Lead Opinion
M & M Auto Outlet — Wyoming, Inc. appeals the merits portion of a Bankruptcy Appellate Panel decision affirming the Wyoming bankruptcy court’s determination that M & M willfully violated the automatic stay of 11 U.S.C. § 362 by repossessing a pickup truck after a Chapter 13 bankruptcy petition had been filed. M & M’s appeal presents a host of issues, including the finality of the BAP decision, the burden of proof required by § 362, the meaning of “willful” under § 362, and the application of that definition to M & M’s actions.
Background
This tortured tale about “a truck and those that would possess it” began when Debtors Tommy Dean and Candice Ann Johnson purchased a pickup truck from M & M. Johnson v. Smith (In re Johnson),
Debtors financed the rest of the purchase price. The terms of thе financing required repayment over thirty months at a sixteen percent interest rate, with the
M & M informed Debtors that Wells Fargo would contact them within ten days of the vehicle purchase, although the parties dispute the purpose of this call. According to M & M, the call was intended to allow Wells Fargo to conduct a loan interview, a fact which M & M alleges Debtors were aware of given their past аttempts to finance a vehicle purchase with M & M. Debtors believed the call was meant merely to inform them how to make loan payments. Debtors assumed, based on a previous vehicle purchase through M & M and a document entitled “M & M Auto Outlet Casper*Gillette*RockSprings Your [sic] Approved! ” that appeared to indicate loan approval, that Wells Fargo had already approved the financing arrangement. (App. at 61-62 (Bankr.Ct. Order at 4-5).)
Regardless, Wells Fargo either did not call Debtors or was unable to reach them. Testimony illustrated that on or around April 25, 2004, Debtors called Wells Fargo in order to ascertain how to make the upcoming initial loan payment. Wells Fargo informed them that it had no account in their name. Debtors then called M & M. M & M required that Debtors supply additional paperwork, which they apparently delivered on April 30, 2004, thе due date for the first payment. According to Debtors, M & M represented that it would contact Wells Fargo to obtain the payment information for Debtors, but did not do so. Debtors, therefore, did not make their initial loan payment.
Just days later, on May 6, 2004, Debtors filed a Chapter 13 bankruptcy petition. That petition listed Wells Fargo as a secured creditor and M & M as an unsecured creditor. The court sent out notice of Debtor’s bankruptcy to all listed creditors. Debtors erroneously listed M & M’s physical address on the petition, rather than M & M’s postal mailing address. Accordingly, M & M never received official notice of the bankruptcy proceeding.
On either May 10 or May 13, 2004, M & M repossessed the pickup truck. On May 13, 2004, Debtor’s attorney contacted M & M and spoke to its vice-president, informing him of the bankruptcy and demanding the vehicle’s immediate return. M & M refused because the vice-president bеlieved that the call was merely a ruse put on by Debtors in an attempt to illegally recover the pickup truck.
A flurry of litigation followed. On May 20, 2004, Debtors filed a complaint against M & M alleging violation of the automatic stay under 11 U.S.C. § 362 and seeking declaratory and compensatory relief. Debtors also filed a motion for a temporary restraining order (“TRO”) seeking to enjoin any potential sale of the vehicle and to obtain possession of the vehicle. The bankruptcy court granted Debtor’s TRO motion and ordered M & M to deliver the vehicle to Debtors. Debtors moved to amend their complaint in order to request turnover of the vehicle title in addition to the previously requested relief. Debtors also filed a separate motion requesting turnover of the vehicle title.
M & M сomplied with the TRO order. Due to confusion over the vehicle’s location at the delivery site not attributable to M & M, however, Debtors were unable to retrieve the vehicle. As a result, Debtors filed a “Motion for Expedited Impositions of Sanctions and Order Directing Marshall to Collect Property.” The motion was ren
The bankruptcy court then granted Debtors’ motion to amend their complaint. Following Debtors’ filing of the amended complaint, M & M moved to dismiss the action. Thereafter, M & M filed a motion to modify the automatic stay in order to repossess and sell the pickup truck or, in the alternative, to require Debtоrs to assume or reject the Sales Contract. The bankruptcy court denied M & M’s motion to dismiss and held an evidentiary hearing in order to address the outstanding motions.
The bankruptcy court subsequently granted Debtors’ various motions requesting the vehicle title and denied M & M’s request for relief from the automatic stay. In addition, the bankruptcy court ruled in favor of Debtors on their amended complaint, finding that M & M willfully violated § 362. The bankruptcy court deferred assessing damages until it held an additional evidentiary hearing on that issue.
M & M issued a new title reassignment pursuant to the bankruptcy court’s order. That title, however, listed M & M as the lienholder rather than Wells Fargo.
The bankruptcy court then held the evi-dentiary hearing to determine the amount of damages stemming from M & M’s willful violation of the stay. In its order on damages, the bankruptcy court required M & M to provide Debtors with a title clear of M & M’s lien and awarded $6,198.23 in damages. Specifically, the bankruptcy court awarded Debtors $937.50 for loss of use of the pickup truck, $5,028.50 in attorney’s fees, and $232.23 in costs.
M & M appealed the grant of the TRO, the denial of the motion to dismiss, the order requiring turnover of the vehicle title, and the merits decision to the BAP. The BAP affirmed the bankruptcy court’s decision on the merits, but reversed the bankruptcy court’s damages award on loss of use due to insufficient evidence, vacated the attorney’s fees, and remanded that issue for further proceedings. Those proceedings regarding attorney’s fees remain outstanding.
M & M now appeals the merits portion of the BAP’s decision.
Analysis
I. Jurisdiction
On March 23, 2006, this court issued an order to show cause why this appeal should not be dismissed for lack of jurisdiction. Specifically, we questioned whether the BAP’s decision was a final, appealable order when further proceedings were required to resolve damages. Recognizing that the BAP remanded only for a redetermination of attorney’s fees, we now hold that our jurisdiction is appropriate under 28 U.S.C. § 158(d). See Budinich v. Becton Dickinson & Co.,
II. Automatic Stay Violation
Under § 362(a)(3), a Chapter 13 petition triggers a stay against any act aimed at obtaining possession of property belonging to the debtor’s estate. Section 362(k)(l) provides in part that an individual injured “by any willful violation” of the automatic stay “shall recover actual damages, including costs and attorneys’ fees.”
Although M & M appeals the BAP decision, we independently review the bankruptcy court’s decision, conducting de novo review of its legal determinations and clear error review of its factual determinations. Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete),
M & M argues that the bankruptcy court failed to apply the proper burden of proof in analyzing whether M & M’s repossession of the vehicle constituted a “willful” violation of the automatic stay. Specifically, M & M asserts that the evidence of its knowledge of Debtors’ Chapter 13 petition should have been established by clear and convincing evidence, not by a preponderance of the evidence. As a consequence, M & M contends that the bankruptcy court erroneously concluded that M & M had sufficient knowledge of Debtors’ Chapter 13 petition to willfully violate § 362.
A. Standard of Proof
The burden of proof needed to establish a willful violation under § 362(k)(l) is less than certain in this circuit. Compare In re Sullivan,
The BAP decision here correctly concluded that willful violations of the automatic stay provision must be established by a preponderance of the evidence. In arriving at this conclusion, the panel suggested that the Diviney panel’s choice of the clear and convincing standard was merely applying, without considering, the standard employed by the district court in that case. A plain reading of Diviney belies that assertion. In view of our affir-mance of the BAP’s correct application of the preponderance of the evidence standard, we make clear that Diviney incorrectly applied the wrong standard of proof.
In Grogan v. Garner,
No aspect of the instant circumstance suggests that a stricter standard should apply. The automatic stay is crucial to effecting the fresh-start policy, see Midlantic Nat’l Bank v. N.J. Dep’t of Envtl. Prot.,
Further support for employing the preponderance standard is found in the text of § 362(k)(l), which imposes a condition for recovery of punitive damages but not for actual damages, attorney’s fees, or costs. Cf. Ramirez v. Fuselier (In re Ramirez),
B. Meaning of “Willful”
This court has yet to define “willful” in the § 362 context. A number of courts in this circuit cite In re Diviney’s definition of “willful.” Although not incorrect, that definition is based in part on our decision in C.I.T. Financial Services, Inc. v. Posta (In re Posta),
We agree with the interpretation of “willful” provided by a large number of courts that have analyzed § 362(k)(l). Thus, we hold that in order to demonstrate a violation of § 362(k)(l), the debtor bears the burden of establishing, by a preponderance of the evidence, that the creditor knew of the automatic stay and intended the actions that constituted the violation; no specific intent is required. See, e.g., Brown v. Chesnut (In re Chesnut),
Applying this definition to the facts of the instant action, we cannot say that the bankruptcy court was clearly erroneous in finding that M & M possessed sufficient knowledge of Debtors’ bankruptcy to warrant a conclusion that M & M’s refusal to return the pickup truck constituted a willful violаtion of the automatic stay. On May 13, 2004, Debtors’ attorney telephoned M & M’s vice-president and demanded the immediate return of the repossessed vehicle. This fact was established via an affidavit submitted by Debtors’ attorney. The M & M vice president testified that Debtors’ attorney’s manner was “abrupt and harsh” (App. at 242) and, in his experience, unlike that of other debtors’ counsel. He also testified that Debtors’ attorney failed to offer any documentation that might prove that Debtors in fact had filed for bankruptcy. As a result, he believed the telephone call was a scam designed to trick M & M into returning the otherwise lawfully repossessed vehicle.
The bankruptcy court determined that Debtors’ counsel’s telephone call to M & M’s vice-president placed M & M on actual notice. We agree. First, the vice prеsident testified that immediately after the telephone call with Debtors’ counsel ended, he “called several employees in to sound it off them” because he was suspicious about the veracity of the attorney’s assertions. (App. at 243.) Second, the vice president testified that, because Debtors previously had filed for bankruptcy, he did not believe that enough time had passed since that filing to render them eligible to refile.
The dissent overemphasizes the degree to which the bankruptcy court credited the
The dissent’s reliance on the “reasonableness” of M & M’s excuses is irrelevant. Willfulness is to be “liberally construed to bolster the protections of the automatic stay,” In re Sharon,
Although Debtors presented limited evidence about the nature of the phone call, they nevertheless proved the automatic stay violation by a preponderance of the evidence. That conclusion is consistent with the factual findings made by the bankruptcy court over the course of this protracted litigation, factual findings that we cannot say are clearly erroneous. See Coons v. City of Siloam Springs (In re Coons),
III. Nature of the Sales Contract
M & M argues on appeal that the Sales Contract is an executory contract that, in accordance with 11 U.S.C. § 365, Debtors must either accept or reject. This argument, made in conjunction with M & M’s contention that Debtors breached the Sales Contract, constitutes a clever attempt to force Debtors to cure their alleged breach while accepting the contract, as mandated under § 365(b)(1). Forcing Debtors to accept the Sales Contract at this late date also gives M & M a second chance to perfect its lien. Obviously, rejecting the Sales Contract would cause Debtors to lose the vehicle.
According to the widely adopted classic definition provided by Professor Countryman, an executory contract is “a contract under which the obligation of both the bankrupt and other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing performance of the other.” Vern Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn. L.Rev. 439, 460 (1973). M & M contends that both parties’ substantial remaining obligations render the Sales Contract executory. According to M & M, Debtors were obligated to make payment in full, provide necessary residency and income verification documentation, and complete a financing interview with Wеlls Fargo. For its part, M & M remained obligated to transfer the vehicle title to Debtors after the final installment payment was tendered.
We disagree with M & M’s characterization of the Sales Contract. As the bankruptcy court pointed out, Debtors paid the entire down payment in accordance with the deferred payment schedule and delivered all requested, extracontractual documentation. Nor do we disagree with the bankruptcy court’s determination that Debtors’ failure to complete the financing interview was not attributable to them. Debtors’ sole obligation to tender installment payments and M & M’s sole obligation to release the lien when handing over the vehicle title are insufficient to warrant classifying the Sales Contract as executory. A host of courts have found similar autоmobile retail installment contracts nonexecutory in nature. See, e.g., In re Steffen,
IY. Lien Avoidance
M & M also argues that the bankruptcy court improperly released M & M’s lien on the vehicle when it ordered M & M to turn over the vehicle title. State law governs whether a property interest has been perfected. See Butner v. United States,
Only after the bankruptcy court ordered return of the vehicle as well as the turnover of the vehicle title did M & M attempt to note a lien on the title in the amount of $0.00. This action failed to satisfy the requirements of Wyoming law, prompting the bankruptcy court to observe that M & M made the notation “out of spite.” (App. at 55 (Damages Order at 5).)
The court also noted that M & M did not seek relief from the automatic stay before attempting to note its lien. As a result, it was entirely proper for the bankruptcy court to prevent M & M’s attempt at perfecting its lien post-petition. See Obuchowski v. Union Bank (In re Cottrell),
Conclusion
For the foregoing reasons, we AFFIRM the determination by a preponderance of the evidence that M & M willfully violated the automatic stay, that the Retail Installment Contract and Security Agreement was not an executory contract, and that M & M was properly denied its post-petition attempt to perfect its lien.
Notes
. Debtors promptly tendered the $300 payment.
. Neither Wells Fargo nor M & M ever properly perfected the lien in accordance with Wyoming law.
. The bankruptcy court found that the title listed M & M as the holder of a lien in the amount of $0.00.
. Section 362(k)(l) was previously designated subsection (h). This opinion uses the most recent designation.
. An overwhelming majority of courts addressing this issue have elected the preponderance of the evidence standard, a number basing that decision upon Grogan and this quote in particular. See, e.g., Westman v. Andersohn (In re Westman),
. Section 523(a)(6) excepts from discharge any "willful and malicious injury by the debt- or to another.”
. In Jardine’s Professional Collision Repair, Inc. v. Gamble,
This construction is inconsistent with the fact that objections to dischargeability are narrowly construed because discharge is favored, while the automatic stay is a fundamental protection given to tire debtor designed to stop all activity by creditors against the debtor or property of the estate*1172 during the pendency of a case, unless and until modified by court order.
In re Gagliardi,
. M & M argues that this good faith belief immunizes its violation of the automatic stay. As noted above, however, good faith belief is irrelеvant in determining whether an automatic stay violation was willful.
. Wyoming requires that: (1) "[a] financing statement or security agreement must be filed in the office of the county clerk of the county in which the vehicle is located” and (2) "[a] notation of the security interest must be endorsed on the certificate of title to the vehicle or motor vehicle, the endorsement to be made concurrently with the filing of the financing statement or security agreement.” Wyo. Stat. Ann. § 31-2-801.
Concurrence Opinion
concurring:
I concur, but write separately to clarify why, in my view, the district court did not commit clear error in finding that M & M willfully violated the automatic stay. In its “Order On Damages,” the bankruptcy court found that “M & M had actual notice of the bankruptcy filing on May 13, 2004 when the Debtors’ attorney [Ken McCartney] spoke with Keith Smith, a vice president of M & M, and requested M & M return the repossessed Chеvy.” App. at 53-54. This finding is amply supported by the testimony of Smith. Smith testified that in mid-May 2004, McCartney contacted him by telephone. Id. at 170. Smith further testified that “McCartney said that he was counsel for the Johnsons and that they were in bankruptcy,” and that McCartney “suggested] that [M & M] ... return the truck immediately to the John-sons at their address.” Id. at 171. In short, Smith acknowledged that he was advised that (a) the Johnsons had filed for bankruptcy, (b) were represented by counsel, and (c) that M & M had a legal obli
According to the record, Smith chose not to believe McCartney for two reasons. First, Smith testified he was aware “that the Johnsons had prior been in bankruptcy and [he] felt that it was too quick for them to be in a bankruptcy” again. Id. In other words, Smith, despite being a non-lawyer, reached a legal conclusion that the John-sons were ineligible to file for bankruptcy in May of 2004. Second, Smith testified that his “guard went up” due to McCartney’s rude and gruff demeanor. Id. According to Smith, when he began questioning McCartney about the information he had provided, McCartney’s “voice got louder” and McCartney became upset. Id. Smith also noted that McCartney “did not offer to fax [him] a notice that [the John-sons] were in bankruptcy or anything of the meeting.” Id.
The bankruptcy court concluded, in assessing this testimony, that, even assuming McCartney was “rude and gruff’ as asserted by Smith, “M & M had a responsibility to investigate further if it seemed Mr. McCartney [the Johnsons’ attorney] was making false representations.... ” Id. at 54. In my view, this conclusion is entirely reasonable. To the extent that Smith questioned McCartney’s veracity, either due to McCartney’s demeanor or to Smith’s own faulty legal reasoning, Smith could and should have taken reasonable steps to investigate Smith’s assertions.
In taking issue with the district court’s finding and related conclusion, the concurring/dissenting opinion suggests that Smith in fact attempted to make further inquiry “by asking counsel to fax him the cover sheet of the Johnsons’ bankruptcy petition,” but that Smith’s request “was rebuffed....” Cone, at 1178. Importantly, however, the bankruptcy court made no such finding. Moreover, Smith’s own testimony on this point, which amounts to a single sentence, is ambiguous: “Nor did he [McCartney] offer to fax me any proof and when I challenged him on that, he got extremely upset.” App. at 171. Because it is well-established that it is not the function of an appellate court “to decide factual issues de novo,” Zenith Radio Corp. v. Hazeltine Research, Inc.,
Concurrence Opinion
concurring in part and dissenting in part:
I join the majority of the court’s opinion, but I respectfully dissent from its conclusion that M & M willfully violated the automatic stay by failing to return the Chevy pickup after receiving a telephone call from the Johnsons’ attorney.
To prove a violation of the automatic stay, the Johnsons “bear[ ] the burden of establishing, by a preponderance of the evidence, that [M & M] knew of the automatic stay and intended the actions that constituted the violation.” Ct. Op. at 1172. M & M cannot have wilfully violated the stay unless it had actual notice of it. See id. at 1172. “Notice is regarded as actual where the person charged with notice either knows the particular facts in question or is conscious of having the means to knоw them, even though such means have not been used.... Actual notice embraces those things that reasonably diligent inquiry and exercise of the means of information at hand would disclose.” 58 Am. Jur.2d Notice § 4 (2002).
The dispute in this case arises from two nearly simultaneous events: the Johnsons filed for bankruptcy on May 6, 2004, and M & M repossessed the Chevy pickup on either May 10 or May 13. ApltApp. at 63. The bankruptcy court found — and the par
Specifically, Mr. Smith testified that he frequently dealt with customers’ bankruptcies as part of his job responsibilities. Id. at 174. Therefore, he was accustomed to speaking with bankruptcy attorneys, and he was familiar with the court-provided notice sent to creditors in conjunction with the filing of a bankruptcy petition. Id. at 170-71. However, Mr. Smith did not know the Johnsons’ counsel, and he testified that he harbored serious doubts about the truth of counsel’s assertions because “it wasn’t [like] any phone call I’ve ever taken in my professional career in regards to bankruptcy matters. Certainly from an attorney.” Id. at 172. He further testified: “[i]n a very abrupt and harsh manner [counsel] explаined that we better get our act together and return the vehicle, at which time I started questioning him and he just got downright irate with me so that was the end of the phone call.” Id. at 242. Notably, Mr. Smith explained that counsel “did not offer to fax me a notice that they were in bankruptcy or anything ... and when I challenged him on that, he got extremely upset.” Id. at 171. The call ended when counsel hung up on Mr. Smith. Id. at 243.
Following the incident, Mr. Smith “sat there and shook [his] head and thought something wasn’t right.” Id. In his experience, “more often everyone is very honorable, but sometimes you come across those that know the system and know how to get around things and therefore you have to have your guard up to protect the interest of your company.” Id. at 172-73. Therefore, he explained, “[fit’s not as if you would assume that when someone represents that they’re an attorney that they’re liars because you try not to, but unfortunately, when a volatile situation like a repossession occurs, naturally you’re going to put up the safeguards and the safeguards indicated this isn’t normally how I speak to an attorney.” Id. at 242-43. Indeed, Mr. Smith recalled that he had such doubts about the validity of the call that he spoke to several colleagues to “sound it off to them because I was just in pure shock that I had a conversation [of] this nature with this gentleman.” Id. at 243.
Mr. Smith’s testimony at two hearings— one to determine whether M & M willfully violated the stay and the other to determine damages — is the only evidence in the record describing the telephone call he received from counsel. This testimony was consistent and uncontradicted, and it paints a clear picture of a well-intentioned businessman confrоnted with an unsubstantiated demand from an unknown caller that he relinquish property worth $13,000. The actual notice standard requires the person receiving notice to be left free of reasonable concerns about the validity of the communication purporting to give him notice.
Even if the notice given here was sufficient to require Mr. Smith to make further inquiry, as the bankruptcy court concluded, see id. at 54, his attempt to do so by asking counsel to fax him the cover sheet of the Johnsons’ bankruptcy petition was rebuffed, id. at 171. Inquiry notice must at least contain enough information to permit the creditor to verify that a petition has been filed. Here, the unknown caller did not give Mr. Smith any information suggesting when or where the petition was filed. Mr. Smith certainly cannot be expected to call each of the 91 United States bankruptcy courts to ask whether they had any recent bankruptcy filings by debtors named “Johnson.”
The court dismisses this concern because “M & M is a sophisticated car dealership represented by counsel and admittedly quite familiar with repossession and bankruptcy.” Ct. Op. at 1173. Ironically, however, M & M’s sophistication and familiarity with bankruptcy is what caused it to become susрicious in the first place. M & M was accustomed to receiving bankruptcy notices, but it had not received one in this case. M & M was accustomed to dealing with bankruptcy attorneys, but Mr. Smith testified that the call here was unlike any other he had received in his professional career. Of course, M & M’s experience also taught it that dishonest debtors sometimes seek to fight repossession by ruse. If anything, therefore, M & M’s sophistication and bankruptcy experience made Mr. Smith’s doubts about the validity of the unknown caller’s assertions even more reasonable than they otherwise would have been.
Although the court recognizes the validity of these doubts, id. at 1167, it holds that Mr. Smith acquired actual notice of the Johnsons’ pending bankruptcy. This holding excuses debtors from their filing obligations while placing creditors with reasonable doubts about the validity of notice in an untenable position. If Congress intended creditors to trust an unknown caller representing that a bankruptcy petition had been filed, it would have spared courts the time and effort of serving creditors. Instead, the law recognizes that reasonable creditors will want concrete evidence of the pendency of a bankruptcy before relinquishing their rights against the debt- or; this is why notice of a bankruptcy is supposed to come directly from the court. See Fed. R. Bankr.P.2002(a). Even in a case like this, where service failed due to a mistake, counsel could easily have provided actual notice by faxing M & M a copy of the petition, see Fleet,
. Although a telephone call can provide actual notice, see, e.g., Rowe v. Steinberg,