Richardson v. Trs. of Ind. Univ. (In re Richardson)

• Decision Date: 21 August 2013
• Docket Number: Adversary No. 12–50165.,Bankruptcy No. 00–10506–JKC–7.
• Citation: 497 B.R. 546
• Parties: In re Scott Ian RICHARDSON, Debtor. Scott Ian Richardson, Plaintiff, v. Trustees of Indiana University, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Indiana

497 B.R. 546

In re Scott Ian RICHARDSON, Debtor.

Scott Ian Richardson, Plaintiff,

v.Trustees of Indiana University, Defendant.

Bankruptcy No. 00–10506–JKC–7.

Adversary No. 12–50165.

United States Bankruptcy Court,

S.D. Indiana,

Indianapolis Division.

Aug. 21, 2013.

Robert E. Duff, Indiana Consumer Law Group, The Law Office of Robert E. Duff, Lebanon, IN, for Plaintiff.

Dustin R. DeNeal, Kayla D. Britton, Faegre Baker Daniels LLP, Indianapolis, IN, Eric Allan Koch, The Koch Law Firm, P.C., Bloomington, IN, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

JAMES K. COACHYS, Bankruptcy Judge.

This matter comes before the Court on Defendant Trustees of Indiana University's (“Defendant”) Motion for Summary Judgment on Plaintiff/Debtor Scott Ian Richardson's (“Debtor”) First Amended Complaint for Willful Violation of Stay (the “Amended Complaint”). Having reviewed the parties' respective briefs and submissions, the Court hereby holds that Debtor is barred by the doctrine of judicial estoppel from asserting a claim for damages under 11 U.S.C. § 362(k)(1). However, the Court also holds that the underlying state court judgment at issue in this proceeding is invalid as having been issued in violation of the automatic stay.

Findings of Fact

1. Debtor incurred a debt, in the nature of a student loan, to Defendant in 1988 (the “Debt”).

2. In May of 1998, Defendant filed a complaint in Monroe Circuit Court, Cause No. 53C04–9805–CP–733, against Debtor regarding the Debt (the “State Action”).

3. The Monroe Circuit Court scheduled the complaint for a bench trial on September 7, 2000.

4. Debtor filed a voluntary petition for bankruptcy under Chapter 7 on September 1, 2000. Defendant was listed as a creditor in the bankruptcy and received notice of the bankruptcy sometime on or after September 9, 2000, the date on which this Court issued notice of the first meeting of creditors.

5. Defendant appeared at the bench trial on September 7, 2000; Debtor did not.

6. On September 12, 2000, the Monroe Circuit Court entered a judgment in favor of Defendant and against Debtor (the “Judgment”) in the amount of $1,071.46, plus attorney fees of $502.72 and costs.

7. After entry of the Judgment, Debtor's bankruptcy counsel sent a letter to Defendant seeking to settle the Judgment for a lump sum. The letter referenced that the Judgment was entered despite the automatic stay but did not indicate that Debtor intended to have the Judgment set aside or seek redress for violation of the stay.

8. Debtor received a discharge on May 3, 2001. The bankruptcy case was closed on February 26, 2002.

9. On June 24, 2001, Defendant filed a Verified Motion in Proceedings Supplemental in the State Action in an attempt to collect the Judgment. Debtor eventually moved to have the Judgment set aside (the “Motion to Set Aside”), arguing that the Judgment had been entered in violation of the stay. Debtor claims, and Defendant does not dispute, that he did not receive notice of the hearing for the Motion to Set Aside and that he, therefore, did not appear. He also claims, and Defendant does not dispute, that he did not receive notice of the order issued by the state court denying his requested relief.¹

10. Notwithstanding the fact that he did not receive the order on his Motion to Set Aside, Debtor assumed that the motion had been granted given the nature of, and reason for, the relief requested therein.

11. Debtor filed a Chapter 13 bankruptcy petition on January 29, 2002. At the time he initiated the case, he was still under the belief that the Judgment had been set aside. He, therefore, did not schedule or disclose any claim against Defendant, e.g., for violation of the automatic stay, as an asset of his bankruptcy estate.

12. Defendant filed a proof of claim on February 8, 2002. The proof of claim reflects that Defendant obtained the Judgment on September 12, 2000, and a copy of the Judgment is attached to the proof of claim.

13. Debtor received a Chapter 13 discharge on April 10, 2007. The case was closed on October 4, 2007.

14. On April 20, 2007, and May 1, 2007, Defendant filed a motion for proceedings supplemental and a motion for writ of attachment in the State Action. On October 23, 2007, Debtor sent a letter to Defendant insisting that the Judgment was taken in violation of the stay and requesting that Defendant set aside the Judgment. Debtor indicated that he intended to “file a claim for damages, based on [Defendant's] actions of violating the Federal Bankruptcy Stay.” On December 6, 2007, Debtor moved to vacate the writ of attachment issued in the State Action and, at a March 13, 2007 hearing, indicated that he intended to file a motion to set aside the Judgment. He did not file such motion, nor did he appear at any subsequent hearings.

15. On March 29, 2011, Defendant filed a Verified Motion for Proceedings Supplemental in the State Action.

16. On May 11, 2012, Debtor moved to reopen his Chapter 7 case. Such request was granted on May 15, 2012. Debtor then filed a complaint and, eventually, an amended complaint (the “Amended Complaint”) against Defendant seeking damages under 11 U.S.C. § 362(k)(1)² for violations of the automatic stay.

17. On July 23, 2012, Defendant moved for dismissal of the Amended Complaint under Federal Rule of Bankruptcy Procedure 7012 and Federal Rule of Civil Procedure 12(b)(6), arguing that Debtor had failed to state a cause of action upon which relief could be granted. The Court denied the motion by order dated September 10, 2012, concluding that there was sufficient case law to support Debtor's claim.³

18. On December 1, 2012, Debtor filed a Verified Emergency Motion for Order Declaring Judgment Obtained in Violation of the Automatic Stay Void. The Court denied the motion, finding that the request was inextricably entwined in Debtor's Amended Complaint and would be addressed as such. The Court also ordered the parties to mediate their dispute. Per a mediator's report filed in February of 2012, the mediation did not lead to a resolution of the parties' dispute.

19. Defendant then moved for summary judgment, arguing that (1) Debtor's stay violation claim is barred by laches and/or judicial estoppel; and (2) that because the Judgment is merely voidable, not void, Debtor cannot as a matter of law establish a “willful” violation of the stay.

20. Defendant has never asked for, nor obtained, retroactive relief from, or annulment of, the stay pursuant to Code § 362(d).

Conclusions of Law

1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). The parties have consented to this Court's entry of a final judgment.

Void versus Voidable

2. As set forth above, Defendant argues on summary judgment that because the Judgment is merely voidable, Debtor cannot as a matter of law establish a “willful” violation of the stay. That argument encompasses the penultimate issue the Court must decide in this proceeding, i.e., whether the Judgment is void or merely voidable.

3. Section 362(a)(1) provides in relevant part that a bankruptcy petition “operates as a stay, applicable to all entities, of the commencement or continuation of a judicial ... action or proceeding against the debtor.” Here, the trial that took place in the Monroe Circuit Court on Defendant's action against Debtor and the resulting Judgment were a continuation of a judicial proceeding against Debtor and, as such, constitutes a violation of the automatic stay. The fact that Defendant did not learn of the bankruptcy case until after entry of the Judgment does not alter that result.

4. The circuit courts are split as to whether actions taken in derogation of

the automatic stay are void ab initio or merely voidable, with the overwhelming majority holding that actions taken in violation of the stay are void. See Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969 (1st Cir.1997); Constitution Bank v. Tubbs, 68 F.3d 685 (3d Cir.1995); Parker v. Bain, 68 F.3d 1131 (9th Cir.1995); Franklin Sav. Ass'n v. Office of Thrift Supervision, 31 F.3d 1020 (10th Cir.1994); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522 (2d Cir.1994); Albany Partners, Ltd. v. Westbrook (In re Albany Partners, Ltd.), 749 F.2d 670 (11th Cir.1984).

5. The Seventh Circuit has said that actions taken in violation of the stay are generally void, see Matthews v. Rosene, 739 F.2d 249, 251 (7th Cir.1984) (interpreting statutory predecessor of § 362). However, in recognizing the void-versus-voidable split among the circuits, it has declined opportunities to formally and conclusively decide the issue. See Middle Tenn. News Co., Inc. v. Charnel of Cincinnati, Inc., 250 F.3d 1077, 1082 n. 6 (7th Cir.2001). Thus, in the absence of a clear directive from the Seventh Circuit, this Court must look outside the circuit to determine the legal effect of the Judgment.

6. In reviewing the numerous opinions on the issue, the Court finds the Ninth Circuit's reasoning and conclusion, as expressed in Schwartz v. United States (In re Schwartz), 954 F.2d 569 (9th Cir.1992) to be particularly compelling. As support for its holding that actions taken in violation of the stay are void, not voidable, Schwartz enunciated the following rationale:

In light of the automatic stay's purpose, the issue before us requires some analysis of the relevant policy considerations. Either the debtor must affirmatively challenge creditor violations of the stay, or the violations are void without the need for direct challenge. If violations of the stay are merely voidable, debtors must spend a considerable amount of time and money policing and litigating creditor actions. If violations are void, however, debtors are afforded better protection and can focus their attention on reorganization.

Given the important and fundamental purpose of the automatic stay and the broad debtor protections of the Bankruptcy Code,...