Weber v. Sefcu

• Decision Date: 23 March 2012
• Docket Number: No. 1:11–CV–0138.,1:11–CV–0138.
• Citation: 477 B.R. 308
• Parties: Christopher WEBER, Appellant, v. SEFCU, Appellee.
• Court: U.S. District Court — Northern District of New York

477 B.R. 308

Christopher WEBER, Appellant,

v.SEFCU, Appellee.

No. 1:11–CV–0138.

United States District Court, N.D. New York.

March 23, 2012.

Richard Croak & Associates, Richard Croak, Esq., of Counsel, Albany, NY, for Appellant.

Overton, Russell, Doerr & Donovan, LLP, Melissa M. Tobrocke, Esq., of Counsel, Clifton Park, NY, for Appellee.

MEMORANDUM–DECISION and ORDER

GLENN T. SUDDABY, District Judge.

Currently before the Court, in this bankruptcy proceeding filed by Christopher Weber (“Appellant”) against SEFCU (“Appellee”), is Appellant's appeal from an Order issued by the United States Bankruptcy Court for the Northern District of New York, on December 22, 2010. (Dkt. No. 1.) For the reasons set forth below, the Bankruptcy Court's Order is reversed and the case is remanded for further review.

I. RELEVANT BACKGROUND

On January 10, 2010, Appellee lawfully repossessed Appellant's 2000 Ford F250 (“the Ford”) due to Appellant's default on four loans held by Appellant with Appellee. On the same day, and again on January 11, 2010, Appellee mailed Appellant two right-to-redeem letters at Appellant's known addresses. On January 11, 2010, Appellant telephoned Appellee to inquire about having the Ford returned. On or about January 14, 2010, Appellant filed a Chapter 13 bankruptcy petition. On January 14, 2010, Appellant's counsel mailed a written notice of Appellant's bankruptcy petition to Appellee. This written notice requested that Appellee return the Ford pursuant to 11 U.S.C. § 362. ¹ Appellee, however, did not immediately return the Ford. On or about January 22, 2010, Appellant filed an adversary proceeding against Appellee in Appellant's underlying bankruptcy action. On or about March 1, 2010, Appellant filed a motion for an Order to Show Cause demanding that the Ford be returned to Appellant so that the Ford could be incorporated into Appellant's reorganization estate. On or about March 5, 2010, after a hearing on Appellant's motion for an Order to Show Cause, Appellee returned the Ford to Appellant. The adversary proceeding, however, continued so that the Bankruptcy Court could determine whether Appellee had violated the automatic stay and whether to assess damages and/or sanctions against Appellee pursuant to 11 U.S.C. § 362(k).²

On November 22, 2010, Appellee filed a motion for summary judgment in the adversary proceeding. In its motion for summary judgment, Appellee argued that, pursuant to In re Alberto, 271 B.R. 223 (N.D.N.Y.2001) (Hurd, J.), it did not violate the automatic stay, nor is it subject to damages or sanctions for allegedly violating the automatic stay. On November 30, 2010, Appellant filed a response to Appellee's motion for summary judgment. In its response, Appellant argued that In re Alberto is inconsistent with United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), and therefore should not be followed. On December 22, 2010, the Bankruptcy Court issued an Order granting Appellee's motion for summary judgment.³

On January 3, 2011, Appellant filed its notice of appeal. On March 21, 2011, Appellant filed its appellate brief. Generally, Appellant argues that damages and/or sanctions should be assessed against Appellee for failing to return the Ford to Appellant until March 5, 2010. On May 2, 2011, Appellee filed its appellate brief. Generally, Appellee argues that the Bankruptcy Court's decision conforms with In re Alberto, which, it argues, is controlling law under the doctrine of stare decisis (given that the bankruptcy court is a “unit” of the district court, under 28 U.S.C. § 151). Appellant did not file a reply brief.

II. STANDARD OF REVIEW

“Rule 8013 of the Federal Rules of Bankruptcy Procedure provides that a reviewing court may ‘affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree,’ or it may remand with instructions for further proceedings.” In re Smorto, 07–CV–2727, 2008 WL 699502, at *4 (E.D.N.Y. Mar. 12, 2008) (citing Fed. R. Bankr.P. 8013). “The Court will review the Bankruptcy Court's legal conclusions de novo and its factual findings for clear error.” In re Smorto, 2008 WL 699502, at *4.

III. ANALYSIS

The question presented is whether Appellee was required to return the Ford upon receiving notice of Appellant's Chapter 13 bankruptcy petition, or whether Appellee was entitled to retain possession of the Ford until Appellant moved for, and was granted, a turnover order by the Bankruptcy Court pursuant to 11 U.S.C. § 542.⁴ For the reasons set forth below, the undersigned respectfully disagrees with the holding in In re Alberto, 271 B.R. 223 (N.D.N.Y.2001), and agrees with the Appellant that a creditor who takes lawful repossession of a debtor's property prior to the debtor filing a bankruptcy petition must return the property to the debtor's reorganization estate immediately upon learning of the bankruptcy proceedings, as long as the debtor (1) retains an interest in the property and (2) any provision of the Bankruptcy Code makes the property available to the reorganization estate.

In Whiting, the Supreme Court concluded that “the reorganization estate includes property of the debtor that has been seized by a creditor prior to the filing of a petition for reorganization.” Whiting, 462 U.S. at 209, 103 S.Ct. 2309.Section 541 of Title 11 of the United States Code provides, in pertinent part, that the reorganization “estate is comprised of all the following property, wherever located: ... all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1) (emphasis added); Whiting, 462 U.S. at 204, 103 S.Ct. 2309. The Supreme Court further reasoned that Congress “intended to include in the estate any property made available to the estate by other provisions of the Bankruptcy Code.” Whiting, 462 U.S. at 205, 103 S.Ct. 2309. It further reasoned that, because there are “[s]everal” provisions within the Bankruptcy Code that bring into the reorganization estate property that the debtor “did not have a possessory interest at the time the bankruptcy proceedings commenced,” the reorganization estate includes any property in which the debtor could have had a possessory interest pursuant to any provision in the Bankruptcy Code, including property in which the debtor may not have had a possessory interest at the commencement of the bankruptcy proceeding. Id. Finally, the Supreme Court reasoned that, “[a]lthough these statutes could be read to limit the estate to those ‘interests of the debtor in property’ at the time of the filing of the petition, we view them as a definition of what is included in the estate, rather than as a limitation.” ⁵Id. at 203, 103 S.Ct. 2309.

Here, in accordance with Whiting, the undersigned finds that Appellee was required to return the Ford to Appellant's reorganization estate upon receiving notice of the Appellant's Chapter 13 bankruptcy petition. More specifically, the undersigned finds that the Appellant's right to redeem possession of the Ford under New York State law ⁶ was sufficient to bring the Ford into the reorganization estate because 11 U.S.C. § 542(a) “made [the Ford] available to the estate” by mandating turnover of any property to the reorganization estate that the bankruptcy trustee “may use, sell or lease” in the bankruptcy proceeding. In other words, Appellant's reorganization estate encompassed not just his right to redeem possession of the Ford, but also the Ford itself, because other provisions of the Bankruptcy Code (specifically 11 U.S.C. § 542) made the property available to the estate. See Whiting, 462 U.S. at 205, 103 S.Ct. 2309 (“[ Section] 541 is intended to include in the estate any property made available to the estate by other provisions of the Bankruptcy Code.... Section 542(a) is such a provision. It requires an entity ... holding any property of the debtor that the trustee can use under § 363 to turn that property over to the trustee.”); see also In re Del Mission, 98 F.3d 1147, 1151 (9th Cir.1996) (“ 11 U.S.C. § 542[a] provides that an entity in possession of estate property ‘shall’ deliver such property to the trustee. This is a mandatory duty arising upon the filing of the bankruptcy petition.”).

In the undersigned's view, Whiting does not require that the debtor first “take an affirmative step to draw the possessory interest in the [property] into the estate” (In re Alberto, 271 B.R. at 227) by filing a motion for turnover under 11 U.S.C. § 542(a) before the property is, in fact, made part of the reorganization estate. See In re Del Mission, 98 F.3d at 1151 (“To effectuate the purpose of the automatic stay, the onus to return the estate property is placed on upon the possessor; it does not fall on the debtor to pursue the possessor.”). Rather, the language of Whiting suggests that, as long as the debtor retains an interest in the repossessed property and the property is capable of being pulled into the estate by a provision under the Bankruptcy Code, that property is included in the reorganization estate at the commencement of bankruptcy proceedings. See Whiting, 462 U.S. at 204–05, 103 S.Ct. 2309 (commenting that the scope of the reorganization estate under 11 U.S.C. § 541 “is intended to include in the estate any property made available to the estate by other provisions of the Bankruptcy Code”).

The undersigned believes that this interpretation of Whiting is shared by the majority of Circuit Courts of Appeal that have grappled with this issue. See Thompson v. Gen. Motors Acceptance Corp., LLC, 566 F.3d 699, 703 (7th Cir.2009) (holding that “the act of passively holding onto an asset” constitutes “exercising control” over the asset, which is proscribed in 11 U.S.C. § 362[a] ); In re Yates, 332 B.R. 1, 4–5 (10th Cir. BAP 2005) (“This Court holds that the [creditor] violated the automatic stay by refusing to turn over the GMC after [the debtor] filed her bankruptcy petition.”); In re Sharon, 234 B.R. 676,...