Smith, In re
| Decision Date | 26 May 1989 |
| Docket Number | 88-2083,Nos. 88-1562,s. 88-1562 |
| Citation | 876 F.2d 524 |
| Parties | , Bankr. L. Rep. P 72,936 In re Nita B. SMITH, Debtor. Nita B. SMITH, Plaintiff-Appellee, Cross-Appellant, v. FIRST AMERICA BANK, N.A., Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Robert A. Goering (argued), Cincinnati, Ohio, Edward Read Barton, Edward Read Barton, P.C., Allegan, Mich., for Nita B. Smith.
Stephen L. Langeland (argued), Walsh, Langeland, Walsh & Bradshaw, Kalamazoo, Mich., for First of America, Bank of Michigan, N.A.
Before KEITH and KENNEDY, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.
Appellant First of America Bank ("Bank") repossessed and sold a vehicle which it had financed for appellee Nita B. Smith ("debtor" or "appellee"). The sale took place after debtor had filed for protection under Chapter 13 but before Bank received notice of the filing. The bankruptcy court denied Smith's motion to recover the vehicle or to return the proceeds of the sale to the estate. The District Court reversed, holding that the sale had violated the Bankruptcy Code's automatic stay provision, 11 U.S.C. Sec. 362(a). Debtor cross-appeals from the District Court's affirmance of the bankruptcy court's award of costs against debtor's attorney. We affirm the District Court's holding that the sale violated the automatic stay, but we reverse the award of costs.
On September 4, 1986, Bank repossessed a vehicle which it had financed for debtor, giving debtor notice that it intended to sell the collateral on September 19, 1986. Debtor filed for relief under Chapter 13 of the Bankruptcy Code on September 15, 1986, and obtained a restraining order the same day. Debtor's attorney received a copy of the restraining order on September 17, and immediately sent copies by first class mail to Bank and its agent, Michigan Creditor Services ("MCS").
MCS sold the vehicle on September 19, 1986, at 10:00 a.m. Later that same day, MCS received notice of the Chapter 13 filing and restraining order; Bank did not receive actual notice of the filing and restraining order until September 22, 1986.
Debtor filed a motion asking the bankruptcy court to void the sale as a violation of the automatic stay imposed by 11 U.S.C. Sec. 362(a). The bankruptcy court denied the motion, holding:
by the time the bank received notice of the sale--or the notice of this hearing, the sale had already taken place and the car had been delivered. I think that is too late.
Debtor moved for a rehearing and suggested that the proceeds of the sale be used to provide her with replacement transportation. Debtor argued that replacement transportation is essential to the success of the Plan, because public transportation to her workplace is not available. Under the Plan, Bank would have a first lien on the replacement vehicle. The bankruptcy court denied the motion and imposed costs on debtor's attorney for filing a motion for rehearing.
The District Court reversed, holding that the sale had been void under section 362(a) of the Bankruptcy Code. The court also reversed the bankruptcy court's denial of debtor's motion for rehearing, but it left in place the award of costs, 86 B.R. 92 (1988).
Under section 362(a) of the Bankruptcy Code, the filing of a petition creates a broad automatic stay protecting the property of the debtor. This provision "has been described as 'one of the fundamental debtor protections provided by the bankruptcy laws.' " Midlantic Nat'l Bank v. New Jersey Dep't of Envtl. Protection, 474 U.S. 494, 503, 106 S.Ct. 755, 761, 88 L.Ed.2d 859 (1986) (quoting S.Rep. No. 989, 95th Cong., 2d Sess. 54 (1978); H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1977)). The automatic stay extends to virtually all formal and informal actions against property of the bankruptcy estate. It is intended to "stop[ ] all collection efforts, all harassment, and all foreclosure actions." S.Rep. No. 989, 95th Cong., 2d Sess. 54, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5840. The automatic stay "is effective upon the date of the filing of the petition ... and formal service of process will not be required." 2 Collier on Bankruptcy p 362.03 (15th ed. 1988) (footnotes omitted). Actions taken in violation of the automatic stay generally are void, even if the creditor had no notice of the stay. See, e.g., In re Clark, 60 B.R. 13, 14 (Bankr.N.D.Ohio 1986) (); In re Advent Corp., 24 B.R. 612 (Bankr. 1st Cir.1982) (); Collier, supra, p 362.03 ().
Appellant concedes that notice is ordinarily irrelevant under section 362(a), but asserts that to enforce the stay would be inequitable in the present case. Appellant relies principally on In re Smith Corset Shops, Inc., 696 F.2d 971 (1st Cir.1982), which held that a debtor may not abuse the bankruptcy code's protections by remaining "stealthily silent" while a creditor unknowingly violates the stay. In Smith, the creditor obtained a default judgment and execution from the state court, and a constable removed debtor's inventory to creditor's warehouse. An agent of the debtor observed the constable's actions but said nothing. Neither the creditor nor the constable were aware that the debtor had filed a bankruptcy petition four days earlier. The debtor sued the creditor for conversion, arguing that the state execution authorizing removal of the inventory had been automatically invalidated by section 362(a). While acknowledging the broad scope of the automatic stay, the court held that the debtor could not avail himself of its protections where the creditor "[was] not only ignorant of the filing of the bankruptcy petition but this ignorance was directly attributable to the plaintiff's unreasonable behavior in these circumstances." Smith, 696 F.2d at 976. The court suspected that the debtor had remained silent in a bad faith attempt to obtain a pecuniary benefit from the creditor's actions.
[Debtor] not only had advance notice of the proposed action, it apparently had an agent on hand while the property was moved. Yet [Debtor] made no effort to advise either [Credi...
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