O ral argu m en t w as sc hedu le d for Septem ber 25, 2009. 1 Redm ond fi l ed a n e m er ge nc y m ot i on t o r es c he dul e ar gum en t on Se pt em ber24 , 20 09
. W e vac at ed o ra l argu m en tan d now decide the cas e on the br ie fs. S ee F ED . R. A PP . P. 34( B ); 7 TH C IR . R. 3 4 (e). 

## In the 

# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N o. 08

- 4288 J AM ES A. R ED MOND , P laint if f-A ppell ant, v. F I FT H T HI RD B ANK, f/k/ a P INNACLE B ANK, D efend a nt-A pp ellee.

A pp eal from the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No . 08- cv-00961

—Blan ch e M. Mannin g, Judge .
D ECIDED O CT OB ER 20, 2010

1

B ef or e E A S T E RB R OO K, Chie f Judg e, a nd K ANNE a nd S YKES, C ircu it Judges . S YKES, Cir cu i tJudg e . In 199 6 J am es Redm ond defa ult ed on hi s ho m e m or tga ge an d fi l ed f orChapter 132 N o. 08

- 4288 ba nk r upt cypr o te ct i o n a g ains t hi s l en derPinna cl e Ban k ( “Pi nnacl e”) , now known as Fi fth Thir d Bank. T h e b ankrupt c y c o ur te nt e r e d a n Ag r e e d O r de r, p ur s ua ntto whi c h Re dmo nd ma de mo nthly p a y men t s a nd ow e d a “bal l oo n paym ent” for t h e ba l ance o fthe m or tga ge on A pri l1, 1 99 8. To obtain fi nanci ng f orthi s ba l l oo n paym e n t, R ed m on d req u es te d a p ay off let te r fro m P in n ac le det ai l i nghi s deb t o bl i g at i o ns . Re dm o nd di spute d the charg es i n the p ay offl ett erand subse quentl y f ai l ed to secur e a l oan to c over the pay m ent. H e then def aul ted f ora seco nd ti m e, and Pi nnacl e ini ti ate d s ta te f or ec los u re p ro c ee d in gs . R e d m on d m ov ed to reo p en h is bankr up tcy case i n 200 5, four yea rs a fter i t had be en cl ose d and three weeks bef or e t ri ali n the sta te f or ec los u re s u i t . H e c on te n d ed th at th e c h ar ge s P in n ac le w as see ki n g in t h e for ecl osur e s uitwere i n vi ol ati on o f the b ankr up tcy cour t’s or ders and the auto m ati c st ay. The bankr up tcy cour t d eni ed the m oti on, and a y ear laterRe dm o nd fi l ed a se co nd mot i o n t o r eo pena l o ng wi tha mot i o n fo rs an ct i o ns a g ains t Pi nna cl e f o rv i o l at i ng the t er m s ofthe bankr uptcy pl an. These m oti ons, to o, w er e deni ed. The cas e s huttl ed b ac k and f or th be tw een the d i s t r i c tc o ur ta nd the b a nk r up t c y c o ur t, a nd wh en th e den i alo fr eo pen i ng w as fi na l l y a ffi r m ed, Re dm o nd appeal ed to thi s co urt. W e a ffi rm . Bankruptcy j u dges a re gi ven br oad di scr eti o n t o r eo penc l o se d b an k r upt cyc ase s, a nd we se e no abuse ofdi scr eti on her e. The bank ruptcy j u d ge decl i ned to re open o n m ult i ple appropr iate gr ounds: The m oti on was no t ti m ely, the st at e co ur t was a n a ppr o pr i at e f o r um to l i ti gat e Redm ond’s p otenti alcl ai m s, and hi s ba nk-N o. 08

- 4288 3 ruptcy ar gum ents w er e i n any eve nt m eri tl ess . Fu rthe r, Re dm o nd was no t den i ed a f ai rhe ar i ng ; the b an kruptcy j ud ge gave hi m am ple o pp or tuni ty to prese nt hi s cl ai m s.

I . B a c kg r o und InFe b ru ar y 1 99 6 Ja m es R ed m on d d efa u l t e d o n h is hom e m or tga ge, and Pi nnacl e ini ti ate d fo re cl osur e proce eding s. Redm o nd s ta ve d o fff o r ec l o su r e byfi l i ng f orChapter 13 bankr up tcy prot ecti on . The b ankr up tcy j udg e en te r ed anAgr ee d Or der, whi chr edu ce d Pinna cl e’ s ar r ea r ag e, s ta y ed f or ec l o su r e pr o ce eding s, a nd r equi r ed Re dm ond to mak e m o nthl y pa y m en ts o n the m or tgage i n additi on t o a fi nalbal l oo n paym ent o n A pri l1, 19 98. As the Apri l1 de adl i ne a ppr o ac he d, Re dm o nd s o ug ht to r efi na nc e his m o r tg ag e to c o ve rthe upc o m i ng bal l oo n paym ent. Redm on d r equeste d a payo ffl ett er from Pi nnacl e s o that he co uld cl ose o n the re fi nance l oan i n ti m e t o pay the bal l oo n note
. Pin n ac le pr ovi ded tw o pa yoff letters

— the second containi ng a hi gher payoffam ount than the fi rs t. Redm ond dem anded an ex p lanation of t he cha rges; he clai m s tha t d ue to Pinn acle’s f ai l ure to expla i n the differ ence, he c oul d not r efi nance hi s m or tga ge. Redm ond then f ai l ed t o m ake the bal l oo n pay m en t and de f au l te d o n the mor tg ag e f o ra s ec o nd tim e, a fter w hich Pinn acle initi ated a secon d f oreclosu re sui t in sta te cour t. ( Pi nna cl e co ntended, and the ba nkruptcy j ud ge agr eed, thatthe autom ati c st ay as to Pi nnacl e’ s m or tga ge l i en di sso l ved w hen Redm ond did not4 N o. 08

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R e d mo n d a r g u e d th a tth e a u t o ma t i c s t a y c o u l d n o th a ve 2 been li fted at the ti m e the ball oon p aym ent w as du e on Ap ri l 1, 1998, be c a us e P i nn a c l e g a ve h i m n o no t i c e . Th e ba nk r up t cy c our tr ej ec t ed thi s ar gum en t, c onc l udi ng thatunde r the Agre ed O rde r, the s t ay di s s ol ved a ut om at i c al l y a nd di d not requir e noti ce. m ake the bal l oo n paym en t. ) Redm ond re cei ved a bank- 2 ruptcy disc harg e i n M ay 1999 , and hi s case w as cl ose d i n M ay 2001
. A fter seven years of li tigation , the sta te foreclosure pr o c e e di ng s we r e s l a t e d f o r t r i a l o n J ul y 1 8 , 2 0 0 5
. On J u n e 3 0 , 2 0 0 5 , th r e e we e k s b e f o r e th e t r i a ld a t e a n d f o ur y ea r s afte rhi s ba nk r upt cyc as e ha d b ee n c l o se d, Re dm o nd fi l ed a m oti on to re open the bankr up tcy p ro c eedi ngs. Redm ond cl ai m ed that Pi nnacl e w as see king throu gh i ts payoffl ett er s a nd the f or ecl osur e a cti on t o re cove r fees ab ove w ha t i t was o wed un derthe Agr ee d Or dera nd th e ban krup tcy p lan. O n Ju ly 12, 2005 , Red m ond ’s co uns elmade ana ppea r an ce t o a r g ue the mo ti o n, a nd th e b an k r upt cyj udg e den i ed i t o n the g r o und tha t th e sta te cour t co uld pro perl y e nter tain hi s cl ai m s. M ean w hile, Pinn acle fi led a p le a d in g i n th e state-cou rt for ec los u re p ro c ee d in g in w h ich it d isc lo s e d t h e s p ec ific sum s a t i ssue in the 1998 payo ffl ett er s. Thi s pro m pted R ed m on d t o file a se c on d m ot ion to reo p en in 2006

— al m ost a yea r after the cour t had deni ed hi s first one. T hi s t i m e he i ncl ud ed a r equest f orsa ncti ons f or alleg ed vi ol ati ons ofthe bankr up tcy cour t’ s o rder s. A t a J une 2 9, 2 00 6 he ar i ng, the b an k r upt cyc o ur t den i ed th eN o. 08

- 4288 5

Befo re i ss uing it s rem and order, the dist ri ctcourt dism is se d 3 R edm ond ’ s app eal f or l ack ofprosec ution and then s ancti oned R edm ond’ s c ouns elf or ne edl es s l y c aus i ng P i nna c l e t o l i tiga te his m oti on to vaca te the dism is sal

. The d is tr ic t j ud ge lat er rein stated the a p p eal. The b a n k ruptcy court conti nued a hear ing three ti m es 4 befor e deny i ng the m ot i on t o r eo p en . T he doc ke tdoe s no t indi c at e why the c our t c ont i nue d the he ar i ng thr ee tim es, b u t d u ring this interv en ing tim e p erio d , on e of R ed m on d ’s a t t or ne ys wi thd r e w a th i s r e q ue s t, whi c h m a y ha ve acc ount ed for s om e ofthe del ay. O n app eal the dist ri ct j ud ge adm onis hed both parti es th at 5 the f ai l ur e t o fi l e t i m el y br i ef s woul d re s ul ti n di s m i s s al an d r e q ue s t s f ore x t e ns i on s o ft i m e woul d be s t r on gl y di s f a vo r e d. R e d mo n d th e n fi l e d ( a n d w a s g r a n t e d ) t w o e x t e n s i o n s o ft i me (co n tin u ed ...) m ot ion, fin d in g t h at R e d m on d ’s d isp u te w ith P in n ac le ov er th e a m ou n t o w ed u n d er th e m or tg ag e d id n otim p lica te a ny b an krupt cyo r der

. Re dm o nd a ppea l ed, a nd the di str i ct c ourtr eve rs ed and rem an d ed w i th i nstr uctio n s t o c on sid er w h et h er P in n ac le h ad im p ro p er ly so ug htpa y m en t o fpr epe ti ti o n de bt s pr o hibi te d b y the A gr ee d O rd er . O n rem an d th e b an kr u p tc y c ou rtag ain 3 denie d the m ot ion. The j ud ge hel d that ( 1) the m oti on 4 w as unti m el y; ( 2) any re m ai ni ng i ssues co uld be r esolved i n th e state- c o u r t proc eed ings; and ( 3) Red m ond ’s bankr up tcy ar gum ents w er e f aci al l y m er i tl ess . Redm ond aga i n appe ale d , cl ai m i ng tha t the bank

r upt cy j udg e ha d no t f o l l o wed the di st r i ctc o ur t’ s r emand i ns truct i o ns . Thi s ti m e th e d i st r i ctc o ur t affi r m ed th e 56 N o. 08

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(
. . . c on t i nu e d) 5 t o fi l e hi s i ni t i al b ri ef

. Des pi t e the s e ex t en s i ons , Redm ond fil ed his brie ff ou r day s lat e, and it w as twelve pag es over th e p a g e l im it. bankr up tcy cour t’ s o rderdenyin g th e m oti on t o re o pen . Re dm o nd a ppea l ed, a nd o n the e ve o fo r ala r g um ent b efor e th is c ourt, he fi l ed an “e m er gency ” m oti on to r es ch edu l e th e ar g um en t. W e va ca te d t he o r ala r g um ent a nd to ok the c ase o n the bri ef s.

I I . Discussi on Redm ond chal l enges the bankr up tcy cour t’ s deni alo f h is se cond m oti on t o re open hi s cl ose d bankr up tcy case . The de ci si o n t o r eo pena b an k r upt cyc as e is wi th i n the b ro a d d i sc re tio n of th e b an kr u p tc y c ou rt
. In re B ianucci, 4 F
. 3d 526, 52 8 ( 7th Ci r. 19 93)
. A bank ruptcy cour t m ay, f orexam ple , r eopen a cas e for“th e co rr ecti on o fer ro rs , am endm ents necess i tat ed by unant i ci pated eve nts that frust ra te a pl an’ s i m ple m entat i on, and the need to en force the pl an and dis charg e. ” In re Z urn , 2 9 0 F
. 3 d 8 61, 8 6 4 ( 7t h Ci r . 2 0 0 2 ) ( c i t a t i o n s o mi t t e d )
. Al th o u g h we r ev i ew de no vo the di st r i ctc o ur t’ s affi r m an ce o fthe bankr up tcy cour t’s or der denying the m oti on, the bankr upt cyc o ur t’ s o r deri ts el fi s en ti tl ed to de fer en ce ; the d en ial ofa m oti on t o re open a cl ose d bankr up tcy case is re vie w ed for a b u se of d isc re tio n . SeeIn re Ingersoll, Inc. , 5 6 2 F
. 3 d 8 5 6 , 8 6 3 ( 7 th C i r . 2 0 0 9 ) ( “ We r e v i e w a d istri ct cou rt’s dec isi o n t o affirm the ba nk rup tcy cou rt deno vo , wh i ch al l ows us to as ses s the bank ruptcyN o. 08

- 4288 7

cou rt’s j ud gm en t ane w , em p loyi ng the sam e stan d ard ofr evi ew the dist ric t co urt i tse l fused. ” ( ci tat i ons om i tted) )
. A bank ruptcy j ud ge m ay consi de r a n u m bero f no ne xc l us i ve f ac to r s i n de te r m i ni ng whe th ert o r eo pen, i ncl ud i ng ( 1) the l ength of ti m e that the case has b een clos ed ; (2) wh etherthe debtorwould be enti tl ed to r el i ef i fthe case were re opened; and ( 3) the avail ab ilityo f n onb an kr u p tc y c ou rt s, su c h as st at e c ou rt s , t o e n te rt ain t h e cla im s. Se eIn reAnt oni ous , 3 7 3 B. R. 4 0 0 , 4 0 5- 06 (Ba nk r. E.D
. Pa. 2004). As a thr es ho ld m at te r, Re dm o nd’ s co nt en ti o n tha t th e b an kr u p tc y c ou rtd i d n o t a ffor d h im a fu ll an d fair hear i ng i s without ba si s in l aw o r fac t. A s a m att ero f l aw , ther e i s no questi on that ba nkruptcy cour ts m ay r u le on m ot ion s t o re op en w ith ou t a h ea rin g. Se eIn re Jo nes , 2 61 B. R. 4 79 , 4 83 ( Ban k r . N. D. A la. 2 00 1) ( den y i ng a m oti on t o re open witho ut a h ea ring )
. Fur ther, § 350(b) o f th e Ban k r upt cy Code , whi ch g o ve r ns th e cl o sing an d re openi ng o fcas es, m ake s no p ro vi si on f orhear i ngs o r othe r proce du re s a vai l abl e t o debtor s. 11 U
. S. C. § 3 50(b) ( 2006 )
. Even tho ugh Redm ond i s no t e ntitle d to a he ar i nga s a m at te ro fl aw, the r ec o r d i s cl ear th at he was g iven a m pl e o ppo r tu ni tyt o pr es en t hi s cl ai m s. The bankr up tcy j ud ge hel d a h ea rin g b ef or e denying ea ch of R ed m ond ’s m otions to reop en . A fter the d istri ct j ud ge’s re m and or der, the bankr up tcy cour t hel d anoth er he aring (after th ree con tinu an ces ) before issuing a th orough o pini on denyi ng the m oti on. Giv en thi s pro cedural hi st o r y, Re dm o nd’ s ar g um en t th athe was no t g i ve n a f ai r h ea r i ngi s unt en ab l e. He h ad o ve rf o ury ea r s an d thre e chance s t o persuade the bank ruptcy j ud ge to re open hi s ca se

— a nd h e f a i l e d.8 N o. 08

- 4288 A . Ti m el i ness The pa ssage o ft i m e wei g hs he av i l y a g ains t r eo pen i ng. Th e l onge r a par ty w ai ts to fi l e a m oti on t o re open a cl o se d b an k r upt cyc as e, the m o r e co m pel l i ngthe re as on to re op en m u s t b e . In re C a se, 93 7 F
. 2d 1014, 1018 (5th Ci r . 1 99 1) ( ci tingRe i d v
. Ri ch ar ds on , 30 4 F
. 2d 351, 35 5 ( 4th Ci r. 19 62)). In asses si ng wh ethera m oti on i s t i mel y, c o ur t s may c o ns i de r the l a c k o f di l i g e nc e o f th e par tys ee k i ng to re o pena nd the pr ej udi ce t o the n on m ov in g p ar ty ca u s e d by th e d ela y. In re Fro ntier Ente rs . , Inc . , 70 B
. R
. 356, 359 (B an kr. C.D
. I ll

. 1987). W hi l e th e pas sa g e o f ti m e i n i ts el f do es not co nsti tute prej ud i ce t o the o pp osing p ar ty , a del ay m ay be prej ud i ci alwh en co m bi ned w i th o therf act or s such as cou rt costs an d attorn ey’s fees in sta te-cou rt for ecl o s ure p ro c ee d in gs . B ianucci, 4 F.3d a t 5 28 -29 . W e h eld in B ianu cci that a tw o- yea r del ay that caused the cr edi tor to i ncur cost s i n sta te- cour t for ecl osur e pr oce edi ngs was a s u fficie n t b as is t o d en y r e o p en in g. Id. In B ianucci th e deb to r fi l ed th e m o ti o n to r eo pen two y ea r s after the c a s e h a d b e e n c l o s e d a n d fi v e mo n th s a ft e rh e b e c a me aw ar e o f th e c re d ito r’s lien on h is p ro p er ty
. Id. at52 9. A s the bank ruptcy court not ed her e, Redm ond’s del ay “dwar f s” the t wo- y ea rde l ayi n Bi an u c ci
. Redm ond re

c eive d the payoff l ett er s at the ro ot of thi s dispu te in 1998 , and he p ro ceeded to l i ti gat e the m att erf orse ven ye ar s in st at e c ou rt . In 20 05 , th re e w e e k s b e for e t ria l in s t a t e c o ur t a nd f o ur y e a r s a ft e r the c a s e ha d b e e n c l o s e d, Redm ond final l y m ove d to re open hi s ba nkruptcy case . The ti m i ng o fthe m oti on s tr ongl y s ugges ts that i t wasN o. 08

- 4288 9

a s tall i ng ta cti c to del ay the s tat e- cour t for ecl osur e pr oce eding . By 20 05 th e j udg e who ha d pr es i ded o ve r the bankr up tcy case h ad re ti re d, and the r eco rds had be en ar chi ved. In the m eanti m e Pi nnacl e had in c urr ed cos ts i n the s ta te
- co ur t pr o ce eding

— the e xact g ro und f or pr ej udi ce i n B ianucci
. R ed m on d arg u es th at h e c ou ld n oth av e filed h is m oti on t o re op en unti l20 05, wh en Pi nnacl e pr ovi ded hi m w i th a bre akdown of the charg es i t w as see kin g in i ts 1 99 8 pay o ffl ett er s. Buthe a ct i ve l y di spu te d the charg es as l ong ago as 1 99 8, and nothi ng pre vente d hi m fr o m b r i ng i ngthe matt ert o the a ttent i o n o fthe b a n k r u p t c y c o u r t a t th a t t i me . We h a v e r ej e ct ed th e noti on th at “anyone w ho has bee n a debt ori n bankru p tc y h as et er n al a c c es s t o fe d er al c ou rtfor a ll d isp u te s re lat ed in s om e w ay to th e d e b ts h an d led in the b ankr up tcy proce edi ng. ” Z urn , 29 0 F
. 3d at 864. T h e b an kr u p tc y c ou rtd id n otab u se i t s d isc re tio n in rej ecting the m oti on t o re open as unti m el y.

B . F a c i a l Va l i d i tyo fRe d mo n d ’ s B a n k ru p t c yC l a i ms The m oti on’ s l ack ofti m el i n es s w as one ofthr ee r ea so ns g i ve n b y the b an k r upt cyj udg e f o rdenyi ngthe m otion to reop en . Th e jud ge also held th at R ed m ond ’s ar gum en ts ha d no s ubs ta nt i ve me ri t. Re dm o nd c o ntended that Pi nnacl e’ s a cti ons i n the sta te- court for ecl osur e s uitvi ol ated vari ous b ankr up tcy- cour t o rder s. The b an k r upt cyj ud ge he l d tha t Pi nna cl e’ s ac ti o ns

— i ssui ng payo ffl ett er s a nd i ni ti ating a f or ecl osur e pr oceedi ng afte r Redm ond had defaul ted and the auto-10 N o. 08

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m ati c st ay had been l i fted

— w er e no t a tte m pts to co l l ect i n v i o l a t i o n o fthe b a nk r up t c y s t a y o ro the ro r ders. W e a gr ee. A s a n i nitial m atter, w e can not accep t Re d m ond ’s co nt en ti o n tha t the b an k r upt cyc o ur t di sr eg ar ded th e di st r i ctc o ur t’ s r emand i ns truct i o ns . In the r emand or der, the dist ri ct j u d ge too k i ssue w i th the bank ruptcy c o ur t ’ s di s t i nc t i o n b e t we e n a li en p l a c e d o n r e a l, a s o ppo se d t o persona l, pr o per tyb ec au se b o thty pes o fl i en s co ul d v i o l at e th e te r m s o fa b an k r upt cypl an . The d istri ct cou rt d irect ed the ba nk rup tcy j ud ge to “d [i ]g dee per, ” ta k e i nt o a cc o unt“ al lr el evan t fa ct o r s, ” an d m ak e “a l l ne ce ss ary i nqui r i es ” i nt o whether Redm o nd h ad c au se to re open hi s ba nkruptcy case . A s a ge nera l m at te r, th e b an kr u p tc y jud ge w a s f re e t o b as e h is p os tr em an d ru lin g on fac to rs rele v a n t t o b u t n otsp ec ific ally ad d re ss ed in t h e re m an d ord er , s e eU ni t e d S t at e s v. M orris , 259 F.3d 894 , 898 (7t h C ir. 2001), an d here the di str i ct c ourtexpre ssl y di re cted the bank ruptcy j ud ge to do so

. A nd the bankr up tcy j ud ge did exact l y wh at he was in st ru c te d to d o: H e c on sid er ed all r e l e v an t fa c to rs in det er m i ni ngwhethe rt o r eo penRe dm o nd ’s ca se . The j u d ge iss u ed a len g t h y op in ion in w h ich h e a n aly ze d in detai lwh etherPi nnacl e had vi ol ate d the aut om ati c st ay, the A gr eed Order, the Ch apter13 pl an, o r the di schar ge i nj uncti on. S peci fi cal l y, the bankr up tcy cour t hel d that P in n ac le h ad n otso u gh t t o c olle c t p re p et itio n d e b t in viol ation of the ban krup tcy p lan by issuin g the pa yoff l e t t e r s . T h i s i s th e e x a c t i s s u e R e d mo n d c l a i m s th e j ud ge fai led to d ecid e earli er.N o. 08

- 4288 11 Re dmo nd a l s o i g no r e s the f a c t tha t whe n the cas e returned to the dist ri ct c ourtafterr em and, the di str i ct c ou rtaffirm ed th e d e n ial of re op en in g. W e h av e h eld that a di str i ct c ourti s “ cl early in the bes t pos i ti on t o know the s cope o fi ts own r em an d or der, ” a nd i ts affi rm ance o fthe bankr up tcy cour t’ s r uling i nd i cate s th at its co n c er n s w er e a d eq u at ely a d d re ss ed

. Ingersoll, 562 F. 3d at 864. Tel l i ngl y, Redm ond quotes at l ength fr o m t he di s t r i c tc o ur t ’ s r e man d or der, b utdi s r e g a r ds the a ffi r man c e a ft e rr e man d. As f o rR e d mo n d ’ s s p e ci f i c a l l e g a t i o n s o fe r r o r, we a g r e e wi th th e d i s t r i c tc o u r tth a tn o n e h a v e me r i t
. He ar gues that Pi nnacl e’ s incl usi on ofcer tain prepeti ti on d eb ts in t h e p ay off let te r s v iola te d (1) th e a u to m at ic st ay, ( 2) the Agr ee d Or der, ( 3) the Cha pte r13 p l an, a nd ( 4) the bankr up tcy disch ar ge. W e t ake ea ch ofthes e ar gum ents i n turn, beg i nning w i th the auto m ati c st ay. The b an k r upt cyc o ur t pr o per l y c o nclud ed tha t th e p ayo ffl ett er s di d not v i ol ate the autom ati c- sta y pr ov ision of § 362(a) of th e B an krup tcy C od e. 11 U
. S. C
. § 362(a). Se cti on 3 62( a) pro hibi ts col l ecti on acti vi ti es i n vi ol ati on ofthe sta y, such a s a tte m pti ng to c on ve rt an unsec ured prepeti ti on cl ai m i nto a s ecure d cl ai m , at tem ptin g t o obt ai n posse ssi on o fpro pertyo fthe Ch apter13 estat e, o r at te m pting to per fec t a l i en ag ains t pr o per ty o fthe es ta te
. See M a nn v. C ha se M a nh a tta n M o rtg. C o rp . , 31 6 F.3d 1, 3- 4 (1st Cir. 2003) (ci ting 11 U
. S. C
. § 362(a))
. Payo ff l ett er s, how eve r, ar e not acts ofco llecti on an d ther ef or e do not const i tute vi ol ati ons ofthe autom at i c st ay . As the b an k r upt cyj udg e ex pl aine d, the p ayoff letters w ere “sim p ly state m en ts of th e ban k’s12 N o. 08

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R ed m on d s u g g ests that ina cc u ra tep ay off letters con stitute 6 vi ol at i ons ofthe aut om at i c s t ay. Thi s ar gum en tis una vai l i ng. S e c t i on3 6 2 ( a ) m ake s n o di s t i nc t i onbe t we e n c ol l e c t i ona c t i vi t i e s ba s e d o n the a c c ur a c y ofthe a m ou ntc l a i m ed. 1 1 U. S
. C. § 36 2 (a ). O the r cou rts h av e he ld tha t pa y off letters are no t attem p ts 7 a t co lle ct io n a n d d o n o t v io la te au to m a tic sta y s. SeeIn reSayl or, N o. 3: 07- cv- 229- W K W , 2008 W L 2397344, at * 5 ( M
. D
. Ala. J une 9, 2008) ( cre ditor had n o t “ a ct ed ” f or purp oses of§ 362( a) by s ending a “trans act ion hi st ory report” a n d p a yoffl ett er at (co n tin u ed ...) posi ti on a s t o w hat was ow ed ” i ssued i n re sponse to Re dm o nd’ s demand. Ba nk s furni shpa y o ffl et te r s atthe d ebtor’s requ e st to help the d ebtor p rep are to pa y offa loa n . To h old th at a p ay off le t t er vio lat es an au to m at ic stay would be pre poste ro us; i t would e nabl e debt or s t o draw bank s into vi ol atio n s ofbank ruptcy l aw m er el y b y r e qu e s t i nga s t a t e men to fwh a tthe y o we d. M oreover, th e langu age of Pinn acle’s pay offl etters confi rm s the fi nd i ng tha t they were n ot attem pts to coll ect
. The M ar ch1 9, 1 99 8 l et te r, f o re xa m pl e, e xpl ains th at it is a “ s t a t e m en t o f th e a m ou n t re q u ire d to be p aid o ffo n Apr i l1 , 1 998” ( th e dat e th e ba l l o o n pa y m en t w as du e)
. The am ounts gi ven in the l ett erar e “subj ect to a fi nalco nfi rm ati on, ” a nd the i tem i zati on o fchar ges cl ear l y ind i cate s the “Tot alA m ount [ i s] Du e o n A pri l1, 19 98 .” 6 R e d mo n d r e l i e s o n In re S ul l i van , 367 B
. R
. 54 (Ban kr. N
. D. N
. Y. 2 00 7) , b uttha t ca se is d is ting ui sh ab l e an d i n an y event contr ar y t o the wei ght o fautho ri ty. 7N o. 08

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(
. . . c on t i nu e d) 7 debt or ’ s r eques t( c i t i ng In r e Re dmo nd, 380 B.R. 179, 187 ( Ban kr. N .D . Ill 2 0 0 7 ))); Sul l i van v. Fi rs t H or izon H ome L oan , No. 02- 10657, 2003 Bankr. LE X IS 2091, at * 2 ( Ban kr. E.D. Pa. N ov. 23, 20 03 ) ( “Nei the r the i nt er nalpos t i ng o ffee s t o a n a c c ount, no r the ir inclu sion on a p ay off statem e n t im p licate th e au tom atic s t ay bec aus e ne i the r i s anac tor eff or t t o c ol l ec t the fee s . ”)
. I n a relate d context, courts have held thatm erel y recor ding an am ountowed i n a c re di t or ’ s i nt er nalbookk eep ing does no t v io la te th e a u to m a tic sta y . See M ann v. C has e M anhattan M or tg. C orp . , 316 F. 3d 1, 3- 4 ( 1stCir. 2003) ( holding that absent an ove rtat t em pt to rec ove r, the c re di t or ’ s i nt er nalbook ke epi ng d o es n o t v io la te th e a u to m a tic sta y ); In r e S i ms , 278 B.R. 457, 471 ( Ban kr. E .D
. Tenn. 2002) ( sam e)
. These holdings re inf orce the concl usi on that pay of fl et te rs b ase d on the am ounts r ef l e c t e d i n th e s e r e c o r d s , w h e n n o ta c c o mp a n i e d b y a ffi r ma t i ve s t eps t o c ol l ec t, do n otvi ol at e the aut om at i c s t ay. The Sul l i va n court’ s holding m ay als o have been influence d 8 by the f actth a t the cre ditors conce ded at an evidenti ary (co n tin u ed ...) U n like th e p re se n t c as e, Su ll i van i nvol ved additi onal c redito r conduct thatcl ear l y v i ol ate d the auto m atic st ay . Tha t i s, th e cr edi tor i n Sul l i van did m or e than j ust i ss ue a pa y o ffl et te r ; i t al so pr even ted the s al e o fthe d eb to r’s p ro p e r t y by w ith h old in g a n ab st ra c t o f tit le u n til th e d eb to r h ad p aid th e d eb t. Id. at 63-65. Fu rthe r, th e au to m at i c st ayi n Sul l i van had not y et been l i fted and ther ef or e the cr edi tor ’ s s ubsequent co l l ecti on a cti vitie s viola te d an on go in g sta y. B y con tr as t, th e a u to m at ic sta y in thi s ca se had ter m i n at ed a t the ti m e the bal l oo n p ay m en t w en t u n p aid , an d th er efo re P in n ac le c ou ld i ni ti ate the sta te- cour t for ecl osur e s uitwith o utv i o l ating i t. 814 N o. 08

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(
. . . c on t i nu e d) 8 h ea ri n g th a t the p a y o ff le tt er w a s a “r eq u es t” for le g a l fee s. In re Sul l i van , 36 7 B .R. 54, 62 (B an k r . N .D .N .Y
. 20 07 ). Pin na cle di d notm ake a s i m i l ar c onc es s i on. W e a l so concl ud e that the bank ru ptcy j ud ge did not abuse hi s di scr eti on in rej ecting Redm ond’s claim that Pi nnacl e vi ol ate d the A gr eed Order. T h e bankruptcy j udg e f o und tha t Pi nna cl e co ul d no t ha ve v i o l at ed th e Agr ee d Or derb ec au se the o r der“ di d no t r equi r e th e bank to do orr efra i n fro m doi ng any thi ng tha t a ffecte d Re dm o nd. ” The Agr ee d Or ders i m pl y ( 1) r eins ta te d the autom ati c st ay, ( 2) fro ze the fi rs t for eclo sure pro ceedi ng, and ( 3) per m i tte d Red m ond to pay o ffhi s m or tgag e o n orbefo re the bal l oo n paym ent date

. Because th e p ay off let te rs d id n otco n st itu te co llec tio n ac tiv ity in vi o l at i o n o fthe s ta y, the y c anno t ha ve vi o l at ed th e A greed Ord e r eith er. Furth erm ore, th e pa yoff letters w er e i ssued atRedm ond’s r equest and had no re l ati on t o th e frozen foreclosu r e proc eed ings. Fina ll y, th e pa yoff let te rs in n o w ay p re v e n t e d R ed m on d from p ay in g h is cl ai m , so they were fully c onsi ste nt with the Agree d O rd e r ’ s p ro vis ion req u irin g R ed m on d to p ay h is m or tga ge on o r bef or e the bal l oo n paym ent date

. W hen P in n ac le u ltim at ely filed its se c on d f o re c los u re su it i n sta te cour t, Redm ond had al re ady def aul ted f or a s eco nd ti m e a nd the autom at ic st ay had been l i fted pu rs ua ntt o the t e r ms o fthe Ag r e e d O r de r . T he r e f o r e, n eit h er th e p ay off let te rs n or th e f o r ec los u re su it cou ld h ave violated the A greed Ord er.N o. 08

- 4288 15 R ed m on d d oe s no t ap p ea r to h av e a v a l i d cla im tha tP i nn a c l e v i o l a t e d the Ch a pt e r1 3 p l a n. He co ntends that the pay offl ett er s i m proper l y incl ud ed paym ents that w er e t o be m ade und erthe bankr up tcy pla n and that i n e ffec t Pi nna cl e was s ee k i ngt o c o l l ec t th ata m o unt tw i ce

— once fro m Redm ond and a s eco nd ti m e fro m th e C ha p ter 13 tr u s t e e. T he pa yoff letters, how ever, refl ecte d R ed m ond ’s outsta nd ing d ebt w ithou t regard to how thatbal an c e w as to be pai d. The i ncl usi on o f unp ai d plan a m ounts i n the payoffl ett ers was notan att em pt to co l l ect thos e a m ounts tw i ce b ec ause i t was no t ana tt empt t o c o l lect i n the fi r stpl ac e. In a ddi ti o n, th e b an kr u p tc y jud ge n ot ed th at if R ed m on d h a d p aid th e pl ana m o unt s as pa r t o fhi s ba l loon p ayment, the pla n coul d have be en m odi fi ed to extingui sh fu rt h er p aym en ts. I t also m akes sen se th at th e pa yoff letters w oul d refl ect the e nti re de bt, i ncl ud i ng tha t o w ed und er the pl an, bec ause acco rdi ng to R ed m ond, he ne eded to kn ow t he o utsta nd i ng ba l ance in or der t o re fi nance the m or tga ge. Re dm ond relie s he av i l y o n the ho l di ngi n In reBar t on that col l ecti on o fa debt in exces s o fthe am ount a l l owed in a Chapter 13 pla n m ay f or m a basi s forbank ruptcy sa n c tio n s. 35 9 B .R . 681 (B a n k r . N .D . I ll. 20 06 ). Bart on is in ap p os ite , ho w ev er . I t i nvol ved nei thera m ot ion t o reop en nor p a y offl etters solici ted by the de btor; i ns te ad, the c r edi to ri n tha t cas e r efus ed to a cc eptthe Ch apter13 tr ustee ’ s paym ents ofr eal

- est ate ta xes und erthe confi rm ed pla n and subsequentl y a tte m pted to col l ect thos e t axes p lu s i nter esto utsi de ofthe bankru p tc y c as e. Id. at68 3- 84. Pi nnacl e, by contra st, di d not16 N o. 08

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re fuse t o accept Redm ond’s pa ym en ts und erthe pla n an d then t urn aroun d to coll ect th e fullde bt, plus interest, vi a a st ate
- court for ec l osur e a fterthe pla n had been disc harg ed. Rather, Redm ond defa u lted by f ai l i ng to pay hi s m o r tg ag e unde rthe pl an, whi chr es ul te d i n the l i ft i ngof the a ut o mat i c s t a y . On c e the s t a y wa s l i ft e d, Pi nna cl e pr o ce eded ag ains t hi m i n s ta te c o ur t o n the d efa u lt. Bart on ’ s ho l di ngr eg ar di ngb an k r uptcy sa nc ti o ns f ordebt col l ecti on o u tsi de ofa bankr up tcy pla n ther ef or e has no re l evance to thi s ca se. F i na l l y, we ag r ee wi ththe b an k r upt cyj ud ge’s c o nc l usi on that Pi nnacl e di d not v i ol ate the disc harg e injun cti on. The j ud ge rej ecte d thi s co n te n ti on f ortwo r easons. Fi rs t, Redm ond’s debt t o Pinnacl e was neve r disc h a r g e d b e c a u s e h e d e f a u l t e d b y f a i l i n g t o ma k e th e balloon p aym en t in accord an ce w ith t he A greed Ord er. Secon d , as the ba nk rup t c y j ud ge ex p lai ne d , even i f th ere had been a di schar ge und er§ 524( a) o fthe Bankruptcy Code, th e di sc ha r g e “c o ul d ne ve rha ve a ffec te d the bank’ s r i ght to f or ecl ose on i ts l i en. ” Th e j ud ge note d that a § 5 24 (a) di schar ge onl y a ffects per sonalj ud gm ents aga i nst the debtor, not i n re m f or ecl osur e p rocee dings

. S i nc e the l i e n wa s n e i the ra v o i de d u nd e ra no the rp ro vi s i o n o fthe Co de n o rp a i d in ful l, P i nn a c l e wa s e nt i t l ed to re cove r i ts proper ty i n a for ecl osur e pr oceedingr egar dle ss ofwh etherthe debt had bee n dis charg ed unde rthe pl an . A s the bank ruptcy j ud ge hel d , a c l ose d bankr up ty p roceed ing sho ul d n o t be reop en ed “w he re i t ap p ears that to do s o w oul d be futi l e a nd a w ast e o fj ud i ci alr e-N o. 08

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sour ces. ” In reCar b erry, 186 B.R. 40 1, 40 2 ( Bankr. E. D. Va. 19 95 )); s e eAnt oni ous , 373 B
. R
. at 406 (ban krup tcy cou rt m ay deny m oti on t o re op en wh er e i t i s cl earatthe outse t th e deb to rwoul d no t be e nt i tl ed to rel ief ); Ar l e aux v. A rleaux , 2 1 0 B. R. 1 4 8 , 1 4 9 ( B. A. P. 8 th Ci r . 1 9 9 7 ) ( mot i on to r eo pende ni ed on g r o und tha t i t woul d pr o vi de no re l i efto the debtor )
. That was ce rt ai nl y the ca se here

.
C. Av a i l a bi l i tyo fSt a t e - Co urtF o rum A s i fm or e were needed, the bankr up tcy j ud ge proper l y hel d that the sta te- cour t f or um w as ap propr i at e t o l i ti g at e Re dm o nd’ s po te nt i alc l ai m s. The am ount nee ded to cure a m or tga ge defa ulti s a questi on of s ta te law ; § 13 22 (e ) o ft h e B an kr u p tc y C od e e x p re ss ly p ro vid es th at t h e a m ou n t n ec es sa ry to cu re a d efa u lt is det er m i ne d “in acc ord an ce w ith th e unde r l y i ng a g r e e men ta nd a pp l i c ab l e n o nb a nk rupt c y l a w. ” 1 1 U. S
. C. § 13 22 (e). T h e sta te c ou rt c ou ld th er efo re a d eq u at ely enter tai n Redm ond’s ch a l l e ng e s t o t he am ounts Pi nnacl e was cl ai m i ng. R e d mo n d a r g u e s th a th e c o u l d n o t br i n gh i s c l a i ms i n sta te cour t be cause bankr up tcy cour ts have excl usi ve j ur i s di c t i o n o v e r s a nc t i o ns un de r § 3 6 2 ( h) o f the Bankru p tc y C od e. Id. § 362( h). Thi s a rgum ent i s m er i tl ess . F o rthe re as o ns we ha ve e xpl aine d, Re dm o nd ha s no b a s i s f o rs a n c t i o n s u n d e rb a n k r u p t c y l a w. A FFI RMED .
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