Atlas MacHine & Iron Works, Inc. v. Bethlehem Steel Corp. (In Re Atlas MacHine & Iron Works, Inc.)Atlas MacHine & Iron Works, Inc. v. Bethlehem Steel Corp. (In Re Atlas MacHine & Iron Works, Inc.)
This matter comes before the Court on the Defendants’ Joint Motion for Summary Judgment pursuant to Federal Rule of Civil Procedure 56 as incorporated by Federal Rule of Bankruptcy Procedure 7056. This adversary proceeding was transferred by Judge Bostetter to this Court on April 8, 1998. After consideration of the evidence submitted by the parties in support of and in opposition to this motion and the arguments of counsel, the Court makes the following findings of fact and conclusions of law.
Background
Atlas Machine & Iron Works, Inc. (“Atlas”) is engaged in the business of fabricating steel bridge components and conducts operations at its facility in Gainesville, Virginia. On October 24, 1980, Bethlehem Steel Corporation (“Bethlehem”) and Atlas entered into a Loan Agreement, pursuant to which Bethlehem refinanced Atlas’ existing debt to Bethlehem and Mercantile-Safe Deposit & Trust Company through a $5.5 million term loan and a revolving credit loan. To secure this loan, Atlas executed a Deed of Trust and Security Agreement in favor of Bethlehem on October 24, 1980, pursuant to which Bethlehem was granted a security interest in all of Atlas’ assets, including the Gainesville property and its machinery and equipment.
In April 1984, Atlas defaulted under the Loan Agreement and acknowledged their inability to pay the outstanding debt of approximately $16 million. On April 20, 1984, Bethlehem and Atlas entered into a Liquidation Agreement, under which Atlas was to liquidate the collateral securing the debt to Bethlehem and turn over the proceeds to Bethlehem, while Bethlehem advanced additional funds, secured by the existing collateral, to permit the completion of work in progress and the completion of a liquidation. This Liquidation Agreement was to remain in effect until an Event of Insecurity, as defined in the Liquidation Agreement, occurred. Bethlehem notified Atlas that such Event of Insecurity had occurred in January 1987 and demanded the turnover of its collateral. Atlas refused to do so and sued Bethlehem in the United States District Court for the Eastern District of Virginia. This matter was settled and the parties agreed that the
In October 1996, Bethlehem instructed Charles McDonnell Radigan (“Radigan”), named Substitute Trustee under the Deed of Trust, to begin foreclosure proceedings. Radigan retained the firm of R.L. Rasmus Auctioneers (“Rasmus”), which was affiliated at that time with the auctioneering firm of Fox and Associates, to conduct the sales and assist in the advertising and publicity. The sale of the Gainesville property was scheduled for December 5, 1996 and the sale of the machinery and equipment was slated for December 17, 1996. These sales were heavily publicized during the fall of 1996 through newspaper advertisements and the dissemination of information to individuals who had expressed an interest in the sales. Radigan stated in his Affidavit filed with this Court that, in addition to his Trustee fees, Bethlehem incurred more than $30,000 in pre-foreclosure advertising expenses.
On the morning of December 5, 1996, Atlas filed a voluntary Chapter 11 petition, in which it continues to operate as a debtor in possession. Radigan appeared at the site of the auction and announced that the sale would not take place because Atlas had filed for bankruptcy and that the sale would be postponed until December 19, 1996 so that Bethlehem could attempt to obtain relief from the automatic stay provision of 11 U.S.C. § 362. Radigan subsequently published legal notice of the postponement in the
Manassas Journal Messenger,
the same newspaper in which he had run prepetition advertisements of the sale. On December 5, 1996, Bethlehem filed a motion for relief from the automatic stay with the United States Bankruptcy Court for the Eastern District of Virginia and a motion to withdraw the reference from the bankruptcy court with the United States District Court for the Eastern District of Virginia. On December 18, 1996, the District Court denied the motion to withdraw the reference. Radigan again postponed the December 19, 1996 real estate auction date to April 10, 1998, which, as stated in his Affidavit, would provide the Bankruptcy Court adequate time to rule on the motion for relief from stay. Radigan again published legal notice of the postponement in the
Manassas Journal Messenger.
In addition, Radigan sent a letter concerning the postponement to those parties who had previously expressed an interest in the sale.
1
According to the Affidavit of Arthur Miles, President of Atlas, those receiving this letter included creditors, customers, and potential customers. In his Answer to the Amended Complaint, Radigan states that the only persons to whom the letter was sent were those who had previously expressed an interest in the auction or who had registered at the pre-foreclosure meeting. Radigan stated that the reason for postponement of the foreclosure sale was to avoid the duplication of pre-fore-closure expenses incurred by Bethlehem and to maintain the pre-filing level of in
Further advertisement of the sale was posted by Rasmus. This is not disputed by the Defendants. Prior to the first rescheduled foreclosure sale of December 19, 1996, a display advertisement ran in the December 16, 1996 edition of the Washington Post which announced the date and location of the rescheduled real estate auction. At least one other such advertisement appeared in the January 13, 1997 edition of the Washington Post. 2 Further, the sales were advertised on the Fox and Associates’ website. Atlas attached a copy of one such advertisement, dated January 7, 1997, to their complaint. 3 Both Radigan and Bethlehem have denied any knowledge of these advertisements and have sworn in their affidavits that they put a stop to this advertising as soon as they became aware of it. Atlas disputed this contention in their responsive pleadings, however, at summary judgment argument, they admitted that this issue was not in dispute. 4
The Bankruptcy Court denied Bethlehem’s Motion for Relief from the Stay. However, on appeal, the District Court reversed and authorized the lifting of the stay. The foreclosure sale of the real estate occurred on January 12, 1998 and the sale of the equipment was held on March 15, 1998.
Arguments of the Parties
In Count I of its Complaint, Atlas alleges that the Defendants’ actions constitute a willful violation of the automatic stay provision of 11 U.S.C. § 362 and requests that the Court issue a permanent injunction which would prohibit the Defendants from contacting Atlas’ customers or potential customers, from advertising or promoting a foreclosure sale of Atlas’ property, or from any other interference with Atlas’ ability to seek and acquire new contracts.
5
Count II of the Complaint seeks to recover actual damages, costs, and attorneys’ fees pursuant to 11 U.S.C. § 362(h) and an award of sanctions pursuant to 11 U.S.C. § 105. Count III of Atlas’ Complaint alleges that Bethlehem had knowledge of the continued advertising and of the letter to interested parties (via the Ruch Letter, fn 4), and that this constitutes a willful violation of the automatic stay. Because Bethlehem denied any knowledge of this in open court, Atlas further alleges that their
In its Motion for Summary Judgment, the Defendants make two arguments. First, they argue that the postponement of the foreclosure sales was not a violation of the automatic stay since it merely maintained the status quo between the parties. In the alternative, the defendants argue that they should be awarded summary judgment on the plaintiffs § 362(h) claim because Atlas, as a corporation, does not fall under the definition of the term “individual” in that section.
In their Response to the Motion for Summary Judgment Atlas claims, in addition to reiterating the allegations asserted in their amended complaint, that the law of the case doctrine ought to preclude this Court from granting summary judgment. Essentially, they argue that since the Motion for Summary Judgment contains the exact same legal arguments that were contained in their previous Motion to Dismiss, which was overruled on April 30, 1997 by Judge Bostetter, law of the case should preclude the defendants from rearguing matters already determined. Additionally, at oral argument, Atlas asserted that, even in this absence of any knowledge of the Rasmus advertising, the Defendants were under an affirmative obligation to correct the alleged violations and failed to so, creating liability under § 362(h).
It is well established that the law of the case doctrine is discretionary.
Denton v. Ellis,
[Wjhether rulings by one district judge become binding as “law of the case” upon subsequent district judges is not a matter of rigid legal rule, but more a matter of proper judicial administration which can vary with the circumstances. It may sometimes be proper for a district judge to treat earlier rulings as binding, sometimes not.
Hill v. BASF Wyandotte Corp.,
Motion for Summary Judgment
In determining whether to grant summary judgment to the Defendants, the Court looks to Rule 56(c) of the Federal Rules of Civil Procedure which is made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056. Fed. R. Bankr.P. 7056. Pursuant to this Rule 56(c), the Court will grant summary judgment if two elements are proven. First, the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact.” Fed.R.Civ.P. 56(c). The second element is that “the moving party is entitled to a judgment as a matter of law.”
Id.
“In considering a motion for summary
The moving party bears the burden of showing, by a preponderance of the evidence, that there is no genuine issue as to a material fact.
Md. Highways Contractors v. State of Md.,
The moving party is entitled to summary judgment as a matter of law where the nonmoving party has “failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.”
Celotex Corp. v. Catrett,
CONCLUSIONS OF LAW
“The purpose of the automatic stay is to give the debtor a breathing spell from his creditors, to stop all collection efforts, harassment and foreclosure actions.”
6
In re Roach,
The Fourth Circuit has determined that to constitute a willful violation under § 362(h), the creditor “need not act with specific intent but must only commit an intentional act with knowledge of the automatic stay.”
Citizens Bank of Maryland v. Strumpf
The first question facing this Court is whether the acts undertaken were, in fact, violations of the stay. If the acts constitute stay violations, this Court must determine whether or not there was a “willful violation,” as defined by the Fourth Circuit.
Do the Postponements, Legal Advertisements and Letter to Interested Parties Constitute Violations of the Automatic Stay?
The Court’s analysis begins with a determination of whether summary judgment ought to be granted in reference to the postponements of the sales, the two legal advertisements placed in the
Manassas Journal Messenger
which postponed the foreclosure sales, and the Radigan Letter, sent to interested parties.
8
The initial question before the Court is whether these acts were a violations of the stay. This Court finds that these specific acts are not violations of the automatic stay because
The automatic stay, though broad, does not preclude all post-petition creditor activity.
In re Roach,
Courts in other circuits have similarly held that such postponement is not a violation of the automatic stay. In In re De Jesus Saez, the First Circuit found that a creditor, after learning of the debtor’s Chapter 13 filing, did not violate the automatic stay by rescheduling the foreclosure auction and advertising the new date:
[This creditor] did, however, petition the bankruptcy court to lift the stay and we have no reason to imagine he would have proceeded with the auction had the chapter 13 petition not been dismissed. .. .Like the creditor in Roach, [this creditor] did little more than reschedule the auction and advertise the new date from the time he learned of the petition until its dismissal. It was not shown that these preparatory acts either harassed [the debtor] or revived “the financial pressures that drove [her] into bankruptcy.”
In
Zeoli v. RIHT Mortgage Corp.,
The postponement of a foreclosure sale is certainly an “act.” But, it is not an act in “continuation” of a proceeding “against the debtor” prohibited by § 362(a)(1). Rather, it is more appropriately characterized as an act in preservation of a stayed proceeding. The arrow of time, immune to the Bankruptcy Code’s automatic stay provisions, is the critical variable in this case. Time does not stand still for legal processes. Here, its passage, combined with [the creditor’s] “act of not acting” to postpone the sale, would have entirely expunged the stayed foreclosure proceeding, thereby disrupting the status quo to the economic detriment of [the creditor], while conferring no discernable benefit on the debtor.
Id. at 701. The court further noted that:
Duplicated foreclosure costs rarely, if ever, inure to the benefit of the debtor. If there is equity in the property those duplicative costs will ordinarily be deducted from the sale proceeds, funds which otherwise would be applied for the debtor’s benefit. In the event there is no equity in the property, those duplica-tive costs at best unfairly reduce the recovery to which the secured creditor is legitimately entitled.
Id.
A court within the Fourth Circuit has recently ruled on this issue of postponement.
First Union Nat’l Bank v. Clayton,
There is no question that actually conducting the sale on a date in the future would be a violation of the automatic stay. However, this Court finds that the postponement of the sale in this instance was a defensive or responsive action taken by [the creditor].... Because of the automatic stay associated with [the debtor’s] new Chapter 7 petition, filed only one day before the previously scheduled foreclosure sale, the only appropriate action for [the creditor] to take was to postpone the sale.... [The creditor’s] action in thisregard cannot be viewed as an effort to harass [the debtor] or to gain any advantage by postponing the foreclosure sale....
Id. at *7-*8.
Atlas cites several cases for the proposition that advertising a foreclosure sale post-petition is precluded by the automatic stay. In
In re Franklin Mortg. & Inv. Co., Inc.,
Atlas further argues that the Radigan letter was a violation of the automatic stay. They cite the case of
Divane v. A & C Electric Co., Inc.,
“[Communications from the creditor to third parties can fall within the scope of Section 362(a)(6) so long as the communications are factually deemed to be an ‘act to collect’ — that is, if they are done with the intent to collect the debt and if they have the effect of coercing or harassing the debtor....”
Id.
at 859-60.
In re Olson,
This Court agrees with the Defendants and finds that, as the majority of courts in similar scenarios have ruled, that the postponements of the foreclosure sales, the legal notices accompanying them, and the letter to interested parties were actions taken to maintain the status quo and are not violations of the automatic stay. Accordingly, there is no need to address whether the Defendants acted willfully. The postponement, the legal notices and the letter to interested parties were not acts in continuation of a proceeding
Washington Post and Internet Advertising
The Defendants by Affidavit have affirmed under oath that they did not have prior knowledge of the advertising in the Washington Post and on the Internet (“Rasmus Advertising”) and had not authorized it. Further, they affirm that once they became aware of such advertising, they put an end to it. Counsel for Atlas stated to the Court, in summary judgment argument, that there is no factual issue in dispute as to whether the defendants had knowledge of the Rasmus Advertising and' could offer no evidence to contradict the affirmation of the Defendants that they had no knowledge of the Rasmus Advertising. 11 As discussed supra, the Fourth Circuit has determined that the standard for a willful violation of § 362 is an intentional act done with knowledge of the stay. No specific intent is necessary. Since it is undisputed that both Defendants had knowledge of the Bankruptcy, the remaining issue is whether summary judgment should be granted as to whether the Defendants committed an intentional act with knowledge of the automatic stay. This presents the issue of whether a party, who has no knowledge of third party acts in possible violation of the stay, can be held to have violated the stay. Atlas argues that, under agency theory, the Defendants can be found to have willfully violated the stay, even though they had no actual knowledge, of the auctioneers’ display advertisements in the Washington Post and on their website.
An agency relationship arises by agreement or consent of the parties that one shall act as agent for another.
Eitel v. Schmidlapp,
The Court has found one case on point in which the bankruptcy court refused to impose liability on a creditor who did not direct her attorney to take actions to collect a debt in violation of the stay.
In re Rhyne,
The Court has found few cases in which a principal has been held to have violated the automatic stay based on acts of his agent.
12
In re Sechuan City,
In
In re Sumpter,
In
In re Fowler,
The contemptuous conduct of [the creditor], then, can only be viewed as unintentional. Superimposed upon that finding, however, is that the principals of agency law dictate that, as between a principal and a third party dealing with an agent of that principal, a third party should and must be able to rely upon the acts of the agent which are performed with either actual or apparent authority. The principal in this case, [ ], vested its agents.. .with authority to make collection efforts on its behalf. [The creditor] voluntarily chose its agents, and thus must bear some responsibility of its agent’s actions in this case.
Id. at 597.
This Court disagrees with the outcome of
In re Fowler
in its application of agency law to the automatic stay provision. This Court is mindful of Supreme Court and
Furthermore, the assertions of Atlas that the Defendants’ failure to correct the alleged stay violations by reason of the Rasmus Advertising exposes them to liability under § 362(h) must also fail factually in the face of the inability of Atlas to refute the sworn affirmation of the Defendants that they stopped the advertisements upon obtaining actual knowledge of their existence. Regardless of what duties may be imposed by law to terminate alleged stay violations of a third party agent, it is factually undisputed that the Defendants caused the cessation of the Rasmus Advertising upon learning of same. Therefore, the Defendants are entitled to summary judgment as a matter of law.
Since no genuine issue as to a material fact exists and the Defendants are entitled to judgment as a matter of law, this Court awards full summary judgment in favor of the Defendants. As an alternative ground for the entry of summary judgment in favor of the Defendants, they argue that a corporation may not seek relief under § 362(h). While the Court, by necessity, need not reach this issue based upon its ruling
supra, Budget Serv. Co. v. Better Homes of Va.,
Accordingly, the Court need not rule on the issue of whether the Rasmus Advertising was done in violation of the automatic stay. The Court merely notes that non-creditors may be held accountable for violations of § 362.
See, e.g., In re Colon,
Conclusion
In summary, this Court GRANTS the Defendants’ Joint Motion for Summary Judgment. The Clerk shall forward copies of this Memorandum Opinion and Order to counsel for Bethlehem, counsel for Charles Radigan, and counsel for Atlas.
Notes
. This letter states, in part:
Please be advised that because of the bankruptcy filing by Atlas Machine & Iron Works, Inc., it will be necessary to further postpone the foreclosure of the property located at 1-66 and Route 29-211. The Court did not grant Bethlehem Steel Corporation’s preliminary motion to remove the stay of proceedings against the debtor. In order to allow time to complete the legal approvals necessary to proceed with the foreclosure, it is necessary to postpone the foreclosure of the property until April 10, 1997... .The equipment sale will take place on April 17, 1997... .You will be given further notice as the time for the sale approaches ....
Exhibit 8 of Amended Complaint.
. The Court is unsure of the exact number of display advertisements run in the Washington Post and other similar media outlets. Miles' Affidavit states "Bethlehem and Radigan placed and continued prominent advertisement of the sale of Atlas’ real and personal property, including advertisements appearing in the Washington Post as late as January 13, 1997.”
. Arthur Miles stated in his Affidavit that he saw "continued advertisements” on this website. Miles Affidavit, ¶ 13.
. Count III of Atlas’ Complaint alleges that Bethlehem had knowledge of the continued advertising by the auctioneers and of the Ra-digan Letter to interested parties by reason of a letter written by Radigan to Matthew Ruch [Ruch Letter], Director of Financial Services for Bethlehem, and that this constitutes a willful violation of the automatic stay. The letter to Ruch stated, in part:
It is my inclination to postpone the sale to March 20, 1997 at 11:00 which would give sufficient time for the Bankruptcy Court to conclude a hearing on the merits regarding lifting of the bankruptcy stay. I suggest that I write each "interested party” on the list about the postponement. If this is agreeable with you, I will place another ad in the newspaper to be published on December 26, 1996 regarding the further postponement of the sale. After the Bankruptcy Court has acted, we can then determine whether or not to readvertise and to what extent we will publicize the sale through the efforts of Messrs. Rasmus and Dudley.
This letter was copied to Bethlehem’s general counsel and counsel of record in this case. Exhibit 7, Amended Complaint.
.A Preliminary Injunction, enjoining the Defendants from "taking any further action to advertise or publicize in any way a foreclosure sale” was entered by Judge Bostetter on February 25, 1997. This order was modified on April 8, 1997 to ensure that notice of cancellation of the foreclosure sales, unless and until further notice from the Court, was published in several media outlets.
. Section 362(a) prohibits, inter alia, the following post-petition acts:
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debt- or that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against properly of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title.
11 U.S.C. § 362(a) (1998).
. Section 105(a) states, in part, "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” Courts have held that this section may be used to remedy violations of the automatic stay.
In re Just Brakes
. There appears to be no genuine issue as to any material fact with regard to these events. The Radigan Affidavit acknowledges that he postponed the sales, placed both legal advertisements of the postponements in the Manas-sas Journal Messenger and sent the letter to interested parties. Radigan Affidavit ¶¶ 6, 7. Radigan notified Bethlehem of the second postponement and of the letter to interested parties in his letter to Ruch, dated December 19, 1996. See fn. 4, supra. (Atlas contends that this letter also constitutes notice of the additional display advertisements in the Washington Post and on the auctioneer’s website. The Court will discuss this, infra.)
However, Bethlehem denied in open Court that they knew of the continuing advertisements and the letter sent to interested parties.
See
Amended Complaint, Exhibits 5, 6. Because this Court finds that the postponements of the sales, the two legal advertisements placed in the
Manassas Journal Messenger,
and the Radigan Letter are not violations of the automatic stay, Bethlehem's denial of the continuing advertisements (in the
Manassas Journal Messenger)
and the letter sent to interested parties is not a genuine material issue.
See Anderson v. Liberty Lobby,
. The debtor contends that the breadth and continuing validity of
Roach
have been called into question. It cites the case of
In re Fritz,
. Atlas refers this court to the case of
Soares v. Brockton Credit Union,
. The Court has considered the import of the Ruch Letter (fn. 4, supra), wherein Radigan suggested to Ruch that he write to parties who had expressed interest in the sale and "place another ad in the newspaper to be published on December 26, 1996 regarding the further postponement of the sale.” Amended Complaint, Exhibit 7. In Count III of the Amended Complaint, Atlas alleges that Radigan suggested in the Ruch Letter that he place additional advertisements. This Court notes that the actual letter referred to placing only one advertisement. On the record before it, this Court has no way of knowing whether the advertisement referred to was one of the legal notices published in the Manassas Journal Messenger, which this Court has held not to be a violation of the stay, supra, or one of the display advertisements published in the Washington Post or the auctioneers' website.
In the face of Atlas' admission that there is no factual dispute, this Court finds that the statement in the Ruch Letter presents no more than a mere scintilla of evidence that the Defendants had knowledge of these advertisements and that Atlas has not set out sufficient facts to demonstrate a genuine issue of material fact as to this knowledge. The non-moving party must do more than present a "scintilla” of evidence in its favor.
Anderson v. Liberty Lobby, Inc.,
. The Court has found cases in which knowledge of the bankruptcy petition has been imputed to a creditor.
In re Carpio,