In re Killmer
501 B.R. 208
Bankr. S.D.N.Y.2013Background
- Debtor filed Chapter 7 on July 9, 2007, received a discharge on Feb. 13, 2008, and the case was closed Apr. 14, 2011; an in rem tax sale and deed transfer of the debtor's property occurred between 2008–2010 while the bankruptcy case remained open.
- Beneficial Home Service, Corp. (Beneficial) later brought a foreclosure action (2013) and, after the owner Patrick Conway moved to dismiss claiming title free of Beneficial’s mortgage, the state court ruled the tax sale did not violate the automatic stay.
- Beneficial moved to reopen the bankruptcy case to seek a determination that the tax sale and deed transfer violated the automatic stay and were void ab initio; Conway opposed reopening and raised service, jurisdiction, finality/statute of limitations, and standing arguments.
- The bankruptcy court considered whether reopening is proper under 11 U.S.C. § 350(b), whether Conway was properly served, whether a creditor may seek relief for a stay violation, whether the tax sale violated the automatic stay, and whether Rooker–Feldman barred collateral attack on the state-court judgment.
- Court found service by first-class mail to Conway’s business/regular place was proper under Fed. R. Bankr. P. 7004(b), that a creditor can seek redress for stay violations, and that the in rem tax sale occurred while the property remained property of the estate, so the sale violated the automatic stay.
- Court granted the motion to reopen, concluding reopening is not futile because the court can annul the stay and declare state-court acts void ab initio; no trustee was required to be appointed.
Issues
| Issue | Beneficial's Argument | Conway's Argument | Held |
|---|---|---|---|
| Reopen case under §350(b) | Reopening is needed to obtain relief (declare tax sale void) | Reopening is futile and case should remain closed | Granted — reopening is proper to permit adjudication of alleged stay violation |
| Service of motion to reopen | Conway was properly served at place he regularly conducts business | Conway not personally served at residence; lack of personal jurisdiction | Service by mail to business address was proper under Bankr. R. 7004(b) |
| Standing to enforce automatic stay / who may seek relief | Beneficial (creditor) may seek relief for stay violation harming creditor | Automatic stay protects debtors; creditor cannot use §362/§350 to benefit itself post-petition | Creditor may seek redress; stay protects creditors as a class and actions in violation are void |
| Validity of tax sale and preclusion / Rooker–Feldman | State-court foreclosure should be void because it violated stay; federal court can annul and declare void ab initio | State-court judgment is final; collateral attack barred by Rooker–Feldman and statute of limitations | State judgment may be collaterally attacked in bankruptcy if void for stay violation; only bankruptcy court can annul stay; reopening not barred by Rooker–Feldman |
Key Cases Cited
- Hillis Motors, Inc. v. Hawaii Auto. Dealers’ Ass’n, 997 F.2d 581 (9th Cir. 1993) (stay protects creditors as a class as well as debtors)
- Martin–Trigona v. United States, 763 F.2d 503 (2d Cir. 1985) (service by first-class mail to business address can support personal jurisdiction)
- Ostano Commerzanstalt v. Telewide Sys., Inc., 790 F.2d 206 (2d Cir. 1986) (debtor may not waive the automatic stay because it protects creditors too)
- 48th St. Steakhouse, Inc. v. Rockefeller Grp., Inc., 835 F.2d 427 (2d Cir. 1987) (acts in violation of the automatic stay are void)
- Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522 (2d Cir. 1994) (proceedings described in §362(a)(1) are void if done postpetition)
- Eastern Refractories Co. v. Forty Eight Insulations, Inc., 157 F.3d 169 (2d Cir. 1998) (same principle regarding voidness of postpetition acts)
- Kalb v. Feuerstein, 308 U.S. 433 (1940) (Congress can make state-court acts nullities under bankruptcy law)
- Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074 (9th Cir. 2000) (bankruptcy courts have exclusive authority to protect federal bankruptcy jurisdiction and annul stays)
- Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374 (6th Cir. 2001) (nonbankruptcy courts may determine stay applicability but erroneous determinations risk later voiding of the action)