Wagner v. Union State Bank (In re Wagner)
| Decision Date | 03 May 2019 |
| Docket Number | Case No. 18-11084,Adv. No. 18-5106 |
| Parties | IN RE: RONNIE LEE WAGNER TAMMY LOUISE WAGNER Debtors. RONNIE LEE WAGNER and TAMMY LOUISE WAGNER Plaintiffs, v. UNION STATE BANK, Defendant. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas |
Filing a voluntary bankruptcy petition stays any collection of a pre-petition debt until the bankruptcy court lifts the automatic stay, dismisses or closes the case, or grants or denies a discharge.1 The stay effectively enjoins certain activities against the debtor, including the continuation of a pre-petition action and the assessment of a claim against the debtor. When the Wagners filed their Chapter 13 case and asked to extend the stay, they specifically waived it as to the foreclosure of a mortgage and sale of their residence. Not content to journalize its pre-petition foreclosure petition by taking an in rem judgment against the debtors, the Union State Bank (over the debtors' strenuous objections) convinced the state court to enter a money judgment against the debtors personally, but only to be enforced if their Chapter 13 case was dismissed. Because seeking and obtaining an in personam remedy against the debtors was stayed by 11 U.S.C. § 362(a)(1) and (a)(6), and was not authorized by any order entered by this Court, the Bank violated the stay and is liable for damages as § 362(k)(1) provides.2
There are no disputed material facts. Defendant Union State Bank is a secured creditor holding a first mortgage lien on property located along U.S. Highway 166 in Arkansas City, Kansas ("Hwy 166 Property") that plaintiffs occupied as their residence. In 2017, the Bank commenced a foreclosure action in the Cowley County District Court. That foreclosure was temporarily halted onNovember 13, 2017 by plaintiffs' first Chapter 13 bankruptcy filing.3 Confirmation of the Wagners' Chapter 13 plan was denied, and their case was dismissed on May 31, 2018 for failure to provide tax returns.
Plaintiffs filed the current Chapter 13 bankruptcy on June 6, 2018, again staying the Bank's foreclosure action. As in their first case, plaintiffs' Chapter 13 plan filed on June 7 indicated that they were surrendering the Hwy 166 Property.4 Because of the dismissal of the first Chapter 13 case, the Wagners also filed a motion to extend the automatic stay under § 362(c)(3).5 They carved out of that extension in rem relief as to the Hwy 166 Property. The Bank objected to the stay extension and filed a motion for stay relief.6 At the June 27 hearing on the stay extension, the Bank withdrew its objection and the court granted the extension.7 The July 17 Order granting the motion provided:
. . . the automatic stay is extended with respect to all creditors and all claims, except that the debtors do not seek to extend the automatic stay with respect to the claim of Union State Bank on their residence on U.S. 166, . . . and the automatic stay is modified to permit the Bank to obtain in rem relief against that property and effect foreclosure of the Bank's lien.8
Bank counsel approved the July 17 Order.
The Bank's motion for relief from the stay on the Hwy 166 Property was heard on July 18. The Bank sought stay relief to "enter a formal journal entry ofjudgment" in the foreclosure case and complete the foreclosure process, including sale of the Hwy 166 Property and application of sale proceeds to the Wagners' debt.9 The motion stated that the "judgment against the [Chapter 13] Trustee shall be in rem only."10 Similar qualifying language was not included regarding the judgment to be entered against the Wagners. At the hearing on July 18, the parties advised the Court that they agreed the stay had already been lifted as to the Hwy 166 Property.11 The Bank submitted a partial Order for stay relief on the Hwy 166 Property that mimicked the language in its motion. That Order was submitted under D. Kan. LBR 9074.1 and was entered July 31, 2018 without the debtors objecting.12
After entry of the July 17 Order and the partial stay relief order, the parties continued to argue about the terms of the journal entry to be entered in the state court foreclosure action. They exchanged several e-mails and engaged in colloquy with this Court over a proposed state court journal entry at an August 8 hearing.13 Initially, the Wagners' counsel signed the proposed journal entry after modifying page 7 to make clear that the Bank was granted judgment in rem against the Wagners and included a sentence that stated: "Nothing herein shall be construed asgranting in personam judgment against Ronnie L. Wagner or Tammy L. Wagner."14 That proposed journal entry was not submitted to the state court by the Bank. Instead the Bank demanded that it be granted an in personam judgment against the Wagners with the proviso that it not be enforceable unless their Chapter 13 case was dismissed before discharge. It proposed the following language in the journal entry:
During the pendency of Case No. 18-11084 [the bankruptcy case] . . . this paragraph shall be construed as granting judgment enforceable only against the real estate described herein, but upon dismissal of Case No. 18-11084 or its termination other than by completion of a confirmed plan and a Chapter 13 discharge, the judgment shall be enforceable against Defendants Ronnie L. Wagner and Tammy L. Wagner as provided by law. In the event of a deficiency, the proof of claim filed by the . . . Bank in Case No. 18-11084 may be amended to claim the deficiency as an unsecured debt to be provided for in the Chapter 13 plan.15
The Wagners objected to that language, arguing that it violated the stay by "continuing...a proceeding against the debtor...."16 That proposed journal entry was not submitted to the state court. Counsel continued e-mail communications back-and-forth through August trying to resolve their dispute over the state court foreclosure journal entry to no avail.
At the Wagners' plan confirmation hearing on September 12, 2018, their counsel announced that "the Bank has got set up for tomorrow to take in rem relief on the residence." Bank counsel acknowledged that announcement was correct.
On September 14, the Bank submitted a foreclosure journal entry to the state court under KAN. S. CT. Rule 170 (without Mr. Peck's approval).17 That journal entry provided:
21. The Order for Relief from Automatic Stay (Partial) authorizes plaintiff and this court to complete these state court foreclosure proceedings as to the first cause of action [the Hwy 166 Property]. The Court concludes judgment should be entered against defendants Ronnie L. Wagner and Tammy L. Wagner for the full amount due, but at this time plaintiff is only entitled to enforce that judgment in rem against the secured real estate.18
Other language in the proposed journal entry granted the judgment against the Wagners in the amount "of $168,315.82 comprised of unpaid principal, interest accrued through September 13, 2018, allowed attorney fees, and title and abstracting costs; for interest on that sum at the contract rate of 7.25% from September 13, 2018, until paid in full; and for its court costs . . ."19 Additional language was inserted in the decretal paragraph of the journal entry that read as follows:
Such judgment is granted against defendants Ronnie L. Wagner and Tammy L. Wagner, but at this time plaintiff is only entitled to enforce that judgment in rem against the secured real estate. In the event there is a deficiency judgment following sale of the secured real estate (presuming the judgment will not be paid in full), no collection actions to enforce or recover that deficient balance may be taken against defendant Wagners (1) while the bankruptcy action in Case No. 18-110084 [sic] or any converted action is pending, (2) upon successful completion of an approved plan in that action, (3) or upon defendant Wagners being discharged in bankruptcy.20
After the Wagners objected to the proposed journal entry, the state court held a hearing to settle it.21 After considering the matter, the state court judge issued a written ruling on December 20, determining that the foreclosure journal entry complied with this Court's partial relief from stay order because the "judgment only becomes an in personam judgement [sic] if the bankruptcy proceeding fails."22 The judgment was entered the next day.23
On January 9, 2019 the Wagners voluntarily converted their bankruptcy case to Chapter 7. The Hwy 166 Property was sold at sheriff's sale on January 31, 2019 for $116,672.46.24 On February 18, 2019, the Wagners transferred their right of redemption to one Bill George who redeemed the property on February 20.25
The Wagners filed this adversary complaint on September 26, 2018, asserting that the Bank should be held in contempt for violating this Court's July 17 Order and violating the automatic stay by intentionally and willfully taking an in personam judgment against the Wagners in violation of § 362. The Wagners move for summary judgment on their complaint.
A motion for summary judgment may be granted where the movant shows that no genuine dispute as to any material fact exists and the movant is entitled tojudgment as a matter of law on those uncontroverted facts.26 Facts are material if they are essential to the proper disposition of the claim under the applicable law and a fact is genuinely disputed if there is sufficient evidence from which the trier of fact could resolve the issue for the non-movant.27 In reviewing the factual record, the Court must draw all reasonable inferences in favor of the non-movant.28
Factually, very little is in dispute in this case. The Bank controverts the plaintiffs' Fact No. 4 because plaintiffs incorrectly identified the docket number and the date of entry of the referenced bankruptcy order on the motion to extend the automatic stay.29 The recited content of the...
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