592 B.R. 679
Bankr. E.D. Wis.2018Background
- Kathy Schonscheck executed two Deere & Company security agreements (2007, 2008) and defaulted on payments; Deere sued in state court (Dec. 2009).
- Schonscheck and her husband filed a chapter 12 petition five days before the state court entered default judgment for Deere (petition filed Jan. 20, 2010; default judgment entered Jan. 25, 2010).
- The bankruptcy clerk mailed notice to Deere shortly after the petition, but the state court and Deere apparently lacked knowledge of the pending chapter 12 when it entered judgment.
- The Schonschecks’ 2010 chapter 12 case was dismissed in March 2014; they filed two additional chapter 12 cases in 2016 that were also dismissed.
- In Nov. 2017 the state court (relying on the 2010 default judgment) issued a writ of replevin; Deere seized collateral. Schonscheck sued in Jan. 2018 seeking a declaration that the 2010 judgment (and the 2017 writ) were void as entered in violation of the 2010 automatic stay.
- The bankruptcy court found no genuine dispute of material fact, considered retroactive annulment of the 2010 stay, and ultimately annulled the stay (and the co-debtor stay) retroactive to Jan. 20, 2010; judgment entered for Deere and costs awarded to Deere.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Jan. 25, 2010 state-court default judgment was void as entered in violation of the § 362(a) automatic stay triggered by the Jan. 20, 2010 chapter 12 filing | Schonscheck: the judgment was entered during an existing automatic stay and is void; relief and damages under § 362(k) are appropriate | Deere: even if the 2010 judgment was entered during the stay, the court should annul the stay retroactively; Deere had the right to repossess and no stay prevented the 2017 replevin | Court: annulled the 2010 automatic stay retroactively for cause under § 362(d)(1), validating Deere’s state-court actions and denying Schonscheck relief under § 362(k) |
| Whether retroactive annulment of the co-debtor stay under § 1201(a) is appropriate | Schonscheck: (implicitly) co-debtor protections should remain | Deere: co-debtor stay should be annulled along with the automatic stay | Court: annulled the co-debtor stay under § 105(a) given the circumstances |
| Whether Deere willfully violated the automatic stay such that § 362(k) damages are warranted | Schonscheck: Deere or the state court willfully violated the stay by relying on a void judgment in 2017 | Deere: any actions were not willful; after Feb. 2017 no stay existed; moreover, annulment negates liability | Court: § 362(k) claim fails—no willful violation shown and annulment precludes liability |
| Whether equitable considerations (delay, abuse of bankruptcy process) justify annulment | Schonscheck: seeks enforcement of stay despite delays and multiple filings | Deere: enforcement now would cause needless repetition and delay; debtors repeatedly failed to complete chapter 12 | Court: equitable grounds (debtor’s conduct, lack of notice to creditor, repetitive filings) justify retroactive annulment |
Key Cases Cited
- Albany Partners, Ltd. v. Westbrook, 749 F.2d 670 (11th Cir. 1984) (recognizes bankruptcy courts’ authority to annul the automatic stay retroactively)
- Mut. Benefit Life Ins. Co. v. Pinetree, Ltd. (In re Pinetree, Ltd.), 876 F.2d 34 (5th Cir. 1989) (annulment appropriate where creditor foreclosed in good faith and redundancy/ delay would result)
- In re Myers, 491 F.3d 120 (3d Cir. 2007) (actions taken in violation of the stay may be revitalized by retroactive annulment in appropriate circumstances)
- In re Lampkin, 116 B.R. 450 (Bankr. D. Md. 1990) (annulment negates the stay’s existence and validates otherwise void actions)
- In re Radcliffe, 563 F.3d 627 (7th Cir. 2009) (willfulness for § 362(k) requires at least minimal awareness of the pending bankruptcy)
- In re Allen, 300 B.R. 105 (Bankr. D.D.C. 2003) (annulment of co-debtor stay under § 105(a) discussed)