Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-06-06026/USCOURTS-ca8-06-06026-0/pdf.json

Parties Involved:
Alliant Bank
Appellee
Trent Dales Ginter
Appellant

Document Text:

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

No. 06-6026 WM

In re: *

*

Trent Dales Ginter, *

*

Debtor. *

*

* Appeal from the United States

Trent Dales Ginter, * Bankruptcy Court for the 

* Western District of Missouri

*

Debtor-Appellant, *

*

v. *

*

Alliant Bank, Boonville, *

*

Creditor-Appellee. *

*

Submitted: August 23, 2006

Filed: September 14, 2006

Before KRESSEL, Chief Judge, SCHERMER, and MCDONALD, Bankruptcy

Judges.

SCHERMER, Bankruptcy Judge.

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Trent Dales Ginter (“Debtor”) appeals an order of the bankruptcy court denying

his motion to avoid the lien of Alliant Bank, Boonville (“Creditor”) in certain tools

of the Debtor’s trade on the grounds of res judicata and judicial estoppel. We have

jurisdiction over this appeal from the final order of the bankruptcy court. See 28

U.S.C. § 158(b). For the reasons stated below, we reverse.

ISSUE

The issue on appeal is whether the doctrines of res judicata and judicial estoppel

prevent the Debtor from avoiding the Creditor’s nonpossessory, nonpurchase-money

security interest in certain tools of the Debtor’s trade pursuant to 11 U.S.C. §

522(f)(1)(B)(ii) after the Debtor stipulated to relief from the automatic stay in the

Creditor’s favor with respect to the tools pursuant to 11 U.S.C. § 362(d). We

conclude that neither res judicata nor judicial estoppel prevent the Debtor from

avoiding the security interest in the tools after consenting to relief from the automatic

stay in the Creditor’s favor with respect to the tools. 

BACKGROUND

The Debtor works as a mechanic for the City of Columbia, Missouri. The

Debtor owns tools which he uses in the course of his employment. The Debtor spent

no more than $3,000 acquiring the tools over the years.

Prior to filing a Chapter 7 bankruptcy case, the Debtor and his girlfriend

obtained a loan from the Creditor to start a tanning business. They used the proceeds

of the loan to purchase four tanning beds for approximately $11,000. The loan was

secured by an interest in the tanning beds. The Debtor pledged his tools as additional

collateral on the loan. 

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On October 16, 2005, the Debtor filed a petition for relief under Chapter 7 of

the Bankruptcy Code. The Debtor listed the tools as assets in his schedules with a

value of $800 and asserted an exemption in the tools in the amount of $800 as tools

of trade under Missouri Revised Statutes § 513.430(4).

After filing the bankruptcy petition, the Debtor stipulated to the Creditor’s

motion for relief from the automatic stay with respect to the tanning beds and the

tools. The Debtor stipulated that he owed a debt to the Creditor; that the debt was

secured by an interest in four tanning beds and assorted tools; that the debt to the

Creditor was delinquent; that the Debtor and his girlfriend had no equity in the tanning

beds and the personal property and equipment secured by the debt; that the property

was of inconsequential value or benefit and was burdensome to the estate; and that

cause existed to grant relief from the automatic stay. The Creditor filed the stipulated

motion on December 13, 2005. The bankruptcy court granted the stipulated motion

on December 14, 2005, by docket entry.

On December 15, 2005, the Debtor filed a motion to avoid the Creditor’s lien

in the tools pursuant to Section 522(f)(1) of the Bankruptcy Code. The Creditor

objected to the motion on waiver and estoppel grounds. The Creditor amended its

objection to dispute the Debtor’s valuation of the tools and their status as tools of

trade. A hearing on the motion was held. The Debtor testified at the hearing that he

used the tools everyday in his work and that the tools had a garage sale value between

$300 and $600. The court denied the motion to avoid lien on the alternate bases of

judicial estoppel and res judicata. The Debtor appealed the order denying his motion

to avoid the lien on the tools.

STANDARD OF REVIEW

The parties have not raised any issues with the facts as decided by the trial

court in this appeal. Therefore, we need not review the facts for the purposes of

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this decision. We review the application of the legal principle of res judicata de

novo. Ladd v. Ries (In re Ladd), 450 F.3d 751, 753 (8th Cir. 2006); Lundquist v.

Rice Mem’l Hosp., 238 F.3d 975, 976-77 (8th Cir. 2001). We review the

application of judicial estoppel for an abuse of discretion. Stallings v. Hussmann

Corp., 447 F.3d 1041, 1046-47 (8th Cir. 2006); Strong v. America’s Center Food

Service Partners/Levy Rest. Ltd. P’ship, No. 05-2679, 2006 WL 1975996 (8th Cir.

July 14, 2006).

 DISCUSSION

Res Judicata

The doctrine of res judicata prohibits the relitigation by the same parties of

the same cause of action. Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 327, 326,

n.5 (1979). The doctrine of res judicata bars a later suit where (1) an earlier suit

resulted in a final judgment on the merits; (2) the earlier suit was based on proper

jurisdiction; (3) both suits involve the same cause of action; and (4) both suits

involve the same parties or their privies. Lovell v. Mixon, 719 F.2d 1373, 1376 (8th

Cir. 1983). Res judicata does not prevent the lien avoidance motion after the

termination of the automatic stay because the two motions do not involve the same

cause of action.

The two motions involved in this appeal were each based on a separate

section of the Bankruptcy Code. The motion for relief from the automatic stay was

based on Section 362(d) of the Bankruptcy Code which provides that the automatic

stay may be modified for cause including the lack of adequate protection of an

interest in property. 11 U.S.C. § 362(d)(1). To the extent the automatic stay

applies to property of the estate, it may be modified if the debtor does not have any

equity in the property and the property is not necessary to an effective

reorganization. 11 U.S.C. § 362(d)(2). In order to obtain relief from the automatic

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stay to proceed against collateral which is property of the bankruptcy estate, a

creditor must establish a debt, an interest in property of the estate, and either a lack

of adequate protection of the creditor’s interest in the property of the estate or a

lack of equity in the property and the fact that the property is not necessary for an

effective reorganization. In the stipulated motion, the Debtor agreed that he owed

the Creditor a debt; that the debt was secured by an interest in four tanning beds

and assorted tools; that the debt was delinquent; and that the Debtor had no equity

in the tanning beds and tools. He also agreed that the tools and tanning beds were

of inconsequential value or benefit and burdensome to the estate. This latter

stipulation was not necessary for the modification of the automatic stay, but

satisfied the trustee of the Debtor’s bankruptcy estate that the tanning beds and

tools could not be sold for the benefit of the bankruptcy estate.

The motion to avoid the lien was based on Section 522(f) of the Bankruptcy

Code which permits a debtor to avoid the fixing of a lien on an interest of the

debtor in property to the extent such lien impairs an exemption to which the debtor

would have been entitled if such lien is a nonpossessory, nonpurchase money

security interest in tools of the debtor’s trade. 11 U.S.C. § 522(f)(1)(B)(ii). In

order to avoid the Creditor’s lien in the tools, the Debtor had to establish that the

Creditor has a security interest in the tools; that the Creditor’s interest is a

nonpossessory, nonpurchase money security interest; that the Debtor is entitled to

an exemption in the tools; that the Creditor’s lien impairs his exemption in the

tools; and that the tools are tools of his trade.

Actions under Section 362(d) and under Section 522(f) of the Bankruptcy

Code are based on some of the same underlying facts: a creditor-debtor

relationship and a security interest in certain collateral. In the instant case, both

motions require a debt from the Debtor to the Creditor secured by an interest in the

tools. Other facts may tend to support different elements required under Section

362(d) and Section 522(f) of the Bankruptcy Code. For instance, the Debtor owes

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more to the Creditor than the combined value of the tanning beds and the tools. 

This fact supports a finding of lack of equity in the automatic stay context. This

fact also supports a finding that the Creditor’s lien on the tools impairs the

Debtor’s exemption of the tools as tools of his trade in the lien avoidance context. 

The two actions share some of the same underlying facts. They are not, however,

based on the same cause of action. They are based on distinct sections of the

Bankruptcy Code designed to serve different purposes. 

Res judicata prevents not only the relitigation of issues which were actually

litigated but also issues which could have been litigated in the first action. Lovell v.

Mixon, 719 F.2d at 1376. Lien avoidance actions are separate from stay relief

matters. Lien avoidance rights are not affirmative defenses to a motion for relief

from the automatic stay. Furthermore, a pending lien avoidance motion would not

necessarily defeat a motion for relief from the automatic stay. Therefore, the

stipulation to relief from the automatic stay does not prevent the later lien

avoidance motion.

Res judicata is normally an affirmative defense which is lost if not timely

raised. Arizona v. California, 530 U.S. 390, 410 (2000). Fed. R. Civ. P. 8(c),

applicable in the bankruptcy context pursuant to Fed. R. Bankr. P. 7008(a). A

court may raise the issue of res judicata sua sponte if it is on notice that it has

previously decided the underlying substantive issue in dispute. Arizona v.

California, 530 U.S. at 412. This result is consistent with one of the policies

underlying res judicata: the avoidance of unnecessary judicial waste. Id. 

However, where no judicial resources have been spent on the resolution of a

question, a court must be cautious about raising a preclusion bar sua sponte. Id. at

412-13. As previously stated, the issues in the stay motion and the lien avoidance

motion are not the same and, therefore, res judicata does not apply.

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Judicial Estoppel

Judicial estoppel prevents a party from prevailing in one phase of litigation

on an argument and then relying on a contradictory argument to prevail in another

phase of the litigation. New Hampshire v. Maine, 532 U.S. 767, 749

(2001)(citations omitted). Where a party assumes a certain position in a legal

proceeding and succeeds in maintaining that position, that party may not thereafter

assume a contrary position simply because of changed interests, especially if the

change in position would prejudice a party who acquiesced to the original position. 

Id. The doctrine of judicial estoppel is uniformly recognized as having the purpose

of protecting the integrity of the judicial process by prohibiting parties from

deliberately changing positions according to the exigencies of the moment. Id. at

749-50. Courts may invoke the doctrine of judicial estoppel at their discretion

because it is intended to prevent improper use of the judicial machinery. Id. at 750.

No inflexible prerequisites or exhaustive formula exists for determining the

applicability of judicial estoppel. Id. at 751. Nonetheless, several factors typically

inform the decision to apply the doctrine in a particular case. Id. at 750. First, a

party’s later position must be clearly inconsistent with its earlier position. Id.

Second, success in persuading the court to accept the party’s earlier position is

important. In such a situation, judicial acceptance of an inconsistent position in a

later proceeding would create the perception that one of the courts was mislead. 

Id. Absent success in a prior proceeding, a party’s later inconsistent position

introduces no risk of inconsistent court determinations or perceptions of fraud on

or misleading of the court. Id. at 750-51. A third consideration is whether the

party seeking to assert the inconsistent position would derive an unfair advantage

or impose an unfair detriment on the opposing party if not estopped. Id. 

In the present case, the Debtor has not taken inconsistent positions. 

Accordingly, the doctrine of judicial estoppel is not implicated. In the motion for

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relief from the automatic stay, the Debtor stipulated that he owed the Creditor a

debt; that the debt was secured by an interest in the tools and the tanning beds; that

he did not have any equity in the tools and the tanning beds; and that the Creditor

was entitled to relief from the automatic stay to pursue its security interest in the

tanning beds and the tools. In the lien avoidance motion, the Debtor again asserted

that he owed the Creditor a debt and that the debt was secured by an interest in the

tools. These facts are necessary for relief in the automatic stay context under

Section 362 of the Bankruptcy Code as well as in the lien avoidance context under

Section 522 of the Bankruptcy Code. The Debtor also asserted that he was entitled

to avoid the otherwise valid lien under Section 522(f) of the Bankruptcy Code. A

lien avoidance under Section 522(f) does not change the fact that the Creditor had a

valid lien on an earlier date and was entitled to relief from the automatic stay under

Section 362 at such time. Judicial estoppel is simply not appropriate in this

situation because the Debtor has not taken clearly inconsistent positions.

Second, by consenting to the motion for relief from stay, the Debtor did not

succeed in convincing the Court of a position contrary to any taken in the lien

avoidance motion. To the contrary, the Debtor merely stipulated that grounds

existed for relief from the automatic stay under Section 362(d) of the Bankruptcy

Code. In doing so, the Debtor acquiesced to the Creditor’s representations

necessary for it to convince the court to grant it relief from the automatic stay. The

Debtor did not mislead the court nor is he asking the court to take inconsistent

positions.

Finally, the Debtor neither gained an unfair advantage nor imposed an unfair

detriment on the Creditor by consenting to the stay relief motion. Rather, the

Debtor conferred several benefits on the Creditor by consenting to the stay relief

motion. A filing fee is not required for a stipulated stay relief motion. Therefore,

by consenting to the motion, the Debtor saved the Creditor the filing fee and the

costs associated with attending a hearing and litigating a contested matter. 

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Furthermore, the stay relief motion related to the tanning beds and the tools, with

substantial value existing in the tanning beds. Accordingly, the Creditor would

likely have filed the stay relief motion without the Debtor’s consent with respect to

the tools. Regardless, no evidence of any prejudice to the Creditor was presented

at the hearing on the lien avoidance motion. The Debtor did not force the Creditor

to incur any additional costs, prejudice the Creditor, nor gain an unfair advantage

by consenting to the stay relief motion. Judicial estoppel is not appropriate in this

situation. The court abused its discretion in applying judicial estoppel to deny the

lien avoidance motion.

CONCLUSION

The Debtor’s right to avoid the lien in the tools under Section 522(f) of the

Bankruptcy Code did not involve the same cause of action as the earlier relief from

stay proceeding under Section 362(d) of the Bankruptcy Code. Furthermore, the

Debtor did not take inconsistent positions by consenting to the Creditor’s relief

from stay motion and then filing the lien avoidance motion. Therefore, the court

should not have denied the lien avoidance motion under the doctrine of res judicata

or judicial estoppel. The order denying the lien avoidance motion is therefore

REVERSED. The bankruptcy court never addressed the merits of the lien

avoidance motion. We therefore REMAND for such a determination.

We do not encourage the Debtor’s tactics in stipulating to relief from the

automatic stay and then turning around and filing a lien avoidance motion. Better

practice would have been to at least advise the Creditor of the Debtor’s intentions

to avoid the lien if not filing the lien avoidance motion prior to signing the

stipulation. In waiting until after relief from stay was granted, the Debtor risked

the repossession of the tools by the Creditor which would have transformed the

Creditor’s security interest from an avoidable nonpossessory interest into a nonavoidable possessory interest. However, the Debtor did not take inconsistent legal

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positions, he did not waste judicial time, and he did not prejudice the Creditor. To

the contrary, by stipulating to relief from the automatic stay, the Debtor enabled

the Creditor to avoid the payment of a filing fee for the motion and the expense of

a hearing. Furthermore, the relief from stay related to the tanning beds as well as

the tools, and the tanning beds had significantly greater value than the tools. 

Therefore, the Creditor would have undoubtedly sought relief from the stay with

respect to the tanning beds even if the Debtor had filed a motion to avoid the lien

on the tools on the day he filed his bankruptcy petition. By stipulating to relief

from the automatic stay the Debtor also eliminated the need for a hearing on the

stay motion, minimizing the use of judicial resources in the stay relief context. 

Nonetheless, we encourage debtors to determine their intentions with respect to

collateral at the outset of a bankruptcy case and, if they wish to avoid liens, to

promptly file the necessary pleadings to accomplish their intentions.

 

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