Barringer v. Eab Leasing (In Re Barringer)Barringer v. Eab Leasing (In Re Barringer)
- Reporters:
- , , ,
- Before:
- Spector
OPINION REGARDING SCOPE OF AUTOMATIC STAY
ARTHUR J. SPECTOR, Bankruptcy Judge.
In January of 1997, George Bar-ringer leased a truck from MPH Vehicle Management Corporation. He defaulted on his lease payments, and the truck was repossessed on March 6, 1999. Two days later, Barringer filed for chapter 13 bankruptcy relief. He then initiated this adversary proceeding by filing a complaint against MPH, which has refused to return the truck to him. (Other entities apparently related to MPH are also named as defendants.) A principal allegation made by the Debtor, who does not claim that repossession of the truck was illegal, is that “failure to turn over [pursuant to
In arguing that a stay violation occurred, the Debtor relies solely upon a recent opinion of the Sixth Circuit Bankruptcy Appellate Panel,
In re Sharon,
234 B.R. 676 (6th Cir. BAP 1999).
See
Plaintiffs Trial Brief at p. 4. The creditor in that case repossessed a woman’s car shortly before she filed for bankruptcy under chapter 13.
Sharon,
234 B.R. at 680. The creditor refused to return the vehicle, so she “filed a Motion for Contempt and Sanctions for Violation of the Automatic Stay.”
Id.
In a 2-to-l decision, the court ruled that the creditor did in fact violate
While Sharon directly supports the Debtor’s position, the case is neither binding nor persuasive. In the sections which follow, we explain the basis for this conclusion.
I. This Court Is Not Bound by In re Sharon
Neither the Plaintiff nor the Defendants addressed the question of whether
Sharon
is binding, and we are disinclined to render
*404
a definitive opinion on the subject without benefit of the parties’ input.
See generally Ladner v. United States,
358 U.S. 169, 173, 79 S.Ct. 209, 3 L.Ed.2d 199 (1958) (choosing to defer consideration of “an important and complex [question until it is] ... adequately briefed and argued”). We instead note only that appeals to the B.A.P. have not been authorized by the Eastern District of Michigan.
See generally
II. The Right of Possession Under
(A)The Derivative/Non-Derivative Distinction
Section 541(a) states:
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
(2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is—
(A) the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.
(3) Any interest in property that the trustee recovers under section 329(b), 363(n), 543, 550, 553, or 723 of this title.
(4) Any interest in property preserved for the benefit of or ordered transferred to the estate under section 510(c) or 551 of this title.
(5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date — •
(A) by bequest, devise, or inheritance;
(B) as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree; or
(C) as a beneficiary of a life insurance policy or of a death benefit plan.
*405 (6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.
(7) Any interest in property that the estate acquires after the commencement of the ease.
Pursuant to this statute, then, there are three sources of estate property: (A) interests owned by the debtor when the case commenced,
see
(B) The Creditor’s Right of Possession
Security agreements frequently provide creditors with a right to seize or repossess the collateralized property in the event of the debtor’s default. Similarly, creditors holding non-consensual liens on the debtor’s property are permitted by statute to levy on the property, thereby acquiring possession of that property. Under either scenario, if the seizure is “lawful,” (by which we mean permissible under the terms of the parties’ contract and/or applicable law), then the creditor holds not only the physical property itself, but also the abstract right of possession. It may well be true that the debtor retains certain rights in or relating to the seized property, such as legal or equitable ownership, a right of redemption, or a right to any surplus from sale of the property. But by definition (since we’re talking here only about legally valid seizures), the debt- or does not have a present right to possess the property.
(C)
This statute states that “an entity ... in possession ... of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee ... such property.”
(D)The Trustee’s Right to Possess Is Non-Derivative
As indicated in part (C) above, a creditor in lawful possession of seized property must nevertheless turn that property over to the trustee if
*406 (E) Whiting Pools Supports This Conclusion
In
Whiting Pools,
the Supreme Court stated as follows:“[Section] 541(a)(1) is intended to include in the estate any property made available to the estate by other [Code] provisions ....
First of all, it is obvious from a cursory reading of
Second, the Court implicitly recognized on numerous occasions that in the context of a lawful pre-petition seizure, the trustee’s rights under
Also noteworthy is the parallel drawn by
Whiting Pools
between
This analogy is significant because property interests recovered by the estate under the avoidance provisions are by definition non-derivative.
See
For these reasons, it is clear to this Court that
Whiting Pools
did not intend to suggest that the “possessory interest” in the seized property enters the estate via
III. The Automatic Stay Does Not Apply .
The filing of a bankruptcy petition “operates as a stay ... of ... any act to ... exercise control over property of the estate.”
(A) The Creditor Retains the Right of Possession Upon Commencement of the Case
A creditor who continues to possess property in which the estate has an interest can be said to “exercise control” over estate property only if the right of possession belongs to the estate. See Fitch, 217 B.R. at 290 (“Since the right to possess the car was not among the property interests which became property of the estate, Auto-flow’s acts to exercise control over the right to possess the car did not violate the stay.”). Under such circumstances, the creditor is (arguably) usurping a property interest owned by the estate — ’that interest being what Whiting Pools described as the “possessory interest.”
When a creditor’s prepetition seizure is lawful, however, the right of possession does not automatically become part of the estate by virtue of
(B) The Turnover Order Transfers the Right of Possession to the Estate
The next question is, at what point during the pendency of the bankruptcy case does the trustee acquire the possesso-ry interest? In this regard, we note that several courts suggest that
We do not necessarily quarrel with the foregoing proposition if the property in question was seized illegally. With respect to property that was lawfully repossessed prior to commencement of the bankruptcy case, however, we can only assume that the premise underlying the “self-effectuating” hypothesis is that the right of possession became estate property when the bankruptcy case commenced. And for reasons explained in Section II of this opinion, that premise is faulty.
A less radical version of the same hypothesis would hold that the turnover duty, while not arising at the inception of the case, is triggered by the trustee’s demand or request for turnover. But this proposition also does not withstand analysis.
For one thing, it must be remembered that we are dealing here with a property interest — the creditor’s right of possession. The contention that a creditor loses that interest on the strength of nothing more than the trustee’s say-so may well be at odds with the Fifth Amendment.
See
Moreover, there is no pre-Code precedent for the proposition that the trustee can unilaterally divest a creditor of its right of possession. See Young, 193 B.R. at 626. Thus if Congress intended to grant such extraordinary power to the trustee, that intent would have to be plainly expressed in the Code. See Cohen v. De La Cruz, 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341, 348 (1998) (“We ... ‘will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure.’ ” (citation omitted)).
The Code, however, gives no such indication. To the contrary, the various qualifications to which the trustee’s right under
Furthermore, the turnover provision does not encompass property “that the debtor may exempt under section 522.”
Finally, “property [which] is of inconsequential value or benefit to the estate” is excepted from the statute’s reach. 11 U.S .C.
In short, there are a range of potentially complex considerations which can enter into a determination that property is or is not subject to turnover. It, therefore, should be no surprise that such a determination is to be made in the context of an adversary proceeding.
See
F.R.Bankr.P. 7001(1);
see also, e.g., In re Perkins,
902 F.2d 1254,1258 (7th Cir.1990) (“A turnover action is an adversary proceeding which must be commenced by a ... complaint.”).
Compare In re Timbs,
178 B.R. 989, 994 (Bankr.E.D.Tenn.1994) (“The courts that have expressly considered the issue have unanimously concluded that ... actions [seeking damages under
Given the many issues that may be relevant to a turnover proceeding, and in light of the fact that the Code explicitly provides the creditor with a right to be heard on some of these issues, we cannot accept the proposition that Congress intended that the trustee’s right of possession under
Conclusion
For the reasons stated, an order shall enter dismissing the complaint insofar as it alleges that in failing to return the truck to the Debtor, the Defendants violated the automatic stay.
Notes
. According to the Debtor, at the time of repossession the truck “contained certain personal property ..., including ... all of [his] ... tools and a satellite system belonging to [his] ... contract employer.” Complaint at ¶ 9. In this opinion, we consider only the question of whether the automatic stay applies to the truck itself, without regard to its contents.
. We express no opinion as to the prece-dential force of such decisions in those districts in the circuit which are on the “BAP track.”
. Perhaps the Court actually meant to refer to
. In fairness to Sharon, we note that other courts have similarly misconstrued Whiting Pools. See NLRB v. Martin Arsham Sewing Co., 873 F.2d 884, 887 (6th Cir.), modified on other grounds, 882 F.2d 216 (6th Cir.1989) (relying upon Whiting Pools for its assertion that “property fraudulently conveyed and recoverable under Bankruptcy Code provisions remains property of the estate”); In re Mort-gageAmerica Corp., 714 F.2d 1266, 1275-77 (5th Cir.1983) (same). We further note that MortgageAmerica, a case favorably cited by the Sixth Circuit, see Arsham, 873 F.2d at 887-88, was implicitly rejected with respect to this point in a subsequent Fifth Circuit opinion. See In re Sherk, 918 F.2d 1170, 1176-77 (5th Cir.1990), overruled on other grounds by Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992).