Stancil v. Bradley Invs., LLC (In re Stancil)

• Citation: 487 B.R. 331
• Decision Date: 25 February 2013
• Docket Number: Bankruptcy No. 11–00747.,Adversary No. 12–10006.
• Parties: In re Gary STANCIL, Debtor. Gary Stancil, Plaintiff, v. Bradley Investments, LLC, et al., Defendants.
• Court: United States Bankruptcy Courts. District of Columbia Circuit

487 B.R. 331

In re Gary STANCIL, Debtor.Gary Stancil, Plaintiff,

v.Bradley Investments, LLC, et al., Defendants.

Bankruptcy No. 11–00747.

Adversary No. 12–10006.

United States Bankruptcy Court, District of Columbia.

Feb. 25, 2013.

Jeffrey M. Sherman, John Ernest Tsikerdanos, Lerch Early & Brewer, Chtd., Bethesda, MD, for Plaintiff.

Ross W. Dembling, Bethesda, MD, Sharon S. Van Pelt, Gen. Counsel to General Funding Corp., Washington, DC, Morton A. Faller, Stephen A. Metz, Shulman, Rogers, Gandal, Pordy & Ecker, Potomac, MD, for Defendants.

Greg S. Friedman, Rockville, MD, pro se.

Susan H. Friedman, Rockville, MD, pro se.

Morton J. Frome, Rockville, MD, pro se.

MEMORANDUM DECISION AND ORDER RE CROSS–MOTIONS FOR SUMMARY JUDGMENT

S. MARTIN TEEL, JR., Bankruptcy Judge.

The court has before it the cross-motions for summary judgment filed by 12th Street Real Estate, LLC (“12th Street”) and Gary Stancil. 12th Street is the purchaser at a foreclosure sale-incident to a mortgage, in the form of a deed of trust, securing payment of a promissory note-of property located at 12th Street, N.E., Washington, D.C. (the “Property”), which Gary Stancil and his mother, Delores Stancil, owned.

Gary Stancil has moved for summary judgment on Count I and Count II of his complaint. In Count I he seeks monetary sanctions against:

• Greg S. Friedman who, as a trustee for certain defendants the complaint labeled the “Lien Holders,” holds the promissory note secured by the deed of trust;

• the Lien Holders;

• the trustees under the deed of trust; and

• the auctioneer at the foreclosure sale.

In Count II he seeks an order compelling 12th Street to turn over the Property. 12th Street has moved for summary judgment on Count I of its counterclaim, in which it seeks an annulment of the automatic stay to rehabilitate its purchase of the Property at the foreclosure sale.

I

The following facts are not in dispute. On September 1, 2005, Rufus and Delores Stancil, and their son, Gary Stancil, borrowed $280,000 from Greg S. Friedman as trustee for a group of investors (the “Lien Holders”), pursuant to a promissory note.¹ Defendant's Ex. 15. The promissory note was secured by a deed of trust. Defendant's Ex. 16. Greg Friedman retained Susan Friedman and Martin Frome to serve as trustees under the deed of trust. ²Id.; Plaintiff's St. ¶ 2. The Stancils pledged two properties as collateral in the deed of trust, one of which is the Property (the 12th Street, N.E. property) at issue in this proceeding. Defendant's St. ¶ 19. The record owners of the Property were Gary and his mother, Delores. Plaintiff's St. ¶ 1.

After the Stancils defaulted under the note, the trustees scheduled a foreclosure sale for June 17, 2011 at 10:45 a.m. Defendant's St. ¶ 20 & Ex. 17. On June 17, 2011, at 9:29 a.m., Gary Stancil and Delores Stancil filed a joint petition under Chapter 13 of the Bankruptcy Code (11 U.S.C.). See Case No. 11–00465. Shortly before the scheduled foreclosure sale, Gary and Delores' attorney at that time, Harry T. Spikes, called and notified the auctioneer, National REO Auctions, Inc., of the filing of the bankruptcy petition. Defendant's St. ¶ 21. At some point later that day, the foreclosure sale occurred and 12th Street purchased the property. Defendant's St. ¶ 23. Also at some point later that day, the court dismissed the bankruptcy case as to Delores Stancil (Case No. 11–00465, Dkt. No. 2), because she was ineligible to file a bankruptcy petition at that time pursuant to an earlier order of this court in a different bankruptcy case (Case No. 11–00097, Dkt. No. 14), and also because a mother and a son may not file a joint petition. Gary Stancil had not obtained prepetition credit counseling before filing the petition, and the court directed him to show cause why his case ought not be dismissed. In response, Gary Stancil submitted an affidavit in which he stated:

6. Prior to executing the Bankruptcy Petition, Attorney Spikes explained to me and my mother the purpose of Schedule–D, in fact he read the entire document to me and my mother. He explained that we had not sought Credit Counseling prior to filing the petition.

7. He further explained that the Petition would most likely be dismiss [sic] because of our failure to first seek credit counseling within 18 months next to filing the petition.

Affidavit of Gary Stancil, Case No. 11–00465, Dkt. No. 13 & Defendant's Ex. 10. Six days after the foreclosure sale, on June 23, 2011, the court dismissed Gary's case because he had not obtained the required prepetition credit counseling. See Case No. 11–00465, Dkt. No. 22.

At the time of the foreclosure sale, 12th Street admits to knowing the following:

12th Street knew that someone (whose identity is unknown to 12th Street) announced that a bankruptcy case had been filed by someone (whose identity was unknown to 12th Street on June 17, 2011), but that the bankruptcy case had also been dismissed on that same day. 12th Street had no knowledge as to who exactly filed, under which chapter of the bankruptcy code or the case number.

Defendant's St. ¶ 24 & Ex. 19 (Affidavit of Scott Evans).

Regarding their knowledge of the bankruptcy petition, Greg Friedman (the noteholder) and Susan Friedman (the trustee under the deed of trust) submitted the following in their Joint Response to the plaintiff's requests for admissions (the numbered statements are the requested admissions):

1. That on June 17, 2011, you were aware that Gary Stancil and Delores Stancil filed a bankruptcy, under Chapter 13 of the bankruptcy code, which initiated Case No. 11–00465 in the District of Columbia.

A. Neither of us had first hand knowledge; however, Harry Spikes said that a petition had been filed. We were aware that any such petition, if there actually was one, was invalid as Delores Stancil was statutorily barred from filing such a petition. We also were advised by our counsel that Federal bankruptcy law does not permit a parent and child to file a joint petition. This was confirmed when the Clerk of the Bankruptcy Court dismissed the petition.

2. At the time of the actual foreclosure sale, you had actual knowledge of the bankruptcy filing by Gary Stancil & Delores Stancil.

A. See Response No. 1 above.

3. Admit that even after learning of Delores Stancil and Gary Stancil's bankruptcy, you still allowed the foreclosure sale of the Property to proceed.

A. Admitted that we proceeded on advice of counsel and the auctioneer, both of whom advised that the petition as described by Mr. Spikes was not valid under Federal bankruptcy law.

Plaintiff's Ex. 4.

The closing of the foreclosure sale occurred on September 29, 2011. Defendant's Ex. 18 (Trustee's Deed).

II

Summary judgment may be granted only if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. SeeFed.R.Civ.P. 56. “A dispute over a material fact is ‘genuine’ if ‘the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ ” Arrington v. United States, 473 F.3d 329, 333 (D.C.Cir.2006) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A fact is “material” if it might affect the outcome of the suit under the substantive governing law. Id. To create an issue of material fact, the nonmoving party's factual assertion must be supported by the record. See Hinson ex rel. N.H. v. Merritt Educ. Ctr., 579 F.Supp.2d 89, 92 (D.D.C.2008) (“ ‘factual assertions' that are unsupported by citations to accurate record evidence are insufficient to create issues of material fact.”). The party opposing summary judgment “may not rely on conclusory allegations or unsubstantiated speculation.” Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir.1998).

In evaluating a motion for summary judgment, the court must view the evidence in the light most favorable to the nonmoving party. Arrington, 473 F.3d at 333. “Furthermore, in ruling on cross-motions for summary judgment, the court shall grant summary judgment only if one of the moving parties is entitled to judgment as a matter of law upon material facts that are not genuinely disputed.” Footbridge Ltd. Trust v. Zhang, 584 F.Supp.2d 150, 158 (D.D.C.2008), aff'd,358 Fed.Appx. 189 (D.C.Cir.2009).

III

Pursuant to 11 U.S.C. § 302, only spouses are entitled to file a joint petition. As this court explained in its Memorandum Decision re Motion of 12th Street Real Estate, LLC to Dismiss, when two entities that are not spouses file a single petition with each entity listed as a debtor, a bankruptcy case is commenced as to each such entity under 11 U.S.C. § 301, because each debtor evidenced an intention to commence a bankruptcy case by filing the improper joint petition. See Stancil v. Bradley Invs., LLC (In re Stancil), 473 B.R. 478, 481 (Bankr.D.D.C.2012). The remedy to address the improper joinder is to sever the cases. Id. “Even if the case is dismissed as to one of the debtors, nevertheless the automatic stay and other incidents of a bankruptcy case arose as to each debtor by reason of the filing of the case, and, for the remaining debtor, those incidents were continuously in place after the commencement of the case.” Id. at 481–82.

Here, the automatic stay did not arise in Delores Stancil's case pursuant to 11 U.S.C. § 362(b)(21).³ Nevertheless, the automatic stay arose as to Gary Stancil when he filed the joint petition with his mother. Accordingly, the automatic stay was in effect at the time of the foreclosure sale even though the bankruptcy case was commenced by the filing of an unauthorized joint petition by Gary Stancil and Delores Stancil.⁴

Under 11 U.S.C. § 362(a)(4), Gary Stancil's filing of the joint petition operated as a stay of “any act to create, perfect, or enforce any lien against property of the estate.” The mortgagee, however, enforced its lien through the foreclosure sale. An act taken in violation of the automatic stay is void. Soares v. Brockton Credit Union...