Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-5_14-ap-05022/USCOURTS-canb-5_14-ap-05022-1/pdf.json

Parties Involved:
Eloy Cardenas
Plaintiff
Matilde Cardenas
Plaintiff
Luna Auto Sales
Defendant
Aurelio Luna
Defendant

Document Text:

UNITED STATES BANKRUPTCY COURT

 For The Northern District Of California

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re ] Case No. 11-58313-ASW

]

ELOY CARDENAS and ] Chapter 13

MATILDE CARDENAS, ]

]

Debtors. ]

]

]

ELOY CARDENAS and ] Adv. Proc. No. 14-05022-ASW

MATILDE CARDENAS, ]

]

Plaintiffs, ]

]

v. ]

]

LUNA AUTO SALES and ] 

AURELIO LUNA, ]

] 

Defendants. ]

___________________________________]

MEMORANDUM DECISION RE: PLAINTIFFS’ REQUEST FOR ENTRY OF JUDGMENT

Before the Court is the motion of Plaintiffs Eloy Cardenas and

Matilde Cardenas, who were represented by attorney Ray Hacke, for

entry of a judgment on this Court’s order granting Plaintiffs’

Motion for Contempt, entered September 18, 2014. The request is

opposed by Defendants, who are represented by attorney Alexander H.

Lubarsky.

IT IS SO ORDERED.

Signed June 26, 2015

Arthur S. Weissbrodt

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

June 26, 2015

EDWARD J. EMMONS, CLERK 

U.S. BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 14-05022 Doc# 58 Filed: 06/26/15 Entered: 06/26/15 13:50:48 Page 1 of 10
UNITED STATES BANKRUPTCY COURT

 For The Northern District Of California

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At the hearing held on February 9, 2015, Marilyn Minger

appeared for Plaintiffs, and Defendant Aurelio Luna appeared pro

se, accompanied by his daughter Yolanda Luna, who assisted as a

translator. The Court permitted Defendants until March 13, 2015 to

get an attorney and file an opposition, or the judgment would be

entered. Defendants filed an opposition through counsel on March 6,

2015.

There is no sworn evidence provided with the opposition.

Defendants’ primary argument is that Defendants were not listed on

Debtors’ bankruptcy schedules when the case was filed on September

2, 2011 and had no knowledge of the automatic stay, even on April

1, 2014 when Mr. Cardenas arrived at Defendants’ business with a

San Jose sheriff to pick up the truck. Defendants do not state

exactly when they had notice except to state that Defendants

appeared at a hearing held in this Court on May 6, 2014 and agreed

to return the truck.

Defendants argue that they did not knowingly violate the stay

because they had no notice of it. Defendants allege that Plaintiffs

“defrauded” Defendants by concealing material facts, not divulging

their bankruptcy to Defendants and not disclosing the truck

purchase to the trustee (Debtors did not list the truck on Schedule

B when they filed their petition; they amended their Schedule B to

list the truck on February 14, 2014, the same day they filed this

adversary proceeding). Defendants also state that Plaintiffs paid

Defendants with bad checks.

Defendants state that the only notice referenced in

Plaintiffs’ pleadings is an “informal letter supposedly sent by

Plaintiffs’ counsel to Defendants” dated February 4, 2014.

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UNITED STATES BANKRUPTCY COURT

 For The Northern District Of California

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Defendants state that the letter makes no mention of any

prohibition towards repossession of chattel or attempts to collect

monies owed but references restrictions on attempts to “enforce any

lien” and fails to “include any evidence to show that a lien of any

type had been perfected with respect to the car purchase in

question.” However, the letter sent to Defendants (in both English

and Spanish) on February 4, 2014 (attached to the declaration of

Ray Hacke filed in this case on February 18, 2014 as docket no. 4)

states clearly and conspicuously in the subject line that it

involves a bankruptcy case (providing the name of the Debtor and

the bankruptcy case number) and a violation of the automatic stay.

Further, the body of the letter explains the effect of the

automatic stay:

My name is Ray D. Hacke, and I am an attorney with the

law firm of Schein & Cai LLP (hereinafter “the Firm”).

Please be advised that Eloy Cardenas (hereinafter “Mr.

Cardenas) has retained the Firm to represent him in the

matters discussed herein.

On September 2, 2011, Mr. Cardenas filed for bankruptcy

under Chapter 13 of the United States Bankruptcy Code in

the United States Bankruptcy Court for the Northern

District of California (hereinafter “the Court”). Mr.

Cardenas’ case number is 11-58313. Under § 362(a) of the

Bankruptcy Code, when Mr. Cardenas filed for bankruptcy,

a stay automatically went into effect as to all of Mr.

Cardenas’ creditors. The stay is a prohibition that

prevents Mr. Cardenas’ creditors, or their agents, from

performing “any act to create, perfect, or enforce any

lien against property” belonging to Mr. Cardenas while

his bankruptcy case is proceeding. Furthermore, under

§ 362(k)(1), “an individual injured by any willful

violation of a stay provided by this section shall

recover actual damages, including costs and attorneys’

fees, and, in appropriate circumstances, may recover

punitive damages” (emphasis added).

Defendants argue that this is not adequate notice, citing In

re McGhan, 288 F.3d 1172 (9th Cir. 2002) and Fed. R. Bankr. P.

4007(c), which requires 30 days’ notice of the 341 meeting. McGhan

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UNITED STATES BANKRUPTCY COURT

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is not a case involving the willful violation of the automatic

stay, but is a case involving § 523(a)(3). That statute provides

for the nondischargeability of an unlisted creditor’s claim, unless

the creditor had notice or actual knowledge of the bankruptcy in

time to permit the filing of a proof of claim and timely request

for determination of nondischargeability. That is not the issue

here.

Defendants also cite In re Abrams, 127 B.R. 239, 242 (9th Cir.

BAP 1991) as an analogous case. There, the bankruptcy court found

that a creditor violated the automatic stay by retaining a

repossessed vehicle after receiving notice from the debtor’s

attorney of the bankruptcy, and a demand for the vehicle’s return.

This case actually supports Plaintiffs, but Defendants attempt to

distinguish the case by stating that “the court specifically

distinguished creditors who had been put on notice of the

bankruptcy from those who had not received due notice such as

Defendants herein.” The Court does not read the case this way. The

creditor in that case did not have knowledge of the bankruptcy when

the repossession occurred, but was informed of the bankruptcy after

repossession and did not return the vehicle, which is exactly what

happened here.

Defendants argue that a different provision of the Code is

implicated when a creditor is not listed on the bankruptcy

petition, i.e., the claim is not discharged unless the creditor had

notice or actual knowledge in time to file a claim and object to

discharge, pursuant to § 523(a)(3). As noted above, this is a

separate issue from whether Defendants violated the stay.

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UNITED STATES BANKRUPTCY COURT

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Although Defendants did not have notice of the bankruptcy

filing at the time it was filed, the evidence in this case is that,

as noted above, Plaintiffs’ counsel sent a letter to Defendants on

February 4, 2014, in both English and Spanish, explaining that

Plaintiffs had filed a bankruptcy petition on September 2, 2011 and

that Defendants’ retention of the truck was a violation of the

automatic stay. Plaintiffs’ counsel also served a summons and

complaint on Defendants on February 18, 2014. The complaint clearly

states that Plaintiffs filed a bankruptcy petition on September 11,

2011, and alleges that the repossession of the truck was a willful

violation of the automatic stay. Plaintiffs also served notice of

the hearing on their motion for a temporary restraining order,

which was held on March 18, 2015. Defendants did not appear, and

this Court issued an order on March 28, 2015 which required

Defendants to return the truck to Plaintiffs. That order was served

on March 30, 2014 and, according to the declaration of Mr.

Cardenas, he personally delivered a copy of the order to Defendants

on April 1, 2014. Even after being served with the March 28, 2014

order, Defendants refused to return the truck. As outlined in this

Court’s Memorandum Decision entered on May 6, 2014, this Court’s

order for contempt and award of damages is based solely on

Defendants’ conduct in refusing to return the vehicle after being

notified that Debtors were in bankruptcy.

When Defendants appeared at the May 6, 2014, hearing, Mr. Luna

and his daughter, Yolanda Luna, alleged that Plaintiff had made

payments with bad checks and had not kept the truck registration

current, implicitly arguing that this was a basis for not complying

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UNITED STATES BANKRUPTCY COURT

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with the Court’s order to return the vehicle. However, the

requirement to remedy a stay violation is unconditional.

In In re Wallace, 2014 WL 1244792 (9th Cir. BAP Mar. 26, 2014), 

the debtor, Wallace, purchased an automobile shortly before filing

a chapter 7 bankruptcy petition. The seller and financer,

Carcredit, permitted the debtor to take possession of the vehicle

without making a down payment or providing proof of insurance,

agreeing to let the debtor pay the down payment in installments.

The debtor did not pay the full balance of the down payment, and

Carcredit repossessed the vehicle post-petition. The debtor’s

counsel sent a demand for the return of the vehicle, but Carcredit

did not comply. Debtor moved for an order requiring the return of

the vehicle and damages. Before ordering the return of the car, the

bankruptcy court required the debtor to show proof of insurance and

that the debtor had the ability to pay for the car. The bankruptcy

court ruled, in essence, that the automatic stay did not require

Carcredit to return the vehicle unless the debtor tendered proof

that Carcredit’s interest in the vehicle was adequately protected.

The bankruptcy court denied the debtor’s request for damages for a

willful stay violation and sua sponte granted relief from stay to

Carcredit.

The Ninth Circuit BAP reversed and remanded on the following

grounds:

In order to comply with the automatic stay, once it

learned of Wallace’s bankruptcy filing, Carcredit had an

“affirmative duty” to remedy its prior, inadvertent stay

violation by returning the automobile to Wallace.

Wallace, 2014 WL 1244792, at *5 (citing In re Dyer, 322 F.3d 1178,

1192 (9th Cir. 2003); Sternberg v. Johnston, 595 F.3d 937, 945 (9th

Cir. 2010) (additional citations omitted)).

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UNITED STATES BANKRUPTCY COURT

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The Panel continued:

Thus, Carcredit’s knowing retention of the vehicle

after learning of Wallace’s bankruptcy filing was a

separate and independent violation of the automatic stay.

And there can be no legitimate doubt here that this stay

violation was willful. Carcredit knew about the

bankruptcy filing on and after June 5, 2013, and yet it

never returned the vehicle to Wallace despite his

repeated demands. These facts patently satisfy the test

for willfulness set forth in In re Dyer, 322 F.3d at

1191.

. . . .

In this case, the notion that Carcredit, which

indisputably violated the automatic stay by repossessing

the vehicle postpetition, could condition its efforts to

rectify its stay violation upon the debtor taking certain

actions, like providing proof of insurance and providing

assurance of future performance, is inconsistent with the

holding in In re Del Mission Ltd., In re Mwangi and In re

Abrams. These cases stand for the proposition that

creditors have a mandatory and unconditional duty under

§§ 362(a)(3) and 542(a) to relinquish control of estate

property acquired or controlled postpetition.

Id. (citing In re Del Mission Ltd., 98 F.3d 1147, 1151 (9th Cir.

1996); In re Mwangi, 432 B.R. 812, 823–24 (9th Cir. BAP 2010); In re

Abrams, 127 B.R. 239, 242–43 (9th Cir. BAP 1991)).

Defendants also argue that Plaintiffs did not provide

sufficient evidence of damages. However, Defendants have never

previously presented any objection, written or oral, to Plaintiffs’

evidence of damages. In its May 6, 2014 Memorandum Decision, this

Court stated that it would not award damages at that time because

the request was premature and because Plaintiffs had not provided

sufficient evidence of certain items. This Court continued the

matter to July 1, 2014 and again to August 19, 2014, and required

Plaintiffs to present evidence. Plaintiffs provided receipts and

counsel provided billing statements. At the continued hearing on

August 19, 2014, attorney Jason Honaker appeared on Defendants’

behalf, stating that he had not been retained, and that he was

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supposed to meet with Defendants 45 minutes before the hearing but

that Defendants did not appear. 

On September 18, 2014, the Court awarded by written order a

total of $19,640.54: $15,656.25 in attorney’s fees, $1,484.29 for

truck rental and repairs on replacement truck, and $2,500 in

punitive damages, significantly less than the $180,000 that was

originally sought. The damages awarded were for expenses incurred

only as a result of the stay violation, after Defendants were

notified that Plaintiffs were in bankruptcy. Defendants’ objections

to the evidence are untimely and will not be considered by this

Court.

On June 22, 2015, this Court conducted a final hearing before

issuing this Memorandum Decision, pointing the parties to the

Wallace decision, supra, and reopening the issue of punitive

damages. Marilyn Minger appeared for the Plaintiffs, and Alex

Lubarsky appeared for Defendants. Mr. Lubarsky represented that

Defendants are no longer selling cars but instead are selling tires

and operating a U-Haul franchise.

The Court gave counsel the opportunity to read the Wallace

decision and offered an opportunity for a further hearing, but no

further hearing was requested. Instead, Mr. Lubarsky’s paralegal,

Joan Sim, sent an email to the Court attempting to distinguish the

facts of this case from the facts in Wallace. The Court need not

consider this email because it is an inappropriate, unauthorized ex

parte communication. However, even if the arguments in the email

had been set forth in a brief filed by an attorney, the email

repeats the argument that Defendants were not notified of the

bankruptcy filing until after the car was repossessed and therefore

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did not willfully violate the stay. The email also makes the

factual assertion, without any supporting evidence, that “our

client made immediate efforts to return the vehicle once he was

notified to do so by the bankruptcy court. Previous efforts to

return the vehicle were obstructed by law enforcement officials

because Plaintiff had never registered the vehicle during the

months he owned it.” However, the evidence in this case, as set

forth above, shows that Defendants were sent a letter on February

4, 2014 notifying them of the bankruptcy and the automatic stay and

yet did not return the vehicle until May 2014. Additionally, as

noted above and in this Court’s Memorandum Decision of May 6, 2014,

the damages here are based solely on Defendants’ conduct in

refusing to return the vehicle after being notified that Debtors

were in bankruptcy.

However, the Court will reduce the punitive damages award from

$2,500 to $100. The purpose of punitive damages is to punish

unlawful conduct and deter its repetition. See BMW of North

America, Inc. v. Gore, 517 U.S. 559, 568 (1996). As noted,

Defendants are no longer in the business of selling cars. Thus,

there is very little chance that Defendants will repeat their

conduct. The Court finds that, under the facts of this case, $100

is a sufficient punitive sanction.

For these reasons, the Court will grant Plaintiffs’ Motion for

Entry of Judgment. Counsel for Plaintiffs shall submit a proposed

form of judgment consistent with this Memorandum Decision.

***END OF MEMORANDUM DECISION***

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Court Service List

Luna Auto Sales

2070 Alum Rock Avenue

San Jose, CA 95116

Aurelio Luna

2070 Alum Rock Avenue

San Jose, CA 95116

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