SCOTT C. CLARKSON, Bankruptcy Judge.
Before the Court is an Emergency Motion pursuant to Rule 65 of the Federal Rules of Civil Procedure filed by Movants Richard John Rinard (the "Debtor") and Helen R. Frazer, the Chapter 7 Trustee for the Debtor's Bankruptcy Estate ("Trustee") (together the "Movants") seeking entry of a temporary restraining order and/or a preliminary injunction order enjoining Defendant Positive Investments, Inc. (the "Defendant" or "Respondent") and its officers, agents, servants, employees, and attorneys and those in active concert or participation with them, from foreclosing
The Court is presented with, among others, the following issues:
The pending Chapter 7 case is the Debtor's second case filed within a year. The Debtor originally filed a voluntary petition under Chapter 7 of Title 11 of the United States Code on November 9, 2010, as case no. 6:10-bk-46358. That case was dismissed by order of the Court on November 30, 2010, when the Debtor's Schedules and Statements were not timely filed with the Court.
Following the entry of the order of dismissal of the Debtor's first case on November 30, 2010, on December 15, 2010, this case (the Debtor's second chapter 7 case) was commenced. Apparently cognizant of the provisions of 11 U.S.C. § 362(c)(3)(A), which instructs that "the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case." (emphasis added), the Debtor, through counsel, twice sought to have a hearing on his request to extend the automatic stay.
On January 12, 2011 (Dk. No. 16), the Debtor filed an "Emergency motion For Order Imposing a Stay or Continuing the Automatic Stay as the Court Deems Appropriate" which was denied by an order of the Court entered January 13, 2011 (Dk. No. 20). On January 13, 2011 (Dk. No. 21), the Debtor renewed his request and filed an "Application shortening time, in addition to Notice of Motion and Motion in Individual Case for Order Imposing a Stay or Continuing the Automatic Stay as the Court Deems Appropriate" which was again denied by the Court by an order entered January 13, 2011 (Dk. No. 23).
Due to procedural error (a fee was not paid) on the first attempt, the Debtor's motion to extend the stay was denied. It is not clear to this Court why the second attempt was denied without a hearing
Part of the Debtor's Bankruptcy Estate is the previously identified Foothill Parcels, which are the subject of this Motion. According to the Movants, "foreclosure proceedings have been instituted by creditor Positive Investments, Inc., 222 S. Santa Anita Ave, Arcadia, CA 91006, against certain real property commonly known as 1812-1816 W. Foothill, Upland, CA, 91786 (the "Foothill Parcels"). The foreclosure sale is scheduled for May 17, 2011." Motion, page 1:3-6, and the D. Edward Hays Declaration (the "Hays Declaration") stating that the Respondent "published" a Notice of Sale, ¶ 8, page 11:9-12.
The Court has carefully examined the Debtor's Schedules, the Court Docket of this case, and the evidence presented within this Motion. The Foothill Parcels are properly scheduled and the Court can find no actions by the Trustee or operations of law that indicate that the Foothill Parcels have passed from the Estate at this time. Therefore, there is no doubt, and the Court can find no assertions from any of the parties here to the contrary, that the Foothill Parcels remain part of the Estate. Finally, the Court has reviewed the Debtor's sworn Schedules and finds, for purposes of this Motion only, that the value of the Foothill Parcels is $1,500,000.00. In reviewing the pleadings, the Court finds, for purposes of this Motion only, that the claim secured by the lien held by the respondent on the Foothill Parcels is approximately $889,000.00. Finally, the Court finds that, for purposes of this Motion only, there is significant equity in the Foothill Parcels that inure to the benefit of the Estate and/or Debtor.
On April 29, 2011, the Debtor and the Trustee jointly filed an emergency motion entitled "Joint Emergency Motion of Debtor and Trustee for Order Determining That Automatic Stay Pursuant to 11 U.S.C. Section 362(a) Has Not Been Terminated With Respect to the Estate; Memorandum of Points and Authorities; and Declarations of D. Edward Hays and Richard John Rinard; with Proof of Service." (Dk. No. 44). The Debtor and Trustee's Motion requested that this Court make an order stating that the automatic stay was not terminated with respect to the estate by operation of 11 U.S.C. § 362(c)(3)(A). On May 3, 2011, the Court conducted a hearing and declined to issue an order on the subject of the pending motion, because, in the Court's opinion, a controversy was not present at that particular time (i.e. the motion was not ripe), and the procedure utilized would have required an impermissible advisory opinion.
On May 3, 2011, a Complaint entitled "Complaint for 1. Declaratory Relief; 2. Injunctive Relief; and 3. Damages for Willful Violation of Automatic Stay," was filed by the Debtor and the Trustee against the Defendant, as well as their Motion which seeks entry of a temporary restraining order and/or a preliminary injunction order enjoining Defendant and its officers, agents, servants, employees, and attorneys and those in active concert or participation with them, from foreclosing on the Foothill Parcels.
As a precursor to the requested relief, the Movants and Respondent both directly address the presence of the decision of the Ninth Circuit Bankruptcy Appellate Panel's decision in Reswick v. Reswick (In re Reswick), 446 B.R. 362 (9th Cir. BAP 2011). The Movants explain,
Motion, page 2:26-28 through page 3:1-9.
The Respondent also addresses Reswick. "On February 14, 2011, the Ninth Circuit BAP issued a decision in In re Reswick, which provides the most recent precedential authority in the circuit interpreting Bankruptcy Code section 362(c)(3)(A). (Citation omitted)." Opposition, page 3:17-19.
The Respondent further states that this Court is bound by the BAP's Reswick decision because "[t]he principle of stare decisis requires federal courts to adhere to the opinions of higher courts and "`to the explications of the governing rule of law.'" (citations omitted.) Opposition, page 4:3-4. Citing several Ninth Circuit decisions on the general premises of stare decisis, the Respondent grounds its assertion that this Court is bound by Reswick firmly on the Ninth Circuit BAP's own decision of 1987, In re Windmill Farms, Inc., 70 B.R. 618, 621 (9th Cir. BAP 1987), rev'd on other grounds, 841 F.2d 1467 (9th Cir. 1988).
The parties address Reswick on the issue of whether there continues to exist the automatic stay as to property of the Estate, under 11 U.S.C. § 362(a), for if the automatic stay continues in existence as to property of the Estate, then a decision to issue a Temporary Restraining Order ("TRO") or Preliminary Injunction ("PI") by this Court may be unnecessary. Indeed, the determination by this Court of whether the automatic stay remains in force as to the Estate must rest heavily on the minds of the Debtor, the Trustee and the Respondent. If the foreclosure proceeding is not enjoined by this Court, and the automatic stay has been terminated as to the Debtor and the Estate, the Foothill Parcels are at risk of being lost to the detriment to the Estate's creditors and any residual estate surplus to the Debtor. If the automatic stay was in effect on April 11, 2011, then the Respondent has violated the automatic stay, perhaps unintentionally, perhaps not. Moreover, the Ninth Circuit has made it clear that the Respondent has an affirmative duty to reverse its actions in the instance of a violation of the automatic stay, once it learns of the automatic stay, or else the action is elevated to a willful violation of the stay. "Consistent with the plain and unambiguous meaning of the statute, and consonant with Congressional intent, we hold that § 362(a)(1) imposes an affirmative duty to discontinue post-petition collection actions." Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1215 (9th Cir.2002). Clearly, the Respondent is wary of potential sanctions and
11 U.S.C. § 362(c)(3)(A) reads, in pertinent part:
11 U.S.C. § 362(c)(3)(A) (emphasis added.)
The relevant portion of the section, for our purposes today, are the words "shall terminate with respect to the debtor." Indeed, this discussion would most likely not be occurring if the Congress has simply added "or the estate" to the sentence in § 362(c)(3)(A). But Congress didn't, and here we are.
The Ninth Circuit BAP's Reswick decision sets out, with remarkable clarity, both the majority and minority positions of the nation's bankruptcy courts with respect to whether the automatic stay remains in effect as to the bankruptcy estate, by the effect of the provisions of 11 U.S.C. § 362(c)(3)(A). As to the majority view— that the automatic stay does not terminate as to the estate under the terms of § 362(c)(3)(A)—Reswick teaches
As to the minority view—that the automatic stay terminates as to both the Debtor and the Estate, Reswick described the view as follows:
Reswick v. Reswick (In re Reswick), 446 B.R. 362 (9th Cir. BAP 2011).
In one single sentence, and contra to the minority view that it chooses to adopt (see below), the BAP in Reswick determined, or rather "designates", that the language of § 362(c)(3)(A) is ambiguous. ("And while we recognize the desire to be cautious in designating statutory text as "ambiguous," we believe that such a designation is appropriate here." Reswick at 367.) The BAP did not determine that the language was ambiguous because they did not understand the sentence "the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case...". Instead, the BAP admits, in the preceding sentence of its decision, that the minority view does not "expressly" determine the language of § 362(c)(3)(A) to be "ambiguous".
Reswick at 367.
The BAP designates the text of the provision as ambiguous only because it believes that the phrase "with respect to the debtor" is not placed there by Congress to differentiate between property of the debtor and property of the estate, but instead to give certain meaning (the meaning assigned by the Reswick BAP) to the remaining provisions of § 362(c)(3). The Reswick BAP thus believes that the legislative scheme within § 362(c)(3) is the ideal legislative context to place the language
As the Tenth Circuit BAP stated in In re Holcomb, 380 B.R. 813, 816 (10th Cir. BAP 2008):
Holcomb v. Hardeman (In re Holcomb), 380 B.R. 813, 816 (10th Cir. BAP 2008).
That the facts of Reswick specifically involve a Chapter 13 debtor, where an ex spouse, one of the creditors of the debtor, garnished the post-petition wages of the debtor to collect monies perhaps entitled to a priority distribution, which were property of the Chapter 13 estate, is not lost on this Court. If Reswick stands on appeal with the Ninth Circuit, the outcome of the decision provides money for the ex-wife, and a failed Chapter 13 plan for the rest of the creditors. Thus, other provisions of the Bankruptcy Code providing an exspouse creditor with priorities for alimony and support are rendered meaningless by the decision of Reswick. Under Reswick's determination, a creditor race to the courthouse exists. This overturns the primary overarching two premises of federal bankruptcy law—a fresh start for an honest debtor and equal treatment among classes of creditors.
The facts of the Tenth Circuit BAP's Holcomb decision fit squarely with the facts of the instant case (where a secured creditor attempts to foreclose on estate property), and demonstrate that the plain meaning standard of legislative interpretation can also result in consistent and accurate expressions of legislative intent and goals.
The plain text of § 362(c)(3)(A) is crystal clear that the automatic stay is terminated
To achieve the results of the minority view and Reswick, Congress was only required to add three more words to the section—"and the estate"—which Congress did not do. This Court will also not step into the shoes of Congress. The "majority" views are the correct ones in this instance.
The Respondent asserts that this Court is bound by the decision In re Reswick. In support of its assertion, it states "[o]n February 14, 2011, the Ninth Circuit BAP issued a decision in In re Reswick, which provides the most recent precedential authority in the circuit interpreting Bankruptcy Code section 362(c)(3)(A). (citation omitted)." Opposition, page 3:17-19. This Court, according to the Respondent, is bound by the BAP's Reswick decision because "[t]he principle of stare decisis requires federal courts to adhere to the opinions of higher courts and "`to the explications of the governing rule of law.'" (citations omitted.) Opposition, page 4:3-4. Citing several decisions on the general premises of stare decisis, the Respondent mainly grounds its assertion that this Court is bound by Reswick firmly on the Ninth Circuit BAP's own decision of 1987, In re Windmill Farms, Inc., 70 B.R. 618, 621 (9th Cir. BAP 1987), rev'd on other grounds, 841 F.2d 1467 (9th Cir.1988).
Much has been written within the Ninth Circuit regarding the precedential value of BAP decisions. In re Windmill Farms, Inc., a 1988 decision written by a panel consisting of three Article I bankruptcy judges, opined that their own Ninth Circuit BAP decisions are to be treated with precedential value. Other courts have held otherwise. "The decisions of the Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") do not carry the weight of stare decisis. In re Bank of Maui, 904 F.2d 470, 471 (9th Cir.1990). The decisions of the BAP are binding only on the judges whose orders have been reversed or remanded by the BAP in that particular dispute. In all other instances, the decisions of the BAP are effective only to the extent they are persuasive." CASC Corp. v. Milner (In re Locke), 180 B.R. 245, 254 (Bankr.C.D.Cal.1995). The citation to In re Bank of Maui by the Bankruptcy Court in In re Locke is only slightly amiss, since the Ninth Circuit in Locke ultimately held that the determination of whether BAP decisions were controlling would not be decided because:
However, Windmill was decided in 1988, and Bank of Maui was decided in 1990. This Court finds that Congress determined, in 2005, that BAP decisions have no authoritative or precedential effect. On April 20, 2005, the President signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 ("BAPCPA"). Among other things, BAPCPA authorizes the direct appeal of a bankruptcy court order to the court of appeals on certification from the appropriate court and acceptance by the court of appeals. 28 U.S.C.S. § 158(d)(2).
Specifically, appellate jurisdiction was altered in BAPCPA by addition of the provision that the Circuit Courts of Appeal have jurisdiction for all final orders of a bankruptcy court and may take an appeal directly if the bankruptcy court, district court,
BAP decisions are not binding on bankruptcy courts, as district court decisions are not. The arguments set forth in the multitude of cases determining that panels composed of Article I judges to hear bankruptcy court appeals do not have the inherent power to make authoritative or precedential decisions, especially if Article III district courts hearing the same appeals have no such control, were convincing enough. Congress, in 2005, finished the argument.
For all of the reasons stated above, this Court finds that (1) the Respondent has not obtained relief from stay to proceed with any foreclosure activities respecting the Foothill Parcels; (2) the automatic stay as provided by 11 U.S.C. § 362(a) remains in force as to property of the Estate; (3) the Foothill Parcels are property of the Estate in this case; (4) the Foothill Parcels hold equity that inure to the benefit of the Estate and/or the Debtor; (5) the Respondent has violated the automatic stay by noticing the Trustee Sale and will further willfully violation the stay if it causes a foreclosure sale; and (6) Respondent already has transmuted the violation of the automatic stay into a willful violation of the automatic stay by not affirmatively reversing its actions.
The next step is to determine whether the Movants are entitled to a Temporary Restraining Order ("TRO") or Preliminary Injunction ("PI") Order.
Injunctive relief is available in bankruptcy court in two ways: pursuant to the court's discretionary and inherent equitable power under § 105(a) "to issue any
The Movants have requested this Court to consider their Motion and request under Rule 7065 and Federal Rule 65. The Court is not bound by the Motion to restrict its basis for issuing a TRO or PI under Federal Rule 65. Section 105(a) of the Bankruptcy Code serves the same purpose, as described below. Nevertheless, the same standards for issuing such injunctions are applicable. The Court will examine whether grounds exist for a TRO and/or PI to issue.
"The standards for granting a temporary restraining order and a preliminary injunction are identical." Haw. County Green Party v. Clinton, 980 F.Supp. 1160, 1164 (D.Haw.1997); cf. Stuhlbarg Int'l Sales Co. v. John D. Brush & Co., 240 F.3d 832, 839 n. 7 (9th Cir.2001) (observing that an analysis of a preliminary injunction is "substantially identical" to an analysis of a temporary restraining order). The Ninth Circuit recently modified its standard for preliminary injunctive relief to conform to the Supreme Court's admonition in Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 375-76, 172 L.Ed.2d 249 (2008), that the moving party must demonstrate that, absent an injunction, irreparable injury is not only possible, but likely.
Under Federal Rule 65, the traditional criteria for issuing a preliminary injunction are: "1) a strong likelihood of success on the merits, 2) the possibility of (now likely, not just possible) irreparable injury to plaintiff if the preliminary relief is not granted, 3) a balance of hardships favoring the plaintiff, and 4) advancement of the public interest (in certain cases)." Morgan-Busby v. Gladstone (In re Morgan-Busby), 272 B.R. 257, 261 (9th Cir. B.A.P.2002).
The Movant's Complaint asserts that the Respondent's actions in proceeding with the foreclosure activities violate 11 U.S.C. § 362(a) in that estate property is being foreclosed upon. The Court is not required to determine whether the Movants will succeed on the merits of their cause of action, but is only required to determine whether there is a strong likelihood of success on this cause of action. For all of the reasons set forth in this Memorandum Opinion as to why the automatic stay is still effective as to estate property, it is clear to this Court that there is a strong likelihood of success on the merits.
With respect to the Complaint's asserting that the Notice of Default filed with respect to the Foothill Parcels is defective, there is evidence presented as to this matter within the Hays Declaration that accompanies the Motion that corresponds to the allegations contained in ¶¶ 14, 15 and 16. Limited legal analysis is presented to the Court on these allegations by any party appearing on this Motion, and the Court cannot determine the merits of these allegations at this stage. Therefore, the Court cannot assert that there is, or is not, a strong likelihood of success on the merits with respect to the NOD arguments. However, as the Violation of the Stay cause of action stands alone for these purposes, the Court can await further briefing and fact-finding at the PI stage of the process.
According to the Movant, the foreclosure sale has been noticed for May 17,
The Movants' reliance with respect to the required showing of irreparable harm on FSLIC v. Sahni, 868 F.2d 1096 (9th Cir.1989), in light of the Supreme Court's decision in Winter, supra, is misplaced. The correct standard is "likely irreparable harm," not possible irreparable harm.
If more than nominal equity exists in the Foothill Parcels that would inure to the benefit of the Estate and/or the Debtor, than the likelihood of irreparable harm to the Plaintiffs exists. The Respondent is protected by an equity cushion in the Foothill Parcels, and suffers little or no harm by a delay in the foreclosure process at this time.
The Movants assert that there is no requirement to balance hardships in circumstances of intentional conduct by defendants, citing United States v. Marine Shale Processors, 81 F.3d 1329, 1359 (5th Cir.1996). Within that case, the Fifth Circuit identified certain cases involving "willful acts" that might not require a balancing of the hardships, including Louis W. Epstein Family P'ship v. Kmart Corp., 13 F.3d 762, 769-70 (1994) (Pennsylvania law, encroachment on land); Kratze v. Indep. Order of Oddfellows, 442 Mich. 136, 500 N.W.2d 115, 121 & n. 10 (Mich.1993) (land encroachment); Amabile v. Winkles, 276 Md. 234, 347 A.2d 212, 216-17 (Md.1975) (land); Normandy B. Condominium Ass'n, Inc. v. Normandy C. Ass'n, Inc., 541 So.2d 1263 (Ct.App.Fla.1989) (interference with an easement); Barrett v. Lawrence, 110 III.App.3d 587, 442 N.E.2d 599, 603, 66 Ill.Dec. 173 (Ill.App.1982) (failure to deposit money in an escrow); Christensen v. Tucker, 114 Cal.App.2d 554, 250 P.2d 660, 665-66 (Cal.App.1952) (land encroachment);. Helene Curtis Indus., Inc. v. Church & Dwight Co., 560 F.2d 1325, 1333-34 (7th Cir.1977) (trademark infringement), cert, denied, 434 U.S. 1070, 98 S.Ct. 1252, 55 L.Ed.2d 772 (1978); and E.F. Johnson Co. v. Uniden Corp. of America, 623 F.Supp. 1485, 1504 (D.Minn. 1985) (patent infringement). See United States v. Marine Shale Processors, 81 F.3d 1329, 1359 (5th Cir.1996).
This Court sees no reason in this case to divert from the traditional standards for issuing a TRO or PI, and based on the instant facts is not required to do so. The Defendant's hardship is slight (i.e. a delay receiving payment without risk because of the equity cushion in the Foothill Parcels) compared to the Movants' risk of permanent loss of the real property or its equity value over a relatively short period of time. The Court finds that the hardships balance in favor of the Plaintiffs.
Unless the Court considers that there is a public interest for (or against) the issuance of a TRO or PI within the circumstances of this case (and there might be an argument to be made that it is in the public interest to curtail violations of the automatic stay), the case is not one where advancement of the public interest is relevant. Therefore, the Court finds that a determination of this component of the standard is unnecessary.
Under 11 U.S.C. § 105(a), a bankruptcy court "may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Section 105(a) gives the bankruptcy courts the power to stay actions that are not subject to the 11 U.S.C. § 362(a) automatic stay (footnote omitted) but "threaten the integrity of a bankrupt's estate." Canter v. Canter (In re Canter), 299 F.3d 1150, 1155 (9th Cir.2002) (citation and quotation marks omitted); Ingersoll-Rand Fin. Corp. v. Miller Mining Co., 817 F.2d 1424, 1427 (9th Cir.1987). Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 1093 (9th Cir.2007). The Ninth Circuit, in Solidus Network further found that the usual preliminary injunction standard applies to stays of proceedings against non-debtors under § 105(a). Solidus at 1094.
For the same factual reasons, and applying the same standards that this Court determined that a TRO should issue under Federal Rule 65, as made applicable by Bankruptcy Rule 7065, the Court finds that the ruling may be jointly based on 11 U.S.C. § 105(a).
In accordance with my Memorandum of Opinion this date,