Robert N. Opel, II, Chief Bankruptcy Judge.
Debtor filed an Adversary Complaint alleging Defendant violated the automatic stay. Subsequently, Debtor filed a Motion for Summary Judgment. For the reasons stated below, I will grant Debtor's Motion in part and deny it in part.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) & (G).
On or about August 5, 2017, David Velez ("Debtor") entered into an Agreement ("Agreement") whereby Debtor agreed to lease a 2012 Chrysler 200 LX ("Vehicle") from EZ Rent A Car Inc. ("Defendant"). The general terms of the Agreement required a down payment as well as monthly payments over a specified period of time, at the end of which Debtor would have the option of returning or purchasing the Vehicle. While not a co-obligor on the Agreement, Amber Jo Derk ("Derk") authorized Defendant to debit her account monthly in satisfaction of Debtor's monthly payments under the Agreement. Derk's authorization was never rescinded, and she is not a named debtor in the underlying bankruptcy proceeding.
On September 14, 2018, Debtor filed his voluntary Chapter 7 bankruptcy petition (4:18-bk-3855-RNO). Subsequently, Defendant received notice of Debtor's Chapter 7 case which indicated November 7, 2018, as the date set for the first meeting of creditors.
On October 29, 2018, Defendant debited Derk's account in the amount of $170.00 in satisfaction of Debtor's monthly payment under the Agreement. On November 20, 2018, Defendant remotely disabled the Vehicle. On November 21, 2018, Defendant repossessed the Vehicle, allegedly with some of Debtor's possessions still inside.
On November 27, 2018, Debtor filed this Adversary Complaint ("Adversary Complaint") (4:18-ap-138-RNO). On February 19, 2019, Debtor propounded discovery on Defendant, including Requests for Admission
On April 12, 2019, Debtor filed a Motion for Summary Judgment ("Motion"). Briefs have been filed in support of, and in opposition to, the Motion. A trial date is presently set for October 18, 2019. The Motion is now ripe for decision regarding Defendant's liability.
Debtor requests summary judgment against Defendant on the issue of liability in relation to Defendant's alleged violation of the automatic stay imposed by 11 U.S.C. § 362(a).
In response, Defendant argues that it did not violate the stay when it debited Derk's account because Derk is not named as a co-obligor on the Agreement nor is she named as a co-debtor in Debtor's Chapter 7 bankruptcy. Defendant also argues that it did not violate the stay when it disabled and repossessed the Vehicle because Debtor had waived the protections of the automatic stay pursuant to paragraph thirteen of the Agreement. Furthermore, Defendant argues that it never had knowledge of any of Debtor's personalty being in the Vehicle during or following the repossession.
Federal Rule of Bankruptcy Procedure ("FRBP") 7056 makes Federal Rule of Civil Procedure ("FRCP") 56 applicable in bankruptcy adversary proceedings. Summary judgment is appropriate and shall be granted when the movant establishes that there is no genuine dispute of material fact and that the movant is entitled to judgment as a matter of law. Beard v. Banks, 548 U.S. 521, 529, 126 S.Ct. 2572, 2578, 165 L.Ed.2d 697 (2006); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Rosen v. Bezner, 996 F.2d 1527, 1530 (3d Cir. 1993). At the summary judgment stage in the proceedings, a court must not weigh the evidence, or make a determination as to the truth of the matter, but must instead decide if there is a genuine issue for trial. Santini v. Fuentes, 795 F.3d 410, 416 (3d Cir. 2015) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986)). In determining whether or not there is a genuine issue of material fact, "the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248, 106 S. Ct. at 2510; Cliffs-Neddrill Turnkey Int'l-Oranjestad v. M/T Rich Duke, 947 F.2d 83, 87 (3d Cir. 1991); Felker v. Christine, 796 F.Supp. 135, 138 (M.D. Pa. 1992).
Debtor argues that his Requests for Admission are deemed admitted by default due to Defendant's failure to respond within the thirty-day time-period provided in F.R.B.P. 7036(a). If I hold as such, Debtor argues such admissions warrant a grant of summary judgment in his favor in this adversary proceeding. In response, Defendant argues that I have authority to allow the withdrawal or amendment of requests for admission pursuant to FRBP 7036(b). Defendant argues that such a ruling warrants the denial of summary judgment because then there would be outstanding, genuine issues of material fact.
FRBP 7036 makes FRCP 36 applicable in bankruptcy adversary proceedings. FRBP 7036 governs requests for admission, and provides that "[a] party may serve on any other party a written request to admit ... the truth of any matters ... relating to ... facts, the application of law to fact, or opinions about either[.]" Fed. R. Bankr. P. 7036(a)(1)(A). Pursuant to FRBP 7036(a)(3), "[a] matter is admitted unless, within 30 days after being served, the party to whom the request is directed serves on the requesting party a written answer or objection addressed to the matter and signed by the party or its attorney." When the party receiving the request fails to timely answer, the matters detailed therein are deemed conclusively admitted. In re D'Ambrosio, 452 B.R. 562, 570 (Bankr. E.D. Pa. 2011) (citing Harrison v. Ammons, 2009 WL 2588834, at *4 (M.D. Pa. Aug. 19, 2009); 10 Collier on Bankruptcy P 7036.03 (16th 2019) ("[A]n admission is of equal force whether affirmatively stated or deemed admitted by default."). An admission made pursuant to FRBP 7036 is "an unassailable statement of fact that narrows the triable issues in the case. Even conflicting testimonial evidence does not alter the effect of an [FRBP 7036] admission." Id. (internal citation omitted). However, pursuant to FRBP 7036(b), a court may find that a party is not bound by an unanswered request for admission. See In re Wolf, 556 B.R. 676, 685 (Bankr. E.D. Pa. 2016), aff'd, 573 B.R. 179 (E.D. Pa. 2017), subsequently aff'd, 739 F. App'x 165 (3d Cir. 2018).
FRBP 7036(b) provides:
FRBP 7036(b) permits a court to exercise discretion when deciding whether or not to permit a withdrawal or amendment of requests for admission. In re Wolf, 556 B.R. 676, 685 (Bankr. E.D. Pa. 2016), aff'd, 573 B.R. 179 (E.D. Pa. 2017), subsequently aff'd, 739 F. App'x 165 (3d Cir. 2018) (citation omitted). "[A] court may permit a motion to withdraw or amend admissions if: (1) doing so `would promote the presentation of the merits of the action'; and (2) `the court is not persuaded that it would prejudice the requesting party in maintaining or defending the action on the merits.'" Id. (quoting Fed. R. Bankr. P. 7036(b)). Additionally, a formal motion is not always necessary because a withdrawal or request to withdraw may be imputed from a party's actions. Id. (citations omitted).
In the case at hand, Debtor sent the Requests for Admission to Defendant on February 19, 2019. Mot. for Summ. J. ¶ 8, ECF No. 11. Defendant did not respond to the Requests for Admission until April 26, 2019. Debtor's Br. in Supp. of Mot. for Summ. J. 2, ECF No. 15; see also Mot. for Summ. J. ¶¶ 8-12, ECF No. 11. It is clear that Defendant did not respond within the required thirty-day time-period. Therefore, pursuant to FRBP 7036(a), the Requests for Admission may be deemed admitted by default. However, Defendant has requested that these admissions be amended by its late submission pursuant to FRBP 7036(b). Defendant's Br. in Opp. to Mot. for Summ. J. 4-5, ECF No. 16.
FRBP 7036(b) grants me discretion in allowing an amendment to admitted requests for admission if (1) the amendment would promote the presentation of the merits of the action, and (2) the amendment would not prejudice the requesting party in maintaining or defending the action on the merits. Fed. R. Bankr. P. 7036(b). "[A] motion that satisfies the first element may be denied for failure to satisfy the second element." C.J. Hughes Constr. Co. Inc. v. EQM Gathering OPCO, LLC, 358 F.Supp.3d 486, 489 (W.D. Pa. 2019) (citations omitted).
The first factor I must consider is whether the amendments would promote the presentation of the case on the merits. "This factor contemplates facilitat[ing] the development of the case in reaching the truth." In re Brown, 2018 WL 910139, at *3 (Bankr. M.D.N.C. Feb. 14, 2018) (internal quotation omitted). After a thorough investigation of the docket and the Requests for Admission, I do not see how allowing the default admissions to stand would promote justice or the presentation of the case on the merits because some of the default admissions are contrary to facts already in the record. See In re S.W. Bach & Co., 2010 WL 681000, at *3 (Bankr. S.D.N.Y. Feb. 24, 2010) ("`The presentation of the merits clearly would be served here by permitting defendant to dispute a central issue in this case,' where the defendant disputed the admission `[f]rom the very onset of [the] litigation.'" (citation omitted)); see also C.J. Hughes Constr. Co. Inc. v. EQM Gathering OPCO, LLC, 358 F.Supp.3d 486, 489 (W.D. Pa. 2019) ("[I]t comes as no surprise that a court in this District has previously observed that `the first prong would virtually always be satisfied.'" (citation omitted)).
For example, Requests for Admission Nos. 3 & 4 seek to admit the fact that
Requests for Admission Nos. 14, 15, & 18 seek to admit the fact that Defendant violated the stay when it repossessed the Vehicle with Debtor's personal possessions allegedly still inside. Mot. for Summ. J. 3, ECF No. 11. Again, Defendant denied these allegations on multiple occasions. See Defendant's Answer to Adversary Compl. ¶ 13, ECF No. 5; Defendant's Resp. to Statement of Undisputed Material Facts ¶¶ 20, 21, & 24, ECF No. 17. Additionally, Debtor's own Brief provides that the existence of any of Debtor's personal contents in the Vehicle at the time of repossession is a disputed fact in relation to Defendant's liability. Debtor's Br. in Supp. of Mot. for Summ. J. 4n.7, ECF No. 15.
Furthermore, Requests for Admission Nos. 14-19, are examples of requests for admission which seek the admission of legal conclusions. Mot. for Summ. J. 3, ECF No. 11. Requests for admission which call for legal conclusions are manifestly improper, and forcing a party to admit legal conclusions "will only frustrate the purposes for which Rule 36 was drafted." In re S.W. Bach & Co., 2010 WL 681000, at *4-6 (Bankr. S.D.N.Y. Feb. 24, 2010); see also McCarthy v. Darman, 2008 WL 2468694, at *1 (E.D. Pa. June 17, 2008) (quoting Disability Rights Council of Greater Washington v. Washington Metropolitan Area Transit Auth., 234 F.R.D. 1, 1 (D.D.C. 2006) ("It would be inappropriate for a party to demand that the opposing party ratify legal conclusions that the requesting party has simply attached to operative facts.")). Therefore, I find that Requests for Admission Nos. 14-19 cannot be deemed admitted by default admission because they call for legal conclusions relating to ultimate legal issues in this case.
For the above stated reasons, I find that the first factor weighs in favor of allowing Defendant's amendments to the Requests for Admission.
The second factor I must consider is whether the amendments would prejudice the Debtor in maintaining this action on the merits. The prejudice contemplated in the second factor is something more than that the party will now have the burden of proving a fact at trial that the admission would have eliminated. In re Brown, 2018 WL 910139, at *4 (Bankr. M.D.N.C. Feb. 14, 2018) (citation omitted). Instead, it refers to some special difficulty resulting from the sudden need to produce evidence. Id. (citation omitted); see also In re Ames Dep't Stores, Inc., 470 B.R. 280, 287 (S.D.N.Y.), aff'd, 506 F. App'x 70 (2d Cir. 2012) (finding that deeming admitted untimely answers to requests was not warranted because the requesting party suffered no prejudice other than having to prove the entirety of its case on the merits and because admitting the requests would detract from a resolution on the merits).
In accordance with the examples I provided in my analysis of the first factor, I find that allowing the amended admissions would not prejudice Debtor because Defendant
Debtor argues for summary judgment to be entered in his favor on the question of liability concerning Defendant's alleged violation or violations of the automatic stay pursuant to § 362(a)(1), (3), & (6). Debtor argues Defendant violated the stay when, amongst other actions, Defendant disabled and repossessed the Vehicle. In response, Defendant argues that Debtor is not entitled to summary judgment and that it did not violate the stay because Debtor waived his rights to the protections of the automatic stay pursuant to paragraph thirteen of the Agreement.
One of the hallmarks of bankruptcy protection is the automatic stay. In re Thomas, 529 B.R. 628, 635 (Bankr. W.D. Pa. 2015). Generally, § 362(a) of the Bankruptcy Code protects a debtor from a creditor's actions to enforce or collect a pre-petition claim. The subsections of § 362(a) in question provide:
For purposes of Defendant's conduct in disabling and repossessing the Vehicle, I will focus on § 362(a)(3). Put more simply,
"If a creditor violates the automatic stay, § 362(k)(1) provides that an individual debtor who is `injured by any willful violation of [the automatic stay] ... shall recover actual damages, including costs and attorneys' fees and, in appropriate circumstances, may recover punitive damages.'" In re Trokie, 590 B.R. 663, 671 (Bankr. M.D. Pa. 2018) (quoting 11 U.S.C. § 362(k)(1)). A "willful" violation of the stay occurs when a creditor violates the stay with knowledge that a bankruptcy petition has been filed. Id. (citations omitted). Such a violation does not require that the creditor intended to violate the automatic stay provision, just that the creditor's act which violated the stay was intentional. In re Johnson, 601 B.R. 365, 376-78, 2019 WL 2122732, at *7 (Bankr. E.D. Pa. May 14, 2019) (citations omitted). In order to establish a claim pursuant to § 362(k)(1), the debtor bears the burden of proving, by a preponderance of the evidence, that "(1) the creditor violated the automatic stay; (2) the violation of the stay was willful; and (3) the willful violation caused the debtor some injury." Id. (citations omitted).
At this stage of the proceedings, Debtor only requests summary judgment as to Defendant's general liability in violating the automatic stay. Therefore, for purposes of this Opinion, I only need to determine the first factor, whether or not Defendant violated the automatic stay.
In the case at hand, on August 5, 2017, Debtor entered into the Agreement with Defendant. Defendant's Br. in Opp. to Mot. for Summ. J. 2, ECF No. 16. The Agreement characterizes itself as a "true lease."
449 B.R. 35, 40 (Bankr. E.D. Pa. 2011). All four of these attributes are present in the Agreement before me. Additionally, when Debtor filed his voluntary Chapter 7 bankruptcy petition on September 14, 2018, Debtor had possession of the Vehicle and both parties still owed unperformed obligations to one another under the Agreement. Therefore, because the Agreement is a true lease, I will characterize it as an unexpired lease for the purposes of this Opinion.
Pursuant to § 365(a), subject to the court's approval, any unexpired lease of the debtor, as an executory contract, may be assumed or rejected. Additionally, Debtor notes the applicability of §§ 362(h)(1) and 521(a)(2). Section 362(h)(1) provides:
Section 521(a)(2) provides:
When read in conjunction, §§ 362(h)(1) and 521(a)(2) terminate the stay with respect to personal property of the estate, which is subject to an unexpired lease, if the debtor fails (1) to file, within thirty days after the date of the filing of the petition, a statement of intention with respect to such personal property indicating that the debtor will be surrendering or retaining such personal property; and (2) to perform debtor's intention with respect to such property within 30 days after the first date set for the meeting of creditors. See In re Dunn, 589 B.R. 253, 258 (E.D. Pa. 2018) (citing In re Miller, 443 B.R. 54, 58 (Bankr. D. Del. 2011) (holding that "section 362(h) provides that the stay will be terminated and the collateral will no longer be property of the estate if the debtor fails to file and to perform a statement of intention to surrender, to redeem, to reaffirm or, in the case of leased property, to assume the unexpired lease")).
Defendant received notice that the initial meeting of creditors was to be held on November 7, 2018. Debtor's Statement of Undisputed Material Facts in Supp. of Mot. for Summ. J. ¶ 2, ECF No. 14. However, on November 20, 2018, Defendant remotely disabled the Vehicle, and on November 21, 2018, Defendant repossessed the Vehicle. Id. at ¶¶ 5-6. Therefore, it is clear that Defendant took action against the Vehicle within the thirty-day period provided by §§ 362(h)(1)(B) and 521(a)(2)(B). The automatic stay was in effect as to the Vehicle and any of Debtor's personalty therein. See In re Dunn, 589 B.R. 253, 259 (E.D. Pa. 2018) (affirming the bankruptcy court's holding that the creditor had violated the stay by repossessing the debtor's vehicle within the thirty-day period following the first date set for the meeting of creditors). In its defense, Defendant argues that the Agreement itself constitutes a waiver by Debtor of the protections of the automatic stay. Defendant's Br. in Opp. to Mot. for Summ. J. 3, ECF No. 16.
Defendant argues that paragraph thirteen of the Agreement supports its assertion that Debtor waived protection of the automatic stay in relation to the Vehicle when Debtor filed his voluntary Chapter 7 bankruptcy petition. Defendant's Resp. to Debtor's Statement of Undisputed Material Facts ¶ 5, ECF No. 17. Paragraph thirteen of the Agreement provides:
(emphasis in the original). Debtor's Statement of Undisputed Material Facts in Supp. of Mot. for Summ. J., Exhibit Agreement at 2, ECF No. 14-1. In further support of its assertion, Defendant cites In re Frye which provides multiple factors that a court should consider when determining whether relief from stay should be granted based on a waiver. 320 B.R. 786, 790-91 (Bankr. D. Vt. 2005). Defendant argues that factual issues exist in relation to these factors, and therefore, summary judgment should be denied. Defendant's Br. in Opp. to Mot. for Summ. J. 4, ECF No. 16.
After reviewing the Agreement, and paragraph thirteen in particular, I do not agree with Defendant that paragraph thirteen constitutes a waiver of the automatic stay. Rather, paragraph thirteen is more appropriately characterized as an unenforceable ipso facto clause pursuant to § 365(e)(1)(B). Section 365(e)(1)(B) provides:
"Section 365(e)(1) states that clauses in executory contracts and unexpired leases that premise default upon a party's commencement of a bankruptcy action are unenforceable." In re W.R. Grace & Co., 475 B.R. 34, 153 (D. Del. 2012), aff'd sub nom. In re WR Grace & Co., 729 F.3d 332 (3d Cir. 2013), and aff'd, 532 F. App'x 264 (3d Cir. 2013), and aff'd, 729 F.3d 311 (3d Cir. 2013), and aff'd sub nom. In re WR Grace & Co., 729 F.3d 332 (3d Cir. 2013). The only event of default cited by Defendant is Debtor's filing of his Chapter 7 bankruptcy petition. Defendant's Br. in Opp. to Mot. for Summ. J. 2, ECF No. 16.
Defendant cites In re Frye, 320 B.R. 786 (Bankr. D. Vt. 2005) in support of its argument that paragraph thirteen constitutes a waiver of the automatic stay. Defendant's Br. in Opp. to Mot. for Summ. J. 3-4, ECF No. 16. However, In re Frye is distinguishable from the case before me because In re Frye involved a forbearance agreement, which was negotiated as part of a previously dismissed bankruptcy case, whereby the debtor specifically waived future protections of the automatic stay. 320 B.R. 786, 788 (Bankr. D. Vt. 2005). Paragraph thirteen of the Agreement was negotiated as part of the original lease documents and is effectively statutorily abrogated by § 365(e)(1)(B).
Since I have already held the Agreement to be an unexpired lease, and since the filing of a bankruptcy petition alone cannot constitute an event of default under an unexpired lease, I find that there is no outstanding genuine issue of material fact that Defendant violated the automatic stay when it disabled and repossessed the Vehicle. I thus conclude that Debtor is entitled to judgment on liability as a matter of law. I will now turn my attention to whether Defendant violated the automatic stay when it debited Derk's account or when it repossessed the Vehicle with Debtor's possessions allegedly still inside.
Debtor argues that Defendant violated the automatic stay on October 29, 2018,
In this regard, I have to agree with Defendant. After looking at the Agreement, I do not find any reference to Derk as a co-obligor. Even if I did, unlike in Chapter 12 or Chapter 13 cases, co-debtors of a Chapter 7 debtor are not provided the protections of the automatic stay. See 11 U.S.C. §§ 1201 & 1301. Additionally, Derk is not a named debtor in Debtor's underlying Chapter 7 bankruptcy case. "In general, only the debtor is afforded the protections of the automatic stay under section 362; conversely, third-parties do not receive the protection of the automatic stay." In re Uni-Marts, LLC, 399 B.R. 400, 415 (Bankr. D. Del. 2009) (citations omitted). Furthermore, Debtor has provided no authority to support his argument. Therefore, Debtor's Motion in regards to Defendant's October 29, 2018, debit of Derk's account is denied as to Defendant's liability.
In his Adversary Complaint, Debtor contends that he had possessions in the Vehicle when Defendant repossessed it on November 21, 2018. Adversary Compl. ¶ 13, ECF No. 1. However, Defendant denied these allegations. Defendant's Answer to the Adversary Compl. ¶ 13, ECF No. 5. Debtor acknowledges that whether or not his possessions were in the Vehicle when it was repossessed is a disputed fact, and therefore summary judgment as to Defendant's general liability for violating the stay in this regard is inappropriate. See Debtor's Br. in Supp. of Mot. for Summ. J. 4n.7, ECF No. 15. Therefore, Debtor's Motion concerning Defendant's repossession of the car with Debtor's possessions allegedly still inside is denied as to Defendant's liability.
In sum, I find that Defendant violated the automatic stay when it disabled and repossessed the Vehicle. The trial will consider two matters. First, can Debtor substantiate a claim that he suffered losses by reason of unaccounted for items which were in the Vehicle when Defendant repossessed it? Second, what damages is Debtor entitled to because of the automatic stay violation(s). Judgment will be entered consistent with this Opinion.