In Re Chandler
441 B.R. 452
Bankr. E.D. Pa.2010Background
- Debtor Michael S. Chandler filed for Chapter 7 (later converted to Chapter 11) on July 23, 2010; Movant Dolores Chandler seeks relief from the automatic stay.
- Property at issue is 35.9 acres at 438 McFarlan Road, Kennett Township, comprising Mushroom Farm (titled to Michael Chandler Mushrooms) and Farmhouse Property (titled to Debtor and Movant as tenants by the entireties).
- Property is marital; Debtor has possessed it since 2004; Farmhouse Property remains with the Debtor as a tenancy by the entireties; Mushroom Farm is in Debtor’s name.
- Property is encumbered by a $75,000 mortgage to National Penn Bank and about $82,824 in back taxes, triggering a Sheriff’s sale stayed by the bankruptcy.
- Chester County Court of Common Pleas had issued Conservator and Sale Orders directing sale of the Property to Trilogy Investments; Debtor contested these orders, sought to stay or modify them, and is in divorce proceedings with Movant for equitable distribution and support.
- Court actions center on whether Debtor’s bankruptcy is in bad faith, whether the stay should be modified to permit equitable distribution, and whether the sale or contempt petitions can proceed under bankruptcy jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction despite state court orders | Movant argues state orders control sale; bankruptcy lacks jurisdiction | Debtor contends bankruptcy court retains jurisdiction under 11 U.S.C. §363(h) and does not preempt state orders | Court retains jurisdiction; state orders do not preempt, and bankruptcy court may adjudicate under §363(h) |
| Scope of automatic stay over the Property | Property is estate asset; sale contemplated by Conservator/Sale Orders is stay-impacted | Debtor’s §544/BFP rights and possession keep Property within estate; sale may be restricted | Property remains estate asset protected by stay; sale cannot proceed absent further proceedings |
| Bad faith filing | Bankruptcy filed to thwart Trilogy sale and avoid obligations | Filing serves reorganizational purpose and provides breathing room; not a bad faith filing given circumstances | No bad faith finding; stay not modified on bad faith grounds |
| Relief from stay to pursue equitable distribution | Equitable distribution must proceed in state court; stay should lift to conclude divorce issues | Equitable distribution can proceed in state court; need to preserve estate for potential §363(h) | Stay modified to permit equitable distribution proceedings; other stay relief denied |
| Relief from stay to sell the Property | Sale to Trilogy should proceed to satisfy interests | Sale could harm estate; Debtor may have other financing options; insufficient showing of hardship in movant’s favor | No relief to sell the Property; stay remains |
| Relief from stay for contempt proceeding | Contempt petition seeks enforcement of Sale Order | Contempt is an action to collect on debt and would affect estate | Stay not lifted for contempt proceeding |
Key Cases Cited
- Great Western Mining & Mineral Co., Inc. v. Fox Rothschild LLP, 615 F.3d 159 (3d Cir. 2010) (Rooker-Feldman exception and abstention analysis in bankruptcy context)
- In re Sasson, 424 F.3d 864 (9th Cir. 2005) (bankruptcy rights can trump state-law determinations; context-specific)
- In re Funches, 381 B.R. 471 (Bankr.E.D.Pa. 2008) (Rooker-Feldman and bankruptcy carve-outs for code-based actions)
- In re Pina, 363 B.R. 314 (Bankr.D.Mass. 2007) (trustee rights under § 544(a) and avoidance against state transfers)
- In re Johnson, 51 B.R. 439 (Bankr.E.D.Pa. 1985) (equitable distribution context; stay relief limited when determining §363(h) rights)
- In re Wilson, 85 B.R. 722 (Bankr.E.D.Pa. 1988) (debtor-in-possession interests and domestic-relations considerations in stay disposition)
- In re Leonard, 231 B.R. 884 (E.D.Pa. 1999) (stay applies to civil contempt when asset disposition is at issue)
- In re Stewart, 325 Fed.Appx. 82 (3d Cir. 2009) (§ 363(h) rights and property when co-owners involved)
- In re Brown, 951 F.2d 564 (3d Cir. 1991) (codifies that bankruptcy rights augment debtor’s property interests)
- In re Murr ay, 31 B.R. 499 (Bankr.Pa. 1983) (balance of equities in stay-relief decisions involving estate disposition)