ERIC L. FRANK, Bankruptcy Judge.
In this adversary 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
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 2A:44-52. The stableman's lien sales, which were later confirmed by order of the New Jersey Superior 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 Gaitway 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:
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.
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, 2008 WL 5329310 (Bankr.E.D.Pa. Dec.19, 2008).
On February 20, 2009, the Debtor commenced this adversary proceeding by filing a Complaint. The Defendants answered the Complaint on February 24, 2009.
The trial on liability commenced on November 9, 2009. After the Plaintiff completed presentation of his case-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).
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 Re-Open 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, I granted that motion, in part,
On July 1, 2010, the district court remanded the Plaintiff's appeal from the November 23, 2009 order dismissing the Plaintiff's 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.Civ.P. 52(a).
After consideration of the testimony presented at trial,
1. Plaintiff Rafail Theokary is the debtor 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 boarding 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.
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 BJ. (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-4).
8. All three of the leases (collectively, "the First Leases"):
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 BJ.
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.
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.
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.
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.N.J.) ("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 "enforc[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 court "for bad faith filing."
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
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.
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 at 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.
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:
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 BJ at Gaitway. Abbatiello was present at the sale and purchased the horse for $100.00.
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 BJ 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 Showplace 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 Showplace participated in sale in any manner.
42. After preparing the notice of the stableman's lien sale of Mac's Emily BJ 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.
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").
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 Post-Sale 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-1, D-2).
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 BJ.
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 BJ.
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).
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
In re Krystal Cadillac Oldsmobile GMC Truck, Inc., 142 F.3d 631, 637 (3d Cir. 1998) (citing H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 340 (1977), U.S.Code Cong. & Admin. News 1978, pp. 5963, 6296, 6297); accord Constitution Bank v. Tubbs, 68 F.3d 685, 691 (3d Cir.1995).
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., 124 F.3d 1310, 1313 (9th Cir.1997); In re Allentown Ambassadors, Inc., 361 B.R. 422, 435-36 (Bankr.E.D.Pa. 2007) (citing cases). While the § 362(a)(3) concepts of "obtaining possession of" and "exercising control over" are not easily applied to intangible assets such as executory contracts and unexpired leases, it is generally accepted that § 362(a)(3) applies to such assets. See, e.g., Acands, Inc. v. Travelers Casualty and Surety Co., 435 F.3d 252, 260 (3d Cir.2006); Allentown Ambassadors, 361 B.R. at 437-38 & n. 34.
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:
835 F.2d at 431; accord Kreisler v. Goldberg, 478 F.3d 209, 214-215 (4th Cir. 2007); In re Bibo, Inc., 200 B.R. 348 (9th Cir. BAP 1996) (senior lienholder's action in foreclosing against real property on which debtor held junior lien, violated § 362(a)(3) as completion of foreclosure process would extinguish debtor's lienholder rights), appeal dismissed as moot, 139 F.3d 659 (9th Cir.1998).
There is no binding precedent in this Circuit directing the bankruptcy courts to follow 48th Street Steakhouse.
Based on the dictum in Acands, as well as 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 48th Street Steakhouse. Further, I perceive the result achieved by the decision to be consistent with the § 362(a)'s fundamental purpose of preserving valuable 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:
Allentown Ambassadors, 361 B.R. at 440 n. 40. For these reasons, I will follow 48th Street Steakhouse.
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 violation of the automatic stay occurred. See Fleet Business Credit, LLC v. Wings Restaurants, Inc., 291 B.R. 550, 555 (N.D.Okla.2003) (legal action to appoint receiver to collect rent from bankruptcy debtor does not violate the stay); see generally Fed. R. Bankr.P. 3001(e) (providing procedures relating to transfer of claim from creditor to assignee after creditor has filed proof of claim in bankruptcy case).
Therefore, I next consider the legal consequences of the stableman's lien sale under applicable nonbankruptcy law.
The New Jersey Stableman's Lien Act "has been in existence for over 100 years." White Birch Farms, 559 A.2d at 484. It is presently codified at N.J.S.A. § 2A:44-51 to § 2A:44-52. It grants a lien on horses left for board with a "keeper of a livery stable." N.J.S.A. § 2A:44-51. The statute expansively defines the term "keeper of a livery stable" to include "a trainer ... or any other person who has a financial relationship with the owner of the horse."
The New Jersey Stableman's Lien Act is silent on the question whether a sale under
In Sullivan v. Clifton, 55 N.J.L. 324, 26 A. 964 (1893), the horse owner granted a chattel mortgage to a creditor that was duly recorded. The owner then left the horse at a livery stable. The case raised the issue "whether the lien of the chattel mortgage is superior to the statutory lien of the livery stable" under the New Jersey Stableman's Lien Act. Id. The court held that the statutory lien was subordinate to the chattel mortgage, reasoning that the lien of [the livery stable keeper], being subsequent in time, and taken with full notice of the right of the latter, must upon principle be subject to it. The court concluded that "[t]he maxim `prior est in tempore, potior est in jure, applies'" Id. at 965 (emphasis added). Sullivan is consistent with "[t]he basic rule of lien priority in New Jersey ... `first in time, first in right'" Sagi v. Sagi, 386 N.J.Super. 517, 902 A.2d 287, 291 ("[t]he basic rule of lien priority in New Jersey is `first in time, first in right'").
PNC Bank v. Axelsson, 373 N.J.Super. 186, 860 A.2d 1021 (2004) articulates a relevant gloss on the "first in time" principle. Axelsson is a real property case involving the rights of a foreclosing creditor vis a vis the holder of an unrecorded easement, not a decision under the Stableman's Lien Act. Nonetheless, the opinion sets forth general legal principles regarding the competing interests of creditors and holders of unrecorded interests that are sound and of general applicability in New Jersey.
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
Id. at 1026 (emphasis added) (citation of N.J.S.A. § 46:22-1 omitted).
At first blush, application of the "first in time" principle appears to dictate the conclusion 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, 94 N.J. Eq. 292, 119 A. 374 (1922) (citing Sullivan favorably and stating general rule that, while common-law liens attach to property without reference to ownership and override all other rights in property, a statutory lien is subordinate to all prior existing rights in property).
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, 186 N.J. 99, 892 A.2d 646, 654 (2006) (any lien created by failure to pay condominium common assessments was extinguished by entry of purchase money mortgagee's foreclosure judgment and subsequent sheriff's sale). Because the effect of the sales was to terminate property of the bankruptcy estate, i.e., the Debtor's leasehold interests in the Horses (and putting aside, for the moment, the legal principle that actions taken in violation of the automatic stay are void, e.g., In re Siciliano, 13 F.3d 748, 750-51 (3d Cir. 1994)), the conduct of the stableman's lien sales violated 11 U.S.C. § 362(a)(3).
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 Post-Sale 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.
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:
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., 901 F.2d at 329 (citing In re Bloom, 875 F.2d 224, 227 (9th Cir.1989)); accord Krystal Cadillac, 337 F.3d at 320 n. 8; In re Univ. Med. Ctr., 973 F.2d 1065, 1088 (3d Cir.1992). Knowledge of the existence of the bankruptcy case is treated as knowledge of the automatic stay for these purposes. See, e.g., In re Knaus, 889 F.2d 773, 775 (8th Cir.1989); In re Johnston, 321 B.R. 262, 280 (D.Ariz.2005); In re Ozenne, 337 B.R. 214, 220 (9th Cir. BAP 2006); In re Welch, 296 B.R. 170, 172 (Bankr.C.D.Ill.2003); In re Wagner, 74 B.R. 898, 904 (Bankr. E.D.Pa.1987).
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. Pocaro 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
Finally, I address the Debtor's claims against Gaitway and Showplace.
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 BJ 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 BJ, 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., 618 F.3d 253, 272 (3d Cir.2010). In considering whether to grant judgment under Rule 52(c), the trial court applies the same standard of proof and weighs the evidence as it would at the conclusion of the trial and may make determinations of witness credibility where appropriate. "Accordingly, the court does not view the evidence through a particular lens or draw inferences favorable to either party." Id.
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 prior decision 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.
The Debtor asserts two legal theories in support of his claim against Showplace.
First, much like his claim against Gaitway, 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 case-in-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.11, 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.
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.
It is hereby
1.
2.
3. A
Rule 54(b) provides, in pertinent part:
After considering the parties' diametrically opposing testimony, I find the testimony of Shay and DiMeo more credible than the Debtor'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.
(emphasis added).
(emphasis added).
As noted earlier, in White Birch Farms, 559 A.2d at 484, a New Jersey court added the procedural gloss to the statute, requiring lienholders to proceed first by seeking an order to show cause or by commencing an action by verified complaint or affidavit. See n.17, supra.
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 the subject in the New Jersey Stableman's Lien Act.
(emphasis added).
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, 959 F.2d 1194, 1204 (3d Cir. 1991); see generally In re Myers, 491 F.3d 120, 127 (3d Cir. 2007) (discussing circumstances in which automatic stay may annulled retroactively). Nevertheless, the state court entered an order approving the stableman's lien sales nunc pro tunc. The order was entered over the Debtor's opposition. In these circumstances, a legitimate issue arises whether the Debtor is bound by the determination of the state court under principles of collateral estoppel, even if state court's determination was legally incorrect. But see In re Dunbar, 245 F.3d 1058 (9th Cir.2001) (after debtor advised state licensing agency that automatic stay prevented agency from holding disciplinary hearings and agency determined that automatic stay did not apply, bankruptcy court was not bound to accept agency determination under principle of issue preclusion).
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.
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, 316 B.R. 342, 352-53 (Bankr.D.Idaho 2004); In re Peterkin, 102 B.R. 50, 53-54 (Bankr.E.D.N.C.1989); see also In re Fidelity American Mortgage Co., 19 B.R. 568 (Bankr.E.D.Pa.1982). By proceeding against the Horses in the face of legal uncertainty, Shay and Abbatiello "acted at their own peril." Allentown Ambassadors, 361 B.R. at 459. "Consequences attend that decision." Daniels, 316 B.R. at 353.
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.
