JANICE D. LOYD, Bankruptcy Judge.
This is an adversary proceeding brought by Plaintiff/Debtor, Nikki Marie Waldrop, ("Waldrop"), alleging that Defendants Discover Bank ("Discover") and its attorney, Stephen Bruce, ("Bruce"), violated the automatic stay by instructing Waldrop's garnishee-bank to retain possession of funds garnished pre-petition pending the further order of the court. This matter comes on for consideration upon Bruce's Motion for Summary Judgment [Doc. 55], Discover Bank's Motion for Summary Judgment [Doc. 64], (collectively, the "Motion"), Waldrop's Response to Motion for Summary Judgment (the "Response") [Doc. 63], Bruce's Reply to Waldrop's ResponseK (the "Reply") [Doc. 65] and Waldrop's Response to Discover Bank's Motion for Summary Judgment [Doc. 67].
This matter is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (B) and (O), and the Court has jurisdiction pursuant to 28 U.S.C. § 157(b)(1) and 28 U.S.C. §1334.
After considering the Motion, the Responses, the Reply, the pleadings, the evidence and the applicable authorities, and for the reasons set forth below, the Court hereby partially grants Defendants' Bruce and Discover's Motions for Summary Judgment. While not addressed by Waldrop or Bruce, and only briefly by Discover, the Court's initial inquiry is whether Waldrop has standing to seek sanctions attributable to any alleged stay violation. The Court finds that Waldrop does have standing. However, based on the undisputed facts, Bruce and Discover did not willfully violate the automatic stay. The following constitutes the Court's Findings of Fact and Conclusions of Law pursuant to Fed. R. Bankr. R. 7052, 7056 and 9014.
1. On October 5, 2015, default judgment was entered in the state court case styled "Discover Bank v. Nikki Waldrop, Cleveland County Case No. CS-2015-1346, against Waldrop in the amount of $5,977.13 with interest, costs, and attorney's fees in the amount of $896.57 (the "Judgment").
2. On December 3, 2015, Discover Bank filed and issued a garnishment to Waldrop's Bank, J.P. Morgan Chase ("Chase"), seeking to enforce the Judgment. Waldrop asserts that when the garnishment was served upon Chase is disputed. Bruce's Motion asserts that the garnishment was served on Chase on December 7, 2015, at 8:42 A.M., as evidenced by a FedEx Tracking Information. [Doc. 55, ¶ 3; Doc. 55-4]. The garnishment Answer verified by Chase on December 9, 2015, indicates that it was served with the garnishment summons on Tuesday, December 8, 2015. [Doc. 55-8]. On the other hand, Waldrop asserts that the garnishment was received and processed by Chase on either December 8 or December 9, 2015, and thus "there is a question of material fact as to whether Chase was actually served on December 9
4. On December 9, 2015, (the "Petition Date"), Waldrop filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code.
5. On December 11, 2015, Waldrop's attorney faxed a letter dated December 9, 2014 (sic), to Bruce asking that he "contact Chase Bank and release her (Waldrop's) funds immediately." [Response, Doc. 63-2].
6. On December 15, 2015, Chase filed an Answer to the garnishment in the state court case stating that it was holding $1,033.64 in Waldrop's account. [Doc. 63-1].
7. On December 16, 2015, Bruce faxed the following letter to Chase:
Dear Managing Officer:
[Doc 63-5].
8. As will be discussed in greater detail below, on December 16 and 17, 2015, there were at least three telephone conversations between Waldrop's attorney, John Cloar ("Cloar"), and Bruce's office regarding the garnishment. In his Motion, Bruce asserts that Cloar agreed to, or at least led Bruce to believe, that Chase was permitted to hold onto the garnished funds (and not release them to Discover) pending further order of the court or agreement of the parties. [Motion, Doc. 55, ¶9]; Doc. 55-6]. In her Response, Waldrop and Cloar by Affidavit deny that any such agreement or understanding was reached. [Response, Doc. 63, ¶9; Cloar Affidavit, Doc. 63-3, ¶ 7]. The telephone conversations between Cloar and Bruce's office were recorded. The audio recordings with written transcripts thereof establish that there was such an agreement or understanding.
Before proceeding to address the merits of both Bruce and Discover's Motions for Summary Judgment as to whether there was a willful violation of the automatic stay, it is incumbent upon the Court to address whether Waldrop has standing to assert such an alleged violation. Discover asserts that Waldrop lacks standing to pursue her claim for willful violation of the automatic stay because upon commencement of the bankruptcy case she no longer had any rights in or legal control of the funds which were garnished. Discover argues that only the Chapter 7 Trustee, who is charged with administering property of the estate under 11 U.S.C. § 704,
In order to establish that it has constitutional standing to bring suit:
The issue of whether debtors have standing to maintain claims for violations of the automatic stay with respect to property of the estate has been the subject of numerous cases, many of which involved bank accounts where the bank (as opposed to the creditor action here) froze debtors' accounts when they filed for bankruptcy protection. The majority of these cases hold that the debtors did not have standing to maintain claims where the debtor has not claimed the property as exempt or where it has not been abandoned. New Era, Inc., 135 F.3d 1206 (7
This line of cases begin with the premise that under § 541(a)(1) of the Bankruptcy Code, "[t]he commencement of a case under section 301, 302, or 303 of this title creates an estate . . . [w]hich is comprised of . . . all legal or equitable interests of the debtor in property as of the commencement of the case". Hence, when a debtor files a Chapter 7 petition, that property is transformed into estate property subject to the sole control and dominion of the bankruptcy trustee. Therefore, the funds on deposit with Chase in this case became property of the estate upon the filing of the bankruptcy, albeit subject to Discover's pre-petition garnishment lien.
The specific stay provision at issue here is § 362(a)(3), which 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". At the time of filing the debtor must file a list of property that he claims as exempt. 11 U.S.C. § 522(l). "[A] party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later." Fed. R. Bankr. P. 4003(b)(1). If a party in interest does not object during the objections period, however, "the property claimed as exempt on such list is exempt." 11 U.S.C. § 522(l). An interested party has no duty to object to the amount of the claim of exemption so long as the asserted value of the property claimed as exempt is within the limits allowed by the applicable exemption statute. Schwab v. Reilly, 560 U.S. 770, 782, 130 Sup. Ct. 2652 (2010). The effect of an exemption is that the debtor's interest in the property is withdrawn from the bankruptcy estate and revests in the debtor. Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833 (1991).
There is no Tenth Circuit precedent binding on this Court as to whether a debtor has standing to assert a violation of the automatic stay in the absence of an allowed claim of exemption or the trustee's abandonment of the property. The Tenth Circuit BAP in In re Cook v. Wells Fargo, N.A. (In re Cook), 2012 WL 1356490 (10
The BAP then went on to hold that a debtor's inchoate or eventual, but undetermined, right to an exemption was not sufficient to confer standing:
This Court gives great deference to decisions of the BAP, regardless of whether that decision is published or constitutes binding precedent. In this case, however, the Court believes that the analysis and holding of the bankruptcy court in In re Trujillo, 485 B.R. 238 (Bankr. Colo. 2012), was correct in its view that a court must determine the nature of the interest affected by the stay violation in order to determine whether the debtor has suffered a "concrete and particularized" invasion of a "legally protected interest" (i.e. has Article III standing), and whether the debtor is an "individual injured" by the creditor stay violation (i.e. has prudential standing under § 362(k)) granting the debtor standing to assert a violation of the automatic stay. In Trujillo the debtor asserted an interest in at least some of the wages being withheld post-petition.
Trujillo noted that cases like In re Cook and others holding the debtor has no standing to assert a violation of the automatic stay with regard to the estate property until an exemption is granted or the property abandoned rest upon four major assumptions: (1) a chapter 7 debtor has no right to use property of the estate until his exemptions have become fixed; (2) if the debtor cannot use the property, then he has no injury; (3) standing to assert a stay violation is exclusive, in that only one person may possess the requisite standing; and (4) while property remains property of the estate, the chapter 7 trustee is the party with standing because he is the representative of the estate. Trujillo, 485 B.R. at 248. After a thoughtful survey of the case law, Trujillo recognized that "the legally protected interest (for standing) need not involve a direct pecuniary loss", Bucchino, 439 B.R. at 768-69, but only that "injury" must be tied to the interest that the law seeks to protect. That "interest" which the Debtor, or a creditor, has is the automatic stay. As to the debtor:
The second protection of the automatic stay is given to creditors generally:
Trujillo, 485 B.R. at 252 (citations omitted).
Trujillo further pointed out the language of § 362(k) conveys "this broader view of standing by Congress' use of the term `individual'":
Thus, the Court concluded:
Id, pg. 253.
In the present case, Waldrop asserted her interest in a portion of the funds on deposit with Chase (although inartfully in her original Schedules) and by originally demanding that Chase and Discover, through Bruce, release the funds as violating the automatic stay. It also appears clear as a practical matter that any dispute as to an interest in the funds was going to be between Waldrop and Discover as it would be highly unlikely that the Chapter 7 trustee would assert any right to the approximately $1,000.00 in the account where those funds were probably subject to a pre-petition garnishment lien and/or were subject to a potential claim of exemption or lien avoidance action by the Debtor. This is evidenced by the fact that immediately following the First Meeting of Creditors the Trustee filed a Report of No Distribution indicating an intent to abandon any claim to potential assets of the estate.
For the reasons stated above, the Court finds that Waldrop has standing to assert a claim for violation of the automatic stay. Whether, based on the undisputed material facts, she can sustain such a claim against Bruce and Discover's Motions for Summary Judgment is discussed below.
It is appropriate to grant a motion for summary judgment when the pleadings and other materials in the record, together with supporting affidavits, if any, demonstrate that there is no genuine dispute with respect to any material fact and that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c), made applicable to this adversary proceeding by Fed. R. Bankr. P. 7056. "[A] party seeking summary judgment always bears the initial responsibility of informing the . . . court of the basis for its motion, and . . . [must] demonstrate the absence of a genuine issue of material fact". Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548 (1986). Courts must review the evidentiary material submitted in support of the motion for summary judgment to ensure that the motion is supported by evidence. If the evidence submitted in support of the summary judgment motion does not meet the movant's burden, then summary judgment must be denied. Hearsay evidence cannot be considered on a motion for summary judgment. Wiley v. United States, 20 F.3d 222, 226 (6
When considering a motion for summary judgment, the court views the record in the light most favorable to the party opposing summary judgment. See, Deepwater Investments, Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10
"[T]he non-moving party may not rest on its pleadings but must set forth specific facts showing that there is a genuine issue for trial as to those dispositive matters for which it carries the burden of proof". Vitkus v. Beatrice Co., 11 F.3d 1535, 1539 (10
Section 362 of the Bankruptcy Code generally provides for the automatic stay of any and all proceedings against the debtor once a bankruptcy petition is filed. In relevant part, § 362(a) provides the filing of the petition operates as a stay, applicable to all entities, of—
There is no claim by Waldrop, and there would be no evidence to support one, that Discover and Bruce violated subsections (1) or (2) of § 362(a) pertaining to the continuation of a judicial proceeding or the enforcement of any judgment obtained before the commencement of the case. No pleadings or other activity took place in Discover's State Court case against Waldrop after the filing of the bankruptcy, and there was no attempt to enforce the judgment. In fact, Bruce instructed Waldrop's employer to release the continuing wage garnishment which had been served upon it pre-petition. The only issue is whether Bruce's instruction to Chase to hold onto the funds until further order of the court constituted a prohibited act to "exercise control over property of the estate" under Subsection (3) of § 362(a).
In this Court's Order of May 27, 2016, overruling Discover and Bruce's Motion to Dismiss, this Court followed the rulings of the majority of cases, including the Courts of Appeal for the Second, Seventh, Eighth and Ninth Circuits, which hold that a creditor's post-petition retention of possession of property repossessed pre-petition over the demand of the debtor need not be accompanied by an affirmative act and such possession by itself constitutes "exercise or control over property of the estate" in violation of the automatic stay under § 362(a)(3). In other words, a creditor's "act of passively holding onto an asset constitutes `exercising control' over it, and such action violates section 362(a)(3)." Thompson v. General Motors Acceptance Corp., 566 F.3d 699, 703 (7
At the time of this Court's previous order, there was no binding Tenth Circuit decision on the issue. Thus, following the majority view, it was the opinion of this Court that upon demand from the debtor, Discover had a duty to take affirmative action to begin the process by which the issues of the automatic stay and its garnishment lien rights might be timely adjudicated. [Doc 26, pg. 11]. The recent decision of the Court of Appeals for the Tenth Circuit on February 27, 2017, in WD Equipment, LLC v. Cowen (In re Cowen), 849 F.3d 943 (10
In Cowen the creditor had repossessed the debtor's vehicle pre-petition. The debtor filed a Chapter 13 the following day and demanded the return of the vehicle. When the creditor refused, the debtor filed an adversary proceeding asserting, among other claims, damages for a violation of the automatic stay. As discussed above, § 362(a)(3) makes it a violation of the automatic stay to commit "any act to obtain possession of the property of the estate or property from the estate or to exercise control over property of the estate . . .". Observing that the statute bars "any act to exercise control over property", the Court of Appeals said the word "act" means to "take action" or "doing something." Id., pg. 949. Employing what it determined to be the "plain" meaning of the statute, mere retention of property could not constitute a stay violation where there is merely "the act of passively holding onto an asset." Id., pg. 949 (quoting Thompson, 566 F.3d at 703). Following the decision of the Court of Appeals for the D.C. Circuit in United States v. Inslaw, 932 F.2d 1467 (D.C. Cir 1991), the only Court of Appeals so holding, Cowen adopted the "minority rule": only affirmative acts to gain possession of, or to exercise control over, property of the estate violate Section 362(a)(3). This Court is bound to follow Cowen.
In the present case, the undisputed facts show that Discover and Bruce did not commit an affirmative "act" to exercise control over the garnishment funds in possession of Chase; rather, Bruce simply told Chase to hold onto the funds which had already been put in Chase's, not Discover's, possession pre-petition. Discover's conduct in attempting to have Chase maintain the status quo clearly falls within the scope of an "act of passively holding onto an asset" which Cowan found not to be violative of the automatic stay. However, even if Bruce's sending of the December 16, 2015, letter to Chase could be viewed as the necessary "act" to "exercise control" over the funds for violation of the stay, which the Court has found it wasn't, there is an additional basis for finding that there was no stay violation.
As has been discussed above, the Tenth Circuit's decision in Cowen compels this Court to find that as a matter of law the undisputed facts relative to the conduct of Discover and Bruce leads to the conclusion that there was no violation of the automatic stay. The Court finds, that independent of the holding in Cowen, the undisputed facts show an agreement between Waldrop's counsel with Bruce which precludes any possible finding of a violation of the automatic stay.
There was no mention in either the Complaint or in Bruce's Motion to Dismiss as to any possible agreement between the parties to permit Chase to retain possession of the garnished funds. However, as now asserted in Bruce's and Discover's Motions for Summary Judgment, there was an agreement between Cloar and Bruce such that Chase could retain possession of the funds, or at the very least Cloar's acquiescence for Chase to retain the funds would be an additional basis that this Court could find that Waldrop has no claim for violation of the automatic stay.
The evidence before the Court upon which Bruce and Discover rely in support of their argument that there was an agreement with Cloar as to Chase retaining possession of the funds primarily consists of transcripts of three telephone conversations between Cloar and Bruce's employees on December 16 and 17, 2015.
The above transcripts are supportive of Bruce and Discover's position that Cloar was not so much concerned with the funds being turned over to Waldrop, but that Chase not release them to Discover/Bruce. Cloar appears to confirm, and certainly makes no objection to, being told by Bruce's paralegal that "they leave the funds in place until the 341 hearing." Indeed, in the conversation of December 17 at approximately 3:43 p.m. Cloar sought to have the paralegal confirm that Bruce had told her on December 16 that Chase would hold the funds:
When Cloar asked that the paralegal send him a copy of the letter that Bruce had sent to Chase she faxed it to Cloar at 3:55 p.m., immediately following their telephone conversation. [Doc. 55-11].
Additionally, there is no evidence that Cloar made any objection to the funds being left with Chase after he was faxed a copy of the Bruce letter of December 16, 2015, advising Chase to "Please hold the garnishment funds until further order of the court." [Doc. 55-12]. In fact, Cloar's own Affidavit filed in opposition to Bruce's Motion recites that in the conversations with Bruce's office that he "wanted Bruce to take action to prevent the garnished funds from being released to Bruce", not that Chase release the funds to Waldrop. (Emphasis added) [Doc. 63-3, ¶ 5].
Waldrop asserts that there was no agreement between Bruce and Cloar that Chase be permitted to hold onto the funds pending further action by the Court or the Trustee. The denial of such an agreement primarily rests upon two pieces of evidence. First, Cloar's demand letter dated December 9, 2014, (sic) which was faxed to attorney April Kelso in Bruce's office on December 11, 2015, which requested that "you contact Chase Bank and release her (Waldrop's) funds immediately." [Doc. 63-2, pg. 2). Second, Cloar's Affidavit that states, "At no point in time did I agree to allow Bruce to keep the garnished funds on hold pending the decision of the court, so as to prevent Waldrop's access to those funds." [Doc. 63-3, ¶ 7].
With regard to the demand letter, it appears that Cloar did, in fact, initially take the position that the garnished funds were to be unconditionally released to him or his client. Unfortunately for Waldrop, by the time Cloar spoke to Bruce's office on December 16 and 17, 2015, it appears clear that he had altered his position, and that he was only concerned with Chase not releasing the funds to Discover or Bruce. This is made clear in both the audio tapes of the conversation with Bruce's paralegal on December 17, 2015, and Bruce's letter of December 16, 2015, to Chase which the paralegal faxed to Cloar immediately following their December 17, 2015, conversation. Significantly, Cloar does not appear to have protested the freezing of the funds in Chase's possession from December 17, 2015, until other counsel for Waldrop filed this adversary proceeding more than a month later.
Most affidavits, including Cloar's, are by their nature "self-serving." That does not make them irrelevant or to be disregarded. On the other hand, "[w]hen opposing parties tell two different stories, one of which is blatantly contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment". Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769 (2007); Joint Technology, Inc. v. Weaver, 567 Fed.Appx. 585, 588 n.3 (10
Waldrop asserts that summary judgment is precluded because "[t]here is one major factual issue in this case: whether an agreement existed between Waldrop and her bankruptcy attorney, Cloar, to hold the garnished funds in place." [Response, Doc. 67, pg.2]. Saying that there is a disputed issue of fact does not make it so. Bruce and Discover have come forward with evidence in the form of transcripts of phone conversations between Cloar and Bruce's office indicating that there was an agreement between Cloar and Bruce for Chase to hold the funds, but Waldrop has not come forward with any evidence to refute the existence of such an agreement. Waldrop controverts the claim of an agreement by way of an Affidavit of Cloar in which he states, "At no point in time did that I agree to allow Bruce to keep the garnished funds on hold pending the decision of the Court, so as to prevent Waldrop's access to those funds." [Doc. 63-3 ¶ 7].
It is well-settled that a party cannot avoid summary judgment simply by raising conclusory allegations. Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2
By way of her Complaint, Waldrop also seeks that "her access to her funds be restored". In other words, she not only seeks damages for willful violation of the automatic stay, but that she is entitled to recover the garnished funds. As a matter of law, she is not entitled to this relief. As noted above, this Court has found that the garnishment summons was served on Chase on December 7 or 8, 2015, both dates prior to the bankruptcy. Title 12 O.S. § 1185 provides that "[f]rom the time of service of the summons upon the garnishee he shall stand liable to the plaintiff to the amount of the property...in his possession. . .". "Clearly, the statute contemplates the critical date to be the date of service of the garnishment summons." First Mustang State Bank v. Bloodworth, Inc., 1991 OK 65 ¶ 19, 825 P.2d 254. Thus, as of December 7, but not later than December 8, Discover had a lien on the subject funds. Funds in the garnishee's possession at the time of bankruptcy filing are property the estate, but the automatic stay prevents the judgment creditor from seeking disbursement of the funds. In re Johnson, 479 B.R.159 (Bankr. N.D. Ga. 2012). Nevertheless, the lien attached upon service of the garnishment and bankruptcy filing does not affect the creditor's lien unless it is avoided as a preference or for impairing an exemption. Id.
No action has been taken by Waldrop to avoid the lien, and liens that are not avoided during bankruptcy administration "ride-through" a Chapter 7 bankruptcy case and survive the debtor's discharge. Johnson v. Home State Bank, 501 U.S. 78, 82-83, 111 S.Ct. 2150 (1991); In re Willis, 199 B.R. 153 (Bankr. W.D. Ky. 1995) (a lien "rides through" bankruptcy unaffected, unless the lien is disallowed or avoided); In re Bensen, 262 B.R. 371 (Bankr. N.D. Tex. 2001) ("A valid lien or security interest on exempt property securing a pre-petition debt remains enforceable unless the lien is void or voidable pursuant to one of a number of avoidance provisions in the Bankruptcy Code.").
In short, nothing in 11 U.S.C. § 524 precludes a creditor from enforcing a pre-petition garnishment lien that has survived the debtor's Chapter 7 discharge. Although Discover was stayed from enforcing the lien during the pendency of the bankruptcy case by the automatic stay, nothing would preclude it from now enforcing that lien post-discharge.
The problem for this Court to adjudicate the relative rights of Waldrop and Discover to the garnished funds is that there is insufficient evidence before the Court as to resolve that issue as a matter of law. In her Amended Schedule C Waldrop claimed the exemption pursuant to 31 O.S. § 1(18) which exempts from execution "[s]eventy-five percent (75%) of all current wages or earnings for personal or professional services earned during the last ninety (90) days. . .". While claiming an exemption in the funds, Waldrop stated that the "current value" of the exemption and the "amount of exemption" were both "unknown". [Doc. 20, pg. 12]. Waldrop's utilization of the term "unknown" in the Schedules coupled with specific reference to the Oklahoma exemption statute which sets forth the limit of the exemption (75%) restricts any potential exemption to the statutory limit notwithstanding Waldrop's statement that the amount is "unknown", i.e. 25% of $1,033.64 or $775.23. In re Hall, 453 B.R. 22 (Bankr. D. Mass. 2011) (debtor's scheduling of exemption as "unknown" did not entitle him to unlimited exemption by virtue of trustee's failure to timely object to exemption); In re Soares, 471 B.R. 20 (Bankr. D. Mass. is 2012).
Accordingly, for the reasons set forth above, Bruce's and Discover's Motions for Summary Judgment are