602 F. App'x 322
6th Cir.2015Background
- Deborah Sarmadi purchased Baxter’s loan and foreclosed on 1900 4th Avenue North, Tennessee, buying the property at the May 23, 2013 sale; her deed was recorded May 29.
- Baxter had filed a Chapter 13 petition in the Western District of Tennessee on May 22, 2013 (one day before the foreclosure), but his case was poorly prosecuted and repeatedly teetered on dismissal.
- Sarmadi’s counsel (Notestine) disputed receiving an email that indicated Baxter’s Chapter 13 filing; Baxter’s counsel produced an email to Notestine’s office stating a filing had occurred.
- Baxter’s bankruptcy was dismissed and reinstated at various times; Sarmadi moved to annul the automatic stay and to ratify the foreclosure sale.
- At a December 12 hearing the bankruptcy court found Baxter lacked good faith in filing, Sarmadi’s interest was unprotected (no insurance, no rental income), and ratified the foreclosure; the BAP affirmed and this court likewise affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the automatic stay should be annulled and the foreclosure ratified because Baxter filed bankruptcy in bad faith | Sarmadi: Baxter filed without good faith, left her unsecured, property uninsured, and prejudiced her — annul the stay and ratify foreclosure | Baxter: his filing preceded the sale, conduct was not fraudulent, creditor suffered no prejudice, and stay relief was unwarranted | Court: Affirmed annulment and ratification — bankruptcy court did not abuse discretion; Baxter lacked good faith and Sarmadi’s interests were unprotected |
Key Cases Cited
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (Sup. Ct.) (bankruptcy protections aimed at honest debtors)
- Grogan v. Garner, 498 U.S. 279 (Sup. Ct.) (standards for discharge issues and equitable scope of bankruptcy protections)
- In re Copper, 426 F.3d 810 (6th Cir.) (abuse-of-discretion standard for stay relief review)
- In re Laguna Associates Limited Partnership, 30 F.3d 734 (6th Cir.) (lack of good faith can be cause to lift stay)
- In re Charfoos, 979 F.2d 390 (6th Cir.) (good-faith inquiry supports stay relief)
- In re Zick, 931 F.2d 1124 (6th Cir.) (fact-specific, multi-factor good-faith ‘‘smell test")
- Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir.) (annulment may render stay-violating actions voidable; courts reluctant to ratify actions absent equitable circumstances)