WD Equip., LLC v. Cowen (In re Cowen)

• Citation: 849 F.3d 943
• Decision Date: 27 February 2017
• Docket Number: No. 15-1413,15-1413
• Parties: IN RE: Jared Trenton COWEN, Debtor. WD Equipment, LLC ; Aaron Williams; Bert Dring, Appellants, v. Jared Trenton Cowen, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

849 F.3d 943

IN RE: Jared Trenton COWEN, Debtor.WD Equipment, LLC ; Aaron Williams; Bert Dring, Appellants,

v.Jared Trenton Cowen, Appellee.

No. 15-1413

United States Court of Appeals, Tenth Circuit.

Filed February 27, 2017

Alexander M. Musz of Cohen & Cohen, P.C., Denver, Colorado, for Defendants–Appellants.

C. Todd Morse of Morse Law, LLC, Denver, Colorado, for Plaintiff–Appellee.

Before KELLY, McKAY, and McHUGH, Circuit Judges.

McKAY, Circuit Judge.

Plaintiff Jared Trent Cowen's 2000 Peterbilt 379, a commercial truck, was in need of repair. To cover the cost, Mr. Cowen borrowed money from Defendant WD Equipment, which is owned and managed by Defendant Aaron Williams, in exchange for a lien on the truck and the promise of repayment. After the Peterbilt broke down again only a few weeks after the repairs, it was towed to a local repair company, which estimated that fixing the truck again would cost $9,000—more than Mr. Cowen could afford.

Because his Peterbilt was in the shop, Mr. Cowen could not make installment payments to WD Equipment. So, in early August, 2013, Mr. Cowen began taking steps to refinance the loan; he met with his bank and with his parents in an attempt to secure refinancing, and he exchanged several text messages on August 1 and 2 with Mr. Williams about paying off the loan. During the course of that exchange, however, Mr. Williams gave Mr. Cowen several, contradictory responses as to how much Mr. Cowen would need to pay to settle the debt, and he accelerated the payoff date several times, before ultimately setting August 6 as the deadline.

Around the same time, Mr. Cowen defaulted on another loan secured by another one of his trucks, a 2006 Kenworth T600. This loan was owed to Defendant Bert Dring, the father-in-law of Mr. Williams, who held a purchase-money security interest in the truck. On July 29, Mr. Dring lured Mr. Cowen under false pretenses to his place of business to repossess the Kenworth. Mr. Dring asked Mr. Cowen, who had brought along his young son, to leave the keys in the ignition, engine running, and to step out of the truck. As Mr. Cowen exited the vehicle, Mr. Dring jumped in, grabbed the keys, and declared the truck "repossessed." When Mr. Cowen asked what was going on, Mr. Dring told him to take his son and leave—immediately. A group of five men gathered around Mr. Dring while he brandished a can of mace above his head and threatened to use it if Mr. Cowen did not leave. Mr. Cowen pushed his young son behind him to protect him, and the two left the lot on foot. Three days later, Mr. Cowen received a letter from Mr. Dring giving him ten days to pay off the Kenworth.

Instead, Mr. Cowen filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on August 6, which was the deadline for paying off the Peterbilt, and which was within the ten-day cure period for the Kenworth. He notified Defendants of the filing and requested the immediate return of both trucks. But Defendants refused: Mr. Williams claimed that he had changed the title to his name on August 1. (At no time during the text message exchanges on August 1 and 2 did Mr. Williams ever inform Mr. Cowen of the title change.) And Mr. Dring claimed that he sold the Kenworth sometime prior to the bankruptcy filing. (Initially, he claimed he had sold the Kenworth to an unknown Mexican national for cash in an undocumented sale just days before Mr. Cowen filed for bankruptcy. Later, Mr. Dring produced bill of sale, purporting to show that he sold the Kenworth to a Mr. Garcia for $16,000 in cash on August 4.)

About a month later, Mr. Cowen moved the bankruptcy court for orders to show cause why Defendants should not be held in contempt for willful violations of the automatic stay. The bankruptcy court granted the motions and ordered Defendants to "immediately turn over" the trucks to Mr. Cowen; "[c]ontinuing failure to turn over the Truck[s]," the bankruptcy court warned, "may result in the imposition of monetary damages against the Creditors for willful violation of the automatic stay." Order on Motion for Order to Show Cause and Order to Turnover Property of the Estate, Case No. 13-23461 (Bankr. Colo. Sept. 5, 2013).

When Defendants did not comply with the bankruptcy court's turnover order, Mr. Cowen filed an adversary proceeding for violations of the automatic stay. A few months later, the bankruptcy court dismissed the underlying bankruptcy case because, without the trucks, Mr. Cowen had no regular income, which rendered him ineligible for Chapter 13 relief. However, the bankruptcy court expressly retained jurisdiction over the adversary proceeding.

During the adversary proceeding, Defendants again asserted that Mr. Cowen's rights in the trucks had been properly terminated by Defendants before the bankruptcy petition was filed, and so they could not have violated the automatic stay. But the bankruptcy court "did not find the Defendants' testimony that they had transferred title before the petition date to be credible." (App. Vol. II at 248.) It went on to "find[ ] that they manufactured the paperwork ... after the bankruptcy filing." (Id .) "Defendants likely forged documents and gave perjured testimony" and "coached their witnesses on what to testify to during [ ] breaks" in an "attempt to convince the Court that [Mr. Cowen's] rights in the Trucks had been terminated prebankruptcy." (Id. at 258.) Additionally, the bankruptcy court held that "even if they had taken the actions they claim to have taken before the bankruptcy filing," (id. at 269), such actions contravened Colorado law, and therefore did not effectively terminate Mr. Cowen's "ownership interest in the Trucks," (id. at 252). And so, the bankruptcy court concluded, "[f]ailing to return the Trucks violated § 362(a)(3) of the Bankruptcy Code," (id. ), and it imposed actual and punitive damages under 11 U.S.C. § 362(k)(1).

Defendants timely appealed this decision to the district court, which reversed on the calculation of damages but otherwise affirmed the bankruptcy court's order. Defendants then appealed to this Court, arguing, among other things, that the bankruptcy court exceeded its jurisdiction, that it lacked constitutional authority to enter a final judgment in this adversary proceeding, and that the bankruptcy court misinterpreted § 362 —the automatic stay provision. "[T]hough this appeal comes to us from the district court, we review a bankruptcy court's decisions independently, examining legal determinations de novo and factual findings for clear error." FB Acquisition Prop. I, LLC v. Gentry (In re Gentry) , 807 F.3d 1222, 1225 (10th Cir. 2015). "In doing so, we treat the bankruptcy appellate panel or district court as a subordinate appellate tribunal whose rulings are not entitled to any deference (although they may certainly be persuasive)." Nelson v. Long (In re Long) , 843 F.3d 871, 873 (10th Cir. 2016) (internal quotation marks omitted). "A bankruptcy court's legal conclusions are reviewed de novo, while its factual findings are reviewed for clear error." Id .

We address first the bankruptcy court's jurisdiction. "The jurisdiction of the bankruptcy courts, like that of other federal courts, is grounded in, and limited by, statute." Celotex Corp. v. Edwards , 514 U.S. 300, 307, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). By statute, bankruptcy courts have jurisdiction to "enter final judgments in ‘all core proceedings arising under title 11, or arising in a case under title 11.’ " Stern v. Marshall , 564 U.S. 462, 474, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) (quoting 28 U.S.C. § 157(b)(1) ). As we have explained, a claim for damages under § 362(k)(1) for a violation of an automatic stay is a core proceeding. Johnson v. Smith (In re Johnson) , 575 F.3d 1079, 1083 (10th Cir. 2009) (holding that a " § 362(k)(1) proceeding ... is a core proceeding because it derives directly from the Bankruptcy Code and can be brought only in the context of a bankruptcy case." (internal quotation marks and brackets omitted)). Accordingly, bankruptcy courts can exercise jurisdiction and adjudicate such claims to final judgment. Id .

Defendants contend, however, that the bankruptcy court erred in retaining jurisdiction over the § 362(k)(1) adversary proceeding after the underlying bankruptcy was dismissed. But this argument is foreclosed by Johnson . There it was argued that "dismissal of the underlying Chapter 13 case divested the bankruptcy court of jurisdiction over the § 362(k)(1) proceeding." Id . at 1081. We disagreed: "Nothing in the Bankruptcy Code mandates dismissal of the § 362(k)(1) proceeding when the bankruptcy case is closed," and "[n]o part of § 362(k)(1) suggests that a claim exists only while the bankruptcy case remains pending." Id . at 1084. We explained that "[r]equiring the dismissal of a § 362(k)(1) proceeding simply because the underlying bankruptcy case has been dismissed would not make sense. A court must have the power to compensate victims of violations of the automatic stay and punish the violators, even after the conclusion of the underlying bankruptcy case." Id . at 1083.

Defendants' attempts to distinguish Johnson are unavailing. They argue that, unlike in Johnson , this § 362(k)(1) adversary proceeding is "non-core" because the bankruptcy court "had to determine the disputed possessory interests in [the] assets pursuant to state law." (Appellant's Br. at 36). But "[a] determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law." 28 U.S.C. § 157(b)(3).

Defendants also seem to suggest that Johnson is distinguishable because there the bankruptcy court decided the automatic stay violation first, which was appealed (which, in turn, resulted in a remand), and then dismissed the underlying bankruptcy while the automatic stay violation appeal was pending. (See Appellant's Br. at 34 (citing Johnson , 575 F.3d at 1081, where we summarized the procedural history...