Carpio v. Smith (In Re Carpio)Carpio v. Smith (In Re Carpio)
MEMORANDUM OPINION
This matter is before the Court on the complaint to void and set aside the post-petition foreclosure sale of real estate belonging to the debtor, and seeking damages for a willful violation of the automatic stay. A trial was held on July 29,1997, after which the Court took the matter under advisement and granted the parties additional time to submit post-trial briefs. The Court has read the briefs submitted by the parties, has conducted its own independent research and is now ready to rule. The Court determines that all of the elements of
Facts
On October 19, 1993, Angelo Carpió and his wife, Lydia Ann Carpió, executed a promissory note in the amount of $47,135.01 in favor of Bonnie M. Smith for the purchase of 143 acres of real property described as:
The Southeast quarter of the Southeast quarter of Section Twenty-one (21), Township Forty-two (42) North,,Range Seventeen (17) West, in Morgan County, Missouri.
ALSO, the Southwest quarter of the Southwest quarter, the Northeast quarter of the Southwest quarter, the West half of the Southeast quarter of the Southwest quarter, and the West eight-five (85) feet of the East half of the Southeast quarter of the Southwest quarter of Section Twenty-two (22), Township Forty-two (42) North, Range Seventeen (17) West, in Morgan County, Missouri.
Subject to all existent easements, and restrictions and reservations of record, if any. (Hereinafter “the Property.”)
The promissory note was secured by a deed of trust on the Property entered into between the Carpios, Bonnie Smith, and the trustee, Kevin Schehr. The promissory note provided for interest at the rate often percent per annum and for monthly payments in the amount of $477.83 beginning November 15,1993, and payable on the 15th day of each month thereafter until the note was paid in full. The deed of trust and promissory note were recorded on March 15, 1994, in the Recorder’s Office of Morgan County, Missouri.
In September 1996, Angelo Carpió moved out of the residence located on the. Property in connection with the dissolution of his marriage. Carpió continued to make the mortgage payments until November 1996. Thereafter, Carpió ceased making payments because he thought that his wife’s parents were going to make the payments on the note. However, the payments were not being made and on February 24,1997, separate notices were sent to Angelo Carpió and to Lydia Carpió by certified mail from William G. Johnson; who was the attorney representing Bonnie Smith in the foreclosure proceedings, informing them that the successor trustee, J.E. Barnes, Jr., was going to sell the Property on March 18, 1997. Each notice was sent to the street address of the Property. One of the receipts for certified mail purports to have Angelo Carpio’s signature, but at trial Angelo Carpió could not say for sure that it was his signature on the receipt.
At some point after the notice of sale was sent by Johnson, Marvin Opie, who is the attorney representing Angelo Carpió in the dissolution proceedings, contacted Johnson concerning the proposed foreclosure sale. On March 7, 1997, Johnson responded by letter to Opie’s inquiry and stated that the promissory note could be purchased before the scheduled foreclosure sale for the amount of $50,253.40. That figure included $4500.00 for attorney’s fees, $255.60 for the cost of publishing the notice of the foreclosure sale three times, and the amount of $100.00 designated as “O & E.”
The foreclosure sale was scheduled to be held at 1:00 p.m. on March 18, 1997. On the morning of March 18, 1997, Carpió contacted the law office of Gary W. Smith to discuss with him the possibility of filing bankruptcy. An emergency quick-file bankruptcy petition under Chapter 13 of the Bankruptcy Code was prepared and Carpió drove to Kansas City, Missouri to personally file the petition before the scheduled foreclosure sale. Car-pió was successful in that endeavor. The Chapter 13 petition is file stamped 12:15 p.m. on March 18, 1997. However, neither Smith nor Carpió have ever filed a copy or notice of the bankruptcy petition in the Recorder’s Office of Morgan County, Missouri.
At approximately 12:40 p.m. on March 18, 1997, Carpió called Johnson at his office and
Nevada Investments, LLC (“Nevada”) purchased the Property at the foreclosure sale for the sum of $52,000.00. There is absolutely no evidence that Nevada had knowledge of Carpio’s bankruptcy filing prior to the foreclosure sale or prior to recording the Trustee’s Deed Under Sale in the Recorder’s Office of Morgan County, Missouri on March 25, 1997. Nevada first learned of Carpio’s bankruptcy filing when it was served with the complaint in this adversary proceeding.
Johnson retained $4500.00 of the sale proceeds as his collection fee. After payment of the promissory note and other expenses, there was a surplus in the amount of $927.96 that Johnson sent to the Clerk of the Circuit Court of Morgan County to be held by the Clerk pending distribution in the Carpios’ dissolution proceedings.
Nevada presented evidence through a real estate appraiser, Jesse E. Bagby, that the fair market value of the Property was $46,-500.00 as of July 9, 1997. The only other evidence concerning value was Carpio’s testimony that an individual, identified as Zac Zaremba in Carpio’s interrogatory answer number nine, offered to buy the Property in March 1996 for $1000.00 per acre for a total purchase price of $143,000.00. No other evidence of value was offered by Carpió at trial. The Court finds Bagby’s appraisal to be the more credible evidence of value and finds that the Property was worth $46,500.00 on the date of the foreclosure sale.
On May 5, 1997, Angelo Carpió filed a two count complaint against Bonnie Smith; Reid Smith, who is Bonnie Smith’s son; J.E. Barnes, Jr.; and Nevada. In Count I Carpió requests that the Court void and set aside the foreclosure sale of the Property because the sale occurred in violation of the automatic stay. In Count II Carpió seeks an award of damages for the defendants’ willful violation of the automatic stay. Although Lydia Car-pió may have had an interest'in the Property at the time of the foreclosure sale, she has not sought to intervene in this adversary proceeding. At the close of Carpio’s evidence, the Court dismissed Reid Smith from both counts of the complaint because he was not a party to the promissory note or deed of trust, and dismissed Barnes from Count 11 because there was absolutely no evidence that he had any knowledge of Carpio’s bankruptcy filing prior to holding the foreclosure sale. 1
Discussion
Section 362(a)(3) of the Bankruptcy Code provides' that a petition filed in bankruptcy “operates as a stay, applicable to all entities, of ... 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.”
The automatic stay is broad in scope and applies to almost every formal and informal action against the debtor or property of the debtor, except as set forth under (b) ofSection 362 . 2 LAWRENCE P. KING, ET AL., COLLIER ON BANKRUPTCY ¶ 362.04, at 362-34 (15th ed.1996).
The purpose of the automatic stay is to give the debtor a breathing spell from his creditors in which he may attempt a repayment or reorganization plan.... The automatic stay also protects creditors by averting a scramble for the debt- or’s assets and promoting instead an orderly liquidation procedure under which all creditors are treated equally.
Farley v. Henson,2 F.3d 273 , 274 (8th Cir.1993).
This Court has repeatedly opined that actions taken in violation of the automatic stay are void.
See In re Burke,
Other decisions by bankruptcy courts and district courts within the Eighth Circuit reflect agreement that an act done in violation of the automatic stay is void ab initio.
See Eugene L. Pieper,
In two reported decisions the bankruptcy courts described an action violating the automatic stay as “null” or a “nullity.”
See In re Claussen,
On the other hand, other decisions by bankruptcy courts within this circuit show
In other decisions, the position adopted is that an act in violation of the automatic stay is void or at least voidable.
See In re Deppe,
In two reported decisions the bankruptcy courts would only commit to stating that actions taken in violation of the automatic stay are “at least voidable.”
See In re Just Brakes Corporate Sys., Inc.,
Yet another bankruptcy court in this circuit, as voiced in three published opinions, considers an action taken in violation of the automatic stay to be invalid or voidable.
See In re Hutchins,
Finally, one bankruptcy court in this circuit has not taken a definitive stand one way or the other, but recognizes that even if an action in violation of the automatic stay is considered void, equitable considerations may be applied to mitigate the affect of the violation.
See In re Tant,
In
Kalb v. Feuerstein,
The Eighth Circuit has not addressed this issue and in a recent opinion expressly declined to do so.
See Riley v. United States,
This Court sees no reason to depart from its previous position that actions taken in violation of the automatic stay are void ab initio. Ordinarily, at least for this Court, and many others, in the absence of any equitable considerations, that would be the end of the analysis and the foreclosure sale that is the subject of this opinion would be voided and set aside because it occurred in violation of the automatic stay. However, in this case
(a)' Except as provided in subsection :.. (c) of this section, the trustee may avoid a transfer of property of the estate ... that occurs after the commencement of the case ... that is not authorized under this title or by the court.
(e). The trustee may not avoid under subsection (a) of this section a transfer of real property to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value unless a copy or notice of the petition was filed, where a transfer of such real property may be recorded to perfect such transfer, before such transfer is so perfected that a bona fide purchaser of such property, against whom applicable law permits such transfer to be perfected, could not acquire an interest that is superior to the interest of such good faith purchaser. A good faith purchaser without knowledge of the commencement of the case and for less than present fair equivalent value has a lien on the property transferred to the extent of any present value given, unless a copy or notice of the petition was so .filed before such transfer was so perfected..
In
In re Hill,
Pursuant tosection 549(c) , a trustee may not avoid transfers of realty to good faith purchasers for present fair equivalent value and without knowledge of. the commencement of the bankruptcy case, if a copy or notice of the petition has not been filed in an appropriate recording office where the property is located. Good faith purchasers of the estate’s real property, without knowledge of the case, who have given less than present fair equivalent value before a copy of the petition has been filed, will not be protected other than to the extent of a lien for any present value given.
There is a contrary position on this issue. In
In re Servico, Inc.,
[Section 549(c) ] purchasers may seek, and might qualify for,§ 362(d) annulment in which case the transfer would not be set aside as a violation of the automatic stay. This Court is aware that if the automatic stay is annulled in cases where the purchaser fits within§ 549(c) , it will have reached the samé result as if such transfers were initially declared not void. However, this is not a distinction without a difference. By holding all acts in violation of the automatic stay to be void, but considering§ 362(d) annulment of the stay as to certain purchasers, the burden of bringing an action to characterize the transfer has shifted to the purchaser and the purposes of the automatic stay ... are implemented.
Servico,
Under the reasoning of
Servico'
a good faith purchaser has no defense under
Here, the burden is upon Nevada to show that it has satisfied all of the elements of
The evidence was uncontroverted that Nevada had absolutely no knowledge, either actual or constructive, that Carpió had filed for bankruptcy protection until it was served with the complaint in this adversary proceeding.
See id.
Further, the evidence shows that Nevada paid more for the Property than its appraised value. Nevada has satisfied the elements of lack of knowledge and present fair equivalent value. Finally, a copy or notice of Carpio’s bankruptcy petition has never been filed in the Recorder’s Office of Morgan County, Missouri. Because Nevada has shown that it has satisfied all of the elements of
However, since the Court holds that the sale was void except for the
Another ground exists for the recovery by the bankruptcy estate of the collection fee and costs of the foreclosure sale plus interest, and an award to Carpió of the attorney’s fees and costs expended by him in the prosecution of this adversary proceeding along with punitive damages. Pursuant to
In this case, there is no question that Bonnie Smith’s counsel, William Johnson, knew of Carpio’s bankruptcy filing prior to the foreclosure sale. “Under Missouri law, the attorney-client relationship is an agency relationship governed by the same rules which apply to other agencies.”
Southwestern Bell Tel. Co. v. Roussin,
Carpió has filed an application for attorney’s fees for the prosecution of this action in the amount of $750.00. The Court finds the sum of $750.00 to be a reasonable fee. The Court determines that Bonnie Smith is liable to Angelo Carpió in the amount of $750.00 for attorney’s fees plus the costs incurred by Carpió in the prosecution of this action and will direct that she remit the attorney’s fees and costs directly to counsel for Carpió, Gary W. Smith, within twenty days of the date this opinion is filed.
“In ‘appropriate circumstances,’ under § 362(h) the Court may assess punitive damages in addition to actual damages.”
Burke,
The Court will direct the Chapter 13 Trustee to deposit the sums remitted to him by either Johnson, Barnes or Smith in an interest bearing account and hold these sums for a period of at least ninety days from the date the sums are received by the Chapter 13 Trustee. At the expiration of the ninety-day period, the Chapter 13 Trustee shall apply to this Court for permission to distribute the sums remitted to the Chapter 13 Trustee, less the Chapter 13 Trustee’s fee, to the creditors of Angelo Carpió. The Court will review the file and determine if such distribution would be appropriate at that time.
Once again, there is no evidence that Nevada had any knowledge of Carpio’s bankruptcy filing prior to the foreclosure sale. The Court denies any relief against Nevada under section 362(h).
The Court noted above that even though Lydia Carpió may have had an interest in the Property, she has made no attempt to intervene in this action. Be that as it may, Lydia Carpió still may have an interest in the $4500.00 collection fee and the other costs and expenses that were withheld from the sale proceeds plus the accrued interest that the Court has ordered Smith, Barnes and Johnson to remit to the Chapter 13 Trustee. The Court will direct counsel for Angelo Carpió, Gary Smith, to notify Lydia Carpió and her counsel who is representing her in the dissolution proceedings, who was Bruce Colyer as of March 26, 1997, by letter of the Court’s ruling and send each a copy of this Memorandum Opinion. Gary Smith shall send this correspondence to both Lydia Car-pió and her counsel by certified mail within seven days of the date this opinion is filed and Smith shall file a certificate of service with this Court. Smith shall also file with this Court the receipt for certified mail for each letter within five days of his receipt of any or both receipts. The Court will allow Lydia Carpió a period of thirty days from the date the first receipt for certified mail is filed with this Court in which to file a motion requesting a hearing for the purpose of presenting evidence before this Court which shows that she has an interest in the $4500.00 collection fee and the other costs and expenses that were withheld from the sale proceeds plus the accrued interest that have been remitted to the Chapter 13 Trustee. In the event Lydia Carpió fails to file such a motion, the Court will consider her to have waived her right to a distribution of any of the foregoing sums remitted to the Chapter 13 Trustee.
Conclusion
Based on the above discussion, the complaint filed by Angelo Carpió is GRANTED IN PART and DENIED IN PART.
Angelo Carpio’s request that the Court void and set aside the sale of the Property to Nevada Investments, LLC is DENIED, however, the bankruptcy estate shall recover the collection fee and all of the costs and expenses of the foreclosure sale that were withheld from the sale proceeds plus interest. Angelo Carpio’s request for damages pursuant to
It is ORDERED that William G. Johnson remit to the Chapter 13 Trustee within twenty days of the date this opinion is filed the $4500.00 collection fee retained by him out of the sale proceeds along with any sums withheld from the sale proceeds that were used for the payment of costs or any other expenses associated with the foreclosure sale, plus the Missouri statutory rate of interest from the date of the foreclosure sale to the date the foregoing sums are remitted to the Chapter 13 Trustee.
It is ORDERED that J.E. Barnes, Jr. remit to the Chapter 13 Trustee within twenty days of the date this opinion is filed any sums withheld from the sale proceeds that were used for the payment of costs or any expenses associated with the foreclosure sale, plus the Missouri statutory rate of interest from the date of the foreclosure sale to the date the foregoing sums are remitted to the Chapter 13 Trustee.
It is ORDERED that Bonnie M. Smith shall remit to Gary W. Smith within twenty days of the date this opinion is filed the sum of $750.00 for the reasonable attorney’s fees incurred by Angelo Carpió plus the costs incurred by Angelo Carpió in the prosecution of this adversary proceeding.
It is ORDERED that Bonnie M. Smith shall remit to Angelo Carpió within twenty days of the date this opinion is filed the sum of $1000.00 for punitive damages for her willful and flagrant violation of the automatic stay.
It is ORDERED that the Chapter 13 Trustee shall deposit the sums remitted to him from either William G. Johnson, J.E. Barnes Jr., or Bonnie M. Smith in an interest bearing account and hold these sums for a period of at least ninety days from the date the sums are received by the Chapter 13 Trustee. At the expiration of the ninety-day period, the Chapter 13 Trustee shall apply to this Court for permission to distribute the sums remitted to the Chapter 13 Trustee, less the Chapter 13 Trustee’s fee, to the creditors of Angelo Carpió. The Court will review the file and determine if such distribution would be appropriate at that time.
It is ORDERED that Gary W. Smith notify Lydia Carpió and her counsel who is representing her in the dissolution proceedings, who was Bruce Colyer as of March 26, 1997, by letter of the Court’s ruling and send each a copy of this Memorandum Opinion. Gary W. Smith shall send this correspondence to both Lydia Carpió and her counsel by certified mail within seven days of the date this opinion is filed and Gary Smith shall file a certificate of service with this Court. Gary W. Smith shall also file with this Court the receipt for certified mail for each letter within five days of his receipt of any or both receipts.
The Court will ALLOW Lydia Carpió a period of thirty days from the date the first receipt for certified mail is filed with this Court in which to file a motion requesting a hearing for the purpose of presenting evidence before this Court which shows that she has an interest in the $4500.00 collection fee and other costs and expenses that were withheld from the sale proceeds plus the accrued interest that have been remitted to the Chapter 13 Trustee. In the event Lydia Carpió fails to file such a motion, the Court will consider her to have waived her right to a distribution of any of the foregoing sums remitted to the Chapter 13 Trustee.
The foregoing Memorandum Opinion constitutes Findings of Fact and Conclusions of Law as required by
So ORDERED.
Notes
. In the post-trial brief filed by Bonnie Smith, her counsel, who also represented Reid Smith and J.E. Bames, Jr., mistakenly asserts that the Court dismissed both Reid Smith and J.E. Bames, Jr. from both counts of the complaint. However, the Court’s notes reflect, and the tape recording of the trial confirms, that the Court did not dismiss J.E. Barnes, Jr. from Count I of the complaint.
. The circuit judge who wrote the Smith opinion also wrote the Easley opinion.