Kline v. Deutsche Bank National Trust Company et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	KAREN MARIE KLINE, 	No. 13-05-12174 JS
Debtor.
KAREN MARIE KLINE,
Plaintiff,
v. 	Adversary No. 09-1035 J
DEUTSCHE BANK NATIONAL TRUST COMPANY, and
RICHARD LEVERICK,
Defendants.
ORDER DENYING DEFENDANTS’ MOTION TO ANNUL BANKRUPTCY STAY
THIS MATTER is before the Court on the Defendants’ Motion to Annul Bankruptcy
Stay (“Motion to Annul”) filed by Deutsche Bank National Trust Company (“Deutsche Bank”)
and Richard Leverick, by and through their attorneys Leverick and Musselman, LLC . (See
Docket No. 41). Plaintiff Karen Marie Kline, pro se, filed an objection on August 21, 2009. (See
Docket No. 47). The Court held a hearing on February 10, 2010 to consider all pending motions
in this adversary proceeding and took the Motion to Annul the Stay under advisement.
Defendants request the Court to annul the automatic stay retroactive to the date of the
filing of Plaintiff’s bankruptcy petition, asserting that Plaintiff has improperly abused the
bankruptcy process for the primary purpose of invoking the automatic stay in an attempt to
thwart state court foreclosure proceedings. Plaintiff denies that she intended to abuse the
bankruptcy process, and points out that because the Defendants’ post-petition actions were not
voided but, instead, were allowed to stand, annulment of the automatic stay at this stage in the
proceedings would only serve to excuse the stay violation. After consideration of the Motion to
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Annul Stay, and being otherwise sufficiently informed, the Court finds that Defendants have
failed to demonstrate sufficient grounds to annul the stay retroactively. Consequently, the Court
will deny the Motion to Annul Stay.
BACKGROUND AND PROCEDURAL HISTORY
Ms. Kline filed a voluntary petition under Chapter 13 of the United States Bankruptcy
Code, 11 U.S.C. § 101 et. seq., on March 21, 2005 as Case No. 13-05-12174. Pre-petition,
Deutsche Bank filed a Complaint for Foreclosure against Ms. Kline in Santa Fe County District
Court as Cause No. D-101-CV-2005-0515 (“State Court Action”). Deutsche Bank filed an
Amended Complaint in the State Court Action on March 18, 2005, and served the Amended
Complaint on Ms. Kline post petition on March 28, 2005. Ms. Kline’s bankruptcy case was
dismissed on July 13, 2005 and closed on September 15, 2005.
On December 4, 2008, Ms. Kline filed an adversary proceeding against Deutsche Bank,
Mr. Leverick, and others seeking damages for alleged willful violation of the automatic stay.
(See Adversary Proceeding No. 08-1146). The Court dismissed Deutsche Bank and Mr.
Leverick from Adversary Proceeding No. 08-1146 and directed Ms. Kline to file a separate
adversary proceeding against those Defendants. (See Order Resulting from Motion to Dismiss
Or, in the Alternative, Motion to Strike with Memorandum, Docket No. 23, Adversary
Proceeding No. 08-1146). Ms. Kline filed this adversary proceeding against Deutsche Bank and
Mr. Leverick on March 5, 2009 seeking, among other things, damages against Defendants based
on alleged willful violations of the automatic stay in serving the summons and amended
complaint in the State Court Action after the filing of voluntary bankruptcy petition. Defendants
previously filed a Motion for Summary Judgment (Docket No. 8), which the Court denied on
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November 25, 2009. (See Memorandum Opinion - Docket No. 69, and Order Denying Motion
for Summary Judgment - Docket No. 70).
DISCUSSION
Under 11 U.S.C. § 362(d), the bankruptcy court has the power to modify the automatic
stay, including annulling the stay retroactively. 11 U.S.C. § 362(d)(“. . . . the court shall grant
relief from the stay . . . such as by terminating, annulling, modifying or conditioning such stay . .
.”); In re Albany Partners, Ltd., 749 F.2d 670, 675 (11 th Cir. 1984)(explaining that “[t]he word
‘annulling’ in this provision evidently contemplates the power of bankruptcy courts to grant
relief from the stay which has retroactive effect . . .”). However, retroactive relief from the
automatic stay is appropriate only in certain very limited circumstances, and should be granted
only sparingly. 1 In Franklin Sav. Ass’n v. Office of Thrift Supervision, 31 F.3d 1020 (10 th Cir.
1994), the Tenth Circuit suggested that retroactive annulment of the automatic stay for the
purpose of reinstating prior claims “is rare and probably available only to claimants who were
honestly ignorant of the bankruptcy stay.” Franklin Savings, 31 F.3d at 1023 (citations omitted).2
An action taken while the stay is in effect, but without knowledge of the automatic stay
constitutes a “technical violation” of the automatic stay.3 Whether Defendants had knowledge of
the automatic stay when they served the amended complaint and summons in connection with
the State Court Action is a material fact central to the resolution of Plaintiff’s claim for willful
1See Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969, 977 (1st Cir. 1997)(finding that “a rarely
dispensed remedy like retroactive relief from the automatic stay must rest on a set of facts that is both unusual and
unusually compelling.”); In re Laine, 383 B.R. 166, 178 (Bankr.D.Kan. 2008)(stating that “Tenth Circuit authority is
very clear that the circumstances in which a stay may be annulled are extremely limited.”); In re Dupuy, 308 B.R.
843, 848 (Bankr.E.D.Tenn. 2004)(“The equitable exceptions justifying annulment of the stay ‘must be applied
sparingly.’”)(quoting In re Printup, 264 B.R. 169, 176 (Bankr.E.D.Tenn. 2001).
2 See also, Soares, 107 F.3d at 977 (noting that “[w]hen a creditor inadvertently violates the automatic stay in
ignorance of a pending bankruptcy, courts sometimes have afforded retroactive relief.”)(citing In re Jones,63 F.3d
411, 412-413(5 th Cir. 1995) and Mutual Benefit Life Ins. Co. v. Pinetree, Ltd. (In re Pinetree, Ltd.), 876 F.2d 34, 37
(5 th Cir. 1989)).
3 See In re McMullen, 386 F.3d 320, 330 (1st Cir. 2004)(noting that no damages could be awarded under § 362(h)
where creditor had not been listed and did not receive notice of the bankruptcy case and the resultant automatic
stay)(citing In re Will, 303 B.R. 357, 364 (Bankr.N.D.Ill. 2003)).
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violation of the automatic stay. The Court has previously denied Defendants’ motion for
summary judgment on that issue. See Memorandum Opinion, pp. 7 – 9, Docket No. 79. Given
the Tenth Circuit’s suggestion in Franklin that retroactive relief is likely only available when a
mere “technical violation” of the automatic stay has occurred, it is not appropriate to grant
Defendants retroactive relief from the automatic stay when it has not yet been determined
whether Defendants had actual knowledge of the automatic stay when they took post-petition
action. Defendants have offered nothing in their Motion to Annul the Stay to support a finding
that their post-petition action constituted a mere technical violation of the automatic stay.
Defendants candidly admit that the purpose of the instant Motion to Annul Stay is to
defeat Plaintiff’s pending claim against them for damages based on alleged willful violations of
automatic stay. (See Motion to Annul, p. 6 “. . . if Defendants obtain retroactive relief annulling
the bankruptcy stay, there would be no violation, technical or otherwise, of the automatic stay in
bankruptcy.”). Defendants do not seek retroactive annulment of the automatic stay for the
purpose of reinstating a prior claim or to otherwise validate their post-petition action. Rather,
Defendants seek to annul the stay solely to undermine Ms. Kline’s claims for willful violation of
the automatic stay. This sole purpose cannot serve as a sufficient ground to annul the automatic
stay. If the evidence ultimately demonstrates that there was only a technical violation of the
automatic stay, no damages can be awarded, and there would be no reason to annul the stay. If
the stay violation was willful, Defendants should not be allowed to defeat the claim through
retroactive annulment of the automatic stay.
Consideration of other factors courts have considered relevant to a determination of
whether to annul the automatic stay does not change the result. Such factors include: 1) whether
the debtor filed the petition in bad faith or otherwise acted in bad faith; 2) the prejudice to
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creditors if retroactive relieve is not granted; 3) whether the debtor has complied with the
Bankruptcy Code and Rules; 4) whether the creditor quickly acted to seek annulment of the
automatic stay; 5) how quickly the debtor sought to set aside the action taken in violation of the
stay; and 6) whether the creditor continued to violate the stay after learning of the bankruptcy, or
moved expeditiously to seek annulment.4
Even assuming for purposes of this opinion only (and without deciding) that Ms. Kline’s
filing of three bankruptcy cases evidences a lack of good faith, as Defendants assert,5 annulment
of the stay for the purpose of defeating Ms. Kline’s damages claim is not appropriate.
Defendants will not be prejudiced if retroactive stay relief is not granted. If their actions were in
technical violation of the stay, no damages will be awarded. If their actions were in willful
violation of the stay, the Court will consider whether and to what extent damages should be
awarded based on the evidence. Further, Deutsche Bank did not seek annulment of the stay
shortly after it learned of Ms. Kline’s bankruptcy case, nor when it sought relief from the
automatic stay by motion filed June 1, 2005. (See Case No. 13-05-12174 - Docket No. 20).
4 See In Elder-Beerman Stores, Corp., 195 B.R. 1012, 1017 (Bankr.S.D.Ohio 1996)(stating that “the debtor’s bad
faith in filing the bankruptcy petition and the moving party’s knowledge of the bankruptcy at the time of its action”
are relevant to the determination of whether cause exists to annul the automatic stay); Scrima v. John Devries
Agency, Inc.,103 B.R. 128, 135 (W.D.Mich. 1989)(noting that “[g]enerally, courts grant or affirm annulments of
automatic stays only where evidence of the debtor’s bad faith exists.”); In re Fjeldsted, 293 B.R. 12, 25 (9 th Cir.
BAP 2003)(enumerating the following additional factors: “1. Number of filings; 2. Whether, in a repeat filing case,
the circumstances indicate an intention to delay and hinder creditors; 3. A weighing of the extent of prejudice to
creditors or third parties if the stay relief is not made retroactive, including whether harm exists to a bona fide
purchaser; 4. The Debtor's overall good faith . . . ; 5. Whether creditors knew of stay but nonetheless took action,
thus compounding the problem; 6. Whether the debtor has complied, and is otherwise complying, with the
Bankruptcy Code and Rules; 7. The relative ease of restoring parties to the status quo ante;8. The costs of
annulment to debtors and creditors; 9. How quickly creditors moved for annulment, or how quickly debtors moved
to set aside the sale or violative conduct; 10. Whether, after learning of the bankruptcy, creditors proceeded to take
steps in continued violation of the stay, or whether they moved expeditiously to gain relief; 11. Whether annulment
of the stay will cause irreparable injury to the debtor; 12. Whether stay relief will promote judicial economy or
other efficiencies.”)
5 Defendants requested an evidentiary hearing on their motion to annul the stay for the sole purpose of presenting
evidence of Ms. Kline’s bad faith. Since the result reached in this case would not change regardless of whether bad
faith were proven, an evidentiary hearing on the motion to annul the stay is not necessary.
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Defendants waited until years later to seek to annul the stay, after Ms. Kline filed her complaint
seeking damages against them for a willful stay violation.
WHEREFORE, IT IS HEREBY ORDERED that the Motion to Annul Stay is DENIED.
____________________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Date entered on docket: March 4, 2010
COPY TO:
Karen Marie Kline
Plaintiff
3255 Calle de Molina
Santa Fe, NM 87507-9262
Richard Leverick
Defendant, and Attorney for Deutsche Bank National Trust Company
5120 San Francisco Rd NE
Albuquerque, NM 87109-4610
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