Yarbra v. U.S. Bank Tr. (In re Yarbra)
| Decision Date | 11 January 2023 |
| Docket Number | 22-51532-PMB,ADVERSARY PROCEEDING 22-05110-PMB |
| Parties | IN RE: LOUISE BROWN YARBRA, Debtor, v. U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE OF THE CABANA SERIES III TRUST, Defendant. LOUISE BROWN YARBRA, Plaintiff, |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
ORDER DENYING DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S COMPLAINT
The Plaintiff-Debtor named above, Louise Brown Yarbra (the "Plaintiff'), initiated this proceeding (the "Adversary Proceeding") by filing a Complaint to Enforce Automatic Stay and Set Aside Foreclosure on July 29, 2022 (Docket No. 1)(the "Complaint"). This matter comes before the Court on Defendant U.S. Bank Trust National Association As Trustee of the Cabana Series III Trust's Motion to Dismiss Plaintiff's Complaint with Prejudice and an accompanying Defendant U.S. Bank Trust National Association, As Trustee of the Cabana Series III Trust's Memorandum of Law in Support of Its Motion to Dismiss Plaintiff's Complaint with Prejudice, filed by U.S. Bank Trust National Association, as Trustee of the Cabana Series III Trust (the "Defendant") on October 19, 2022 (Docket No. 4)(the "Motion to Dismiss"). On November 7, 2022, the Plaintiff filed Plaintiff's Response in Opposition to Defendant's Motion to Dismiss (Docket No. 5)(the "Response").
On October 28, 2021, the Plaintiff filed, pro se, a case under Chapter 13 of Title 11, United States Code (the "Bankruptcy Code"), which was dismissed on December 23, 2021 for failure to file list of creditors (Case No. 21-58057-PMB, Docket Nos. 1, 17). Less than twelve (12) months later, on February 25, 2022 (the "Petition Date") the Plaintiff filed,pro se,[1] the underlying bankruptcy case under Chapter 13 of the Bankruptcy Code (Case No. 22-51532, Docket No. 1)(the "Main Case"). Within the first thirty (30) days following the Petition Date, the Plaintiff did not file a motion or obtain an order extending the automatic stay of 11 U.S.C. § 362(a).
On April 12, 2022, the Defendant filed, in the Main Case, a Motion for ReliefFrom Stay (Main Case, Docket No. 23)(the "Motion for Relief'), seeking to terminate the automatic stay as to the Defendant for purposes of allowing it to enforce its security interest in certain real property of the Plaintiff's estate, commonly known as 410 Houston Place, Marietta, Georgia 30008 (the "Property").[2]The Defendant set the Motion for Relief for a hearing on May 19, 2022; however, on May 9, 2022, the Main Case was dismissed for failure to make plan payments pursuant to the Order of Dismissal (Main Case, Docket No. 27)(the "Dismissal Order"). On May 22, 2022, the Plaintiff filed a Motion to Reconsider Order of Dismissal (Main Case, Docket No. 30), explaining that her failure to make payments was due to her cancer diagnosis and subsequent hospitalization, but that she was now home from the hospital and could successfully prosecute her bankruptcy case. An Order Vacating Dismissal and Reinstating Case and Extending the Deadline for Filing Governmental Proof of Claims was entered on July 1, 2022 (Main Case, Docket No. 32)(the "Reinstatement Order"). Pursuant to the Reinstatement Order, the Dismissal Order was vacated in toto.
On July 5, 2022, after the Main Case was reinstated, the Defendant prosecuted a non-judicial foreclosure of the Property. The Defendant withdrew the Motion for Relief on July 12, 2022 without explanation (Main Case, Docket No. 36). The Plaintiff became aware of the sale on July 18, 2022, via an email to the Plaintiff's counsel requesting that the Plaintiff vacate the Property. See Complaint, ¶ 18; Response, Exhibit 1. Two (2) weeks later, the Plaintiff filed the Complaint seeking to void the foreclosure proceeding and to have the Property returned to the bankruptcy estate to be treated through her Chapter 13 plan.
In the Motion to Dismiss, the Defendant alleges that the Plaintiff has failed to state a claim upon which relief can be granted as required under Federal Rule of Civil Procedure 12(b)(6), made applicable herein through Federal Rule of Bankruptcy Procedure 7012(b).[3] The Defendant argues that the Plaintiff cannot establish that a stay was in place at the time of the foreclosure sale, because the automatic stay terminated under 11 U.S.C. § 362(c)(3)(A) on March 28, 2022. The Plaintiff argues in the Response that she has sufficiently alleged that the stay was still in place with respect to the Property because Section 362(c)(3)(A) does not terminate the stay as to property of the estate.
The parties do not dispute whether the Property was property of the bankruptcy estate prior to the foreclosure sale or whether the automatic stay in this case suffered whatever version of termination is provided for under Section 362(c)(3)(A); instead, they disagree only about whether Section 362(c)(3)(A) terminated the stay in this case with respect to property of the estate - specifically the Property. If it did, the foreclosure sale was not stayed, and the Property now belongs to the Defendant. If it did not, then the Defendant violated the automatic stay in conducting the foreclosure sale, such that the sale is void, the Property still belongs to the Debtor, and the Defendant is subject to sanctions for violating the stay by conducting the foreclosure sale.
The question before the Court turns on the interpretation of 11 U.S.C. § 362(c)(3)(A). Section 362(c)(3)(A) of the Bankruptcy Code provides that when an individual debtor in a Chapter 7, 11, or 13 case had a previous case dismissed within one (1) year prior to filing, "the stay with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case."
Mandatory authority does not exist to assist this Court in its interpretation of Section 362(c)(3)(A), and courts nationally are split on the meaning of that Section, and in specific on the meaning of the phrase "with respect to the debtor" within it.[4] The majority of courts follow the "partial release" theory, finding that the language "with respect to the debtor" terminates the stay imposed by 11 U.S.C. § 362(a) only regarding the debtor, but not with respect to the bankruptcy estate. See Abernathy, LLC v. Smith, 2014 WL 4925654 at *4 (N.D.Ga. Sept. 30, 2014)( that "the stay automatically imposed by 11 U.S.C. § 362(a) expired by operation of 11 U.S.C. § 362(c)(3) as to the debtor ..., but not as to the bankruptcy estate"); Rinard v. Positive Invs., Inc. (In re Rinard), 451 B.R. 12, 19-20 (Bankr. C.D. Cal. 2011); In re Johnson, 335 B.R. 805, 806 (Bankr. W.D. Tenn. 2006)("When read in conjunction with subsection (1), the Court finds that the plain language of 362(c)(3)(A) dictates that the 30-day time limit only applies to 'debts' or 'property of the debtor' and not to 'property of the estate'"). A minority of courts find the language of Section 362(c)(3)(A) ambiguous and instead conclude that, to give effect to what they perceive as the intent of Congress, Section 362(c)(3)(A) should be read to terminate the stay not only with respect to the debtor and the debtor's property but also with respect to property of the estate. See In re Reswick, 446 B.R. 362, 368, 372 (B.A.P. 9th Cir. 2011)( that Congress enacted Section 362(c)(3)(A) in 2005 for the purpose of discouraging bad faith repeat filings, and that terminating the stay as to the debtor but not the estate would render this provision "devoid of any practical effect"); St. Anne's Credit Union v. Ackell, 490 B.R. 141, 145 (D. Mass. 2013); In re Curry, 362 B.R. 394, 400-01 (Bankr. N.D.Ill. 2007)( the language susceptible to multiple interpretations, requiring the adoption of an interpretation consistent with the overall statutory scheme). This Court agrees with the majority, partial release view for the following reasons.
First, when tasked with construing a statutory provision, a court's inquiry begins with the statutory text, as "courts must presume that a legislature says in a statute what it means and means in a statute what it says there." Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). Looking at each word in Section 362(c)(3)(A), both the subject, "the stay," and the verb, "shall terminate," are specifically qualified by language limiting exactly which aspects of the stay created under Section 362(a) are terminated and the extent to which they are terminated. "[T]he subject of the sentence, 'the stay [under subsection (a)],' is limited in three significant respects: (1) with respect to an action taken with respect to a debt, (2) with respect to an action taken with respect to property securing such debt [], and (3) with respect to any action taken with respect to any lease." In re Scott-Hood, 473 B.R. 133, 137 (Bankr.W.D.Tex. 2012)(emphasis in original); see First Financial Bank v. Clark, 627 B.R. 663, 666 (N.D. Ind. 2021)("Congress enacted the stay to apply to these categories under 11 U.S.C. § 362(a) , using the specific category's name.").
The verb "shall terminate" is qualified by the phrase "with respect to the debtor." In re Scott-Hood, 473 B.R. at 138. There is a difference between "the debtor" and "the estate." In fact, both words are distinctly defined in the Bankruptcy Code. See 11 U.S.C. § 101(13) (); 11 U.S.C. § 541(a) (). Read together, 11 U.S.C. § 362(c)(3)(A) terminates the automatic...
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