Theokary v. Abbatiello (In Re Theokary)Theokary v. Abbatiello (In Re Theokary)
OPINION
I. INTRODUCTION
In this аdversary proceeding, the Plaintiff-Debtor Rafail Theokary (“the Debtor”) asserts that Defendants Eric Abbatiello (“Abbatiello”), Tom Shay (“Shay”), Showplace Farms (“Showplace”) and Gaitway Farms, Inc. (“Gaitway”), willfully violated the automatic stay, 11 U.S.C. § 362(a), during the course of his no-asset bankruptcy case. The Debtor seeks monetary damages from the Defendants. See 11 U.S.C. § 362(k). Trial of the liability issues was bifurcated from the damages issues.
The crux of the dispute as to liability can be summarized concisely.
When the Debtor filed this bankruptcy case on February 16, 2007, he held a leasehold interest in three standardbred race horses 1 (when referred to collectively, “the Horses”). The Highland Group (“Highland”) was the owner-lessor of the Horses. After leasing the Horses, the Debtor engaged Shay or Abbatiello to train the horses and, at one time or another, boarded them at Gaitway and Showplace. The Debtor then failed to pay everything due to Shay, Abbatiello, Showplace and Gait-way for the services they provided.
Two days after the commencement of this bankruptcy case, and with notice of the filing, Shay and Abbatiello enforced their respective statutory liens against the Horses by conducting stableman’s lien sales of the Horses. See N.J.S.A. §§ 2A:44-51 to 2A44-52. The stableman’s lien sales, which were later confirmed by order of the New Jersey Superi- or Court, terminated Highland’s ownership of the Horses. The Debtor contends that the liens sales also terminated his leasehold interests in the Horses, thereby violating the automatic stay. In addition, the Debtor contends that Showplace violated the automatic stay by interfering with his attempt to take possession of two of the Horses after commencement of the bankruptcy case. Showplace denies this allegation.
As explained below, I conclude that the stableman’s lien sales terminated the Debtor’s leasehold interests in the Horses and therefore, Shay and Abbatiello violated the automatic stay, 11 U.S.C. § 362(a)(3), by conducting the sales. I also find that neither Showplace nor Gait-way took any action while the automatic stay was in place that interfered with the Debtor’s rights under the pre-petition leases or that otherwise violated the automatic stay.
Consequently, I will:
(1) enter judgment in favor of the Debt- or against Shay and Abbatiello;
(2) enter judgment in favor of Showplace and Gaitway and against the Debt- or; and
(3) schedule a damаges hearing at the earliest possible date on the Debtor’s claims against Shay and Abbatiello.
II. PROCEDURAL HISTORY
The Debtor commenced a chapter 7 bankruptcy case on February 16, 2007. In the course of the case, the Debtor filed an Amended Schedule G in which he disclosed his leasehold interest in the Horses. (Bky. No. 07-11008, Doc. #49). On September 12, 2007, the chapter 7 Trustee (“the Trustee”) filed a no-asset report. On January 14, 2008, the court entered the Debtor’s chapter 7 discharge and an order directing the Clerk to close the case. (Bky. No. 07-11008, Doc. #’s 52, 53). The docket reflects that the Clerk did so on January 17, 2008. 2
On August 27, 2008, the Debtor filed a Motion to Reopen the bankruptcy case. (Bky. No. 07-11008, Doc. # 56). The court held a hearing on the Motion to Reopen on November 4, 2008 and shortly thereafter, issued a Memorandum Opinion and Order granting the Motion.
See In re Theokary,
On February 20, 2009, the Debtor commenced this adversary proceeding by filing a Complaint. The Defendants answered the Complaint on February 24, 2009. 3 The pretrial process was singularly contentious, marked by numerous dispositive, discovery and sanction motions filed by both sides, many of which were filed without complying with the rules of court and all of which were denied. 4 At the final pretrial conference on September 10, 2009, I decided to bifurcate the liability and damages phases of the trial.
The trial on liability commenced on November 9, 2009. After the Plaintiff completed presentation of his ease-in-chief on the first day of trial, the Defendants moved for entry of judgment in their favor.
See
Fed.R.Civ.P. 52(c) and 54(b) (incorporated by Fed. R. Bankr.P. 7052 and 7054).
5
I orally granted the motion as to
The trial concluded (initially) after a second day of testimony on November 30, 2009, after which the court established a schedule for the filing of post-trial submissions by the parties. (Adv. No. 09-051, Doc. # 117). However, on December 7, 2009, the Defendants filed a Motion to ReOpen the Trial and Permit Additional Testimony as a Result of Defendants Obtaining Newly Discovered Evidence After Completion of the Trial. (Adv. No. 09-051, Doc. # 121). After a hearing held on January 20, 2010,1 granted that motion, in part, 7 by order dated January 26, 2010. (Adv. No. 09-051, Doc. # 141). Consequently, a third аnd final day of trial was held on February 22, 2010, after which I established a new schedule for the filing of post-trial submissions by the parties. (Adv. No. 09-051, Doc. # 162). The last post-trial submission was filed on June 15, 2010.
On July 1, 2010, the district court remanded the Plaintiffs appeal from the November 23, 2009 order dismissing the Plaintiffs claims against Gaitway for the issuance of a “more detailed opinion” explaining the reasons for the dismissal of Gaitway. (Adv. No. 09-051, Doc. # 172). This Opinion is intended to comply with the district court’s mandate as well as Fed.R.CivJ?. 52(a). 8
III. FINDINGS OF FACT
After consideration of the testimony presented at trial,
9
the documentary evidence, the pleadings, the facts stipulated to by the parties and the parties’ post-trial submissions, and based upon my assessment of the credibility of the testifying witnesses, I make the following findings of fact. To the extent the witnesses at trial offered conflicting testimony on issues relevant to the disposition of this adversary proceeding, my findings of fact reflect my resolution of those conflicts based on my assessment of the witnesses’ demeanor,
the parties
1. Plaintiff Rafail Theokary is the debt- or in this bankruptcy case.
2. Shay is an individual who is in the business of training horses.
3. Abbatiello is an individual who is in the business of training horses. He conducts business under the name “Abbatiello Racing Stables.”
4. Gaitway is a corporation that is in the business of boаrding horses. It is located at 355 Highway # 33, Manalapan, New Jersey.
5. Showplace is a limited liability company that is in the business of boarding horses. It is located at 505 Highway # 33, Manalapan, New Jersey.
the First Leases and training agreements
6. On June 1, 2005, the Debtor entered into two lease agreements with McCord Farms pursuant to which he leased two horses for a twenty-four month term: Mac Only VP, Mac’s Emily B J. (Exs. P-5, P-6).
7. On July 23, 2005, the Debtor entered into a lease agreement with McCord Farms pursuant to which he leased another horse for a twenty-four month term, Mac’s Derrick T. (Ex. P^i).
8. All three of the leases (collectively, “the First Leases”):
a. stated the parties’ intention to race each horse with a final intention to sell the horse;
b. provided for purse distributions of 70% to the Debtor and 30% to McCord Farms;
c. provided for a division of the final sale price of 20% to the Debtor and 80% to McCord Farms; and,
d. imposed on the Debtor all responsibility for costs incurred in maintaining the horse.
9. In January 2006, the Debtor entered into separate oral agreements with Shay and Abbatiello to train and feed the Horses.
10. The Debtor retained Shay to train Mac’s Derrick T and Mac Only VP.
11. The Debtor retained Abbatiello to train Mac’s Emily B J. 10
12. The Debtor’s agreements with Shay and Abbatiello required him to pay the trainer’s fees for their services and to pay the boarding bills for the Horses.
the boarding of Mac’s Derrick T and Mac Only VP and Mac’s Emily BJ
13. Initially, Shay boarded Mac’s Derrick T and Mac Only VP at Showplace.
14. In May 2006, Shay took Mac’s Derrick T and Mac Only VP from Showplace Farms to Pocono Downs, a racing facility in Wilkes-Barre, PA.
15. In October 2006, Shay took Mac’s Derrick T and Mac Only VP to Magical Acres Farm (“Magical Acres”), where they remained through February 18, 2007. 11
17. In August 2006, Abbatiello transported Mac’s Emily BJ from Gaitway to his father’s farm, about twenty miles away in Colt’s Neck, NJ, where the horse remained prior to the February 18, 2007 stableman’s lien sale.
18. On February 18, 2007, Abbatiello transported Mac’s Emily BJ to Gaitway for the purpose of exposing the horse to a stableman’s lien sale. After the conclusion of the sale that day, Abbatiello brought the horse back to his father’s farm.
the initial state court litigation and the Debtor’s New Jersey bankruptcy filing
19. After entering into the trainer agreements, the Debtor did not pay all of the trainer’s fees due to Shay and Abbatiello and did not pay all of the costs for boarding the horses at Showplace and Gaitway.
20. On April 12, 2006, Shay filed a lawsuit in the Superior Court of New Jersey, Cape May County against the Debtor and Brenda McCord (the individual Shay believed to be the owner of McCord Farms) for unpaid training bills.
21. On April 12, 2006, Abbatiello filed a lawsuit in the Superior Court of New Jersey, Cape May County against the Debtor and Brenda McCord for unpaid training bills.
22. On May 30, 2006, Showplace filed a lawsuit in the Superior Court of New Jersey, Cape May County against the Debtor and Brenda McCord for unpaid boarding bills.
23. On May 30, 2006, Gaitway filed a lawsuit in the Superior Court of New Jersey, Cape May County against the Debtor and Brenda McCord for unpaid boarding bills.
24. On May 23, 2006, Plaintiff filed a chapter 13 bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey, Camden Vicinage, docketed at Bky. No. 06-14654-GMB (Bankr.D.NJ.) (“the New Jersey Bankruptcy Case”).
25. Following the commencement of the New Jersey Bankruptcy Case, the four complaints referenced in Findings of Fact Nos. 20-23 were dismissed without prejudice.
26. In the New Jersey Bankruptcy Case, the Debtor filed a motion requesting that the court “enfore[e] the automatic stay” by ordering Shay and Gaitway “to return to the Debtor” the horses in their
27. On October 5, 2006, the New Jersey Bankruptcy Case was dismissed by сourt “for bad faith filing.” 13 The dismissal order barred the Debtor from filing another chapter 13 bankruptcy case for 180 days from the entry of the Order. (Bky. No. 06-14654-GMB, Doc. #42 (Bankr.D.N.J.)).
the Second Leases
28. Some time prior to October 31, 2006, McCord Farms transferred ownership of the Horses to another entity, The Highland Group, LLC (“Highland”).
29. On October 31, 2006, the Debtor entered into three new leases (collectively, “the Second Leases”) with Highland 14 pursuant to which the Debtor leased Mac’s Derrick T, Mac Only VP and Mac’s Emily BJ from Highland. (Exs. P-1, P-2, P-3). The apparent purpose of the new leases was to address the transfer of ownership of the Horses from McCord Farms to Highland.
30. The Second Leases provided for a termination date of December 31, 2011 and were silent on any division of proceeds in the event of a sale of the horses. In all other material respects the provisions of the Second Leases were the same as the First Leases.
the February 2007 bankruptcy filiny and the stableman’s lien sale
31. On February 9, 2007 and February 16, 2007, attorney Jeffrey R. Pocaro (“Pocaro”), acting on Shay’s behalf, placed a notice in “The Trentonian” newspaper that a stableman’s lien sale of Mac’s Derrick T and Mac Only VP would be held on Sunday, February 18, 2007 аt 2:00 p.m. at a horse farm known as Magical Acres. (Ex. P-18).
32. On February 9, 2007 and February 16, 2007, Pocaro, acting on Abbatiello’s behalf, placed a notice in “The Asbury Park Press” newspaper that a stableman’s lien sale of Mac’s Emily BJ would be held on Sunday, February 18, 2007 at 10:00 a.m. at Gaitway. 15 (Ex. P-17).
33. On Friday, February 16, 2007, at 6:48 p.m., the Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court. The petition was filed electronically by the Debtor’s bankruptcy counsel, Timothy Zearfoss (“Zearfoss”).
35. In the telephone conversation between Zearfoss and Pocaro on the evening of February 16, 2007:
a. Zearfoss stated to Pocaro, the stableman’s lien sales scheduled for February 18, 2007 were stayed as a result of the bankruptcy filing;
b. Pocaro stated his opinion that the stay did not apply to the stableman lien sales because it was directed against the owner of the horse, not the Debtor. 16
36. On Sunday, February 18, 2007 Pocaro, on Shay’s behalf, conducted a stableman’s lien sale of Mac’s Derrick T and Mac Only VP at Magical Acres. Shay was not present at the sale. Through his counsel, Pocaro, Shay purchased the horses for $100.00 each.
37. On Sunday, February 18, 2007 Pocaro, on Abbatiello’s behalf, conducted a stableman’s lien sale of Mac’s Emily B J at Gaitway. Abbatiello was present at the sale and purchased the horse for $100.00.
the Defendants’ knowledge of the bankruptcy ñling and participation in the lien sales
38. Prior to the lien sale, Pocaro notified Abbatiello of the Debtor’s bankruptcy filing via facsimile transmission. Thereafter, Abbatiello deferred to Pocaro’s judgment in determining whether the lien sale of Mac’s Emily B J could be held.
39. Pocaro did not, however, similarly notify Shay of the Debtor’s bankruptcy filing before conducting the stableman’s lien sale of Mac’s Derrick T and Mac Only VP.
40. After preparing the notice of the stableman’s lien sale of Mac’s Derrick T and Mac Only VP, Pocaro did not notify Showplaee in advance of the sale that the sale would take place.
41. There is no evidence that the stableman’s lien sales of were conducted on Showplace’s behalf or that Showplaee participated in sale in any manner.
42. After preparing the nоtice of the stableman’s lien sale of Mac’s Emily B J to be held at Gaitway, Pocaro did not notify Gaitway in advance of the scheduled sale.
43. Gaitway had no connection to the stableman’s lien sale of Mac’s Emily BJ, other than the fact that the sale was conducted on its premises.
45. There is no evidence that the stableman’s lien sales were conducted on behalf of Gaitway or that Gaitway participated in any fashion in the conduct of the sale.
after the February 18, 2007 lien sale
46. On or about February 20, 2007, Shay and Abbatiello filed motions in New Jersey Superior Court, to have the aforesaid stableman’s lien sales approved nunc pro tunc (“the First Post-Sale Motions”). 17
48. By letter dated April 13, 2007, the Trustee informed Shay and Abbatiello that he did not intend to assume the leases between Highland and the Debtor.
49. On April 19, 2007, Shay and Abbatiello again filed motions with the New Jersey Superior Court for nunc pro tunc approval of the February 18, 2007 stableman’s lien sales (“the Second Post-Sale Motions”).
50. Shay and Abbatiello filed the Second PosNSale Motions based on their belief that, as of April 17, 2007, the leases had been rejected pursuant to 11 U.S.C. § 365(d)(1). (Exs. D-l, D-2). 18
51. By two orders dated May 8, 2007, the New Jersey Superior Court approved the stableman’s lien sales of February 18, 2007. (Exs. P-12A, P-12-B). As a result, Shay became the owner of Mac’s Derrick T and Mac Only VP and Abbatiello became the owner of Mac’s Emily B J.
52. Ownership of Mac’s Derrick T passed from Shay to Amy Conly as a result of a “claiming race” at Pocono Downs in May 2007. Mac’s Derrick T is now owned and in the possession of Bada Bing Stables and Owen C. Eiler, Jr.
53. Mac Only VP is owned by Suzanne Rheault. To the best of the parties’ knowledge, the horse presently is in Quebec, Canada.
54. Abbatiello continues to own and possess Mac’s Emily B J.
IV. CONCLUSIONS OF LAW
1. The Debtor’s leasehold interest in the Horses was property of his chapter 7 bankruptcy estate.
2. The stableman’s liens sales conducted by Shay and Abbatiello divested the Debtor of his leasehold interest in the Horses.
3. Shay and Abbatiello willfully violated 11 U.S.C. § 362(a)(3) by conducting the stableman’s lien sales on February 18, 2007 and by filing the initial motions for nunc pro tunc approval of the February 18, 2007 stableman’s lien sales on February 20, 2007.
4. Neither Showplace nor Gaitway took any action after the commencement of the bankruptcy case in violation of 11 U.S.C. § 362(a).
V. DISCUSSION
A. The Debtor’s Claims Against Shay and Abbatiello
1.
Section 541 of the Bankruptcy Code provides that upon commencement of
Section 362(a)(3) provides that the commencement of a bankruptcy case stays “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.” 11 U.S.C. § 362(a)(3). It is one of eight (8) subsections within the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362(a). The automatic stay is
one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy. The automatic stay also provides creditor protection. Without it, certain creditors would be аble to pursue their own remedies against the debt- or’s property.
In re Krystal Cadillac Oldsmobile GMC Truck, Inc.,
Section 362(a)(3) is generally viewed as a provision designed to prevent the “dismemberment” of the bankruptcy estate until the bankruptcy process permits either a financial reorganization of the debtor or an orderly liquidation of the assets of the bankruptcy estate.
E.g., In re Pintlar Corp.,
In this dispute, Shay and Abbatiello seek to justify their post-petition conduct on the ground that their collection actions were directed against Highland, not the Debtor. The Debtor contends that the Defendants violated § 362(a)(3) because a necessary consequence of the stableman’s liens sales that divested Highland of its ownership of the Horses was the extinguishment of the Debtor’s leasehold property interest in the Horses.
The most prominent precedent standing for the proposition that post-petition legal action terminating a lessor’s ownership of property leased to a bankruptcy debtor violates § 362(a)(3) is the Second Circuit’s decision in 48th Street Steakhouse. In that case, the court reasoned as follows:
Because Landlord’s attempt to terminate I.S.H.’s lease, if successful, wouldhave resulted in the destruction of 48th Street’s subtenancy, [the bankruptcy court] correctly held that Landlord’s termination notice violated the automatic stay with respect to 48th Street
The Landlord argues that although the automatic stay is designed to preserve the debtor’s estate, its protection should not extend to non-bankrupt third parties which are somehow related to the debtor.
While it is true that I.S.H. is an incidental beneficiary of our decision, this result is permissible where a non-debt- or’s interest in property is intertwined, as in the present case, with that of a bankrupt debtor. If action taken against the non-bankrupt party would inevitably have an adverse impact on property of the bankrupt estate, then such aсtion should be barred by the automatic stay.
There is no binding precedent in this Circuit directing the bankruptcy courts to follow
I8th Street
Steakhouse.
20
However, dictum in one decision of our Court of Appeals arguably supports the Second Cir-expansive construction of § 362(a)(3).
Acands,
Based on the dictum in Acands, as well the absence of any substantial body of case law rejecting the Second Circuit’s position or commentary critical of the decision, I consider it likely that the Third Circuit will follow 18th Street Steakhouse. Further, I perceive the result achieved by decision to be consistent with the 362(a)’s fundamental purpose of preservvaluable property rights that may provide a benefit to the debtor’s creditors in a liquidation or facilitate a reorganization. Concerns that the reach of § 362(a) can become excessive are blunted by the relatively modest consequences of finding it applicable in the circumstances presented. As I had occasion to observe in an earlier decision:
All that is involved is whether a party’s conduct is subject to the automatic stay. If there is any doubt whether § 362(a)(3) applies, a party can seek clarification of the scope of the automatic stay or modification of the automatic stay from the court. Bankruptcy courts regularly grant relief from the stay pursuant to 11 U.S.C. § 362(d). Such proceedings are handled on an expedited basis. See generally 11 U.S.C. § 362(e) (automatic stay against property of the estate terminates by operation of law (30) thirty days after motion is filedunder § 362(d) unless the court orders the stay to remain in effect after making certain required findings). Thus, the automatic stay may only briefly delay a party from taking action.
Allentown Ambassadors,
Application of
48th Street Steakhouse
leads to the following dichotomy, depending on whether the stableman’s lien sales terminated not only the Highland Group’s ownership of the Horses, but also the Debtor’s leasehold interest in the Horses. If the lien sale terminated the leases, Shay and Abbatiello violated § 362(a)(3). If the lien sale did not terminate the leases and the Debtor’s leases passed through the stableman’s lien sales intact, then no viоlation of the automatic stay occurred.
See Fleet Business Credit, LLC v. Wings Restaurants, Inc.,
Therefore, I next consider the legal consequences of the stableman’s lien sale under applicable nonbankruptcy law.
2.
The New Jersey Stableman’s Lien Act “has been in existence for over 100 years.”
White Birch Farms,
The New Jersey Stableman’s Lien Act is silent on the question whether a sale under
In
Sullivan v. Clifton,
PNC Bank v. Axelsson,
In
Axelsson,
the foreclosing creditor, who purchased the property at the foreclosure sale, contended that the sale was free and clear of the easement, relying on cases holding that N.J.S.A. § 2A:50-30
24
“pro
A foreclosing mortgagee who purchases is in a somewhat different situation than a purchasing stranger. The considerations militating in favor of protection of third-party purсhasers simply do not apply to a purchasing mortgagee. If that mortgagee has knowledge of an unrecorded interest when it takes its mortgage, it is not entitled to protection. Indeed, the knowing mortgagee is specifically subject to the known unrecorded interest.
Id. at 1026 (emphasis added) (citation of N.J.S.A. § 46:22-1 omitted). 25
3.
At first blush, application of the “first in time” principle appears to dictate the conelusion that Shay and Abbatiello, who were both the “foreclosing lienholders” and “sale purchasers,” and who both had knowledge of the Debtor’s leasehold interest in the Horses, took ownership at the sale subject to the Debtor’s lease. Consistent with
Sullivan
and
Axelsson,
a “keeper of a livery stable” who has actual knowledge of a third party’s leasehold interest in a horse before providing services to the owner that give rise to a lien under N.J.S.A. 2A:44-51 and who conducts and purchases the horse at the lien sale, would take the horse subject to the rights of the lessee.
See generally Cattell v. Rehrer,
The foregoing analysis would be determinative if the leases in question were the original June 1, 2005 and July 23, 2005 leases between the Debtor and McCord Farms. The record reflects, however, that
after
Shay and Abbatiello provided uncompensated services and
after
their respective statutory liens attached to the Horses, McCord Farms transferred the Horses to Highland. McCord Farms and Highland could have structured the transfer in manner in which Highland’s ownership was
The critical facts in this case are that: (1) the Debtor’s interests in the Horses derive from the Second Leases and (2) the Second Leases were
subsequent in time
and therefore,
junior
to the respective stableman’s liens held by Shay and Abbatiello. In these circumstances, I conclude that, under applicable state law, the stableman’s lien sales held on February 18, 2007 divested both the lessor’s ownership of and the Debtor’s leasehold interests in the Horses.
See generally Highland Lakes Country Club & Community Ass’n v.
Franzino,
4.
Finally, because the Debtor focuses on Shay and Abbatiello’s conduct following the February 20, 2007 lien sale — specifically, whether the filing of the First and the Second PosNSale Motions independently violated the automatic stay — I briefly address the issue. I conclude that the First Post-Sale Motions violated the stay, but the Second Post-Sale Motions did not.
Both sets of motions were an integral part of the lien sale process that divested Highland (and the Debtor) of their interests in the Horses. Consequently, all of the conduct necessary to effectuate the sale served to exercise control over estate property in violation of 11 U.S.C. § 362(a)(3). This would include the post-sale legal proceedings necessary to confirm or approve the sale.
5.
The Debtor asserts that the violations of the automatic stay that occurred are actionable under 11 U.S.C. § 362(k). I agree.
Section 362(k) provides:
(1) Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
(2) If such violation is based on an action taken by an entity in the good faith belief that subsеction (h) applies to the debtor, the recovery under paragraph (1) of this subsection against such entity shall be limited to actual damages.
11 U.S.C. § 362(k) (emphasis added).
Conduct that violates the automatic stay is willful if the creditor knew of the stay and if the creditor’s conduct that violated the automatic stay was intentional.
Atl Bus. & Cmty. Dev. Corp.,
Shay’s situation differs somewhat. Both he and Pocaro testified that Pocaro did not advise him of the Debtor’s bankruptcy filing prior to the February 18, 2007 stableman’s lien sale of Mac’s Derrick T and Mac Only VP. I credit their testimony on this point. However, I also infer from the evidence that prior to February 18, 2007, Shay had granted Pocaro broad discretion in determining how to obtain payment of the Debtor’s unpaid bill. Po-caro opted to seek enforcement of Shay’s statutory lien against the two horses and proceeded with the stableman’s lien sale with full knowledge of the bankruptcy filing. In these circumstances, involving the actions taken by an attorney on behalf of a client, I find it appropriate to follow those reported decisions that apply general principles of agency law and hold that a creditor-principal is liable under § 362(k) for the acts of an agent who willfully violates the automatic stay taken when those acts
B. The Debtor’s Claims Against Gaitway and Showplace
Finally, I address the Debtor’s claims against Gaitway and Showplace.
1.
During the Debtor’s case-in-chief, the evidence suggested that Gaitway’s only connection to the stableman’s lien sale of Mac’s Emily B J was that Gaitway was the site of the sale. While Gaitway was a creditor of the Debtor and a statutory lienholder with respect to Mac’s Emily B J, the Debtor presented no evidence that Gaitway took any action to enforce its lien after the commencement of the Debtor’s bankruptcy case in this court. All of the post-petition lien enforcement actions were taken by Abbatiello.
Gaitway moved for judgment on partial findings under Fed.R.Civ.P. 52(c) at the close of the Debtor’s case-in-chief. Rule 52(c) permits a court to grant judgment upon motion or
sua sponte
“at any time during a bench trial, so long as the party against whom judgment is to be rendered has been ‘fully heard’ with respect to an issue essential to that party’s case.”
EBC, Inc. v. Clark Bldg. Systems, Inc.,
In response to Gaitway’s Rule 52(c) motion, the Debtor asked me to infer from the evidence that Gaitway and Abbatiello were acting in concert to effectuate the stableman’s lien sale in violation of the automatic stay. Because I considered the suggested inference to be nothing more than mere speculation, I declined to draw the requested inference, as was my prerogative as the finder of fact.
The Debtor also suggested that I defer granting judgment because the record generated during the defense portion of the trial might establish the requisite connection between Gaitway and Abbatiello sufficient to establish liability under 11 U.S.C. § 362(k). I declined that request as well. The Debtor bore the burden of proof against Gaitway, was obliged to meet that burden in his case-in-chief and had not met that burden.
In this Opinion, I reaffirm my pri- or deсision that Gaitway was entitled to the entry of judgment at the conclusion of the Debtor’s case-in-chief. Based on the record as it existed at that time, I concluded that the Debtor presented no evidence that Gaitway took any action to willfully violate the automatic stay. Nothing in the evidence presented after the conclusion of the Debtor’s case-in-chief and the dismissal of his claim against Gaitway causes me to question that determination. 32
The Debtor asserts two legal theories in support of his claim against Showplace.
First, much like his claim against Gait-way, the Debtor claims that Shay and Showplace acted in concert to conduct the stableman’s lien sale of Mac’s Derrick T and Mac Only VP in violation of the automatic stay. Again, the Debtor presented no evidence that established that Showplace took any action after the commencement of the Debtor’s bankruptcy case to enforce a claim against the Debtor or to enforce its statutory lien against the horses. All of the post-petition collection actions were taken by Shay.
Second, the Debtor asserts that on February 20, 2007, two days after the lien sale, he went to Showplace to take possession of the two horses, but was prevented from doing so by Showplace representatives. The Debtor’s sole evidence in support of this theory was his own testimony.
Similar to Gaitway, Showplace moved for judgment on partial findings under Rule 52 .at the close of the Debtor’s casein-chief. In requesting the entry of judgment in its favor, Showplace asserted that the Debtor’s account of his efforts to retrieve the horses on February 20, 2007 was fictitious and that I should decline to credit his testimony. Exercising the discretion afforded under Rule 52(c), I denied Showplace’s motion because I did not find the Debtor’s testimony regarding so unworthy of belief as to make it unnecessary for Showplace to present evidence.
Now, with the benefit of the conflicting evidence from both sides regarding the Debtor’s allegations that Showplace prevented him from taking possession of Mac’s Derrick T and Mac Only VP on February 20, 2007, I have resolved that conflict in favor of Showplace. See n.ll, supra. I have found that Showplace did not interfere with any right the Debtor may have had to take possession of the two horses. It follows that Showplace did not take any action to possess or control property of the bankruptcy estate and therefore, Showplace did not violate the automatic stay. 33
VI.
For the reasons set forth above, I have determined that Shay and Abbatiello violated 11 U.S.C. § 362(a)(3) and that Showplace and Gaitway have not violated the automatic stay. Therefore, I will hold enter judgment in the Debtor’s favor against
An order consistent with this Opinion will be entered.
ORDER
AND NOW, following a trial limited to the issue of liability in the above adversary proceeding, and after consideration of the evidence and the parties’ post-trial submissions, and for the reasons stated in the accompanying Opinion,
It is hereby ORDERED that:
1. JUDGMENT is entered in favor of the Plaintiff and against Defendants Tom Shay and Eric Abbatiello as to liability under 11 U.S.C. § 362(k).
2. JUDGMENT is entered in favor of Defendants Showplace Farms and Gaitway Farms, Inc. and against the Plaintiff.
3. A FINAL PRETRIAL CONFERENCE prior to trial on the issue of damages with respect to the remaining Defendants is SCHEDULED for March 10, 2011, at 1:00 p.m., in Bankruptcy Courtroom No. 1, 900 Market Street, Philadelphia, PA. At the pretrial conference, the court will consider any remaining pretrial issues and set a date for the trial on damages.
Notes
. Standardbred race horses are commonly referred to as "trotters.” When they race, they are hitched to a "sulky,” which is a two-wheeled carriage in which the jockey rides.
. The case docket reflects that, the Trustee held, but did not conclude, the § 341 meeting of creditors on May 17, 2007. In the no-asset report filed on September 12, 2007, the Trustee did not indicate whether the meeting of creditors had been concluded. This caused a delay in the entry of the discharge order and the closing of the case. On January 8, 2008, the Trustee finally reported the meeting of creditors as "concluded.” This resulted in the entry of the discharge order and the closing of the case.
. Prior to February 23, 2009, both the main bankruptcy case and the adversary proceeding were on the docket of the Hon. Diane W. Sigmund. On February 23, 2009, both were reassigned to the undersigned judge in anticipation of Judge Sigmund's impending retirement.
. Some of the procedural wranglings are described in the court’s orders dated July 24, 2009 and October 12, 2009. (Adv. No. 09-051, Doc. #'s 78, 106).
.Rule 52(c) provides, in pertinent part:
If a party has been fully heard on an issue during a nonjury trial and the court finds against the party on that issue, the court may enter judgment against the party on a claim or defense that, under controlling law, can be maintained or defeated only with a favorable finding on that issue.
Rule 54(b) provides, in pertinent part:
[Wjhen multiple parties are involved [in an action], the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay. Otherwise, any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any ofthe claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities.
.
But see
28 U.S.C. § 158(a) (generally limiting district court appellate jurisdiction of bankruptcy court decisions to appeals from "final judgments, orders, and decrees”);
Sulima
v.
Tobyhanna Army Depot,
. The Motion to Rеopen the Trial included the serious allegation that the Plaintiffs counsel had suborned perjury during the trial and requested that he be sanctioned by dismissal of this proceeding. The Defendants’ motion in this regard was denied after an evidentiary hearing. (Adv. No. 09-051, Doc. # 162).
. Rule 52(a) provides, inter alia, "[i]n an action tried on the facts without a jury or with an advisory jury, the court must find the facts specially and state its conclusions of law separately”.
. Eleven witnesses testified (some more than once) during the course of the trial: Timothy Zearfoss (the Debtor's general bankruptcy counsel), the Debtor, Jeffrey Pocaro (the Defendants’ counsel), Bix L. DiMeo (general manager of Showplace), Shay, Howard Taylor (former counsel to the Defendants in this adversary proceeding), J. Neal Ehrhart (a horse trainer), Abbatiello, Samuel J. Paparo, Sr. (a horse trainer), Joseph Eisenhower, and Kenneth Sandler (the Plaintiff’s counsel).
. Abbatiello testified, credibly, the Debtor leased horses other than Mac's Derrick T, Mac Only VP and Mac’s Emily BJ and retained Abbatiello to train several of them. At some point, however, the Debtor took the horses back from Abbatiello in a manner that caused some friction. Abbatiello stated that the Dеbtor took the horses from the stables "in the middle of the night” and, in doing so, also took a horse that belonged to Abbatiello’s father. The Debtor later returned that horse.
. This finding was perhaps the most hotly contested factual issue at trial. The Debtor testified that he personally saw Mac’s Derrick T (and maybe also Mac Only VP) at Showplace on February 20, 2007, two days after the stableman's lien sales. The Debtor’s contention that the two horses were present at
After considering the parties’ diametrically opposing testimony, I find the testimony of Shay and DiMeo more credible than the Debt- or's testimony on this point and therefore, I resolve the disputed fact issue as set forth in Finding of Fact No. 15. Not only were Shay and DiMeo more credible witnesses, but there is no documentary evidence in Showplace's business records that the two horses were boarded there after May 2006.
In addition, the testimony at trial suggested to me that it is not always easy, even for experienced horsemen, to identify a horse based on a short period of visual observation (i.e., many horses are similar in appearance). Indeed, in another instance described at trial, the Debtor erred in identifying a horse as his own. See 10, supra. Thus, while I am satisfied that the Debtor sincerely believes that he saw Mac's Derrick T on February 20, 2007 at Showplace, I am not convinced by a preponderance of the evidence that the horse he actually saw that day was Mac’s Derrick T.
. The Motion stated, incorrectly, that Shay and Gaitway were in possession Mac’s Emily BJ (as well as Mac’s Derrick T and Mac Only VP).
. Before filing the chapter 13 case in May 2006, the Debtor had filed three unsuccessful chapter 13 bankruptcy cases in Pennsylvania:
(1) Bky. No. 98-34734 DWS (filed Nov. 13, 1998; dismissed after confirmation May 3, 2001);
(2) Bky. No. 01-18102 DWS (filed June 1, 2001; dismissed after confirmation May 30, 2002); and
(3) Bky. No. 02-33824 DWS (filed Sept. 27, 2002; dismissed prior to confirmation April 3, 2003).
. There is likely some relationship between the owners of McCord Farms and Highland. The signature line on the First Leases authorizes Stan Guest or Brenda McCord to execute the document on behalf of McCord Farms. The signature line on the Second Leases authorizes Stan Guest to execute the document on behalf of Highland.
.Each notice references an underlying case in the New Jersey Superior Court (Cape May County), one with Shay as Plaintiff, the other with Abbatiello as Plaintiff and both with the Debtor and Brenda McCord as Defendants. For whatever significance it may have, the notices do not refer to either McCord Farms or Highland as a defendant or owner of the horses. Pocaro mailed the notices to Stan Guest “c/o The Highland Group, LLC” and to Brenda McCord. (Ex. D-7).
. At trial, Pocaro testified that during their February 16, 2007 telephone conversation, he told Zearfoss that the automatic stay did not apply because the stableman's lien sale would not affect the Debtor’s leasehold interest in the Horses. While Shay and Abbatiello presently contend that the Debtor’s leases were unaffected by the lien sale, I doubt that Pocaro articulated that legal theory during his conversation with Zearfoss on February 16, 2007. I consider it more likely that Pocaro gave no consideration to the effect of the salе on the Debtor's leasehold interest because he perceived the lien enforcement action in New Jersey as being directed against Highland (the owner of the Horses), not the Debtor.
. The stableman's lien sale was conducted under the authority of a New Jersey statute, N.J.S.A. 2A:44-52, which will be discussed
. § 365(d)(1) provides:
In a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected.
. For a general discussion of the application to § 362(a)(3) to intangible property rights of a debtor,
see Allentown Ambassadors,
. In
In re Atl. Bus. & Cmty. Corp.,
. N.J.S.A. § 2A:44-51 provides:
Every keeper of a livery stable or boarding and exchange stable, shall have a lien op all animals left with him in livery, for board, sale or exchange and upon all carriages, wagons, sleighs and harness left with him for storage, sale or exchange for the amount due such proprietor for the board and keep of such animal and also for such storage, and shall have the right, without process of law, to retain the same until the amount of such indebtedness is discharged. As used in this section, "Iceeper of a livery stable” shall include, but need not be limited to, a proprietor of a stable, a trainer, a veterinarian, a farrier, or any other person who has a financial relationship with the owner of the horse.
(emphasis added).
. N.J.S.A. § 2A:44-52 provides:
Property retained by the proprietor under this article shall be sold at public auction, after the expiration of 30 days from the date of such retention.
Notiсe of the sale shall be first published once in each of the 2 weeks preceding the day of the sale in a newspaper circulating in the municipality in which the stable is situated, and 5 days notice of the sale shall be given by posting a copy of the notice in 5 public places in the municipality.
The proceeds of sale after the deduction of the expenses thereof shall first be applied to the payment of the indebtedness, and the balance, if any, shall be paid to the owner of the property, or his representative. The balance, if not claimed by the owner within 60 days after sale, shall be paid to the municipality, in which the stable is situated, for the support of the poor.
(emphasis added).
As noted earlier, in
White Birch Farms,
. Two similar New Jersey statutes are also silent on this question: (1) N.J.S.A. 2A:44-19.1 to 44-19.9 (providing for liens in favor of and liens sales by dry cleaners); (2) N.J.S.A. 2A:44-174 to 44-177 (providing for liens in favor of and lien sales by watch and jewelry repairmen). By comparison, New Jersey’s statute governing garage keeper’s liens and lien sales expressly provides that the lien is
subordinate
to, and any lien sale is
subject
to, a prior, properly recorded lien. N.J.S.A. 2A:44-20, 2A:44-29;
see also Fox v. Cardone,
The foregoing brief survey demonstrates that the New Jersey Legislature has chosen to expressly elevate the priority of a creditor’s statutory lien in some statutes and, subject to certain conditions, to subordinate the lien to existing interests in other statutes in connection with statutorily authorized lien sales. Consequently, I draw no inferences one way or another based on the legislative silence on (he subject in the New Jersey Stableman's Lien Act.
. N.J.S.A. § 2A:50-30 provides:
In any action for the foreclosure of a mortgage upon real or personal property in this state, all persons claiming an interest in or an encumbrance or lien upon such property, by or through any conveyance, mortgage, assignment, lien or any instrument which, by any provision of law, could be recorded, registered, entered or filed in any public office in this state, and which shall not be so recorded, registered, entered or filed at the time of the filing of the complaint in such action shall be bound by the proceedings in the action so far as such property is concerned, in the same manner as if he had been made a party to and appeared in such action, and the judgment therein had been made against him as oneof the defendants therein; but such person, upon causing such conveyance, mortgage, assignment, lien, claim or other instrument to be recorded, registered, entered or filed as provided by law, may apply to be made a party to such action.
. N.J.S.A. 46:22-1 provides:
Every deed or instrument of the nature or description set forth in section 46:16-1 of this title shall, until duly recorded or lodged for record in the office of the county recording officer in which the affected real estate or other property is situate, be void and of no effect against subsequent judgment creditors without notice, and against all subsequent bona fide purсhasers and mortgagees for valuable consideration, not having notice thereof, whose deed shall have been first duly recorded or whose mortgage shall have been first duly recorded or registered; but any such deed or instrument shall be valid and operative, although not recorded, except as against such subsequent judgment creditors, purchasers and mortgagees,
(emphasis added).
. The record reflects that the Debtor had notice of the Second Post-Sale Motions that Shay and Abbatiello filed in state court on April 19, 2007 and, in fact, the Debtor appeared at the hearing in opposition to the motions. He was unsuccessful and the state court granted the motions.
Once the second
nunc pro tunc
motions were filed, the issue before the state court was whether the court could approve the stableman's lien sales
nunc pro tunc,
notwithstanding the fact that the sale itself was conducted in violation of the automatic stay. If the sales were void, only the bankruptcy court could grant relief from the stay
nunc pro tunc. See Maritime Elec. Co., Inc. v. United Jersey Bank,
Shay and Abbatiello have not argued in the alternative that even if the lien sales were conducted in violation of the automatic stay, the Debtor is bound by the state court’s nunc pro tunc, approval of the sales. Therefore, I consider the argument waived and express no opinion on its merits.
. Section 365(d)(1) provides:
In a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, fоr cause, within such 60-day period, fixes, then such contract or lease is deemed rejected.
. Section 365(p)(l) provides:
If a lease of personal property is rejected or not timely assumed by the trustee under subsection (d), the leased property is no longer property of the estate and the stay under section 362(a) is automatically terminated.
.Some courts have suggested that where the creditor received actual notice of the automatic stay, courts should presume that the violation was deliberate.
Fleet Mortgage Group, Inc. v. Kaneb,
. In
Univ. Med. Ctr.,
Even if the more general good faith defense articulated in Univ. Med. Ctr. remains good law, the result is the same, i.e., Abbatiello has no good faith defense. While the principles expressed in the Second Circuit's decision in 48th Street Steakhouse may not be universally recognized by all courts, it is also true that they have not been the subject of any robust judicial debate. Therefore, I conclude that the principles are not sufficiently unsettled to support a good faith defense to liability.
After the Debtor’s counsel and Pocaro debated the scope of the automatic stay in the their telephone conversation on the day the bankruptcy case was filed, Shay and Abbatiello could have resolved their disagreement with the Debtor by filing a motion seeking clarification of the scope of the automatic stay or modification of the automatic stay.
See In re Daniels,
. To the extent that the imposition of liability on the creditor under § 362(k) is due to improper attorney conduct, the creditor may be able to look to the attorney for compensation.
. There was some additional evidence intro
This additional evidence provided more detail regarding the sale. It provided no support for the Debtor’s theory to impute Abbatiello's conduct to Gaitway.
. Had I credited the Debtor’s testimony, it might have supported his claim that Showplace violated 11 U.S.C. § 362(a)(3) by interfering with a right of possession of the two horses.
See U.S. v. Whiting Pools,