequently divorced and, on May 21, 1984, debtor Walter Richard received all title to and interest in the marital residence located at 9938 South Yale.
On January 10, 1985, the County issued a tax deed to Midwest based on the 1982 tax sale and subsequent running of the statutory redemption period. After obtaining the tax deed on March 29, 1985 Midwest sought possession of the 9938 South Yale property and on August 26, 1985 moved for relief from the automatic stay. Richard filed an adversary complaint on September 23, 1985, seeking to void the 1982 tax sale, which the Bankruptcy Judge did on September 24, 1986. He also denied the City's motion to dismiss itself as a defendant in the proceeding. Midwest appeals Judge McCormick's order, asserting jurisdictional and limitations arguments, and claiming that the tax sale was a voidable act which was ratified when the debtor let lapse the two-year statutory redemption period.
In reviewing orders of the Bankruptcy Court we apply the "clearly erroneous" standard to factual questions, but, since the bankruptcy court's decision that the tax sale was void is a legal conclusion, we review this issue de novo. See In re Evanston Motor Co., 735 F.2d 1029, 1031 (7th Cir.1984).
When a debtor files for bankruptcy under Chapter 13 a stay of all judicial and non-judicial proceedings, with certain enumerated exceptions, automatically attaches to his property. 11 U.S.C. § 362(a) (1979); Matter of Cash Currency Exchange, Inc. v. Shine, 762 F.2d 542, 554 (7th Cir.1985). Because the stay becomes effective upon the filing of a bankruptcy petition, no formal notice is required and a stay lasts for the duration of a bankruptcy proceeding absent modification by the Bankruptcy Court. See 2 Collier on Bankruptcy ¶ 362.013 at 362.22-362.23 (15th ed. 1979). The automatic stay is designed to prevent dismemberment of a debtor's estate, to insure its orderly distribution, In re LaPorta, 26 B.R. 687, 690 (Bankr.N.D.Ill.1982), and to allow a debtor the chance to rehabilitate free of any harassment or prejudice that would result from his creditors' pursuit of individual actions. Matthews v. Rosene, 739 F.2d 249, 251 (7th Cir.1984). Additionally, § 362 operates as an injunction against interference with the Bankruptcy Court's jurisdiction over petitioning debtors. In re Stonegate Security Services, Ltd., 56 B.R. 1014, 1019 (N.D.Ill.1986). Thus both the powers of the Bankruptcy Court and the interests of the debtor are implicated by the automatic stay provision.
Actions taken in violation of an automatic stay are void, Kalb v. Feuerstein, 308 U.S. 433, 438, 60 S.Ct. 343, 345-46, 84 L.Ed. 370 (1940); Matter of American Central Airlines, Inc., 52 B.R. 567, 569 (Bankr.N.D.Iowa 1985); In re Victoria Grain Co. of Minneapolis, 45 B.R. 2, 6-7 (Bankr.D.Minn.1984) (), regardless of whether the creditor knew of the bankruptcy petition that affected the stay, In re Ellis, 66 B.R. 821, 823 (N.D.Ill.1986); Rhyne v. Cunningham, 59 B.R. 276, 278 (Bankr.E.D.Pa.1986). Since the stay that attached to the Richards' property was neither vacated nor modified by the Bankruptcy Court when the City assigned the tax assessment to the County or when the County sold the property to Midwest, these actions occurred in violation of the stay2 and are void ab initio, or without legal effect.3
In support of its assertion that these acts are not void but instead are voidable and capable of ratification, Midwest cites three cases in which courts have noted that the void ab initio rule should not be inflexibly applied. However, these courts applied a flexible approach based on the fact that the bankruptcy case recognizes specific statutory exceptions4 to the void ab initio rule. We do not find that these cases carve out a broad area in which courts generally exercise discretion to proclaim various acts either void or voidable and, since no statutory exception applies here, we reject Midwest's contention.
In In re Young, 14 B.R. 809 (Bankr.N.D. Ill.1981), the Bankruptcy Court was confronted with circumstances similar to those presented by the current case. In Young the debtors owed the county collector real estate taxes which had been assessed against their property before they filed a Chapter 13 petition. Defendant in that action purchased the debtors' property from the county at a tax sale approximately one month after the debtors filed for bankruptcy. Despite the debtors' failure to include their tax debt in their Chapter 13 plan until four days before the tax sale, the Young court held that the sale was void because it violated the stay that had attached automatically upon the debtors' filing of their Chapter 13 petition. Id. at 811. The collector argued that the tax sale to collect payment of the pre-petition debt was valid because he never received notice of the Chapter 13 filing. Id. The Young court held that:
Knowledge and notice of the bankruptcy proceeding would only become relevant if the court were faced with a contempt proceeding based upon a creditor\'s willful violation of the stay.
Id. (citing In re Eisenberg, 7 B.R. 683, 686 (Bankr.E.D.N.Y.1980)). Thus the court held notice irrelevant to the issue of whether the sale was void and ordered the county collector to refund to the purchaser the money he had paid for the property at the tax sale. Young, 14 B.R. at 811-12. We find the Young court's analysis directly controlling here and echo the Young court's finding that the tax sale of the Richards' property was void.
Midwest argues that the Bankruptcy Court was divested of jurisdiction over the estate when Mr. Richard voluntarily dismissed himself from the Chapter 13 petition. We reject this argument for two reasons: first, the tax sale occurred prior to Mr. Richard's voluntary dismissal from his original Chapter 13 petition, and this subsequent dismissal does not resurrect a sale that is legally void. Second, as the Bankruptcy Court recognized, during the time of Mr. Richard's dismissal, Mrs. Richard's Chapter 13 petition, and the automatic stay, remained in effect. Further, the Bankruptcy Code permits bankruptcy courts to take certain actions to meet the goals of the Bankruptcy Code. The Bankruptcy Court has broad power to "issue any order, process or judgment that is necessary or appropriate to carry out the provisions of the bankruptcy title." 11 U.S.C. § 105(a). See 2 Collier on Bankruptcy, ¶ 362.02 at 362.27-362.28. Even if Walter Richard's dismissal somehow closed his joint case, the Bankruptcy Code specifically provides that bankruptcy courts have the power to reopen a case to "accord relief to the debtor or for other cause." 11 U.S.C. § 350(b). See also Vining v. Ward, 60 B.R. 660, 662-23 (Bankr.W.D.La.1986) (). Thus, the Bankruptcy Court's enforcement of the Code's stay provisions is affirmed.
Midwest argues that because Richard failed to file his adversary complaint within two years after the tax sale, 11 U.S.C. § 549 and laches bar him from seeking to set the sale aside.
Section 549 of the Bankruptcy Code limits the rights of parties to commence a proceeding to set aside a transfer of property to the earlier of: "(1) two years after the date of the transfer sought to be voided; and (2)...
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