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

• Court: United States Bankruptcy Courts – District of Columbia Circuit
• Writing for the Court: S. MARTIN TEEL
• Citation: Stancil v. Bradley Invs., LLC (In re Stancil), 473 B.R. 478 (Bankr. D.C. 2012)
• Decision Date: 19 June 2012
• Docket Number: Adversary No. 12–10006.,Bankruptcy No. 11–00747.
• Parties: In re Gary STANCIL, Debtor. Gary Stancil, Plaintiff, v. Bradley Investments, LLC, et al., Defendants.

473 B.R. 478

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.

June 19, 2012.

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

Bradley Investments LLC, Rockville, MD, pro se.

Lawrence Posner, Rockville, MD, pro se.

Corinna Posner, Rockville, MD, pro se.

Joseph Zytnick, Rockville, MD, pro se.

P. Hannah Davis Zytnick, Rockville, MD, pro se.

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

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

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

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.

MEMORANDUM DECISION REMOTION OF 12TH STREET REAL ESTATE, LLC TO DISMISS

S. MARTIN TEEL, JR., Bankruptcy Judge.

As of the start of the day of June 17, 2011, Gary Stancil and his mother, Delores Stancil, owned property located on 12th Street, NW, Washington, D.C. Gary Stancil, as the debtor in possession in a bankruptcy case under chapter 11 of the Bankruptcy Code (11 U.S.C.), Case No. 11–00747, has filed a Complaint to Compel Turnover of Real Property as Result of Willful Violation of the Automatic Stay, Breach of Fiduciary Duty and Sanctions alleging that a foreclosure sale of the property conducted during the pendency of an earlier bankruptcy case violated the automatic stay of section 362(a) of the Bankruptcy Code (11 U.S.C.), and seeking a turnover of the property. One of the defendants, 12th Street Real Estate, LLC, the purchaser at the foreclosure sale, has moved to dismiss on these grounds:

(1) the automatic stay was not in effect at the time of the foreclosure sale because the bankruptcy case was an unauthorized joint filing by Gary Stancil and his mother, Delores Stancil, and because the foreclosure sale occurred before Delores Stancil was dismissed from the unauthorized joint filing;

(2) the turnover provisions set forth in 11 U.S.C. § 542 do not apply to assets whose title is in dispute; and

(3) the complaint fails to contain any factual allegation that the subject property, if turned over to Gary Stancil, is not “of inconsequential value or benefit to the estate” pursuant to 11 U.S.C. § 542.

The motion will be denied for the following reasons.

I

The complaint establishes these facts. On June 17, 2011 at 9:29 a.m., Gary Stancil and Delores filed a petition under chapter 13 of the Bankruptcy Code naming themselves as debtors and signed by each of them. The joint petition was docketed as Case No. 11–00465. Later that day, the foreclosure sale occurred, and 12th Street purchased the property at the foreclosure sale. Still later that day, the court dismissed the case as to Delores Stancil because she was ineligible to file a bankruptcy case as a result of an order entered on March 7, 2011, in her earlier bankruptcy case, Case No. 11–00097, that dismissed that earlier case with prejudice for 180 days.

II

For the following reasons, I reject 12th Street Real Estate, LLC's argument that because the bankruptcy case was an unauthorized joint filing by Gary Stancil and his mother, Delores Stancil, and because the foreclosure sale occurred before Delores Stancil was dismissed from the unauthorized joint filing, no automatic stay was in effect at the time of the foreclosure sale.

Permitting the filing by spouses of a joint petition pursuant to 11 U.S.C. § 302 is designed to reduce the cost of administration and to permit only one filing fee. Reider v. FDIC (In re Reider), 31 F.3d 1102, 1109 (11th Cir.1994). A joint petition results automatically in joint administration (without the necessity of a motion under Fed. R. Bankr.P. 1015) by one trustee, and allows for a single docket by the clerk. Id.

Entities that are not spouses are not entitled to obtain joint administration by filing a single petition. Nevertheless, when such entities file a single petition listing each as a debtor, with each of them signing the petition, they evidence an intention to commence a bankruptcy case as to each entity.¹ The better view is that a bankruptcy case is commenced as to each such entity under 11 U.S.C. § 301, albeit with the entities treated as having improperly joined together in the same petition. See In re Wilkerson, 2006 WL 3694638, *3 (Bankr.M.D.Ga. Mar. 29, 2006) (improper joint petition by individuals eligible to be debtors is a case of misjoinder, not a case of a jurisdictionally defective petition).² Unless the court decides to dismiss the cases, the appropriate remedy to address the improper joinder is to sever the cases. Id.³ To elaborate, filing two bankruptcy cases using a single petition is inappropriate, but not jurisdictionally fatal, if the debtors are not spouses. ⁴ Such a petition must be treated as commencing separate cases limited to one entity for each such case, with a filing fee to be paid for each case, and with the cases not jointly administered unless the court later orders such joint administration.

Earlier decisions than In re Wilkerson gave non-spouses who filed on the same petition the option of dismissing one of the debtors or face dismissal of the entire case. See Bone v. Allen (In re Allen), 186 B.R. 769, 774 (Bankr.N.D.Ga.1995); In re Lam, 98 B.R. 965, 966 (Bankr.W.D.Mo.1988); In re Malone, 50 B.R. 2, 3 (Bankr.E.D.Mich.1985). The better course, as in In re Wilkerson, is to treat the petition as opening two separate cases (one for each debtor), as the earlier approach deprives at least one of the debtors of having a case remain pending as to that debtor. Nevertheless, those earlier decisions illustrate, as does In re Wilkerson, that a bankruptcy case has been commenced as to each debtor even though the petition was an improper attempt at joining non-spouses as debtors in a single case. Even if the case is dismissed as to one of the debtors, nevertheless the automaticstay 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. See In re Lucero, 408 B.R. 348, 351 (Bankr.C.D.Cal.2009) (allowing the case to remain pending as to one of the debtors, after the other had requested to be dismissed from the case, and noting that if the entire case were dismissed, preference or fraudulent transfer claims might no longer be available by the time a new case was filed).⁵

Yet another approach for addressing a petition filed by non-spouse debtors, followed only by Fitzgerald v. Hudson (In re Clem), 29 B.R. 3, 5 (Bankr.D.Idaho 1982), is to treat the first listed debtor as having commenced a bankruptcy case without the other debtor having commenced a bankruptcy case. I reject that approach because both debtors evidence an intention to commence a bankruptcy case when they file such a petition.⁶ In any event, Gary Stancil was the first listed debtor in this case.

As an alternative remedy to address a petition filed by non-spouses, the court has discretion to dismiss the cases. See In re 4–1–1 Fla. Ga., L.P., 125 B.R. 565, 566 (Bankr.W.D.Mo.1991) (case dismissed when at least four separate and distinct partnerships improperly joined together in one petition, and filed in a district that would not be “the venue of choice” if they filed separate petitions); In re Jephunneh Lawrence & Assocs. Chartered, 63 B.R. 318 (Bankr.D.D.C.1986) (petition filed for an individual and a corporation).⁷ The discretion to dismiss the cases, however, does not demonstrate that an automatic stay does not arise as to the debtors upon the filing of the petition. In appropriate circumstances, the court could annul the stay under 11 U.S.C. § 362(d),⁸ but unless that is done the automatic stay ought to be viewed as having arisen in the case. Here, the court opted not to dismiss the entire case as based on an improper joinder of non-spouses on a single petition, but even if the court had dismissed the entire case on that basis, an automatic stay would have been in place as to Gary Stancil until the dismissal order was entered.

The In re Wilkerson approach of severing the petition would usually result in the court directing the clerk to open a second docket as to one of the debtors and to treat the first docket opened as limited to the other debtor, but with both of the cases deemed commenced as of the date of the filing of the petition. Here, however, Mrs. Stancil was barred from commencing a bankruptcy case, and the court dispensed with opening a separate docket as to her, and simply dismissed her as having been barred from filing a petition. ⁹ That left the case pending as to only Gary Stancil.

Although Delores Stancil was not dismissed from the case until after the foreclosure sale had been held, the case was pending as to Gary Stancil when the foreclosure sale was held, and an automatic stay had arisen in his case that barred the foreclosure sale.¹⁰ The complaint cannot be dismissed on the basis that no automatic stay arose in the bankruptcy case.

III

In support of its argument that the turnover provisions set forth in 11 U.S.C. § 542 do not apply to assets whose title is in dispute, 12th Street Real Estate, LLC observes that “the law is settled that ‘the debtor cannot use the turnover provisions to liquidate contract disputes or otherwise demand assets whose title is in dispute.’ U.S. v. Inslaw, Inc., 932 F.2d 1467 (D.C.Cir.1991).” Nonetheless, the dispute as to title to the assets must be “legitimate” or “bona fide” for a turnover action to be considered premature. See Krasny v. Bagga (In re Jamuna Real Estate, LLC), 357 B.R. 324, 333–34 (Bankr.E.D.Pa.2006) (“[T]urnover is not proper where a bona fide dispute exists.”); In re FLR Co., 58 B.R. 632, 634 (Bankr.W.D.Pa.1985) ( “Turnover, 11 U.S.C. § 542, is not the provision of the Code to determine...